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PART I

STRATEGY AND THE

NONMARKET ENVIRONMENT

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Chapter 1

Market and Nonmarket

Environments

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Topics Covered

Introduction The environment of business The role of management Market and nonmarket environments Analysis of the nonmarket environments: The four Is The nonmarket environment of the automobile industry Change in the nonmarket environment Anticipating change in the nonmarket environment The nonmarket issue life cycle Summary

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The environment of

business

Market component Nonmarket component

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The market component

includes those interactions between firms,suppliers, and customers that are governed by

markets and contracts.

These interactions typically involve voluntaryeconomic transactions and the exchange of

property.

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The nonmarket component

is composed of the social, political, and legalarrangements that structure interactions outside of, but in

conjunction with, markets and contracts.

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Examples of nonmarket

issues

Environmental protection Health and safety Regulation and deregulation

Intellectual property protection Human rights International trade policy Antitrust Pressures from nongovernmental organizations (NGOs)

and social activists Media coverage of business Corporate social responsibility Ethics

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Figure 1-1 The Environment of

Business

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The role of management

Managers operate in both the market and nonmarketenvironments.

Managers are in the best position to assess the impactof their firms market activities on its nonmarketenvironment and the impact of developments in the

nonmarket environment on market opportunities and

performance.

Management thus is responsible for formulating andimplementing nonmarket as well as market strategies.

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The Four Is of the

nonmarket environment

Issues Interests Institutions Information

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The nonmarket environment of theautomobile industryExamples of Issues

Fuel economy legislation Fuel economy exception State CO2 regulations Battery safety liability Safety standards Media coverage

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The nonmarket environment of theautomobile industryExamples of Interest Groups

Organized interestsnAlliance of Automobile ManufacturersnMothers Against Drunk DrivingnUnited Auto Workers

Unorganized interestsnCar buyersnCitizens affected by global warmingnTaxpayers

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The nonmarket environment of theautomobile industryExamples of Institutions

United Statesn Congressn NHTSA

Internationaln European Commissionn North American Free Trade Association (NAFTA)

Globaln WTOn Kyoto Treaty

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Information

Information refers to what interestsand institutional officeholders know

about an issue, the consequences ofalternative courses of action, and the

preferences of those concerned with

the issue.

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The nonmarket environment of theautomobile industryInformation

Auto companies have superiorinformation about the preferences of

car buyers for higher fuel economy. Environmentalists may have superior

information about the extent of public

concern about climate change.

Issues can be contested because interests have

different information.

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Change in the nonmarket

environment

Nonmarket issues originate from both:

External forces, and aFirm s own actions

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Sources of nonmarket

issues

1. Scientific discovery andtechnological advancement

2. New understandings3. Institutional change4. Interest group activity5. Moral concerns

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Anticipating change in the nonmarket

environment

Approaches Respond to nonmarket issues only when they

are strong enough to force the firm to act.

Limit the extent of the damage once the firmhas been challenged by an issue.

Anticipate and prepare firm to take advantageof opportunities as they arise and address

issues before they become problems

Be proactive act to affect which issues ariseand how they will be framed

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Nonmarket issue stages

1. Issue identification2. Interest group formation3. Legislation4. Administration5. Enforcement

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Figure 1-2 Nonmarket Issue Life

Cycle

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Organization of the book

Part I: Strategy and the nonmarketenvironment

Part II: Nonmarket strategies andgovernment institutions

Part III: Governments and markets Part IV: International political economy Part V: Ethics and social responsibility

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All rights reserved. No part of this publication may be reproduced, stored ina retrieval system, or transmitted, in any form or by any means, electronic,mechanical, photocopying, recording, or otherwise, without the prior writtenpermission of the publisher. Printed in the United States of America.

Copyright 2010 Pearson Education, Inc. publishingas Prentice Hall