This document discusses environmental scanning, which is the process by which strategists monitor various external factors in an organization's environment to identify opportunities and threats. It covers the different types of external environmental factors like social, technological, economic, political, natural, and industry-related factors. The document provides examples of how international factors like globalization can impact domestic businesses. It explains why environmental scanning is important for organizations to strategically plan for opportunities and threats in the external environment.

1. BITSPilani
Bangalore Campus
Strategic Management and
Business Policy
Session 5 Alagiri G

2. BITS Pilani, Bangalore Campus
Environmental scanning
• International Environment
• Social and Cultural Environment
• Technological Environment
• Economic Environment
• Political Environment
• Natural Environment
• Industry Analysis
• External scanning method

3. BITS Pilani, Bangalore Campus
Environmental scanning
Why organizations need to carefully scan external
environment?
Discuss with your team for 2 mins and share your feedback.

4. BITS Pilani, Bangalore Campus
Environmental scanning
Introduction
William F. Glueck - “The process by which strategists monitor the economic,
governmental/legal, market/competitive, supplier/technological, geographic and social
setting to determine opportunities and threats to their firms.”
Environmental diagnosis consists of managerial decisions made by analysing the
significance of data (opportunities and threats) of the environmental analysis.”
Personal example:
A working-class family is relocating from Delhi to Bangalore. Family with 2 school going
children.
What factor do you consider:
• Near to school
• Hospitals
• Near to office
• Good community
• Security

5. BITS Pilani, Bangalore Campus
Environmental scanning
• Internal scanning – Strength and weakness
• External scanning – Opportunities/Threats

6. BITS Pilani, Bangalore Campus
Environmental scanning
• BUSINESS ENVIRONMENTAL FACTORS
• External environmental factors that affect the business
include
❑ Social and Cultural factors (S)
❑ Technological factors (T)
❑ Economic factors (E)
❑ Political/Governmental factors (P)
❑ International factors (I) and
❑ Natural factors (N)

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Environmental scanning
• External environmental factors are further divided into
❑ micro external factors and
❑ macro external environmental factors
Micro external environmental factors: Competitors, customers, market
intermediaries, suppliers of raw materials, bankers and other suppliers of
finance, shareholders, and other stakeholders of the business firm
Macro environmental factors include social and cultural factors,
technological factors, economic factors, political and governmental factors,
international factors and natural factors.

8. BITS Pilani, Bangalore Campus
Environmental scanning
Purpose:
• A strategist examines the relationship between the
company’s strategy and the environment.
• Then, he/she forecasts the future environment and
compares the strategy with the future environment.
• If there are gaps, he/she reformulates the strategy after
revising the business mission and objectives.
• Otherwise, he/she will continue with the present
strategy

9. BITS Pilani, Bangalore Campus
Environmental scanning
Business environment

10. BITS Pilani, Bangalore Campus
Environmental scanning
Strategic management process:

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Environmental scanning
Why environmental scanning is required?
(i) Prime influences of strategy change.
(ii) Forecast opportunities and to plan to respond aptly to these opportunities.
(iii) Identify threats to the organisation’s present strategy and objective
accomplishments.
(iv) Develop an early warning system to prevent threats to develop strategies which
can convert a threat into an opportunity.
(v) They help to determine what factors in the environment present opportunities for
optimal utilisation of resources and achievement of objectives effectively.
(vi) They also help in identifying the inherent risks involved in utilising the
opportunities as, normally, risks are involved in any opportunity.
(vii) Systematic analysis and diagnosis enables the managers to predict the future and
to have enough time for other activities. This minimises the time pressure of the
managers on the unanticipated events, and
(viii) They help the managers to achieve the organisational objectives effectively than
other organisations.

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Environmental scanning
INTERNATIONAL ENVIRONMENT
• Nations have evolved economic policies around self-reliance
and export-oriented business development
• Nature of Globalisation: The process of integration of the
world into one huge market. This type of unification calls for
removal of all trade barriers among economies. At the
organisational level, globalisation means: (i) the organisation
commits itself heavily with several manufacturing locations
around the world and offers products and/or services in
several countries and (ii) ability to compete in domestic
markets with foreign competitors.
Ex: Free trade agreements

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Environmental scanning
• A multinational company (MNC) or a transnational
company (TNC) operates in more than one country, gains
production, technology, marketing, financial, human
resources and R&D advantages — in its costs and
reputation over the domestic competitors.
• Tesco
• Std Chartered bank
• Bosch R&D center

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Environmental scanning
• Why do Companies go Global?
• Rapid shrinking of time and distance across the globe owing to the
significant development of transportation and telecommunication
facilities.
• Inadequacy of and low purchasing ability in the domestic markets.
• The short span of product life-cycle in the domestic market.
• To have diversified portfolio of markets.
• To secure reliable and cheap inputs like raw material, finance and
human resources.
• Due to political stability in some countries and political disturbances in
other countries.
• To reduce high transportation costs.
• To set up plants close to the raw material.

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Environmental scanning
• Impact of International Environment on Domestic
Business
(i) Configuring anywhere in the world: An MNC can choose the location of its plants or business units in
different countries on the basis of availability of raw material, consumer markets, availability of cheap
labour, etc. Thus, an MNC competes with the domestic company for inputs as well as selling the output.
(ii) Interlinked and interdependent economies: Economic policy of most of the nations is to develop the
countries through inter-linkage and interdependence. Therefore, domestic industries also develop
inter-linkage and interdependency with the foreign companies (Ex: Lucas TVS)
(iii) Minimisation of trade and tariff barriers: The recent trend towards globalisation in most of the nations
in the world resulted in minimisation of trade and tariff barriers. Consequently, the protection provided
to the home industry has been withdrawn. Therefore, the domestic industry is affected by the quality,
price and convenience of the foreign products and services. (Ex: Air india)
(i) Effect on related industries and ancillary units: Globalisation may render many companies sick and
defunct. This effect is more in case of ancillary industrial units and small scale industrial units compared
to large scale industrial units. Globalisation of Indian economy in 1991 affected badly many ancillary
industrial units.

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Environmental scanning
• (iv) Infrastructural resources and inputs at international prices: The prices of infrastructural resources like
banking, transportation and telecommunications and inputs like raw materials and human resources adjust at
international prices. In other words, prices of these factors, which were lower before globalisation would
increase due to increase in demand for the same.
• (vi) Increasing trend towards privatisation: Governments in many countries recently started withdrawing
their capital from public sector industrial units and/or privatising these units after globalisation.
• (vii) Entrepreneur and his unit have a central economic role: The trend of shifting the business from the
bureaucrat to the entrepreneur has started consequent upon globalisation of business.
• (viii) Mobility of skilled resources: The traditional factors of production viz., land, labour, capital and
organisation are no more immobile. Globalisation has resulted in the inflow of these factors into the
potential developing countries.
• (ix) Market side efficiency: Integration of global markets implies that costs, quality, processing time and terms
of business become dominant competitive drivers.
• (x) Formation of regional blocks: A final corollary to globalisation is the formation of trade blocks like North
American Free Trade Area (USA, Canada and Mexico), European Economic Community and South Asian
Preferential Trading Agreements. These regional blocks provide the opportunities to the business from within
and creates threats to the business from other areas.