Understanding Business Environments: Growth, Globalization, and SMEs
External Environment
The environment encompasses external events (policy, technology, etc.) affecting a company’s activities, results, objectives, and decisions. Understanding this environment is crucial for identifying opportunities and threats and making necessary internal adjustments.
General Environment
The general environment impacts all companies similarly, regardless of their specific activity. Key factors include:
- Legal and Political: Legal frameworks, political ideologies, stability, and legislation.
- Social and Demographic: Culture, societal values, beliefs, fashion, lifestyle, and demographics.
- Technological: Scientific advancements impacting competition.
- Economic Development: Fiscal policy (taxation), monetary policy, inflation, exchange rates, and the business cycle.
External Growth Strategies
External growth involves entering new markets or introducing new products. Key strategies include:
1. Synergy
Integration of elements to create an outcome greater than the sum of its parts, maximizing strengths.
2. Merger/Integration
- Merger: Combining companies into one entity.
- Absorption: One company takes over others.
- Trust/Group: Companies in different sector phases to reduce costs and dominate the market.
- Holding: One company controls others.
- Poster: Companies in the same industry create a monopoly.
3. Co-operation
Agreements to share resources, reduce risks, lower costs, and enter new markets (financial, technological, productive, commercial).
4. Duty (Franchising)
Marketing system based on collaboration between a franchisor and franchisee.
- Franchisor Advantages: Continuous revenue, rapid sales growth, avoidance of factory production costs.
- Franchisor Disadvantages: Loss of local business control, potential competitor growth.
- Franchisee Advantages: Reduced risk, brand image promotion.
- Franchisee Disadvantages: High fees, franchisor control, contract termination rights.
5. Joint Venture
Two companies launch a joint project to avoid competition.
6. UTE or Temporary
Transient cooperation with a fixed order, common in construction.
Small and Medium-Sized Enterprises (SMEs)
Features
SMEs have fewer than 250 workers, significant economic importance (97%), and often receive subsidies. They may have limited business training, financial capacity, and access to advanced technology. SMEs are flexible, allowing rapid communication and high employee integration. They can fill market gaps left by larger companies and generate significant employment.
Advantages
- Rapid decision-making, initiative, and flexibility.
- Absence of labor disputes.
- Resilience during economic recessions.
- Support larger production/distribution cycles.
Disadvantages
- Lack of infrastructure.
- Outdated technology.
- Limited technical capacity.
- Weak negotiating power with suppliers.
- Inability to leverage economies of scale for pricing.
Globalization
Globalization expands economic relations among countries, creating a global economy where each economy is interdependent.
Advantages
- Free Trade Agreements (FTAs).
- Country specialization and economic growth.
- Increased employment and wages.
- Poverty reduction worldwide.
Disadvantages
- Increased power for multinational corporations.
- Social inequality.
- New forms of slavery.
- Tax havens.
- Industrial delocalization (companies move production to lower costs, leading to unemployment and increased pollution elsewhere).
Multinationals
Multinationals are large mercantile units operating from their country of origin in broad markets elsewhere. The parent company controls subsidiaries.
Advantages
- Cheap labor.
- Unrivaled market operation.
- More permissive environmental policies.
- Softer fiscal obligations.
- Weaker worker protection legislation.
Disadvantages
- Difficult market entry.
- Media scrutiny.
- Linguistic barriers.
- Low-skilled labor.
Types
- Transnational: Control over people of different nationalities.
- Supranational: Not tied to any specific country.