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7/31/2019 Baron 6e Ch01
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2010 Pearson Education, Inc. publishing as Prentice Hall.1-1
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