UNDERSTANDING THE WORLD AT LARGE 89
OTHER RESEARCH
Everyone must have heard of market research where consumers or other groups of
prospective buyers are questioned via the Internet (e.g. take a look at Survey Monkey),
telephone, postal or personal surveys. You can also observe activity at the point of sale –
go and watch what customers ask for, put back on the shelves or buy. You might also test
the market by advertising and selling the product – or a prototype – in a limited market
area. You can test the potential with an advertisement inviting readers to ask for more
information. You can even invite advance orders, so long as you genuinely intend to meet
any commitments that you make.
Understanding the world at large
There is an almost frightening range of external influences that affect you. A few things to
mull over are outlined in the following paragraphs – demographics, the economy, politi-
cal factors, pressure groups, globalisation and technology.
These are in a constant state of change. You will find that you can predict trends in
most variables and forecast how they affect your business. Moreover, you can develop a
strategy to cope with those that cannot necessarily be foreseen, such as a technological
breakthrough or a sudden conflict in one of your overseas markets. Major opportunities
and threats should be added to your SWOT analysis. You will minimise surprises by under-
standing the possibilities – quality newspapers, journals and specific country, industry
and technology reports all help you keep abreast of developments.
Disaster recovery
Every business should identify the disasters that could strike and develop a policy
for rapid response. Banks have arrangements so that they can recover customer
information and keep trading using remote computers if their own systems suffer
catastrophic failure. Oil companies operating in hostile territory have response
plans for dealing with kidnappings of senior personnel. Airlines have procedures
for informing and counselling relatives and managing press relations in the event
of air crashes. You can instantly see the best-prepared airlines by watching the news
when tragedies do, sadly, occur.
Make a list of the disasters – threats – that might affect you and make sure that
you have well-rehearsed plans in place for dealing with them. Then hope that the
plans are never needed – but do not forget to keep them current.
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90 CHAPTER 5 KNOW THE WORLD
‘There is no education like adversity.’
BENJAMIN DISRAELI
PEOPLE
The structure of the population is constantly undergoing change – locally, nationally and
globally. This affects consumer markets and the industries that serve them, which in turn
affects a broader range of industrial and commercial suppliers. Consumer demands from
the new middle classes in emerging economies, especially China and India, will be signifi-
cant in the coming decades.
The age structure of the population has obvious implications for your products and
services. In the developed countries including North America, Europe and Japan, the
average age of the population is increasing, due to the trend towards smaller families,
healthier lifestyles and longer life spans. As a result, the physical size of these countries’
‘grey’ markets is increasing.
Less developed economies tend to have high birth rates and very young populations.
Various events cause bulges in particular age groups of populations (youths, young mar-
ried couples, the middle-aged). An obvious example is the post-war baby boom in many
countries in the 1950s. Another example reflects the bulge in the birth rate in the oil-
producing Middle East Gulf states in the 1970s when rocketing oil prices caused massive
increases in regional wealth.
In addition, the stages of economic development of these countries – with varying
focus on agriculture, industrialisation and services – affect occupations and incomes.
Spending patterns are also affected by movement: immigration, emigration, rural to
urban, city to suburbs and so on. Racial and cultural patterns vary, family sizes gener-
ally decrease, average income generally increases – except that the arrival or closure of a
major industry affects employment and wealth in specific areas.
THE ECONOMY
Economic development and growth alter the structure of the economy. As intimated
above, this leads to shifts from agrarian to low-tech industry. In turn, this develops into
high-tech businesses, and as wealth increases, service industries become increasingly
important. Again, as mentioned elsewhere, watch what happens as China and India
become the new economic superpowers.
UNDERSTANDING THE WORLD AT LARGE 91
Imposed on long-term trends is the inevitable economic cycle – recession, depression,
recovery, boom. This ripples through the economy, affecting employment levels, over-
time, capacity use, demand for raw materials, industrial output, incomes, demand for
services, and so on. The business cycle typically runs for five or seven years. Some com-
mentators claim to see longer-term cycles with durations of 11 or even 50 years. The
economic situation at the end of the twentieth century might be blamed on these longer
cycles. You need to position yourself against any adverse effects from these inevitable
cycles and exploit them where possible.
GOVERNMENT AND POLITICS
Government policy has far-reaching effects on industrial activity and consumer spending
patterns. The list below shows ten ways that governments can hinder your business. Of
course, there is an opposite for each of these. You should look carefully for ways that you
can benefit from political activity, economic management and bureaucratic meddling.
National competitive advantage
Everyone recalls from school geography lessons that certain countries have specific
advantages. I remember learning about Canadian and Scandinavian lumber,
Argentinian beef, and Middle East oil. Often, as in these examples, the advantages
are based on the availability of a natural resource. Sometimes they depend on
historical events or the stage of economic development – for example, London’s
financial services or low-cost labour in some areas in the Far East. In other instances,
the advantages reflect culture – Italian design comes to mind.
All this has two important effects on your business plan.
1 It might influence your business in the geographical areas where you already
operate. For example, you might have a production facility in a low-cost
country – how might economic, political and social developments (wages,
inflation, exchange rates, coups, revolution) affect your business?
2 It might influence where you conduct business in the future. For example,
you might want to source skills or materials from new locations. Or you
might consider some sort of business relationship with a foreign company
which is particularly strong in an area where you are weak.
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92 CHAPTER 5 KNOW THE WORLD
PRESSURE GROUPS
Sitting – or perhaps marching – somewhere between public and private sectors are the
many and diverse lobbies that promote change. The green lobby rightly clamouring for a
clean environment affects attitudes and legislation relating to energy production and use,
manufacturing methods and industrial waste, product design and so on. The anti-smok-
ing lobby affects tobacco companies. Less contentious demands for safety and standards
affect food-related businesses; packaging and labelling; products with potential electrical,
mechanical and thermal hazards; and so on.
Make sure that you understand which lobbies affect your business, and how you can
work with them.
Ten ways that governments can hold you back
1 Taxation. Higher taxes on income/profits decrease the spending power of
consumers and companies.
2 Public spending. Less spending on, for example, hospitals means lower
demand for medical equipment.
3 Industrial incentives. Reduced incentives can cut your profits, industry closures
mean less employment and lower consumer spending in a specific area.
4 Monetary policy. Higher interest rates or a reduction in credit can kill demand.
5 Exchange rate management (or mismanagement). This may push up the
price of your imported goods or damage your international competitiveness.
6 Tariffs and quotas on trade. These can reduce the availability or increase the
cost of imported materials, components and finished goods.
7 Unfair competition and monopoly/antitrust laws. Can prevent you growing
further or undertaking some activities.
8 Deregulation and privatisations. More open capital markets could increase the
cost of financing (but are usually beneficial); deregulated telecommunications
markets might remove your cosy position as a monopoly supplier.
9 Other regulatory activities including those affecting the environment and
employment (such as the European Community’s imposition of a 48-hour
maximum working week) could push up your costs.
10 Politics, diplomacy and corruption. Military action, coups, elections, new
governments reneging on previously agreed contracts, and various hidden
costs can all damage your operating environment. Take care not to fall foul of
tough new anti-corruption laws around the globe.
UNDERSTANDING THE WORLD AT LARGE 93
GLOBALISATION
The world continues to shrink due to computer and communication technologies, dereg-
ulation of exchange rate controls, softer regulations affecting capital flows, reduced
tariffs on trade, deregulation of national financial industries, the quest for international
harmony, and the arguable success of regional and international bodies including the EU
(European Union), UN (United Nations), World Bank, and even the many standards asso-
ciations including ISO (International Organization for Standardization). It’s odds on that
you will wake up tomorrow and find a new competitor from overseas in your physical or
virtual backyard. How will you respond?
TECHNOLOGY AND THE INTERNET
Technological developments – including communications, computers and biotechnology
– are causing the most rapid and dramatic changes ever in business. This exerts internal
and external pressures.
Every company, whether in the new economy or not, has to consider the threat of the
Internet. New competitors from any part of the globe can arise at any moment. Many are
already there, awaiting their chance. As more businesses and consumers worldwide take to
online purchasing, the industrial status quo and market shares could change significantly.
Companies that do not have effective information technology will not be able to pro-
cess orders or understand their businesses efficiently and effectively enough to compete.
Outmoded production techniques prevent the necessary customisation of products or
speed to market with new products. Step changes, such as the progressions from vacuum
tubes to transistors to integrated circuits, displace leading companies almost overnight.
Where do you stand in all this? Are you using information technology to your advantage?
Does your employee training keep you abreast (or ahead) of development? Could you
introduce disruptive technology, which would change the way things work in your indus-
try and put you in front of your competitors?
I don’t know what you’re talking about
A few years ago, when Asian long horn beetles were found munching trees in New
York, the US authorities banned untreated wood packing crates from China. Just
weeks before the deadline, a trade official with a top state-owned export company
in Beijing was asked what steps his company was taking to comply with the ban.
‘I don’t know what you are talking about,’ he said. You can see how easily this
situation could arise. It is easy to miss developments in this world of information
overload. Could something similar happen to you?
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