PGDM MARKETING (2018-2020)

Economic Environment of Business

Assignment by

Akash Garg

(201831004)

Course Instructor
Dr Gajavaelli V S
ECONOMIC ENVIRONMENT OF BUSINESS

Firms have more control over their fate in the markets in which they
operat4e than they have in their nonmarket environment, but
successful companies must understand that if they do not manage
their nonmarket environment, it will manage them.
.The nonmarket environment encompasses those interactions
between the firm and individuals, interest groups, government
entities, and the public that are intermediated not by markets but by
public and private institutions.Activities in the nonmarket
environment may be voluntary, as when the firm cooperates with
government officials or an environmental group, or involuntary, as
in the case of government regulation or a boycott of a firm’s product
led by an activist group.
Nonmarket issues high on firms’ agendas include environmental
protection, health and safety, regulation and deregulation,
intellectual property protection, human rights, international trade
policy, regulation and antitrust, activist pressures, media coverage
of business, corporate social responsibility, and ethics. ...
Nonmarket issues, the forces that influence their development, and
the strategies for addressing them are the focus of the field of
business and its environment.
The focus for management in the nonmarket environment is on how
an automobile company can participate effectively and responsibly
in the public and private processes addressing these issues.
Managers are in the best position to assess the impact of their firm’s
market activities on its nonmarket environment and the impact of
developments in the nonmarket environment on market
opportunities and performance. .They may address the public on
issues, communicate with the media, testify in regulatory and
antitrust proceedings, lobby government, participate in coalitions
and associations, serve on government advisory panels, meet with
activists, negotiate with interest groups, build relationships with
stakeholders, and participate in constituency programs.
As an example of the market origins of nonmarket issues, in the
1990s lower real gasoline prices and changing, consumer demand
resulted in sport utility vehicles (SUVs) and light trucks capturing
half the light-vehicle market. This reduced average fuel economy
and, in conjunction with the global climate change and security
issues, generated pressure to increase fuel economy standards. In the
market environment, strategies are intermediated by markets,
whereas in the nonmarket environment, strategies are intermediated
by public and private institutions, including legislatures, courts,
regulatory agencies, and public sentiment. Just as the market
environment of business changes and competitive advantage
evolves, the nonmarket environment changes and the issues on a
firm’s nonmarket agenda evolve. Galvin’s point is not that
companies dictate the rules of the game but rather that those rules
are shaped by the strategies of firms and other interested parties and
by the governing institutions. .Using the agricultural biotechnology
industry as an example, the central nonmarket issues have been the
formulation of regulatory policies for bioengineered plant and
animal foods and the public reaction to those products.
Activist groups, such as the Sierra Club, take direct action against
firms to force them to change their policies.
The nonmarket environment includes the set of laws established by
these institutions, such as the gas guzzler tax and labor laws, as well
as regulations, such as safety and fuel economy standards,
established by administrative and regulatory agencies.
markets, the insurance system, and voluntary agreements such as
those pertaining to SUV collision safety and carbon dioxide
reduction in the European Union. ... As considered in Chapter 3, the
news media plays an important role in informing those in the
nonmarket environment about issues, but it also serves as an
institution.
The field of business and its environment is concerned with issues
in the nonmarket environment that have potentially important
effects on organizational and managerial performance.
The nonmarket environment of a firm is characterized by four I’s:
issues, interests, institutions, and information. As indicated by the
example of the automobile industry, nonmarket issues have
important implications for firms and their market and nonmarket
performance. Nonmarket issues may be identified externally or by
management and may arise from scientific discovery, new
understandings, interest group activity, institutional change, and
moral concerns.
Introduces the non- market environment, the nonmarket issues firms
face, and the factors, including activist pressures and the news media
and public sentiment, that affect the development of those issues. ...
Part IL focuses on the interactions between government and markets
with an emphasis on antitrust, regulation, environmental protection,
court-adjudicated law, and information industries
IKEA

Ikea, the world’s largest furniture retailer, is betting that millions of

middle and upper-class Indians are similar to the Lambas. Six years
after it was first planned, the 400,000 square foot store in Hyderabad
is the first step towards fulfilling Ikea’s ambitions in the country,
with more outlets scheduled to debut in Mumbai, Bangalore and the
Delhi area in the next two years. By 2025, the company hopes to
have 25 stores in India, some of them in a new, small format.
Ikea’s opening in India – and its subsequent success or failure – is
likely to become a case study for other international retailers.
India’s retail landscape is complex. With a growing middle class, its
1.3 billion people buy about $30bn (£23bn) a year of furniture,
lighting and household items like bed linens and cookware,
according to Technopak, an Indian consulting firm.
But despite the efforts of a few local chains, 95 percent of those
goods are sold through small shops that offer custom-built products,
usually specializing in one category such as wooden furniture or
lamps, and free assembly and delivery.
“The consumer in India is kind of pampered,” says Ankur Bisen,
who heads Technopak’s retail and consumer products division.
Ikea stores are the polar opposite. Part showroom and part
warehouse, they are sprawling outlets that are far from city centers
with mazes of giant bins and floor-to-ceiling shelves. Ikea’s brand
signals affordable, mass-produced and functional, and its design
aesthetic is lightweight and lean, in contrast to the heavier, bulkier
furniture traditionally favored in Indian households.

IKEA a home furnishing company founded in Sweden in 1943, by

Ingvar Kamprad with a vision to create a better everyday life and to
offer a wide range well designed, functional home furnishings at
affordable prices. IKEA was having various policies like
Procurement policy which was to establish long term relations with
the suppliers. It was having 2,300 suppliers across 70 countries.

Analysis of the business environment of IKEA

MARKET ENVIRONMENT
• IKEA wanted to develop long term business partners by
supporting its suppliers.
• It opted for a suburban location with ample parking space.
• It promoted self-assembled furniture and saved transport and
storage cost
NON-MARKET ENVIRONMENT
• IKEA established a forestry policy using standards set by Forest
Stewardship Council
• “Black and white” clause in supply contracts for child labor.
• Child labor.
4I’s
ISSUES
MARKET ENVIRONMENT
• Threat- Ambiguity in labor laws clause is a challenge for MNCs.
• Opportunity- Market expansion to Poland for suppliers leading
to reduced prices and increased profitability.
NON-MARKET ENVIRONMENT
• The decrease in sales of 20% in Denmark.
• Child labor is another threat to the companies suppliers.
• Formaldehyde scandal in Germany and Denmark.
INTEREST
• Diversified production.
• Minimalized wastage of resources.
• Equal opportunity and affordability for all strata of society.
• Transparency and fairness as flat organizational and anti
bureaucratic structure.
INSTITUTIONS
• IKEA
• UNICEF
• ILO
• NGOs
• Indo-German Export Promotion
• Forest Stewardship Council
INFORMATION
• German documentary makers who will broadcast children
working at looms.
• Census was done in 1991.
• Documentaries which were made.
• Media.
• IKEA research.
MARKET STRATEGIES FOR IKEA
• IKEA should select countries with fewer entry barriers and fewer
laws and rules.
• IKEA should penalize the Rangan export.
• Import from other suppliers which are from India.
• Terminate the contract with Rangan.
NON-MARKET STRATEGIES FOR IKEA
• Perform various CSR activities.
• Perform various programs for the betterment of children.
• Create alternative programs to promote formal education.