Analysis of the

Macroenvironment

Chapter 6
Learning Objectives

 Understand the meaning of the term

“macroenvironment”
 Describe the components of each of the
SPENT influences
 Understand how SPENT influences are
linked
External Analysis

 External microenvironment
 Porter’s 5 Forces Analysis
 Resource-based Approach to Analysis
 External macroenvironment
 SPENT analysis
SPENT Analysis

 The purpose of SPENT analysis is to

identify factors in the macro-environment
that may affect the business and it’s
industry
 SPENT analysis helps identify threats
to, and opportunities for, a business
based on macro-environment factors
Macroenvironment
 Macroenvironment -
Internal
the “far” environment
(outside an Industry
organization’s Macro-
industry and Environment
markets)
Characteristics of the
Macroenvironment
 Influences the microenvironment
(industry and market)
 Will impact all organizations in an
industry, a market, or even all
organizations in an economy
 Source of competitive advantage –
being able to predict changes in the
macroenvironment and take action
SPENT Analysis

 Socio-demographic factors
 Political factors
 Economic factors
 Natural environmental factors
 Technological factors
SPENT: Socio-Demographic
Influences
 Influences originating from changes in
society
 Main influences
 social culture (values, attitudes and beliefs)
 demography
 social structure
SPENT: Political Influences
 Includes political, governmental, legal and
regulatory influences
 Influences at 3 levels:
 National level – for example, laws and regulations
passed by the Chinese government
 Subnational level – for example, laws and
regulations passed by the Beijing Municipal
government
 Supranational level – for example, agreements
made within the WTO, of which China is a member
SPENT: Economic Influences

 Macroeconomic changes and influences

on the macroeconomy by governments
 Fiscal policy – government regulation
related to taxing and spending
 Monetary policy – government regulation
of the money supply
SPENT: Natural environment
influences
 Includes influences such as natural
catastrophes, weather, environmental
degradation
 Characteristics:
 Difficult to predict and avoid
 Risk varies by location
SPENT: Technological
Influences
 Focuses on how changes in technology affect
an industry, organizations in the industry, and
activities of the organizations
 Includes areas such as:
 Goods and services
 Production processes
 Information and communications
 Transport and distribution
 Society, politics and economics
SPENT Linkages

 Analyze separately, but understand how

they influence each other
Application of SPENT: China
 Socio-demographic factors
 Migration of population from countryside to
cities
 Growing middle-class
 Political factors
 Government approach to property rights
 Economic factors
 Government policy on the RMB
 Technological factors
 Socio-Demographic Factors:
China’s Middle Class
2007
 Urban households
with yearly income of
less than 25,000
RMB = 77%
Data from The Value of China’s emerging Middle Class, McKinsey Quarterly,
June 2006
2025 (Forecasted)
 Urban households
with yearly income of
less than 25,000
RMB =10%
 Urban Chinese
households are one
of the largest
consumer markets in
the world
(20,000,000,000,000
RMB each year)
 Socio-Demographic Factors:
China’s Middle Class
 Forecasted lower-middle class of 290
million people by 2011 (yearly incomes
of 25,000 RMB – 40,000 RMB)
 Forecasted upper-middle class of 520
million people by 2025 (yearly incomes
of 40,000 RMB – 100,000 RMB)
 Both middle income classes are
forecasted to be larger than the urban-
rich segment of 40 million people (yearly
incomes of more than 100,000 RMB)
Data from The Value of China’s emerging Middle Class, McKinsey Quarterly,
June 2006
Socio-Demographic Factors:
China’s Middle Class
 China’s middle-class will be unusually
young compared to international
averages
 People will likely continue to migrate
from the countryside to the cities in
search of higher paying jobs
Political Factors: China

 China has recently passed laws

protecting property rights, including
intellectual property rights
 Protection of property rights is thought to
promote business activity by having a
standard legal framework
 As of now, it is unclear what property
rights in China means
Economic Factors: China

 China currently manages the RMB

exchange rate
 Officially, China will manage the RMB
exchange rate for gradual revaluation
 Since mid-2005, the RMB has
appreciated by 11% against the USD
 Technology Factors: China
 Adoption of 3G technology for mobile phones
 So far, China has delayed implementation of 3G
services due to problems with the technology
standard used in China (Time Division-CDMA)
 China has passed Japan in terms of spending
on technology research & development, and
could pass Europe within 4 years and the U.S.
within 7 years

Source: FT.com
Analysis: Ginter and Duncan

 Scanning – the macroenvironment for

possible changes
 Monitoring – environments for specific
trends and patterns
 Forecasting – future directions of
changes
 Assessing – current and future trends
and how they affect the organization
Limitations

 Complexity
 Speed of change
 Uncertainty
Homework
 For first class next week, research SPENT
factors that may influence Ctrip.com
 Read handout, article titled “The Value of
China’s Emerging Middle Class”
 Prepare to discuss Ctrip.com
 That means:
 Read the case carefully
 Prepare to discuss your analysis of the case, the
problems, alternatives to solve problems, and
recommendation
 BRING THE CASE TO CLASS
Homework (2nd Class Next
Week)
 Read Chapter 9, Evaluation and
Selection of Strategies, pp. 182-191