PART I

Strategy And The

Nonmarket
Environment
Market and
Nonmarket
Environments
Chapter 1
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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 I’s

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Topics Covered
• The nonmarket environment of the
automobile industry
• Change in the nonmarket environment
• Anticipating change in the nonmarket
environment
• The nonmarket issue life cycle

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Introduction
• Firms have more control over their fate in
the markets in which they operate
• Less in their nonmarket environment
• Successful companies understand that:
• If they do not manage their nonmarket
environment, it will manage them

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The Environment of Business
• Market component
• Nonmarket component

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Examples of Nonmarket Issues
• Sustainability and global climate change
• Security, health and safety
• Regulation and deregulation
• Intellectual property protection
• Human rights

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Examples of Nonmarket Issues
• International trade policy
• Antitrust
• Social pressure from nongovernmental
organizations (NGOs) and social activists
• News media coverage and social media
• Corporate social responsibility
• Ethics
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The Role of Management
• Successful management requires:
• Frameworks for analyzing nonmarket issues
• Principles for reasoning about them
• Strategies for addressing them

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Market and Nonmarket
Environments
• Firm’s activities in market environment can
generate nonmarket issues and change in
nonmarket environment
• Nonmarket issues and actions shape the
market environment

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Figure 1.1 - The Environment of
Business

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Analysis of the Nonmarket
Environment: The Four I’s
• Issues
• Interests
• Institutions
• Information

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The Nonmarket Environment of the
Automobile Industry
Issues

Interests

Institutions

Information
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Change in the Nonmarket
Environment
• The nonmarket environment changes as:
• Issues are resolved
• Current issues progress
• New issues arise
• Nonmarket issues originate from:
• External forces
• A firm’s own actions

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Sources of Nonmarket Issues
• Scientific discovery and technological
advancement
• New understandings
• Institutional change
• Interest group activity
• Moral concerns

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Anticipating Change in the
Nonmarket Environment
• The effectiveness with which a firm and its
managers address nonmarket issues
depends on four approaches to the
nonmarket environment

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The Nonmarket Issue Life Cycle
• The progression of nonmarket issues can
be understood in terms of a life cycle

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Figure 1.2 - Nonmarket Issue Life
Cycle

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Case - The Nonmarket Environment of
the Pharmaceutical Industry
• U.S. spending on pharmaceuticals
increased by 19 percent to $131.9 billion
in 2000
• The expenditures reflected high prices, heavy
marketing expenditures, and high profits

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Case - The Nonmarket Environment of
the Pharmaceutical Industry
• In 2001 Bayer withdrew its newly introduced and
fastselling cholesterol-lowering drug Baycol
because over 50 deaths were associated with its
use
• Patents provided the most important protection
for intellectual property in the pharmaceutical
industry

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Case - Nonmarket Environment
of McDonald’s
• Obesity - Economists studied the increase in the
body mass index and concluded that it was due
to several factors:
• Increase in calorie intake
• Decrease in strenuousness of work
• Decrease in cost of food due to technological change
leading people to eat more

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Case - Nonmarket
Environment of McDonald’s
• Meal and Menu Nutrition Information - Public
attention to the obesity issue led to the introduction
of the Menu Education and Labeling Act (MEAL) in
the House and the Senate
• Healthy Lifestyles - As a result of the concern about
obesity, McDonald’s suspended its promotion of
supersize meals

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Case - Nonmarket
Environment of McDonald’s
• Children’s Advertising
• McDonald’s promoted its trademark golden
arches on Barbie dolls and backpacks
• Some schools had McDonald’s days for lunch
• Used plastic toys for promotion

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Cases - Nonmarket Environment
of McDonald’s
• Acrylamide – Activists argued that the concentrations of
acrylamide exceeded the EPA and WHO standards for water
specifically in french fries from McDonald’s
• Mad Cow Disease - McDonald’s had dealt with the issue of
mad cow disease in a number of other countries and had used
that experience to prepare for such an event in the United
States

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Cases - Nonmarket
Environment of McDonald’s
• Antibiotics and Growth Hormones - McDonald’s, the
environmental group Environmental Defense, and Elanco
Animal Health joined together to create the Antibiotics
Coalition
• Animal Welfare - McDonald’s adopted new standards for its
beef suppliers, including minimum space standards for cattle
in feedlots
• The Environment - McDonald’s established an environmental
policy pertaining to natural resources, rain forests,
sustainability, and waste management

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Case - Nonmarket Environment of
Google
• EU law required data holders to store an individual’s data only
as long as necessary
• Google launched a nonmarket campaign to influence the FCC’s
design of the auction
• Google did not use material from a media source that
requested that it not do so, but in the absence of such a
request it used the material

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Case - Nonmarket Environment of
Google
• Google began to supplement its News service by inviting,
individuals and organizations that had been mentioned in an
article to offer comments attached as a link on the story page
• The government asked for data on search queries that it could
use to develop filtering technology to which Google refused
and found itself on the other side of the law

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Case - Nonmarket Environment of
Google
• Google assigned a team to develop Google Health, which
proclaimed on a prototype Web page
• Google also announced an open source mobile phone
platform called Android that could be used to develop new
wireless services

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Case - Nonmarket Environment of
Google
• Google advocated “net neutrality” and sought laws
to require ISPs to treat all Internet traffic alike
• The company pledged to become carbon neutral and
announced a project backed by hundreds of millions
of dollars to reduce the cost of renewable energy by
25–50 percent

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