July 23, 2024

Environmental scanning analysis and appraisal – Micro Environment and Macro Environment

Environmental Appraisal

Environmental analysis

Just like everything exists in the physical environment, organisations exist in the business environment.

Each business organization operates in its unique environment. Environment influence businesses and also gets influenced by it. No business can function free of interacting and influencing forces that are outside its periphery.

To be successful business has to not only recognise different elements of the environment but also respect, adapt to or have to manage and influence them. The business must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell extreme threats or open up new opportunities for the firm. A successful business has to identify, appraise, and respond to the various opportunities and threats in its environment.

Strategic management is basically about dealing with the external environment and establishing a linkage with it. These linkages are the strategies.

Environment is sum of several external and internal forces that affect the functioning of business.

Before chalking out any strategy, strategist need to analyse the environment extensively.

Why environmental analysis?

  • When the company ceases to adjust the environment to its strategy or does not react to the demands of the environment by changing its strategy, the result is reduced achievement of corporate objectives.
  • From environmental analysis strategists get time to anticipate opportunities and to plan to take optional responses to these opportunities.
  • It also helps strategists to develop an early warning system to prevent threats or to develop strategies which can turn a threat to the firm’s advantage.

In general, environmental analysis has three basic goals as follows:

  • First, the analysis should provide an understanding of current and potential changes taking place in the environment. It is important that one must be aware of the existing environment. At the same time one must have a long term perspective about the future too.
  • Second, environmental analysis should provide inputs for strategic decision making. Mere collection of data is not enough. The information collected must be useful for and used in strategic decision making.

 

  • Third, environment analysis should facilitate and foster strategic thinking in
    organizations-typically a rich source of ideas and understanding of the context within which a firm operates. It should challenge the current wisdom by bringing fresh viewpoints into the organization.

Concept of environment

Environment literally means the surroundings, external objects, influences or circumstances under which someone or something exists.

The environment of any organisation is ‘the aggregate of all conditions, events  and influences that surround and affect it.’ – Since the environment influences an organisation in multitudinous ways so its understanding is of crucial importance.

Environment is sum of several external and internal forces that affect the functioning of business.

 

Components of Environment

Environment can be divided into external and internal.

Internal and external Environment

  • The internal environment refers to all factors within an organisation that impact strengths or cause weaknesses of a strategic nature.
  • The external environment includes all the factors outside the organisation which provide opportunities or pose threats to the organisation.

External Environment can be divided into macro or general environment and micro or immediate environment.

The environment in which an organization exists can, therefore, be described in terms of the strengths and weakness existing in the internal environment and the opportunities and threats operating in the external environment.

The four environmental influences could be described as below.

Internal environment:

  1. Strength is an inherent capacity which an organisation can use to gain strategic advantage.

Examples of  strength are: good reputation among customers, resources, assets, people, experience, knowledge, data and capabilities. Good reputation ,• Excellent distribution network • Established research and development unit • Strong advertising • High product demand ‘

 

  1. Weakness is an inherent limitation or constraint which creates strategic disadvantages.

 Examples of weakness are: gaps in capabilities, financial deadlines, low morale and overdependence on a single product line. • High Employee Turnover• Uncertain cash flow• Weak Product demand• Inadequate resources • Old technology

 

External environment:

  1. Opportunity is a favorable condition in the organisation’s environment which enables it to consolidate and strengthen its position.

Examples of opportunity are: economic boom, favourable demographic shifts, arrival of new technologies, loosening of regulations, favourable global influences and unfulfilled customer needs. • Favorable industry trends • Emergence of new markets • Availability of low cost technology • Favorable government laws

  1. Threat is an unfavourable condition in the organisation’s environment which creates a risk for, or causes damage to, the organisation.

Examples of threat are: economic downturn, demographic shifts, new competitors, unexpected shifts in consumer tastes, demanding new regulations, unfavourable political or legislation, new technology and loss of key staff. • Unfavorable political environment• Entry of new competitors• New competitor strategies • Strict regulations by the government

 

An understanding of the external environment, in terms of the opportunities and threats, and the internal environment, in terms of the strengths and weaknesses, is crucial for the existence, growth and profitability of any organization.

A systematic approach to understanding the environment is the SWOT analysis. Business firms undertake SWOT analysis to understand the external and internal environment. SWOT,which is the acronym for strengths, weaknesses, opportunities and threats.

Through such an analysis, the strengths and weaknesses existing within an organization can be matched with the opportunities and threats operating in the environment so that an effective strategy can be formulated.

An effective organizational strategy, therefore, is one that capitalises on the opportunities through the use of strengths and neutralises the threats by minimizing the impact of weaknesses. The process of strategy formulation starts with, and critically depends on, the appraisal of the external and internal environment of an organization.

External Environment – Macro and Micro

The classification of the relevant environment into components or sectors helps an organization to cope with its complexity, comprehend the different influences operating, and relating the environmental changes to its strategic management process.

Some of these forces are external to the firm and the organization has little control over them. Whereas the other types of forces which comes from within the organization and can be controlled by it.

General vs Relevant environment

Broader set of economic and other conditions such a wider perception of the environment by which  All organizations, in some way or the other, are concerned about is the general environment  But the immediate concerns of any organisation are confined to just a part of the general environment which is of high strategic relevance to the organisation. This part of the environment could be termed as the immediately relevant environment or simply, the relevant environment.

External Environment of business can be divided into two broad categories macro or general environment and micro or immediate environment.

Macro Environment

  • A macro environment is a wide, broad set of economic conditions that exist in the economy as a whole, rather than in a particular sector or region.
  • The major external and uncontrollable factors that influence an organization’s decision making, and affect its performance and strategies.
  • Macro Environment: consists of demographics and economic conditions, socio-cultural factors, political and legal systems, technological developments, etc. These constitute the general environment, which affects the working of all the firms.

The issues concerning an organization are:

♦          Who are their threats in the competitive world in which they operate and why?

♦          Which areas of technology might pose a threat to their current product range and why?

♦          The bargaining power of suppliers and customers?

♦          The type of competition they are facing and their perceived threats and weaknesses?

MICRO ENVIRONMENT

Micro-environment is related to small area or immediate periphery of an organization. Micro-environment influences an organization regularly and directly.

Micro environment: consist of suppliers, consumers, marketing intermediaries, etc. These are specific to the said business or firm and affects it’s working on short term basis.

Within the micro or the immediate environment in which a firm operates we need to address the following issues:

♦          The employees of the firm, their characteristics and how they are organised.

♦          The customer base on which the firm relies for business.

♦          The ways in which the firm can raise its finance.

♦          Who are the firm suppliers and how are the links between the two being developed?

♦          The local community within which the firm operates.

♦          The direct competition and how they perform.

 Environmental Scanning 

  • Organizational environment consists of both external and internal factors. Environment must be scanned so as to determine development and forecasts of factors that will influence organizational success.
  • Environmental scanning can be defined as the process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business for the purpose of taking strategic decisions.
  • It is the process of gathering information regarding company’s environment, analysing it and forecasting the impact of all predictable environmental changes. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment.
  • While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.

The factors which need to be considered for environmental scanning

are events, trends, issues and expectations of the different interest groups. These factors are explained below:

  • Events are important and specific occurrences taking place in different environmental sectors. Events are certain happening in the internal or external organisational environment which can be observed and tracked.
  • Trends are the general tendencies or the courses of action along which events take place. Trends are grouping of similar or related events that tends to move in a given direction, increasing or decreasing in strength of frequency of observation: usually suggests a pattern of change in a particular area (for example, consumer behaviour, technology use).
  • Issues are the current concerns that arise in response to events and trends. Identifying an emerging issue is more difficult. Emerging issues start with a value shift, or a change in how an issue is viewed.
  • Expectations are the demands made by interested groups in the light of their concern for issues.

 

Elements of Micro Environment

           This is also known as the task environment and affects business and marketing in the daily operating level.

When the changes in the macro environment affect business in the long run, the effect  of micro environmental changes are noticed immediately.

Organizations have to closely analyse and monitor all the elements of micro environment in order to stay competitive.

1          Consumers/Customers

According to Peter Drucker the aim of business is to create and retain customer. Customers
are the people who pay money to acquire an organization’s products.
The products may be
both in form of goods or services. The organizations cannot survive without customers. They
will cease to exist. Customers may or may not be a consumer. Consumer is the one who
ultimately consumes or uses the product or service. A father may buy a product as a customer
for his daughter who will be a consumer. A consumer occupies the central position in the
marketing environment. The marketer has to closely monitor and analyze changes in
consumer tastes and preferences and their buying habits.

♦          Who are the customers/consumers?

          What benefits are they looking for?

          What are their buying patterns?

 

2          Competitors

Competitors are the other business entities that compete for resources as well as markets.
Competition shapes business. A study of the competitive scenario is essential for the
marketer, particularly threats from competition. Following are a few of major questions that
may be addressed for analysing competitions
:

♦          Who are the competitors?

          What are their present strategy and business objective?

          Who are the most aggressive and powerful competitors?

Competition may be direct or indirect. Direct competition is between organizations, which are
in same business activity. At the same time competition can also be indirect. For example,
competition between a holiday resort and car manufacturing company for available
discretionary income of affluent customers is indirect competition.

3         Organization

Individuals occupying different positions or working in different capacities in organizations
consists of individuals who come from outside. They have different and varied interests.

 In micro environment analysis, nothing is important as self-analysis by the organization itself.
Understanding its own strengths and capabilities in a particular business, i.e.. understanding a
business in depth should be the goal of firm’s internal analysis.

The objectives, goals and resource availabilities of a firm occupy a critical position in the micro environment.

“We have met the enemy and he is us” – Pogo.

An organization has several non-specific elements of the organization’s surroundings that may
affect its activities. These consist of specific organizations or groups that are likely to influence
an organization. These are:

♦          Owners: They are individuals, shareholders, groups, or organizations who have a major
stake in the organization. They have a vested interest in the well-being of the company.

♦          Board of directors: Board of directors are found in companies formed under the

Companies Act, 1956. The board of directors is elected by the shareholders and is
charged with overseeing the general management of the organization to ensure that it
is being run in a way that best serves the shareholders’ interests.

♦          Employees: Employees are the people who actually do the work in an organization.

Employees are the major force within an organization. It is important for an organization
that employees embrace the same values and goals as the organization. However, they
differ in beliefs, education, attitudes, and capabilities. When managers and employees
work toward different goals everyone suffers.

4            Market

The market is larger than customers. The market is to be studied in terms of its actual and potential size, its growth prospect and also its attractiveness.

The marketer should study the trends and development and the key success factors of the market he is operating.

Important issues are :

♦          Cost structure of the market.

          The price sensitivity of the market.

          Technological structure of the market.

          The existing distribution system of the market.

            Is the market mature?

 5          Suppliers

Suppliers form an important component of the micro environment. The suppliers provide raw
materials, equipment, services and so on. Large companies rely on hundreds of suppliers to
maintain their production. Suppliers with their own bargaining power affect the cost structure
of the industry. They constitute a major force, which shapes competition in the industry. Also
organizations have to take a major decision on “outsourcing” or “in-house” production
depending on this supplier environment.

6          Intermediaries

Intermediaries exert a considerable influence on the business organizations. They can also be
considered as the major determining force in the business. In many cases the consumers are
not aware of the manufacturer of the products they buy. They buy product from the local
retailers or big departmental stores such as Big bazaars. Subhiksha and Vishal Mega Mart
that are increasingly becoming popular in some big cities.

Elements of Macro Environment

Macro environment is explained as one which is largely external to the enterprise and thus
beyond the direct influence and control of the organization, but which exerts powerful
influence over its functioning.

  1. Demographic Environment

The term demographics denotes characteristics of population in a area, district, country or in
world. It includes factors such as race, age, income, educational attainment, asset ownership,
home ownership, employment status and location.

Some of the demographic factors have great impact on the business. Factors such as general age profile, sex ratio, education, growth rate affect the business with different magnitude..

Business Organizations need to study different demographic factors. Particularly, they need
to address following issues:

♦             What demographic trends will affect the market size of the industry?

♦             What demographic trends represent opportunities or threats?

 

  1. Economic Environment

A country’s economic environment includes macroeconomic factors, such as changes in national income, unemployment, and  inflation, which are related to the means of production and distribution of wealth in an economy. These factors have a great impact  on the business of an organization.

The economic environment includes general economic situation in the region and the nation, conditions in resource markets (money market, manpower market, raw material components, services, supply markets and so on) which influence the supply of inputs to the enterprise, their costs, quality, availability and reliability of supplies.

For example, the consumption patterns of consumers are affected by the distribution of wealth, which in turn affects the product demand and an organization’s profit. Economic environment is influenced by the following factors’.

Economic environment determines the strength and size of the market. The purchasing power in an economy depends on current income, prices, savings, circulation of money,  debt and credit availability. Income distribution pattern determines the marketing possibilities.

Strategists must scan, monitor, forecast, and assess a number of key economic factors mentioned in the table below for both domestic and key international markets.

  • Economic policies: Include industrial, monetary, and fiscal policies
  • Type of economy: Includes capitalist, socialist, or mixed economy
  • Economic planning: Includes five year plans or annual budgets
  • Other factors: Include per capita income, rate of savings, and credit availability
  1. Political Environment

The political environment consists of factors related to the management of public affairs and government rules and regulations.

Every organization faces political influences, such as fair trade decisions, tax regulations, and pollution and pricing policies. Government policies (fiscal, monetary, industrial, labour and export-import policies)

The political environment might affect the organization in both positive and negative ways. Political activities, such as patent laws or government subsidies, support the business activities positively; whereas strict government regulations or increase in tariffs affects the business activities negatively.

Some of the important factors influencing the political environment include the nature of political systems, political ideologies, political stability; and government rules and regulations.

Politics has a serious impact on the economic environment of the entire country as a whole. Its stability or instability strongly influences the pace and direction of the economic growth, which in turn affects the growth of organizations operating in the country.

Thus, the management of organization is always conscious of the political environment it faces.

  1. Legal Environment

Business Organizations prefer to operate in a country where there is a sound legal system. However, in any country businesses must have a good working knowledge of the major laws protecting consumers, competitions and organizations.
Businesses must understand the relevant laws relating to companies, competition, intellectual property, foreign exchange, labour and so on.

  1. Socio-Cultural Environment

Socio-cultural environment consists of values, culture, beliefs, attitude, opinions, and lifestyles of a society. It represents the characteristics of the society in which an organization exists. The characteristics of the society may act as an opportunity or threat  for an organization. For example, the substantial increase in the number of working women might compel the organizations to change their hiring and compensation policies. An increase in the number of working women could lead to an increase in the demand for convenience food items and microwave ovens as well. Following points enlist the factors that influence the socio-cultural environment:

  • Demographic factor: Involves population and its composition, density, and distribution
  • Social customs: Include beliefs, rituals, and practices followed in a society
  • Family structure: Includes family values and role of different family members in the society
  • Educational level: Refers to level of literary and technical awareness in the members of the society
  • Social concerns: Include malpractices, such as corruption and consumerism prevalent in society

As already discussed, the socio-cultural environment affects the product and market strategies of an organization. If an organization operates in various regions with different cultures, it has to form its product and marketing strategies according to the consumption patterns of these specific regions. For example, organizations such as McDonald’s and KFC, had to change their product portfolio according to the Indian culture to create demand for their products in India. Thus, it is important for a strategist to remain aware about the changing trends in the society and develop plans and policies according to the changing social scenario.

  1. Technological Environment

The most important factor, which is controlling and changing people’s life, is technology.
Technology has literally created wonder. Man could realise its dream of walking in the moon,
traveling in spaceships, and go to the other side of the globe within few hours. They have
already started dreaming of living of very extended life of hundreds years with the latest
development of genetic sciences and technology.

Technology has changed the way people communicate with the advent of Internet and  telecommunication system. Technology has changed the ways of how business operates now.

This is leading to many new business opportunities as well as making obsolete many existing

systems. The following factors are to be considered for the technological environment:

♦          The pull of technological change.

♦          Opportunities arising out of technological innovation.

♦          Risk and uncertainty of technological development.

♦          Role of R&D in a country and government’s R&D budget.

Technology can act as both opportunity and threat to a business. It can act as opportunity asbusiness can take advantage of adopting technological innovations to their strategic advantage. However, at the same time technology can act as threat if organisations are not able to adopt it to their advantage. For example, an innovative and modern production system can act as threat if the business is not able to change their production system. New entrants can always use availability of technological improvements in products or production methods that can be a threat to a business.

Technological opportunities and threats are not limited to the product or production.

Technology permeates whole gambit of business. It can transform how a business acts and functions. The technology and business are highly interrelated and interdependent also.

The fruits of technological research and development are available to society through business only and this also improves the quality of life of the society. Hence, technology is patronized by business. Then again technology also drives business and makes a total change on how it is carried out. The interface between business and technology is explained in the figure:

Interface between Business & Technology. Important technology-related issues that might affect a broad variety of companies include:

♦          Access to the “information highway” through  the Internet which   may enable large numbers of employees to work from home or provide strategists with access to richer sources of information.

♦          Business-to-business sales and exchanges,

♦          Providing customers with access to online shopping through the Internet.

For example, Dell Computer Corporation reduces its paperwork flow, schedules its payments more efficiently, and is able to coordinate its inventories efficiently and effectively by using the capabilities of the Internet. This helps to eliminate/reduce paperwork, flatten companies, and shrink time and distance, thus capturing a competitive premium for the company. Because the technological aspects are so important, some of the key questions that can be asked in assessing the technological environment are given below.

♦          What are the technologies {both manufacturing and information technologies used by the company?

♦          Which technologies are utilised in the company’s business, products, or their parts?

♦          How critical is each technology to each of these products and businesses?

♦          Which external technologies might become critical and why? Will they remain available outside the company?

♦          What has been the investment in the product and in the process side of these technologies? For the company and for its competitors?  Design?  Production? Implementation and service?

♦          What are the other applications of the company’s technologies? In which applications does the company currently participate and why? In which application does the company does not participate and why?

♦          Which technological investments should be curtailed or eliminated?

♦          What additional technologies will be required in order to achieve the current corporate business objectives?

♦          What are the implications of the technology and business portfolios for corporate strategy?

  1. Global Environment

Today’s competitive landscape requires that companies must analyse  global environment as it is also rapidly changing. The new concept of global village has changed how individuals and organizations relate to each other. Further, new migratory habits of the workforce as well as increased offshore operation are changing the dynamics of business operation. Among the global environmental factors that should be assessed are:

♦          Potential positive and negative impact of significant international events such as a sport meet or a terrorist attack.

♦          Identification of both important emerging global markets and global markets that are changing. This includes shifts in the newly industrialised countries in Asia that may imply  the opening of new markets for products or increased competition from emerging globally competitive companies in countries such as South Korea and China

♦          Differences between cultural and institutional attributes of individual global markets.

Due to economic reforms, Indian businessmen are also out to see beyond the physical boundaries of the country. The Indian companies are acquiring business in different countries.

The need to think and act from global perspective is universal. For a long time businessmen everywhere believed that home markets were adequate and safe. They never felt the need to explore the overseas markets in a big way. “If they could pick up some extra sales through exporting, these businessmen were more than satisfied. The scenario is different now The companies are increasingly interested in globalising.

Nature of Globalization:

Globalization means several things for several people. For some it is a new paradigm – a set of fresh beliefs, working methods, and economic, political and socio- cultural realities in which the previous assumptions are no longer valid. For developing countries, it means integration with the world economy. In simple economic terms, globalization refers to the process of integration of the world into one huge market. Such unification calls for removal of all trade barriers among countries. Even political and geographical barriers become irrelevant

At the company level, globalization means two things:

(a) the company commits itself heavily with several manufacturing locations around the world and offers products in several diversified industries, and

(b) it also means ability to compete in domestic markets with foreign competitors.

A company which has gone global is called a multinational (MNC) or a transnational (TNC). An MNC is. therefore, one that, by operating in more than one country gains R&D, production, marketing and financial advantages in its costs and reputation that are not available to purely domestic competitors. The global company views the world as one market, minimises the importance of national boundaries, sources, raises capital and markets wherever it can do the job best.

 

 a global company has three characteristics:

♦          It is a conglomerate of multiple units (located in different parts of the globe) but all linked by common ownership.

♦          Multiple units draw on a common pool of resources, such as money, credit, information, patents, trade names and control systems.

♦          The units respond to some common strategy. Nestle International is an example of an enterprise that has become multinational. It sells its products in most countries and manufactures in many. Besides, its managers and shareholders are also based in different nations.

A further development, perhaps, will be the super-national enterprise. It is a worldwide enterprise chartered by a substantially non-political international body such as IMF or World Bank. It operates as a private business without direct obligations. Its function is international business service, and it remains viable only by performing that service adequately for nations ‘which permit its entry. With its integrative view, it should be able to draw the economic world closer together. It could serve all nations without being especially attached to anyone of them.

Why do companies go global?

There are several reasons why companies go global. These are discussed as follows:

♦          One reason could be the rapid shrinking of time and distance across the globe thanks to faster communication, speedier transportation, growing financial flows and rapid technological changes.

♦          It is being realised that the domestic markets are no longer adequate and rich. Japanese have flooded the U.S. market with automobiles and electronics because the home market was not large enough to absorb whatever was produced. Some European companies have gone global for similar reason.

According to Raymond Vernon companies that develop attractive new products sell them first in their home markets. Sooner or later, foreigners may learn about these products.

At this stage, most companies would export the product or service rather than produce it abroad. But as foreign demand grows, the economics of foreign production change.

Eventually, the foreign market becomes large enough to justify foreign investment. Another reason for going overseas may also vary by industry. Petroleum and mining companies often go global to secure a reliable or cheaper source of raw-materials.

Some manufacturing companies, by contrast, have often ventured overseas to protect old markets or to seek new ones. For example cheap labour in India lure foreign investors.

Companies often set up overseas plants to reduce high transportation costs. The higher the ratio of the unit cost to the selling price per unit, the more significant the transportation factor becomes.

The motivation to go global in high-tech industries is slightly different. Companies in electronics and telecommunications must spend large sums on research and development for new products and thus may be compelled to seek ways to improve sales volume to support high overhead expenses. If domestic sales and exports do not generate sufficient cash flow, the companies naturally might look to overseas manufacturing plants and sales branches to generate higher sales and better cash flow.

Developments are also responsible for transnational operation of companies.

The following developments are also responsible for transnational operation of companies.

 ♦          Increasing emphasis on market forces and a growing role for the private sector in nearly all developing countries

♦          Rapidly changing technologies that are transforming the nature, organization, an location of international production:

♦          The globalization of firms and industries’

♦          The rise of services to constitute the largest single sector in the world economy and regional economic integration, which has involved both the world’s largest economies as well as select developing countries.

Manifestation of Globalization:

Globalization manifests itself in many ways, important of them are:

♦          Configuring anywhere in the world: An MNC can locate its different operations in different countries on the basis of raw material availability, consumer markets and low- cost labour.

♦          Interlinked and independent economies: In terms of economic-welfare. globalization refers to the unique economically interdependent international environment. Each country’s prosperity is interlinked with the rest of the world. No nation can any longer hope to lead an existence of solitude and isolation in which only domestic industries can function.

Lowering of trade and tariff barriers:

The apparent and real collapse of international trade barriers proposes a new global cooperative arrangement and a redefinition of roles of state and industry. The trend is towards increased privatization of manufacturing and services sectors, less government interference in business decisions and more dependence on the value-added sector to gain market place competitiveness. World over, governments are pulling out from commercial business. The trade tariffs and custom barriers are getting lowered, resulting in cheaper and abundant supply of goods.

Infrastructural resources and inputs at International prices:

Infrastructural inputs must be ensured at competitive prices, if the companies were to compete globally. The advantages of cheap labour (and other inputs) evaporate in the face of continuous inflation and high infrastructural costs.

Increasing trend towards privatization:

Governments are everywhere withdrawing from owning and running business enterprises. Private entrepreneurs are given greater access and freedom to run business units. The role of government is reduced to the provider of infrastructure for private business to prosper.

Entrepreneur and his unit have a central economic role:

In the emerging world order, the entrepreneur and his unit become central figures in the process of economic growth and development of a nation. Given the right environment, businesses are able to innovate, bring in new products, and contribute to nation’s wealth. For the risk he takes and efforts he puts in, the businesses are rewarded with profits. Related to this is the viability of the business unit. Only firms which are cost effective and quality oriented survive and prosper. Weak and marginal firms die their natural death.

Mobility of skilled resources:

Skilled labour was once considered to be the decisive factor in plant location and even in determining comparative advantage of a nation. Skilled labour is highly mobile. Modern factories use highly skilled labour which is freely mobile. Where labour is unskilled, managements are spending vast sums of money to train workers become skilled in their jobs. Besides labour, other factors of production (land and capital) are also mobile. A developing country which is long on land and short on capital can invite foreign investment and make good the deficiency. Similarly, a developed country which is long on capital and short on land can use a developing country as a base for its manufacturing operations.

Thus, the traditional factors of production, viz., land, labour and capital, are no more immobile or restricted for usage with. They are transferable from any part of the world to any other part of the globe. The entire world has become a global village.

Market-side efficiency:

Integration of global markets implies that costs, quality processing time, and terms of business become dominant competition drivers. Customers can make a genuine choice of products and services on the basis of maximum value for money. The exclusive markets which were once enjoyed are no longer available to a firm. The inexorable pressure of technology and need for its integration means that customers no longer have to be satisfied with shoddy products and services provided by the state monopolies.

Formation of regional blocks:

A final corollary to globalization is the formation of trade blocks. The reasons for forming such blocks are obvious. Countries, like corporations, have to form strategic alliances to ward off economic and technological threats and leverage their respective comparative and competitive advantages. The signing of NAFTA (North American Free Trade Area) among N. America, Canada, and Mexico creates new markets and manufacturing opportunities for these countries and threatens to disrupt the plans and strategies of world powers such as Japan. Similarly formation of European Union and ASEAN affects the World trade balance.

India is part of South   Asian Association for  Regional cooperation (SAARC). SAARC consist of seven South Asian Countries with Bangladesh, Bhutan, Maldives. Nepal. Pakistan and Sri Lanka as its members in addition of India. SAARC endevours to accelerate economic growth in the Region. It also strives for social progress and cultural development in the region, promotion of active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields and strengthening of cooperation among the member states in the International forums on matters of common interest.

 

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