Objectives:
A major responsibility of strategists is to ensure development of an effective external-audit system. This
includes using information technology to devise a competitive intelligence system that works. The externalaudit
approach described in this Lecture can be used effectively by any size or type of organization.
Typically, the external-audit process is more informal in small firms, but the need to understand key trends
and events is no less important for these firms.

Key external Factors:
. Racial equality
. Average level of education
. Government regulation
. Attitudes toward customer service
. Attitudes toward product quality
. Energy conservation
. Social responsibility
. Value placed on leisure time
. Recycling
. Waste management
. Air & water pollution
. Ozone depletion
. Endangered species
The leisure time has increased the leisure activities due to which recreational activities have been increased
and also it has given the growth to leisure industries also.
The next topic relates to environment. Just like recycling, for example the need of stationery is increasing
and these things are gong under the process of recycling. Recycling has become an important part of our
economic activity and society.

Waste management includes solid waste management and other waste. See the amount of waste in our
cities. The waste of vegetables and stationery and fuel has populated the city to great extent. Just like air and
water has been polluted due to these wastes. The populated water and air has effects the health of the
people and animals to great extent. This should be constantly monitored. Same is the case with ozone
depletion, due to which the harmful effects of sunlight are touching the surface of the earth and are
affecting the people life badly. Mainly the skin and eyes are effecting due to this.
There are a lot of species which have been endangered. All such factors should be monitored as key
economic variables.

Political, Governmental, and Legal Forces
Government Regulation
. Key opportunities & key threats
• Antitrust legislation (Microsoft)
• Tax rates
• Lobbying efforts
• Patent laws
There is always change in government regulations which create opportunities and threats also. For example,
anti trust legislation where there is an effort to ban the monopolies. Some organizations think that
monopolies should be banned. Similarly, tax rates and lobbying efforts for special, lobbying entries are
those efforts which are made in order to pass special resolution laws of their own choice. Patents law and
intellectual are also relates to the same stories.
Increasing Global Interdependence:
. Impact of political variables
􀂃 Formulation of Strategies
􀂃 Implementation of Strategies
. Strategists in a global economy
􀂃 Forecast political climates

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􀂃 Legalistic skills
􀂃 Diverse world cultures
Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers,
and customers of organizations. Political, governmental, and legal factors, therefore, can represent key
opportunities or threats for both small and large organizations. For industries and firms that depend heavily
on government contracts or subsidies, political forecasts can be the most important part of an external
audit. Changes in patent laws, antitrust legislation, tax rates, and lobbying activities can affect firms
significantly.
In the world of impolitic, Americans are still deeply divided over issues such as assisted suicide, genetic
testing, genetic engineering, cloning, and abortion. Such political issues have great ramifications for
companies in many industries ranging from pharmaceuticals to computers.
The increasing global interdependence among economies, markets, governments, and organizations makes
it imperative that firms consider the possible impact of political variables on the formulation and
implementation of competitive strategies.
. Globalization of Industry:
􀂃 Worldwide trend toward similar consumption patterns
􀂃 Global buyers & sellers
􀂃 E-commerce
􀂃 Instant transmission of money & information across continents
Political forecasting can be especially critical and complex for multinational firms that depend on foreign
countries for natural resources, facilities, distribution of products, special assistance, or customers.
Strategists today must possess skills to deal more legalistically and politically than previous strategists, whose
attention was directed more too economic

and technical affairs of the firm. Strategists today are spending
more time anticipating and influencing public policy actions. They spend more time meeting with
government officials, attending hearings and government-sponsored conferences, giving public speeches,
and meeting with trade groups, industry associations, and government agency directors. Before entering or
expanding international operations, strategists need a good understanding of the political and decisionmaking
processes in countries where their firm may conduct business. For example, republics that made up
the former Soviet Union differ greatly in wealth, resources, language, and lifestyle.
Nearly fifty European and Latin American heads of state recently signed the sixty-nine-point Declaration of
Rio, a sweeping agreement liberalizing trade between countries on both continents. Tariffs and no tariff
trade barriers between the two continents are being reduced in the new era of political cooperation. The
Declaration of Rio of 1999 enhanced economic development and trade between those continents as well as
the United States.
Increasing global competition accents the need for accurate political, governmental, and legal forecasts.
Many strategists will have to become familiar with political systems in Europe and Asia and with trading
currency futures. East Asian countries already have become world leaders in labor-intensive industries. A
world market has emerged from what previously was a multitude of distinct national markets, and the
climate for international business today would be much more favorable than yesterday. Mass
communication and high technology are creating similar patterns of consumption in diverse cultures
worldwide! This means that many companies may find it difficult to survive by relying solely on domestic
markets.
It is no exaggeration that in an industry that is, or is rapidly becoming, global, the riskiest possible posture is
to remain a domestic competitor. The domestic competitor will watch as more aggressive companies use
this growth to capture economies of scale and learning. The domestic competitor will then be faced with an
attack on domestic markets using different (and possibly superior) technology, product design,
manufacturing, marketing approaches, and economies of scale. A few examples suggest how extensive the
phenomenon of world markets has already become. Hewlett-Packard's manufacturing chain reaches halfway
around the globe, from well-paid, skilled engineers in California to low-wage assembly workers in Malaysia.
General Electric has survived as a manufacturer of inexpensive audio products by centralizing its world
production in Singapore.
. Impact of political variables on government regulations:
􀂃 Government regulation/deregulation
􀂃 Tax law changes

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􀂃 Special tariffs
􀂃 Political Action Committees (PACs)
􀂃 Voter participation rates
􀂃 Number of patents
􀂃 Changes in patent laws
Local, state, and federal laws, regulatory agencies, and special interest groups can have a major impact on
the strategies of small, large, for-profit, and nonprofit organizations. Many companies have altered or
abandoned strategies in the past because of political or governmental actions. For example, many nuclear
power projects have been halted and many steel plants shut down because of pressure from the
Environmental Protection Agency (EPA).

Other federal regulatory agencies include the Food and Drug
Administration (FDA), the National Highway Traffic and Safety Administration (NHTSA), the
Occupational Safety and Health Administration (OSHA), the Consumer Product Safety Commission
(CPSC), the Federal Trade Commission (FTC), the Securities Exchange Commission (SEC), the Equal
Employment Opportunity Commission (EEOC), the Federal Communications Commission (FCC), the
Federal Maritime Commission (FMC), the Interstate Commerce Commission (ICC), the Federal Energy
Regulatory Commission (FERC), the National Labor Relations Board (NLRB), and the Civil Aeronautics
Board (CAB). A summary of political, governmental, and legal variables that can represent key opportunities
or threats to organizations is provided in Table below.

Some Political, Governmental, and Legal Variables
• Government regulations or deregulations
• Changes in tax laws
• Special tariffs
• Political action committees
• Voter participation rates
• Number, severity, and location of
government protests
• Number of patents
• Changes in patent laws
• Environmental protection laws
• Level of defense expenditures
• Legislation on equal employment
• Level of government subsidies
• Antitrust legislation
• Sino-American relationships
• Russian-American relationships
• European-American relationships
• African-American relationships
• Import-export regulations
• Government fiscal and monetary policy
changes
• Political conditions in foreign countries
• Special local, state, and federal laws
• Lobbying activities
• Size of government budgets
• World oil, currency, and labor markets
• Location and severity of terrorist
activities
• Local, state, and national elections
World oil situation makes a difference to us. So, either the issues is related to currency, oil or labor they
should be monitored as key external variables.