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International Business Strategy Overview

Chapter 11 of 'International Business: The New Realities' discusses strategies and organizational structures in international firms, emphasizing the importance of balancing global integration and local responsiveness. It outlines various strategies such as home replication, multidomestic, global, and transnational strategies, and highlights the role of visionary leadership and organizational culture in achieving success. The chapter also addresses the pressures firms face for both global integration and local responsiveness, and the significance of ethical considerations in international business operations.

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0% found this document useful (0 votes)
6 views62 pages

International Business Strategy Overview

Chapter 11 of 'International Business: The New Realities' discusses strategies and organizational structures in international firms, emphasizing the importance of balancing global integration and local responsiveness. It outlines various strategies such as home replication, multidomestic, global, and transnational strategies, and highlights the role of visionary leadership and organizational culture in achieving success. The chapter also addresses the pressures firms face for both global integration and local responsiveness, and the significance of ethical considerations in international business operations.

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International Business: The New

Realities
Sixth Edition, Global Edition

Chapter 11
Strategy and Organization in
the International Firm

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Learning Objectives
11.1 Describe strategy in international business.
11.2 Understand building the global firm.
11.3 Describe the integration-responsiveness framework.
11.4 Learn to identify strategies based on the integration-
responsiveness framework.
11.5 Understand organizational structure in international
business.
11.6 Understand foreign market entry strategies.
11.7 Understand global megatrends and their relationship to
international strategy.

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What Is Strategy?
A planned set of actions that managers take to make best
use of the firm’s resources and core competences, to gain a
competitive advantage
• When developing strategies, managers examine the firm’s
strengths and weaknesses, and the opportunities and
challenges facing the firm.
• They then decide which customers to target, what product
lines to offer, how best to contend with competitors, and
how generally to configure and coordinate the firm’s
activities around the world.

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International Strategy
• Strategy carried out in two or more countries.
• Managers develop international strategies to:
– allocate scarce resources and configure value-adding
activities on a worldwide scale
– participate in major markets
– implement valuable partnerships abroad
– engage in competitive moves in response to foreign
rivals.

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Global, Sustainable Competitive
Advantage
• Managers should aim to “ L develop, at one and the same
time, global scale in efficiency, multinational flexibility, and
the ability to develop innovations and leverage knowledge
on a worldwide basis.”
• Thus, the firm that aspires to become a globally
competitive enterprise should simultaneously strive for
three strategic objectives:
– Efficiency
– Flexibility
– Learning

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Three Strategic Objectives
• Efficiency: Lower the cost of the firm’s operations and
activities on a global scale.
• Flexibility: The agility to manage diverse country-specific
risks and opportunities by tapping resources in individual
countries and exploiting local opportunities.
• Learning: Develop the firm’s products, technologies,
capabilities, and skills by internalizing knowledge gained
from international ventures.
• Often, even successful firms excel at only one or two of
these objectives.

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Essentials of Successful Global Firms

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Visionary Leadership
A quality of senior management that provides superior
strategic guidance for managing efficiency, flexibility, and
learning.
• International mindset and cosmopolitan values. Openness
to, and awareness of, diversity across cultures.
• Willingness to commit resources. Financial, human, and
other resources.
• Strategic vision. Articulating what the firm wants to be in
the future and how it will get there.
• Willingness to invest in human assets. Emphasizing the
use of foreign nationals, promoting multi-country careers,
and training to develop international managers highly
capable of functioning in diverse environments.

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Examples of Visionary Leaders
• Alan Jope, CEO of Unilever, has set the firm on a path for
sustainable and socially responsible growth.
• Jope has positioned Unilever in products that support
health and hygiene, including safe drinking water
worldwide, and cutting manufacturing waste and
greenhouse gas emissions.
• He is working to improve the lives of more than 500,000
small farmers and distributors in Unilever’s supply chain.
• Such initiatives position Unilever
for growth in emerging markets,
while reducing the firm’s
environmental footprint and
ensuring safe and fair work
environments. Source: Max Lakner/BFA/Shuttersock
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Organizational Culture
The pattern of shared values, behavioral norms, systems,
policies, and procedures that employees learn and adopt:
• Employees acquire the culture as the correct way to
perceive, think, feel, and behave in relation to new
problems and opportunities that confront the firm.
• Usually derives from the influence of founders and
visionary leaders or some unique history of the firm.
• Management should seek to build a global organizational
culture, key to the development and execution of
successful international strategy.

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Firms with a Global Organizational
Culture
• Value and promote a global perspective in all major
initiatives.
• Value international competence and cross-cultural skills
among their employees.
• Adopt a single corporate language for business
communication.
• Promote interdependency between headquarters and
subsidiaries.
• Subscribe to appropriate ethical standards.

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Ethical Connections
• The annual revenue of the five largest corporations
exceeds the combined G DP of the world’s poorest 100
countries.
• M NEs can do much to help reduce poverty.
• Global pharmaceuticals provide AI DS medications to the
poor in Africa. Global retailers develop distribution
infrastructure that increases access to needed goods at
lower costs. M NEs engage in large-scale charity work.
• Bimbo, Pfizer, and Unilever are among many that support
the world’s poor while ensuring profitable worldwide
operations.

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Organizational Processes
Managerial routines, behaviors, and mechanisms that allow
the firm to function as intended
• Typical processes include mechanisms for collecting
information, ensuring quality control in manufacturing, and
maintaining effective payment systems.
• Samsung acquired competitive
advantage by emphasizing
countless superior processes.
Samsung digitizes all key
documents and uses intranets
and the Internet to automate
activities and cut operating
costs.

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Important Organizational Processes for
Achieving International Coordination
• Global team: An internationally distributed group of
employees charged with a specific problem-solving or best
practice mandate that affects the entire firm.
• Global information systems: Global IT infrastructure,
together with tools like intranets and electronic data
interchange, provide virtual interconnectedness within the
international firm.
• Because the processes of the international firm may
operate across numerous countries, they must function
especially well.

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Multidomestic Industry
• An industry in which competition takes place on a country-
by-country basis.
• Firms that specialize in such industries as processed food,
consumer products, fashion, retailing, and publishing
usually cater to specific conditions in each country where
they do business.
• In such industries, the firm must adapt its offerings to suit
the language, culture, laws, income level, and other
specific characteristics of each country.
• Each country tends to have a unique set of competitors.
• Multidomestic industries apply “multidomestic strategy,”
otherwise known as “localization strategy.”

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Examples of Multidomestic Industries
• The British publisher Bloomsbury has translated each
volume of its Harry Potter series into the local language in
every country where the book is sold.
• Beverage companies produce various brands and flavors
in markets worldwide. Coca-Cola offers “Georgia Coffee” in
Japan, “Café Zu” in Thailand, Inca Cola in Peru, and “Burn”
energy drink in France.
• In Asia, KFC restaurants are
often multi-story structures
that sell distinctive flavors of
chicken.

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Global Industry
• An industry in which competition is on a regional or
worldwide scale.
• Firms that specialize in such industries as aerospace, cars,
computers, chemicals, and industrial equipment, typically
cater to customers on a regional or global scale. For
example, Subaru markets similar cars worldwide.
• In such industries, customer needs vary little from country
to country. Firms sell relatively standardized offerings
across entire regions or throughout the world.
• The industry usually has only a handful of the same
competitors that compete regionally or worldwide.
• Global industries tend to apply “global strategy”

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Examples of Global Industries
• DuPont sells essentially the same chemicals around the
world.
• American Standard sells similar bathroom fixtures
worldwide, competing with Toto most major markets.
• Caterpillar and Komatsu compete in all major markets and
offer similar tractors.

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Global Integration
• Coordination of the firm’s value-chain activities across
multiple countries to achieve worldwide efficiency, synergy,
and cross-fertilization, to take advantage of similarities
between countries.
• Firms that emphasize global integration:
– Make and sell standardized products and services to
capitalize on converging customer needs and tastes.
– Compete on a regional or worldwide basis.
– Minimize operating costs by centralizing value chain
activities and emphasizing scale economies.

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Local Responsiveness
Meeting the specific needs of buyers in individual countries
• Local responsiveness requires the firm to adapt to
customer needs and the competitive environment.
• Local managers are free to adjust offerings, marketing, and
practices to suit conditions in individual markets.
• When operating internationally, firms try to strike the right
balance between global integration and local
responsiveness.

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The Integration-Responsiveness
Framework (1 of 2)
• Summarizes the balance that firms seek to achieve
between two basic strategic needs:
– To integrate value chain activities globally, and to
create products and practices responsive to local
market needs.
• The main goal of firms that emphasize global integration is
to maximize the efficiency of their value chain activities on
a worldwide scale.
• The main goal of firms that emphasize local
responsiveness is to maximize sales and market share by
being highly responsive to local needs.

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The Integration-Responsiveness
Framework (2 of 2)

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Pressures for Global Integration (1 of 2)
• Seek cost reduction through economies of scale.
Concentrating manufacturing in a few advantageous
locations achieves economies of mass production.
• Capitalize on converging consumer trends and
universal needs. Companies like Nike, Dell, I NG, and
Coca-Cola offer products that appeal to customers
everywhere.
• Provide uniform service to global customers. Services
are easiest to standardize when firms centralize their
creation and delivery.

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Pressures for Global Integration (2 of 2)
• Conduct global sourcing of raw materials,
components, energy, and labor. Sourcing of inputs from
large-scale, centralized suppliers provides economies of
scale and consistent performance.
• Monitor and respond to global competitors. Globally
coordinating the firm’s response to competitive threats is
more efficient and effective.
• Take advantage of global media. Firms leverage the
Internet, cross-national TV, and other global media to
advertise in many countries simultaneously.

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Pressures for Local Responsiveness
(1 of 2)

• Leverage natural endowments available to the firm.


Each country has specific national resources and other
endowments that the foreign firm should access.
• Cater to local customer needs. Businesses in
multidomestic industries should adapt products, services,
and marketing to suit local customer needs.
• Accommodate differences in distribution channels. For
example, Japan’s distribution system for consumer goods
is characterized mainly by small retailers.

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Pressures for Local Responsiveness
(2 of 2)

• Respond to local competition. To out-compete local


rivals, successful firms devise offerings and practices that
best meet local demand.
• Adjust to cultural differences. For those products where
cultural differences are important, the firm should adapt the
product and marketing, especially which local competitors
are numerous.
• Meet host government requirements and regulations.
The firm must always comply with local legal and
regulatory requirements, which can vary substantially from
country to country.

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Four Strategies Emerging from the
Integration Responsiveness Framework (1 of 2)

• Home replication strategy


• Multidomestic strategy
• Global strategy
• Transnational strategy

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Four Strategies Emerging from the
Integration Responsiveness Framework (2 of 2)

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Home Replication Strategy
• The firm views international business as separate from,
and secondary to, its domestic business. Expansion
abroad is an opportunity to generate incremental sales for
domestic product lines.
• Products are designed for domestic customers, and
international business is pursued mainly to extend the life
of domestic products and replicating home market
success.
• Management holds little interest in foreign markets and
expects little knowledge to flow from foreign operations.

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Multidomestic Strategy
• Also known as “localization strategy.”
• The firm develops subsidiaries or affiliates in each of its
foreign markets, and appoints local managers to operate
independently and be locally responsive.
• Products and services are adapted to suit the needs and
wants of buyers in each country.
• Because headquarters acknowledges differences between
national markets, subsidiaries are allowed to vary product
and practices by country.
• Country managers are often nationals of the host country,
and generally don’t share knowledge and experience with
managers in other countries.

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Global Strategy
• Headquarters seeks substantial control over all country
operations in order to minimize redundancy, and achieve
maximum efficiency, learning, and integration worldwide.
• Global strategy asks “why not make the same thing, the
same way, everywhere?” Products, marketing, and
company practices are relatively standardized.
• R & D, manufacturing, marketing and other activities tend
to be concentrated at headquarters, where they can be
centrally coordinated and controlled.
• Management views the world as one large marketplace.

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Transnational Strategy (1 of 2)
• A coordinated approach to internationalization in which the
firm strives to be more responsive to local needs while
retaining sufficient central control of operations to ensure
efficiency and learning.
• The firm seeks to combine the major advantages of
multidomestic and global strategies, while minimizing their
disadvantages.
• It’s a flexible approach: standardize where feasible; adapt
where appropriate.
• Most firms find implementing transnational strategy very
challenging.

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Transnational Strategy (2 of 2)
Transnational strategy requires the firm to:
• Exploit scale economies by sourcing from a reduced set of
global suppliers and concentrating production in relatively
few locations where competitive advantages can be
maximized.
• Organize production, marketing, and other value-chain
activities on a global scale.
• Optimize local responsiveness and flexibility.
• Facilitate global learning and knowledge transfer.
• Coordinate global competitive moves - that is, deal with
competitors on a global, integrated basis.

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How IKEA Strives for Transnational
Strategy
• Some 90% of the product line is identical across more than
two dozen countries. I KEA modifies some furniture
offerings to suit tastes in individual countries.
• An overall, standardized marketing plan is centrally
developed at the firm’s headquarters in Sweden, but it is
implemented with local adjustments.
• Management decentralizes some decision-making to local
stores, such as product displays and language to use in
advertising.

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Organizational Structure
• The reporting relationships inside
the firm, “the boxes and lines” that
specify the linkages among people,
functions, and processes, allowing
the firm to carry out its operations.
• In large MNEs, these linkages are
extensive and include the firm’s
subsidiaries, affiliates, suppliers,
and other partners worldwide.

• A fundamental issue: How much decision-making should the


firm retain at headquarters and how much it should delegate to
foreign subsidiaries and affiliates. It is the choice between
centralization and decentralization.
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The Most Experienced Global Firms:
• Encourage local managers to identify with broad objectives
of the firm.
• Visit subsidiaries periodically to instill corporate values and
priorities.
• Rotate employees within the corporate network, to promote
development of a global perspective.
• Encourage country managers to
interact and share experiences
with each other through regional
and global meetings.
• Provide incentives and penalties
to promote compliance with
headquarters’ goals.

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How Value Chain Activities Are
Shared in the Typical, Global MNE

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Alternative Organizational
Arrangements
• Export Department
• International Division
• Geographic Area Structure
• Product Structure
• Functional Structure
• Global Matrix Structure

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Export Department
• A unit within the firm charged with managing the firm’s
export operations
• Most closely associated with home replication strategy.
• The firm’s resource commitment is small. Export activities
are unified under one department, providing efficiencies in
selling, distribution, and shipping.
• But headquarters has minimal control over foreign
operations, with strong potential to rely too much on
intermediaries, and few opportunities to learn about foreign
markets.

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Example of Export Department

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International Division
• All international activities are centralized within one division
in the firm, separate from domestic units.
• Associated with increased focus on international business.
• Concentrates international expertise, with greater
coordination and management of international operations.
• However, can result in fierce competition between
domestic and international units for company resources,
with limited knowledge sharing among the foreign units
and with headquarters. Can result in little coordination
between the division and other divisions in the firm.

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Example of International Division

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Geographic Area Structure
• Management and control are decentralized to individual
geographic regions, whose managers are responsible for
operations within their region.
• Often used by firms that market relatively standardized
products across entire regions or groups of countries.
• Results in greater responsiveness to customer needs and
wants in each market, providing a good balance between
global integration and local adaptation.
• However, managers’ orientation is more regional than
global, which affects development and management of
products. Global economies of scale may suffer.

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Example of Geographic Area
Structure

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Product Structure
• Management of international operations is organized by
major product line.
• Each product division is responsible for producing and
marketing a specific group of products worldwide.
• The firm develops expertise with specific products on a
global basis, ensuring scale economies and knowledge
sharing among units worldwide for a given product line.
• However, can result in duplicating the firm’s support
functions in each product division. There is also potential
for excessive focus on products and too little on developing
the firm’s markets.

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Example of Product Structure

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Functional Structure
• Management of international operations is organized by
functional activity.
• For example, oil companies tend to organize their
worldwide operations along two major functional lines—
production and marketing of petroleum products.
• The approach implies a small central staff that provides
strong central control and coordination, with a focused
global strategy and concentrated functional expertise.
• However, coordination becomes unwieldy when the firm
has many product lines, and the approach may not
respond well to specific buyer needs in individual markets.

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Example of Functional Structure

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Global Matrix Structure
• Blends the geographic area, product, and functional
structures to leverage the benefits of a purely global
strategy while the firm remains responsive to local needs.
• Leverages the benefits of global strategy and
responsiveness to local needs, simultaneously.
• Emphasizes interorganizational learning and knowledge
sharing among the firm’s units worldwide.
• However, the dual reporting chain of command means
employees may receive contradictory instructions from
multiple managers, which can lead to conflicts.
• Managing many subsidiaries or products, or operations in
many foreign markets, is complex.

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Example of Global Matrix Structure

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Foreign Market Entry Strategies (1 of 2)
• Importing or global sourcing: Procurement of products
and services from foreign sources.
• Exporting: Producing products or services in one country
(often the producer’s home country), and selling and
distributing them to customers in other countries.
• Countertrade: International transaction in which all or
partial payments are made in kind rather than cash. The
firm receives other products in payment.
• Foreign direct investment (FD I) implies establishing a
presence in the foreign market by investing capital and
securing ownership of a factory, subsidiary, or other facility
there.

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Foreign Market Entry Strategies (2 of 2)
• Collaborative ventures include joint ventures in which the
firm makes similar equity investments abroad, but in
partnership with another company.
• With licensing, the firm allows a foreign partner to use its
intellectual property in return for royalties or other
compensation.
• Franchising is common in retailing. McDonalds, Dunkin’
Donuts, Century 21 Real Estate, and many others have
used franchising to internationalize worldwide.

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Factors to Consider When Choosing a
Foreign Market Entry Strategy (1 of 3)
• Goals and objectives of the firm, such as desired
profitability, market share, or competitive positioning.
• Degree of control desired regarding decisions, operations,
and assets involved in a venture.
• The firm’s financial, organizational, and technological
resources and capabilities.
• The types of risk inherent in
each proposed foreign venture.

A Nestlé plant in South Africa


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Factors to Consider When Choosing a
Foreign Market Entry Strategy (2 of 3)
• Conditions in the target country, such as legal, cultural,
and economic circumstances, as well as distribution and
transportation systems.
• Nature and extent of competition from existing rivals and
from firms that may enter the market later.
• Availability and capabilities of partners in the market.

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Factors to Consider When Choosing a
Foreign Market Entry Strategy (3 of 3)
• The value-adding activities the firm is willing to perform
itself in the market and the activities it will delegate to local
partners.
• Long-term strategic importance of the market.
• Characteristics of the product or service.

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Classification of Entry Strategies Based
on Degree of Control for Focal Firms

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Typical Stages of Company
Internationalization

Source: Based on S. Tamer Cavusgil “On the Internationalization Process of Firms,” European Research 8, No. 6, pp. 273-
281.
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Leading Megatrends in the 2020s (1 of 4)
Shifting Demographics and International Migration
• Rapidly aging populations in advanced economies (e.g., Japan, Italy)
• Large working age populations in many emerging markets (e.g., Nigeria, Indonesia)
• Large-scale expansion of the middle class in emerging markets (e.g., Brazil, India)
• Growth of urban population in emerging markets (e.g., China, India)
• Continued increase in cross-national migration

Threats
• Aging populations associated with lower productivity and falling demand for certain goods
and services
• Increasing “urban problems,” for example, environmental impact, waste disposal, and
energy consumption

Opportunities
• Increased demand for goods and services by the elderly such as health care and
assisted care housing
• Rising demand for goods and services by working age and middle class populations such
as housing, automobiles, and professional services
• Immigrants, often with distinctive skills, replenishing the workforce in needed areas
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Leading Megatrends in the 2020s (2 of 4)
Transformation of the Global Economic Environment
• Shift of major economic activity to emerging markets, like China, India, and
Brazil
• Protectionist and fragmented international trading environment
• National debt, economic inequality, ongoing poverty, and other nation-level
economic challenges

Threats
• Rising competition from emerging market multinational firms
• Protectionism and fragmentation disrupt efficient international trading system
• Limited public policy options and reduced living standards due to national debt
and nation-level economic challenges
Opportunities
• Rising demand for products and services from China, India, and other emerging
markets
• Smart planning, innovation, and strategies that allow top firms to transform
economic challenges into opportunities
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Leading Megatrends in the 2020s (3 of 4)
Revolutionary Technological Advances
• Emergence of ground-breaking technologies, like artificial intelligence, Internet of Things,
robotics, and digital platforms
• Evolving technological outcomes such as increased connectivity, processing power,
digitalization, and data

Threats
• Lack of technological access in developing economies and some emerging markets
• Insufficient skills among firms and individuals to manage leading-edge technologies
• Job loss arising from automation, robotics, and artificial intelligence

Opportunities
• Rising demand for cutting-edge products and services that feature the latest technology
• Smart use of technology that increases connectivity, innovation, productivity, and control
over value chain activities
• Smart use of latest technology that optimizes management, marketing, finance, and other
business functions

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Leading Megatrends in the 2020s (4 of 4)
Deteriorating Natural Environment and Sustainability
• Climate change
• Degradation of land, air, and water
• Growing scarcity of energy, water, food, and other natural resources
Threats
• Effect of climate change on various industries such as agriculture, energy, and tourism
• Rising scarcity of water, rare minerals, and other key resources
• Loss of natural resources needed to sustain living standards
Opportunities
• Rising demand for products that minimize impact on the environment and enhance
sustainability (e.g., alternative energy sources, products that minimize resource usage)
• Increasing demand for products and services that repair and restore the natural
environment
Sources: Myron Brilliant, “10 Trends in 2022: Global Perspectives for Business,” U.S. Chamber of Commerce, January
21, 2022, [Link] ; Bernard Marr, “The 5 Biggest Global Trends Every Business Must Be Ready For,”
Forbes, November 15, 2021, [Link] ; Ilian Mihov, Katell Le Goulven, and Mark Stabile, “Six Global Trends in
Business and Society,” INSEAD: Knowledge, February 3, 2022, [Link] ; Global Trends 2040: A
More Contested World (Washington, DC: Office of the Director of National Intelligence, 2021, [Link] ).
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