ANALYSING THE ENVIRONMENT

Analysis of the macro-environment may be analysed into six segments using the PESTEL framework. Political Economic Socio-cultural Technological Environmental Legal

THE POLITICAL ENVIRONMENT
Government is responsible for providing a stable framework for economic activity and, in particular, for maintaining and improving the physical, social and market infrastructure. Public policy on competition and consumer protection is particularly relevant to business strategy. GOVERNMENT POLICY Government policy affects the whole economy, and governments are responsible for enforcing and creating a stable framework in which business can be done. A report by the World Bank indicated that the quality of government policy is important in providing three things: Physical infrastructure (e.g. transport) Social infrastructure (education, a welfare safety net, law enforcement, equal opportunities). Market infrastructure (enforceable contracts, policing corruption). PUBLIC POLICY ON COMPETITION In a perfect monopoly, there is only one firm that is the sole producer of a good that has no closely competing substitutes, so that the firm controls the supply of the good to the market. The definition of a monopoly in practice is wider than this, because governments seeking to control the growth of monopoly firms will probably choose to regard any firm that acquires a major share of the market as a potential monopolist. Monopoly generally exploits customers, but it may have both economic disadvantages and economic advantages. a) A beneficial monopoly achieves economies of scale in an industry where the minimum efficient scale is at a level of production that would mean having to achieve a large share of the total market supply. In these circumstances, monopoly may be tolerated but is likely to be regulated

or even taken into government ownership. Many