Learning Outcomes
After studying this chapter, you should be able to:
1. Characterize business, society, and government and explain their
interrelationships
2. Differentiate the market and nonmarket environments and state how
they influence each other
3. Explain the nonmarket society and government environments and how
they affect business
4. Contrast the political and legal environments, briefly stating what each
branch of government does, and summarize their balance of power
5. Discuss the role of business and its managers, including stakeholders
6. Define “strategy,” differentiate market and nonmarket strategies, and
describe the need to integrate them
7. Define the key terms in this chapter
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Model 1.1
The Business, Society,
and Government
Interrelationship
Stakeholder
Environment
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Business, Society, and Government Defined
Business
A firm that sells a product for a profit
Product
A physical good or a service or a combination
of both
Society
The people, including interest groups, and the
communities affected by business
Government The executive, legislative, and judicial
branches at the local, county, state, federal,
and international levels
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Capitalism, Pluralism, and
Special Interest Groups
Capitalism
A market system in which individuals and
corporations own the means of production and
operate to make a profit with limited social
intervention and government restraint.
Pluralism
A political system that attempts to balance power
between business, society and government so that
no one group dominates.
Special interest
group
Any profit, nonprofit, or government organization
that is working for its own best interest, sometimes
at the expense of others.
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Factors Contributing to Special Interest
Groups and Social Problems
Entitlement
Mentality
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Social
Problems
Victimization
The Market Environment
Indirect
Direct
Competitors
Suppliers
External
Business
Internal
Owners
Shareholders
Employees
Managers
Customers
Consumers
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Figure 1.1
The Market Environment
Interaction
Direct
Indirect
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Stakeholders in the Market Environment
Suppliers
Business
Customers/Consumers
DistributionRetailers/
Creditors
Owners/
Stockholders
Employees/
Managers
Purchasers of the
products/Users of the
products
Competitors
Figure 1.2
The Nonmarket Society Environment
Stakeholders in the Nonmarket Society Environment
Societal Interest Groups
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Business
Owners/
Shareholders
Employees/
Managers
Communities and News Media
Figure 1.3
The Nonmarket Government Environment
Political Lawmakers
Legislative Branch/
Congress
Business
Owners/
Shareholders
Employees/
Managers
Law Interpretation
and Determination
Judicial Branch/
Courts
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Political Law Enforcement
Executive Branch/President
Cabinet, and
Regulatory Agencies
The Nonmarket Government Environment
Legislative
At the federal and state levels, Congress makes the
laws. The Senate and House of Representatives
develop and vote on bills to become law.
Executive
The president and the cabinet and regulatory agencies
enforce the laws, and they do have power to make
regulations (regulations interpret and implement laws
enacted by Congress).
Judicial
The courts interpret the legality of the laws passed by
congress, based on the Constitution and other criteria,
and they determine the outcomes of court cases.
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Balance of Power: Government Pluralism
and Checks and Balances
Judicial
Legislative
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Executive
The Macroenvironment
Technological
Environment
Technology provides innovations of new and
improved products and the processes for creating
them.
Natural
Environment
Nature includes the air, water/sea life, land—
plants/food, trees, animals, etc., from our
communities. Economic growth has put a strain on
our natural resources and on the ability of the
ecosystems to cleanse and regenerate.
International
Environment
Multinational companies conduct business in many
countries. Each country has its own system of
interactions between business, society and
government, with each country having their own way
of doing business, culture, and laws that sometime
conflict with the U.S.
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The Role of Business and Its Responsibility
to Stakeholders
Value Creation
The role of business is to create value for its
owners/stockholders and its other stakeholders.
Stakeholders are affected by the business and
can affect firm performance.
Corporate Social
Responsibility
(CSR)
The conscious effort to operate in a manner that
balances stakeholder interests.
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The Role of Managers:
Integration of Strategies
Market
Environment
Strategies
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Nonmarket
Environment
Strategies
Stakeholder
value
Market and Nonmarket Strategies
Strategy
Guides firm interactions with its stakeholders to achieve
the firm’s objectives.
Market
Strategies
• Are used to compete for customers with the help of
suppliers and market intermediaries.
• Generate issues of special interest that are addressed
in the nonmarket environment.
Nonmarket • Can be more important than market strategies.
Strategies • Guide the firm’s interactions with society and
government stakeholders.
• Shape the nonmarket environment structure of a
market and the position of the business in that market.
• Address nonmarket opportunities and threats.
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Figure 1.4
Nonmarket Strategies for Business
Information Strategies (Chapters 1–2 and Appendix)
1. Outside sources that conduct research (use facts, figures/numbers to
support your side of the issue)
2. Expert testimony (used with government, and can include outside sources)
3. Supportive stakeholder strategy (get stakeholders to support your issue)
N—New strategy that you add
© Routledge
Figure 1.4
Nonmarket Strategies for Business (cont’d)
Societal Strategies (Chapters 5–7)
1. Overall strategy for dealing with societal interest group activists:
 Give them donations (philanthropy)
 Ignore them (be reactive and wait to see what happens)
 Oppose them (be proactive in stopping their strategic action against you)
 Negotiate with them (bargain to minimize negative consequences to your business)
 Work with them (essentially give in and do what they want you to do)
2. Build coalitions with advocacy societal interest groups
3. Establish news media relations and advocacy advertising (paid)
4. Generate positive community sentiment by being ethical and socially
responsible (ongoing long-term strategy)
N—New strategy that you add
© Routledge
Figure 1.4
Nonmarket Strategies for Business (cont’d)
Political Strategies (Chapters 8–10)
1. Overall strategy for dealing with governments:




Ignore them (be reactive and wait to see what happens)
Oppose them (be proactive and try to stop their strategic action against you)
Negotiate with them (bargain to minimize negative consequences to your business)
Work with them (essentially give in and do what they want you to do)
2. Lobby politicians and/or regulators (tell government your side of the issue—
information strategy)
3. Grassroots campaigns (get market groups to contact politicians and/or
regulators)
4. Building coalitions with market environment (usually competitors)
5. Seek business societal interest group support (peak and trade groups to
which the business belongs)
6. Testimony at hearings (overlaps with information strategy 2 and legal
strategy 2; use when needed)
7. Donations/campaign contributions to politicians (strategy used to help get
politician elected)
N—New strategy that you add
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Figure 1.4
Nonmarket Strategies for Business (cont’d)
Legal Strategies (Chapter 10)
1. Avoid lawsuits (including settling out of court)
2. Fight a lawsuit (go to court)
3. Sue other businesses, individuals, societal interest groups, and the
government (to get what you want)
N—New strategy that you add
We recommend that you use this list of strategies when doing case analysis for
all chapters. But realize that you can add other strategies to deal with the
nonmarket. When you read the chapters that contain details about each
strategy, you will be able to provide more details in the development and
implementation of these strategies. If you analyze cases using the case table in
the Appendix, the strategies are listed in column 5.
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Table 1.1
Nonmarket Strategies for Google by Stakeholder
Note: This multifaceted problem requires both market and nonmarket solutions per stakeholder; many of
these strategies overlap with other nonmarket stakeholder strategies. Looking at Figure 1.4, you will see
that the most often cited nonmarket strategies include operating in a way to gain community sentiment
and to establish media and government relations. The CEO clearly needs to gain public support through
media management and implement strategies to address the security problems in China.
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Our Approach to the Book and Cases:
The Top Management Stakeholder Approach
• Throughout this book, we will focus on the use
of nonmarket strategies by top-level managers
to interact with business, government, and
society stakeholders to achieve financial
success while being socially responsible and
ethical.
• Stakeholders are affected by the business and
can affect firm performance.
• Therefore, cases in this text will place you in the
position of a top-level business manager.
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The Applied Ethics Approach
Using Business Ethics
and Ethical Guidelines
in Business
Moral
standards
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Honesty and
integrity
Moral, immoral,
and amoral
management
Values and
beliefs
Key Terms
amoral managers
nonmarket society environment
business
nonmarket strategies
business ethics
political environment
cheating
product
ethics
public sentiment
government
social problems
honesty
societal interest groups
legal environment
society
lying
special interest groups
market environment
stakeholders
market strategies
stealing
moral management
strategy
nonmarket environment
values
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