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The performance of a firm, and of its management, depends on its nonmarket environment. The nonmarket environment is composed of the social, political, and legal arrangements that structure interactions outside of, but in conjunction with, markets and contracts. The nonmarket environment encompasses those interactions between the firm and individuals, interest groups, government entities, and the public that are intermediated not by markets but by public and private institutions. Public institutions differ from markets because of characteristics such as majority rule, due process, broad enfranchisement, collective action, and access by the public. Activities in the nonmarket environment may be voluntary, as when the firm cooperates with government officials or an environmental group, or involuntary, as in the case of government regulation or a boycott of a firm's product led by an activist group. Effective management in the nonmarket environment has become a necessary condition for superior performance just as is effective management in the market environment.
The nonmarket environment has grown in importance and complexity over time and
Commands increased managerial attention. Nonmarket issues high on firms' agendas include sustainability, global climate change, security, health and safety, regulation and deregulation, intellectual property protection, human rights, international trade policy, antitrust, social pressure from nongovernmental organizations (NGOs) and social activists, news media coverage, social media, corporate social responsibility, and ethics. Although the saliency of particular issues ebbs and flows, nonmarket issues arise sufficiently often to have important consequences for managerial and firm performance. Nonmarket issues, the forces that influence their development, and the strategies for addressing them are the focus of the field of business and its environment. The managerial objective is to achieve superior overall performance by effectively addressing nonmarket issue and the forces associated with them and using nonmarket strategies to unlock opportunities. Developments in the nonmarket environment affect performance on a number of dimensions. In the automobile industry, emissions and fuel economy standards affect research and development, design, production, pricing, and marketing. Safety regulation and liability standards have similar broad effects. Access to international markets affects competitive strategies involving product design, pricing, and capacity planning.
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