Environmental Analysis of Lockheed Martin

Each company or organization belongs to a market industry that includes three components, the remote environment, the industry environment and the operating environment. These factors impact the decisions that organizations make in order to provide the best services and products while maintaining a high profit for the company. Lockheed Martin is a multinational aerospace manufacturer and advanced technology company, formed in 1995 by the merger of Lockheed Corporation with Martin Marietta (Lockheed Martin, 2008). Lockheed Martin is affected by the macroeconomic environment, the economic decisions that the organization itself makes and the industry environment.

Organization Industry

Lockheed Martin is an organization that heavily relies on its defense contracts in order to generate revenue. In 2005, 95% of Lockheed Martin’s revenue came from the US Department of Defense, other US Federal government agencies and foreign military customers (Defense News, 2007). Lockheed Martin earns this revenue by winning government contracts. As previously noted, Lockheed Martin has a large customer base with the US Department of Defense. The company is the largest provider of IT services, systems integration, and training to the government (Lockheed Martin, 2008). Other customers that provide revenue for Lockheed Martin are international governments and some commercial sales of products and services (Lockheed Martin, 2008).

The broad business areas covered by Lockheed Martin are Aeronautics, including tactical aircraft, airlift, and aeronautical research and development, Space Systems, including space launch, commercial satellites, government satellites and strategic missiles, and Systems and IT Group, including missiles and fire control, naval systems, platform integration, C4I, federal services, energy programs, government and commercial IT and aeronautical/aerospace services. In 2007, these areas brought in sales, $12.3 billion, $8.2 billion, and $21.4 billion, respectively (Lockheed Martin, 2008).

This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p. 467).

Key Macroeconomic Variables

There are many macroeconomic variables that affect every industry. The four key macroeconomic variables are the aggregate output or income, the unemployment rate, the inflation rate, and the interest rate. By taking a closer look at these variables, it will further explain how they affect the industry.

Aggregate Output or Income

The aggregate output or income is the most important variable because it summarizes the overall economic activity (Sahu, 2008). The aggregate output concept is known as the gross domestic product, the GDP. The aggregate demand shows the quantity of demanded goods and services in an economy at the valued market prices. The aggregate income/output measures are uoted in both current prices, nominal terms, and also in constant dollars, real terms. The real terms adjust to take inflation into account and re most widely used, because they are not subject to distortions due to change in prices (Sahu, 2008).

Unemployment

Unemployment is the next most important key macroeconomic variable. When discussing unemployment, the term used in the US economy is the unemployment rate. This rate is based on the number of individuals who are not employed but are actively seeking work. A number of individuals are expected to not be working at any given time, meaning that the unemployment rate is realistically never going to be zero percent. The US labor market of acceptable unemployment is said to be six percent. The six percent unemployment rate is referred to as the benchmark unemployment rate (Sahu, 2008). Therefore, the economy is considered to be at full employment when the unemployment rate is six percent (Sahu, 2008).

Inflation Rate

The inflation rate is the rate of change in the price level and in most economies is a positive rate change year after year. The price index measures the level of price of goods and services