Introduction the implications for the practice of international business.

Introduction

Globalisation
describes a process by which national and regional economies, societies, and
cultures have become integrated through the global network of trade,
communication, immigration and transportation. (Lexicon.ft.com, 2018) There are several key factors that companies
must be aware of before deciding to do business in other countries. I will be
discussing these key factors in terms of the PESTLE analysis in my report
reflecting the implications for the practice of international business. The
PESTLE analysis is a framework or tool used by marketers to analyse and monitor
the macro-environmental factors that have an impact on an organisation. The
result of which is used to identify threats and weaknesses which is used in a
SWOT analysis. (Academy, 2018)

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Main body

Political

The political environment in international business consists of a set of political
factors and government activities in a foreign market that can either
facilitate or hinder a business’ ability to conduct business activities in the
foreign market. (Study.com, 2018) For
example, political systems in place which can be set by the government concerning
the practices of businesses, these are known as democracy and totalitarianism.

Democracy
is a system of government where people are eligible to elect their
representatives. (Dictionary, 2018) International
businesses may favour democratic countries as they encourage freedom and
equality. This has meant that they tend to be “supportive of free trade and
entrepreneurship and they also tend to be more responsive to the changing needs
and circumstances of business, and to operate transparent and fair laws and tax
rules.” (Fleximize,
2018)

Having
said that, totalitarianism is form of government
that theoretically permits no individual freedom and that seeks to subordinate
all aspects of individual life to the authority of the state. (Encyclopedia Britannica, 2018) A
business may find this unattractive to invest in because a totalitarian country
is more likely to suffer corruption, business practices and government control
over certain business sectors. Therefore, they’re more likely to will be more
likely to impose restrictive rules on businesses and to suppress the freedom of
trade. (Fleximize, 2018)

Economic

In
terms of the global economy, it has a great impact on the practices of
international businesses. The two biggest economic factors impacting
international businesses is demand and supply. Demand is how willing and able a
consumer is to purchase what a business offers. Whereas, supply is how able the
business is to make available what the consumer needs. (Marketing Tutor, 2018) A shift
within these two factors will cause international businesses to react to meet
the needs of their consumers.

When
demand increases, companies respond and increase production to meet the
increased demand. Initially, that creates lower prices in the market because an
adequate supply of products exists. However, when businesses reach their full production
capacity and fail to meet the demand. When this happens the supply decrease,
causing prices to increase. (Smallbusiness.chron.com, 2018) This why it’s so important that
demand meets supply. International businesses often select the country that has
a high GDP because demand always tends to be higher which generates more sales.

A recession
is another economic factor that challenges the practices of international
companies. A recession is a period where the economy slumps which can affect
the demand and supply for a company. To reduce their costs, they tend to resort
to staff cuts, reducing capital expenditure, advertising budgets, research and
development activities. (Marketing Tutor, 2018) This
may cause a company to experience serious losses, a decrease in sales and a
decrease in profits.

Social

“The
social environment of a business consists of all that a society believes, its
customs, its practices and it’s the way it behaves.” (Marketing Tutor, 2018) Society has
a big impact on businesses because social and cultural changes must be
monitored so that businesses can continue to meet their needs. Society effects
the marketing element of a business as it has the potential to damage its image.

Consumer
tastes are constantly evolving, and international business must keep up to
adapt to it. For example, a clothing company must constantly be aware of
changing preferences when creating new products or it will quickly become
outdated. (Smallbusiness.chron.com,
2018). However, for international businesses that operate in a foreign
country they must bear in mind their culture which can become even more
complicated due to the environment consisting of diverse sub-populations, each
with its own unique values and customs. (Marketing
Tutor, 2018) Both examples require constant market research for the company
to keep up and compete with competitors.

Technological

The rise
and development of technology can help improve the productivity of the labour
force, and reduce transportation costs, communication costs, distribution costs
and production costs. (Smallbusiness.chron.com,
2018) Technology has even replaced labour in some cases, for example, the
option of using self-checkout in supermarkets which are known as robotisation.

As
discussed businesses heavily rely on technology because it assists them with
communication, research, productivity, advertising etc. Therefore, when a business
decides to trade in another country, infrastructure must be considered.
Countries with poor infrastructure will have a shortage of power supplies which
means technology cannot be used. Where technology cannot be used the country is
considered as “switched off” from the world because it’s a major communication
barrier. This makes a country look unattractive because a business would not be
able to develop effectively.

Having
said that, some international companies prefer to place their manufacturing
plants in developing countries, despite the poor infrastructure, due to cheap
labour. Therefore, the manufacturing technology can broaden a country’s skill set
and individual qualities of life creating diversified opportunities. (Lead, 2018) This is something that’s
becoming very common in globalisation which is reducing the technological gap.
Companies that do this create a better brand image for itself because they’re
giving developing countries opportunities to develop.

Legal

International
businesses must recognise the legal systems in place in a country before they
trade within it. Legal systems refer to the rules, or laws, that regulate
behaviour along with the processes by which the laws are enforced. (Hill, 2011) Business
must abide by these laws and create business practices in accordance with the
laws. In this section, I shall be discussing the laws of property rights and
the laws of product safety and product liability.

Property
rights refer to the legal rights over the use to which a resource is put and
over the use made of any income that may be derived from that resource. (Hill, 2011) This
law is to protect the rights of property law and international companies need
to be aware of these rights in different countries. However, the protection of
intellectual property refers the property that is the product of intellectual
activity such as computer software, a screenplay etc. (Hill, 2011) Having said that patents,
copyrights and, trademarks help protect the rightful ownership of intellectual
properties. For example, a clothing manufacturing company may want to trademark
their designs to give them the competitive advantage to differentiate their
products.

Product
safety laws are safety requirements that a product must comply with. Whereas,
product liability involves holding a firm responsible when a product causes
injury, death or damage. (Hill, 2011) These laws are for the safety of consumers using
the products. Businesses must do continuous checks on their products so that
it’s user-friendly. In some cases, Trading Standard Officers will come in to
further check the product safety. If the product doesn’t comply with the safety
laws the company could face a big penalty which can be costly.

Environment

Lastly,
I’m going to examine the environmental factors that implement business
practices. Environmental factors which are also known as ‘ecological factors’ —
refer to variables regarding the physical environment (such as the climate of
Earth). Some examples include climate, climate change, weather, pollution and availability
of non-renewable goods. (Bush, 2018) Businesses
must be aware of environmental factors to ensure their practices are not
causing environmental damage.

There
are environmental regulations put in place so that international business minimises
the impact they have on the environment and be sustainable. On the contrary,
many developed countries have substantial regulations governing the emission of
pollutants, the dumping of toxic chemicals, the use of toxic materials in the
workplace etc. (Hill, 2011) Nevertheless,
many developing countries lack these regulations, but business may find this
more attractive as they wouldn’t be as restricted than in a developed country.
Having said that, the more “green” a business is the better the brand image.

Conclusion

To conclude, there are many factors an international
business must consider before deciding to trade in another country. PESTLE
factors need to be analysed within a country to provide a decision on whether
it’s suitable to trade in. All factors will cause positive and negative
implications but it how a company responds to these implications which will
determine its survival on a global scale. I believe the most important factor is
political factors because the way how the country is governed determines the scale
of the rest of the factors.