Analysis of Global Environment/Components/Types/Constituents of International Business
Analysis of Global Environment
Businesses are influenced by the environment that they’re in and all the situational factors that determine circumstances from day to day. It is because of this, that businesses need to keep a check and constantly analyse the environment within which they run their trade and within which the market lays. PESTLE analysis consists of components that influence the International Business Environment and each letter in the acronym denotes a set of factors that directly or indirectly affect every industry. The letters denote the following things:
1. Political Factors
These factors take into account the political situation of a country and the world in relation to the country. For example, what sort of government leadership is affecting what decisions of a country? All the policies, all the taxes laws and every tariff that a government levies over a trade fall under this category of factors. These are all about how and to what degree a government intervenes in the economy. This can include – government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour law, environmental law, trade restrictions and so on.
2. Economic Environment
Economical factors deal with national or international economical developments and have a direct influence on supplier and consumer markets. Examples of economical factors that play a big role are: the GDP, the rate of inflation, interests, the change rate, employment or the situation of money markets. These economical factors influence demand, competition intensity, cost pressure and the will to invest. For instance, if the gross domestic product of a country is fairly low, the demand is in general lower than in countries with a higher GDP.
3. Social Environment
Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes of the population. These factors include – population growth, age distribution, health consciousness, career attitudes and so on. These factors are of particular interest as they have a direct effect on how marketers understand customers and what drives them. Trends in social factors affect the demand for a company’s products and how that company operates. For example, an ageing population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).
4. Technological Factors
Technology changes every minute and therefore companies need to stay connected along the way and integrate as and when needed. Also, these factors are analyzed to understand how the consumers react to technological trends and how they utilize them for their benefit.
Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.
5. Legal Factors
Legislative changes occur from time to time and many of them affect the business environment. For example, if a regulatory body would set up a regulation for the industries, then that law would impact all the industries and business that strife in that economy, therefore businesses also analyze the legal developments happening in their environment.Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.Foreign trade is regulated by rules framed by domestic country,foreign country and rules and regulations framed by international organizations like WTO,UNCTAD, ASEAN,SAARC etc.Other international organizations regulating international trade are International Court of Justice,International Centre for Settlement of Investment Disputes,United Nations Commission on International Trade Law etc.
6. Environmental factors
The location of countries influence on the trades that businesses do. Adding to that, many climatic changes alter the trade of industries and the way consumers react towards a certain offering that is launched in the market.Environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance.Furthermore, growing awareness to climate change is affecting how companies operate and the products they offer–it is both creating new markets and diminishing or destroying existing ones.