ANALYSIS OF GENERAL ENVIRONMENT

MGT 4030 – International Management

Group A
SPRING 2020

Presented to:

Mr. Sathika Wickremesinghe

Presented by:

Sandali Vihara 6227

Imasha Kumararatne 6001

Shenal Botheju 5837

Sachith Dilshan 5672

Achintha Babaranda 7730

Rehan Thathsara 5608

Contents
Executive summary .................................................................................................................................................... 2
Introduction to the Apparel Industries ...................................................................................................................... 3
Existing Countries................................................................................................................................................... 3
Potential Countries ................................................................................................................................................ 3
PESTEL Analysis .......................................................................................................................................................... 4
Existing Countries................................................................................................................................................... 4
Potential Countries (factor-wise) ........................................................................................................................... 5
Political Factor.................................................................................................................................................... 5
Economical Factor .............................................................................................................................................. 6
Social Factor ....................................................................................................................................................... 7
Technological Factor .......................................................................................................................................... 8
Environment Factors .......................................................................................................................................... 9
Legal Factors ...................................................................................................................................................... 9
Recommendations & Conclusion ............................................................................................................................. 11
Acronyms ................................................................................................................................................................. 13
References ............................................................................................................................................................... 14

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Executive summary
In a world of ever-changing variables within a country, making investments and corporate decisions are
hard to be taken without a proper analysis. Improper analysis and decision-making leads company failures.
Considering all the positive and negative factors which affect the businesses will make a sustainable
business cycle which keeps growing.

As for a consultancy firm approached by a sports garment producing MNC, which operates currently in
Sri Lanka, Vietnam and Pakistan and planning its expansion to another country out of named potential
countries which are Thailand, Iran, Indonesia, Mexico and India, the team planned and analyzed PESTEL
factors for each country.

This report contains a general comparison of the PESTEL factors of the existing countries which the
company operates currently. Through the researches and analysis done with comparison to each potential
country, the group as a consultancy firm concluded the best possible expansion for the country giving
reasons for each & every selection.

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Introduction to the Apparel Industries

Existing Countries
• Sri Lanka - Sri Lanka’s apparel industry has been listed among the fastest economic growth in
south Asia. This currently holds a global market share of 1.2%. GDP per capita of Sri
Lanka was $4,102 in 2018.
• Vietnam - Increasing health and fitness trends within the country. GDP per capita was $2,342.12
in 2018.
• Pakistan - Textile exports of Pakistan contributes up to 60% of the total exports of the country.
GDP per capita was $1,547.85 in 2018.

Potential Countries
• Thailand - Apparel industry being a booming industry currently. GDP per capita was
$6,593.82 in 2018.
• Iran - GDP per capita was $5,415.21 in 2018.
• Indonesia - The apparel industry of Indonesia is responsible for 2% of global textile and apparel
market. GDP per capita was $3,846.86 in 2018.
• Mexico - The textile and apparel industry accounts for 4.7% of the Mexico’s manufacturing
GDP. GDP per capita was $8,902.83 in 2018.
• India - Enhanced with skilled manpower and resources, the apparel industry in India
accounts for 15% of the total export earnings. GDP per capita was $1,939.61 in 2018.

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PESTEL Analysis

Existing Countries
Factor Sri Lanka Pakistan Vietnam
Political 2016 0.00 2016 -2.48 2016 0.23
(Political Stability index) 2017 -0.07 2017 -2.41 2017 0.29
2018 -0.18 2018 -2.27 2018 0.2

Had a Good Poor political Decent Stability

Stability but loss it stability
over the following
years
Economic Highly Reduction of Increasingly
concentrated in import duty on emerging as an
large scale ginning presses to attractive market
factories has the 5%. in its own right.
highest per
capita apparel
exports in the
Asian region.

GDP 95.00 USD Billion 283.3 USD Billion 261.9 USD Billion
Inflation rate 4.1% 7.34% 3.6%
Economic and 56.4 55.0 55.3
freedom index
Social Labor Force Labor force is 57.2 Labor Force
Participation million, making it Participation Rate
Rate is averaged the ninth largest dropped to 76.5 %
50.44 percent from country by in Jun 2018,
1990 until 2019, available human compared with
reaching an all- workforce. About 76.7 % in the
time high of 54.70 43% of this labor is previous quarter
percent in the first involved in
quarter of 2017 agriculture, 20.3%
and a record low in the industry and
of 46.90 percent in the remaining
the third quarter of 36.6% in other
1992. services.
Technological 2015 - 90 2015 - 68 2015 - 85
(R & D) 2016 - 93 2016 - 67 2016 - 88
(out of 211 2017 - 92 2017 - 65 2017 - 87
countries)
Availability of 2015 -61 2015 - 79 2015 - 77
latest 2016 - 72 2016 - 99 2016 - 79
technology 2017 - 90 2017 - 70 2017 - 85
(World
Ranking)

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 Environmental Increasingly Pakistan is looking (2.81 MT)
(carbon footprint; metric ton per adopting to reduce their
capita) renewable energy greenhouse gas
sources (1.14 MT) emissions by 20%
by 2030. (0.98 MT)
Legal Cannot exceed Weekly working The maximum is
(maximum work duration/ more than 48h per hours should not 48h per week / 15
minimum age) week / 14 years exceed 48h / 14 years
years

Potential Countries (factor-wise)

Political Factor

Index Thailand Iran Indonesia Mexico India

Corruption Perception Index 37 30 37 29 40
CRI Index 74 85 90 84 147
Democracy Index 6.32 2.38 6.48 6.09 6.90

The economist intelligence unit’s democracy index depicts the political factors related to 60 different
indicators and analyze how the countries perform in each and then rank each country accordingly. As for
the statistics, India stands out from democracy index, followed by Thailand and Mexico. The CRI tax
index represents various government factors including tax rates and government spending which affects
political scenarios to the countries and ranks them according to the favorability. Transparency
International publishes corruption perception index to analyze the corruption levels of each country’s
public sectors and then rank them accordingly. These factors together depict the political measurements
which determine how the countries perform.

Overall Factor Analysis

20%
30%

15%

10%

25%

Thailand Iran Indonesia Mexico India

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 Taking the indexes shown in the above table this pie chart depicts the most favorable countries in
comparison with each other’s political factors which Thailand leads, and Indonesia and India follow.

Economical Factor
Thailand Iran Indonesia Mexico India
GDP ($) 504,928 mi. 446,105 mi. 1,022,454 mi. 1,222.05 bi. 2,718,732 mi
GDP per Capita ($) 7,448 5,417 3,871 9,698 2,338
Inflation Rate 1.06% 30.5% 3.2% 4.81% 5.24%
Unemployment 0.68% 12% 4.3% 3.23% 2.55%
• Index of Economic 67.1 - 51st 51.1 - 155th 65.8 - 56th 64.7 - 66th 55.2 - 129th
Freedom & Ranking

The Index of Economic Freedom is an annual index and ranking created in 1995 by The Heritage
Foundation and The Wall Street Journal to measure the degree of economic freedom in the world's nations.
The creators of the index took an approach like Adam Smith's in The Wealth of Nations.it mainly focus
on almost every economic factor related to the business investments. Those are as follows,
• Property Rights • Labor Freedom
• Judicial Strength • Monetary Freedom
• Gov't Integrity Tax Burden • Trade Freedom
• Gov't Spending • Investment Freedom
• Fiscal Health • Financial Freedom
• Business Freedom
Therefore, according to the statistics as well as the economic index, the best country for the investment
is Thailand but Mexico & Indonesia can also be ideal if other factors also would tally.

Index of Economic Freedom

18%

23%

21%
17%

21%

Thailand Iran Indonesia Mexico India

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Social Factor
To measure the social factors the best way is to look at it through The Social Progress Index (SPI) measures
the extent to which countries provide for the social and environmental needs of their citizens. Fifty-four
indicators in the areas of basic human needs, foundations of well-being, and opportunity to progress show
the relative performance of nations. The index is published by the nonprofit Social Progress Imperative,
and is based on the writings of Amartya Sen, Douglass North, and Joseph Stiglitz. The index combines
three dimensions,
• Basic human needs
• Foundations of well-being
• Opportunity

Two key features of the Social Progress Index are,

• The exclusion of economic variables
• The use of outcome measures rather than inputs

Thailand Iran Indonesia Mexico India

Social Progress Index 67.35 63.96 63.26 70.42 56.26
Ranking 70 88 91 58 100

Social Progress Index

17% 21%

23% 20%

19%

Thailand Iran Indonesia Mexico India

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Technological Factor

Index Thailand Iran Indonesia Mexico India

The Inclusive Internet Index Ranking 36th 56th 63rd 45th 47th
Technology Achievement Index 0.337 - 0.211 0.389 0.201

The inclusive internet index is based on the availability, affordability, readiness and relevance which
determines the country’s technological standing with comparison with others. The tech leader seems to be
Thailand according to the index by being the 36th. Technology achievement index determines the
technological performances and skill levels across age limits within each country which analyzes
capabilities on the technology of the country. Thailand and Mexico lead the technological factor of the
potential country analysis.

Technological factor analysis

17%
30%

25%

15%

13%

Thailand Iran Indonesia Mexico India

Considering technology trends mentioned, the above pie chart depicts how the variations of indexes places
each potential country.

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Environment Factors

Country CO2 Environment Environment Environment Ecosystem

Emissions Performance Performance Health Vitality
(metric ton Index Index
per capita) Ranking
India 1.9 177 30.57 9.32 44.74
Indonesia 2.1 133 46.92 45.44 47.90
Iran 8.9 80 58.16 74.01 47.59
Mexico 3.8 72 59.69 66.04 55.46
Thailand 4.1 121 49.88 46.71 52.33

2018 Environmental Performance Index ranks 180 countries on 24 performance indicators across ten issue
categories covering environmental health and ecosystem vitality. This metric provides a hauge at a
national scale of how close countries are to established environmental policy goals. The EPI thus offers a
scorecard that highlights leaders and laggards in environmental performance, gives insight on best
practices, and provides guidance for countries that aspire to be leaders in sustainability. The EPI is
produced jointly by Yale University and Columbia University in collaboration with the World Economic
Forum. According to these rankings it seems Iran and Mexico have the best environmental conditions.

Legal Factors

• Indian Government recently change their laws to make 100% of FDI for apparel industry fall
under the automatic route which means no prior approval of the government or the reserve bank
of India needed which allows easy entry.
• Indonesian Investment Authority (BKPM) replaced the Principle License which had many tight
regulations with capital license which is easy to obtain. Then the business license cab be obtained
on temporary basis (1 year + 1yr extension) so the business can meet the regulations.
• Mexican Government created Special Economic Zones to attract foreign investments. Companies
setting up in these will receive various incentives, trade facilities, duty-free customs benefits,
infrastructure development prerogatives and easier regulatory processes.
• Thailand BOI offers several incentives for FDI’s like eight years of tax exemptions for companies
and 50% tax reduction for companies for five years, double transport, electricity and re-supply
deductions as well as 25% deduction on net profits for establishment and construction costs.
• Iran has a buy-back law in which the revenues of a foreign investor partner can be repatriated in
the means of goods and services produced by the project.

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One of the main concerns when it comes to the legal factor is the minimum wage per month. That also
differs according to the country.

• India - $80 (varies on the state)

• Indonesia - $120-$300 (varies on province)
• Iran - $133
• Mexico - $300
• Thailand - $320

By considering the policies implemented for FDI’s, Indonesia provides a better and easy access of entry
to anyone to their country.

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Recommendations & Conclusion

After the PESTEL analysis and the analysis of the trends which have an impact when expanding a
business, group came into the choice to invest in ‘Thailand’ for the manufacturing firm of the MNC. One
of the reasons that the team picked Thailand was due to the fact that it is an Asian country and the MNC
already has operations in Sri Lanka, Vietnam and Pakistan. In terms of geography the MNC seems to be
quite comfortable having operations in Asia, expanding their production to Thailand would help them to
remain in their comfort zone. Having already been established in the Asian region, they would be confidant
in opening up a new production plant in Thailand. While the information may go both in favor and against
our choice, it must be understood that there is no perfect place to conduct a business. Each part in the
world has their own pros and cons when it comes to establishing a business. Especially, when it comes to
expanding, the most important factor is to understand the best option at hand by out the positives from the
negatives. In addition to this, considering the potential lying within the selection is also immensely
important.

When looking at the PESTEL analysis of Thailand, the political factors showed that Thailand was among
the better options cause has the highest rank in CRI index and above average for other indexes. CRI index
being highly important since commitment to inequality determines the general living standard for the
community and whether the community could afford on a product for entertainment and sports. In
economic aspects, according to the ratings and rankings it is obvious that out of these five countries it
would be much more beneficial if the company could target more on Thailand. On the other hand, in social
aspect also, it clearly depicts that Thailand as the most suitable country. Next comes the technological
factors, the technological indexes and comparison to measurements with each potential country, Thailand
leads followed by Mexico and India respectively. The inclusive Internet index determines how the sports
products can be marketed and sold on online platforms and technology achievement index which will
determine the community’s use of technology generally. When considering the environmental factors,
Mexico and Thailand got the upper hand because they have a better EPI ranking. Even though Iran is
ranked above Thailand due to its volatile nature it is not recommend for business. By considering and
analyzing all the legal factors, specially the regulations for FDI the group as an organization would
recommend Thailand for this venture. Thailand BOI provides tax exemptions and reductions up to nearly
a decade which is very helpful to get the venture underway and established. Also, Thailand being an Asian
country provides a gateway to the south Asian market.

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As a consultant firm, the team believe that expanding a certain business, however big or small the
investment is a huge step when carrying a company forward. Moving production to Thailand will greatly
benefit the MNC despite the certain risks that they could face while having their production in the country.
The MNC at play here which concentrates on sportswear would benefit immensely by setting up in
Thailand. There is risk involved in each aspect of a business and it is believing that this risk is worth
taking.

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Acronyms

• BOI - Board of Investments

• CPI - Corruption Perception Index
• CRI - Commitment to Reducing Inequality Tax
• EPI - Environmental Performance Index
• FDI - Foreign Direct Investments
• GDP - Gross Domestic Production
• MNC - Multinational Companies
• PESTEL - Political / Economical / Social / Technological / Environmental / Legal
• RMG - Readymade Garment

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