PEST FACTORS

AND ITS IMPACT ON
INTERNATIONAL BUSINESS
- RISK ANALYSIS

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TEAM MEMBERS :
INTRODUCTION
IMPORTANCE
AND
CHALLENGES
POLITICAL
FACTOR
ECONOMICAL
FACTOR
SOCIO-CULTURAL
FACTOR
TECHNOLOGICAL
FACTOR
LEGAL FACTOR
COUNTRY RISK
CASE STUDIES
ISSUES AND
CONCERNS
CONTENTS
TO BE
COVERED
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P
• POLITICAL


E
• ECONOMICAL

S
• SOCIO-
CULTURAL
T
• TECHNOLOGICAL
WHAT IS PESTEL ANALYSIS?
Understand ,
evaluate and
work out
various
parameters
PESTLE is an
analytical tool
which considers
external factors
and helps you
to think about
their impacts
Take advantage
of the
opportunities
and minimize
the threats.

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Importance in International Business
Framework for reviewing a NEW ENVIRONMENT
Helps to Break free of unconscious assumptions
Effectively adapt to the realities of the new environment
Thus aiding effectiveBusiness and strategic planning, Marketing planning, Business and
product development etc.
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Navigation from
home country to
the host country
Development
of proper
business
system
Knowledge of
all regulatory
bodies both in
home and host
countries
Knowledge of
customer's
changing taste
Customer’s
attitude
towards
foreign goods
Revenue
earning
Interaction with
right people to
make business
deal effective
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Challenges
of an
organization
Political
Environment
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Political Factors
Affecting International Business
Political and legal differences
Government system
Trade agreement
Restraining forces
Political environment
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Formal trade barriers
Informal trade barriers
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Political Factors
Affecting International Business
The Political Environment
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THE POLITICAL
ENVIRONMENT
SYSTEM
POLICIES
STABILITY
THE POLITICAL ENVIRONMENT
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POLITICAL
SYSTEM
POLITICAL
STABILITY
Totalitarian
state
Democratic
state
POLITICAL
POLICIES
TAXATION
INDIA ,USA
CHINA
Economic
Environment
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ECONOMIC ENVIRONMENT OF INTERNATIONAL BUSINESS
Forms of economic
System
Centrally
planned
economy
Market
Based
Economy
Mixed
economic
system
Levels of Income and its
distribution
Low income
country
Middle
income
Country
High Income
Country
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ECONOMIC FACTORS
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• The size of demand
for its product
• The expected cost of
production and net
earnings
• Whether it will
smoothly repatriate
its earnings back to
its country
Preliminary
economic
indicators
•Bank Financing
•Interest Rates
•Exchange Rate Mechanism
•Incentives for Exports
•Restrictions for Imports
•Inflation
•Labour Policies
•Fiscal, Monetary and Industrial Policies
•Consumption Behaviour
•Network of Infrastructure
•Strength of external sector

Government
outlook
Towards



ECONOMIC FACTORS – CONT.
Level of Government
Spending
Avenues for
Capital
Creation
• Size of the Capital
Market
• Role of the Regulator
• Type of the
Instruments
• Nature of the
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ECONOMIC FACTORS –
CONTD.
Business
Cycles
Monsoon
Energy Availability
Cost of
Energy
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Social
Environment
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Why to study socio – cultural environment?
To understand the
significance of culture in
international business
decisions.
To understand cross
cultural behavior and its
implication in International
business.
To understand the
sensitivity of cultural
knowledge of host country
in order to get success in
business.
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Levels of human mental programming

Personality
Culture
Human nature
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Specific to individual
Specific to group
Universal
Inherited and learned
learned
biological
Constituents of culture:
Value
system
Norms Aesthetics
Tradition
and
Customs
Language Religion
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Comparison of Cross Cultural Behavior
•Power distance
•Individualism vs.
collectivisms
•Masculinity vs. femininity
•Uncertainty avoidance
The most widely used
tool to study cross
cultural behavior is the
hofstede’s classification.
On the basis of massive
survey of 1,16000
respondents from 70
countries working in
IBM subsidiaries,
Hofstede has classified
culture into:
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Social Factors
Affecting International Business
Social factors include the
demographic and cultural
aspects of international
business.
Demographics
Class structure Education
Culture
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Emphasis on
safety
Entrepreneurial
spirit
Attitude
Leisure
interests
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Example: Motor Car Manufacturers

SOCIAL FACTORS
• Brand image
• Health aspect
• Energy consumption

Technological
Environment
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Technological Factors
Affecting International Business
Recent technological
developments
Technology impact on
product offering
Impact on cost structure
Impact on value chain
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Technological Factors Affect…
Demand
Production process
Evaluating
Technological changes
to increase growth and
to maintain survival
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Legal Factors
Affecting International Business
• Common Law
• Civil Law
• Socialistic Law
• Theocratic Law
• International Law
• Principles of International Law
• Principles of Sovereignty
• International Jurisdiction
• Doctrine of Comity
• Act of State Doctrine
• Treatment and rights of Aliens
• Forum for settlement of disputes
The
major
types of
legal
systems
are:
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Case Study: PEST Analysis of
McDonalds.
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Political factors

• government control on marketing of fast food restaurant
• control on license and Business Regulations for
franchising.

Economic Factors
• Dealing with international sourcing for its material
• Compliance with the tax structures that vary with the
country.
• Economic condition and growth of the country is an
important indicator of demand.

• For different countries cultural sensitivity should be upheld.
For example
• in India people (Hindu) do not take beef, Muslim countries do
not take pork,
• Finnish like fish type of food menu,
• Chinese like to associate food with something good (for
example prosperity)
Social/ Cultural Factors
Technological Factors
Integrated technology in the management of its inventory system
and value chain.
COUNTRY RISK
PERFORMANCE
STRATEGY
CONTEXT
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PERFORMANCE INDICATOR
GDP
Internal and
external
economy
Population
Literacy rate
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STRATEGY
Strategies based on-
• GOALS
• POLICIES
• Foreign / defence policy
• Monetory policy
• Fiscal policy
• Income policy
• Industrial policy
• Social policy
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CONTEXT
Political
context
Institutiona
l context
Ideological
context
Physical
context
International
context
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Issues and Concerns
The main problem with these external
PESTLE factors is that they are
continuously changing
Therefore PESTLE analysis should
include a thorough analysis of what is
affecting the organization or a project
Now, and what is likely to affect it in
the Future
• However, by themselves, theses factors they
mean very little
• It is important to bear in mind, that PESTLE
analysis requires careful Application of results
The result of a PESTLE analysis is
usually a list of positive and negative
factors that are likely to affect a
project
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