Macro factors affecting business environment

1. MACRO FACTORS AFFECTING BUSINESS ENVIRONMENT SUBMITTED BY: AAYUSH VERMA

2. INTRODUCTIONA business firm is an open system. It gets resources from the environment and
supplies its goods and services to the environment. There are different levels of environmental forces.
Some are close and internal forces whereas others are external forces. External forces may be related to
national level, regional level or international level. These environmental forces provide opportunities or
threats to the business community. Every business organization tries to grasp the available
opportunities and face the threats that emerge from the business environment. The term business
typically refers to the development and processing of economic values in society. Normally, the term
is applied to portion of economic activities whose primary purpose is to provide goods and services for
society in an effective manner. It is also applied to economics and commercial activities of institutions
which having other purposes.

3. Business may be defined as the organized effort by individuals to produce goods and services to sell
these goods and services in a market place and to reap some reward for this effort. Functionally, we
may define business as those human activities which involves production or purchase of goods with the
object of selling them at a profit margin. Business organizations cannot change the external
environment but they just react. They change their internal business components (internal
environment) to grasp the external opportunities and face the external environmental threats. It is,
therefore, very important to analyze business environment to survive and to get success for a business
in its industry. It is, therefore, a vital role of managers to analyze business environment so that they
could pursue effective business strategy. A business firm gets human resources, capital, technology,
information, energy, and raw materials from society. It follows government rules and regulations, social
norms and cultural values, regional treaty and global alignment, economic rules and tax policies of the
government. Thus, a business organization is a dynamic entity because it operates in a dynamic business
environment. Systems Approach of Business Environment All the systems are subsystems of other
system in the nature except the supra-system or cosmos. We individually are also the part of our family.
Formal organization or business is made of group of people for specific purpose. Very similar to the
organization we personally are the members of our family and that is a component of a broader society.
The same society is a component of a nation. Group of nation with similar interest are grouped in
regional alliances such as SAARC and EU. World economy is made of with all these regional alliances and
network. In this approach, nothing is in isolation. All are integrated and interlinked. Organizations a
reopen systems because they get resources from others and give output to others. A business deals with
number of business environmental forces. These forces from where a business gets resources and
supplies resources, forces that influence the business operation, and factor that present opportunities
and threats are taken as the business environment. In this sense, a

4. business can be viewed as an internal system or controllable system of a manager

orstrategist.Managers can control their own businesses. Managers can collect resources such as
capital,human, information, idea, land, and equipments. These components are controllable. Managers
can operate their organization and use their decision to run it. Similarly, the output of the organization is
also under their control. But, other broader systems that cover the business may not controllable. Group
of similar organization becomes an industrial system that comprises business organizations as its
subsystems. Industry level environment is common to all the businesses running within the industry. A
country and its environment is broader system that cover seven the different sectors or industries such
as banking, education, health, trade, manufacturing, and service industries. Therefore, it affects all the
business operations inside the nation. Regional alliances influence the national policy because a country
is a subsystem of the regional alliances such as SAARC and BIMSTEC. Even such regional alliances are
also affected by the broader international systems such as WTO and United Nations. In case of a
business, it is a very small subsystem that should follow the industry norms, national policies, regional
agreements, and global systems. It can be said that a business and its internal areas are controllable for
a manager but other broader systems control the businesses. Therefore, the strategy for a manager is to
controlinternal areas and reacts with the external forces to grasp the opportunity and face the threats
presented by the external environment. This system approach can be classified into three
environmental groups: uncontrollable, semi-controllable, and controllable.

5. Components of Business Environment Business environment of the firms/company or organisation

can be classified into two broad categories: Internal Environment External Environment Component
of Business Environment A variety of factors can affect companys business. Such factors can be national
level, regional level, and international level environmental forces. These factors are also known as
societal factors or macro level business environment factors. In general, five forces are taken as the
general environmental factors namely economic, socio-cultural, political-legal, technological, and
international. Some writers included natural environment as a distinct component but the growing
social awareness on natural environment shows that this component can be included into the socio-
cultural environment. Set of these environmental factors is mostly referred by first four factors PEST
(Political-legal, Economic, Socio-cultural, and Technological). The logic behind this is pervasiveness of the
international environment because it affects all these four sectors. Fast growing technological
development, outsourcing business, emergences of multinational companies, and global and regional
alliances have made the world a global village.

6. In this context, effect of international environment in four major components of general

environmental factors is natural. Information Communication Technology (ICT) revolution and
globalization are to be considered very important effect in todays international business environment.
Growing multinational companies and their influence in one national economy is clearly evident. Use of
automated technology and e-commerce has replaced many of the manual works and workplace. World
Trade Organization and its growing members including Nepalese 147th membership in Cancun summit
has placed new opportunities and threats to the developing countries like Nepal. South Asian
Association for Regional Cooperation (SAARC) is active since twenty years and it recently declared South
Asian Free rade Area (SAFTA) charter. Furthermore, Bay of Bengal Initiative for Multi-Sectoral Technical
and Economic Cooperation (BIMSTEC) and its future potentialities presented new prospectus to the
local and international business entities in this sector.

7. CHARACTERISTICS OF BUSINESS ENVIRONMENT Business environment characteristics will be indicated

that major challenges, opportune ties, threat and weakness of the business. Characteristics of Business
Environment Environment is Complex Business environment principally consists of a number of factors,
events conditions. These are influenced to different departmental source in the organization. These
conditions do not exist in isolation and create entirely new set of influences which interact with each
other. This is difficult to influence to organization. All these factors have to be considered as
environment analysis is complex and rigid and totally very difficult to grasp by the functional manager
and top level employees in the organization. Environment is Dynamic Business and company
environment is constantly changing in different nature. Micro and macro environment factors are
influenced to business. It impact to change on the business conditions. Dynamic environment is flexible
and dynamic nature in company. This is causing due to change; strategic manager can shape strategy
and formulate short term and long term objectives. Environment is Multifaceted Strategic observer can
shape and observe different characteristics of environment. Strategic observer observes a particular
change or latest development in the business. It may be viewed as different opinions from different
observers in the organization. These things are frequently seen when the development happens. All are
happy to welcome it and think as an opportunity for the company, even also as threat to company.

8. ENVIRONMENTAL INFLUENCES ON BUSINESSThe term Environmental analysis is defined as the

process by which strategists monitor the economic, governmental, legal, market, competitive, supplier,
technological, geographic, and social cultural settings in order to determine opportunities and threats to
their firms/company/organisation. According to Barry M. Richman and Melvyn CopenEnvironment
factors of constraints are largely if not totally external and beyond the control of individual industrial
enterprises and their arrangements. These are essentially the givers within which firms and their
managements must operate in a specific country and they vary, often greatly from country to
country.According to Glueck and JauchThe environment includes outside the firm which can lead to
opportunities for or threats tothe firm. Although, there are many factors, the most important of the
sectors are socioeconomic, technical, supplier, competitors, and government.These definitions clearly
reveal the following important factors: Strategist looks on the environmental changes while to analyse
the threats of the business along with searching and offering immense opportunities to business
enterprises in the market. A successful business enterprise has to identify, appraise and respond to the
new dimensions of various opportunities and threats in its internal and external environment.
Successful businesses not only recognize activities but also the different elements in the environment.

9. Various Approaches of Identifying and Reporting Environment Components. There are many distinct
but similar approaches available in categorizing business environment components. Jauch & Glueck
(1988) identified business environment components into three sets namely general, industry level, and
internal. This concept became very popular and holistic among the many academicians. They identified
five major components including political-legal, socio-cultural, economic, technological, and climatic
factors of general business environment. Industrial and general level business environment are grouped
into external business environment. Many writers coined Political, Socio-cultural, Economic, and
Technological factors as PEST. Political and legal components are sometimes separated and PESTEL is
also used as an acronym. Some others address these external environment components as Social,
Technological, Political, and Economic (STEP) factors. Including natural environmental factors into this
set social, technological, economic, environmental and political (STEEP)model is presented. The same
natural environment is also taken as a distinct component; therefore, it is sometimes addressed as
Socio-cultural, political legal, Economic, Natural, and Technological (SPENT). Cartwright identified an
acronym SPECTACLES to address the set of ten external environment components such as Social,
Political, Economic, Cultural, Technological, Aesthetic, Customer, Legal, Environmental, and Sectoral.
External business environment are grouped into remote environment for general and operating
environment for task or industry level business environment. However, it is important not to just list
PESTEL factors because this does not in itself tell managers very much. What managers need to do is to
think about which factors are most likely to change and which ones will have the greatest impact on
them i.e. each firm must identify the key factors in their own environment. When analyzing companies
such as Sony, Chrysler, Coca Cola, BP and Disney it is important to remember that they have many
different parts to their overall business - they include many different divisions and in some cases many
different brands. Whilst it may be useful to consider the whole business when using PESTEL in that it
may highlight some important factors, managers may want to narrow it down to a particular part of the
business (e.g. a specific division of Sony); this may be more useful because it will focus on the factors
relevant to that part of the business. They may also want to differentiate between factors which are
very local, other which are national and those which are global.

10. Macro/Remote Environment Macro environment is largely external to the business enterprise.
Macro environment factors are uncontrollable factors and beyond the direct influence and control of
the organization. Its factors are powerfully influence to its functions. External environment consists of
individuals, groups, agencies, organizations, events, conditions and forces. These are frequently
contacted by the organization for its functions. It establishes good interaction and interdependent
relations in form of conducts business transitions. Proper designing and administration of macro
environment enable appropriate strategies and policies to cope withand make changes. Macro
Environment Elements. The macro/remote environment principally consists: Economic environment
Political environment Legal environment Socio-cultural environment Demographic environment
Natural environment Physical and technological environment Technological Environment Global or
International environment

11. PESTEL Analysis of the Macro Environmental Forces

12. ECONOMIC ENVIRONMENT The economic environment constitutes of economic conditions,

economic policies, and the economic system that is important to external factors of business. The
economic conditions of the country include: Nature of the economy of the country. The general
economic situation in the region, conditions in resource markets like money, material, market raw
material components, services, supply markets and so on which influence the supply of inputs to the
organization, their costs, quality, availability and reliability of supply of products and services. It
determines the economic strength and weakness in the market. Purchasing power of the individual
depends upon the economic factors like current income, price, savings, circulation of money, debt and
credit availability. People income distribution pattern analyses the market possibilities and impacts on
enterprise. Development process of the country. Availability of economic resources of the country.
The level of the economic income of the country. The distribution of income and assets of the
country. Public finance of the country. These are the very important determinants of business strategy
in the organization for formulating, implement and controlling of economic policies. Economic
environment refers to the nature and direction of the economy within which business organization are
to operate. For instance, in developing country, the low income may be reason for the very high demand
for the product and services of the business. In countries where the investments and income are steadily
and rapidly rising, business prospects are generally bright and further investments are encouraged. In
developed economics, replacement demand accounts for a considerable part of the total demand for
many consumers durables where as the replacement demand is negligible in the developing countries.

13. Money is the lifeblood of any business organization and the economic system. The economy consists
of micro-economics and macroeconomics. Micro and macro elements are important from the point view
of strategic decisions. Strategist must scan, monitor, forecast, and assess the following critical elements
of the macro and micro economic environment: Economic system Nature of the country economy
The monetary and fiscal policies Autonomy of the economy Functions of economics Factors of
productions Economic trends and structures Economic policy statements and structure Economic
legislation Economic problems Import and export policy Tax rates Interest rates Government
budget deficit Consumption pattern Price fluctuations Global movement of labour and capital Stock
market trends Coalitions of countries and regional states Availability of credits Inflation trends in
country Unemployment trends Foreign country economic conditions Petroleum Exporting Countries
(OPEC)) policies. Economic environment encourages liberalization, privatization and globalization of the
economic policies in the business environment. Every countrys development is based on the economic
environment activities that focus to the development process of the country.

14. POLITICAL-LEGAL ENVIRONMENT Political environment refers political and government and legal
environment. It has close relationship with the economic system and economic policy. For instance; the
communist countries had a centrally planned economic system. Communist government countries laws
are control investment and related matters. There are number of laws that regulate the conduct of the
business. These laws cover matter such as standards of business and its production and service. The
democratic governments countries laws / act are passed in the parliament. Then they are regulating
rules and regulation of business according to the act. Political stability, responsibility, political ideology
and level of political morality, the law and order situation, and practice of the ruling party and major
purposefulness and efficiency of the government agencies. Political agencys nature, its influence to
economic and industrial act ivies in the country. Government policies like fiscal, monetary, industrial,
labour, and export and import policies which are influenced to specific legal enactments and framework
towards the business organization political legal function and degree of the effectiveness which are
influenced to formulate and implement policy in the legislature. The political environment is based on
the uncertainty; therefore, demographic countries consist of number of political parties. Political parties
arent got clear majority to form a government. In this situation, industry and commerce collapsed their
business activities due to hung government. The political parties are unable to formulate stable
government, it affect and fluctuate the government policies. Therefore, business organization and public
are needed to the stable government.

15. Elements of Political and legal Environment There are three important elements are associated with
the political and legal environment as listed below: Government Legal Political Government
Government policies, rules and regulation are controlling and monitoring the business enterprises and
its activities in the state. Secondly, the type of government administration of the state and what is the
business policy of state? These things should be evaluated by the strategist from point of view of
business. Strategist should study about the changes in the regulatory framework of the government
and impact on the business. Government tax policies are critical and affect to the business organization
in the state. Legal Sound legal system is the basic requirement for running of the business operating
within the state. Strategist should be aware of various business laws which are protecting consumers,
competitors, and organization. Business organization should aware of the laws which relevant to
companies, competitors, intellectual property, foreign exchange, labor and so on. Political Political
system is also influenced to business and its activities. Political pressure groups influence to
government and in this way some extent to control and regulate business activities within the country.
Recently, special interest groups and political action committee put pressure to business organization
and to pay more attention towards consumers rights, minority rights and women rights. Apart from
the sporadic movements against certain products and services and some business organization in the
state.

16. SOCIOCULTURAL ENVIRONMENT Socio-cultural environment is an important factor that should be

analyzed while formulating company business strategies. If company is ignoring the customs, traditions,
tastes and preferences and education. it can affect the business. It consists of factors which are related
to human relationships and the impact of social attitudes and cultural values. These are bearing on the
business of the organization. Business organization is a successful due to appropriate strategies effective
utilization of socio-cultural environmental factors. Social cultural environment is an important for MNC.
Therefore, MNC should study of the social cultural activities of the region, where there are introducing
their own business. Socio-cultural factors are beliefs, values, norms and traditions of the society
determine how individuals and organizations should be interrelated. The difference in language
sometimes poses a serious problem, even necessitating a change in the brand name. The value and
beliefs associated with color vary significantly between different cultures. For instance, white indication
death and mourning in china and Korea; but some country it expresses happiness and is the colour of
the wedding dress of the bride. Some of the socio-cultural factories are influenced to operating
environment of organization as outlined: Social issues like the role of the business in the society,
environment pollution, corruption, use of mass media and consumption of products and services which
are offered by the company. Social attitudes and values issues like social customs, beliefs, rituals and
practices, changing life style patterns and materialism are expectations of society from the business.
Family structure, values and attitudes towards the family and these changes also influence to business
and its operation. Role of the women, position, nature of responsibilities in society is also influenced to
business and its operation in market. Educational levels, awareness and consciousness of rights and
work ethics of the society can be influenced to business and its operation. Social practice, beliefs and
associated factors are helpful for promotion of the certain products, services or ideas; the success of
marketing depends to a very large extent, on the success in terms of changing social attitudes or value
systems.
17. DEMOGRAPHIC ENVIRONMENT Demography refers to study of the population. Demographic factors
are as below: The population size Growth rate of population Age composition of the population
Family size Economic stratification of the population Education levels Language Caste Religion
Race Age Income Educational attainment Asset ownership Home ownership Employment status
and location These factors are the relevant to the business for formulating and implementing of strategy
for controlling and accomplishment of the objectives of the organization. Demographic factors like size
of the population, population growth, rate, age, composition, life expectancy, family size, spatial
dispersal, occupational status, employment pattern etc., affect the demand for goods and service. The
growth of population and income result increases demand for goods and services. A rapidly increasing
population indicates that a growing demand for many products. For instance, developing countries like
India, Pakistan, etc; high population growth rate indicates an enormous increase in labor supply. The
occupational and spatial nobilities of population have implications for business. Labor is easily mobility
between different occupations and regions. Its supply will be relatively smooth and this will be relatively
and this will affect the wage rate. If a labor is highly heterogeneous in respect of language, caste and
religion, ethnicity, etc., personal management is likely to become a more complex task. The

18. Heterogeneous population with its varied tastes, preferences, beliefs, temperaments, etc, gives rise
to different demand patterns and calls for different marketing strategies. Business organization needs to
study different demographic issues which particularly address the following issues as listed below:
What democratic trends which will affect the market size of the different types of industry? What
democratic trends will represent opportunities or threats? Domestic Environment Factors of Business
We shall briefly discuss a few demographic factors which are interest of business: Population Size
Geographic Distribution Ethnic Mix Income Distribution Population Size Size of population is
important either small or large to business organization. Companies use population size for critical
assessment for customer behavior and changes of the customer behavior and its impact on business.
Important issues are outlined which are related with population: It studies the changes in a nations
birth rate and family size. It studies the increase and decrease in the total population. It also studies
the changes effects in terms of rapid population growth on natural resources or food supplies. It also
studies the life expectancy of infants, youth and old age people. These issues are very important to
company for analysis of demand and supply of products and services. Healthcare companies role is
needful for assessment of the product requirement for infants, youth, middle age and old age people.

19. Geographic Distribution It refers to geographic region and population that shifts from one region of a
nation to another or from village/rural areas to urban areas. This is may be an impact on a company
strategic competitiveness in market. Geographic Distribution issues are outlined: Location advantage
and government support is also very important to company. In the case, population is shifted from one
region to another region. This is the significant impact on companys qualified workforce and company
consider relocation of its skilled human resources. Today, working at home concept and electronically
on the information highway have also begun in India in an very small level. Ethnic Mix Ethnic mix is also
important to company and know eager know changes in ethnic mix in population. Assessment and
implications of ethnic mix is useful for company and its works force. Ethnic issues are outlined:
Company should know the changes in the ethnic mix and its impact to companys product and services.
Company should know the new products demand or existing products and services from the different
ethnic groups. Company ready to face challenges, treats from ethnic and try to make solutions for
these ethnic challenges and treats. Income Distribution Income distribution is also one of the important
factors of demographic environment. Company is planning to measure changes in incoming distribution,
savings patterns for different level of individual. This purpose, company can forecast and assess the
changes in income patterns and ready to identify new opportunities for companies.

20. NATURAL ENVIRONMENT Natural environment is the study of an important component of the
nature i.e., natural environment. Natural environment includes geographical and ecological factors areas
as below: Natural resource endowments, Weather Climate conditions Topographical factors
Location aspects in the global context Port facilities are relevant to business. Difference in geographical
conditions between markets may sometimes call for changes in the marketing mix. Geographical and
ecological factors also influence industries which help material index tend to be located near the raw
material sources. Climate and weather conditions affect the location of certain industries like the often
textile industry. Ecological factors have recently assumed great importance. The depletion of natural
resources, environmental pollution and the disturbance of the ecological balance has caused great
concern. Government policies aimed at presentation of environmental purity and ecological balance,
conservation of non replevisable resources etc., have resulted in additional responsibilities and
problems for business, and some of these have to affect of increasing the cost of production and
marketing, externalities also become an important problem of the business has to confront with.
TECHNOLOGICAL ENVIRONMENT Technological factors sometimes pose serious problems. A firm that
unable to cope with technological changes may not be survived. Further, the differing technological
environment of different markets or countries may be called for product modifications. Technology is
the most important elements of the macro environment. Technology is the human being innovation and
it literally wonder. Technology helps to human being go to moon, travelling the spaceships, other side of
the globe with few hours. Advances in the technologies have facilitated product improvements and
introduction of new products and have considerably improved the marketability of the products.

21. Internet and telecom system is the part of technological development in the world. These things
today changed whole world. It changes people and business operation. It leads to many new business
opportunities apart from the many existing systems. Technological environment characteristics are
outlined: The find of technological change Opportunities are arising out of technological
developments. Risk and uncertain is the major feature of the technological developments. Research
and development role to country Technology and business activities are to be highly considerable,
interrelated and interdependent. Technology output/fruits available to society through business
activities in this way improve the quality of life in the society. Therefore, technology nurtured by
business.Technologies issues relating with companies are listed below: Access to the internet
communication facilities which is enable to connect large numbers of employees to work from one
place/ home to another place in the globe. It helps to business for sales and exchange of goods and
services. It provides opportunity to customers with accessing to online shopping through the internet
technology. Key Issues of Technology Strategist should know what of type technology used by
company? Strategist should know which type of technologies are used in the companies, business,
products and its services? To know the critical issues in technology and know the operating skills in
technology related products and services. To know the availability of technology to organization. And
also its procedure to get external technology for its operations. To know the cost of technology,
alternative technology, competitors, design structure of the technology and production implementation
services of the company. To know the companys business applications that are relating to
technology. Technology helps the business for formulation of strategy, implementation of strategy and
control of the company performance.

22. Technological Environment of the Company GLOBAL ENVIRONMENT Global environment is one of
the important elements to macro environment of the business. Today competitive scenario changes
rapidly and its impact on business of company. For this, reasons, strategist should understand the global
environment, its characteristics, functions and merit and demerit to company. Global environment
treated as whole world just as village and has changed how individuals and organizations relate to each
other. These are influenced to organization to get project from global clients. Assessments of the global
environment factors are outlined: To know the potential positive and negative impact of significant
international events like a sport meet or a terrorist attack. To identify both emerging global markets
and global market which are ensuring changing. It includes newly industrialized countries like in Asia. In
developing countries that imply the opening of new markets for new products, thats result is to be
increased competition from emerging globally competitive companies in India and South Korea and
China. To know the difference between in cultural and institutional attributes of individual global
markets.

23. Globalization of markets refers to the process of integrating and merging of the distinct world
markets into a single market. This process involves the identification of some common norm, value,
taste, preference and convenience and slowly enables the cultural shift towards the use of a common
product or service. A number of consumer products have global acceptance. For example, Coca
Cola,Pepsi, McDonalds Music of Madonna, MTV, Sony Walkmans, Levis jeans, Indian masaladosa,
Indian Hyderabadi biryani, Citicorp credit cards etc. Nature of Globalization It indicates the several
things for several people in the world. It is a new concept that is based on the set of fresh beliefs,
working methods, economic, political and socio-cultural relatives in business. It integrates with the
world economy and opens itself for new and potential huge market for developing and developed
countries in the global. It intends to remove all trade barriers among countries in the world.
Characteristics of a Global Company Global company refers to operating in more than one country in the
world and gains its R&D, production, marketing and financial advantages in terms of costs and
reputations that are not available to domestic competitors. Global company is one that has the world
market. Minimizes the importance of national boundaries, sources, raises capital and market in this way
it will be done the best job. Global company major characteristics are outlined Global company is a firm
which having multiple units that are located in different parts of the world but all linked by common
ownership umbrella. Global multiple units draw on a common pool of resources like money, credit
information, patents, trade names and control systems. Global company can be follow common
strategy for sell its products in most countries and manufactures in many. Another important fact is that
its shareholders and human resources are also based on different nations.
24. Reasons for Globalization Large-scale industrialization enabled mass production. Consequently, the
companies found that the size of the domestic market is very small to suffice the production output and
thus opted for foreign markets. Companies in order to reduce the risk diversity of portfolio of
countries. Companies globalize markets in order to increase their profits and achieve goals. The
adverse business environment in the home country pushed the companies to globalizes their markets.
To cater to the demand for their products in the foreign markets. The failure of the domestic
companies in catering the needs of their customers pulled the foreign countries to market their
products. International environment is the very important from the point of view of certain categories of
business. It is particularly important to industries which are directly depending on imports or exports
and import competing industries. Advantages of Globalization Free flow of capital and increase in the
total capital employed Free flow of technology from developed countries to developing countries
Increase in industrialization Spread production facilities throughout the global Balanced development
of world economies Increased in production and consumption of outputs Commodities available at
lower price with high quality Cultural exchange and demand for a variety of products in foreign
market Increased in jobs opportunities and income Balanced in welfare and prosperity of the
countrys economic Disadvantages of Globalization Globalization kills domestic small business firms
Exploits human resources in global firms Leads to unemployed and underemployment in developing
countries The customer demand decline in domestic products Decline the income because of
unemployment Widening gap between rich and poor

25. National sovereignty at stake Leads to commercial and potential colonialism to poor countries
Why do companies go global? Reasons for companies going global as outlined: To Gain Access to New
Customers This is the first reason to companies expands into foreign market. It offers potential for
increased revenues, profits and long-term growth and becomes an especially attractive option when a
companys home market is mature. Mature industries plan to enter new market, therefore, to access to
new customer for their products and service. To Achieve Lower Cost Enhance the Firms Competitiveness
This is the second reason to domestic companies opt to be expanding their market in outside countries.
Many companies are driven to sell their products and service in more than country because the sales
volume achieved in their own domestic markets is not large enough to fully capture manufacturing
economies of scale and experience curve effects and thereby substantially improve a firms cost
competitiveness. To capitalize on its Core Competencies This is the third factor to companies expand
their domestic market into international market. A company with competitively valuable competencies
and capabilities may be able to leverage them into a position of competitive advantage in foreign
market as well as just domestic markets. To spread its Business Risk across a Wider Market base This is
the last reason opt companies to expand their domestic market into international market. A company
spreads its business risk by operating in a number of different foreign countries rather than depending
entirely on operations in its own domestic market. Except in a few cases, companies in natural resource
based industries such as oil and gas, minerals, rubber and lumber often to find it necessary to operate
in the international arena because of attractive raw material suppliers are located in foreign countries.

26. Speed and Faster Communication Network Globe thanks to faster communication, speedier
transportation, growing financial flows and rapid technological changes due to advanced
communication network development. Reduce transportation costs Companies often set up overseas
plants and machinery to reduce transportation costs. The following development is also responsible for
transportation operation of companies: Globalization of firms and industries The rise of the services
sector. It constitutes the one of the largest single sector in the world economy. Rapidly changing
technologies which are transforming in the originate nature, organization, and location of international
production. Manifestation of Globalization

27. Typical PESTEL factors to consider include: Factor Could include: Political e.g. EU enlargement, the
euro, international trade, taxation policy Economic e.g. interest rates, exchange rates, national income,
inflation, unemployment, Stock Market Social e.g. ageing population, attitudes to work, income
distribution Technological e.g. innovation, new product development, rate of technological
obsolescence Environmental e.g. global warming, environmental issues Legal e.g. competition law,
health and safety, employment law

28. PESTEL ANALYSISTOYOTA BACKGROUNDToyota Motor Corporation is a famous Japanese

multinational corporation, and is considered the worlds second largest automaker of automobiles,
trucks, buses, robots, and providing financial services ( 2007). Its founder is Kiichiro Toyoda, born in
1894, and the son of Sakichi Toyoda, who became popular as the inventor of the automatic loom.
Kiichiroinherited the spirit of research and creation from his father, and devoted his entire life to the
manufacture of cars. After many years of hard work, Kiichiro finally succeeded in his completion of the
A1 prototype vehicle in 1935, which marked the beginning of the history of the Toyota Motor
Corporation ( 2007).The first Type A Engine produced in 1934 was used in the first Model A1 passenger
car in May 1935 and the G1 truck in August 1935, and led to the production of the Model AA passenger
car in 1936. In addition to being famous with its cars, it still participates in the textile business and
makes automatic looms that are now fully computerized and electric sewing machines that are available
in different parts of the world. It has several factories around the world, which serve to manufacture
and assemble vehicles for local markets. The corporations factories are located in countries such as the
United States, Australia, Canada, Poland, France, Czech Republic, United Kingdom, Turkey, South Africa,
Brazil, Argentina, Venezuela, Mexico, Japan, Indonesia, Pakistan, India, Mexico, Malaysia,Thailand,
China, Vietnam, and the Philippines. Despite the many locations of its factories, its headquarters is
located in Toyota, Aichi, Japan (2007).It invests a great deal of time and effort in its research into
cleaner-burning vehicles, such as promoting a Hybrid Synergy Drive and running a Hydrogen fuel cell in
its vehicles (2007). It has significant market shares in developed countries, such as the United States,
Europe, Africa and Australia, and has significant markets in South East Asian countries. Its brandsinclude
the Scion, its division in the United States, Guam and Puerto Rico, and the Lexus,which is Toyotas
luxury vehicle brand ( 2007).Aside from producing cars and other types of automobiles, such as SUVs
and coasters, Toyota also, participate in rallying or racing. The companys presence in Motorsport can
be traced to the early 1970s, when Ove Andersson, a Swedish driver, drove for Toyota during

29. the RAC Rally in Great Britain, and in succeeding years, Toyota Team Europe was formed (2007). Up
to the present, Toyota cars are still being used in a variety of racing events indifferent countries around
the world. These events include the CART in Vancouver, the LeMans, the Indy Racing League, the
NASCAR, and the Toyota F1 Series (2007).As the leader in the industry of automobile manufacture and
production, the company adopts a philosophy in terms of its production system, which is named The
Toyota Way. The companys philosophy in production involves a list of fourteen principles that are
implemented in the company, and serve as guides to the operation of the company. This includes the
following principles: Base the companys management decisions on a long-term philosophy, even at
the expense of short-term goals; Foster a continuous process flow to sight problems; Utilize pull
systems to prevent over-production; Level out the workload of the workforce; Build a culture that
stops to fix problems, in order to get quality perfect at the first try; Standardized tasks are the
companys foundation for its continuous improvement and the development of the employees; Use
visual control to let problems surface; Use reliable and tested technology, which serves both the
people and the companys processes; Train leaders who understand the companys work, live its
philosophies, and share it to others; Train and develop a workforce who follow the companys
philosophy; Respect the work and responsibilities of partners and suppliers by challenging them and
helping them improve; Actually immersing ones self to understand the situation; Slow but sure
decision-making through consensus, through considering a variety of options, and to implement
decisions effectively and efficiently; and, Becoming a learning business organization through
expression and continuous improvement

30. With these principles, the company is guided in terms of its operations and production. Through
these principles and philosophies, it can become efficient and effective in manufacturing its products,
keeping in mind the welfare of its employees, the image and brand of the company, and the satisfaction
of its employees. PESTLE Analysis Currently, Toyota faces a need for accelerated investment, in order to
deploy the new technologies, for pressing geo-political, economic, environmental and societal reasons.
Political: Observers will see a continuing progression in the ruinous steps which have forced the industry
into a socio-politico-economic corner. Whether this is related to flat demand or to the companys
creation of an ever-wider range of vehicles that many buyers seem to care little about, there is a
problem. The company is likewise linked closely to the policies of governments, the earnings of banks.
Little wonder then that so many emerging countries are keen to develop an auto sector or that there is
such a political pressure to protect it in the developed countries. Toyota Company is currently
dominated by little more than a handful of firms, each wielding colossal financial, emotional and
political power. The companys approach to dealing with political institutions has not always been
brilliant. It tends to be good on technical issues, although it has not always fully presented the longer-
term options, in order to make the choices and their implications clear. Economic. For much of the
developed world, and increasingly for the developing world, Toyota Company is a pillar company in auto
mobile business, a flag of economic progress. Without Toyota Company in automotive industry, it is
impossible to develop an efficient steel business, a plastic industry or a glass sector other central
foundations of economic progress. The Toyota Company has been a core company, a unique economic
phenomenon, which has dominated the twentieth century (2007). However, the automobile industry
including the Toyota Company now suffers from a series of structural schisms and has become riddled
with contradictions and economic discontinuities. For the capital markets and the finance sector, it has
lost a lot of its significance, as a result of ever declining profits and stagnant sales. The proliferation of
products means that it has become hopelessly
31. wasteful of economic resources. While all these and more sound like a very gloomy assessment of
such a vast economic phenomenon, the industry is not in the end despondent. A different future is
possible for the industry, a highly desirable one. Social: As part of the development in automotive
industry, the Toyota Company actually affects the society as a whole. It employs millions of people
directly, tens of millions indirectly. Its products have transformed society, bringing undreamed-of levels
of mobility, changing the ways people live and work (2007). The social value of the additional mobility
that this industry brings involves the value of the people being able to commute over longer distances
easily, among many others. For most of its existence the Toyota Company has been a model of social
discipline and control and it is not just that the auto sector offers a pillar of something else. There are,
on the other hand, particular social issues to address in many developing countries, often those that are
the result of an undertone of religious faith. Toyota Company has the role to play in helping develop the
mobility of such countries and it can be achieved at an acceptable social cost of the country.
Technological: The Toyota Company works on a scale so awesome and has an influence so vast that it is
often difficult to see. The level and diversity of technologies that it must deploy are increasing, which
imposes both new investment burdens and new uncertainties and risks (2007). Roughly a million new
cars and trucks are built around the world each week they are easily the most complex products of
their kind to be mass-produced in such volumes. The industry uses manufacturing technology that is the
cutting edge of science. But still, the potential for developing coordination skills, intellectual capabilities
and emotional sensitivities through electronic technologies remain far from fully exploited. There are
numerous additional near-term technological opportunities to adapt the company to change in energy
availability. The possibilities suggest that automotive technology is unexpectedly robust and provides a
powerful defense against energy starvation even if the real price of oil climbs steadily during the next
couple of decades.

32. Legal: Toyota Company is subject to numerous technical directives and regulations, as well as
legislation of a more legal nature. The legislation covers areas such as competition law, intellectual
property law, consumer protection and taxation, and emissions (air quality and fuels). When the auto
parts industry reached full development, accelerated technological efforts were made to create a web of
local suppliers that would make it possible to meet the growing legal requirements for the national
integration of production. Environmental: Other than the vehicles themselves, and the roads and fuel
needed to run them; the business is intricately tied to the manufacture of a wide range of components
and the extraction of precious raw materials. Indirectly, it brings people road congestion, too many
fatalities and a wave of other environmental troubles. The effect to the Toyota Company is that they
needed to establish R&D centres to take advantage of research infrastructure and human capital, so
that they can develop vehicle products locally to satisfy the requirements of the environmental and
safety regulations more effectively. VODAFONE: An Analysis of a Multi National Telecommunication
Company BACKGROUNDA Multi-National Company named Vodafone is one the leading companies in
Telecommunication Industry. To determine the factor that became their key to success is a good
implication that all the company can be as successful as Vodafone, although they engaged in different
kind of industry. The study also includes the companys brief history, vision, and different challenges
that leads the company in making formulas to trap the success on their side. History Vodafone was
formed in 1984 as a subsidiary of Racal Electronics Plc. Then known as Racal Telecom Limited,
approximately 20% of the companys capital was offered to the public in October 1988. It was fully
demerged from Racal Electronics Plc and became an independent company in September 1991, at which
time it changed its name to Vodafone Group Plc. It also merged with AirTouch Communications, Inc.
(AirTouch), the company

33. changed its name to Vodafone Air Touch Plc, following the approval by the shareholders in General
Meeting, reverted to its former name, Vodafone Group Plc. Company Strategy Review In May 2006, the
company formulated a five point strategy which served well for more than two years. And broadly
maintained or improved share against our largest or reference competitors in most of our markets and
delivered on our key cost targets. They increased the share in revenue successfully increased the
exposure to higher growth markets. However, a number of challenges have evolved. Elasticity on core
voice and messaging services remains below one, competitive and regulatory pressures continue to be
strong, and meeting the expectations in some market is hardly attainable. That factor which affects the
continuous growth of the company, undergone into on-going company strategy review. PEST Analysis
Political political factors involved the tax policy, labor law, environmental law, trade restrictions, tariff,
and political stability. Due to the customer relationships that the company value most, Vodafone is
willing to shift their approach away from unit pricing and unit based tariffs to propositions that deliver
much more value to customers in return for greater commitment, incremental penetration of the
account or more balanced commercial costs. This will require a more disciplined approach to
commercial costs to ensure our investment is focused on those customers with higher lifetime value. In
essence, we are confident that by targeting our offers, we can deliver more value to our customers and
have a better financial outcome for Vodafone. Economic economic factors includes the economic
growth, interest rates, exchange rates and the inflation rate. The pricing factors the company usually do
is giving the consumers a right and justly cost so that, everybody can avail or purchase their product in a
broad sense. Social social factors include the cultural aspects and include health consciousness,
population growth rate, age distribution, career attitudes and

34. Emphasis on safety. The need for an equipment that can be a good device for every age range is
available, since everybody are fully oriented in the use of the mobile technologies. Technological
technological factors includes ecological and environmental aspects, like R&D (Research and
Development) activity, automation, technology incentives and the rate of technological change. The
technology is the thing that Vodafone is very proud of. The technological advancement enables the
company to make customer relationships stronger because of their customers trust that built over the
years. The PEST factors have major impacts on how businesses operate and make decisions. With the
help of PEST analysis, the business can penetrate to the market with readiness. The determination of its
four keys, the business will answer the common questions that revolve around the business society.
These basic questions are what to produce, how to produce, when to produce and for whom to
produce. No matter how many times a business answer these questions, the needs from the market will
remain constant and unchanged. It is an advantage of the company to know the scope and limitation of
their business. It is done so that the company is prepared enough to face a future and ready to give
solutions as possible when the demand for the products are satiated or already diminished.
35. PEST Analysis of Pepsi The PEST analysis method has been successfully applied by Pepsi, which has
obtained economic advantage in its industry. The PEST analysis method and examples specific to Pepsi
are seen in the following factors: Political: The manufacture, delivery, and use of numerous Pepsi
products are subject to many federal regulations, like the Food, Drug and Cosmetic Act. The business is
also governed by government and foreign rules. The international business is subjected to the political
stability. Economic: The products of Pepsi are influenced by the raw material yield being used in the soft
drinks, juices, etc. All distribution is affected by the cost of fuel. Operations in international markets
involve the study of unpredictable changes in foreign exchange rate. The economic impacts of such
movements are serious because these affect the growth. Pepsi is also subjected to availability of energy,
supply of money, business cycles, etc. Social: Lifestyle has great influence on the use of Pepsi products,
and their advertisements are designed accordingly. Introduction of Pepsi products in the international
market requires an in depth study of the local social structure. Technology: Pepsi is influenced by the
modern manufacturing techniques applicable to their business divisions of soft drinks, juices, and snack
food. Pepsi has to focus on the latest distribution techniques, and other technological advances in their
industry.