PESTEL, Globalization, and
Importing
The Role of PEST Analysis in Bolstering International Business
Whether a business is deciding to enter the foreign market or launching a
new product, business owners need to take into account several factors and
understand the larger forces shaping their choices
One of the best ways to examine any decision is to conduct a PEST, Political,
Economic, and Social and Technological analysis
At the same time, PEST helps you understand how the dynamics of one
market may affect the dynamics of another
Components of PESTEL Analysis
POLITICAL
• Political factors of a country include the government’s intervention in the
economy
• Some of the most important regulatory and legal factors include employment
laws, tariff and trade restrictions, consumer protection laws, tax policies, labor
laws and consumer protection. The foreign policy of the country plays an
imperative role in determining the trade regulations of the state. This may result
in a variety of trade restrictions or may offer various trade incentives. PEST
analysis also takes into account the industry-specific regulations imposed by the
company that may significantly have an impact on your company.
The Importance of Paying Attention to the Political
Environment
• A country’s political environment is the least predictable element in the business world. Keep in
mind that lack of political stability may hinder business operations and can affect the appeal of a
particular local market
• Governments tend to pass legislations which may impact the relationship between the
organization and its consumers and suppliers.
• The actions of the government almost always influence the economic environment
• It is imperative to keep in mind that the government is a major consumer of goods and services
• All these reasons point out why it is important for any business to
look into the foreign country’s tax laws and structure before it decides
to do business. Take, for example, Brazil, a country that imposes high
import duties in order to protect its own domestic economy might not
appear appealing to the US market
ECONOMIC
• Economic factors cannot be undermined in the world of business. Economic factors include
interest rates in a country, exchange rates, etc..
• The economic factors of any country are a prime indicator of how much a company may profit
from the market.
• The exchange rates speak volumes about how much an organization can benefit from operating in
a foreign market
The Importance of Paying Attention to the Economic
Environment
• Every business has a single goal in mind and that is to earn the maximum amount of profit
• This can only be done if an organization is successfully able to analyze the demands of consumers
and maintain quality goods and services
• However, economic factors, such as recession, inflation, demand, and supply, can significantly
impact a business’ progress
• A country’s economic growth and development play an imperative role in determining how much
revenue an organization can earn there
• Inflation is when there is an excess supply of money in the economy which is not supported by
the outputs of good and services
• With the increased amount of money, the prices of goods also increase in order to sustain the
business, making it unprofitable for an organization to do business in this market.
• The interest rates have a direct impact on the loans organizations take to sustain and drive their
growth. The higher the interest rate, the more difficult it may get for an organization to commit to
projects that require high investments.
• When buying goods from an international market, a company has to convert its currency in order
to make payments. If the currency of the buyer is strong, it is beneficial for the business.
However, lower exchange rates would mean the company would have to shell out more money.
• Before investing in a foreign market, you would want to see how economic conditions are going
to influence your customer’s potential purchasing power and your revenue.
SOCIAL
• include various cultural and demographic aspects of a society. This
includes elements such as safety awareness, age distribution,
population and career attributes etc.
The Importance of Paying Attention to the Social Environment
• If a business does not adapt to its external social environment, it will not be able to survive
• Social preferences regarding people’s wants and needs change from time to time, it is thus
important for business to be aware of the wants and needs of people
• Adapting to the social environment allows businesses to use marketing campaigns and
advertisements to their advantage
• A society that values higher education will provide a better workforce and will lead to more
innovation and productivity
• Environment considerations have also become a growing aspect in this category. It is thus
important that businesses focus on all these factors to progress in the international market.
TECHNOLOGY
• If an organization fails to adapt to the ongoing technological changes
then it is doomed to lag behind its competitors in the market.
• To succeed in the international market, businesses need to
experiment with new technologies that can help make operating
plants more efficient, resulting in low production costs.
The Importance of Paying Attention to the
Technological Environment
• Improved technology allows organizations to produce goods for less
money, reducing production costs
• Improved technology allows businesses to expand efficiency and
effectively
• Allows businesses to compete with other organizations in the
marketplace
• Allows businesses to determine feasibility and profitability of the new
venture
