The Impact of Globalisation and Environment on International Businesses

Introduction

Globalisation describes a process by which national and regional economies, societies, and cultures have become integrated through the global network of trade, communication, immigration and transportation. (Lexicon.ft.com, 2018) There are several key factors that companies must be aware of before deciding to do business in other countries. I will be discussing these key factors in terms of the PESTLE analysis in my report reflecting the implications for the practice of international business. The PESTLE analysis is a framework or tool used by marketers to analyse and monitor the macro-environmental factors that have an impact on an organisation. The result of which is used to identify threats and weaknesses which is used in a SWOT analysis. (Academy, 2018)

Political

The political environment in international business consists of a set of political factors and government activities in a foreign market that can either facilitate or hinder a business' ability to conduct business activities in the foreign market. (Study.com, 2018) For example, political systems in place which can be set by the government concerning the practices of businesses, these are known as democracy and totalitarianism.

Democracy is a system of government where people are eligible to elect their representatives. (Dictionary, 2018) International businesses may favour democratic countries as they encourage freedom and equality. This has meant that they tend to be “supportive of free trade and entrepreneurship and they also tend to be more responsive to the changing needs and circumstances of business, and to operate transparent and fair laws and tax rules.” (Fleximize, 2018) Having said that, totalitarianism is form of government that theoretically permits no individual freedom and that seeks to subordinate all aspects of individual life to the authority of the state. (Encyclopedia Britannica, 2018) A business may find this unattractive to invest in because a totalitarian country is more likely to suffer corruption, business practices and government control over certain business sectors. Therefore, they’re more likely to will be more likely to impose restrictive rules on businesses and to suppress the freedom of trade. (Fleximize, 2018)

Economic

In terms of the global economy, it has a great impact on the practices of international businesses. The two biggest economic factors impacting international businesses is demand and supply. Demand is how willing and able a consumer is to purchase what a business offers. Whereas, supply is how able the business is to make available what the consumer needs. (Marketing Tutor, 2018) A shift within these two factors will cause international businesses to react to meet the needs of their consumers.

When demand increases, companies respond and increase production to meet the increased demand. Initially, that creates lower prices in the market because an adequate supply of products exists. However, when businesses reach their full production capacity and fail to meet the demand. When this happens the supply decrease, causing prices to increase. (Smallbusiness.chron.com, 2018) This why it’s so important that demand meets supply. International businesses often select the country that has a high GDP because demand always tends to be higher which generates more sales. A recession is another economic factor that challenges the practices of international companies. A recession is a period where the economy slumps which can affect the demand and supply for a company. To reduce their costs, they tend to resort to staff cuts, reducing capital expenditure, advertising budgets, research and development activities. (Marketing Tutor, 2018) This may cause a company to experience serious losses, a decrease in sales and a decrease in profits.

Social

“The social environment of a business consists of all that a society believes, its customs, its practices and it’s the way it behaves.” (Marketing Tutor, 2018) Society has a big impact on businesses because social and cultural changes must be monitored so that businesses can continue to meet their needs. Society effects the marketing element of a business as it has the potential to damage its image.

Consumer tastes are constantly evolving, and international business must keep up to adapt to it. For example, a clothing company must constantly be aware of changing preferences when creating new products or it will quickly become outdated. (Smallbusiness.chron.com, 2018). However, for international businesses that operate in a foreign country they must bear in mind their culture which can become even more complicated due to the environment consisting of diverse sub-populations, each with its own unique values and customs. (Marketing Tutor, 2018) Both examples require constant market research for the company to keep up and compete with competitors.

Technological

The rise and development of technology can help improve the productivity of the labour force, and reduce transportation costs, communication costs, distribution costs and production costs. (Smallbusiness.chron.com, 2018) Technology has even replaced labour in some cases, for example, the option of using self-checkout in supermarkets which are known as robotisation.

As discussed businesses heavily rely on technology because it assists them with communication, research, productivity, advertising etc. Therefore, when a business decides to trade in another country, infrastructure must be considered. Countries with poor infrastructure will have a shortage of power supplies which means technology cannot be used. Where technology cannot be used the country is considered as “switched off” from the world because it’s a major communication barrier. This makes a country look unattractive because a business would not be able to develop effectively.

Having said that, some international companies prefer to place their manufacturing plants in developing countries, despite the poor infrastructure, due to cheap labour. Therefore, the manufacturing technology can broaden a country’s skill set and individual qualities of life creating diversified opportunities. (Lead, 2018) This is something that’s becoming very common in globalisation which is reducing the technological gap. Companies that do this create a better brand image for itself because they’re giving developing countries opportunities to develop.

Legal

International businesses must recognise the legal systems in place in a country before they trade within it. Legal systems refer to the rules, or laws, that regulate behaviour along with the processes by which the laws are enforced. (Hill, 2011) Business must abide by these laws and create business practices in accordance with the laws. In this section, I shall be discussing the laws of property rights and the laws of product safety and product liability.

Property rights refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource. (Hill, 2011) This law is to protect the rights of property law and international companies need to be aware of these rights in different countries. However, the protection of intellectual property refers the property that is the product of intellectual activity such as computer software, a screenplay etc. (Hill, 2011) Having said that patents, copyrights and, trademarks help protect the rightful ownership of intellectual properties. For example, a clothing manufacturing company may want to trademark their designs to give them the competitive advantage to differentiate their products.

Product safety laws are safety requirements that a product must comply with. Whereas, product liability involves holding a firm responsible when a product causes injury, death or damage. (Hill, 2011) These laws are for the safety of consumers using the products. Businesses must do continuous checks on their products so that it’s user-friendly. In some cases, Trading Standard Officers will come in to further check the product safety. If the product doesn’t comply with the safety laws the company could face a big penalty which can be costly.

Environment

Lastly, I’m going to examine the environmental factors that implement business practices. Environmental factors which are also known as ‘ecological factors’ — refer to variables regarding the physical environment (such as the climate of Earth). Some examples include climate, climate change, weather, pollution and availability of non-renewable goods. (Bush, 2018) Businesses must be aware of environmental factors to ensure their practices are not causing environmental damage.

There are environmental regulations put in place so that international business minimises the impact they have on the environment and be sustainable. On the contrary, many developed countries have substantial regulations governing the emission of pollutants, the dumping of toxic chemicals, the use of toxic materials in the workplace etc. (Hill, 2011) Nevertheless, many developing countries lack these regulations, but business may find this more attractive as they wouldn’t be as restricted than in a developed country. Having said that, the more “green” a business is the better the brand image.

Conclusion

To conclude, there are many factors an international business must consider before deciding to trade in another country. PESTLE factors need to be analysed within a country to provide a decision on whether it’s suitable to trade in. All factors will cause positive and negative implications but it how a company responds to these implications which will determine its survival on a global scale. I believe the most important factor is political factors because the way how the country is governed determines the scale of the rest of the factors.