Political, Economic, Socio-Cultural and Technological Factors That Shape International Business - Report Example

The international business environment is shaped by a wide variety of Political, Economic, Socio-Cultural and Technological PEST factors as featured in Morrison (2009) (Name) (Institution) (Course) (Tutor) (Date) Introduction International business relates to commercial transactions that always takes place between two or more areas, states or regions beyond their political boundaries. These activities usually involve transactions of goods, services and resources across borders. The economic resources include skills, people et cetera (Martinez, 2009, p. 97). Within the framework of all the international businesses, there are certain macro-environmental factors that shape it. These are set as the PEST analysis which includes the political, social, economic and technological analysis. They are components of strategic management. PEST analysis is a strategic management tool that helps managers to analyze political, economic, socio-cultural and technological changes and challenges in the business environment. PEST helps managers to understand the changes in the market and position the business in a way that exploits the opportunities and tackles the threats (Haberbergm and Rieple, 2007 p.167). This paper is going to analyze Political, Economic, Socio-Cultural and Technological (‘PEST’) factors that shape international business environment as featured in Morrison (2009). Pest analysis Pest analysis is a useful tool for understanding the growth or decline of markets globally. It acts as a business measurement tool. The discipline if to identify the needs of a business and come up with solutions for the troubles that are facing the business. The solutions may be system development components, strategic planning and policy development. “The factors included in the pest analysis cover various areas in the international business environment” (Korten, 2001, p. 124). These are the political factors, economic, social and technology. Political factor is when the government takes part in the economy. These areas are such as tax policy, law, tariffs, political stability et cetera. “The government still controls a large part of the infrastructure, health and education of a country” Hamilton and Webster, 2012, P. 158. Trade and industry factors include economic increase, interest rates, trade rates and the price increase rate. They affect how businesses operate and come up with certain decisions. Social factors are the cultural aspects which comprise of health awareness, population growth rate, age division et cetera. The trends in communal aspects have an effect on the requirement for a company product and how that the company operates (Hamilton and Webster, 2012, P. 159). Technology factors include features such as R&D activity, computerization, technology enticement and the pace of technology change. These shifts can affect costs, quality et cetera in any business environment (Mennen , 2010, p. 16). These factors vary in the manner that they are applied based on a company or industry. Some companies are more affected by the social factors while others are much affected by the rest of the other factors (Suder, 2004, p. 63). PEST Analysis for Coca - Cola PEST Analysis Coca cola is a non-alcoholic beverage company whose products are currently available in over 200 countries with 1.7 billion servings of its trademarked or licensed products every day. Socio-cultural factors The company targets customers of all age-groups but focuses mostly on the age group between 18 and 25 year old as they have busy lifestyles. It also targets students and family-oriented customers. The rising cases of obesity especially in developed countries have been blamed on consumption of high calorie foods and beverages such as coke. Coca cola argues that that lack of physical activity contributes to most forms of obesity. To this end, the company sponsors over 280 active, healthy living programs in over 115 countries around the world. The company founded the well known Copa coca cola program to promote physical activity among the youth (Waronwant, 2005, p.7). The company has used the challenge of health conscious drinks to introduce low calorie sparkling beverages, waters, sports and energy drinks and soy based beverages to serve a health conscious customer base. It offers 800 low or no-calorie options, which make up 25% of its global portfolio. This is, in addition to offering its servings, in a variety of sizes to help customers manage their calorie intake and energy balance. For example, there are 17 different packages of coca cola alone offered in Sao Paulo, Brazil (Girard, 2005, p.6). Economic factors The company uses materials such as sweeteners, carbon dioxide, juice concentrates, aluminum cans, glass and paper to produce and package its beverages. The cost of materials can be very volatile due to tariffs, foreign exchange fluctuations and gas price hikes. As a result, the company engages in forward purchase agreements with suppliers to minimize price increases on certain raw materials (Girard, 2005, p.10). The 2008 financial market crash reduced the company’s revenue by 3% from $35.1 to $30.9. However, the company recovered from the decline in revenue to record an increase in income of 17.5% owing to increase in retail price and cost cutting measures (Girard, 2005, p.9). The Asian market provides the largest potential market for the company, but the company endured challenges in designing its products to suit Asian consumers and to overcome logistical problems. The Asian market contributed 21% of the company annual revenue in 2004. The main challenge in Asian markets is reaching the rural areas which hold most of the population. To this end the company designed single-serving returnable glass bottles at an affordable price to serve the rural customers. The company reduced the size of the bottles and packed them in smaller crates making them easier to distribute to outlets in rural areas (Girard, 2005, p.12). Technological changes Coca cola has well positioned itself to exploit the opportunities provided by the social media. It has mobilized immense community support and brand loyalty by connecting its customers on the social media. The company has over 5.18 million Facebook fans, and its Facebook page is one of the most visited fan pages on Facebook. Further, the company promises to donate $1 to the Boys and Girls Club each time a Facebook fan gives a virtual coke. This initiative raised $ 126 000 for the Club in 2010. The company uses social media to interact with the existing customers and to attract new customers (Haas, 2006, p.10). 61% of the company’s beverage volume is delivered using PET bottles, which are lightweight, resalable and accepted in most community recycling systems. Pet bottles are cost effective and energy-efficient to the company. But there is increasing pressure for companies to reduce their carbon footprint, and to achieve this, the company aims to source 25% of its PET plastic from renewable materials by 2015. To this effect, the company introduced the PlantBottle™ bottle which is a fully recyclable bottle made partially from plants in 2009 (Haas, 2006 p.6). Political factors Coca cola has been the subject of investigations into violation of competition laws especially in Europe involving contracting retailers with sales incentives programs which were deemed to be prohibitive to the sale of competitor’s products. The company agreed to stop offering incentives to retailers in a 2004 agreement with the European Commission. It further agreed to open 20% of the space in coke branded refrigerators to rival products. As a result, the company was exonerated from any wrong doing involving violation of European competition law (Public Policy, 2013 p.1). In some countries, political anti-Americanism market forces promote local companies to challenge the dominance of international brands. Such was the case in India where coke was forced to part with 40% of its Indian subsidiary Hindustan Coca-Cola Beverages for over $40 million to a local company. While India offers a huge market for Coca-Cola’s products, the company has had to diversify its products range by introducing non-Coke brands like bottled water, and fruit drinks as well as its ready to drink coffee which has been successful in other Asian markets (Sustainable packaging, 2013 p.2). In general, the coca cola company has employed dynamic mechanisms to anticipate and meet present and future demands of consumers. The world keeps on changing in varying ways economically, technologically and culturally, and it is important for a global company like coca cola to adjust itself to reach a wide market through the provision of standardized products which are compatible with the local culture. PEST Analysis of General Electric Company Political As a worldwide corporation, General Electric has to deal with political schemes of diverse state. In spite of some of the nations presenting encouraging environment for industry endurance and growth, others present complicated environment. Tax systems and regulations as well vary across countries and so does the strength of government meddling in commerce activity. In United States, the Internal Revenue Authority necessitates that companies present tax returns per annum (Sharan, 2006, p. 164). Government involvement is minimal, and trade environment is much constructive. Political stability is sensible so that business survival is extremely plausible. These circumstances might not be relevant in other states such as China and Singapore where the government has power over businesses completely (Sharan, 2006, p. 167).  Economy Fluctuations in interest rates, exchange rates and currency value to a substantial extent affect activities and operations of General Electric. A factor such as devaluation and inflation as well as administration expenses in different nations in which General Electric has endeavored often manipulates business productivity and prosperity (Ajami et al., 2006, P. 45). The economic impacts caused by the present economic crisis are being felt all over the globe. General Electric has recorded decreased sales typically owing to lesser loan rates by banks. Adding to that, prices of inputs have also gone up significantly (Williams and Curtis, 2012, p. 117). Social Norms, traditions, belief and social set-ups frequently establish how a business should accomplish itself in a state or environment. In the diverse countries which General Electric has ventured into, the business is faced by unusual social-cultural disputes which manipulate its corporate customs to a very huge extent. The customs in a nation establish the working hours, employment strategy, procedures for employing managers and the kind of goods to be produced (Marchington and Wilkinson, 2006, p. 190). Comparable to other international companies, General Electric has to put up with such matters and deal with them successfully. Technology Expertise in the contemporary world is advancing at a massive pace. Pioneering products are for all time being introduced by means of more superior technology each day. Older technology is, therefore, getting out-of-date at an incredibly high tempo across all segments in the market. Aimed at outdoing entrants, lots of companies have turned to modernization, exploring and development which have brought about enhanced levels of expertise (Gilpin and Gilpin, 2001, P. 55). The pace of technology improvement internationally varies with every nation that General Electric has spent in as they differ in terms of property available. Amid the countries with the maximum rate of technology development, are US and Japan, which GE has ventured into a lot (Gilpin and Gilpin, 2001, P 86). Using the theories, concepts and frameworks in International Business the forces that interplay in International Business can be easily identified (Breslin, 2002, P.190). The international business success of these two industries in other countries can be accredited to their technical proficiency, economics of scale and strong partnerships with local businesses in these countries. The setbacks suffered are majorly due to recession (Cook and Mosedale, 2007, P 11). An organization’s achievement is subjective by factors operating in its inner and outer environment; an industry can boost its success by adopting strategies which control these factors to its benefit. A flourishing organization will not only comprehend accessible factors but also predict how factors may transform and prepare how to take the lead of the changes (Ungson and Wong, 2007, p. 36). Industries cannot control the external environment factors, so they are required to handle them to their benefit. Businesses like the coca cola and the general electric company should make the most of favorable trading environment such as tax inducements and a thriving market (Wilson and Gilligan, 2005, p. 263). They also must guard themselves against PEST factors, which may augment business costs or impinge on business reputation. Conclusion As a result of international business companies having to deal with diverse sets of political, economic, social and technological aspects, scheming a PEST analysis restricted to companies like coca-cola and General Electric is almost unrealistic. It is nevertheless outstanding that there are some factors that are widespread among states. Technology make up one of these factors, and a nearer look at the PEST analysis reveals that expertise is advancing at an extremely lofty pace worldwide. Multinational companies must as a result, be on guard to make certain that their skill is up-to-date when new outlines are introduced in the marketplace. Some cost-effective factors such as universal calamities, which lead to augmentation in interest rates and reduction, in bank lending capability, are also universal. Conducting a PEST analysis assists a corporation in understanding the industry environment so as to make possible the enhanced preparation to preserve high efficiency and productivity. Bibliography: Ajami, R., et al., 2006. International business: theory and practice. Armonk, New York: M.E. Sharpe publishers. Breslin, S., 2002. New Regionalism in the Global Political Economy. Routledge publishers. Cook, P. and Mosedale, S., 2007. Regulation, markets and poverty. Cheltenham, UK; Northampton, MA: Edward Elgar publishers. Gilpin, R. and Gilpin, J., 2001. Global political economy: understanding the international economic order. Princeton, N.J.: Princeton University Press. Girard, R., (2005). Coca cola company: inside the real thing. 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