Macro factors affecting business environment

macrofactors affecting business

1. MACRO FACTORS AFFECTING BUSINESS
ENVIRONMENT










SUBMITTED BY:
AAYUSH VERMA

2. INTRODUCTION
A 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 organised 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 are
open 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 or
strategist.

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 covers
even 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 control
internal areas and react 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 company's 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 today's 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
Trade 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, opportunities,
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 organisation. 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 organisation. 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 organisation.
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 Multi–faceted
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 organisation. 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 BUSINESS
The 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 Copen
“Environment 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 Jauch
“The environment includes outside the firm which can lead to opportunities for or threats to
the firm. Although, there are many factors, the most important of the sectors are socio–
economic, 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 recognise 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 analysing 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 organisation. Its
factors are powerfully influence to its functions. External environment consists of
individuals, groups, agencies, organisations, events, conditions and forces. These are
frequently contacted by the organisation 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 with
and 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 organisation, 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 organisation for
formulating, implement and controlling of economic policies. Economic environment refers
to the nature and direction of the economy within which business organisation 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 organisation 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 liberalisation, privatization and globalization of the
economic policies in the business environment. Every country‟s 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 law‟s / 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 agency‟s 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
organisation 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 aren‟t 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 organisation 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 organisation 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 organisation.
• Business organisation 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
organisation and to pay more attention towards consumer‟s rights, minority rights and women
rights.
• Apart from the sporadic movements against certain products and services and some
business organisation in the state.

16. SOCIO–CULTURAL 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 organisation.

Business organisation 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 organisations 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 colour 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
organisation 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 organisation. 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 organisation 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 organisation. 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 nation‟s 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‟s
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 company‟s 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 company‟s 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/fruit‟s 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 provide 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 organisation. 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 company‟s 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 organisations relate to each other. These are influenced to
organisation 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, that‟s 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, McDonald‟s Music of Madonna, MTV, Sony Walkmans, Levis jeans, Indian masala
dosa, 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 Globalisation
• Large-scale industrialisation 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 globalise markets in order to increase their profits and achieve goals.
• The adverse business environment in the home country pushed the companies to globalise
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 Globalisation
• Free flow of capital and increase in the total capital employed
• Free flow of technology from developed countries to developing countries
• Increase in industrialisation
• 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 country‟s economic

Disadvantages of Globalisation
• Globalisation 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 expand into foreign market. It offers potential for
increased revenues, profits and long-term growth and becomes an especially attractive option
when a company„s home markets 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 firm‟s cost competitiveness.

To Capitalise on it’s 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:
• • Globalisation 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, organisation,
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 ANALYSIS
TOYOTA BACKGROUND
Toyota Motor Corporation is a famous Japanese multinational corporation, and is considered
the world‟s 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. Kiichiro
inherited 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 computerised, 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 corporation‟s 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 brands
include the Scion, its division in the United States, Guam and Puerto Rico, and the Lexus,
which is Toyota‟s 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 company‟s 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 in
different countries around the world. These events include the CART in Vancouver, the Le
Mans, 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
company‟s 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 company‟s management decisions on a long-term philosophy, even at the
expense of short-term goals;
 Foster a continuous process flow to sight problems;
 Utilise “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;
 Standardised tasks are the company‟s 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 company‟s
processes;
 Train leaders who understand the company‟s work, live its philosophies, and share it
to others;
 Train and develop a workforce who follow the company‟s philosophy;
 Respect the work and responsibilities of partners and suppliers by challenging them
and helping them improve;
 Actually immersing one‟s 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 organisation 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 company‟s 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
company‟s 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 changing
energy availability. The possibilities suggest that automotive technology is
unexpectedly robust and provides a powerful defence 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

BACKGROUND
A 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 company’s briefhistory,
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 company's 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 AirTouch 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. Those factors 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 a 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.