- Political
- Economic
- Social
- Technical
- Environmental
- Legal
Political Factors
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. Organisation seeking to internationalise typically investigates factors in the county such as:
- The stability of the political environment.
- Influence of government policy on laws that regulate or tax the business.
- government's position on marketing ethics, policies on the economy and their view on culture and religion.
- Government’s involvment in trading agreements such as EU, NAFTA, FTAA or CSME.
Economic Factors
In the context of international business, a number of key variables will shape the environment in which the business is conducted. Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. Factors will include:
- Interest rates
- The level of inflation and employment level per capita
- Long-term prospects for the economy
- Gross domestic product (GDP) per capita
- Economic growth
Sociocultural Factors
The social and cultural influences on business vary from country to country. Several case studies have focused on work culture, management and organizational development in multinational companies in different countries (Hofstede 1980; ILO 1991; Frenkel 1994; Garsten 1994). These studies reach different conclusions about how cultural factors influence management and organization in multinational groups, and especially how management and organizational culture influence employees in these companies. It is important that such factors are considered. Factors include:
- Influence of religion.
- Attitudes to foreign products and services.
- Impact of language upon the diffusion of products into the markets.
- Importance of leisure time to consumers.
- Roles of men and women within society.
- Age of the population and wealth of generations.
Technological Factors
Technology is vital for competitive advantage, and is a major driver of globalization. Technological change can involve new processes of production. It includes new ways of doing things which raise productivity of factors inputs, as with the use of robotics in car assembly techniques. (Wall et al 2001). The following points are considered:
- Technology allows for products and services to be made more cheaply and to a better standard of quality.
- Technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones.
- New technologies have changed distribution channels e.g purchase of books and flight tickets via the Internet.
- Technology offer companies a new way to communicate with consumers.
Legal Factors
Legal systems vary enormously throughout the world, and these have a significant impact on the ways international business is conducted. This includes legislation that governs the industry and identifies factors such as:
- Legislation to support equity
- Existing crime and disorder legislation
- Sexual and racial discrimination legislation
Environmental Issues
The environment has become an increasingly important focus of national and international policy makers as global warming, the erosion of the ozone layer and other environmental threats are increasingly linked to worldwide growth in the emission of harmful substances. Environmental issues are of obvious concern to individuals, government and the global community, as they are to international business (Wall et al 2001).
The Internal Environment
The factors that are internal to the organization are known as the 'internal environment’. The internal environment is as important for managing change as the external. Marketers refer to this process as internal marketing. Essentially, several marketing approaches are adopted to aid communication and change management.
Market Research
Market research is the function that links the consumer, customer, and public to the marketer through information - information used to identify and define marketing opportunities and problems It generates, refines, and evaluates marketing actions; monitors marketing performance; and improve understanding of marketing as a process. Market research specifies the information required to address these issues, designs the methods for collecting information, manages and implements the data collection process, analyses, and communicates the findings and their implications (American Marketing Association 2002).
Porter’s Five Forces analysis
Porter argued that ‘the essence of strategy formulation is coping with competition’ and that in addition to undertaking a PESTLE analysis, it is also necessary to undertake a structural analysis of the industry to gauge the strengths and weaknesses of the opposition and also determine the competitive structure of a given market (sited Wall et al 2001). The key areas in the five forces analysis are the threat of potential entrants, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
Conclusion
These are the main factors that a multinational company should consider when entering a new overseas market.
b) Evaluate the relative importance of these factors, using a specific products and a specific overseas market by way of illustration.
Product – Air Travel
BWIA West Indies Airways is the Caribbean’s oldest and best-known airline. It serves the Caribbean from both sides of the Atlantic and passenger carryings are 1.3 million a year. Founded in 1940, its safety record is unsurpassed in the history of air travel. Based in Trinidad and Tobago, it has major hubs in Barbados and Antigua and has provided the Caribbean with international air service from North America and the UK and Europe. Major international gateways include London, New York, Washington DC, Miami and Toronto and the Caribbean – Trinidad and Tobago, Barbados, Jamaica, Antigua, St. Lucia, Grenada, St. Marteen, Guyana and Caracas.
Within the past year, the airline has begun weekly service to Costa Rica, Dominican Republic and Cuba. In November 2000, BWIA signed a memorandum of understanding with the caribbean feeder carrier, LIAT extending the reach of BWIA into virtually every corner of the Caribbean. BWIA West Indies Airwarys is comtemplating extending its service into Guatemala in Central America.
Market - Guatemala
Guatemala, is located to the south of Mexico and has a surface area of 108,889 square kilometers. It is located in the tropical zone, and has a range of climates that vary according to the altitude. Guatemala is endowed with a striking variety of topographic features. Nearly two-thirds of the country is mountainous and volcanic. Parallel to the Pacific lies the Sierra Madre mountain range, with peaks that rise to an elevation of up to 12,000 feet. Thirty-three volcanoes dominate the landscape, and these, coupled with the lush tropical rain forests to the north, the fertile plains of the south and east, the beautiful lakes, and the wonderful rivers, make this a land of varied contrasts.
Prior to expanding its services, an evaluation of the factors listed in (a) should be explored.
PESTLE Factors
Political
A stable political environment is importance to a countries tourism sector. Guatemala’s political history has been stained with civil unrest and political instability up until the 1996 signing of peace accords, which ended 36 years of civil war. This has removed several major obstacles to foreign investment and initiated a series of reforms aimed at eliminating protectionism barriers. The Government has also signed the Central American Free Tade Agreement with six other countries. This agreement aligns the region's macroeconomic policies, reduces tariffs, promotes exports and helps to attract foreign investment. This information is relative to BWIA as a stable political environment would attract foreign investment and boost the demand for air travel to the country.
Economic
Guatemala’s economy is the largest in Central America. The economy has stabilised within the last two years and its real growth rate was 2.1 % in 2004. The present inflation rate is 5.5% and employment figures stood at 7.5% in 2003. In 2004, the number of persons living below the poverty line was estimated at 75% (World Fact Book, sited online). These figures are of high importance to BWIA as the prospective changes in economic growth rates will impact on the demand for air travel and the future profitability of the company. Guatemela also presents potential to business tourists.
Socialcultural factors
Despite its turmoil and travel advisory about the relatively high level of violent crime, travellers flock to Guatemala because it offers Central America in concentrated form: its volcanoes are the highest and most active, its Mayan ruins the most impressive, its earthquakes the most devastating and its history of repression decidedly world-class. 60% of the population speaks Spanish but there is an increase in the number of English speaking persons resulting from the increase in trade with the US. The major religion is Roman Catholic but in the outer cities, there is a high prevalence of traditional Mayan beliefs. This factor is of high importance, as the influence culture and practices woos the potential traveller thus increasing the rate of air travel to that country.
Technological factors
The level of technological advancement in a country is an attractive element, and at times a deciding factor in visiting that country. An article published in Caribbean Beat (2002, BWIA in flight magazine) suggests that tourist demand quality services such as online banking, access to international credit and debit cards systems, effective communication network and convenient transport systems. Guatemala continues to improve on all these elements and boast of the most modernised airport in Central America, La Aurora International. This is an important factor to BWIA as improved technology can achieve faster turnover which equates higher profits and greater customer satisfaction.
Market Research
The assessment of the global market opportunities is achieved through the PESTLE analysis. While the PESTLE factors assess the external environment that influences the organisation, the analysis is insufficient to underpin the decision to develop a new market. The element of market research is important. A key aim of market research is to reduce the risk involved in taking effective decision. This is particularly important where the environment in which the firm is operating is unfamiliar.
Through market research, BWIA would determine the number of airlines (twenty-six) operating into Guatemala. However, none of these airlines offer direct flights to or from the Caribbean to Guatemala. Thus there is little direct competition to BWIA’s entry. Notwithstanding, a direct service eliminates the need for indirect connections through Miami, USA or Caracas, Venezuela which reduces the passenger load from the Caribbean for airlines operating in these two countries. This impact on the airlines operating these routes and further analysis of Porter’s five forces will assist BWIA in determining it competition.
Porter’s Five Forces
BWIA’s analysis of Porter’s five forces should determine the intensity of competition and hence the profitability and attractiveness of an industry. In shaping its corporate strategy, the team can modify these competitive forces in a way that improves the position of the organisation. Porter’s model supports analysis of the driving forces in an industry. Based on the information derived from the five forces analysis, the BWIA management can decide how to influence or to exploit particular characteristics of their industry and plan for possible resistance to the development of this new market.
Conclusion
The relative importance of these factors will vary from country to country and among multinationals. The key component to the successful launch of a new product into a new market is the consideration of these combined factors in informing the strategic decision.
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