The Contexts of International Business PESTEL

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the United Kingdom It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro-environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

1-Economic factors:
It includes economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy Theory of Absolute advantage: the principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources, Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input. Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.

The Internationalization of markets happens when companies from the wealthier countries see market opportunities in less developed ones, the most common measure of economic development is income per head of Population Example: The British American tobacco or Philip Morris see good prospects in developing Countries Such as Malysia,South and North Africa whose high birth rate ensure more young consumers Company British Telecommunication(BT) www.bt.com Gillette www.gillete.com Work transferred Opened call centers in India replacing the jobs of 2000 staff in the UK Closed three factories (two UK and one German)and transferred work to new factory in Eastern Europe Moved production of vacuum cleaners and washing machines from UK to Malaysia Reasons given To meet cost-saving targets and remain competitive Reducing Costs and improving operating efficiency

Dyson www.dyson.com

Reduce manufacturing Costs

2-Political Context Factors that related basically to what degree the government intervene in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided and those that the government does not want to be provided, furthermore, governments have great influence on the health, education, and infrastructure of a nation Political Risk The Risk of losing assets, earning power or managerial control due to political events or the actions of host governments

Ideology A set of integrated beliefs, theories and doctrines that helps to direct the actions of society There are a close links between political and economic systems-especially in how they allocate resources and deal with property ownership

3-Technological context Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. A poor infrastructure Country is an Opportunity for suppliers; SHELL & Luck oil Co. have a contract with Egypt for petroleum extraction from western desert as Egypt hasn't the Technology to do such Complicated Operation

4-Enviromental Context Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones. A distinction in considering natural Resources is between those that are renewable and those that are not (timber is renewable but oil is not) Technological developments enable the Discovery of resources Economic developments itself causes pollution problem for people in the area and an opportunity for for foreign business that specialized in environmental remediation

5-Legal Context trade agreements and trading blocs Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

GATT and the World Trade Organization (WTO) The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade; its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO) which monitors international trade

European Union The EU has developed a single market through a standardized system of laws which apply in all member states. Within the Schengen Area (which includes 22 EU and 4 non-EU states) passport controls have been abolished. EU policies aim to ensure the free movement of people, goods, services, and capital, enact legislation in justice and home affairs, and maintain common policies on trade, agriculture, fisheries and regional development. A monetary union, the euro zone, was established in 1999 and is composed of 17 member With a combined population of over 500 million inhabitants, or 7.3% of the world population, the EU, in 2011, generated the largest nominal world gross domestic product (GDP) of 17.6 trillion US dollars, representing approximately 20% of the global GDP when measured in terms of purchasing. The EU was the recipient of the 2012 Nobel Peace Prize.