INTERNATIONAL BUSINESS ENVIRONMENT PESTEL FACTORS

The exchange of goods and services among individuals and businesses in multiple
countries is called International business.
Need for Understanding the environment
1.) When a company operates internationally it will engage in modes of
businesses such as exporting and importing that differ from those in which it
engages domestically.
2.) The physical, social and competitive conditions that affect the ways that affect
the ways in which a country conducts a business differ from country to
country.
The factors influencing the business environment are below
POLITICAL FACTORS

A nations political policies influence the ways in which international business

takes place.
Government type and stability
Freedom of press, rule of law and levels of bureaucracy and corruption
Regulation and de-regulation trends
Social and employment legislation
Tax policy and trade and tariff control
Likely changes in political environment
Political disputes can disrupt trade and investment. For instance, The terrorist
bombing in a hotel in Indonesia resulted in loss of tourist revenue and
investment capital because both individuals and businesses abroad perceived
that the whole country as too risky for safe and profitable enterprises.

ECONOMIC FACTORS

Stage of business cycle

Current and projected economic growth, inflation and interests rate.
Unemployment and supply of labour
Labor cost
Level of disposable income and income distribution
Likely changes in the economic environment

SOCIOLOGICAL FACTORS

Cultural aspects, health consciousness, population growth rate, age

distribution
Organizational Culture, attitudes to work and management style
Education, occupations, earnings capacity, living standards
Ethical issues, diversity, immigration/emigration, ethnic /religious factors
Media views, law changes affecting social factors, trends advertisements,

publicity
Demographic: age, gender ,race, family size

TECHNOLOGICAL FACTORS

Maturity of technology, competing technological developments

Research funding , technological legislation , new discoveries
Information technology , internet , global and local communications
Technology access, licensing, patents, potential innovation.
Replacement technology/ solutions, inventions, research, intellectual property

issues , advances in manufacturing

Transportation,
energy
uses

/sources/fuels,

associated/dependent

technologies ,rate of obsolescence ,waste removal / recycling

ENVIRONMENTAL FACTORS

Ecological
Environmental issues and environmental regulations
Waste management system
Removal/recycling

LEGAL FACTORS
Domestic and international laws determine how a country company operates overseas.
Domestic laws: Domestic law includes both home and host country regulations on
such matters as taxation, employment and foreign exchange transactions.

Eg: Singapore law determines how the Manchester united Red caf is taxed, how its
revenues can be converted from Singapore dollars to British pounds, and even the
nationality of people it employs.
International laws: In the form of legal agreements between the two countries how
earnings are taxed by both jurisdictions.
Eg: many countries restrict the activities of domestic companies in the southeast
nation of Myanmar because of its dubious human rights record.
Companies must make a point to understand treaties and laws of other countries.

Control Mechanisms for Multinational Enterprises

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Controlling is tool for achieving organizational goals and activities. Control is
managements planning, implementation, evaluation, and correction of performance
to ensure that the organization meets its objectives in the short, medium and long
terms. In the case of Multinational Enterprises, the top managements toughest
challenge is to balance the companys global needs with its need to adapt to countrylevel differences.
Some of the mechanisms that Multinational Enterprises use to help ensure that control
is implemented are given below:
1. Corporate Culture
Every company has certain common values that its employees share, expect fellow
members to follow. Corporate culture is a form of implicit control mechanism that
helps enforce the companys explicit control mechanisms. Employees conform to
company traditions of work commitment, interactions with customers and so on.
These are unwritten, informal, but more effective.
But MNEs have more difficulty relying on a corporate culture for control because
cultural background of employees differs, exposure level varies, norms differ and so
on. To overcome this MNEs promote worldwide corporate culture with the aim of
conveying a shared understanding of global goals and norms for reaching those goals,

along with the transference of best practices from one country to another. Nestle
moves management trainees around Europe so that they learn to react like Europeans
rather than like any specific nationality. Matsushita brings foreign employees to
Japan, partly to train them in the company culture but primarily to get Japanese
employees to evolve toward a more global culture. Corporate culture must be diffused
throughout the organization through communications, interactions, transfers and
commemorative events.
2. Coordinating Methods
The purpose of controls is ensuring that goals are optimally achieved. Any wanting in
this regard may be due to non-coordinating attitude of some people, at some places.
So, ensuring coordination ensures goal achievement, the goal of control mechanisms.
Some of the mechanisms of coordination are:
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Developing multi-culture teams for building scenarios on how the future may
evolve

Developing the attitude to listen to different view-points among the

corporate personnel

Transferring and rotating organization people across nations and cultures

Keeping proximity between global and domestic personnel

Establishing liaisons among subsidiaries within the same country/region

Developing teams from different countries to work on cross national special

projects

Placing foreign personnel on the board of directors and top-level committees

Giving credit to all concerned for business resulting from cooperative efforts

Linking reward systems to both global and local performance

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3. Reports
The basis of control is information. The source of information is reporting systems.
Control needs timely, up-to-date and accurate reports. Reports must be frequent and
purposeful to assure meeting the MNEs objectives. Parent concern uses reports to
evaluate the performance of subsidiary to reward and rectify, if need be.

Written reports are more important in a global setting than in a domestic context
because personal contacts are few and far between. Reports with similar formats, for
domestic and global, and for parent and subsidiary facilitates better comparison. The
periodicity of reports counts much. These days many a reports on a single day is quite
possible; yet at least one report a day is essential so that the headquarters knows the
happenings with all subsidiaries. MNEs place more emphasis on evaluating the
subsidiary rather than the subsidiary manager, although the subsidiarys profitability is
an important ingredient in the managerial evaluation.
4. Visits to Subsidiaries
Visits to subsidiaries by headquarters people make wonders for their motivational,
directive, strategic and signaling effects. It is better members of the corporate staff
spend much time visiting subsidiaries for on the spot assessment of ground realities
which have great implications for control. However corporate personnel visits to
subsidiaries must not be of the boondoggles type. Further, if visits result because of
upsets over subsidiarys performance, subsidiarys managers may become concealing
and/or defensive.