PEST Factors and

Impact on International
Business
Dr. Swati A Vispute
28.08.2016

Contents
PEST Factors
Risk Analysis
Decisions to overcome or
managing risks a live current
case

 What impact GST will have on business?

How businesses should manage the
same?
What the learning businesses should
take from Singur Tata plant incident?
How Samsungs S bike mode responding
to changing social environment in India?
What effects will international economy
have after Britains exit from EU?

PEST Factors
(Political, Economic, Social,
Technological)

PEST analysis helps todetermine

how these factors will affect the
performance and activities of
your business in the long-term.

PEST Factors...

Political Here government regulations and legal factors are assessed in

terms of their ability to affect the business environment and trade markets.
The main issues addressed in this section include political stability, tax
guidelines, trade regulations, safety regulations, and employment laws.
Economic Through this factor, businesses examine the economic issues
that are bound to have an impact on the company. This would include
factors like inflation, interest rates, economic growth, the unemployment
rate and policies, and the business cycle followed in the country.
Social With the social factor, a business can analyze the socio-economic
environment of its market via elements like customer demographics,
cultural limitations, lifestyle attitude, and education. With these, a business
can understand how consumer needs are shaped and what brings them to
the market for a purchase.
Technological How technology can either positively or negatively impact
the introduction of a product or service into a marketplace is assessed here.
These factors include technological advancements, lifecycle of
technologies, the role of the Internet, and the spending on technology
research by the government.

Political Environment
Political Diversity and Political Similarity
The diversity in the languages, customs, traditions, and
religious beliefs in India. There are bound to be divergent
approaches and differences of opinion on various issues.
Constitution provides for a structure where different
political parties can co-exist in power in different federal
units.
These political formations (Congress, BJP, CPI) have
guaranteed the people's participation in the process of
governance and general administration

Democracy vs. Totalitarianism

Democracy involves citizens directly or indirectly in
policy formation of country.
In Totalitarianism political power lies in few hands
with virtually no opposition.

Political Environment
Forms of Political Systems
Democracy
Parliamentary democracy decisions influenced by widely
varying interest groups. E.g India, Sweden
Presidential democracy centralised decision making
though head of government is an elected representative.
E.g. US

Totalitarian System
Secular Totalitarianism political leaders rely on military or
bureaucratic powers like communism (China, Korea, Cuba)
or tribal government (Kenya, Nigeria etc).
Theocratic totalitarianism religion dictates political
philosophy. e.g. Iran, Afghanistan

Mixed Political system

Democratic UK, US take restrictive political decisions
In communist China foreign investors play free role in SEZs

Political Risk
Meaning
Political risk is unanticipated changes
in political set up in the host country
leading to unexpected discontinuities
that bring about changes in the very
business environment.

Political Risk
Forms/ Types
Expropriation / Confiscation
In China and Eastern Europe, domestic and foreign firms
were nationalised

Currency Convertibility
Government of Nigeria imposed such restrictions couple of
decades ago in order to serve its economic and political
ojectives

Credit Risk
Mexico expressed inability to repay debts in early 80s.

Risk from ethnic, religious, or civil strife

In Libya, Syria

Conflict of Interest
Corruption
OECD members and other 34 countries, signed
convention to ban bribery in foreign public affairs.

Management of Political
Risk
Management Prior to Investment
Capital budgeting
Reducing investment flow
Agreements with host government
Planned divestment
Insurance of risk

Management of Political
Risk
Risk Management during the Life
time of the Project
Joint venture and concession agreement
Political support
Structured operating environment
Anticipatory planning

Management of Political
Risk
Risk Management following
Nationalisation
Negotiations
Political and economic pressure
Arbitration
Approach the court of law

Economic Environment
Forms of Economic System
Centrally Planned Economy
Production and distribution system
owned by the govt.

Market based Economy

Market forces of demand and supply rule

Mixed Economy
Compromise between CPE and market
based economy where private and
public sectors exist side by side.

Economic Indicators

Level of income and its distribution

Inflation
Consumption behaviour
Availability of human and physical
resources
Network of infrastructure
Fiscal, monetary, and industrial policies
Strength of external sector

Process of Analysing Economic

Environment
Collect data on economic indicators
Market potential is evaluated
Forecast made

Social Environment
The
social
environment
encompassing
religious
aspects,
language, customs, traditions and
beliefs,
influences
buying
consumption habits.

Social Environment
Indicators
National Taste - In Thailand, People
prefer black shampoo; Nestle brews
different varieties of instant coffee
different countries. Green is the favourite
color of all the Arab countries; Red is still
widely used in Russia, in banners, posters,
and hoardings although communism is in
no way relevant to modern Russia.
Language - South Koreans have learnt
Indian languages to operate in India. E.g.
Hyundai or LG factories in India.

Social Environment
Indicators

Values and beliefs blue perceived as feminine

in Holland and masculine in widen. Green is
favorite color in the Muslim world, but is associated
with illness in Malaysia although it is a Muslim
country. White indicated death in china and Korea
but it is the color of bridal dresses in Europe. Red is
associated with danger in many countries but it is a
favorite in Russia. swastika, which is considered
sacred in India, but has completely different
connotations in the west.
Demography - A number of demographic factors
such as age, sex ratio, family size and occupation.
Barbie generates huge revenues through the
childrens segment of affluent countries.

Social Environment
Indicators
Literacy rate - high literacy rate, better
standard of living. educated population, less
training.
Female Workforce
- In China, Indonesia,
Russia and Thailand, women are major
contributors to the GDP. Independence in
decision making. Delux, in Europe was promoted
through campaigns directed at women, because
it was felt that women have an aesthetic taste
for colors in the household paint segment.

Social Environment
Indicators
Double income families - true for
packaged food items, electronic gadgets,
household appliances, health equipment.
Japanese entertainment electronics and
French perfumes dominate in the whole of
Europe and North America. Pizza Express,
McDonald and Kentucky Fried Chicken
invariably rule the households of double
income families throughout the world.

Social Cultural Environment and

Business
India and Italy agreed to cooperate for
cultural exchange, counter-terror
partnerships along with cooperation in
trade, investment, science and
technology.
HP demand that its ad agencies should
be staffed with a more diverse group of
employees.
India ties cultural knots with Vietnam.
Defense support to Vietnam from India.

Managing Social
Environment
Social assessment
Adaptation to local culture
Transfusion of Home Country Culture

Technological Environment
Technology is a sort of knowledge or
skill used for employing and
controlling factors of production that,
in turn, could lead to the output of
products and services.
Product Technology
Process Technology
Management Technology

Technology and Business

World bank approaches UIDAI to share its
experiences with other countries.
Team of Indian scientists developed
Genetically Modified mustered seeds and Bt
cotton. Will work on for its commercial
production.
ICICI Bank introduced software robotics to look
after bank transaction (performing 10 lakh
transactions per day)
Telcos use data analytics and web-crawling
tools to better understand customer behavior.
Samsung recalls Note 7

Technological Strategy

Technology Audit
Development of Technology
Acquisition / transfer of Technology
Modification of Technology
Protection of Technology

IT in International Business
Significant from Pre-negotiation to
Finalization of deal
Helps in performance and control of
subsidiary
Reduce transaction cost
Low transaction risk due to accurate
and reliable information

Questions
What is political risk? How will you manage
political risk? Explain.
What factors (indicators) will you consider for
assessing economic favorability of a country for
business? Explain.
Explain steps involved in assessing economic
risk.
Explain with suitable examples ways to manage
social environment of a country for business.
What technological strategy will you use while
entering international business? Explain.
Enumerate role of IT in international business.

 Asses political risk of any two

countries. (e.g USA, UK, China,
Pakistan, Vietnam)
What will be the impact of Brexit
(Britains exit from EU) on global
business? Explain.
Explain the impact of Digital India
program on international business.