Enviornment Analysis in IB
Enviornment Analysis in IB
Enviornment Analysis in IB
International Business
PEST SWOT
ANALYSIS ANALYSIS
ETOP
PESTEL MODEL
PORTER’S FIVE
FORCES
MODEL
PEST Analysis
PESTEL Model
Despite the globalization of business, firms must abide by the local rules
and regulations of the countries in which they operate.
We already discovered how US-based Google had to deal with the Chinese
government’s restrictions on the freedom of speech in order to do business in China. China’s
different set of political and legal guidelines made Google choose to discontinue its mainland
Chinese version of its site and direct mainland Chinese users to a Hong Kong version.
Case lets - political
1. Average income levels of the population. If the average income for the population is very low, no
matter how desperately this population needs a product or service, there simply is not a market for it.
2. Tax structures. In some countries, foreign firms pay much higher tax rates than domestic competitors.
These tax differences may be very obvious or subtle, as in hidden registration fees.
3. Inflation rates: Business profits fell as consumers' purchasing power was eroded by inflation. High
interest rates and unemployment reached alarmingly high levels.
4. Fluctuating exchange rates: A foreign investor may sustain large losses if the value of the currency
drops substantially.
Macro factors include:
• Employment/unemployment
• Income
• Inflation
• Interest rates
• Tax rates
• Currency exchange rate
• Saving rates
• Consumer confidence levels
• Recessions
https://www.youtube.com/watch?v=5Wq0yv73NpY
Socio Culture Environment
Socio-cultural perspective is one of the most important factor influencing
decision of marketing managers and strategic goals of companies entering new
foreign markets
For example, the Japanese feel that work is an important part of their lives. This belief in work, coupled with a strong group
orientation, may explain the Japanese willingness to put up with things that workers in other countries would find
intolerable
Americans tend to emphasize personal growth, accomplishment, and “getting what you deserve” for performance as the
most important motivators. However, in Asian cultures, maintaining group solidarity and promoting group needs may be
more important than rewarding individual achievement
1. Leverage (S + O). Leverage effects arise when internal and external opportunities are consistent and adaptive to one
another. In this situation, companies can use their internal advantages to pick up external opportunities and fully
integrate opportunities and advantages. However, opportunities are often fleeting, so companies must sharply capture
opportunities and seize the opportunity to seek greater development.
2. Inhibitory (W + O). Inhibiting means impeding, preventing, influencing and controlling. When the opportunities provided
by the environment are not suited to the internal resource advantages of the company, or cannot be overlapped with
each other, the advantages of the enterprise will no longer be realized. In this situation, companies need to provide and
add certain resources to promote the transformation of internal resources and disadvantages into advantages to cater to
or adapt to external opportunities.
3. Vulnerability (S + T). Vulnerability means the decrease or decrease in the degree or intensity of advantages. When
environmental conditions pose a threat to the company’s strengths, the advantages cannot be fully exerted and ending up
with a fragile situation. In this situation, companies must overcome the threats to take advantage of them.
4. Problematic (W + T). When the company’s internal weaknesses and corporate external threats meet, companies face
severe challenges. If they are not properly handled, they may directly threaten the survival of the company.
Environmental Threat & Opportunities Profile
- ETOP
ETOP process involves dividing the environment into different environmental sectors and
then analyzing the impact of each sector on the organisation.
ETOP gives a clear picture to the strategies about each aspect of the business
environment, the various individual factors within each sector which affect the business
favourably or otherwise.
Environment Threat and Opportunity Profile
PORTER’S FIVE FORCES MODEL
5 forces model was created by the Michael Porter in 1979 to understand how 5
key competitive forces are affecting the industry.
Bargaining power of suppliers
Strong bargaining power permits the suppliers to sell the higher priced or the low-
quality raw materials to their buyers. This directly affects a buying firms’ profits because
it has to pay more for the materials.
the power to demand a lower price or a higher product quality from the industry producers when their
bargaining power is strong. Lower price means the lower revenues for the producer, while the higher
quality products usually raise the production costs. Both scenarios result in lower profits for producers.
Buyers exert strong bargaining power when:
Buying in large quantities or control many access points to the final customer;
Only a few buyers exist;
Switching costs to other supplies are low;
They threaten to backward integrate;
There are many substitutes;
Buyers are price sensitive
The threat of substitutes
This force is especially threatening when buyers can easily find substitute products with
attractive prices or better quality & when buyers can switch from one product or service to
another with little cost. For example, to switch from a coffee to tea doesn’t cost anything,
nothing like switching from the car to a bicycle.
Competitive Rivalry
Rivalry among existing competitors: This force is the major determinant of how
competitive & profitable an industry is. In the competitive industry, the firms have to
compete hostilely for a market share, which results in low profits.
Rivalry among the competitors is intense when:
Every launch or international expansion carries a certain amount of risk that, while it
cannot be completely avoided, it can certainly be mitigated by extensive research,
curiosity for the world we live in and an appreciation for general knowledge that leads us
to read and engage with the rest of the world. While retrieving information is easier than
it has ever been, discerning authoritative material from misleading information can be
tricky, so using and researching multiple sources both online and in paper format is
essential. With regards to information on political issues this is even more important
since political issues can very easily become partisan issues and view the facts though
the powerful lenses of political ideology. Although not an easy task, understanding the
political environment through the PESTEL analysis and building strategic scenarios
based on political realities in the markets a company is targeting, is a fundamental step
in creating a solid international business strategy.