IBS210 Introduction To International Business

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Question:

Analysing australian companies has a great foothold to grow their business in foreign markets.

Companies looking to expand into overseas markets might find favorable or negative business environments in these markets.

A firm should consider the political, economic and social (PEST) business environment factors when considering going global.

The analysis compares India and China’s PEST factors to provide enough information for the company to make an informed decision on where to expand its operations.

Answer:

Many medium-sized companies are now aiming to expand internationally because of globalization.

Companies that use foreign market entry strategies, such as joint ventures and exporting, are affected by the presence of PEST factors in their target country.

The large corporations have extensive experience in expanding their operations and finding new markets. Medium-sized companies face fierce competition (Dunning 2012, p.88).

As entrepreneurs for medium-sized firms, managers must conduct intensive market research to understand market conditions in the markets.

Managers must be skeptical before they implement a global market expansion strategy.

Skepticism in market growth strategy requires an understanding and appreciation of the government policies, economic rates, as well the technological advancements used by the foreign country to manage the business operations.

This report is based in India and China (Ennew Waite and Waite (2013), p. 22).

In particular, the manager of an Australian snack company medium size will produce the corn chips and then distribute them to India and China depending on the best business environment.

The PEST business environment factors will be used to help the company choose the most suitable country to expand.

PEST Factors for China

China is an attractive country for companies looking to expand internationally.

International trade has helped China rise.

This medium-sized Australian business sees China and India as potential markets. Below is a PEST analysis to help the company’s manager decide on the best path for foreign market expansion.

Political-Legal Factors

Political factors are the government policies and legal requirements that impact a company’s decision making process.

China’s implementation in 2015 of an economic reform which aims to encourage foreign trade liberalization, the development and production of private businesses, and foreign direct investor has created a favorable political climate (Hamilton and Webster (2015), p. 40).

China has relaxed labor laws to encourage foreign direct investments.

The central government demands that foreign companies offer more employment opportunities to Chinese citizens than the unemployed in their home countries, in this instance, Australia (Johanson und Mattsson, 2015 p. 130).

This is not good for medium-sized businesses.

China’s government has focused on ecommerce in the commercial sector for the past several years.

China is not as experienced as the United States in drafting laws that regulate e-commerce businesses in the country (Liesch et. al., 2012 p. 3).

The country has thus far not been able create regulations that protect consumer rights and regulate electronic contracts.

Economic Factors

China’s economic environment has an impact on foreign businesses that are based in China. It affects capital availability, demand, as well as supply of corn chip supplies.

The high demand for chips in China gives an advantage to Australian firms to expand their business and maximize profits (Shaw (2015), p. 395).

However, opportunities for medium-sized foreign firms to enter the market and compete with other companies are reduced during economic recessions.

China has seen rapid economic growth in recent years, as evidenced by its industrial sectors.

China has always been a market-oriented economy (Kastelle & Liesch (2013), p. 10.

Since China became a WTO member in 1999, foreign trade liberalization and investment have continued to rise.

But, China’s strict labor laws have a negative impact on international trade.

Inflation can lead to lower investment and lower exports. This is because imports are cheaper than they are.

Because China’s prices have risen, exports to Australia are discouraged. This will impact the Australian company’s decision on going global.

Social Factors

China’s social business environment is uncertain due to changing lifestyles, consumer behavior, education and consumer attitudes.

It is becoming more common for people to consume different types and varieties of snack and chips. This makes it difficult to provide the right meals to the Chinese population for medium-sized Australian companies (Liesch et al. 2012, p. 21).

It is difficult for foreign companies in China to find the most qualified employees to help them sell their products due to the changing lifestyles in China.

China has a wide range of income distributions.

A foreign company will find it difficult to comprehend and analyze the differences in income between China locations.

In China, economic recessions can lead to job losses and people are laid off (Kastelle & Liesch (2013) p. 28).

Because of the wide income gap between urban dwellers and rural residents, there is less social guarantee for consumers of corn chips in China.

Technological Factors

The different sectors of the Chinese government and their industries concentrate on technological advancements. They also spend large amounts of capital for research and development.

China’s plan for conserving energy and reducing environmental pollution is strongly linked to technological innovation (Wu, Guo, 2005; p.50).

The manager of a foreign company must invest large amounts in technological innovation in order to allow it to operate in China.

Modern technology has enabled the business world to become more innovative and creative.

An Australian medium-sized company has to develop new technologies in order to produce corn chips in an environmentally friendly manner (Kastelle & Liesch (2013), p. 15).

Technology advances favor the motor industry and other engineering fields, but not the hospitality sector.

This is a problem for the snack businesses that operate in the country.

PEST Factors India

The Indian government encourages foreign investment in all sectors of the service sector.

India is a well-known democracy.

India has seen a consistent increase in gross domestic products (GDP) and foreign liberalization for the past decade (Downling et al. 2000, p.19).

India encourages foreign investments to boost its growth.

In India, the following PEST business environmental factors should be considered:

Political-Legal Factors

India’s political and business environment factors include government policies, ideologies of politicians, industry policies, as well as political interests.

India’s federal government has adopted business policies that encourage growth in total factor productivity, both for domestic and foreign firms (Schuler Jackson und Tarique 2011, p. 6).

This policy includes the imposition by the union government of fair and equitable income tax.

India’s federal government encourages foreign direct investments by eliminating quotas.

The political situation in China has been controlled but it is still very volatile, which means India is a much better investment country than China.

The Government of India supports the growth of private businesses by encouraging privatization (Ho, 2014 p. 6480).

Indian tax revenue, including utility tax and octroi, is collected by the Indian government. It is paid by the local businesses and not by foreign firms.

Economic Factors

As a reliable indicator of whether or not a company is planning to go global, the rates of inflation, foreign currency, economic growth, as well as gross domestic product (GDP) in India serve as reliable indicators.

Managers should study India’s economic environment before making decisions about whether or not to take advantage of the opportunities. (Lardy, Subramanian (2011), p. 33).

India’s economy has been stable ever since 1991 when it was integrated into the national industrial reforms program.

The system suggests liberalizing foreign capital, reducing industrial licensing and creating FIBP that encourages foreign investment.

India is an attractive destination for foreign investors due to its steady growth in GDP (Freeman Edwards and Schroder 2006, p. 40).

In India, the government is actively promoting exports by displaying a positive attitude and signaling its intention to reduce inflation rates.

Social Factors

India’s social and economic factors influence the demand for products. The medium-sized Australian snack company must have a thorough understanding of India’s business environment.

The market’s perceptions and lifestyles have a significant impact on the product’s sales.

Indian consumers are demanding fast food and takeaway services from snack companies (Downling et al. 2000, p. 10).

Managers of snack companies in Australia must create technologies to provide these services for Indians.

This will make India a great destination for foreign investments (Dolzer, Schreuer (2012), p.30).

Technological Factors

Indian companies use high-tech technologies to cut costs. This is a benefit for the company.

India has both 3G and 4G technology, which favors technological projects’ success.

India has the largest IT sector in the world. This promotes software upgrades, increased IT development, as well as other technological advances in the business world (De Beule & Duanmu 2012, P.270).

India’s federal government has launched its satellites into space.

India, unlike China, encourages foreign investors to invest in India through the creation a world satellite that allows foreign companies easy access to potential Indian markets (Ang Benischke, Doh, and Doh (2015), P. 1550).

Australian snack companies can benefit from the advanced technology available in India to create corn chips that meet Indian social demands.

Based on the above analysis, India’s economy prospects are better than India’s. India provides a favorable environment for foreign companies to compete with domestic businesses making it easy to succeed.

Here are some suggestions for the manager

Political factors: India currently outperforms China in creating a conducive business environment.

China is known to have one of the most corrupt political governments on the Planet. This makes it extremely difficult for foreign businesses to compete with.

Because India has more favorable business policies to India, than China, the manager should consider expanding the company’s operations there.

Economic factors: China is attempting to make an illusion of economic rebalancing by shifting from state direct investments to a demand draw economy because of economic disparities. India, however, has a vibrant private economy that favors foreign investment (FDI).

India is a country that allows fair competition, making it an ideal choice for the company looking to expand its corn chip business operations.

Social factors: India is a highly populous country, compared to China. This makes it more attractive for business and opens up more opportunities than China.

Indians want fast food and snack companies should be able to offer them corn chips.

Technology factors: India is a country that uses both 3G and 4G technology, which, unlike China, favors the success of technological projects.

Since the snack company deals with corn chips, most of China’s investments are in engineering technologies.

The manager should encourage the company to expand its operations in India and not China.

Conclusion

China and India are dependent on capital formation for economic growth.

India’s PEST business environmental variables between China and India show that it is a free, dynamic country with high levels of economic growth and a high population.

In addition to globalization, PEST business elements also influence management decisions of domestic companies seeking to expand into international markets.

The firm must conduct thorough research in the target countries to determine if they are eligible for globalization.

Understanding the legal requirements of foreign governments, the consumer lifestyles and consumption patterns of consumers, and technological sophistication are all key factors in determining the company’s ability to make a foreign investment decision.

Manager of a medium-sized Australian Snack Company may consider expanding its corn chips business into India because of its attractive, favorable, and lucrative business environment.

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