Cultural Factors Impacting Organizational Activities: PESTLE Analysis

This assignment requires the use of a PESTLE analysis to identify how cultural factors can negatively impact an organization's international operations. The goal is to strategically position the firm to gain a strong customer base, achieve competitiveness, and improve brand image globally.

INTERNATIONAL
BUSINESS
Table of Contents

INTRODUCTION...........................................................................................................................1
TASKS.............................................................................................................................................1
P1 Explain the international business environment in which Tesco operates.............................1
P2 Describe the mechanisms that regulate international trade....................................................2
P3 How the environment and culture of another country affects a business...............................3
P4 How the monetary environment affects businesses that operate internationally...................4
P5 Identify why businesses operate internationally.....................................................................5
P6 Explain the business strategies used by a business operating globally..................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
International business is a term that is used to describe any business transaction between two
or more regions or countries. Many businesses operate internationally to attract more custom and
expand their organisations to increase the income the business is taking. International business
can include importing and exporting of products, sales, investments and many more.
International business is essential not only to give businesses more opportunities but also to
boost the economy (Beamish, 2013). The present report is based on Tesco which is retail
industry and this perform their operations in both global as well as domestic market. In this
context, report explain the mechanism that is used by organization in order to perform their trade
worldwide and cultural factors. Along with this, it explains some strategies which help an
enterprise in performing well.
TASKS
P1 Explain the international business environment in which Tesco operates
Globalization is a process by which businesses or other organizations develop international
influence or start operating on an international scale. This is used to eliminate the barriers to
trade, communication, and cultural exchange. A variety of factors have contributed to the process
of globalisation like containerisation, technological change, economies of scale, differences in
tax systems, less protectionism, growth strategies of transnational and multinational companies
(Jenkins, 2013).
Advantages of globalisation:
 Encourages producers and consumers to benefit from deeper division of labour and
economies of scale.
 Competitive markets reduce monopoly profits and incentivise businesses to seek cost-
reducing innovations.
 Advantages from the freer movement of labour between countries.
 Gains from the sharing of ideas / skills / technologies across national borders.
Disadvantages of globalisation:
 Free trade simply kills competition by letting the developed countries surpass the poor
ones. It is namely the globalization which lead to an even wider discrepancy in wealth
distribution.
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 Strong demand for food and energy has caused a steep rise in commodity prices. Food
price inflation has placed millions of the world’s poorest people at great risk.
Tesco Plc is one of the British industry which perform their operations at international as
well as domestic marketing. They use international joint ventures, acquisitions and Greenfield
investments to enter into foreign markets. The success of retail industry in the international
market has been aided by its sensitivity to the local culture of the host countries and the market
environment (Poulis, Poulis and Plakoyiannaki, 2013). The global expansion and diversification
of Tesco Plc are based on the long-term desire for the company to develop sustainable growth
and development. Based on the internalisation theory, an enterprise gained advantage by
internalising the market in South Korea. The organization has to focused on some aspects like
economy, religion, labour standard, legal system and lifestyles of the people.
P2 Describe the mechanisms that regulate international trade
Economic activities are there which can help the organization in order to encourage their
trade at international level. Some mechanisms are there which can regulate trade globally:
Free trade: It is a policy by which a government does not discriminate against imports or
interfere with exports by applying tariffs (to imports) or subsidies (to exports) or quotas.
According to the law of comparative advantage, the policy permits trading partner’s mutual gains
from trade of goods and services (Abdi and Aulakh, 2012). Trade barriers are government-
induced restrictions on international trade.
World trade organization: The World Trade Organization (WTO) is an intergovernmental
organization that regulates international trade. The goal is to help producers of goods and
services, exporters, and importers conduct their business. The WTO deals with regulation of
trade between participating countries by providing a framework for negotiating trade agreements
and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements,
which are signed by representatives of member governments.
Advantages of European Union: The European Union (EU) is a political and economic
union of 28 member states that are located primarily in Europe. The EU has developed an
internal single market through a standardised system of laws that apply in all member states. EU
policies aim to ensure the free movement of people, goods, services, and capital within the
internal market, enact legislation in justice and home affairs, and maintain common policies on
trade, agriculture, fisheries, and regional development (Clarke, Tamaschke and Liesch, 2013).
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Some of the benefits of the European Union include are like broad political, legal and economic
benefits. EU is one of strongest economic areas in the world. With 500 million people, it has
7.3% of the world's population, but accounts for 23% of nominal global GDP.
P3 How the environment and culture of another country affects a business
Environmental analysis is a strategic tool. It is a process to identify all the external and
internal elements, which can affect the organization’s performance. The analysis entails
assessing the level of threat or opportunity the factors might present. These evaluations are later
translated into the decision-making process (Zander, McDougall-Covin and Rose, 2015). The
analysis helps align strategies with the firm’s environment. There are various factors like
political, economic, social, technological, legal and environmental. For this, Tesco can use
PESTLE analysis which is stated below:
Political: A range of political factors can affect Tesco in direct and indirect ways. The list
of political factors that may affect Tesco include but not limited to political stability in the UK
and abroad, bureaucracy and the extent of corruption in Tesco’s home market in international
markets. Moreover, activities of trade unions and home market lobbying initiatives in
international markets are important political factors that affect the retail chain.
Economical: Various macroeconomic factors affect Tesco to a great extent. The cost of
labour is one of the major economic factors greatly impacting the revenues of the supermarket
chain. Tesco revenues can be also affected by a set of external economic factors such as the
overall macroeconomic situation in the UK, monetary and fiscal policies introduced by the
government, rate of inflation, availability of credit.
Social: Countries vary from each other. Every country has a distinctive mindset. These
attitudes have an impact on the businesses (Ferreira and et. al., 2014). The social factors might
ultimately affect the sales of Tesco’s products and services. Some of the social factors are like
cultural implications, gender, connected demographics, social lifestyles, domestic structures and
educational levels.
Technological: It is advancing continuously. The advancement is greatly influencing
businesses. Performing environmental analysis on these factors will help you stay up to date with
the changes. This is why companies must stay connected all the time. Firms should integrate
when needed. Technological factors will help you know how the consumers react to various
trends.
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Legal: Legislative changes take place from time to time. Many of these changes affect the
business environment. If a regulatory body sets up a regulation for industries, for example, that
law would impact industries and business in that economy. So, businesses should also analyse
the legal developments in respective environments.
Environment: The location influences business trades. Changes in climatic changes can
affect the trade (Berthon, Pitt, Plangger and Shapiro, 2012). The consumer reactions to particular
offering can also be an issue. This most often affects agri-businesses.
Culture profoundly influences how people think, communicate, and behave. International
business deals not only cross borders, they also cross cultures. Culture profoundly influences
how people think, communicate, and behave. It also affects the kinds of transactions they make
and the way they negotiate them.
P4 How the monetary environment affects businesses that operate internationally
Monetary system is the ways that money acts as a medium of exchange between buyers
and sellers so that the need for barter is eliminated. Money serves as a medium of exchange, unit
of account, standard of deferred payment and a store of value for short periods. The main
features of monetary environment are like expansion, seasonal variations, credit allocation and so
on. There are some issues which are faced by Tesco at the time of performing their operations at
global level and some of these are like buyer's Insolvency, credit risk, buyer's acceptance risk,
knowledge inadequacy, seller's performance risk documentation risk economic risk, cultural risk
(Buckley and Ghauri, 2015). Currency fluctuations is also an issue which is a natural outcome of
the floating exchange rate system that is the norm for most major economies.
Commercial banks do not create money--they are simply the intermediaries that move
money from the capital markets to businesses and institutions. Banks get their money through
business checking or deposit accounts, service fees and by issuing certificates of deposit (CD)
and banker's acceptances--money market instruments that are collateralized by letters of credit
(LOC) used in trade finance--and commercial paper. Commercial banks offer services such as
trade finance, project finance, payroll, foreign exchange transactions and trading, lock boxes for
collecting payments and general corporate finance.
British Trade International does not win orders for UK businesses, but it does provide
information that allows businesses to succeed internationally (Abdi and Aulakh, 2012). Some
organisations encounter many problems in getting accurate information about opportunities in
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particular markets. They also want to know the best ways to take advantage of them. The
Government helps through British Trade International. Britain’s image overseas as a desirable
trading partner is significant as it helps to create a climate in which UK firms can secure
important business opportunities.
P5 Identify why businesses operate internationally
The global economy has become more competitive as companies of all sizes seek to
expand beyond domestic borders. The Internet and information technology are among factors
that have made it possible for smaller firms to venture into foreign markets. Before making an
international move, though, it is helpful to understand common reasons companies enter the
international business arena (Poulis, Poulis and Plakoyiannaki, 2013). There are some reasons
for that Tesco operate their business at international level and these are as follows:
New Markets: A saturated domestic industry leaves few opportunities for companies to
snap up clients. This drives them to look abroad for new customers and markets.
Geographic Advantage: Some companies expand internationally to develop synergies in
resources and strengths that multiplies the value of expansion. Access to new talent pools is a
common motive. For instance, some U.S. companies have expanded into Asian markets to
leverage the technological expertise of local populations, boosting their own capabilities while
expanding their client bases
Risk Diversification: Operating in multiple countries offers greater insulation from
economic downturns in one or two locations (Jenkins, 2013). A company doing business in the
U.S., Asia and Africa may not suffer as much from a U.S. economic slump if it's offset by better
conditions in its other locations.
Competitive Parity: "Everyone is doing it" is a simple but real motive for many companies
that go global. If your competitors enter foreign markets, it seems logical that your business
should do so as well, conditions permitting.
A business organization has to focus on some factors before going global like cultural,
economic, political, legal, intangibles and environmental.
P6 Explain the business strategies used by a business operating globally
International business strategies are a normal part of doing business no matter where your
business is located in the world. Global businesses will compete with you, do business with you,
and even put you out of business if you aren't careful. The first strategy which is going to be
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adopted by organization is advertising in Local as well as international market. Through this, a
plan is made by industry to reach and persuade a customer to buy a product or a service. This
strategy is important because through this overall brand awareness can be increased so people
will be able to know about features and benefits of products (Beamish, 2013). The second
strategy which is adopted by firm is Internet Marketing. It is cost effective sales strategy which is
then adopted by representatives. The another strategy is comparative advantage which suggests
that each nation is relatively good at producing certain products or services. This comparative
advantage is based on the nation's abundant factors of production—land, labour, and capital—
and a country will export those products/services that use its abundant factors of production
intensively.
CONCLUSION
From the above carried out analysis, it can be concluded that by implementing the
operations at global level an enterprise has to focus on some external factors. There are some
political, economic, legal, technological, social, cultural which can affect the organizational
activities in negative manner. For this, firm has to use PESTLE analysis so that their strategic
position can be identified. There are some reasons like to gain strong customer base, achieve
competitiveness, to improve brand image at global. For these, an enterprise can operate business
internationally.
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REFERENCES
Books and Journal
Abdi, M. and Aulakh, P. S., 2012. Do country-level institutional frameworks and interfirm
governance arrangements substitute or complement in international business
relationships?. Journal of International Business Studies. 43(5). pp.477-497.
Beamish, P., 2013. Multinational joint ventures in developing countries (RLE International
Business). Routledge.
Berthon, P. R., Pitt, L. F., Plangger, K. and Shapiro, D., 2012. Marketing meets Web 2.0, social
media, and creative consumers: Implications for international marketing strategy.
Business horizons. 55(3). pp.261-271.
Buckley, P. J. and Ghauri, P.N. eds., 2015. International business strategy: theory and practice.
Routledge.
Clarke, J. E., Tamaschke, R. and Liesch, P. W., 2013. International experience in international
business research: A conceptualization and exploration of key themes. International
Journal of Management Reviews. 15(3). pp.265-279.
Ferreira, M. P. and et. al., 2014. Mergers & acquisitions research: A bibliometric study of top
strategy and international business journals, 1980–2010. Journal of Business
Research. 67(12). pp.2550-2558.
Jenkins, R., 2013. Transnational Corporations and Uneven Development (RLE International
Business): The Internationalization of Capital and the Third World. Routledge.
Poulis, K., Poulis, E. and Plakoyiannaki, E., 2013. The role of context in case study selection: An
international business perspective. International Business Review. 22(1). pp.304-314.
Zander, I., McDougall-Covin, P. and Rose, E. L., 2015. Born globals and international business:
Evolution of a field of research. Journal of International Business Studies. 46(1).
pp.27-35.
Online
Factors to Consider for International Marketing. 2017. [Online]. Available through: <
https://www.cleverism.com/factors-to-consider-for-international-marketing/>.
[Accessed on 24th August 2017].
International business. 2017. [Online]. Available through: <
http://www.referenceforbusiness.com/management/Gr-Int/International-
Business.html>. [Accessed on 24th August 2017].
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