P5: Explain the external factors that influence a selected business considering
trading internationally.
P6: Explain how business support systems enable a selected business to trade
internationally.
M3: Carry out a situational analysis on two countries a selected business may
consider trading in.
D2: Recommend one country a selected business could target for
international trade, justifying your decision.
P7: Describe and explain some cultural factors and differences that may affect
international business
D3: Evaluate the impact of cultural differences on international businesses.
External factors of cultural differences
A PESTLE analysis is a framework to analyse the key factors (Political, Economic,
Sociological, Technological, Legal and Environmental) influencing an
organisation from the outside. It offers people professionals insight into the
external factors impacting their organisation.
Political
Political variables are concerned with how the government intervenes in the
economy. Political variables include tax policy, labour legislation, environmental
law, trade restrictions, tariffs, and political stability.
A political factor affecting international businesses when trading within countries
is the UK’s withdrawal from the European Union. This implies that the United
Kingdom will have to alter its imports and exports proportionately. Statistics
‘shows that UK goods exports to the EU fell by 45 per cent in January of this year
(greater than their fall early in the pandemic) and in August were still down
around 15 per cent on the level before the transition period ended’.1 Imports and
exports will be unknown until trade regulations and partnerships with other
nations are established thus slowing the growth of trade for the uk between
countries due to the political factor of Brexit. This would affect a business such
as Tesco as they would find it harder to import items such as raw meats and
vegetation in order to sell it to consumers in the uk.
Political instability within a country could also be a political factor which arises
when international businesses trade. Political unrest can have an impact on
business economic growth as well as trading capabilities. ‘Political instability
affects trade through its direct effect on income and prices and indirectly
through its influence on investment in physical capital2’. Laws passed through
countries may not be adequate in order for businesses to trade internationally
1 admin. (2021). The initial impact of Brexit on UK trade with the EU. Available:
https://obr.uk/box/the-initial-impact-of-brexit-on-uk-trade-with-the-eu/. Last accessed
13/11/2021.
,due to the lack of infrastructure in governments. Tesco would be affected by this
through the government changes to caps on the farming limits for businesses
domestically in the uk. Due to an uncertain conservative government like in the
UK, government policy changes could cause Tesco to hinder their supplier
domestically. This would mean that they would have to either seeks multiple
different suppliers or reduce the amount of produce they sell to consumers
which negatively affects consumer demands.
Economic exchange rates
Economic aspects encompass all activities in a country that are involved
with the production, distribution, and consumption of goods and services.
The volume of consumer spending influences pricing, investment
decisions, and the number of people employed by firms.
When a business trades globally, economic factors such as exchange
rates play an important role since fluctuations cause rates to fall or rise in
value. ‘A rising level of imports and a growing trade deficit can have a negative
effect on a country's exchange rate’3. The depreciation of a country's currency
may have a significant influence on the daily lives of its population and
businesses. A business such as Tesco would have to pay more to import raw
materials into their country in order to produce and manufacture a product,
which would then be passed on to consumers as Tesco may raise prices, which
could eventually lead to a drop in demand as consumers may no longer want to
pay higher prices for products. This would lead consumers to choose cheaper
competitors in the supermarket industry for example low cost supermarkets like
Aldi or Lidl which use price penetration strategy.
Economic factors such as employment rates would have been impacted when
businesses trade internationally. Statistics show that, ‘the unemployment rate
rose from 4.4% to 10%. It has since fallen back to under 5% as of the end of 2016’4.
The movement of labour within trading blocs means that businesses trading
internationally can bring labour from their domestic country eliminating the
need for employment in the country in which they are trading which can affect
unemployment in the international country. This can be overcome by
protectionism of goods. Protectionism unquestionably saves employment in the
2 admin. (2017). Impact of foreign political instability . Available:
https://ideas.repec.org/a/eee/ecmode/v33y2013icp802-807.html. Last accessed
13/11/2021.
3 Robert c. Kelly. (2021). How Importing and Exporting Impacts the Economy. Available:
https://www.investopedia.com/articles/investing/100813/interesting-facts-about-imports-
and-exports.asp. Last accessed 13/11/2021.
4 admin. (2018). International Trade and Its Effects on Jobs, Wages, and Working
Conditions. Available:
https://courses.lumenlearning.com/suny-fmcc-macroeconomics/chapter/international-
trade-and-its-effects-on-jobs-wages-and-working-conditions/. Last accessed 17/11/2021.
, industry by not moving the goods out of the domestic country. Therefore, Tesco
would have to limit the number of products they sell internationally in order to
protect employees who migrate to a foreign country to work in.
Social
Social factors are external factors which are the things that affect the habits and
spending of customers. These include demographics, lifestyles, tastes and trends.
These factors are helpful for companies to better plan their marketing analytics
and strategy. A main social factor affecting a business when trading
internationally is cultural trends. There has been a change in pricing strategies
in stores over the years. ‘Due to a variety of social changes, trends indicate that
customers in the UK have moved towards bulk shopping and one-stop shopping.
Therefore, Tesco has increased the number of non-food items offered for sale.’5
This report highlights the idea that there are several changes to trends in the uk
market which would also impact international trade. For example pricing
strategies which entice consumers to spend more money used in the uk for
example 2 for 1 offers would also be used internationally. This promotes the new
trends to spout in international markets which could prove to be lucrative and
profitable when Tesco trades in international markets.
Another social factor affecting international trade is cultural differences such as
language and preferences. Cultural awareness is vital when businesses such as
Tesco expand globally. Multinational and cross-cultural organisations are
becoming more popular as organisations develop and the global economy
becomes more accessible to small enterprises. ‘it is crucial, now more than ever,
for businesses to understand the culture of their foreign market if they wish to
succeed internationally.’6 Tesco needs to ensure that they understand which
market they choose to operate in as trends and values in their domestic country
could mean something negative in an international country they choose to
operate in.
Technological
Technological factors include production techniques, information and
communication resources, production, logistics, marketing, and e-commerce
technologies. These affect how an organisation operates, sells its products,
interacts with, and gathers intelligence on customers, suppliers, and competitors.
A technological factor which may affect tesco is the rise in self checkout tills
5admin. (2021). Social factors in trading. Available: statista.com. Last accessed
17/11/2021.
6 admin. (2021). HOW DOES CULTURE AFFECT INTERNATIONAL BUSINESS?. Available:
https://www.languageinsight.com/blog/2019/how-does-culture-affect-international-
business/. Last accessed 17/11/2021.
