Let’s look at environmental factors and how they guide decisions to enter new international markets

Deborah Begbie, Export Clarity

This post highlights environmental factors in international markets which impact business activities and performance.
Through analysing these factors companies can plan strategically for new opportunities and mitigate business threats.
I conclude with a PESTLE analysis for a pharmaceutical company to demonstrate how this analysis guides the decision making process.

Environmental Factors

Political – Companies must monitor government regimes to mitigate risk against political change that could adversely impact operations.

Factors include government/stability, institutional effectiveness, international relations.

Geopolitical risk is the most destabilising political threat to international trade.
Uncertainty around election outcomes and changes in government policies impact investor confidence in international markets.
Trade barriers diminish a country's openness to imports. Protectionist policies that levy import tariffs protect domestic producers by increasing the price of imported products, thus reducing competition.
Embargoes are an extreme form of non-tariff barrier, stipulating a ban on international trade in response to a political goal.

Economic – How macro/microeconomic factors influence shift in supply and demand.

Factors include Gross Domestic Product, inflation, interest rates, debt, currency stability/exchange rates, credit rating, average salary, wealth disparity, commodity costs, foreign direct investment.

For example, exchange rates influence product demand; a weak exchange rate makes exports more competitive and provides opportunities to gain competitor market share. However, imports, production costs and cost of goods in the domestic market are more costly.

Social – Analysis of demographics and culture help companies understand consumer needs and motivations to purchase products and to market to customers effectively.

Demographics: Companies need to understand consumer preference, if there are any substitute goods, price range and how demand changes with disposable income.

Factors include population, education level, age, gender, density, urban population rate, main towns, origins of population, geography.

In developing countries, increased purchasing power and growing middle class influence consumer preferences and benefit wider consumer goods supply chain.
Increasing demand in healthcare is driven by ageing population, increased chronic disease and obesity and more effective diagnostics.

Social: Understanding and respecting culture and social structures in international markets facilitate negotiations, reduce misunderstandings that impact relationships and support market sensitive marketing plans. The challenge is to communicate the right image whilst retaining brand values.

Factors include culture, language, manners and customs, social institutions, education, values and attitudes, aesthetics, religion.

Consideration must be given to language, product adaptation, and manners and customs.

Technological change has a dramatic impact on creating new products, market opportunities and business efficiencies.

Factors include technology advancement/uptake, market infrastructure, impact/usage of information technologies/Internet, government research and development spending, intellectual property.

For example, the global impact of B2C Internet retailing is driven by increasing Internet usage and willing customers to support online retail. Usage between international markets remains at varying maturity levels due to access, broadband and mobile costs, e-commerce regulations, and quality of logistics infrastructure.

PESTLE Analysis

Now, let's look at relevant environment factors a pharmaceutical company would consider to aid in effective decision making and strategic planning:

Political / Legal:

Government healthcare efficiencies and cost savings
Trade agreements
International trade regulations
Regulatory compliance (business/sector)
Corporate social responsibility

Economic:

Cost contained healthcare
Wealth disparity
Economic growth in China/India
Industry consolidation (mergers & acquisitions)

Social:

Ageing populations and chronic disease
Growing middle class in developing countries
Urbanisation and rural healthcare access
Lifestyle
Public activism and social media
Health awareness changing expectations

Technological:

Research and development
Regulatory environment
Intellectual property
Distribution and logistics

Environmental:

Natural resource management
Global warming