Chapter 1

Assessing
Political,
Economic,
Legal &
Technological
Environment

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 Sub-topics covered in this
chapter:
1. The global business environment
2. The political and economic environment
3. The legal environment
4. The technological environment

PESTLE (Political, Economic, Social,

Technological, Legal and Environment)

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 Lecture 2

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 Definition of Economic System
• A mechanism that deals with the
production, distribution, and consumption
of goods and services
• Types:
▪ Market economy
▪ Command economy
▪ Mixed economy

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 Market Economy
• A market economy is an economic system
where decisions regarding production,
investment, distribution, and pricing are
determined primarily by the interactions of
individuals and businesses within a free
market. In this system, the forces of supply
and demand allocate resources and
determine the prices of goods and services.

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 Command Economy
• A command economy is an economic
system where key economic decisions,
such as what goods to produce, how much
to produce, and for whom to produce, are
centrally planned and controlled by a
central authority, typically the government.
In such economies, the government owns
or controls the means of production and
distribution.
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 Mixed Economy
• A mixed economy is an economic system that
combines elements of both market and
command economies. In a mixed economy,
certain sectors of the economy are left to the
forces of supply and demand (market forces),
while other sectors are subject to government
intervention and regulation (command
elements). The balance between market and
government influence varies depending on the
specific policies and practices of each country.
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 The Dynamic of Economic
Transitions

• The Allure of Market Economies

• Belief in Free Markets

• Economic Freedom

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 The Dynamic of Economic
Transitions
• "The Allure of Market Economies":
Market economies are attractive because they offer opportunities for growth,
innovation, and individual prosperity through free exchange.

• "Belief in Free Markets":

Belief in free markets means trusting that minimal government intervention
allows for efficient resource allocation, fosters innovation, and maximizes
individual freedom.

• "Economic Freedom":
Economic freedom means individuals and businesses can engage in economic
activities with minimal interference, leading to prosperity and opportunities for
all.

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 Dimensions of The Economic Freedom Index

• Business freedom
• Trade freedom
• Monetary freedom
• Freedom from
government
• Fiscal freedom
• Property rights
• Investment freedom
• Financial freedom
• Freedom from corruption
• Labor freedom

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 Future: Economic Freedom Pushback
and the Rise of the Mixed Economy

• Return of the Mixed Economy

• Free-Market Strike Back

• The Battle Engaged

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 Means of Economic Transition
• Liberalizing economic activity
• Reforming business activity
• Establishing legal and institutional frameworks
• Success is linked to how well the government
deals with:
▪ Privatization
▪ Regulation
▪ Property right protection
▪ Fiscal and monetary reform
▪ Antitrust legislation

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 The Legal and Regulatory
Environment
• One of the more difficult aspects of doing
business globally is dealing with vast differences
in legal and regulatory environments.
• The US – has established set of laws and
regulations that provide direction to business
operating within its borders.
• Companies doing international business often
face many inconsistent laws and regulations.

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• Business history is filled with stories about
American companies that have stumbled in
trying to comply with foreign laws and
regulations. Coca-cola for example, ran afoul
of Italian law when it printed its ingredients list
on the bottle cap rather than on the bottle
itself. Italian courts ruled that labelling was
inadequate because most people throw the
cap away.
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• In another case, 3M applied to the Japanese's
government to create a joint venture with the
Sumitomo Industrial Group to make and
distribute magnetic tape products in Japan. 3M
spent four years trying to satisfy Japan’s
complex regulations, but by the time it got
approval, domestic competitors including Sony,
had capture the market. By delaying 3M,
Japanese's regulators managed in effect to stifle
foreign competition

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• One approach to dealing with local laws
and regulations is hiring lawyers from the
host country who can provide advice on
legal issues. Another is working with local
business people who have experience in
complying with regulations and
overcoming bureaucratic obstacles.

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The Technological Environment
• Technological change can bring about
advantages and opportunities for
busineses.
• new technology can create new products
and services, thereby creating entire new
markets for a business.
• Improvement in technological products
and processes can increase productivity
and reduce costs.
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 General Examples of
technological factors affecting
business:
• The existence of 3D technology
• Computer calculation speed/power
• The ability of computers to create random
numbers
• Engine efficiency
• Internet connectivity
• Wireless charging
• Automation
• Security in cryptography
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• Automation — The automation of many
unskilled tasks can allow companies to
replace human production lines with
entirely machine ones. This can reduce
costs for manufacturers, distributors,
supermarkets, and many other different
businesses. On the flip side, the gradual
increase in job automation might not be
such a great thing for job search firms.
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• Internet connectivity — It’s undoubtable that
in recent years global internet connectivity has been on
the rise. This presents an even larger market for many
companies who use the internet to connect with their
customers. On the flip side though, a global rise in
internet connectivity might mean less interest in
traditional communication means, which is a negative
consequence for some — telephone service providers
will have to change their offerings to stay relevant, while
paper-and-ink printing companies might receive less
business.

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 Technological Factors Affecting
Apple
• Competitors find little struggle in recreating many of
Apple’s products.
• Growing demand for mobile technology will make the
personal computer a less attractive product.
• Apple’s quite restricting native Operating Systems can
limit the scope of what is possible on their devices.
• Growing numbers of cybercriminals could jeopardize
Apple’s reputation for safety and security.

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 Technological Factors Affecting
Starbucks
• The development and adoption of mobile technology
presents many opportunities for Starbucks. They have
already teamed up with Apple to use their devices as a
platform for presenting ads/discounts.
• The growing desire for internet connectivity has given
Starbucks an opportunity to rebrand their coffeehouses
and stand out from the competition by providing free
WiFi.
• Mobile payments are slowly being introduced, which
might make a morning cup of coffee more attractive to
many customers (and in doing so increase their potential
market).
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• PESTLE analysis of starbucks
https://pestleanalysis.com/pestle-analysis-
of-starbucks/

PESTLE analysis of Apple

https://pestleanalysis.com/apple-pestle-
analysis/

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 Conclusion
• Success in international business means
understanding an assortment of cultural,
economic and legal differences between
countries
• Cultural challenges stem from differences in
language, concepts of time and sociability and
communication styles.
• If you do business in a foreign country, you need
to know the country’s level of economic
development
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 Conclusion
• In dealing with countries whose currency
is different from yours, you have to be
aware of the impact that fluctuations in
exchange rates will have on your profits
• Finally, in doing business globally, you
must deal with challenges that come from
the vast differences in legal and regulatory
environments.

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