The is trade barriers enforced.These are barriers that
The key factors that companies must be aware of before deciding to do business in another country. Introduction:This report will clarify the different key factors that companies should take into consideration before deciding to invest abroad, these are assessed into political, economic, sociological, legal and technological factors as well as the advantages that all international businesses must be aware of in order to manage when investing abroad. Political factors:The political aspects one must consider when starting up a business would be its effect on the local stores that are within the chosen country due to the growth of many MNC’s (Multi National Company’s) over the last twenty years. The increase of many MNC’s in the country that they are in gives them competitive advantage over many local markets, as they are chosen or preferred over the local markets in the country. Due to the reputation of high quality goods and services provided by many MNC’s abroad as well as by how big of a firm it is they have a great advantage over other local markets and may cause them to lose profit. An example of MNC would be Carrefour it states that “MNC is accompanied by layoffs, cutbacks or a total-shut down of local operations” (Griffin, Pustay, 2012 p.87). Politically this is a major factor to consider when choosing where to invest as the competition your business may face will have huge impact on the prosperity of your business. Economic factors:The average income rate of the people who live in the country is of huge importance to businesses and will determine the success of their business. For example, if your business is selling expensive goods, one must consider setting up their business in a HIC rather than a LIC because the sales will only be good if the purchasing power in the market is high (Hill, Hult, 2014). Economic matters companies should take into consideration is trade barriers enforced.These are barriers that are set by the government to initially protect its local business and to make it difficult, for foreign companies to invest in their country. Another reason is to help local firms export and thus build worldwide market share by reducing a country’s balance of payments deficit. They do this in many ways for example, providing them with subsidies in form of tax breaks, low interest loans, prevent foreign companies from selling at lower cost to attract more customers, locals not depending on foreign products/services and lastly reducing payment problems for the locals (Rugman,Collinson, 2012). Another economic factor companies must be aware of is the tariffs rate in the country in which they wish to invest in. A tariff is usually added based on the value of the goods being imported hence increasing the price of which the company pays to import their products. “Tariffs raise revenues for the government, discourage imports and make local goods more attractive”. This is the case to ensure customers will buy from local companies (Rugman, Collinson, 2012). Amongst many more, one main factor to take into consideration is quantity limitations or quotas. These prevents foreign companies from being able to import except a limited amount of goods into the country and even limited to the amounts of shares they may have, whatever amount is written on a company’s quota is the limit they have and must not be exceeded “Once it is reached, all additional imports are turned back” (Rugman, Collinson, 2012, p.175). Due to all this, it makes it extremely difficult for business to operate successfully and profitably hence why it is very important to consider all these financial factors when deciding to start up a business abroad. Sociological factors:Language is an important factor. It is essential for the owner to know the language he/she wants to settle their business in because not being fond with it could cause language barriersand difficulties communicating with staff or customers.Religion is important too because depending on the country and what your customers religious beliefs are it may restrain a business such as Walmart for example an American business selling pork or alcohol in Muslim countries (Knorr, Arndt, 2003).Cross-cultural literacy tends to affect many businesses, this is where the norms and values need to be considered of any given country, whether it being how you speak, you shake hands or you say a person name. For example, American employees who address their German coworkers of higher rank by their first name would be considered rude and insulting to Germans (Hill, 2010). Technological factors:Moreover, comes technological. Even though this is not as important as the other factors however business owners should be aware that the technological development of a country can affect the quantity of goods they are able to sell, this is depending to the countries availability to resources and labor, you may have some low developing countries where they have more labor supplies than natural resources “The availability or unavailability of resources affects what products are made in a given country” (Griffin, Pustay, 2012 p.88). Legal factors:There are different legal and institutional frameworks for different countries as they have different unique laws set in place and businesses must be aware of this in order to meet the government requirements of the country. One very important point for anyone opening a business abroad should note that, every country’s set of laws and regulations is different and needs to be followed, to avoid facing severe fines. For example, some countries may require documentations and may have tighter laws in place compared to the ones enforced in their home country. Companies must know that they are subject to the laws of the country in which they operate (Peng, Meyer, 2016). This means you cannot decide to start up a business in a different country thinking that the rules and regulations of your home country are the same or imply similarly to that of the country you wish to invest in. There are two types of laws that consist in countries; civil & common law, civil laws are those that consist of more private issues and individual cases within businesses such as injuries within the work place, fraud and corruption etc. whereascommon law are rules made by judges that for example give people the right to read their contract before agreeing to participate with the business. This is other than the legaldocumentation that need to be provided in order for a business to be able to operate in a different country. (Peng, Meyer, 2016) Advantages:Despite the aspects we have covered on what must be taken into consideration operating a business abroad there are some good points too. Such as financial and technological factors, these being certain documents or products can now be delivered by air which reduces the time taken for delivery, this also decreases things such as the barriers given to foreign businesses and make it easier to provide their services “bilateral and multilateral trade negotiations hold the prospect for reduction of barriers” and “that will make it easier for business consultants and professionals to perform their services” (Aharoni, 1993, p.22). A quote that the writer mentions which links to sociological is “Benefit in taking advantage of the firm’s reputation by diversifying both geographically and into new areas of expertise” which means when starting your business abroad it would allow the company to become more familiar to the public and its reputation could therefore increase and be recognized internationally. (Aharoni, 1993, p.17) Lastly, another advantage in sociological factor is that if you are globalizing your business your meeting customers/clients on a global scale which is beneficial for your company as you would have a large network of people rather than staying in the same country. (Aharoni, 1993) Conclusion:Overall, if any business owner is or will be thinking in the future to start a business abroad then they should read the above thoroughly, as each factor that has been mentioned above are critical to ensure that any business owner can manage to operate a business in foreign land, in my personal opinion all factors are equally as important whether it being political, social, economic, legal or technological. This is because if one factor is forgotten even if it may be the smallest of points it could lead to the downfall of the business and as globalization increases throughout the years and more and more businesses are starting to operate outside their home country. These aspects of PESTL become even more important to be aware of as it may change depending on the country and its governments and people. Hence planning and control is essential because it could make the difference to whether it can affect or maybe even harm a business in a foreign country.