Unit 5 - International Business Assignment 2

External factors and cultural differences [Name]




Assignment 2: External factors and cultural differences
Unit 5: International Business
[Name]
Department of Business, [College]
[Assessor/Teacher]
[Date]




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,External factors and cultural differences [Name]


Contents Page
Introduction {pg.3}
Section 1: PESTLE and Tesco

- Part 1: Understanding PESTLE {pg.3}
- Part 2: Conducting the analysis {pg.3}

Section 2: PESTLE, China & Canada

- Part 1: China’s PESTLE {pg.10}
- Part 2: Canada’s PESTLE {pg.15}
- Part 3: Where should Tesco expand to? {pg.20}

Section 3: Business Support Systems

- Part 1: Influence of the internet {pg.20}
- Part 2: Influence of international payment methods {pg.21}

Section 4: International culture

- Part 1: Languages {pg.22}
- Part 2: Social Class & Population {pg.22}
- Part 3: Religion & Cultural Norms {pg.23}
- Part 4: Management Styles & Attitudes {pg.23}
- Part 5: Why are different cultures important? {pg.24}

Section 5: The Impact of Culture on International Trade

- Part 1: How Culture has Impacted International Trade {pg.25}
- Part 2: Overall Impacts {pg.25}

Conclusion {pg.25}
Bibliography {pg.26}




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,External factors and cultural differences [Name]


Introduction

Following from Assignment 1, where I discussed the reasoning behind why companies trade
internationally, I have decided to delve deeper into the international scene with the retailer Tesco.
The purpose of this disquisition is to analyse the external and cultural factors that affect Tesco’s
international affairs, achieved through completing external analysis techniques such as the PESTLE
and SWOT on both Tesco and two countries which I believe would be suitable for the company.

Section 1: PESTLE and Tesco

Within Section 1, my objective is to understand the external factors that impact my chosen
company, Tesco. To achieve this, I have decided to use an external analysis tool known as the PESLTE
analysis which will help me identify six key areas that impact Tesco.

Part 1: Understanding the PESTLE

One of the primary ways in which we can conduct an external analysis on a business is to use a
PESTLE analysis but first we need to understand what the anagram “PESTLE” means. PESTLE stands
for: Political, Economic, Social, Technological, Legal and Environmental factors that affect a
company1. Through analysing each of these factors on an individual basis, we can summarise our
findings to give a rounded conclusion on Tesco’s external environment when considering
international trade.

Part 2: Conducting the Analysis

Political

Political factors refer to the controls and influence that a government has over an economy or
industry. A variety of methods can be used, but the most common include trade tariffs, taxation, and
fiscal policies. Tariffs are a form of tax that are imposed upon goods which are being imported from
a foreign country and were originally used as a source of funding for governments 2 but is now mainly
used to protect domestic industries, a process known as “Protectionism 3.” Taxation is a term to
describe when an institution, usually a government, will levy a financial duty upon their citizens and
companies working within their territory. These levies are involuntary and are used to gain capital 4,
and the percentage of capital taken is variable dependent on political influence. The final method we
will discuss is fiscal policies, which are the measures that a government takes to help stabilise or
influence the economy during periods of economic recession typically achieved through expenditure
and taxation. These fiscal policies can vary and may focus on macroeconomic stabilisation such as
cutting taxes for short-term relief or long-term projects for sustainable growth by improving
infrastructure, healthcare, or education 5.

So how do these political factors influence Tesco and their consideration of international trade? Each
of the policies directly affects companies, the economy and all other factors that are included within
the PESTLE. Tariffs play a large role into whether Tesco would consider expanding into certain
countries. Having access to the resources and goods that they sell in their domestic country is an
important asset to businesses, as it means that they do not have to find alternative and more
expensive alternatives. If a country has little to know tariffs, it means that Tesco will have easy
1
https://www.cipd.co.uk/knowledge/strategy/organisational-development/pestle-analysis-factsheet
2
https://tinyurl.com/2p8swaaj
3
https://www.investopedia.com/terms/p/protectionism.asp
4
https://www.investopedia.com/terms/t/taxation.asp
5
https://www.imf.org/external/pubs/ft/fandd/basics/fiscpol.htm


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, External factors and cultural differences [Name]


access to international goods which will allow for rapid growth but those with high numbers of tariffs
discourage trade. When Tesco considers international trade, factors such as the level of taxation that
they would have to face are a big element on whether they would want to start operations in a
country. Countries with minimal amounts of taxation, like Hungary at 9.00% 6 are more ideal because
it means that Tesco can retain a higher amount of their profits whereas those with high taxation,
such as France at 28.4%7, are less ideal.

Economic

Economic factors link to how well the economy of a country performs relating to growth/decline,
inflation, and the level of disposable income. Economic growth is an increase in the number of
economic goods/services that are within circulation compared to previous times. This growth can be
measured by the gross national product (total market value of goods/services) 8 or the gross
domestic product (market value of all the final goods and services in a specific period) 9. For an
economy to grow, there are a variety of factors that must positively contribute which include more
goods being produced, stronger labour force, and technology 10. Economic decline is the opposite of
economic growth and can be measured identically. If the GDP of a country decreases and market
activity such as the amount of goods being sold/bought decreases, then the GDP will decline and so
will the economy. Disposable income, sometimes known as disposable personal income (DPI), is the
total amount of cash that an individual will have post-tax 11. Countries with high paying jobs and
lower levels of tax will result in their citizens having higher disposable income, the opposite being
true. With this cash, individuals will spend it on goods/services such as rent, food, cosmetics etc.
which in turn helps to push an economy since there is greater capital in circulation 12.

Inflation is a key part of economic factors companies must consider due to its high levels of influence
over the economy and buying patterns of a country’s citizens. Inflation is a term describing the
general sustained movement in the prices of goods/services within an economy 13. When inflation
increases, it means that it takes a greater number of units to buy the same products or services than
what it was a specific amount of time ago14. A basic example of inflation is that in 2010, Object A
costs five units to purchase but in 2022 it now costs seven units to purchase. Inflation is driven by
demand-pull and cost-push inflation. Demand-pull inflation is when the demand for goods or
services is greater than the amount that an economy can produce which puts pressure on prices,
raising inflation15. Cost-push inflation is when overall prices increase typically due to an increase in
costs of production, but the demand remains the same and in order to compensate, producers will
raise the price to the consumers16.

These economic factors will help Tesco in deciding on whether they would want to start up their
operations in a country. If a country’s economy has seen a steady decline in their economy in
previous years, it will deter Tesco from investing since a declining economy (recession) has a ripple
effect on the buying patterns of individuals within those economies. Economies in recessions will
6
https://taxfoundation.org/publications/corporate-tax-rates-around-the-world/
7
https://taxfoundation.org/publications/corporate-tax-rates-around-the-world/
8
https://www.britannica.com/topic/gross-national-product
9
https://en.wikipedia.org/wiki/Gross_domestic_product
10
https://www.investopedia.com/terms/e/economicgrowth.asp
11
https://www.investopedia.com/terms/d/disposableincome.asp
12
https://www.investopedia.com/ask/answers/042315/what-impact-does-disposable-income-have-stock-market.asp
13
https://www.imf.org/external/pubs/ft/fandd/basics/30-inflation.htm
14
https://www.thebalance.com/what-is-inflation-357610
15
https://www.thebalance.com/what-is-inflation-357610
16
https://www.investopedia.com/terms/c/costpushinflation.asp


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