GLOBAL MARKET OPPORTUNITY
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2021
GLOBAL MARKET OPPORTUNITY
1. Political
o How stable is the political environment in the prospective country?
o What are the local taxation policies? How do these affect your business?
o Is the government involved in trading agreements, such as the European Union (EU),
the North American Free Trade Agreement (NAFTA), or the Association of Southeast Asian
Nations (ASEAN)?
o What are the country’s foreign-trade regulations?
o What are the country’s social-welfare policies?
2. Economic
o What are the current and forecast interest rates?
o What is the current level of inflation in the prospective country? What is it forecast to
be? How does this affect the possible growth of your market?
o What are local employment levels per capita, and how are they changing?
o What are the long-term prospects for the country’s economy, gross domestic product
(GDP) per capita, and other economic factors?
o What are the current exchange rates between critical markets, and how will they
affect production and distribution of your goods?
3. Sociocultural
o What are the local lifestyle trends?
o What are the country’s current demographics, and how are they changing?
o What is the level and distribution of education and income?
o What are the dominant local religions, and what influence do they have on consumer
attitudes and opinions?
o What is the level of consumerism, and what are the popular attitudes toward it?
o What pending legislation could affect corporate social policies (e.g., domestic-partner
benefits or maternity and paternity leave)?
o What are the attitudes toward work and leisure?
4. Technological
o To what level do the local government and industry fund research, and are those
levels changing?
o What is the local government’s and industry’s level of interest and focus on
technology?
o How mature is the technology?
o What is the status of intellectual property issues in the local environment?
o Are potentially disruptive technologies in adjacent industries creeping in at the edges
of the focal industry?
5. Environmental
o What are the local environmental issues?
o Are there any pending ecological or environmental issues relevant to your industry?
o How do the activities of international activist groups (e.g., Greenpeace, Earth First!,
and People for the Ethical Treatment of Animals [PETA]) affect your business?
o Are there environmental-protection laws?
o What are the regulations regarding waste disposal and energy consumption?
6. Legal
o What are the local government’s regulations regarding monopolies and private
property?
o Does intellectual property have legal protections?
o Are there relevant consumer laws?
o What is the status of employment, health and safety, and product safety laws?
Political Factors
The political environment can have a significant influence on businesses. In addition,
political factors affect consumer confidence and consumer and business spending. For
instance, how stable is the political environment? This is particularly important for
companies entering new markets. Government policies on regulation and taxation can vary
from state to state and across national boundaries. Political considerations also encompass
trade treaties, such as NAFTA, ASEAN, and EU. Such treaties tend to favor trade among the
member countries but impose penalties or less favorable trade terms on nonmembers.
Economic Factors
Managers also need to consider macroeconomic factors that will have near-term and
long-term effects on the success of their strategy. Inflation rates, interest rates, tariffs, the
growth of the local and foreign national economies, and exchange rates are critical.
Unemployment, availability of critical labor, and the local cost of labor also have a strong
bearing on strategy, particularly as related to the location of disparate business functions
and facilities.
Sociocultural Factors
The social and cultural influences on business vary from country to country. Depending
on the type of business, factors such as the local languages, the dominant religions, the
cultural views toward leisure time, and the age and lifespan demographics may be critical.
Local sociocultural characteristics also include attitudes toward consumerism,
environmentalism, and the roles of men and women in society. For example, Coca-Cola and
PepsiCo have grown in international markets due to the increasing level of consumerism
outside the United States.
Making assumptions about local norms derived from experiences in your home market
is a common cause for early failure when entering new markets. However, even home-
market norms can change over time, often caused by shifting demographics due to
immigration or aging populations.
Technological Factors
The critical role of technology is discussed in more detail later in this section. For now,
suffice it to say that technological factors have a major bearing on the threats and
opportunities firms encounter. For example, new technology may make it possible for
products and services to be made more cheaply and to a better standard of quality. New
technology may also provide the opportunity for more innovative products and services,
such as online stock trading and remote working. Such changes have the potential to change
the face of the business landscape.
Environmental Factors
The environment has long been a factor in firm strategy, primarily from the standpoint
of access to raw materials. Increasingly, this factor is best viewed as both a direct and
indirect cost for the firm.
Environmental factors are also evaluated on the footprint left by a firm on its respective
surroundings. For consumer-product companies like PepsiCo, for instance, this can
encompass the waste-management and organic-farming practices used in the countries
where raw materials are obtained. Similarly, in consumer markets, it may refer to the
degree to which packaging is biodegradable or recyclable.
Legal Factors
Finally, legal factors reflect the laws and regulations relevant to the region and the
organization. Legal factors can include whether the rule of law is well established, how
easily or quickly laws and regulations may change, and what the costs of regulatory
compliance are. For example, Coca-Cola’s market share in Europe is greater than 50
percent; as a result, regulators have asked that the company give shelf space in its coolers
to competitive products in order to provide greater consumer choice.2
Many of the PESTEL factors are interrelated. For instance, the legal environment is
often related to the political environment, where laws and regulations can only change
when they’re consistent with the political will.
PESTEL and Globalization
Over the past decade, new markets have been opened to foreign competitors, whole
industries have been deregulated, and state-run enterprises have been privatized. So,
globalization has become a fact of life in almost every industry.3 This entails much more
than companies simply exporting products to another country. Some industries that aren’t
normally considered global do, in fact, have strictly domestic players. But these companies
often compete alongside firms with operations in multiple countries; in many cases, both
sets of firms are doing equally well. In contrast, in a truly global industry, the core product is
standardized, the marketing approach is relatively uniform, and competitive strategies are
integrated in different international markets.4 In these industries, competitive advantage
clearly belongs to the firms that can compete globally.
A number of factors reveal whether an industry has globalized or is in the process of
globalizing. The sidebar below groups globalization factors into four
categories: markets, costs, governments, and competition. These dimensions correspond
well to Thomas Friedman’s flatteners (as described in his book The World Is Flat), though
they are not exhaustive.5
Factors Favoring Industry Globalization
1. Markets
o Homogeneous customer needs
o Global customer needs
o Global channels
o Transferable marketing approaches
2. Costs
o Large-scale and large-scope economies
o Learning and experience
o Sourcing efficiencies
o Favorable logistics
o Arbitrage opportunities
o High research-and-development (R&D) costs
3. Governments
o Favorable trade policies
o Common technological standards
o Common manufacturing and marketing regulations
4. Competition
o Interdependent countries
o Global competitors6
Markets
The more similar markets in different regions are, the greater the pressure for an
industry to globalize. Coca-Cola and PepsiCo, for example, are fairly uniform around the
world because the demand for soft drinks is largely the same in every country. The airframe-
manufacturing industry, dominated by Boeing and Airbus, also has a highly uniform market
for its products; airlines all over the world have the same needs when it comes to large
commercial jets.
Costs
In both of these industries, costs favor globalization. Coca-Cola and PepsiCo realize
economies of scope and scale because they make such huge investments in marketing and
promotion. Since they’re promoting coherent images and brands, they can leverage their
marketing dollars around the world. Similarly, Boeing and Airbus can invest millions in new-
product R&D only because the global market for their products is so large.
Governments and Competition
Obviously, favorable trade policies encourage the globalization of markets and
industries. Governments, however, can also play a critical role in globalization by
determining and regulating technological standards. Railroad gauge—the distance between
the two steel tracks—would seem to favor a simple technological standard. In Spain,
however, the gauge is wider than in France. Why? Because back in the 1850s, when Spain
and neighboring France were hostile to one another, the Spanish government decided that
making Spanish railways incompatible with French railways would hinder any French
invasion.
These are a few key drivers of industry change. However, there are particular
implications of technological and business-model breakthroughs for both the pace and
extent of industry change. The rate of change may vary significantly from one industry to
the next; for instance, the computing industry changes much faster than the steel industry.
Nevertheless, change in both fields has prompted complete reconfigurations of industry
structure and the competitive positions of various players. The idea that all industries
change over time and that business environments are in a constant state of flux is relatively
intuitive. As a strategic decision maker, you need to ask yourself this question: how
accurately does current industry structure (which is relatively easy to identify) predict future
industry conditions?
Importing as a Stealth Form of Internationalization
Ironically, the drivers of globalization have also given rise to a greater level of imports.
Globalization in this sense is a very strong flattener. Importing involves the sale of products
or services in one country that are sourced in another country. In many ways, importing is a
stealth form of internationalization. Firms often claim that they have no international
operations and yet—directly or indirectly—base their production or services on inputs
obtained from outside their home country. Firms that engage in importing must learn about
customs requirements, informed compliance with customs regulations, entry of goods,
invoices, classification and value, determination and assessment of duty, special
requirements, fraud, marketing, trade finance and insurance, and foreign trade zones.
Importing can take many forms—from the sourcing of components, machinery, and raw
materials to the purchase of finished goods for domestic resale and the outsourcing of
production or services to nondomestic providers.
Outsourcing occurs when a company contracts with a third party to do some work on its
behalf. The outsourcer may do the work within the same country or may take the work to
another country (i.e., offshoring). Offshoring occurs when you take a function out of your
country of residence to be performed in another country, generally at a lower
cost. International outsourcing, or outsourcing work to a nondomestic third party, has
become very visible in business and corporate strategy in recent years. But it’s not a new
phenomenon; for decades, Nike has been designing shoes and other apparel that are
manufactured abroad. Similarly, Pacific Cycle doesn’t make a single Schwinn or Mongoose
bicycle in the United States but instead imports them entirely from manufacturers in Taiwan
and China. It may seem as if international outsourcing is new because businesses are now
more often outsourcing services, components, and raw materials from countries with
developing economies (e.g., China, Brazil, and India).
In addition to factors of production, information technologies (IT)—such as
telecommunications and the widespread diffusion of the Internet—have provided the
impetus for outsourcing services. Business-process outsourcing (BPO) is the delegation of
one or more IT-intensive business processes to an external provider that in turn owns,
administers, and manages the selected process on the basis of defined and measurable
performance criteria. The firms in service and IT-intensive industries—insurance, banking,
pharmaceuticals, telecommunications, automotive, and airlines—are among the early
adopters of BPO. Of these, insurance and banking are able to generate the bulk of the
savings, purely because of the large proportion of processes that they can outsource (i.e.,
the processing of claims and loans and providing service through call centers). Among those
countries housing BPO operations, India experienced the most dramatic growth in services
where language skills and education were important. Research firm Gartner anticipates that
the BPO market in India will reach $1.8 billion by 2013.7
Generally, foreign outsourcing locations tend to be defined by how automated a
production process or service can be made and the transportation costs involved. When
transportation costs and automation are both high, then the knowledge worker component
of the location calculation becomes less important. You can see how you might employ the
CAGE framework to evaluate potential outsourcing locations. In some cases, though, firms
invest in both plant equipment and the training and development of the local workforce.
This becomes important when the broader labor force needs to have a higher level of
education to operate complex plant machinery or because a firm’s specific technologies also
have a cultural component. Brazil is one case in point; Ford, BMW, Daimler, and Cargill have
all made significant investments in the educational infrastructure of this significant,
emerging economy.8
