Question

Foreign Venue and External Environment Elements
A company needs to assess several internal and external environmental elements before it can decide whether to expand into foreign markets.

What is the most important external environmental element a company must consider when planning to enter a foreign venue?

Answer 1

Most important external environment elements to be considered:

1. Political and Legal Factors

Any foreign business venture must follow the law of the land (geography) where it is trying to expand. Manufacturing laws, distribution challenges, legal aspects concerning the business; all need to be considered before deciding to expand. Apart from that, taxation, currency fluctuation rates and political environment all play a crucial role in impacting a foreign business. All these factors need to be carefully considered.

2. Social and Cultural Factors

A company must adapt to the style of doing business when expanding to foreign shores. They must address the cultural and language aspects that are of vital importance. They must also research the consumer preferences, demographic aspects, etc. to understand whether their offering has a potential to be successful in the foreign land.

Example: McDonalds diversifies its menu when expanding to different geographies to suit the food preferences and price levels.

3. Economic Factors

The company should look into indices like national GDP, per capita income, middle class spending ability and other data to identify whether they have a substantial target segment in order to sustain their business in the foreign land. The financial well being of the country should also be assessed in terms of fiscal deficit, currency fluctuation and other economic indices.