University*of*London*
School*of*Oriental*and*African*Studies*
International*Foundation*Courses*and*English*Language*Studies*
FOUNDATION)DIPLOMA)FOR)POSTGRADUATE)STUDIES)
*
International*Business*Studies*
Term*1*Assignment* *
*
*
*
*
*
*
*
*
*

Discuss*how*organisations*can*avoid*exposure*to*the*perceived*risk* associated*with*internationalisation.* *
*
*
*
*
*
*
*
Submitted*by*
YuHPing*Cheng,*Student*No.614748*
*
*
*
Word*Count:*1892words*

1.#Introduction#
Market!pushes!organisations!become!internationalisation,!which!is!the!process!
of!a!firm,!enters!into!foreign!market!(Collinson!&!Rugman,!2012).!According!to!
Collinson!and!Rugman!(2012.!p.!41),!they!mention!that!the!internationalisation!
process!can!be!separated!to!five!stages,!which!are!licences,!export!via!agent!or! distributor,!export!through!own!sales!representative!or!sales!subsidiary!and! local!packaging!and/or!assembly,!along!with!time!and!depth!of!involvement!in! foreign!markets,!the!last!stage!is!foreign!direct!investment!(FDI).!The!reasons! why!enterprises!internationalise!are!that!they!can!increase!sales!and!profits,! enter!rapidly!growing!markets,!reduce!costs,!gain!a!foothold!in!economic!blocs,! protect!domestic!markets,!protect!foreign!markets!and!acquire!technological!and! managerial!knowLhow!through!enter!a!new!market.!The!companies!who!want!to! internationalise!into!foreign!market!need!to!evaluate!various!kinds!of!risks,! because!internationalisation!is!a!longLterm!investment,!which!may!have!some! perceived!risks.!Therefore,!market!analysis!and!risk!evaluation!before!the!firm! decides!to!internationalisation!is!the!best!way!to!avoid!investment!exposures.! This!essay!will!discuss!how!to!use!PEST!analysis!to!evaluate!the!risks.!
!
2.#PESTLE#Analysis#
PEST!analysis!is!a!wellLknow!analysis!and!evaluation!in!the!country!risk!analysis,!
it!analyses!the!opportunities!of!“nonLmarket!events”,!such!as!political,!social,!and! economic,!“causing!financial,!strategic,!or!personnel!losses”!to!a!company! investment!in!foreign!country!market!(Collinson!&!Rugman!2012.!p.465).!Before!
!

1!

making!decisions!to!investment,!this!analysis!is!used!to!examine!the!foreign! market,!forecasts!and!prevent!the!potential!market!risks.!PEST!Analysis!can! effectively!help!firms!to!realize!the!growing!or!recession!of!market,!the!situation! of!enterprise,!potential!and!operation!direct,!and!then!keep!away!from!risks.!The! purpose!of!PEST!is!to!“identify!trends!and!critical!topics!in!the!external!business! environment”!(Hedin,!Hirvensalo,!&!Vaarnas!2011.!p.165).!The!factors!that!may! influence!the!foreign!market!are!political,!economic,!social!or!socioLcultural,!and! technological,!they!can!produce!chance!or!exposures!in!the!meantime.!Also,!the! factores!can!add!legal!factors!and!environmental!factors,!from!PEST!extend!to!
PESTLE!(Collinson!&!Rugman!2012).! ! !
!
To!begin!with!political!and!legal,!political!and!legal!factors!include!FDI,!trade! regulations!and!incentives,!monopolies!legislation,taxation,!employment!laws,! environment!protection,!and!political!stability,!are!based!on!how!depth!of! intervention!in!the!economy!(Collinson!&!Rugman!2012).!In!a!country,!the! nature!of!ruling!party,!the!strategies,!policies!and!laws!of!the!government,!all!of! them!will!influence!the!investment!result.!For!FDI,!different!countries!have! different!nature,!limitations,!and!requests.!Even!though!in!the!same!country,! different!ruler,!government!party,!policies!trend,!and!economic!strtegies!will! cause!different!attitude!and!impact!for!internationalisaation!in!organisations.!
“Political!risk!is!the!probability!that!political!forces!will!negatively!affect!a!firm’s!
profit!or!impede!the!attainment!of!other!critical!business!objects”!(Collinson!&!
Rugman!2012.!p.467).! !
!

2!

Political!risk!is!an!issue!not!only!for!enterprises!enter!business!in!the!unstable!
government!but!also!in!the!high!industrialise!countries.!Governments!routinely!