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There is an old Chinese saying “know the enemy and know yourself, and you can fight a hundred

battles with no danger of defeat”. That means if you want to be successful, you need to not only

understand strengths and weakness of yourself, but also to have an idea of the same to your 

enemies. The same rule applies to economy when we try to make sound business decisions we

will take account of the macro-environment in which the business activities will happen.

There are four areas we must focus our efforts to obtain as much information as possible interms of macro-environment.

  Politics (referred to as P below) Economic factors (referred to as E below)

  Social issues (referred to as S below)

  Technological developments (referred to as T below) (Graeme Drummond et al, 2008,

 p24)

In the following pages I will use General Motors’ success story in China and the likely

  buyout of GM’s Hummer by a local Chinese company as an example to show why the

P.E.S.T are vitally important to business.

  Political Environment You should check the local laws and regulations in China if the

market you are going to enter has any constraint to your entry because the government

in that country may have some laws and regulations protecting their own business. For 

instance, China’s telecommunication industry is not accessible to foreign investors. No

foreign firms are allowed to run China’s telecommunication industry. That’s why the

telecommunication companies like Orange have no chance to access market in China.

But for car industry, China is open for foreign companies. Companies like GM, VW,

Toyota and so on have set up joint venture operations in China. They pay taxes to the

government, provide job opportunities and bring new technologies to China. They are

more than welcome to invest in China.

  Economic situation. Is your business profitable under current economic situation? Take

car industry as an example. After General Motors and Chrysler went bankruptcy, people

may think it is a bad time to enter the car industry. However, the bad situation happened

only in America and Europe. General Motors in China is still doing great. They even

achieved record high in sales in China market. “Though things have been rough on the

home front, General Motors has been an unstoppable force in China this year. The

General Motors reported today that total Chinese sales were up 77.7% in July over 2008

results to 144,593 units. July marks the seventh month in a row GM has posted record

sales numbers in China”.. (Scott Evans, 2009). This tells us, when we are viewing the

economic situation, what has happened in the other part of the world may not

necessarily happen in this part of the world. What is true in developed economy may not

 be true in emerging economy. As a smart businessman, you should be very familiar to

the economic situation and the market you are interested in. Then you can make good

 judgment on business decisions without any confusion.

  Cultural difference. There is a huge difference between American and Chinese on ways

of money spending. China is emerging with more and more middle class people and

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some of them would like to show their wealth. As a result, when purchasing a car, they

tend to choose American cars which are usually bigger and more luxury even though

they may be fuel guzzlers. What’s more, GM Shanghai knows the Chinese customers

taste so well they made advertisement just to please their taste. The program “Prison

Break” is very popular in China. GM Shanghai took this opportunity and asked the

famous actor Wentworth Miller as their model to represent a newly designed car “Chevrolet Cruze”. (Nikki Katz, 2009) The result was impressive, in the first month ,

they managed to sell 3739 Cruze. (automobilemag.com, 2009) There is another reason,

which can be under the category called “National cultures” which means “Despite those

differences among individuals and cultures of groups constituting a society, the members

of a society have some common values, norms, and patterns of behavior indicating that

they belong to a bigger cultural group, traditionally called a nation”. (Hans Muhlbacher 

et al, 2006, p185) In China, some people are not willing to buy Japanese cars because of 

the World War II during which Japan invaded China. Even though Japanese cars are

thought more economic than American cars in fuel consumption, they will still hesitate

 before spending money from their pockets in spite of their preferrence. Reason is they

are worried about the likely negative reaction from their friends.

  Technology. If your company possess or controls technology and brands, then you are

having a key tool to success in the market. On June 3 rd, “General Motors agreed to sell

the Hummer sport-utility vehicle brand to China’s Sichuan Tengzhong Heavy Industrial

Machinery Co.” (Katie Merx, 2009). Hummer is a sport-utility vehicle brand, which has

great cross-country ability and has been serving in the U.S army since 1980s. Sichuan is

a large province with hills and mountains. The technology of how to produce a cross-

country vehicle will definitely be popular in that market. Now in China, there is only one

company who is producing small military cars by name of Dongfeng Motors that makes

Warrior EQ2050, called “Hummer H1 Clone”. From that we can see such “cross-country technology” is preferred in both civilian and military industry. That is why GM

can sell the Hummer and the brand to Sichuan Tengzhong. On the other hand, because

American people are suffering from the economic recessions, they are tight on all their 

expenses including fuel consumption. They are shifting to drive smaller economic cars.

That is the reason why Hummer brand is experiencing “the biggest decline” in 2008.

(U.S News, 2008)

In conclusion, P.E.S.T plays a critical role in business success. The more we understand

ourselves as well as our foes, the more likely we will win the war.

BBA I

 N4

William 222302