Name : Ameer Shafiq bin Kamalullail

Team Task 1 (6%)

Question :

Conduct a PESTEL analysis for China and Finland. Why do you think Finland tops the

chart for overall ranking of the “Best Countries in the World”?

What is PESTEL ?

PESTEL analysis is a tool or a framework used by certain individual to analyze different macro-

environmental factors where these factors may effect their business strategy or also the stability

of a nation. PESTEL stands for 6 different factors that are known as Political factors, Economy

factors, Social Factors, Technological factors, Environmental factors and also Legal factors.

Political factor refers to the degree of government intervention in the nation economy where this

may vary among nation where different nation conduct different type of economy such as free

economy, control economy or free market. The government may also impose policies in

conducting the economy. Economic factor refers to the economy component such as economic

growth, interest rates, exchange rates and also inflation rate where these factors would impact

how the business or nation operate and make decision. Social factor refers to cultural aspects or

changes in social trends that can impact the efficiency and productivity of working in an

organization or in a nation. As an example, health, growth rate, age distribution, career attitudes

and emphasis on safety in an area. Technological factor refers to the changes of technology to a

community where these changes can affect lifestyles, cost of production, efficiency and

productivity of working entity, and standard of living of a nation. From technological factors we

can determine what is the barrier to entry a nation or an economy activity. Environmental factor

refers to the climate of the area, weather, and also geographic area where these factors vary

among nation. Lastly, legal factor refers to the law abiding from unethical actions either to

protect the environment, workers, organizations or the nation economy. Example of common

laws used globally is consumer law, labour law, health and safety law, discrimination law and

many more. So, this framework known as PESTEL is very useful to analyze a certain events or

problems in a large framework or in another word, from a large point of view to identify the

different 6 macro-environmental factors. The outcomes from these analyses are we can construct

plans, strategies, predict either the business growth or the economy and list down the

consequences that affect the business performance based from the factors.

A briefly examples of PESTEL factors

1

)

Political factors Stability of government, social policies, trade

regulations, tax policies and entry mode regulations

2

)

Economic factors Inflation, interest rates, exchange rates, and economic growth

3

)

Social factors Health, growth rate, age distribution, career attitudes and

emphasis on safety

4

)

Technological factors R&D activity, automation, technology incentives and rate of

technological change

5

)

Environmental factors Attitudes towards the environment ( in terms of demand and

supply for product, pollution or conserving the nature), climate,

weather and natural disaster.

6

)

Legal factors Employment regulations, competitive regulations, product

regulation, and health and safety regulations.

PESTEL analysis for China

Outlined below is the PESTEL analysis for China as a whole.

1) Political Factors

i. Constitutional System

China or People’s Republic of China adopts socialist system or communism in their

political system in their decision-making processes in governing the country. The

country’s sole political party in power is known as the Communist Party of China. The

government have the sole power to control all activities done by their citizen as what

have been describe in how communism system worked in governing a country. In

other words, the purposes of working in China are to contribute to the nation and also

to the government as the government control on all activities in the country.

ii. Stability of Government

The stability of the China government is quite moderate and stable because the

administration of the government are not publicize to the public either through the

press or on the internet. So, the degree of the citizen involvement in the politics is low

because of the heavy restrictions impose by the government. However, the policies

impose and the law regulations are quite effective in terms of economy where China is

one of the leading countries in the world. In the recent years (2001), China has joined

the World Trade Organization and results rapid growth in industrial and manufacturing

sectors because of the cheap labor in China. But still problems such as managing

environmental degradation, demographic pressure and the extreme immigration from

rural to urban area must be faced by the government.

iii. Business Freedom

The business freedom in China is quite tight because of the regulation impose by the

government where they restrict businesses from other countries coming in. But

recently, China government open their gate to the outside world to set up business in

their country. It takes 37 days to start anew business in China compared to the world

average 38 days. While it takes 1.7 years from the filling for insolvency in court until

the resolution of distressed assets. Examples of business freedom in China are

supermarketization and opening market to foreign multinationals company because of

the entry of China into WTO. Supermarketization is where the government shuts down

the traditional “wet market” and transform them into supermarket.

iv. Trade Freedom

In the past few decades, China loosen their trade policy to the outside world in their

trading, export and import industry. China’s weighted average tariff rate was 3.9

percent in 2008 based from the web (heritage.org). Factors that affect the cost of trade

freedoms are import and export bans and restrictions, import and export licensing,

non-transparent tariff classifications, complex regulations and standards, subsidies,

state trading in certain goods, services market restrictions, issues involving the

protection of intellectual property rights, and inconsistent and corruption-prone

customs administration add to the cost of trade. So, China’s trade freedom score to

account for non-tariff barriers deducted about twenty points.

v. Tax Policies

Below are the economic data for China.

Tariff Rate 3.9

Income Tax Rate 45.0

Corporate Tax Rate 25.0

GDP (billion) 7900

GDP per Capita 5962

Unemployment Rate 4.2

Inflation Rate 5.9

FDI Inflow (millions) 108300

Tax Burden % GDP 18.3

Government Expenditure % GDP 19.9

Population (billions) 1300

Based on the rates and statistic given, we can see that China has moderate Corporate

Tax Rate and high Income Tax rate. The government encourages more new-

technology business in the market besides allowing foreign institution enters the nation

financial institution in providing foreign currency. Because of lower corporate tax rate,

many MNC started to open their business in China and the numbers of FDI have

increased rapidly. Furthermore, on October 2008, new policies impose where

individual income tax is no longer paid on interest on bank deposits. The overall tax

revenue as a percentage of GDP was 18.3 based on what recorded in the recent years.

2) Economic Factors

Economic Freedom Score – 51.0

Population - 1.3 billion

GDP (PPP) -

$7.9 trillion

9.0% growth

11.0% 5-year compound annual growth

$5962 per capita

Tariff Rate 3.9

Income Tax Rate 45.0

Corporate Tax Rate 25.0

GDP (billion) 7900

GDP per Capita 5962

FDI Inflow (millions) 108300

Tax Burden % GDP 18.3

Government Expenditure % GDP 19.9

Unemployment - 4.2%

Inflation (CPI) - 5.9%

FDI Inflow - $108.3 billion

Economic Freedom vs World Average

i. Disposable income of buyers

ii. Credit accessibility

The government has directly and indirectly controls their banks and financial

institution. Investment done in China are also control and regulated because of their

judicial system is very vulnerable to the political issues and influence

iii. Unemployment rates

Labor force - 812.7 million

Labor force by occupation -

a) agriculture (39.5%)

b) industry (27.2%)

c) services (33.2%)

Unemployment rate - 4.2% (2008 est.)

*Official data from urban area only.

*Including migrants may boost total unemployment to 9%.

*Substantial unemployment and underemployment in rural areas.

Source from – www.cia.gov

iv. Fiscal Freedom

China has moderate Corporate Tax Rate and high Income Tax rate. The government

encourages more new-technology business in the market besides allowing foreign

institution enters the nation financial institution in providing foreign currency. Because

of lower corporate tax rate, many MNC started to open their business in China and the

numbers of FDI have increased rapidly. Furthermore, on October 2008, new policies

impose where individual income tax is no longer paid on interest on bank deposits.

The overall tax revenue as a percentage of GDP was 18.3 based on what recorded in

the recent years.

v. Monitory Freedom

From 2006 until 2008, the inflation rate is around 5.2% where it is consider moderate

for that particular percentage. As what mention where China economic freedom score

is around 51 from the full score 100. So, we can see that the economic is a mixture of

free market and control market. The price of product sold can be determined by the

quantity demanded of the product. But still the government intervenes on certain

goods and products to maintain stability of the prices. The government also gives

subsidies to small business and industry to compete with foreign goods where they can

sell at lower prices.

vi. Investment Freedom

China’s Foreign Investment Catalogue describe that different foreign investment are

group under different types such as encouraged, prohibited, restricted and permitted

China laws and regulatory are non-transparency, complex and inconsistently enforced

laws and regulations, weak protection of intellectual property rights, corruption,

industrial policies protecting local firms, and a legal system that cannot guarantee the

sanctity of contracts where these must be face by the foreign investor. Financial

transactions are also tightly regulated.

vii. Financial Freedom

The financial systems in China are control directly to the government and it is tightly

controlled. In China, there are supervised roughly 5,600 financial institutions in

2008 and China has only two private banks while there are four state-owned

banks account for over 50 percent of total assets. This financial system is control

and supervised by The China Banking Regulatory Commission.

 

viii. Interest rates

Central bank discount rate - 2.79%

Commercial prime lending rate - 5.31%

ix. Inflation

Inflation rate - 5.9% (2008 est.) and -0.7% (2009 est.)

Inflation rate decline vastly from 2008 until 2009 because of the stable currency of

China.

3) Social Factors

Population : 1.34 billion (2009 est.)

Population growth rate : 0.66% (2009 est.)

Population Below Poverty Line : 2.00% (2009 est.)

Infant mortality rate : 20.25 deaths per 1,000 live births (2009 est.)

Life expectancy at birth :

total population: 71.44 years male: 69.71 years female: 73.26 years (2004 est.)

Total fertility rate : 1.79 children per woman (2009 est.)

Ethnic groups : Han Chinese 91.5%, Zhuang, Manchu, Hui, Miao, Uyghur, Tujia, Yi, Mongol, Tibetan, Buyi, Dong, Yao, Korean, and other nationalities 8.5% (2000 census)

Nationality : noun: Chinese (singular and plural) adjective: Chinese

Religions : Daoist (Taoist), Buddhist, Christian 3%-4%, Muslim 1%-2% note: officially atheist (2002 est.)

Languages : Standard Chinese or Mandarin (Putonghua, based on the Beijing dialect), Yue (Cantonese), Wu (Shanghainese), Minbei (Fuzhou), Minnan (Hokkien-Taiwanese), Xiang, Gan, Hakka dialects, minority languages (see Ethnic groups entry)

Literacy :

total population: 90.92 % male: 95.14 % female: 86.53 % (2004 est.)

HIV/AIDS - Adult Prevalence Rate : 0.10% (2009 est.)

Source from http://globaledge.msu.edu/countries/china/statistics/

i. Distribution of Wealth

Distribution of income or consumption by percentage share :

Lowest 10% : 1.80% 

Lowest 20% : 4.66% 

Second 20% : 9.00% 

Third 20% : 14.22% 

Fourth 20% : 22.13% 

Highest 10% : 33.06% 

Highest 20% : 49.99% 

Source from http://globaledge.msu.edu/countries/china/statistics/

China has an extreme gap between the lowest 20% and the highest 20% after 60 years

China change their system in their economy.

ii. Changes in lifestyles and trends

Lifestyles and trends in China change in many ways such as the level of consumption,

attitude towards new product especially from the west, changes in the quality of life,

and also changing from quantity satisfaction to quality satisfaction. Besides that,

changes in trends can be seen from the degree of fashion sense where citizen tend to

buy more colourful and striking colours compare dull- coloured clothes.

iii. Educational levels

The literacy rate for China is around 91.0% was able to read and write at a specified

age. While the average years of schooling is 11.2 year. Education expenditures in

China is about 1.9% of the GDP.

iv. Labor Freedom Ranks

China’s labor regulations hinder overall employment and productivity growth. The

non-salary cost of employing a worker is high. Dismissing an employee may require

prior consultation with the local labor bureau and labor union.

v. Freedom of corruption

Corruption is perceived as widespread. China ranks 72nd out of 179 countries in

Transparency International’s Corruption Perceptions Index for 2008. Corruption

affects banking, finance, government procurement, and construction most severely,

and there is a lack of independent investigative bodies and courts.

vi. Property Rights

China’s judicial system is weak, and many companies resort to arbitration. Local

officials can ignore court decision with impunity. All land is state-owned, but

individuals and firms may own and transfer long-term leases (subject to many

restrictions) as well as structures and personal property. Intellectual property rights are

not enforced effectively. Copyrights, patents, brand names, trademarks, and trade

secrets are routinely stolen.

4) Technological Factors

i. Science and Technology

Through the period, the achievement of science and technology in China are

remarkable where they manage to achieve many discoveries in the science field. The

major achievements are the discovery of the Daqing Oilfield, building the first atomic

reactor, successful testing of atom and hydrogen bombs, synthesis of crystalline

insulin, positron and negatron electronic collider, nuclear power stations, carrier

rockets, and satellite launching technology. Rapid improvement in science and

technology also create more jobs in the manufacturing industry and also make the

quality of life better and easier.

ii. Research and Development

The government design many plans and strategies in developing the R&D industry.

Many programs to enhance R&D industry are launched such as the “Torch Program”

and the “ Scaling Heights Program”

5) Environmental Factors

i. Environmental Protection Laws

The government takes serious matter on protecting the environment where they

impose many regulations and laws in protecting, preventing and controlling industrial

pollution and improving urban environment. The government also collaborate with

many NGO’s in order to maintain the mother nature.

6) Legal Factors

i. Employment Regulations

China’s labor regulations hinder overall employment and productivity growth. The

non-salary cost of employing a worker is high. Dismissing an employee may require

prior consultation with the local labor bureau and labor union.

PESTEL analysis for Finland

Outlined below is the PESTEL analysis for Finland as a whole.

1) Political Factors

i. Constitutional System

Finland joined the European Union in 1995 and adopted the euro as its currency in

1999. The country is sparsely populated, with about one-fourth of its land mass above

the Arctic Circle, but boasts a modern, competitive, and transparent economy with

vibrant information and communications technology sectors.

ii. Stability of Government.

The modern and competitive Finnish economy has long benefited from high levels of

economic freedom. The economy remains a world leader in business freedom, trade

freedom, property rights, and freedom from corruption. Private enterprises continue

to blossom and promote innovation in an efficient regulatory and legal environment.

With prudent and sound banking practices, the financial sector has weathered the

global financial turbulence relatively well. Finland’s overall high level of economic

freedom is curbed by high government spending and the rigidity of the labor market.

As in many other European social democracies, high government spending (close to

half of Finland’s GDP) supports an extensive welfare state. Restrictive labor

regulations undermine employment and productivity growth. Previously robust

economic growth slowed in 2009 due to the global recession, and Finland, like many

other European nations, faces demographic challenges in the form of an aging

population and shrinking workforce that could threaten future growth and the

government’s ability to maintain generous social spending programs. Finland became

a member of NATO’s Partnership for Peace program in 1994 but has not pursued full

NATO membership because of its neutral military status.

iii. Business Freedom

The overall freedom to start, operate, and close a business is strongly protected under

Finland’s regulatory environment. Starting a business takes an average of 14 days,

compared to the world average of 35 days. Obtaining a business license requires

much less than the world average of 18 procedures and 218 days. Bankruptcy is

straightforward and not costly.

iv. Trade Freedom

Finland’s trade policy is the same as that of other members of the European Union.

The common EU weighted average tariff rate was 1.3 percent in 2008. However, the

EU has high or escalating tariffs for agricultural and manufacturing products and its

MFN tariff code is complex. Non-tariff barriers reflected in EU and Finnish policy

include agricultural and manufacturing subsidies, quotas, import restrictions and bans

for some goods and services, market access restrictions in some services sectors, non-

transparent and restrictive regulations and standards, and inconsistent regulatory and

customs administration among EU members. Ten points were deducted from

Finland’s trade freedom score to account for non-tariff barriers.

v. Tax Policies

Below are the economic data for Finland.

Tariff Rate 1.3

Income Tax Rate 30.5

Corporate Tax Rate 26.0

GDP (billion) 188.2

GDP per Capita 35427

Unemployment Rate 6.4

Inflation Rate 3.9

FDI Inflow (millions) -4200

Tax Burden % GDP 43.1

Government Expenditure % GDP 47.3

Population (billions) 5.3

Finland has moderate tax rates but a relatively high level of overall taxation. The top

income tax rate is 30.5 percent, with municipal rates between 16.5 percent and 20

percent. The top corporate tax rate is 26 percent. Other taxes include a value-added

tax (VAT), an inheritance tax, and a flat 28 percent tax on capital income. In the most

recent year, overall tax revenue as a percentage of GDP was 43.1 percent.

2) Economic Factors

Economic Freedom Score - 73.8

Population - 5.3 million

GDP (PPP) -

$188.2 billion

0.9% growth

3.2% 5-year compound annual growth

$35,427 per capita

Tariff Rate 1.3

Income Tax Rate 30.5

Corporate Tax Rate 26.0

GDP (billion) 188.2

GDP per Capita 35427

Tax Burden % GDP 43.1

Government Expenditure % GDP 47.3

Population (billions) 5.3

Unemployment - 6.4%

Inflation (CPI) - 3.9%

FDI Inflow - -4200.0 million

Economic Freedom vs World Average

i. Unemployment rates

Labor force - 2.678 million

Labor force by occupation -

Agriculture and forestry: 4.5%

Industry: 18.2%

Construction: 7.3%

Commerce: 15.9%

Finance, insurance, and business services:  14.5%

Transport and communications:  6.9%

Public services: 32.7%

Unemployment rate - 6.4%

ii. Fiscal Freedom

Finland has moderate tax rates but a relatively high level of overall taxation. The top

income tax rate is 30.5 percent, with municipal rates between 16.5 percent and 20

percent. The top corporate tax rate is 26 percent. Other taxes include a value-added tax

(VAT), an inheritance tax, and a flat 28 percent tax on capital income. In the most

recent year, overall tax revenue as a percentage of GDP was 43.1 percent.

iii. Monitory Freedom

Finland uses the euro as its currency. Between 2006 and 2008, Finland’s weighted

average annual rate of inflation was 3.1 percent. As a participant in the EU’s Common

Agricultural Policy, the government subsidizes agricultural production, distorting the

prices of agricultural products. It also imposes artificially low prices on

pharmaceutical products. Ten points were deducted from Finland’s monetary freedom

score to account for measures that distort domestic prices.

iv. Investment Freedom

Finland is open to foreign direct investment. Certain acquisitions of large companies

may require follow-up clearance from the Ministry of Trade and Industry. Non–

European Economic Area investors must apply for a license to invest in security,

electrical contracting, alcohol, telecommunications, aviation, and restaurants.

Regulation is relatively transparent and efficient. There are no exchange controls and

no restrictions on current transfers or repatriation of profits, and residents and non-

residents may hold foreign exchange accounts. Restrictions on the purchase of land

apply only to non-residents purchasing land in the Aaland Islands.

v. Financial Freedom

Finland’s sophisticated financial system provides a wide range of services, guided by

sound regulations and prudent lending. There are more than 300 domestic banks, but

three bank groups (Nordea, OP Bank Group, and the Sampo Group) dominate the

system. The government owns about 14 percent of the Sampo Group. Banking is open

to foreign competition, and about 60 percent of assets are foreign-owned. Capital

markets determine interest rates, and credit is available to nationals and foreigners.

The stock exchange is part of a Baltic–Nordic exchange network. Merger of the

Financial Supervision Authority and Insurance Supervisory Authority came into force

in January 2009. The impact of the global financial turmoil on the banking sector has

been relatively muted.

vi. Interest rates

Central bank discount rate -

1.75% (31 December 2009) and 3% (31 December 2008)

* this is the European Central Bank's rate on the marginal lending facility,

which offers overnight credit to banks in the euro area

Commercial bank prime lending rate -

3.51% (31 December 2009)

5.79% (31 December 2008)

vii. Inflation

Inflation rate -

0% (2009 est.)

4.1% (2008 est.)

3) Social Factors

Population : 5.25 million (2009 est.)

Population growth rate : 0.10% (2009 est.)

Population below Poverty Line : 0.00% (2009 est.)

Infant mortality rate : 3.47 deaths per 1,000 live births (2009 est.)

Life expectancy at birth :

Total population: 78.71 years male: 75.30 years female: 82.30 years (2004 est.)

Total fertility rate : 1.73 children per woman (2009 est.)

Ethnic groups : Finn 93.4%, Swede 5.6%, Russian 0.5%, Estonian 0.3%, Roma (Gypsy) 0.1%, Sami 0.1% (2006)

Nationality : noun: Finn(s) adjective: Finnish

Religions : Lutheran Church of Finland 82.5%, Orthodox Church 1.1%, other Christian 1.1%, other 0.1%, none 15.1% (2006)

Languages : Finnish 91.2% (official), Swedish 5.5% (official), other 3.3% (small Sami- and Russian-speaking minorities) (2007)

Literacy:

total population: NA % male: NA % female: NA % 

HIV/AIDS - Adult Prevalence Rate : 0.10% (2009 est.)

Source from http://globaledge.msu.edu/countries/finland/statistics/

i. Distribution of Wealth

Household income or consumption by percentage share:

lowest 10% : NA% lowest 20% : NA% second 20%: NA% third 20% : NA% fourth 20% : NA% highest 10%: NA% highest 20%: NA% 

ii. Changes in lifestyles and trends

Doesn’t have many changes in lifestyles and trends since Finland are counted as one

of the modern countries.

iii. Educational levels

The education levels in Finland are very good where the literacy is 100% for both

male and female. The average school life expectancy is 17 years.

iv. Labor Freedom Ranks

Burdensome labor market regulations hamper employment opportunities and

productivity growth. The non-salary cost of employing a worker is high, and

dismissing an employee can be costly. Restrictions on work hours are rigid.

v. Freedom of corruption

Corruption is perceived as almost nonexistent. Finland is tied for 5th place out of 179

countries in Transparency International’s Corruption Perceptions Index for 2008.

Finland is a signatory to the OECD Anti-Bribery Convention. The Council of Europe’s

Group of States against Corruption has recommended that Finland sharpen its controls

over political financing and increase the transparency of donations to political parties

and election candidates.

vi. Property Rights

Property rights are well protected, and contractual agreements are strictly honored.

The quality of the judiciary and civil service is generally high. Expropriation is

unlikely. Finland adheres to numerous international agreements concerning the

protection of intellectual property.

4) Technological Factors

i. Science and Technology

Technology and innovation policy measures seek to contribute to enhancing the

competitiveness of Finnish industry and the well-being of society, with the aim of

making Finland capable of providing companies with a top-flight innovation

environment internationally, which also attracts foreign R&D investments. Thus, at the

beginning of its term, Prime Minister Vanhanen’s second government intends to

prepare a National Innovation Strategy.

ii. Research and Development

R&D funding will be increased to 4 per cent of Finland’s gross national product. This

funding will be allocated to centres of strategic excellence in sectors that are pivotal to

the development of the national economy, society and citizens’ welfare. The regional

innovation base as well as co-operation between business communities and education

and research communities will be strengthened through a Centre of Expertise

Programme that consists of cluster-based networking.

5) Environmental Factors

i. Climate

Cold temperate and potentially subarctic but comparatively mild because

of moderating influence of the North Atlantic Current, Baltic Sea, and

more than 60,000 lakes.

ii. Current issues

Air pollution from manufacturing and power plants contributing to acid

rain, water pollution from industrial wastes, agricultural chemicals;

habitat loss threatens wildlife populations.

6) Legal Factors

i. Employment Regulations

ii. Health and Safety Regulations

iii. Trade and Regulations Standards

Why do you think Finland tops the chart for overall ranking of the “Best Countries in The

World”?

Finland tops the chart for overall ranking of the “Best Countries in the World” because it is a

small country and the population of the country is small. So, it is easier to manage either in terms

administrative, economy, health, law and many more. Finland adapt free market in their

economy so the demand and supply fluctuate freely and the entry barriers to the country is quite

low. Besides that, Finland’s trade policy is the same with other members of the European Union.

Inflation rate is also low in Finland while unemployment rate is quite high. Although the

unemployment rate is high in Finland, the quality of life is still good because workers in Finland

must pay high income taxes where from this taxes, the government used the taxes to give fund to

those who are unemployed. Every month government will give them the fund to their bank

account. Wealth distribution is also distributed quite equally among the citizens where the gap is

not that big among the low income and high income. Besides that, the climate and weather also

take effect to the ranking where the weather is quite calm and because of the geographic area

where it is situated far north in the globe. So, around 10 weeks in a year the sun will not set

during the summer.

Reference

http://www.heritage.org

https://www.cia.gov

http://globaledge.msu.edu

http://www.newsweek.com

http://www.china.org.cn