Introduction
PEST is the acronym for political, economic, social, and technological factors affecting the operations of a given entity or economy. In Norway, the four factors influence the flourishing of the international trade. Using the PEST analysis approach, this paper examines whether international trade and foreign investment has increased or decreased in the past 10 years. It also examines the contribution of international trade in the economic development or GDP growth of Norway.
Industry analysis
Political factors
In Norway, political aspect of underscores the degree to which economic systems are influenced by tax policies, environmental law, tariffs, and restrictions of trade, labor laws, and regulations among other factors (Farok, 2013). In all nations, organizations operate under systems governed by politically influenced policy frameworks. Thus, for efficient operations, political stability is incredibly important.
For instance, investors are keen to invest in the nation due to the high anticipations for long-term political stability. The political school of thought of the regime running a government also influences the delivery of certain goods like merits goods, the education and health sectors, and infrastructure. Indeed, political climate influences the easiness of provision of public goods in all nations. Through the provision of an effective political climate, the Norwegian government has played significant roles in enhancing international competiveness of its firms and industries.
In Norway, political climate favors the development of regulations and laws that favor both international and local business operations. In a corruption rating bringing together 177 different nations, which was released by the Transparency International in the year 2013, Norway was at position five. Its anticorruption measures ensure that the government maintains high levels of integrity. Norway enforces different types of contracts like commercial agreements without political or other influences. Political regimes in the nation have also ensured limited government impacts on the economy.
Norway has transparent international business frameworks, which support the private sector. Incorporating a business entity in Norway requires paying an amount equal to 1% of the total yearly income. The country has a high “non-salary cost of employing a worker, but severance payments is not overly burdensome” (Norway, 2015). On the government’s policy on subsidizing organizations operating in renewable energy sector and the agricultural sector, Norway ensures a stabilized monetary exchange systems. This aspect implies that government policy encourages investments in renewable energy as one of the mechanisms of dealing with problems of global warming.
Norway advocates open markets. As at December 2014, its tariff rate was 0.3% (Norway 2015).However, the government shields the agricultural sector from unhealthy competition by subsidizing it. Norway endeavors to minimize international business operations’ barriers through establishing long-term positive relationships with international investors. However, the government possesses all the key financial organizations in a bid to ensure control of the same. This aspect ensures that it provides efficient, quality, and reliable financial services to both domestic and international investors. This aspect explains the rising international trade and foreign direct investment over the last 10 years.
Economic factors
Economic factors refer to all economic policies-related factors that influence business decisions. These may include anticipated extents of economy’ growth, adjustments on inflation, cost of credit and currency exchange rates. For instance, the credit interest rate determines the cost of capital needed to establish and run businesses. Thus, it determines the degree of business expansion and growth. The exchange rate determines the value of a nation’s currency. Consequently, it determines the prices of foreign nations’ manufactured products and exportation costs. In addition, this aspect affects the behaviors of manufacturing firms and prices of value added goods especially where the raw materials are imported.
Norway has recorded 47.8% as its highest tax rate for individuals’ income over the last 10 years. Within the same period, it only recorded 27% as the highest corporate tax rate (Norway, 2015). The country’s tax burden is 42.2%, while its public expenditure accounts for 43.3% of the GDP. This aspect means that the nation leaves adequate amount of revenue in the provision of public goods like education, healthcare, and development projects. In addition, the public has minimal burden as its public debt accounts for 30% of the GDP.
Norway has a mixed economy. It has a “vibrant private sector, large state sector, and extensive social safety net” (Bjørklund, Brantenberg, Eidheim, Kalstad & Storm, 2002, p.166). Norway uses laws and industry specific regulations to influence and manage main sectors of economy especially the petroleum industry, which is responsible for more than 30% of all revenues generated by the country from exports. The economy also depends substantively on exportation of gas.
The nation saves all the earnings from petroleum sales in the international markets in a multi billion Fund. The interests gained from the fund are deployed in funding various public expenses. Its GDP solidly grew upward from 2004-2007, but it slowed with the onset of the global financial crisis in 2008. However, it has since recovered and it continues to grow positively from 2010 as shown in appendix 1. Norway has a surplus government budget.
Norway’s main economic activities are mining, agriculture, and manufacturing. Agricultural products include fish, beef, barley, wheat, port, and potatoes. The manufacturing industry entails food processing, shipbuilding, paper and pulp processing, chemical, and metal product processing. Its main export industries are mining, agriculture, and manufacturing.
The main companies generating export turnover operate in the petroleum sector. They include Petero, Statoil, and SDFI. Norway’s government has total control of all operations in the oil industry including its mining and all exploration processes. For example, the government controls 62% of the Statoil, while it completely owns Petero, which has twice the value of Statoil.
Social factors
Political and economic factors influence business decision for people having cultural factors like health consciousness and perceptions of safeness of goods and services. These aspects define the social aspect of the PEST microeconomic analysis approach. Social factors also entail the rate of population growth and age distribution characteristics.
The trends of social characteristics of population within a nation affect the demand for different types of goods and services including the cost of doing business. For instance, nations with high aged population may have low number of people willing to be employed. This aspect increases the costs of labor. Thus, a nation may be compelled to alter its policies including the retirement age. However, such policies may still not work due to low productivity of the old employees.
The traditional cultures of the Norwegians play critical role in the selection of economic activities. The traditional Norwegian community was a fishing society. Indeed, Norway has exported stockfish for last one thousand years (Bjørklund et al., 2002).The country has low unemployment levels (3.6% in 2013) (Index Mudi, 2014).
Its workforce is classified as unemployed or employed. Sixty-nine percent of the population is employed with the government employing 30% of this number, which is largest amongst the OECD member states. Norway has egalitarian values, which have ensured closeness between the highest paid workers and lowly paid workers as opposed to other western nations. The society believes in hard work. Investors should expect high productivity levels, but offer average hourly wages.
Technology
Technology influences all business operations. It plays critical roles in enhancing research and new products’ development process. Automation is accomplished through the deployment of technology. It also influence government policies like the provision of incentives aimed at a ensuring that people invest in a certain technology. For example, in Norway, the government subsidizes costs for organizations in renewable energy sector. Outsourcing decisions are made by considering the technological capability of different firms. It can also create entry barriers to a given market.
Changes in technology influence costs of production quality levels and breed creativity and innovation. Investments in technology are critical in ensuring competitiveness of different firms in the international markets. For example, Norway is a major ship builder. In a bid to maintain its competitive position in the exportation of ships, investments in innovative technologies in shipbuilding remains a major priority. Technology savvy is also important in major sectors of economic development including the mining industry, the telecommunication industry, and the fishing and agricultural sector.
Conclusion
Noting that 20% of the Norway’s GDP is derived from petroleum exports, it suffices to conclude that international business has contributed to the economic development of the country. The Norwegian government has played a significant role in enhancing international competitiveness by creating fertile political environment to encourage foreign investments. Prosperous economy permits the government to offer average remuneration to its workforce.
Therefore, people seeking to establish businesses in Norway should not anticipate availability of cheap labor. Investors need to comply with different taxation policies and regulations, but they incur low costs of business incorporation. For international entrepreneurs, venturing into the petroleum and mining industries is inappropriate due to high government control and domination in the sector. The agricultural and health sectors are also highly non-profitable for international investors due to high subsidization.
References
Bjørklund, T., Brantenberg, H., Eidheim, J., Kalstad, S., & Storm. D. (2002). The history of Norway. Australian Indigenous Law Reporter, 17(1), 165-171.
Farok, J. (2013). Punching above their Weight: The Sources of Competitive Advantage for Emerging Market Multinationals. International Journal of Merging Markets, 8(4), 45-67.
Index Mudi: Norway Economy Profile. (2014). Web.
Norway: 2015 Index of Economic Freedom. (2015). Web.