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