Pestle Analysis

Introduction

PESTLE analysis is a macro environmental factors framework that is helpful in environmental scanning. This tool is very essential and helps to understand market decline or growth.  This also helps to understand direction for operations, potential and position of a business.

[1] PESTLE analysis is normally part of market research and normally helps companies to consider macro environmental factors that could affect its operations. In other words, PESTLE analysis acts as a measurement tool. PESTLE is an acronym that stands for Political, Economic, Social, Technological, Legal and Environmental factors that help in market analysis for organisations.

This framework can be used to review a marketing proposition, direction of a Company or its position. PESTLE analysis can also help in team building games in an organisation. PESTLE analysis encourages business managers to have a proactive thinking. This helps a lot in making business decisions rather than relying on instinctive or habitual reactions. PESTLE analysis is important because it ensures that an organisation’s endeavours are positively aligned with powerful change forces that are affecting the entire world.

When an organisation takes advantage of change, it is more likely to succeed than if its activities are opposing change. A PESTLE analysis helps business owners to avoid taking actions that will lead to failure due to factors beyond the business’ control. It is more useful for new companies to adapt to the realities of new business environment.

Political

Every business operates in a nation that has got a government and diverse political scenario. Political factors in a nation always affect operations of any business. When carrying out political analysis, one has to put into consideration the various political factors that can affect the operations of a business. This includes type of government that is found in the nation. Factors that have to be considered in this case include the stability of the government.

[2] There are various political reasons that can affect the operations of a business. They include the freedom of press that exists in a nation. Levels of corruption also have impacts on business operations. The rule of law that exists in a nation may positively or negatively affect a business. Each government normally has different levels of bureaucracy. This normally places different requirements on start up or business operations.

In political analysis, one has to consider the deregulation and regulation trends that exist in a nation. This has to be considered on the possible effects on business. The changes likely to occur in the political environment have to be considered.  The wars and conflicts should be put into consideration in relation to businesses. Government policies that are in line with operation of businesses should be evaluated.

Other factors that have to be considered include any funding that is given to business by the government. It also includes grants and government initiatives that may have either positive or negative effects on a business. Each nation has trading policies which have to be adhered to by businesses. This is also a factor to be evaluated. The government term has to be considered in relation to when it will end and possible effects organisations in case change occurs. Also learn which political factors affecting hotel industry

Example

The railway industry has been affected by political changes that occurred in the previous government that so conservative. This political scenario led to its privatisation. The railway industry moved from being run by British Rail. The Railway industry responded by adopting a new structure where stations and tracks are maintained by Rail track. You may also be interested in reading Business and Society Relationship

Economic

There are various economic factors in a nation that can affect the operations of a business. All these have to be considered when carrying out a PESTLE analysis.[3] Among the factors that should be put in mind includes any changes that are likely to occur in the economic environment. One has to consider the current economic growth rate in the nation. This simply refers to an economy’s increase in value of services or goods produced. High growth rate will lead to positive impacts on organisations and businesses within the nation. Another element that is included in PESTLE analysis is inflation rates in the nation. This could have negative impacts on a business.

Interest rates are also included in PESTLE analysis. This simply refers to the fee that is normally paid on borrowed money. Changes in interest rates in a nation have impacts on organisation. The analysis has to include future changes in inflation, interest and economic growth rates. The labour costs in a business environment have to be analysed too. This is to know whether they are high or low and the possible future changes. The current state of globalisation in businesses in the nation should be considered and its relationship to business operations. Income distribution within a business environment should be considered. This is because every business environment has got different rates of income distribution. [4]

For instance the market could have high income earners or low income earners. In case a Company will soon be started in vicinity it shows that there is possibility of increase in income distribution. The levels of disposable income in the market are also an element that should be considered. The degree of unemployment in the market and possible changes are factors that have to be analysed in the PESTLE analysis. The stage of business cycle is also an element worth considering in this analysis.

A business that has prospects of going global has to consider the trends and economies that exist overseas. General issues that are related to taxation have to be considered in this analysis. This includes the taxes that are charged by the government on specific products and services. Market and trade cycles normally affect business operations. This should also be analysed. There are many economic factors that have to be put in mind like distribution trends and market routes. Every market has unique market routes and trends.

Example

There have been major changes in economy in United Kingdom. There has been inflation in the United Kingdom economy. In response to this Barclays bank increased its interest rates.

Socio- cultural

There are various socio-cultural factors that could affect business operations. All these factors are very essential and have to be put in mind in the PESTLE analysis. Population growth rates can affect business operations.[5] This should be evaluated in line with the age profile of the population. People normally have different attitudes to work which are normally influenced by their culture. Analysis has to be carried out in relation to attitude that people in the market have towards work.  The social taboos and attitudes of people in the market have to be analysed too. This is because they can have some adverse effects on business especially when it is not in line with what they believe. Public opinion is also a factor to be considered.

Lifestyle choice of the people can also affect business positively or negatively. The population’s socio-cultural changes have to be included in PESTLE analysis. Social mobility and attitudes to health and education are elements included in this analysis. Fashion that exists in a market can affect buying of products or not. Many societies normally have role models which influence population’s buyer behaviour. This should be included in PESTLE analysis as it has effect on business. Major events that that can influence the business are also to be included in the PESTLE analysis. The business has to be analysed in line with ethical issues of the society. Discover how a survey of hobbies and purchases can help a producer

Example

MacDonald Food Company has been operating in China. It has been dealing with indigenous or traditional food which has been delicacy to Chinese people. With time however, the population in China has become more time pressed and mobile. They just do not have the time to eat whole meals any more. The Chinese People now value convenience over taste or nutrition. This is due to western influence. The Company has responded to the change by changing the menu to fast food which can be taken within minimal time or carried away.

Technology

Technological environment has impacts on business operations. This is one area that should be researched on in the PESTLE analysis. Elements that have to be considered include the impacts of emerging technologies in the market. For instance the impact of reduction on telecommunications costs on the organisation. Markets where there is increased remote networking should be analysed and possible impacts on business evaluated. [6]

Possible impacts of transfer of technology have to be evaluated too. Maturity of technology in the market has to be considered too. Any technologies that are associated with the business or those that it depends on should be considered in PESTLE analysis.  Innovation potential is an element to be considered too. PESTLE analysis carried out should consider how to access technology in the market. Competing technology development in the market has to be analysed too.[7]

Example

Technologies in the world are becoming more complex and accessible all over the world. There is introduction of new MMS services in the market. This is the major change that Vodafone Company has had to deal with considering that it is global in nature. In response to these changes, Vodafone Company has recruited highly qualified personnel who are in charge of innovations. This team has helped this Company to come with phones easier to operate.  Many branches have been opened by the Company all over the world in response to accessibility of technology all over the world emanating from competitor Companies.

Legal

In PESTLE analysis, legal factors have to be considered. This includes any current legislation that can affect operation of business. This also includes any impending legislation affecting role of businesses. Future legislation has to be considered in this case. European and international legislations also have to be analysed and effects on business considered.

Example

There is a new anti-terrorist legislation imposed by U.K government that is also affecting information billing.  This means that Nokia Company has to get data that pinpoints the whereabouts of user in approximately few meters. In response to this Nokia Company is carrying out intensive research that will help it adhere to the new legislation.[8]

Environmental

Environmental factors have to be considered too when carrying out PESTLE analysis. This includes international or local environmental factors that can affect business operations. National impacts on business have to be considered too. This can also include the natural environmental factors that can affect the operations of a business.

Example

Major change in the environment in United Kingdom has been global warming. This has been due to coming up of many industries and also pollution that emanates from motor vehicles. This major change in environment in United Kingdom has affected operations in British Leyland Motors. This has led British Leyland Motor Corporation to change its engine make so that vehicles are environmental friendly.

Conclusion

PESTLE analysis is very essential for environmental scanning. This tool is very essential and helps to understand market decline or growth. This framework can also be used in marketing proposition, direction of a Company or its position. PESTLE is simply an acronym for Political, Economic, Social, Technological, Legal and Environmental factors that are essential in market analysis. An example of major change in social structure is in China. People have become more time pressed and mobile that they don’t have time for whole meals. This has affected MacDonald Company because it has responded by changing its menu to fast food.

References:

Armstrong. M. (2006):  A handbook of Human Resource Management Practice (10th edition); Kogan Page; London

Carroll, A. (1999): A PESTLE analysis in Business; Evolution of a definitional construct. Business and Society 38(3), 268-295

Castells, M. (2000): The Rise of the Network Society; Malden; Blackwell Publishers

Hiatt, J. (2006):  A Model for Change in Business; Government and the Community; Learning Centre Publications; Loveland; CO

Hilltop, J. (1994): European Human Resource Management in Transition: Prentice Hall, New York

James, H. (1991): Business Process Improvement; the Breakthrough Strategy for Total Quality; Productivity and Competitiveness; McGraw-Hill Trade

Maundy, L. (2001): An Introduction to Human to Human Resource Management: Theory

And Practice; Macmillan; Palgrave

Nohria, N. (1992): Networks and Organisations; Structure, Form and Action; Boston: Harvard Business School Press

Sparrow, P.  (1994): European Human Resource Management in Transition; Prentice Hall; New York

Thomson, C. and Rampton, L. (2003): Human Resource Management. Melbourne press, New York

[1] Armstrong. M. (2006):  A handbook of Human Resource Management Practice (10th edition); Kogan Page; London

[2] Carroll, A. (1999): A PESTLE analysis in Business; Evolution of a definitional construct. Business and Society 38(3), 268-295

[3] Hilltop, J. (1994): European Human Resource Management in Transition: Prentice Hall, New York

[4] James, H. (1991): Business Process Improvement; the Breakthrough Strategy for Total Quality; Productivity and Competitiveness; McGraw-Hill Trade

[5] Thomson, C. and Rampton, L. (2003): Human Resource Management. Melbourne press, New York

[6] Sparrow, P.  (1994): European Human Resource Management in Transition; Prentice Hall; New York

[7] Maundy, L. (2001): An Introduction to Human to Human Resource Management: Theory

And Practice; Macmillan; Palgrave

[8] James, H. (1991): Business Process Improvement; the Breakthrough Strategy for Total Quality; Productivity and Competitiveness; McGraw-Hill Trade

We are adding new titles every month, so don’t forget to check our website regularly for the latest releases. Visit http://www. Free-management-eBooks. Com Today’s organizations tint themselves operating in an environment that is changing faster than ever before. The process of analyzing the implications of these changes and modifying the way that the organization reacts to them is known as business strategy. ‘Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of sources and competences’ Johnson et al. (2009).

While your role as a manager is unlikely to require you to make decisions at the strategic level, you may be asked to contribute your expertise to meetings where strategic concerns are being discussed. You may also be asked to comment on pilot schemes, presentations, reports, or statistics that will affect future strategy. Presentations Pilot Schemes Meetings Reports How you participate in strategy Statistics Whether you work in a large multinational corporation or a small organization, a good understanding of the appropriate business analysis techniques and terminology will elf you to contribute to the strategic decision-making processes. Internal capability to respond External environment Analyze Assess Assist Implementation of the strategy Defining the Typical scenarios where you could be asked to provide information and data for your organization’s strategic decision making include: Analyzing the organization’s external environment. Assessing the organization’s internal capabilities and how well it can respond to external forces. Assisting with the definition of the organization’s strategy. Aiding in the implementation of the organization’s strategy.

Strategic Planning Analysis External Environment PESTLE, porters 5 Forces Definition Internal Capability SOOT, Insofar ton Box The diagram above shows where five widely used business analysis tools fit into the strategic planning process. This series of eBooks will give you a solid understanding of how these tools can be used, as well as an appreciation of their limitations. ISBN 978-1-62620-998-5 www. Free-management-eBooks. Com 5 This knowledge will enable you to take an active and productive role when asked to participate in the strategic decision-making process. Key Points

You may be asked to contribute your expertise to meetings where strategic concerns are being discussed. Typical scenarios where you could be asked to provide information for strategic decision making include: analyzing the organization’s external environment, assessing internal capabilities, assisting strategy definitions, and aiding in the implementation. All organizations need to identify external factors within their environment that could have an impact on their operations. Many of these will be things that the organization has no control over, but the implications of which need to be understood.

A popular tool for identifying these external factors is the PESTLE Analysis, which can be used to help you consider Political, Economic, Social, Technological, Legal, and Environmental issues. Political Economic Social Technological Legal Environmental PESTLE Analysis This process of identification should involve a variety of different disciplines across your organization so that a full picture of these external factors can be built up. These factors can then be fully researched and analyzed. As organizations become more globalizes, expanding their existing borders, the

PESTLE technique ensures that they thoroughly question each of these factors and consider their impact. The PESTLE Analysis provides you with a framework that enables you to investigate your external environment by asking questions for each factor and discussing the likely implications. These are the types of questions you would ask: What are the key political factors? What are the important economic factors? What cultural aspects are most important? What technological innovations are likely to occur? What current and impending legislation may affect the industry?

What are the environmental considerations? How you categorize each issue raised is not important when using the PESTLE technique because the aim of this tool is simply to identify as many factors as possible. For example, whether you classify an impending government regulation as a Political or Legal issue is not important. The only thing that matters is that it is identified as potentially having an impact on your organization. The PESTLE tool is a powerful technique for analyzing your environment but it should represent Just one component of a comprehensive strategic analysis process.

The PESTLE factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and threats in a SOOT Analysis. If the PESTLE analysis identifies factors that require internal changes to your organization, then these will need to be investigated further using tools like the Boston Matrix. If you are unfamiliar with these or would like to understand them in greater detail then visit our website www. Free-management-eBooks and see our range of Strategy Skills eBooks. 7 Use a PESTLE Analysis when: Launching a new product or service

Entering a new region or country Considering a new route to your market Working as part of a strategic project team As a manager, you are most likely to be involve in these sorts to discussions when your organization is: 1. Planning to launch a new product or service 2. Exploring a new route to market 3. Selling into a new country or region It is also a useful technique to know if you are part of a strategic project team. In all of these instances, there is a need to assess the potential impact of external factors on your organization, from both an operational and a market perspective.

The ranking of each of these factors within the six categories may vary because different organizations have different priorities. For example, organizations that sell to consumers tend to be more affected by social factors, whereas a global defense contractor would tend to be more affected by political factors. Additionally, factors that are more likely to change in the future or are more relevant to a given company will carry greater importance. A company that has borrowed heavily, for instance, would need to focus more on the economic factors.

In essence PESTLE analysis is commonly referred to as situational analysis and it considers political, economic, social, technological and legal factors before investing in the target market. Vodafone Company is not exceptional from the intense competition that the industry is subjected to not only in the U. K but all over the world. The company management therefore has to come up with viable marketing strategies in order to attain its competitiveness as well as meet the needs and demands of its customers through provision of high quality and high class technologies in the telephone industry.

Thus the company must consider diversifying at the same time producing quality products; and to effectively do this it must consider the following factors

Political factors

These are factors that relates to political system and political instability of countries where Vodafone Company wish to market its products. This will involve scrutinizing the system of government that such target countries have adopted. The company will therefore need to decide whether to invest in communist or capitalist countries after careful consideration of each political system in terms of carrying out business in the chosen country of interest. Read about political factors affecting Ryanair

It is recommended that Vodafone Company should invest in those countries with flexib

le capitalist political systems because it allows labour, capital and resources to flow freely in and out of their countries thus making those destinations the best target markets for Vodafone Company to market its service i. e. mobile network operations (Carter and Lee, 2005).

Economic Factors

This involves Vodafone Company analyzing the economic factors that may hinder or augment its operations in the target countries.

Such trade barriers like restriction of imports and exports as well as foreign exchange rate systems should be carefully evaluated by the management of the company in order to carry out its operations without economic constraints. Other economic factors of importance to be analyzed by the company will include, inflation particularly anticipated inflation, balance of payments, counter trade, fiscal and monetary policies among other significant factors.

Although Vodafone Company have not been subjected to many of the above factors it will be prudent to critically analyze deeply the factors particularly inflation and foreign exchange systems by utilizing forecasting techniques that can give the company a clear picture of the future (Wild, Wild and Han, 2003).

Social Factors

This involves the management of Vodafone Company analyzing income level, social structures, educational backgrounds, and religion and family units before marketing its services of network operations to the entire market.

History reveals that social factors play a major in role in utilization of services in the society for example some religious beliefs may not allow the use of mobile phones in church. Therefore, it will be prudent for the company to clearly identify the right services and products for the right consumers as well as for the right markets. Social factors may influence beliefs, interests and attitudes of the consumers and therefore the management of Vodafone Company has to consider in details such factors in order to avoid losses associated with these social factors (Buck, Filatotchev and Wright, 2003).

Technological Factors

Research reveals that, technology and innovations have taken centre stage in the modern business world and firms including Vodafone Company attempts to utilize such innovations to achieve a considerable market share. Technology provides an opportunity to Vodafone Company of expanding through utilization of advanced technologies but at the same time it may contribute negatively to market participation for example where businesses use technologies to compete unfairly. Vodafone Company will have to utilize advance technologies for example the use of digital marketing while trying to explore new markets in the target market.

Such technologies will be useful in that it will save time and financial resources that could have been spent and therefore the management can therefore use the surplus resources in further expansion or pay back its shareholders returns thus getting shareholder confidence in the process which results to immense goodwill (Clark, 2005).

Legal Factors

All businesses including Vodafone Company must operate in a business environment deemed to be legal by the target market. Vodafone Company will therefore have to ensure that its products and services that they render are allowed by the operating law in order to avoid unnecessary legal battles.

However, research indicates that Vodafone Company has been observing the existing laws regarding to business transactions in the U. K as well as in other target markets particularly avoiding unfair competition. On the other hand, Vodafone Company should observe other legal aspects such as the areas of corporate social responsibility whereby Vodafone Company is expected to manufacture and sell its products at the same time protecting the environment and benefiting the surrounding community by employing them and also participating in community projects (Drucker, 2003).

One of the problems facing large cities today especially some large cities in the United States is a crime committed by teenagers. In various television coverage showing the examples of crimes committed by teenagers. Some of them are inter- school fights, theft and even rape. The actions of these teenagers increasingly disturbing the community. Not only that, the teens are often caught carrying sharp weapons, guns and even bat that clearly can injure his friends. The actions of these teens considered to passed the threshold of tolerance normal teenage life. F this behavior often occurs in childhood or early adolescence, psychiatrists diagnose them as conduct disorder. If the such behavior makes the teens perform illegal acts, the people considered their Juvenile offender (delinquents). Based on what teenagers themselves are saying about the behavior, large number of adolescents at risk for conduct violations that could lead to their arrest. Overall, the average delinquency rate may not change much over the last decade (Dross, 1990). Teenagers in many American cities have been involved in more gangs in the last five years than ever before.

These gangs of teens have been committing a lot of violent crimes. The victims of these crimes are both gang members and people outside of gangs. Many people do not want to travel to areas in our cities because of the danger from this problem. If we want to trace the economic side, there are two things that trigger Juvenile delinquency. The first is,Parental income is low or below average, this resulted in the dissatisfaction of children to parents being unable to fulfill all his desires. The child knows that the condition does not allow her family to fulfill her desire therefore he sought the satisfaction of desire outside the home.

And the second is caused by Parents. They do not have a permanent Job, this situation becomes the trigger dissatisfaction over the wishes of children. Parents do not have a permanent Job and steady income. Absence of employment is affected indirectly by the government and the private sector as a provider of employment for the community. According to my analysis of the social side there is one thing that causes teenage violence or crime hat is lack of growing a good attitude of the family, Juvenile delinquency is a direct result of the failure of parents or family to teach good attitude and bad attitude.

Therefore parents are expected to care for their children by giving moral lessons so their children can be protected from bad environmental influences. From the technology, its development is quite rapid also be a cause of Juvenile delinquency. Technological developments, especially in the areas of the gadget makes the attitude of a teen getting worse. Poor technological developments also be Juvenile leniency triggers. Very often do teenage abuse of technology like the internet for example. Internet used as a source of negative things such as pornography, crime, gambling, etc.

Under the supervision of parents are expected technological developments no longer be a cause of Juvenile delinquency. If we look from the side The Pestle Analysis Of Juvenile Crime Rate Rose In United States” By desiderata to the law and regulations cause to Juvenile delinquency is the absence to clear laws and regulations. Juvenile law that does not exist. The absence of clear legislation also further complicates this situation. Whether it is the form of prevention or punishment there is no regulation at all. Very often we hear teens punished by law or regulation for adults, in fact this is wrong.

But, until now there has been no real act to make these rules. And from the the last but becomes the most important thing is, the influence of the surrounding environment. Poor neighborhoods, it is also one of the largest Juvenile delinquency triggers. As we know humans are social creatures who are always interacting. We know teens also have a curiosity that is very high, sometimes the environment also teaches things that are bad for teenagers. Even when it could no longer containable. Therefore needed an active role of government to do counseling for adolescents and the surrounding environment.

To know the causes of delinquency, we need to consider the identity (identity negative), self- control (low), age (early to do mischief at an early age), gender (male), expectations of education (low expectations, commitment is also low) , achievement in school (low achievement in early grades), peer influence (the influence of large, low-resistance self), socioeconomic status (low), the role of parents (the absence of supervision, lack of support given, and the application of discipline that do not effective), and the quality of the environment (urban, high crime rates, and higher mobility).

Based on the above conditions can be ascertained teenagers will soon be the main offenders. For this terrible situation to stop, it is going to take a combined effort on the part of many people. Excellent, supervised after-school programs, more Jobs available for men’s, and healthy family relationships will go a long way towards ending this crisis in our society. If no preventive measures or countermeasures, teens will experience the process of change for the worse. In this process is needed that the institution is able recover this condition.

So, in the end the teens who had done crime can be back on the right track. Efforts that can be done to reduce Juvenile delinquency are numerous. Include individual and group psychotherapy, family therapy, behavior modification, recreation, vocational training, alternative schools, the program brother n foster care, community organizations, and reading religious books (Gold & Petition, 1980). But there are also some actions that were deemed ineffective is not successful in preventing delinquency.

The benefit of a PESTLE analysis is that it allows you to complete a basic audit on an organisations position in relation to the macro environment It can then go to influence a number of business decisions within the organisation . I would also use this tool to complete the strength and weaknesses of a SWOT analysis which I believe sits well alongside this tool. I believe the PESTLE framework is a good way to highlight the potential threats to a business yet my concern is that the data collated could be only one side of a coin.

For PESTLE analysis to be balanced it may need a ‘group’ to complete independent reports and then share them together to get a more accurate assessment. I also read up a phrase which I really liked which suggests that the collecting of too much information may make it difficult to see the wood from the trees “PARALYSIS by ANALYSIS” PESTLE ANALYSIS ODEON & UIC CINEMA Odeon & UIC Cinema operate in UK and major European countries 236 cinema and 2179 screens as of December 2012 The PESTLE Analysis below is mainly for the UK arm of the business Political Government review of Film Policy was release Jan 2012 is positive news for the film industry, * Plans to bring film education to all schools and raise interest in the cinema world Economic * Interests rates remain low which should allow for investment in development of new projects * Revenue growth held back due to lower advertising revenues Social cultural * A trip to the cinema is still an affordable form of entertainment. * It caters for all ages and offers varied genre Average age range of highest % of cinema goers is the 24-34 year age * Many of the new developments in the Odeon experience surround the introduction of better food and drink offering collaborating with Costa Coffee, Croma gourmet pizza bar … Technological * Innovation in film quality and special effects is keeping the cinema experience current * Social media utilised for marketing is a growth area * 3-D screens and digital rolled out and completed in uk * 16 I-MAX theatres introduced to UK territory Online purchasing of tickets reducing queue times and booking queries Legal * Government giving strong commitment to deal with piracy and illegal exploitation of intellectual property, * UK Film Tax Relief remains unchanged Ethical and ecological * In the UK Odeon Cinema have backed to key government initiatives , Responsible Drinking and the Health Responsibility pledge * Policies in place to reduce energy, water and waste materials are in place throughout all the territories.

POLITICAL

Argentina government has a strong democratic setup. In 2011, President Fernandez de Kirchner won the presidency for the second time. Her government has been successful at introducing reforms to encourage regional trade and support private sector investment, particularly for the development of the country’s infrastructure, primarily through private-public partnership. The government has also announced the creation of the oil planning commission, emphasizing its interest in the oil industry1.

The Fernandez government is increasingly reliant on interventionist policies that fail to solve underlying structural problems and has been involved in several inflation figures manipulation and corruption charges, including a commotion with the International Monetary Fund (IMF) concerning inaccurate governance indicators impairing the economic outlook and deterring investment2. This has generated public discontent raising increasing protest against the government and a rapid decline in Fernandez popularity3.

Argentina foreign policies are mainly concentrated on developing regional trading relations (Mercosur and UnaSur), the country has a good partnership with the UN and has been working on improving relations with the US, with particular interest to develop the technology and science sectors. Nevertheless, relations with the UK have deteriorated following an official complaint to the UN regarding the Falkland Islands

ECONOMIC

Following the global financial crisis the Argentine economy has achieved a healthy recovery, predominantly through an increasing trade relationship with China, boosting substantially the country’s trade volume and generating a trading surplus5. However, the major concern for the economy is inflation and the great discrepancy of approximately 15% between official and non-governmental estimates. In addition, the government has increased regulatory intervention and thus reduced economic freedom and development.

The government’s recent nationalisation of oil giant YPF owned by the Spanish Company Repsol and of the private pension funds have furthermore hindered private and foreign investment. These factors combined with high public debt levels and low foreign-exchange reserves have constrained the potential for economic growth and left the country at increased risk of recession.

Argentina has a strong automotive industry. The government is aiming to attract further investments into the country’s automotive sector by lessening the regulatory framework obstacles and offering subsidies and incentives6.

SOCIAL

Argentina is a traditionally urban country and continues to experience high migration from rural areas. The urban centres enjoy a relatively high standard of living comparable to other Latin American countries, with notable healthcare and educational facilities. Argentina is facing the problems posed by an aging population. This is projected to affect government’s social security budgets and generate fiscal burdens.

Despite a comprehensive education system restructuring and an improving primary school education system, dropout rates continue to rise sharply7. This will eventually lead to a significant increase in the proportion of unskilled workers.

TECHNOLOGICAL

With a strong telecommunications industry and a growing IT market, Argentina has shown significant growth in both sectors. The government has implemented plans to augment IT service penetration in rural areas. In addition, it has supported biofuel R&D in an effort to preserve energy security and accelerate technological development.

Argentina’s energy industry is in a deplorable state as they are now a net energy importer, eroding the country’s foreign-currency reserves9. As a result, the government has shown an increasing interest in science and technology and in the biotechnology industry. However, as a result of inadequate investment in R&D, there is a low degree of innovation resulting in a reduced number of patents granted. Moreover, the lack of respect for intellectual property rights and copyrights has exacerbated the problem.

LEGAL

Argentina has a comprehensive legal and regulatory structure and a federal republican representative government, where each province has its own constitution. In addition, complex and bureaucratic business regulations and strong union and government ties have resulted in wages increasing at 25-35% annual rates. Furthermore, high taxes have been detrimental to investment. For instance, income and corporate tax rates are both set at 35% added to corporate social security tax of between 23% and 27%. These additional costs place an undue burden in industry.

Notwithstanding the introduction of criminal liability for money laundering offences, the judicial system requires an important overhaul to improve its effectiveness and to generate a conducive environment for new business ventures and investments.

ENVIRONMENTAL

Despite having a remarkable biodiversity and vast natural resources, the Argentinian government has been overexploiting its natural resources as a side effect of the rapid economic development. Increasing deforestation and the destruction of natural habitats have been accelerated by soybean cultivation and beef production11. Water and air pollution are major problems, particularly around industrial metropolitan areas.

Rising concerns over environmental degradation have resulted in ambitious schemes from the government to develop renewable energy sources. The government has initiated measures to collaborate with prominent multinational organisations to develop biofuel production with particular interest in ethanol from sugarcane pulp12. Moreover, the Argentine government, in partnership with Chinese investments is constructing the largest wind power project in Latin America and is projected to provide 4% of Argentina’s power requirements.

Michael Hill Jewellers (MHJ) is one of the most recognizable names in the New Zealand retail jewellery industry. In 1979, Michael Hill opened his first store in Whangerei. Until then, jewellery stores had been run primarily by craftsmen jewellers. Michael Hill changed this with the philosophy “to make jewellery buying less intimidating and more accessible to the public.” In order for any company to succeed, it has to take a look at the environment in which it operates. This is why an external environmental analysis is so important.

This involves a continuous process of scanning, monitoring, forecasting, and assessing the external environment. Doing so will illuminate any opportunities to be exploited or threats to minimize. The first step in the analysis is environmental scanning which identifies any trends or changes which are occurring or have recently occurred in the environment. Once identified, the company can then strategise and react in order to exploit the phenomenon. Three useful tools in an environmental analysis are a PESTEL analysis, Porter’s Five Forces, and Strategic Grouping. Utilising these tools, an environmental scan of the jewellery industry will be performed.

PESTEL Analysis

Political

Many of the raw materials for the jewellery industry can originate in countries that have political instability. Of the top five diamond producing countries, Canada is the most politically stable, with minimal probability of any mining disruption due to war. The other four are a different situation. Russia is still in a state of internal turmoil regarding Chechnya and other breakaway nations, while Botswana, Angola and Congo are all in a constant risk of war both from within and from neighbouring war-torn countries. A war in any of the above countries would cause a considerable loss in production and have a significant impact on the jewellery industry worldwide.

Economic

The entire jewellery industry relies on commodities such as gold, platinum and silver in order to manufacture their product. This can create a problem as the prices of commodities can fluctuate drastically. For example, from 1982 to 2005 gold prices remained relatively stable. From 2005 to 2011 it nearly quadrupled in value. This price increase for the raw material will be passed on to the consumer causing a price increase in the end product. Conversely, if the price of the commodity drops it would be expected that the price of the finished product would reflect this.

Social

In recent years, it has become more important to consumers to purchase products that have been produced ethically. In the jewellery industry, one of the most prominent ethical issues is the use of blood or conflict diamonds. These diamonds are mined and sold by African rebel forces in order to finance their wars in Angola and Sierra Leone. There has been a certification system instituted that lets the consumer know the origin of the diamond that they are looking at purchasing. Consumers can now ask the jeweller to see the certificate of origin for their diamond. Jewellers must now be aware of this and ensure that they buy only ethically obtained diamonds in order to fulfil this request.

Technological

The internet allows consumers to select and purchase any piece of jewellery they desire online. A large number of jewellers have online stores or use websites such as amazon.com and ebay.com to reach their customers. It is important for the jewellers to recognise that their clientele are no longer limited geographically and can easily find and in some cases import items that may not be readily available in that region.

Environmental

Businesses are starting to become more aware of the impact that their own production processes have on the environment and are looking for ways to reduce this. The gold mined to produce jewellery is not always extracted with the most environmentally sound methods. Up to 15% of the world’s gold is produced using artisanal and small scale gold mining, the single largest demand sector for mercury. Virtually all of this mercury is dumped directly back into the environment causing havoc on the surrounding ecosystems. The jewellery industry needs to ensure that they purchase raw materials from only environmentally sustainable mining companies.

Legal

Due to the size of some of the companies in the jewellery industry along with the large sums of money and power that accompanies it, there are strict antitrust laws in place. The Responsible Jewellery Council is an international organisation set up to oversee and protect the jewellery industry from various practices. This council has set up antitrust policies in order to protect its members. Industry Environment Analysis – Porter’s Five Forces

Porter’s Five Forces model is used to evaluate the degree of rivalry between competitors in a given industry through assessing the four forces that lead to this outcome. These forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, and the threat of substitute products.

The threat of New Entrants

Is the ease in which a new company can start into the retail jewellery industry. It is not difficult to start a jewellery store as the only requirements are start-up capital and the premises. There are many small sole trader jewellery shops in New Zealand to attest to this. Therefore, the threat of new entrants is:

HIGH Bargaining Power of Suppliers

Is the control that suppliers have over the pricing and distribution of their products across the jewellery industry. Once the wholesalers have sold their products to the retailers, the retailers can sell for any price they deem appropriate. There are many wholesalers in the industry, many based in Asia, giving the retailer alternative suppliers if the price is not right. Therefore the bargaining power of suppliers is:

LOW Bargaining Power of Buyers

Is the power belonging to the customer to choose to shop at a store? As there are many jewellery stores to choose from, many of which seem to have sales on every week, the customer can decide not only to shop elsewhere but even try to haggle for a discount. Therefore the bargaining power of buyers is:

HIGH

Threat of Substitutes

Is the probability that a consumer will purchase something else. Since jewellery is a luxury item and not a necessity, consumers will choose to
spend their income on many thing before jewellery even makes the list. Not only do necessities come first, but other luxury items may be higher on the list of things to purchase like golf clubs or bicycles. Therefore the threat of substitutes is:

HIGH Degree of Rivalry

Is the level of competition within the industry. Even though only three out of the four forces were identified as high, the retail jewellery industry is still extremely competitive. The one anomaly was the power of suppliers and the only reason that was low is that the suppliers operate in such a competitive state as well, giving more bargaining power to their customers, the retailers. Therefore the degree of rivalry is:

HIGH Strategic Grouping

A competitor analysis compares a company against each direct competitor. It relies on four key areas for comparison. These are future objectives, current strategy, assumptions, and capabilities. By looking at these concepts a response can be formulated and the company can create a strategy. The closest competitor of Michael Hill is Pascoes. They have similar strategy with pricing and target market. Walker and Hall aims at a higher level with more designer items and craftsmen in store. Partridge Jewellers is a contrast to Michael Hill with only the best brands and handmade jewellery in their stores in only four select high end shopping districts in New Zealand.

Conclusion

Through a PESTEL analysis, an industry environmental analysis and a strategic grouping map, the retail jewellery industry can be evaluated. The PESTEL analysis showed various trends that may have an effect on the industry while the industry environmental analysis showed that the competitive rivalry in the industry is quite high. The strategic grouping map illustrated that the company itself shares a target market with few other large companies but does not display the hundreds of other smaller independent firms that offer similar services.

What has been learned in this assessment is that Michael Hill has cornered the jewellery retailing industry in New Zealand and has bucked the financial trend by being one of the companies on the NZX to make large gains during the recession. Through low prices, Friedman Group staff training, and a good understanding of their industry environment, they have become one of the leading retailers in New Zealand.