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PESTEL analysis

Discuss about the Factors on Resource Competitive Strategies.

Strategic development is the process in which, managers find long term directions of their organisation, set specific standards for their performance, formulate strategies to attain these objectives and execute the selected action plans with managing all external and internal circumstances. By setting targets, management finds easy to review their accomplishments. By analysing the current market situation, businesses can ultimately avoid the errors other organisations made and reconsider their strategy without any difficulty. Development of business strategies enables the managers to know about the competitive advantages and risks, which is helpful to operate business successfully. Strategic development contributes to the corporate strategy of the company, which directly controls leadership style of the company’s management. This essay explains the various tools for effective strategic development within the organisation (Wirtz, et al., 2010).

There are various tools for analysing internal and external environmental factors which helps developing strategy of the firm. Some of the main tools includes, PESTEL analysis, Porter’s Five Forces Model and SWOT analyses.

PESTEL analysis: PESTEL analysis is a reliable and majorly used tool for evaluating strategic risk factors. The process of analysing firm’s external environment includes five stages: finding PEST issues, identifying its effects on the organisation, classifying into threats and opportunities, arranging factors on the basis of priority and taking corrective strategic actions (Song, et al., 2017).

Example: Tesco is a multinational company having headquarter in United Kingdom with its stores in 12 countries. Tesco has diversified its operations in mobile, finance, hardware services, insurance and many other sectors. Study of its risk factors through PESTLE analysis will provide more information about the strategy of the firm.

Political factors: These contain taxation system, stability of the market and acts of regulations of the country in which it operates. Government of many countries inspire retailers to introduce jobs for the local population because of constant financial stability. For this purpose, Tesco is creating job opportunities and diversifying its functions and products. It is resulting in increase in demand for the products and services of TESCO.

Economic factors: Since economic factors are most likely to demand, leverage cost, prices and profits, company should be alert of even small changes in guidelines which may affect the accountability of finance. It is a considerable factor that, while rising internationally, UK market alone holds around 30% of the total market share of TESCO. The major reasons of its success are its two key strategies: Diversification and internationalization.

SWOT analysis

Social factors: A number of social changes shifted the customers towards one stop shopping and bulk purchasing. As an impact of this, TESCO has also enlarged the amount of non-food products. The products and services claimed by the customers are influenced by their social beliefs. Food demands of the customers are continuously changing because they are considering the health issues. Tesco is constantly adopting these changes by providing organic products to consumers.

Technological factors: These includes introduction and development of online shopping, facility of home delivery, and introduction of self-service points. Tesco has financed a significant amount in these areas to fulfil long term goals and operate the business functions successfully.

Environmental factors: Government of many countries is increasing pressure on the organisations to pay attention towards environmental issues and to implement ways of production that are beneficial for the society. Tesco is committed to dropping its carbon footprint by 50% till 2020. Tesco is also minimizing the amount of waste production in stores by enhancing social awareness in customers.

Legal factors: Government legislations and policies directly affect the performance of Tesco. For example: according to the suggestion of Food Retailing Commission, all organisations should introduce a code of practice which may result in banning current practices like changes in price without prior notice or demand for the payment form suppliers. To enable these changes, Tesco offers its consumers price deductions on the fuel purchased by them in accordance with the expenses made by them on grocery stores (Srdjevic, et al., 2012).

SWOT analyses: This is a business analysing technique that an organisation can perform for its services, products, and markets while deciding the best possible way to attain growth and success. The process of SWOT analyses involves identifying the weaknesses and strength of the firm, and threats and opportunities exist in the market where it operates (Ayotunde & Cheshmehzangi, 2017).

Example: This example contains the SWOT analyses of Audi, a well-known international four wheeler manufacturer. Each categories of SWOT includes a list of main facts, which helps in explanation of each category.

Strengths:

  • Audi is the second largest car manufacturing corporation in the world function in more than 153 countries.
  • The track record displays high growth in international and domestic sales.
  • Audi has high return on assets and return on equity in comparison to its rivals.

Weaknesses:

  • Its market share less in terms of revenue, as compared to other large companies such as BMW, Ford and Daimler.
  • There is an increase in product recall in recent years that shows bad control over product quality.
  • High product recall also results in decreasing consumer’s faith in brand which may result in decrease in sales(Fujii, 2013).

Opportunities:

  • Audi has emphasized on introducing hybrid electric vehicles which may result in increase in demand.
  • Increasing energy expenses and increase in production regulations may become the reason for increase in demand for HEV.
  • Global legislations and environmental factors, and need to consult global resources are chief motivator for consumers in determining acceptability of HEVs(Sarsby, 2016).

Threats:

  • Recessions in US, Europe and other main markets have caused in sharp decrease in demand. Audi earns 70% of its total revenue from US and Europe.
  • Car production companies have to bear high amount of fixed labour cost.
  • Manufacturer’s capacity to reduce fixed cost is generally limited.
  • Sales assistances of leasing functions affects Audi’s capability to continue its profitability and maintain its share in the market(Grath & Bates, 2017).

Porter’s Five Forces Analyses: Michael Porter’s five forces model measures competitiveness of the industry in which a firm operates. The five forces covers all aspect that are important to analyse the competitive factors that affect the strategic development of the firm

Threat of new entrants: Capital requirement for enter into beverage industry is low and barriers to enter into market are almost none. A number of new brands are appearing in the industry with same prices and products. On the other hand, Coca-Cola have substantial market segment from a long time and good customers does not accept a new brand so quickly (Martin, 2014).

Porter’s Five Forces Analyses

Threat of Substitutes: There are a number of soft drinks available in the industry having almost same taste and flavour to Coca-Cola. Even sometimes it is not possible to find out the difference between Pepsi and Coca-Cola (Wilkinson, 2013).

Bargaining power of buyers: Individual buyer is not able to pressurise profitability of Coca-Cola. But large buyers like Wal-Mart, can affect the business of the company because they make purchases in bulk quantity (D'aveni, et al., 2010).

Bargaining power of suppliers: Coca- Cola generally make purchases in large amount from its suppliers and suppliers are also not differentiated or concentrated. It reflects the fact that bargaining power of suppliers is not so high that impacts the strategic development of Coca-Cola.

Rivalry: The main rival of Coca-Cola is, Pepsi which also offers a range of soft drinks. Both Pepsi and Coca-Cola are leading beverages and heavily used in outdoor activities and events. There are other many brands with different flavours but none of those brands are able to reach the level of Pepsi and Coke (Tavitiyaman, et al., 2011).

In order to introduce strategic development, a company can used any of the above mentioned tools or all of the tools to know about the external and internal environmental factors that affect the strength, weaknesses, threats and opportunities of the firm. The study concludes that after analysing all the factors, their effects and corrective action, it is easy to develop a strategy for effective functioning of the firm and to achieve competitiveness and growth (Nelke, 2011).

References

Ayotunde, D. & Cheshmehzangi, A., 2017. Passive Cooling Energy Systems SWOT Analyses for Energy-use Reductions at Three Spatial Levels. Energy Procedia, Volume 105, pp. 3411-3418.

D'aveni, R. A., Dagnino, G. B. & Smith, K. G., 2010. The Age Of Temproary Advantage. Strategic Management Journal, 31(13), pp. 1371-1385.

Fujii, T., 2013. Global Competitive Advantage Skill of Balanced Scorecard By SWOT Analysis and Strategic Map: BSC Project Management Essentials by Many Case Study of SWOT Analysis?and Strategic Map. Tennessee: Tom Publishing.

Grath, J. M. & Bates, B., 2017. The Little Book of Big Management Theories: ... and how to use them. 2nd ed. London: Pearson.

Martin, 2014. Threat Of New Entrants | Porter’s Five Forces Model. [Online]
Available at: https://www.cleverism.com/threat-of-new-entrants-porters-five-forces-model/
[Accessed 15 April 2018].

Nelke, M., 2011. Strategic Business Development for Information Centres and Libraries. Amsterdam: Elsevier.

Sarsby, A., 2016. SWOT Analysis. s.l.:Lulu.com.

Song, J., Sun, Y. & Jin, L., 2017. PESTEL analysis of the development of the waste-to-energy incineration industry in China. Renewable and Sustainable Energy Reviews, Volume 80, pp. 276-289.

Srdjevic, Z., Bajcetic, R. & Srdjevic, B., 2012. Identifying the Criteria Set for Multicriteria Decision Making Based on SWOT/PESTLE Analysis: A Case Study of Reconstructing A Water Intake Structure. Water Resource Management, 26(12), pp. 3379-3393.

Tavitiyaman, P., Qu, H. & Zhang, H. Q., 2011. The impact of industry force factors on resource competitive strategies and hotel performance. International Journal of Hospitality Management, 30(3), pp. 648-657.

Wilkinson, J., 2013. Threat of Substitutes (one of Porter’s Five Forces). [Online]
Available at: https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/
[Accessed 15 April 2018].

Wirtz, B. W., Schilke, O. & Ullrich, S., 2010. StrategicDevelopment of Business Models: Implications of the Web 2.0 for Creating Value on the Internet. Long Range Planning, 43(2), pp. 272-290.

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