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This Report will evaluate the changing business environment of a Brazilian Multinational Company, Braskem, over the last five years.
The main focus is to identify, analyze and understand the main points which have influenced the Micro and Macro business environment of the company. In order to do this, some important tools need to be considered. The Pestel analysis which gives the support to evaluate the external factors which can impact an organization: political, economic, social, technological, environmental and legal. SWOT analysis is another important tool, which creates the knwoledge of what Strenghts and Weakness the company has to deal with opportunities and threats created by ther external environment.
Business environment can be described as everything that to a certain extent impact the business chain. Some factors which represent this are: employees, suppliers, consumers, competitors, cultural factors, GDP (gross domestic product), economy of the country and so on.
In addition, Business environment means everything that can influence the business decision making, can be internal or external factor. The business environment is too a source of threats. Because every day can entry a new competitors, new products, new laws, new regulatory requirements or customer can change brand, in other words, business environment can be a fatal for a company. Another good example is the print publish encyclopedia Britannica, after 200 years of prosperity, was almost swept down to after the electronic information era, such as Microsoft Encarta and Wikipedia. This is some reason extremely imported for managers' analyse carefully considering the business environment in order to anticipate and prevent the possible environmental changes. (Johnson, G and Scholes, K and Whittington, R., 2009).
Macro-environment is the highest layer of the environment, which consists of broad external factors that can influence the business. On this case, the PESTEL analysis is a useful tool to identify these factors and this can be based on the analyses of future trends such as political, economic, social environment (green) and legal. Using this tool, managers can identify the key drivers of change and this can be used to construct the possible trend future scenarios (Johnson, G and Scholes, K and Whittington, R., 2009).
Business microenvironment is the internal factor which generally business decisions are made. The internal environment is composed of various components such as employee, suppliers, customer, and so on, in thus this, microenvironment can be divided in various small parts inside a business company, and each part is extremely important for the business (University of Latvia).
Furthermore, based on the analysis of its business environment, a company can complete this with a SWOT analysis. The company can identify what strengths has to maximize the opportunities and neutralize its threats and weaknesses. SWOT summarizes the main issues which affect the company and which should compose its strategy. In addition, this analysis is very useful when compared with its competitors.
Braskem is a Brazilian Petrochemical cracker company. It was founded in 1972 with the name of COPENE. However, in 2002, after the acquisition of the company by Odebrecht Group, it became known for Braskem. Today the company is among the 10 biggest and best petrochemical companies in the word. It is the third-largest producer of resin in America (after US-based Dow Chemical and Dutch giant LyondellBasell) and is the market leader in thermoplastics resin, in Latin America, with 50% of marketing share (Brasken, 2007).
The company business operations are separated into four units: The basic petrochemicals, polyolefin, vinyl, and IQ Solucoes & Quimica. Its production is distributed among 18 industrial plants in Brazil. Among its products are: basic petrochemicals such as ethylene, propylene and benzene; and the Thermoplastic segment produces products such as polypropylene, polypropylene, PVC and others. (data monitor, )
Braskem has focused its resources on projects that can offer high returns in short term and some projects that can help the company to reach its objectives. The investments for 2010 are around 1.1 billion, considering that the company wants to expand its production capacity and make some reductions on protection programmes. Moreover, Braskem remains aligned and committed to reduce fixed costs and expenses in order to increase its competitiveness in the market (Braskem, 2009).
Furthermore, during the last five years Braskem has invested around R$ 7 billion to became one of the most successful petrochemical companies in the world. (Data monitor, XXXX). In addition, the company has growth approximately around 33% annually in net revenue. (Braskem, 2007)
A great challenge Braskem suffer during September 2008, because the marked was by intense volatility in oil prices and exchange rates, slowdown in world economic activity, reflecting the discontinuation of credit, falling demand and trend of economic downturn in major proportions. Given this turbulent backdrop, the Braskem strategy to try to minimize the crisis was made company more effectiveness and competitive increasing the operating capacity ensuring reliability has garnered results (Lafis).
Recently Braskem made the acquisition of Quattor (Brazil) and Sunoco Chemicals (USA). The Quattor acquisition also represented the last large consolidation opportunity in the Brazilian petrochemical sector. In thus this, Braskem has an important challenge now that is promoting the integration of these new assets, teams and cultures. Drawing on the rich diversity of experience and sharing the best practices and competencies in each area (Baskem 2009).
According to Worthington and Britton (2003), most of business has the same activities, which is converting inputs (resources such as labour force, technology, finance and materials) in outputs such as goods (products that can be touched such as foods, cars, and so on) or services (products that cannot be touched such as insure services). These activities can be used and influenced by companies in order to construct their strategy.
On the other hand, companies are inserted in a macro-environment, which represents all external forces which can impact them and which they cannot control. According to Lancaster (2008), this environment is composed by closer factors such as suppliers, intermediaries and distributors; and wider factors as cultural, legal, economic, and so on.
Considering that this macro environment is very complex and companies cannot control it, its analysis is very important. Companies need to identify them and understand the negative impacts they can produce, therefore they can be prepared to minimize them (Palmer and Hartley 2009).
In order to do this, companies can use PESTEL analysis which involves Political, Economic, Technology, Environment (green) and Legal, one tool developed by xxxxx.
According to Palmer and Hartley (2009), politicians are responsible to create and pass legislation to companies and occasionally some of them can direct affect some types of business, such as: customer protection laws, employees protection laws, controls of pollution and so on. In addition, according to Lancaster (2008) others political decisions as the workforce education, health and environment, and even the economy infrastructure can also affect businesses operations.
Economic factors are very import for an organization because it is directly related to GDP (gross domestic product), economic growth, unemployment rate, inflation rate and so on. Any change in the economy can affect business. One good example is the oil crisis which occurred during the Middle East War in 1973. The increase in the crude oil price affected all the chain such as energy cost, oil-based raw material, plastic, synthetic fibres and so on (Lancaster 2008).
This example indicates the importance of monitoring the economy, either nationally or internationally, in order to identify possible opportunities and threats
Social and Cultural factors
The socio-cultural environment is possibly one of the most difficult factors to analyse, considering that is based on people behaviour changes, such as religion, values, priorities, attitudes, beliefs and social changes (Lancaster 2008). On the other hand, Palmer and Hartley (2009) state that a crucial part for businesses is to understand the cultural value of a society; companies should be monitoring this constantly to better correspond to customers wants and needs.
Companies can make use of a demographic study to identify these trends and support them to make decisions. It is a study of features of the population, such as size distribution, age distribution, genre, births and death rates, education level, preferences, belief and so on. One example is how multinational companies use this to identify larger centres where they can be established to facilitate their operations (Campbell and Craig 2005).
On the other hand, Braskem is preoccupied with the society and develop projects in partnerships with the communities to improve factors such as people education, quality of life, social projects and so on. These are some projects that Braskem has taking to improve and harmonization the whole society (Braskem, 2007).
According to Lancaster (2008) Technology is an import macro-environment factor which is presented in many products that we use on our daily live, as television, calculators, video records, computers and so on. Companies play an important role on generating more technologies due to this some of them has their own research and development department or work in partnership with universities or research institutes, seeking to provide new products or with better quality to customers.
One example is Braskem, as a result of its constant development, the company was the first one to create a polyethylene, made from vegetable raw material (sugarcane ethanol), called Green polymer. It is a product from 100% renewable resource, and one of the most commonly used in flexible packaging. In addition, Brazil is one of the countries which is investing more in bio economy to replace oil products base for renewable base such as carbohydrate and vegetable (Biopact, 2010).
This topic has been constantly increasing, especially for multinationals, due to the demanding of social responsibility activities and projects with focus on the community and the environment. These corporations have an important role on contributing to the social development (Worthington and Britton 2009).
Moreover many companies, such as petrochemical industry, are surrounded by strict federal environmental laws, such as state and municipal, related to human health, handle and disposal of solids and hazardous waste, discharges of pollution in air and water. Often, in order to attend all these regulations, companies need to invest more and consequently this can represent an increase in prices (20-F 1 bakform20f2007.htm FORM 20-F 2007).
Braskem, in the last five years, has worked proactively to reduce environmental risks and as a result it has improved its indices across the years. In its eco efficiency activities, they have focused on: reducing water consumption, energy, generation of effluents, production of residues solids and pastes (Annula 2007).
Companies should work according to the law otherwise they can have significant impact on their businesses. Some laws are changed to protect customers (municipal licences, anti-monopoly laws); employees (minimum wage, workers safety) and suppliers (copyright and patent laws which favour business investments). Some of them can influence market structure and behaviour (Worthington and Britton 2009).
Lancaster (2008) argues that one of the main objectives of marketing is to attend the necessities of consumers. In order to achieve this, companies can make use of their internal resources and capabilities, their microenvironment, over which they have control, and use this as a source of knowledge to construct the better strategies to satisfy costumers' needs.
In addition, the microenvironment is easier to comprehend than the macro environment because refers to everything that is part of a company such as suppliers, employee and so on. Everything that is direct or indirect related to the company. . Below is some example being that compose the microenvironment: (Palmer and Hartley, 2009)
They are one of the most important parts of the microenvironment. Companies need to focus on monitoring possible changes on consumers' trends and on creating an effective relationship with them. In other words, companies need to be one step ahead, trying to predict consumers' wants and needs and developing products to attend these demands. Moreover, companies must not focus just on this simple model (creating a good products to customers), but think beyond it (Palmer and Hartley, 2009).
They supply raw materials, goods and services that are transformed into value-added product for customers. Suppliers are an important element inside the microenvironment (Palmer and Hartley, 2009).
They represent connections between companies and customers. Some companies, mainly large ones, have some difficulties to attend all final costumers therefore they choose to sell their products through intermediaries to be present even in small supermarkets. Some companies can fail because they do not identify this as an important strategy (Palmer and Hartley 2009).
In this idea, Braskem is a company that has sales direct to customers and sells products in Brazil through exclusive independent intermediaries, currently has seven intermediaries (three of which belong to a group of related companies). (Braskem, 2007)
Companies need to keep their eyes on their competitors, monitoring them and trying to predict their next steps. Furthermore, there are two different types of competitor: direct competitor, which sells similar products; and indirect competitor, which is more difficult to identify, because sometimes competitors can appear in different forms. For example, who is the indirect competitor for a cinema? Is it another cinema? A home rent movie? (Palmer and Hartley 2009)
For instance, in the case of Brasken, for its resin thermoplastic segment, the main direct competitors are:
YPF Sociedad Anonima
Companhia Petroquimica do Sul - COPESUL
Dow Chemical Company, The
Suzano Petroquimica SA
Monomeros Colombo Venezolanos
Mossi & Ghisolfi SpA
SWOT is a strategic planning tool, used in management and strategy formulation in order to identify strength, weakness, opportunities and threats of a particular company. It is mainly focus is to analyse and understand the organisation's internal and external environment.
Strengths are considered internal positive factors within an organization which can add value; weaknesses, on the other hand, are negative aspects, which can disrupt the business from achieving its goals. Opportunities are external factors which help business and can represent one possibility of acquiring competitive advantage if the company has the ability of identifying them quicker than its competitors. Threats are also external factors but which can affect businesses operations negatively (Campbell and Craig, 2005).
The SWOT analysis is used as a filter to obtain relevant information about the company in order to take appropriate actions. When a company understands the quarter points of a SWOT analysis, it can make better decision makings. Strength factors can be used as a basis for constructing advantages, taking the opportunities; weakness can be seen as a challenge and used to correct errors (NetMBA, 2010).
Companies need to keep looking for new challenges, always focusing on developing strategies which can allow them to be better them their competitors. On this case, Brasken should do the same and seek for a strategy to become the first company in the world of resin thermoplastic, selling products with quality and diversity, achieving customers' preference.
In order to be competitive, companies can compare its products with the ones from leading competitors. They can also achieve competitive advantage investing on its employees; looking for joint ventures with other companies in different countries so they can gain knowledge from different markets; seeking for operational efficiency and cost control; seeking for new partnerships, assessing where there are greater opportunities for export.
There are many factors which affect the micro and macro business environment of companies. Companies can take immediate actions with respect to internal factors and change them when necessary (such as production, marketing strategy, etc.). However, companies cannot act directly on external factors. But they can identify them with appropriate time in order to minimize their impact. Many managers decision making can be based on the use of these tools and analysis therefore they can get a general overview of the company and aspects which impact it such as politics, laws and regulations, economy, environment, technology and so on.
Due to high competition nowadays companies are increasingly required to use tools such as PESTEL or SWOT to develop a successful strategy and competitive with the market. Braskem is a company has Development a variety of strategies with focus on customer always producing quality products in order to market national and international trade and always doing a great job in conjunction with the society, employees, and environment (green).