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According to the U.S Food and Drug Administration (FDA) cosmetics can be defined as "intended to be applied to the human body for cleansing, beautifying, promoting attractiveness or altering the appearance without affecting the body's structure or function" (Wikipedia, 2010).According to the European trade association the European cosmetic industry actually consist more than 4000 manufactures which also includes small and medium manufactures. Cosmetic got a high demand in the society and as a result there have been so many cosmetic firms all over the world. The main purpose of this analysis is to understand how the PESTEL analysis affects the cosmetics industry. In this report I will talk about political, economic ,social, technological, environmental, legal factors in details to have a clear understanding how each of these factors affect the external environment of cosmetics industry. These factors cannot be just ignored as an organisation because these external factors will provide the organisation to have a wider understanding about the business environment and It will help the organisation to anticipate the future obstacles and find precautions for them.
2. External Environment Analysis
The PESTEL analysis is a framework that strategy consultant use to scan the macro-environment in which a firm operates. PESTEL is an acronym for the following factors:
Micro environment scan
Fig 1.PEST analysis Framework (According to PEST Analysis, 2006)
2.1 Political aspects:
Political aspects contain a government regulation and legal issues and define both formal and informal rules under which the firm must operate. Some examples are tax policies, international trade regulations and restrictions, contract enforcement law and consumer protection, laws to protect employees, regulations by government etc.
Political influence for a particular industry will affect the entire industry and you have to follow the regulations implemented by the particular government. When it comes to the cosmetic industry European cosmetics regulation which is usually signed by member states and stake holders and the EC council of ministers and the European parliament affects the cosmetic industry. The latest regulation is 1223/2009 which contains extensive provisions on responsibilities in conjunction with the production and making available of cosmetic products on the current market. And it clearly explains who are a manufacturer, responsible person, distributor, importer and etc. So the cosmetic industry in UK should follow all the rules and regulations when they deal with manufacturing, production and distribution in the current market. (New regulation)Cosmetic product (safety) regulations of 1996 in UK have some regulations for cosmetic industry, in a simplified way it is "the products should not harm to human health and each product muse undergo a safety assessment prior to being placed on the market. (Cosmetic industry 2010)
According to HM Revenue & customs (2010) the main rate of co-operation tax has been 28% for the years 2008, 2009 and 2010.As we know increase in tax rate will immediately have a rippling effect which will affect the cost structure, wage increase and entry-level-minimum wages. But according to HM Revenue & customs (2010) the main rate of corporation tax has been drop to 27% which is a good signal for the all the industires including cosmetics industry.
2.2 Economical factors
When we talk about economic factors it affects the both firm and the consumer. When it comes to the consumer economic factors will directly affect the purchasing power of him/her and it will affect the cost of capital of firms.
Usually labour market helps you to have a clear picture about available skills at national and regional levels. According to "Office for national statistics" the unemployment rate in UK was 7.8% in January 2010 which represent 2.46 million people of the population and the inactivity rate was 21.2% which represents 8.05 million working age inactive people.(Office for national statistics,2010a).According to the labour market statistics March 2009 by office for national statistics the unemployment rate was 6.5%.(Office for national statistics 2010b)This shows a rise in unemployment rate which may indicate that a segment in the customer base has lost purchasing power.
When we speak about the bright side of the the economy the regular pay which is excluding bonuses rose by 1.1% which may increase the purchasing power of active labour force in UK. United Kingdom was successful achieving a GDP growth of 0.8% which is an overall indicator of government performance and a positive figure may provide a positive outlook for business. This also can be considered that government has done a good job affecting the business and other sectors consist in the nation.(office for national statistics,2010c)
2.3 social factors
A social factor mainly includes demographic and cultural considerations, health consciousness, population growth, age distribution and career attitudes. The effect of these factors depends on which kind of industry you are on.
Nowadays people are well concerned about health and the earth we live in. Governments, organisation and even shops encourage people to "save the planet" and think about their health. According to a research done by Mintel is has been found that " the number of people looking for health-conscious and eco-friendly cosmetics will increase decisively and their demand will have a positive impact on the market" (Green planet,2010) This will be a big challenge for luxury cosmetic producers, if they want to stay with the market they will have to make sure that they meet the customer requirements and make them happy. If they want to keep their customer base they will have to compete with organic cosmetics producers.
Age distribution will affect the industry as well. The organization must have a clear understanding for what age group they market the particular luxury cosmetic product. For example perfumes, lotions, lipstick, makeup and etc will mostly be used by teens and middle aged people and majority of that group will be females. If you are marketing a female cosmetic product you must have a clear understanding about the population of the particular age group. According to the CIA world fact the population of UK (July 2010 est.) was 62,348,447 and female of the age group 15-64 was 20,246,519 and females of the range 65 and above was 5,612,953 (United Kingdom Demographic Profile ,2010)For a example if you are producing anti-aging cosmetic product it will be useless to market for teens, in case of that, the organization must have an understanding about the customers who is in the age of using that product.
Technological factors can be defined as factors that affect the industry and workplace. For example; increased efficiency Research and development, and etc. If we speak about research and development it is very important in cosmetic industry as the trends keep changing they have to meet the customer requirements and producing new products to compete with other organizations. According to an article by Simon Pitman Ariel Laboratories taps into blueberry extraction technolgy.whereas Ariel Laboratories is a product development laboratory and a manufacturer of most cosmetics products. They have found that "the ingredient lends a strong natural colour to the product formulation, as well as a retaining its active properties, specifically its high anti-oxidant content "(Simon Pitman,2010) This is a good example for research and development. This will lead to get more demand to their product and increase their customer base. This will be a good competitive factor for other organization.
Technological improvement in the past few years such as new machinery has helped the organizations to be more efficient, reduce cost, and reduce labour force. According to Guy Montague Jones an equipment has been made for cosmetic and pharmaceutical companies to reduce headcount and save floor space which increase the efficiency and turns the manual process into automated ones. This equipment reduces the energy which is good for the company to cut cost and also eco-friendly (Guy Montague jones,2009) This is going to pay an important role in cosmetic industry which means long term profits for business or organization.
Weather and climate changes manily fall under the category of environment aspect. Change in temperature and climate affects most of industries in the world. Global warming, environmental pollution is a big issue in the current world today and it a realistic fact that industries is one cause for this, so the government regulations and other organization rules also affect the industries.
UK got 4 seasons as spring, summer, autumn, and winter, and on each weather customer needs will defer. For example during summer people will use more lotion and sun cream but during winter no will be using sun cream. So the cosmetic industry must have a clear understating about weather changes and how customer needs change according to that.
According to the "environmental reporting protocols for the cosmetic industry report" by Salman Hussain and Madoka Yamaguchi the turnover of the cosmetic industry is around 200 billion Euros worldwide and 7% of it is chemical sector.( Salman Hussain and Madoka Yamaguchi,2008)
It is said that cosmetics products such as nail polish contains dibutyl phthalate or DBP which is a chemical linked to cancer in animals. Hair colour and bleach, hair relaxer, nail polish, skin lightener and nail treatment are some cosmetic products that include acryl amide, formaldehyde and ethylene oxide. (Michael Bloch,2010) This report concludes and suggests to switch to earth friendly brands. This explains more consumers are health and have growing desire to protect the environment, which is going to affect the demand of the cosmetic industry. The pollution Prevention and Control (PPC) regime has provided robust integrated regulation framework for UK industries which reduces and controls the impact of these emissions to air, water and land. The industry has to follow these government rules in order stay in the market.