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The purpose of this assignment is to understand the changes taking place in the external market, what are the various aspects that cause these changes to occur, what are their repercussions on a business. This assignment connects strategy with these aspects. Depending upon the intensity & degree of the effect, the strategic plan is made and implemented by the company and its effects are measured. To collect the information, various methods can be used as explained here. The main content of this work includes Political, Economical, Social, Technological, Legal, and Environmental aspects in full detail and their effects at local, national, and global levels. The assignment explains usage of Pestle, its role in strategy, its advantages & disadvantages. A frame orÂ Â template is drawn here and explained which can be used by companies for doing this analysis.Â
The assignment covers the case study of Coke - one of the most selling product of the world by one of the most valuable brand - Coca Cola. It shows how the brand analyzed & understood the external environmental factors and responded to it. The PESTLE threats & challenges that Coke has faced and how they exploited the opportunities without losing its momentum and hold in the external environment. Â
Johnson and Scholes (Exploring Corporate Strategy)Â define strategy as follows:Â
"Strategy is theÂ directionÂ andÂ scopeÂ of an organization over theÂ long-term:Â which achieves advantageÂ for the organization through its configuration ofÂ resourcesÂ within a challenging environment, to meet the needs ofÂ marketsÂ and to fulfillÂ stakeholderÂ expectations".Â
So, Strategy addresses the direction i.e. where does the company wants to reach in the long-term
Its markets, scope of business, what is the USP of its products and services, how can it perform better and what it should do to perform better than its competitors. It addresses critical questions like what kind of competencies, finances and human skills are required to achieve its objectives. There are various tools to determine in what environment does the company operates and what external or internal factors affect it. Â
Strategy operates at various levels in an organization:
Corporate level: It deals with the vision and mission of the company, with stakeholders, with shareholders, and decision making at the top level.
Business level: It deals with managing at the business unit level. It deals with products, services, creating USP, customers' expectations, product/service availability, exploring new markets, diversification etc.
Operational level: It's about creating results and shaping the crafted strategy at the above two levels. The focus is more on processes & methods. Â
KEY TERMS OF Strategy development:Â
Vision: It covers the future of the organization i.e. where the company wants o be in future. A vision statement is about development of the company in future and also aids in devising strategy and effective business planning. It defines the purpose of the company and how its future looks like. One most important feature of vision is that it is clear, realistic, and helps in future business planning. Â
Mission: It covers the reason of being in the business. To frame strategies, mission of the company is taken into account. It envelopes the existing potential of the business, who all are its stakeholders, the USP of its products and services, and why does it exists? This statement broadly explains its activities, processes and resources that it utilizes to achieve its objectives. It is defined by the top management of the company and is there for a long time. For example, a company ABC can have the mission to make technology accessible to all at affordable costs.Â Â Â
Goals & Objectives: They encompass what a company should do to achieve its mission and vision. Various BUs, functions, and processes work together to make it possible. These are more specific and quantifiable. They are time-bound, realistic and flexible too. Â
It includes various options and alternatives to consider / not to consider while tackling and dealing with a problem that is currently troubling the company. What is the best way to tackle a specific problem? Is it feasible or not? To understand the feasibility of the preferred options, the vision and mission must be considered. Â
Recognize they key stakeholders, their issues and expectations, and analyze their impact on the business. They are the people or bodies that have something at stake in the business. It includes employees, suppliers, customers, competitors, and government.
Current strategies are the existing strategies in use by the organization. It analyses the existing situation and position of the company and estimate the pressure of external dynamics that influences its market standing. There are various tools and techniques available for this purpose, and which one is to be used at what point depends on the company and the reason behind itÂ
TOOLS & FRAMEWORKS OF STRATEGY:Â
PEST AnalysisÂ - It's a tool to scan the external (macro) environment in which the company operates.
Scenario PlanningÂ - a method that checks various situations and considers various state-of-affairs of the company and helps in determining possible and feasible views for the company's future. It checks what is possible to do and what's not and its possible consequences.
Situational Analysis - This is to evaluate the existing & present situation of the business and analyze those factors that have or can have an impact (however shallow or deep) on the business. These factors can exist within or outside the company. This may involve admin staff, whole company staff, a specific department or a special team to carry out this task successfully.
Five Forces AnalysisÂ - is a framework that analyses competitive intensity and helps a company to identify the pressures on a SBU that affects it by looking at five concepts i.e. the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
Market SegmentationÂ - It's a procedure that segments the market which helps the company to position its products and services effectively in the market and also helps in identifying resemblance and divergence between various types of markets and consumers.
SWOT AnalysisÂ - An internal (micro) analysis that captures a company's strengths, weaknesses, threats, and opportunities that arise from its internal and external environment in which it operates. .
Competitor AnalysisÂ - A tool that's extremely important for a business to determine a its overall position in its industry vis-à-vis its competitors.
Critical Success Factor AnalysisÂ - a method where a company creates USP for its products or services and identifies areas where it can be capable enough to surpass its competitors and achieve its objectives and be successful.
Stakeholder Analysis - is a process to identify who are the stakeholders, how much is their power & influence, and what is their level of interest in the business. It is best to identify the stakeholders, prioritize them on the stakeholder grid, and then understand them & their interests.
Environmental scanning is to scrutinize and assess the external and internal environment of the company. The purpose of scanning the environment is to be watchful of the major external and internal changes taking place, so that companies can get enough time to prepare themselves in advance and react accordingly. Â Â
LINK BETWEEN STRATEGIC PLANNING AND PESTLE ANALYSIS:Â
According to Janet Shapiro in 'Judgment Day or Management Tool, 1996:Â
"A strategy is an overall approach, based on an understanding of the broader context in which you function, your own strengths and weaknesses, and the problem you are attempting to address. A strategy gives you a framework within which to work, it clarifies what you are trying to achieve and the approach you intend to use. It does not spell out specific activities."Â
Strategy planning: It identifies the problems that a company faces and considers the feasibility of various options to achieve its goals. It prioritizes what needs to be done & creates a framework for the activities. It analyses the strengths, weaknesses, opportunities and threats within the company (micro environmental scanning) and analyses the Political, Economical, Social, Technological, Legal, and Environmental issues (macro environmental scanning) that can impact a company.Â
Organisation Micro environment: It scans the internal environment in which the business operates. Internal Analysis analyses and assesses the company's vision, mission, strengths and weaknesses of a company. It aids in decision making, devising strategies, and formulating plans.
It consists of inter relationship amongst the following:
Suppliers: who to supply, what to supply, how much to supply, & ownership of the supplied products.
Distributors: making products available to end consumers e.g. retail, wholesale, direct selling etc
Customers:Â Is the reason of everything that's in existence, identify their needs and develop products accordingly, work towards gaining customer loyalty
Competition: intensity of competition determines success or failures in the market, create USP, provide excellent customer service, and take every action that ethical to gain competitive advantage
Employees: involves interaction with other employees, managers, management, access to resources, discussions, and surveys etc that help in analyzing the micro environment. Â
Organization Macro environment: In describing external analysis, Fahey and Narayanan (1986) suggest that organizations scan the environment to identify changing trends and patterns, monitor specific trends and patterns, forecast the future direction of these changes and patterns, and assess their organizational impact. In today's dynamic environment, it is quite important to scan macro environment as it helps to assess any kind of threats and opportunities which are beyond your industry's control, and prepares the company to react to it positively and deal with it successfully.
In this, 3 kinds of environments can be scanned: industry environment, national environment, and socio-economic environment. It is of extreme importance for the strategic leaders to identify the existing environment situation of the industry and predict its future positioning as well.
PESTLE is one such important and significant tool that scans the macro environment and helps to track changes in the market that exists outside the company's industry.
PESTLE is an acronym that stands for Political, Economic, Social, Technological, Legal, and Environmental factors that exist in an external scenario in which the business operates. These aspects, when used as a frame, discover how these external factors work and affect the future strategies of a company. These factors are a part of the bigger set-up or picture and are outside the control of the company. It emphasizes that whatever is occurring outside the company will have an impact on whatever occurs inside the company. It is not necessary that change in all these factors would impact the business, but change in any one of these aspects can create complexity. Two things that are vital and are fine-tuned with this analysis are that these 6 aspects are outside the control of business and have big or small influence on it. The first importance should be to identify them and then analysing them and devising strategy according to the resources a company has. Â
PESTLE stands for -Â
Political, Economical, Social, Technological, Legal, and Environmental aspects that are used to gauge the market outside the industry and helps in strategic planning, direction, marketing planning, product development and diversification. Â
A BRIEF LOOK AT ITS ORIGIN AND HISTORY:Â
The usage of PESTLE has become quite common by companies since the past 10 years approximately and it is rather interesting to note that history of its origin is difficult to trace.
Many scholars have used it at different times for environmental scanning giving it a changed acronym like PEST, PESTLE, PESTEL, STEEP, STEP, STEPE etc. And that is why there is no specific format or order to use it; however, out of all this, usage of PESTLE is the most common. The first time it was ever used was by Francis J. Aguilar (1967). Soon after this, Arnold Brown used it. After which many other scholars and management authors like Fahey, Morrison, Boucher, Porter etc have used it effectively. By whatever name it is called as, its basic purpose and framework remains the same. Â
PROCESS OF PESTLE:
Decide the team who would work on the project.
Decide what information needs to be collected.
Decide the source of information which is reliable and valid
Decide on the template to be used to record the information (A template is discussed below that canÂ be used for this purpose)
Evaluate the information
Categorize the most important problems
Evaluate the impact of these issues on the business
Discover the strategic options that are viable for the business
Prepare a final report based on these findings and options
Publish the final report
Monitor it regularly and keep a check on the changes in PESTLE factors.
It is meant to plan business strategically, plan the market, organisational restructuring and planning, new market development, new product development etc.Â
Some companies use it simple and uncomplicated and others may do it in a more detailed and comprehensive fashion. It depends on the types of business, requirements, and impact of outside factors on it. Companies can ever make their own PESTLE questions depending on their requirements and reasons of doing it.Â Since it is a time consuming exercise, it is important to keep the outcome in mind and clear goals, else the usage of this tool would dilute and would not be fully effective. Â
For example, are we looking for partnership, are we looking out to merge or acquire, do we want to diversify our business, do we want market development or product development, or if we are looking for investors etc. The goal should be clear. Â
Whatever results we have got out of the analysis, it is equally important to write it well and with precision, so that people who are reading the final report understand the evaluation and repercussions. Also, to make it fully effective it should be done as a regular exercise so that the changing trends can be identified in advance and action is taken well before time to gain competitive advantage. Â
ELEMENTS OF PESTLE ANALYSIS:
PESTLE has three main constituents:
List the external factors.
Identify the implications of these external aspects.
Decide the relative importance of the implications of these external factors.
IMPLICATIONS OF EXTERNAL ASPECTS:Â
It has an impact on a company's mission, values & culture, business activities, availability of staff, availability of skills, internal & external stakeholders, Government & Public communities, Private associations, and any other relevant and associated organisations. Â
DEGREE OF THESE IMPLICATIONS:Â
The implications of these external aspects can be - Â
Critical - issues that threat the business and may necessitate an overall reassessment of its mission and principles.
Very important - issues that have the power to bring considerable changes to a company's business processes, structure, systems, relationships, internal stakeholders, external stakeholders; but do not challenge its mission, principles, values & ethics.
Important - are those PESTLE issues that can impact the business but in a limited way only. There is no threat to the company's mission, principles or morals.
Significant - are those PESTLE issues that do not seriously or significantly affect the business and its operations and there is an obvious no affect on company's mission or values.
Unimportant - Those issues that do not have the potential to affect the business at all or in a much diminished way.Â
These implications are based on Time, Type, and Dynamics of the aspect/factor concerned. Â
Time of impact - means the issues affect the company differently at different times. The effect is not the same all the times but changes with respect to time. An issue can have less impact on a business in 6 months but it may get deepened as time progresses.
Type of impact - The effect of the impact can be positive or negative.
Significance of impact - The impact can have an increasing implication (>) or decreasing implication (<) or static implication (=) on a business. Â
Let's take a look at each one of these PESTLE elements in detail:Â
This element refers to the governmental policies of a country that can affect any business like central or state government policies, domestic & international regulations, change of government and other such government initiatives. More factors include policies related to health, schooling, employment, commerce, trade etc. All these factors have the potential to affect a company's policy and regulations. The political system of a country describes how the trade is structured & controlled. For example, a socialist structure has a lot of political involvement and command. In capitalist structure, there is an impact of commercial thrusts.
The political environment has an effect on the laws and legal regulations in which a company operates. International political scenario has deeper impact on export companies or Joint Ventures or subsidiary companies. The under-developed countries have not-so-stable political condition.Â Hence, the environment is volatile and companies need to be more careful while doing business in such countries.
It's the political environment that forces the companies to look into contractual laws, product promotion and advertising laws, customer protection laws, employment laws, company possession forms etc. Â
What is the government principle for subsidizing the companies?
What is the kind of support and help that the Government can provide for new business?
What is government's role in superiority of economical infrastructure of a nation?
Does the railway/aviation system provide any support?Â
The Political scenario can affect a company in the following ways:
Controlling structure of the company
Subsidy permissions and rates
Local Development initiatives
Government trade policies
Technological and industrial standards
This element refers to the economical factors that can affect a company like stability or instability of economy, economy trends, market inflation, economic depression, interest, tax rules, and exchange tariff. Economic environment has an enormous impact on a business strategy. It also affects price, demand, supply, profit, funding options etc. The political condition is often strongly related with the economy of a country. This is completely out of control of the company and hence it is classified as a part of macro environment. Â
High borrowing and interest charges from financial institutions may discourage investments.
High foreign currency exchange rates may have an effect on import-export industry.
High inflation may demand employee salary increments.
High income may have an impact on demand and supply circle.
A company's capability to serve the markets.Â
It includes demographic changes like age, population increase, education standards etc.
Social factors can impact a company by affecting the demand for its product, supply of the product, its availability in stores etc. Social factors decide productivity, buyer demands, and impact economical circumstances. Cultural factors decide what consumers purchase, about their tastes & choices, customs, habits and practices. These cultural and social interactions influence perceptions, beliefs, style of living, attitude, behaviour etc. These factors throw light on social changes & transitions, social mould & contentment. Failing to consider these social factors would lead to dropped market share and low demand of the product. Â
An increased life expectancy of people (employees) has led to focus more on pension plans for companies.
Reduction in young family units has led to reduction in housing requirements, which in turn has affected housing prices & mortgage rates.Â Â
This factor has by far affected the companies the most. This factor has compelled the companies to look at things from new perspective. It affects the processes, ways of procurement, ways to doing business, and communication channels of a company. There could be inventions, innovation, discoveries, more sophistication, & development that can lead to changes in this environment. In addition, it can affect people and working conditions like employee participation & distribution of labour etc. It can be both good and bad for a business.
For instance it can create new jobs, new skills, more money etc. and on the other hand, it can cut jobs, lead to less employee involvement etc. Â
It has an effect on the following -
buyer attitude and standard of living
educational development of employees
leadership & management style
it can lead to super specialisation of jobs
attainment of goals and objectives
flexible shift patterns, more freedom, more loyalty of employees
It has introduced new concepts like online shopping, LCD TVs, CAD etc. Along with this, this has caused companies to cut costs, improve service, stay innovative and gain competitive advantage. This has led to more profit for the companies and better products/services for the consumers. To successfully deal with technological advancements, it is extremely important for the companies to use strategic business approach that transforms the business; and fits long-term plans into the actuality of fast-moving surroundings.Â
This means that legal changes do have an impact on an industry. The concepts of disability discrimination, minimum wages act, data protection act, immigration rules etc. Companies have to abide by these rules and regulations to stay in the business and develop new processes.
For example, under health and safety regulations of UK, companies have to ensure that workplace is safe at all times. Employees have to be updated and all safety equipments must be in place. Other than this, there are other laws in place related to employment, consumerism etc that companies need to obey. Changes in legislation have an impact on entry of raw material, and their reserve & supply. Every company wants to know what is happening around it, inside and outside both. Â
It is a method of scanning the environmental factors that influence or can influence a company's strategy.Â Such aspects include weather, temperature, global warming, ozone depletion, climatic changes etc. The industry that has been particularly affected by it is farming and agriculture. Recent concern of plastic recycling has significantly compelled companies to recycle plastic packaging and use recycled plastic for new packaging as well. So, this factor has affected demand for products/services and to be environmental conscious. This also includes ecological aspects as well.Â
Let's take a look at the CHECKLIST that provides an insight to the business & its environment. This checklist is simple and was given by West Churchman.
(Reference: Studying Strategy, James Rowe & Ventus Publishing).Â
Does it affect my system?
Can I control it?
If the reaction is 'Yes' for 1 and 'Yes' for 2, then it is the micro environment and is within the periphery of the business.
If the reaction is 'Yes' for 1 and 'No' for 2, then it is the external environment and is beyond the control of the business.
If the reaction is 'No' for 1 and 'No' for 2, then you are not at all concerned about it.
VITAL FEATURES OF PESTLE ANALYSIS:Â
It is used on the exterior of a company
It is subjective in nature
It is reductive i.e. it reduces the external environmental complexities to 6 key aspects.
It uses past data and helps to strategise the future i.e. what all was related with us and what all might interrelate with us.
It is a structured analysis
It requires interrelationships to be developed between its various aspects/factors to be used for strategic planning.
It is used in strategic context rather than functional
There is no specific template of doing the analysis, and it depends on the company to use it. However, a common one is drawn here. This can be customised as per requirements.(Reference: http://rapidbi.com/pestle/PESTLE-analysis-templates.html)Â
PESTLE Analysis on:Â (Name of the company)Â
Start date of Analysis: ...............................Â
End date of Analysis: .................................Â
FACTORS / ASPECTSÂ
IMPLICATIONS & IMPORTANCE
Which specific factor or aspect is this?
Impact of these factors on your business
Would it be High - H,
Medium - M,
Low - L, or
Undetermined - U
0-6 months, 6-12 months, 12-24 months, 24+ months
Positive+, Negative -or Unknown
Impact:Â Â Â Â Increasing>, Decreasing<, Unknown
Relative Importance: Critical, Important, Unimportant, Unknown
POLITICAL : Â
Country's own economy,
Market issues, unemployment,
Impact of globalization,
Reduced communication costs,
Information systems & its usage,
Intellectual property issues,
Industry regulations, Regulatory bodies etc.
Issues at local, national, & international levels,
Environmental regulations etc.
IMPACT OF PESTLE ASPECTS ON STRATEGY:Â
Influence of Political and Economical aspects:Â
Whenever there is a change in political leaders or political policies, it always has an impact on operational strategy of a business. This becomes particularly significant in case of foreign markets. Regulations related to import, export, and business establishment in foreign markets affect the selection of entry into those markets. Change in regulations can compel companies to change their marketing strategies about tariffs and taxes, product standards and specifications of host or foreign countries. Political stability of a country has control on attracting investors and also aggravates their commitment to the market.
Similarly, the Economic factor can change the strategy of a company and determine the company's performance and actions. The stability of economy and economic standing of people would determine their buying power and patterns. This factor also influences product availability and financing options. Economy of a country has the potential to decide the infrastructure of a business as well.Â
Influence of Social and Technological aspects:Â
Social & culture of the host or foreign market influence the strategy. It also includes demographics, education, lifestyles, living conditions, languages, taboos, and customs have an effect on sales of products/services in a particular market.
Technological advances have an impact too. Increasing use of email, internet, and online marketing has put the companies on larger picture now. It has had a great impact on product availability, product packaging, and product costing. All this can affect market share of a company and hence the strategy. Â
Influence of Legal and Environmental aspects:Â
Laws & regulations are chief areas to focus on while entering into foreign markets or sustaining competition in existing countries. Media laws, product offer and facilities, laws of employment etc are vital to consider. Every country has some entry and exit laws to be followed including import & export, JVs, investment or financing etc. which have an impact on the strategy of any business.
Environmental issues have forced the companies to be concerned in this matter and strategize accordingly.Â Use of recycled plastic, no killing of animals, use of energy efficient equipments, reduction of noise and smoke while manufacturing products have a lot of impact. As a matter of fact, being environmental conscious has helped companies to gain competitive advantage. Â
Where to find information to conduct PESTLE Analysis:Â
The data that'sÂ trustworthy and obtained from reliable & responsible secondary sources which is dependable is to be used. The data must focus on current activities and must project future development & trends. Along with reliability, the data must be valid, legitimate and appropriate as per existing business circumstances.
This could include: Journals, Periodicals, latest Books, Trade companies, Government agencies, Industry specialists, financial consultants etc. Â
The main reasons of why a company should conduct this analysis include the following:
It acts a guiding tool to achieve your goals & objectives
It directs the strategic actions, prioritizes the work and aids in decision making.
Effective utilization of existing resources to make the most out of them.
It extends the horizons as local, national, and global concerns/effects.
It assists in communicating clearly the purpose of doing it.
It steers through the process of implementation and successful execution of strategy.
PLACEMENT OF PESTLE IN STRATEGIC PLANNING:
(As given by Janet Shapiro in book 'Judgment Day or Management Tool, 1996)Â
Step 1: Progress review
Step 2: Environmental Scan (PESTLE)
Step 3: Review of the strategic framework
Step 4: Review Strategy
Step 5: Set new objectives
Step 6: Plan / review structure
Step 7: Action PlanningÂ
PESTLE is not about dealing with today, but about tomorrow. It gives an insight into the business from future perspective with upcoming issues and trends. Leaders understand what is taking place today and would like to assess what may occur tomorrow.
After assessing the vital factors that may have an impact on the business tomorrow, it is important to consider what needs to be done today so as to stay prepared for future?
Here, at this stage, PESTLE acts like a scenario planning technique which is extremely crucial for strategic planning of any business. Hence, it is quite evident that companies that do not devote their resources, time, and money into devising complete PESTLE framework miss out on a vital part of strategic planning.Â
A WORD OD CAUTION:
These aspects of pestle do not tell much by themselves, but they need to be identified and analyzed depending upon the business and the industry in which it operates. Leaders need to recognize that which of these aspects will affect their business the most, by what extent, and within what time. Leaders must understand the importance and impact of each of these aspects and how they influence the business in different proportions. The factor that has the greatest impact will be the most important one.
It is vital for leaders to understand that at what level PESTLE to be used in case of big companies like Sony is. These companies have large product portfolios with various business segments or brands. It is important to identify that this framework is to be used on which product segment or brand or on the whole company.
These PESTLE aspects/factors can be effectively utilized as it is or can be further sliced into three components depending on its usage and business requirements & strategy. These are:
Local Factors:Â Local government and local economy.
National Factors:Â Economy, Laws, or Politics of a country or state or nation.
Global factors:Â Political and economical changes that have a universal impact. Changes in worldwide social demographics and technological drivers have the potential to affect the whole world.Â
ADVANTAGES OF PESTLE FRAMEWORK:
Well defined and easy-to-use framework.
Looks into the macro environment (outside the industry) of the business.
A part of strategic planning process that boosts strategic thinking and gives insight into the future trends.
Prepares the company to deal with future threats with no or minimum impact.
Enables the company to see opportunities and take advantage.
DISADVANTAGES OF PESTLE FRAMEWORK:
Can be time consuming.
It depends a lot on how it's presented; it is not fully effective if it's not critically analyzed & clearly presented.
Constant and fast changing environment makes it difficult to keep a track of changes and developments that affect the business.
When the information is too much, it becomes increasingly difficult to quantify it.
PESTLE analysis can prove to be ineffective when based on assumptions that may not prove to be true in reality.
PESTLE framework only covers the macro environmental aspects that affect a business. It doesn't take into account other factors like the company, its sales, or its competitors.
It is increasingly difficult for companies to understand it when the factors overlap as sometimes they are interrelated with each other.
If the source of information is not reliable, it loses its effectiveness and usage.
If it is not assigned to a team of people and instead given to one person to collect and analyze all the factors, it leads to absence of different angles and perspectives.
DO's AND DONT's OF PESTLE ANALYSIS:
Do involve a group of selected experts to analyze the collected data.
Do make full use of any skill, knowledge and resources that exist internally in the company.
Do use PESTLE jointly with any other analysis like Porter's five forces model or SWOT or scenario planning or any other generic strategy.
Do monitor it regularly & keep track of changes happening in the macro environment.
Do analyze the collected information accurately to reach apt results; as the future strategy and business depends on it.
Don't assign this task to one person or one individual.
Don't consider the past or present trends while doing PESTLE.
THREE UPCOMING MOVEMENTS TO AFFECT PESTLE:
PESTLE ANALYSIS OF COKE:
Coke is a product under Coca Cola brand umbrella, which is a US company started in 1886. Today, it has more than 450 brands in it and supplies to more than 200 countries.Â Coca Cola (referred here in this example as 'the Company'). The Company manufactures, distributes, and markets beverage concentrates and ready-to-drink non-alcoholic beverages, and is holds the largest market shares in the world in non-alcoholic aerated drinks. In addition, it is the world's one-of-the-most trusted brand. The Company earns major revenues by selling four of the top five favourite drinks which comprises of Coke, Diet Coke, Sprite and Fanta. It sells almost 1.5 billion servings each day to its consumers. The Company's distribution structure is well acknowledged across the globe.
To achieve this today by Coke, it took many decades and careful strategic planning under exceptional leadership. Various tools & techniques are used like Internal analysis, SWOT, Environmental scanning, PESTLE, Scenario Planning, Stakeholder analysis etc. The bigger and more global a company is, the more is the need to conduct such studies.
In this case, the Company could gain competitive advantage and plan strategically by doing a comprehensive macro environmental scanning using PESTLE.
Let's take a look at these factors and their influence on Coke:
Government regulations: Play a dominant role in manufacturing Coke, as it falls under the FDA.
If the government's pre-defined standards of manufacturing are not met, there are fines and penalties to bear.
Changes in the non-alcoholic market situation: Competitors in the non-alcoholic market, competitive products, pricing concerns, sustain the market share because of competitors.Â Â
Changes in laws and regulations: Changes in accounting yardstick, introduction of new tax rules, revision of old regulations.
International market situation: Wars, civil issues, change of government, capital investment that needs government interference etc. It has an effect on distribution structure of Coke.
Market scenario: Develop existing markets & focus on upcoming markets depend on political conditions, which in turn affect the strategic plan with suppliers, bottlers, distributers, distribution structure.
Political environment also indirectly influences production capacity, technology, sales & service.Â
For example: War between USA and Iraq had an impact on Coke sales. Coke, being an American brand was not favoured by Middle East countries. Â
Economic Recession: US Economic crises of 2008 led to inflation. There was rise in fuel prices & rise in food prices. Almost every industry within US and outside the world over was affected by it. There was unemployment, job cuts, staff downsizing, bankruptcy, low revenues. There was global slump leading to cost cutting in every company. All this also affected the purchasing power of consumers. With such a thing and considering it's a frequent purchased product, Pepsi came even closer to Coke in competition during this time. Consumers could easily toggle over the cola drink. The economic downturn escorted slow growth in Europe and US. Coke at this time did not reduce prices and waited for the slump to get over & start making sales again as their product otherwise was popular. Also, markets outside US and Europe like Japan, Brazil, and Germany continued to generate revenues for Coke. Â
The health consciousness of people led to decreased sales of Coke in US and increased sales of Diet Coke. Fast life style of people led to increased preference for Bottled water (Kinley) as a matter of sheer convenience. For Coke, the target consumers are the 'Young' in the range of 18 - 30. For aged less or more, it's tea, coffee, hot chocolate, milk i.e. nutrition may get more importance. Countries that recorded high obesity and sedentary lifestyles preferred to choose health drinks. Changing lifestyle posed a challenge to Coke. Fast changing lifestyle led Coke to introduce Cans and plastic bottles that are easy to carry and dispose off. Coke received criticism too because of its high acidity point, caffeine content, high fructose content and not considered a healthy drink for an active lifestyle.
For example, presence of pesticides in Coke was highly criticised in India which resulted in low sales and hurt the market image of Coke.Â
Technology has had an impact on Coke. It uses digital media for advertising, marketing, and promotional series. It makes the product look attractive & brings into light the USP of the product. Through the technology of internet & television, brand awareness is increased and online purchasing is encouraged. Various kiosks at public places help to boost sales.
As a result of technological changes, there has been an introduction of new machinery and state-of-the-at technology which has led to more production at larger scale than earlier times.
For Coca Cola, to produce its 'contour light-weight'Â bottle was a technological invention which led the company to win a number of awards.Â
Nature has started to threaten us. Coca Cola realizes this and made efforts towards environment-friendly packaging, energy conservation, and safety of climate. It was recognised for its efforts made towards efficient water-management practice like water stewardship.
The company goals to - use less water to produce Coke, - use of recycled water, - reload water to society through local projects. Use of bio-plastic bottles for Coke is another commendable initiative to protect environment & deal with environmental changes effectively. It has joined hands with community environmental charity 'Keep Britain Tidy' for environmental cleanliness. Since 2007, company is working towards reusable packaging as one of its objectives. It globally aims to reduce, recover and reuse the product packaging while maintaining the same quality & standards of Coke. For example, reducing the cap size of PET bottles has led to elimination of millions pounds of plastic.Â
Let's see how the Legal factors have influenced Coca Cola operations:
Coca Cola was a high-alert product in EU countries because of poisoning in Belgium due to the wrong CO2 used.
There were demonstrations in India as pesticides & toxins were found in Coke and the product was boycotted in many parts of the country. Also, there was a protest in India due to ground water depletion.
Coca Cola had to halt operations in India a few decades ago as it refused to share its product formula with a local ancillary. Â