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In analysing the macro environment, it is important to identify the factors that in turn affect a number of vital variables that influence organisation's supply and demand level and its costs. Business environment comprises of all factors which has an effect on company's operation and which includes customers, competitors, suppliers, industry trends, social and economic factors and technological developments. In order to achieve the organisational goals strategy formulation is very important where important decisions are taken. There are various internal and external factors that have an effect on a business and the overall development of the company is based on these factors. The process of assessing the external and internal factors of an organisation is important for the planning function of management. The external analysis examines the opportunities and threats in the environment. The internal analysis focuses on the factors which help in meeting the needs of its target market. Market changes all the time and it does not depend upon the type of product that business produces; business has to react to the changing environment or else will loose customers. The report deals with the various factors affecting a business and the impact on the organisation.
Kotler (1998) claims that PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction of operations. There are many factors which have an impact on decision making of every organization and the most important ones are political, social and economic and technological factors. There are also environmental and legal factors which can take under political factors. . A pest analysis incorporates many issues and they are how a company looking at its market, a product looking at its market, a local business unit, a strategic option which means entering a new market, potential partnership and investment opportunity. In this each factor is important because they play a major role in the overall business environment.
The political factors affecting a business greatly depends on the stability of the government, government type that is whether it is a dictatorship, democratic or monarchy, economic policies of the government, trade policy and diplomatic events in the surrounding countries. An example for the political factor affecting the company has happened in the coca-cola company in Kerala. In this they opened a plant in Kerala and they are given right to take a certain amount of water by using tube wells, but they took more water by digging more and as a result there was a shortage of water in that area. In this case political party take over this issue to make this problem a serious and as a result government interfered in this matter and closed and cancelled the licence of the factory. In this case political factor that is the government's decision affect the company and it comes under the political factor. Environmental and legal factor also came in this case and in most cases legal and environmental factor come under political factor and therefore we go for pest analysis instead of pestle analysis.
The economic factors are influenced by political and government policy and it plays a major influence in the government decisions as they provide opportunities and threats. Economic factors and governmental policies are closely related as they influence other environmental factors that affect organizations. For example inflation and international economics will affect the rate of interest charged for the loans, although the rate may be fixed by the central bank. It is the case of bank of England and is also influenced by the state government priorities. According to Thompson(2002),government spending can increase the money supply and make capital markets more buoyant. Economic factors include the economic growth trends of various countries, taxation, unemployment rate, inflation and also the production levels. Most of the multinational companies are not willing to open a branch in Zimbabwe because economic strength of that country is very poor and they are also afraid of the profit that they can make from business from the area of low economic growth.
The sociocultural environment encapsulates demand and tastes, which vary with fashion, disposable income, and general changes can gain provide both opportunities and threats for particular companies.( Thompson ,2002; Pearce and Robinson 2005). It varies from country to country and it includes attitudes towards foreign products and services, role of men and women in the society and also the language impact on diffusion of products into a market. Organizations should be aware of demographic changes as the structure of population has an important demand for particular products and services. People are always looking for differentiation and marketing segmentation will also be emerging. For example we can take India , India has an unusual number of uneconomic practices and can least afford them. If United States needs a revolution in its race relations they are getting it and in case of India it is the cumulative and interrelated effect of all the inhibition factors mostly on the caste or community that keeps the Indian economy backward.
Technological factors are very important for competitive advantage and it is the major element for globalisation. It includes whether a company can provide products of higher quality at a reasonable cost and also it checks for whether the company can provide innovative products. Technology outside the industry is also influenced by government support and encouragement. New technology resembles the two sides of the coin that is new technological advancements result in the formation of new companies producing quality product at lower cost and it becomes threat to the existing companies. On the other side it could provide a useful input in service and manufacturing industries. For example if we consider tourism industry better communication, transport and safety encouraged people to the tourism. Improvements in water supply, medicine and knowledge areas are opened up only after technological advances. The rapid increase in the online booking has given more chance to the consumers to make a holiday. Nowadays internet is the preferred method for getting the travel information and this shows the effect of technological factors in business. (Capron and Glazer, 1987)
Business has to react to the changing environment and for better understanding we are relating to a case study. It deals with the PESTLE analysis of grocery industry of Waitrose.
Waitrose , founded in 1904 and is owned by the John Lewis Partnership. It is operating in the UK's grocery market and was estimated at £103.4 billion at 2001. It has 137 stores all over UK and employs more than 27000 staff. Food sales are the core business of any supermarket in UK and that is the only market proved to be recession proof. It has non food articles that contribute to its market share. It is mainly recognized for its focussed differentiation strategy with a wide range of quality and fresh products.
PEST analysis of Waitrose
The political factors affecting business of Waitrose are with the Planning policy guidance it is very difficult to get out of town planning permissions and therefore expansions to the towns is limited and it becomes a hindrance for opening new stores and supercenters. Competition commission reports states that the supermarkets should not keep prices unduly high. Customers are more emphasised on healthy eating and organic foods rather than GM food.( key note 2001, marketing services)
The takeover of safeway is an indicator that many small companies are taken over and there will be a few companies remaining in the market. The competition will be intense if there is less number of companies.
Socio cultural factors
In these days the demand for organic and healthy foods has increased and all the supermarkets know this trend and they began to move into this, but customers are not ready to pay high price for this and as a result they will go to the store which supply quality product at reasonable cost. Waitrose has long been offering these kinds of products.
The public has also become more environmentally aware and Waitrose strategy is well suited in this. Almost 70% of the women are working and the working time is more than any other in the European country and most of the shopping is done by women. About 75% are travelling by car thereby causing a decline in the public transport.
Online shopping benefits both the society as a whole and the individuals. It is very convenient and it concludes ease of finding a product and time spent on shopping. We can compare product price and features and UK offers a good opportunity for online shopping. Information technology and communication plays a major role in store management with details statistics of product sold and thereby facilitating order of new stocks.
PEST ANALYSIS OF WAITROSE
- The Department of the Environment, Transport and the Regions (DETR) (2000): "The Government remains firmly committed to the objectives of PPG6, which seeks to sustain and enhance the vitality and viability of our existing city, town, district and local centres and to make them the focus for retail investment" ...means that it is very difficult to get planning permission for out-of-town stores.
- 'The Competition Commission's report "The Supply of Groceries from Multiple Stores in the United Kingdom", published in 2000, stated that the leading supermarkets do not operate as a cartel to keep food prices unduly high.'3 Although some questionable practices were found (selling product at a loss, lower prices in areas of high competition), the Commission did not recommend any corrective actions.
- EU Competition might not be as generous as the Competition Commission and order changes
The strength and weakness of a company is very important and Waitrose also got various strengths and weaknesses. Waitrose has its own labels "perfectly balanced" and it has their own farms which produce fresh and quality food products. After M&S Waitrose was one of the first retailers which produced own brands. The quality of service is excellent in Waitrose and it also uses work delivery scheme and it also has a wide range of products. Apart from this it has got some weaknesses too. Although there is internet shopping system Waitrose lags behind in this and has a market share of only 3%. The expansion is also very difficult because of the existing store coverage and also it is also very much dependent on its own labels.
After reviewing the results I came to a conclusion that pestle analysis is an important tool to identify the various factors affecting business and it helps the manager to get the feedbacks about the various factors that affects the company and based on these they can improve the quality of services and products and thereby making the organisation dominant among the other companies.
- Kotter, J. and Schlesinger, L. (1991) Choosing strategies for change, Harvard Business Review, pp.24-29.
- Capron, N. and Glazer, R. (1987) Marketing and technology: a strategic coalignment, Journal of Marketing, Vol. 51 Issue 3, pp.10-21.
- Cooper, L. (2000) Strategic marketing planning for radically new products, Journal of Marketing, Vol. 64 Issue 1, pp.1-15.
- Kotler, P. (1998) Marketing Management - Analysis, Planning, Implementation, and Control, 9th Edition, Englewood Cliffs: Prentice-Hall.
- Pearce, J. and Robinson, R (2005) Strategic Management, 9th Edition, New York: McGraw-Hill.
- Porter, M. (1985) Competitive Advantage, New York: Free Press.
- Robinson, S., Hichens, R. and Wade, D. (1978) The directional policy matrix-tool for strategic planning, Long Range Planning Journal, Vol. 11, pp.8-15.
- John LewiByars, L. (1991) Strategic Management, Formulation and Implementation - Concepts and Cases, New York: HarperCollins.
- Keynote, 2001, Own Brands, market report
- Keynote, 2001, supermarkets & superstores, market report
- Waitrose environmental report