Pestle Analysis: External Environment Analysis

Due to the higher competitive 21^st century, it is true that business environment is regularly changing that requires the firm to effective research about the external business environment. Strategic development tools are those tools that help the analysts and business managers to identify the challenges and suggesting ways to overcome the same. For analysing the business environment, several strategic frameworks can be used such as Pestle analysis, Porters five forces. At the same time, internal environment can also be analysed through the resource based view. In the paper also, discussion has been carried on these strategic frameworks.

For knowing the external market environment, Pestle analysis helps the business. It includes following factors:

• Political factors: It basically conforms the level of government intervention in the organisation. It includes corruption level, government policy, political stability, labour law, foreign trade policies, environmental laws and the trade restrictions. Not only this, government also pit high impact on the education system, infrastructure, and health regulations. For example: Australian government has adopted the competition law in order to eliminate the unnecessary competition (Singh, 2020).  
• Economic factors: It includes the determinants of the economic performance. Economic factors are economic growth, inflation rate, exchange rate, unemployment rates and customer disposable income. These factors also put direct impact on the organisation as they put impact on the purchasing power of customers (Varelas and Georgopoulos, 2017).
• Social factors: these factors are values, characteristics, norms, as well as customs of the people where business is operating. At the same time, population trend such as age distribution, growth rate, health consciousness, career attitude, lifestyle attitude, safety emphasis and cultural barriers are included in the social factor. For example: customers are significantly demanding online services in Australia. By keeping this in mind, Woolworths has started the digital services for customers (Indartono and Wibowo, 2017).
• Technological factors: It includes the technological advancement which might impact the organisation favourable as well as unfavourable. It also includes the technological initiatives, innovation level, technological awareness intensity, research and development and automation that is possessed by the technological or market changes. These factors also impact the decision of any company to enter in any particular market or not. Due to the increasing technological advancement, organisations are required to give emphasis on bringing necessary changes. Several organisations in Australia have adopted the innovative technologies in order to sustain in the business environment.
• Environmental factors: these factors are significant due to increasing corporate social responsibilities, raw material scarcity, pollution and carbon footprint target set by government. These factors also include the environmental and ecological factors such as climate change, weather and some of the environmental targets that affects industries such as farming, tourism, agriculture and insurance. Several companies such as Wesfarmers and Woolworths in Australia have also stopped using plastic bags by keeping in mind the environmental measures. These factors also helped them in gaining customer support and good brand image (Rothaermal, 2016).
• Legal factors: these factors include several laws such as patent laws, consumer protection laws, discrimination laws, health and safety laws and employment laws. For ensuring the successful business operation, companies are required to follow the government laws related to industry. At the same time, several organisations also operate their business globally that requires the company to follow rules and regulations of every company. (Tyler, 018).

Using porters five forces, managers can significantly come to know the opportunities and threats related to external business environment. It tends to measure the industry competitiveness and thus its attractiveness and potential profitability. It includes following elements:

Threat of new entrant: It is true that a profitable business always attract some new entrants. When any brand is not known, they have to face higher threat when entering in any new market. For example: Airline industry is high complex sector where it is not possible for any company to enter. It possess higher threat due to higher requirement of investment for equipment, personnel and airport gateways (Farooq, Rupp and Farooq, 2017).

Threat of substitutes: substitute product is that product which is not whole same as the competitor bit a different product or service that can satisfy their similar need. for example: tea can be substitute for coffee for some people, as well as email can be substitute for the letter writing (Issa, Chang and Issa, 2010).

Competitive rivalry in industry: It states rag the competition industry is the significant trend that determines the profitability in particular industry. The competitor number, market size, industry growth, as well as how much it difficulty to come forward with any product also affect competitor intensity. Airline and automotive industry is the biggest example of higher competitive rivalry (Singh, 2020).

Buyers bargaining power: Buyers bargaining power is said to be the pressure that any customer puts on seller. It is true that buyers always want to buy the product with better quality, lower price, and with better services. Considering the sellers view point, the stage where buyer have high bargaining power is not prove attractive because it might be possible that competitors have too many strategies that can easily take the customer away. The bargaining power of buyers tends to decrease if any of the seller directly respond to the buyers tactics. For example: Walmart come across buyers bargaining power as it has high purchasing volume (Dobbs, 2014).

Porter’s Five Forces: Industry Competitiveness Analysis

Bargaining power of suppliers: It is also significant force that shape the industry competitive measure as it tends to limit the capability of seller for making profit.it is true that suppliers put pressure on the buyers through increasing prices, lowering the quality, and decrease the availability of supply (Vargas-Hernandez and Medrano, 2020).(Kumar, 2019).

It is a tool used for identifying the internal business environment. At the same time, it also helps in analysing the internal capabilities of the firm for gaining the competitive advantage. Valuable always ask if resources are adding valuing in the organisation through defencing any of the threat or exploiting any of the opportunities. If it is helping in any of the way then it is valuable. Resources also prove to be valuable if it assist the organisation in extending the value to customers. It can be done by adoption of differentiation strategy that provides some unique value to the products that ultimately helps in making customers happy. Differentiation strategy assists the organisation in providing something better to the customers. For example: apple has also adopted this strategy by providing something unique features to their customers. The some of the unique attributes helps the organisation in providing better services and products. It has also helped the organisation in gaining competitive advantage and customer trust by providing those best features. At the same, situations where several companies have use same resources and capability also lead to the competitive advantage. It is because organisations tend to use the same resources for the implementation of same strategy and no other organisation will ever be able to achieve the higher performance. As compare to this, losing the valuable resources and capabilities will hurt the organisation as they are significant for ensuring organisation sustainability. Resources are very difficult to imitate if any organisation have expensive resources. As compare to this, resources can also not be imitated if they are protected by legal means such as patent or any of the trademark. Organisational resources create the competitive advantage if they are valuable, rare or hard to imitate. It is therefore quite essential to consider this framework because organisations or businesses that are not effectively organised cannot achieve the competitive advantage. Resources of organisation can also be organised for capturing the value if they are properly supported through processed, structure as well as culture of the company. Therefore, organisation is required to organise their organisational policies, culture, process, system for effectively realising the potential of valuable, rare as well as costly to imitate resources and capabilities.

Conclusion 

In the limelight of above discussion, it can be concluded that business strategies and tools plays a major role in facilitating the organisation to attain their objectives and goals in such competitive marketplace. By using different strategic tool, organisations can effective evolve the business strategies and can achieve the competitive advantage. However, effective research is required on the part of organisations while applying these business tools. Pestle framework effectively assist in performing the external environment analysis by conducting research in the new markets. As compare to this, Porters five forces tend to measure the industry competitiveness and thus its attractive. In this way, organisations are significantly required to look after the environmental factors that can bring changes in the organisation.

References 

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Farooq, O., Rupp, D.E. and Farooq, M., 2017. The multiple pathways through which internal and external corporate social responsibility influence organizational identification and multifoci outcomes: The moderating role of cultural and social orientations. Academy of Management Journal, 60(3), pp.954-985.

Indartono, S. and Wibowo, F.W., 2017. VRIO and THES based development of university competitive advantage model in formulating university strategic plan. International Information Institute (Tokyo). Information, 20(10A), pp.7275-7283.

Issa, T., Chang, V. and Issa, T., 2010. Sustainable business strategies and PESTEL framework. GSTF International Journal on Computing, 1(1), pp.73-80.

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Lee, J.Y. and Day, G.S., 2019. Designing customer-centric organization structures: toward the fluid marketing organization. In Handbook on Customer Centricity. Edward Elgar Publishing.

Pan, W., Chen, L. and Zhan, W., 2019. PESTEL analysis of construction productivity enhancement strategies: A case study of three economies. Journal of Management in Engineering, 35(1), p.05018013.

Rothaermel, F.T., 2016. Strategic management: concepts (Vol. 2). McGraw-Hill Education.

Singh, G. G. 2020. Determining a path to a destination: pairing strategic frameworks with the Sustainable Development Goals to promote research and policy. Evolutionary and Institutional Economics Review, 1-19.

Tyler. 2018. Pestle analysis. [online] Available from: https://demplates.com/pestle-analysis-templates/ [accessed 27/01/2020].

Varelas, S. and Georgopoulos, N., 2017. Porter’s competitive forces in the modern globalized hospitality sector–the case of a Greek tourism destination. J Tour Res, 18, pp.121-131.

Vargas-Hernandez, J.G. and Medrano, M.D.J.M., 2020. The Circular Economy: Analysis Based on The Theory of Resources and Capabilities. Revista Livre de Sustentabilidade e Empreendedorismo, 5(2), pp.178-196.