Five Forces, PESTEL and SWOT

Introduction
The
report is compiled to understand the environment in which Marks & Spencer
(M & S) operates and detailed objectives of the report can be explained as
follows. Objective one of the report is to identify the external environment
factors that impacts M & S’s performance in a broader sense where a PESTEL
analysis will be used to explain factors. Objective two of the report is to
identify the industry environment in which M & S operates and to evaluate
the industry environment Micheal Porter’s Five Forces analysis will be used.
Objective three of the report is to come up with a SWOT analysis for M & S
in order to identify the strengths, weaknesses, opportunities and threats. In
the final section of the report, it aims at providing an overall conclusion about
the strategic position of M & S which can be used to develop future
strategies for the organization.

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M
& S is a large conglomerate listed in London Stock Exchange and it has
operations in more than 40 countries around the world even though the core
business is focused on UK. (M & S Corporate Website, 2012) The business
portfolio of M & S is diversified to an extent because it has ventured into
businesses ranging from clothing, furniture, home appliances, food and
financial services. (M & S Corporate Website, 2012) With a large business
portfolio in hand, M & S considered as a one of the strongest brands in UK
and due to the recent turmoil in the business environment, they are faced with
a challenging situation. Therefore, the report identifies the factors that
seriously affect the performance of M & S where findings of this report can
be used to take business decisions in the future. PESTEL Analysis
PESTEL
Analysis is a tool that is developed to identify the external factors that
affect the strategy of the organization and through the PEST analysis; decision
maker can identify the macro level factors which would give rise to
opportunities or threats to M & S. (Lorat, 2005) The PESTEL analysis for M
& S can be presented as follows:
(P)olitical Factors
Since
M & S is company with presence in more than 40 countries the global
political situation and the political climate of each and every country in
which they have operations affects the bottom line of M & S. With that
thought in mind, laws created by the European Parliament affects M & S as
it has presence in many European counties such as Spain and Green who are bound
by the law of European Union. (European Commission, 2011a) However, core
business location of M & S- UK is not severely affected by law making of EU
as UK has the option to decide whether to adhere to the law or not. (HM Revenue
and Customs, n.d) Considering the political climate of UK, there are many
reports that suggests that political climate of UK is positive with law
political risk involved as the present government operates in a stable manner.
Even though the political climate in UK is identified to be positive, the
global political climate is recognized as a negative force threatening M &
S due to the global political unrests. The political situation in Middle
Eastern countries involves high risk as there are war breakouts in gulf region
and Africa. The war in Iraq and Libya has a severe impact on M & S as they
have their presence in many Middle Eastern countries including Libya. There are
many business reports suggesting that M & S has made significant losses at
its Libyan business unit due to the war breakout. (Owen and Chester, 2012)
Further, there are sanctions imposed on certain countries in Middle East such
as Iran and Syria limiting trading with those countries which is considered to
be a negative factor for M & S as it limits the business opportunities of M
& S trade with those counties. (Saul, 2012)
The
trade policy of the government is developed based on the motive that UK
businesses should transform to multinational companies venturing into emerging
economies into around the world. It allows UK provides subsidies for UK
companies to make investments outside UK and transfer the profits back to UK
without charging any income tax or capital gains tax on it. (The Economic
Times, 2007) This policy is an opportunity for M & S to transform into
multinational and transfer profit back to its headquarters with no tax.
Further, trade policy of UK aims at helping developing countries in Africa to
by developing business relationship with them and UK companies are provided
subsidies for engaging in business with selected African countries. M & S
utilize this opportunity to venture into untapped African markets which would
facilitate the growth process. Further, trade policy of European Union has made
a provision for developing countries through Generalized System of Preference
(GSP plus) where the selected developing countries are allowed to trade with EU
countries at low or no tariff on imports. (European Commission, 2011a) This has
provided significant opportunity for M & S to build their supplier base in
chosen countries and they have entered into strategic partnership with those
chosen supplier. However, the poor diplomatic relationships and other political
pressures such as human rights claims have resulted in abolishing GSP plus
concession for certain countries such as Sri Lanka who were major suppliers for
clothing division of M & S. (Gunathilake, 2012) This has situation has
forced M & S to look for alternative suppliers as the prices of imports
from their major sourcing countries have become less competitive. (Gunathilake,
2012) Trade policies of other countries in which M & S also affect the
strategy of M & S.
(E)conomic Factors
Currently
many of the European countries are faced with a financial crisis which is
called the Euro crisis and it has led to poor performance of economies such as
Spain and Greece. (Lowrey, 2012) Due to the crisis situation in Ireland, Spain
and Greece which is caused by the defaults of debt, the economic activities
have slowed down leading to low performance by M & S as the revenue level
of those business units have fallen. (Lowrey, 2012) To cover up the poor
performing European businesses, there has been a significant economic growth in
emerging Asian countries such as China and India where China has accounted for
40% of the world economic growth and India has accounted for 15% of the world
economic growth giving a combined figure of 55% of the total world economic
growth arising from Asia. (The Indian Express, 2012) Hence, this can be
identified as an opportunity to further expand business operations in India and
China while making more money from the existing business units in those
countries.
Being
in the consumer goods business, M & S is significantly affected by the
income level of its potential customer. The consumer income level in UK has
been dropping significantly during past few years as a result of the recent
financial crisis where the disposable income growth in UK has fallen from 3.2%
in 2001-2002 to 0.3% in 2008-2010 time periods indicating that the purchasing
power of consumers has been stagnant during the last few years. (Jin et al,
2011) (Refer Appendix A for a detailed breakdown of income growth in UK) M
& S product range is a luxurious product range where consumer’s disposable
income is a factor that determines the purchase choice. When the consumer
income’s disposable income falls, the consumer’s consumption also falls as the
money that is available for consumption is limited. When there is limited money
available for consumption, consumers tend to avoid luxurious goods rather they
purchase substitutes products that are available for cheaper prices. This
situation could heavily affect M & S leading to fall in income as its
entire clothing line and the food sector is catering to up market with premium
prices.
Being
a global company exchange rate also has an impact on performance of M & S.
Considering the exchange rate for British Pound, it is apparent that currency
is not stable in the market where there are heavy fluctuations and during past
120 days the exchange rate for USD has it highest point in 0.65 and the lowest
point in 0.61. (X Rates, 2012) (Please refer Appending B for more details) These
fluctuations impact global business operation of M & S as the money earned
in other countries have to be transferred back to UK. Further, M & S is
also in to the currency converting business via M & S Money and severe
fluctuations in exchange rate significantly impact the margins of business as
they they are unable to predict future exchange rates.
(S)ocial and Cultural Factors
In
the modern world the the free time of consumers have been reducing over the
time where the consumers have been loaded with work at their workplace and
personal commitments. Therefore, the modern trade requires new methods to save
time such as no lengthy queues at the cashier, home delivery and extended
versions of the online store of M & S to increase sales by leveraging on busy
life styles of people.
The
clothing preference of people depends on the cultural and religious values
where the strategy of M & S needs to be adapted to suit the cultural and
religious values of the people. As an example, the clothing fashions in Middle
East is based on Islamic traditions where the women are required cover their
full body this would limit the opportunity for M & S to trade the
traditional set of items in middle east. Further, clothing traditions in India
are shaped by Hindu religious values and Indian culture which is identified
completely different to the UK clothing fashions resulting in a challenge for M
& S to market its standardized product range at India.
Not
only the clothing preferences, the food preferences of customers also depend on
the culture and religious values where the food preferences of customers change
from country to country depending on the local cuisine too. As an example, due
to the influence of Hinduism, in India the food sellers operate without beef in
their cuisine as majority in India who believe in Hinduism does not consume
beef. Similarly, Islamic nations such as Saudi Arabia, Oman and Middle Eastern
Countries require a food to prepared according to halal approved manner using
only halal certified ingredients as customers who believe in Islamic religious
value consume food that are prepared according to halal standards and operating
under halal standards require removing pork related items from restaurants.
Therefore, the cultural and religious values of consumers have a big impact on
the M & S food division and customization to the standardized products are
required to meet the demands in locales based cultural and religious values.
(T)echnological Factors
As
a multinational company looking forward to excel in its strategy, M & S is
significantly impacted by the changes in the technological environment which
changes at a rapid pace in current business environment. There has been a
significant increase in the mobile payment methods during the recent past where
the online payments are expected to hit USD 740 Billion in 2010 to USD 2700 in
2015. (Vertical Edge Limited, 2011) The increase in online payments are caused
by increased usage in credit cards/debit cards and change in the perception
about online transaction security where the customers have recently developed
trust on online merchants and online payment verification systems such as
Paypal to enter their credit card credentials. (Vertical Edge Limited, 2011)
This change provides a significant opportunity for M & S Money to increase
sales for their credit card divisions and the M & S online store to expand
its online sales targeting a larger segment of customers. In additional to the
online payments methods, mobile payment methods also emerge in the market
allowing a greater flexibility for customers to make their purchases via mobile
phones simply by disclosing credentials to the merchant on mobile phone and
simply order the goods. (Skoczkowski, nd) The growth projected in the mobile money field has been
significant where it was expected to have 2.7 transactions in 2007 37 Billion
transactions by 2011. (Skoczkowski, nd) Similar to the credit card
payments, running a mobile payment platform requires a supporting bank to
provide payment gateways and since M & S money can facilitate the banking
process it gives a strategic advantage for M & S to venture in to the
mobile payment methods for its clothing, gifts and food sectors.
(E)nvironment Factors
During
the recent past, there has been significant trend in companies going green due
to external pressures as well as businesses understanding the importance of
sustainability. (Wood, 2011) With the green initiatives, companies have adapted
strategies to minimize waste, save energy, create green manufacturing and
encourage suppliers to go green making it a trendy approach to position the
business as a socially responsible entity. (Woods, 2011) Therefore, it provides
an opportunity for M & S to improve their green initiatives and position
themselves as a green organization in customer’s mind which could impact the
buying decisions of customers on ethical grounds.
The
climate change and the seasonal changes caused by the natural environment have a
great impact on the clothing preferences of the customers. When the winter
arrives in UK and other European countries demand for winter clothes are
expected to grow whereas during the summer demand for summer clothes are
expected to grow. (Peacock, 2011) Further, clothing preference significantly
varies from countries with warm climates such as Saudi Arabia to countries with
a cool climate such as UK. This gives the opportunity for M & S to produce
clothes to suit the requirement of season and climate conditions of countries
and meet the demand.
In
the recent past, the world was exposed to many natural disasters such as
earthquakes, Tsunami, floods and cyclones and the recent reports suggests that
natural disasters could increase in the future leading to an uncertain future.
(CBC News, 2011) Recent earthquake/Tsunami situations in Indonesia and flood in
Thailand have negatively affected M & S business operations in those
countries and there is a significant threat identified as a result of predicted
increase in natural disaster in the future.
(L)egal Factors
Operating
in a global environment requires companies to be in line with the global legal
system as well as the local legal systems of countries in which they have
operations. As an example, as M & S venture in to China, labour policies
adapted in China should be within the labour regulations of Chinese government
and also it needs to comply with the standards of International Labour
Organization. Similarly, since M & S operates in the food and beverages industry,
the process in which the food business is carried out should be in line with
the food product standards that are enforced at local levels. Apart from the
labour and food product regulations, the companies starting businesses in other
countries also should comply with the companies law of those countries where
the entity needs to be duly incorporated in those countries according to
respective laws while ensuring that the reporting occurs as an when required. Micheal Porter’s Five Forces Analysis
Porter’s
Five forces analysis is a tool that is developed to identify the threats and
opportunities resulting from the task environment of the business which is
comprised of the forces that business closely interact with. (Henry, 2008) Five
forces analysis for M & S can be conducted as follows:
Buyer Power                                  
The
buyer power of M & S consumers is identified to be low as the customers are
unable to influence the prices. Prices are set high as the target audience is
high income earners seeking for luxurious life style. Further, since there are
a large number of buyers in the market, the power of individual buyer is very
low and as the revenue contribution by individual buyers is a very low, the
bargaining power of individual buyers is concluded to be low. Due to above
mentioned reasons; the low bargaining power of the customer is identified as a
opportunity for M & S as they can decide on the selling price.
Supplier Power
M
& S is a large scale buyer who is in a position to bargain and decide on
the price and therefore the supplier power is considered to be low. Due to the
large quantities purchased, M & S receive bulk discount and due to the
established the brand name it is easy for M & S to bargain with suppliers
to build business relationships. Further, suppliers are given other additional
benefits such as technology transfers by M & S, suppliers are under
obligations to give priority to produce goods for M & S reducing the
bargaining power of suppliers. Therefore, M & S has significant control over
its supplier base and it can be identified as a positive environment factor.
Threat of Substitutes
M
& S operates in the high street segment and there are ample substitutes
available for up market products where goods of similar nature are sold at
reasonable prices in normal shops. For example, substitute for luxurious food
items can be found at regular fast food restaurants such as KFC and McDonalds
indicating that there is a significant threat from substitute products. Threat of New Entrants
Except
for the banking industry, other industries in which M & S operates does not
have major entry barriers or major exit barriers. Entering into a restaurant
business or clothing business does not require major capital investments and
they are identified to have high level of margins making it attractive for new
entrants to enter the market. Therefore, M & S is faced with significant
threat from the new entrants to the market.
Rivalry among Existing Competitors
The
number of players in the up market clothing and food industry is large and they
compete with each other to increase/retain their market share. However, each
store tries to differentiate themselves from the competitors where they
concentrate on product value and brand values rather than price war. Since each
competitor reflects unique values of their brand, customers become loyal to
those stores reducing the cut throat competitions to somehow grab the customer.
This indicates an opportunity for M & S differentiate themselves using
their unique brand values. SWOT Analysis
SWOT
analysis is carried out to identify the strategic position of the organization
where it provides insights from the internal organizations by means of
strengths and weaknesses where external organization is evaluated as opportunities
and threats. (Dealtry, 1992)
(S)trengths of M & S

M
& S has presence in more than 40 countries giving it the opportunity to
cater to a larget customer segment and earn revenue. (M & S Corporate
Website, 2012)

M
& S employs 78,000 people in their business process
and these employees are well talented and given training to enhance their
skills to perform their tasks. (M & S Corporate
Website, 2012)  

M
& S has a large supplier base of 2000 suppliers
around the world providing best quality products at lower prices due to the
strategic partnerships. (M & S Corporate
Website, 2012)
(W)eaknesses of M & S

M
& S’s policy is to concentrate more on its UK business rather than
expanding its operations in other countries. Having its concentration in a
market which is affected by a financial crisis can be seen a weakness as the
market could collapse. (M & S Corporate Website, 2012)

The
reports suggests that Marks and Spence has high prices when compared to
competitors who are operating in the similar market and it has led them lose
the market share in the recent past. (Felsted, 2012) (O)pportunities of M & S

As
explained in the technology analysis the mobile money industry is growing at a
rapid pace and M & S could capitalize on it and
launch mobile stores.

As
explained in the economic analysis, Asian countries such as India and China
have reported high economic growth where M & S could expand its operations
in those countries to generate better results.
Cheap Sourcing due to trade policy
The
trade policy of EU and UK allows subsidies for developing business relationship
with developing countries and M & S has opportunity to utilize it to obtain
cheaper supplies.
(T)hreat of M & S
Reduction in consumer income
Induction
in consumer income has forced customers to look for cheap substitutes leading
to drop in sales for M & S.
Fluctuation in exchange rates
Significant
fluctuations in the exchange rate give rise to exchange rate losses when
operating in global business environment.

Political
unrest in Middle East and African countries increases the global political risk
where the operations in Middle East region as well as global operations are at
a risk of economies getting slowed down. Conclusion
An
in depth analysis of the environment in which M & S operates was conducted
and based on the PESTEL analysis it was identified that economic environment
gives rise to significant threats due to fall in consumer income. Technological
environment has given rise opportunities where M & S could capitalize on.
The Porter’s five forces analysis indicated positive signals except for threat
of substitutes. Based on the environment analysis and the internal analysis, a
SWOT analysis was compiled as the final section of the report which can be used
for business decision making. References
CBC News. (2011). Natural disasters will increase: British report. Available: http://www.cbc.ca/news/world/story/2011/03/28/disasters-paddy-ashdown-britain.html. Last accessed 20th June 2012.Dealtry R (1992). Dynamic Swot Analysis: Developer’s Guide. Birmingham : DSA Publications . p14.European Commission . (2011a). What is EU law?. Available: http://ec.europa.eu/eu_law/introduction/treaty_en.htm. Last accessed 21st June 2012.European Commission . (2011b). Generalised System of Preferences (GSP). Available: http://ec.europa.eu/trade/wider-agenda/development/generalised-system-of-preferences/. Last accessed 20th June 2012.Felsted A. (2012). Marks and Spencer loses Price to rival. Available: http://www.ft.com/intl/cms/s/0/5f21a30a-bc50-11e1-a836-00144feabdc0.html#axzz1yfTiwomx. Last accessed 20th June 2012.Gunatilleke M. (2010). Garment workers torn apart as GSP Plus is withdrawn. Available: http://sundaytimes.lk/100815/News/nws_44.html. Last accessed 20th June 2012.Henry A (2008). Understanding Strategic Management. New York: Oxford University Press. p68-69.HM Revenue and Customs . (n.d.). PE1100 – Partial exemption basics and the standard method: EU law. Available: http://www.hmrc.gov.uk/manuals/pemanual/pe1100.htm. Last accessed 20th June 2012.Jin et Al. (2011). Poverty and Inequality in the UK: 2011. Available: http://www.ifs.org.uk/comms/comm118.pdf. Last accessed 20th June 2012.Lorat N (2005). Market Audit and Analysis. Germany : Druck and Bindung. p6.LOWREY A. (2012). World Bank Warns Euro Fears May Slow Global Growth. Available: http://www.nytimes.com/2012/06/13/business/global/world-bank-warns-euro-fears-may-slow-global-growth.html?_r=1. Last accessed 20th June 2012.M & S corporate website . (2012). Company Overview. Available: http://corporate.marksandspencer.com/aboutus/company_overview. Last accessed 20th June 2012.OWEN J and LAURA C. (2011). British firms stand to lose millions in revolt. Available: http://www.independent.co.uk/news/business/news/british-firms-stand-to-lose-millions-in-revolt-2226895.html. Last accessed 20th June 2012.Peacock L . (2011). Cyber Monday to boost retailers as shoppers flock online. Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8920183/Cyber-Monday-to-boost-retailers-as-shoppers-flock-online.html. Last accessed 20th June 2012.Saul J. (2012). Iran’s sanction-beating grain trade seen ready to help Syria. Available: http://www.reuters.com/article/2012/06/01/us-syria-iran-grain-idUSBRE8500JU20120601. Last accessed 20th June 2012.Skoczkowski L. (n.d.). Mobile Money: Transforming The Wireless Paradigm. Available: http://www.billingoss.com/articles/mobile_money_a_global_opportunity_redknee.htm. Last accessed 20th June 2012.The Economic Times . (2007). UK-based MNCs may get to repatriate profits tax-free. Available: http://articles.economictimes.indiatimes.com/2007-04-12/news/28473863_1_mncs-consultation-paper-tax. Last accessed 20th June 2012.The Indian Express. (2012). India, China deliver half of world economic growth: report. Available: http://www.indianexpress.com/news/india-china-deliver-half-of-world-economic-growth-report/898480/. Last accessed 20th June 2012.Vertical Edge Limited. (2011). The Future of Online and Mobile Payments. Available: http://www.companiesandmarkets.com/Market/Information-Technology/Market-Research/The-Future-of-Online-and-Mobile-Payments/RPT858359. Last accessed 20th June 2012.Woods J. (2012). Adapting business for the green era. Available: http://www.telegraph.co.uk/sponsored/earth/the-age-of-energy/8876251/Adapting-business-for-the-green-era.html. Last accessed 20th June 2012.X Rates. (2012). Exchange Rate Graph . Available: http://www.x-rates.com/d/GBP/USD/graph120.html. Last accessed 20th June 2012.
Appendix A
Measures
of Income Growth in UK

Source:
Jin et al, (2011) Appendix B
Exchange
Rate Fluctuations

Source:
X Rate, (2012)
Introduction
The
report is compiled to understand the environment in which Marks & Spencer
(M & S) operates and detailed objectives of the report can be explained as
follows. Objective one of the report is to identify the external environment
factors that impacts M & S’s performance in a broader sense where a PESTEL
analysis will be used to explain factors. Objective two of the report is to
identify the industry environment in which M & S operates and to evaluate
the industry environment Micheal Porter’s Five Forces analysis will be used.
Objective three of the report is to come up with a SWOT analysis for M & S
in order to identify the strengths, weaknesses, opportunities and threats. In
the final section of the report, it aims at providing an overall conclusion about
the strategic position of M & S which can be used to develop future
strategies for the organization.
M
& S is a large conglomerate listed in London Stock Exchange and it has
operations in more than 40 countries around the world even though the core
business is focused on UK. (M & S Corporate Website, 2012) The business
portfolio of M & S is diversified to an extent because it has ventured into
businesses ranging from clothing, furniture, home appliances, food and
financial services. (M & S Corporate Website, 2012) With a large business
portfolio in hand, M & S considered as a one of the strongest brands in UK
and due to the recent turmoil in the business environment, they are faced with
a challenging situation. Therefore, the report identifies the factors that
seriously affect the performance of M & S where findings of this report can
be used to take business decisions in the future. PESTEL Analysis
PESTEL
Analysis is a tool that is developed to identify the external factors that
affect the strategy of the organization and through the PEST analysis; decision
maker can identify the macro level factors which would give rise to
opportunities or threats to M & S. (Lorat, 2005) The PESTEL analysis for M
& S can be presented as follows:
Political Factors
Since
M & S is company with presence in more than 40 countries the global
political situation and the political climate of each and every country in
which they have operations affects the bottom line of M & S. With that
thought in mind, laws created by the European Parliament affects M & S as
it has presence in many European counties such as Spain and Green who are bound
by the law of European Union. (European Commission, 2011a) However, core
business location of M & S- UK is not severely affected by law making of EU
as UK has the option to decide whether to adhere to the law or not. (HM Revenue
and Customs, n.d) Considering the political climate of UK, there are many
reports that suggests that political climate of UK is positive with law
political risk involved as the present government operates in a stable manner.
Even though the political climate in UK is identified to be positive, the
global political climate is recognized as a negative force threatening M &
S due to the global political unrests. The political situation in Middle
Eastern countries involves high risk as there are war breakouts in gulf region
and Africa. The war in Iraq and Libya has a severe impact on M & S as they
have their presence in many Middle Eastern countries including Libya. There are
many business reports suggesting that M & S has made significant losses at
its Libyan business unit due to the war breakout. (Owen and Chester, 2012)
Further, there are sanctions imposed on certain countries in Middle East such
as Iran and Syria limiting trading with those countries which is considered to
be a negative factor for M & S as it limits the business opportunities of M
& S trade with those counties. (Saul, 2012)
The
trade policy of the government is developed based on the motive that UK
businesses should transform to multinational companies venturing into emerging
economies into around the world. It allows UK provides subsidies for UK
companies to make investments outside UK and transfer the profits back to UK
without charging any income tax or capital gains tax on it. (The Economic
Times, 2007) This policy is an opportunity for M & S to transform into
multinational and transfer profit back to its headquarters with no tax.
Further, trade policy of UK aims at helping developing countries in Africa to
by developing business relationship with them and UK companies are provided
subsidies for engaging in business with selected African countries. M & S
utilize this opportunity to venture into untapped African markets which would
facilitate the growth process. Further, trade policy of European Union has made
a provision for developing countries through Generalized System of Preference
(GSP plus) where the selected developing countries are allowed to trade with EU
countries at low or no tariff on imports. (European Commission, 2011a) This has
provided significant opportunity for M & S to build their supplier base in
chosen countries and they have entered into strategic partnership with those
chosen supplier. However, the poor diplomatic relationships and other political
pressures such as human rights claims have resulted in abolishing GSP plus
concession for certain countries such as Sri Lanka who were major suppliers for
clothing division of M & S. (Gunathilake, 2012) This has situation has
forced M & S to look for alternative suppliers as the prices of imports
from their major sourcing countries have become less competitive. (Gunathilake,
2012) Trade policies of other countries in which M & S also affect the
strategy of M & S.
Economic Factors
Currently
many of the European countries are faced with a financial crisis which is
called the Euro crisis and it has led to poor performance of economies such as
Spain and Greece. (Lowrey, 2012) Due to the crisis situation in Ireland, Spain
and Greece which is caused by the defaults of debt, the economic activities
have slowed down leading to low performance by M & S as the revenue level
of those business units have fallen. (Lowrey, 2012) To cover up the poor
performing European businesses, there has been a significant economic growth in
emerging Asian countries such as China and India where China has accounted for
40% of the world economic growth and India has accounted for 15% of the world
economic growth giving a combined figure of 55% of the total world economic
growth arising from Asia. (The Indian Express, 2012) Hence, this can be
identified as an opportunity to further expand business operations in India and
China while making more money from the existing business units in those
countries.
Being
in the consumer goods business, M & S is significantly affected by the
income level of its potential customer. The consumer income level in UK has
been dropping significantly during past few years as a result of the recent
financial crisis where the disposable income growth in UK has fallen from 3.2%
in 2001-2002 to 0.3% in 2008-2010 time periods indicating that the purchasing
power of consumers has been stagnant during the last few years. (Jin et al,
2011) (Refer Appendix A for a detailed breakdown of income growth in UK) M
& S product range is a luxurious product range where consumer’s disposable
income is a factor that determines the purchase choice. When the consumer
income’s disposable income falls, the consumer’s consumption also falls as the
money that is available for consumption is limited. When there is limited money
available for consumption, consumers tend to avoid luxurious goods rather they
purchase substitutes products that are available for cheaper prices. This
situation could heavily affect M & S leading to fall in income as its
entire clothing line and the food sector is catering to up market with premium
prices.
Being
a global company exchange rate also has an impact on performance of M & S.
Considering the exchange rate for British Pound, it is apparent that currency
is not stable in the market where there are heavy fluctuations and during past
120 days the exchange rate for USD has it highest point in 0.65 and the lowest
point in 0.61. (X Rates, 2012) (Please refer Appending B for more details) These
fluctuations impact global business operation of M & S as the money earned
in other countries have to be transferred back to UK. Further, M & S is
also in to the currency converting business via M & S Money and severe
fluctuations in exchange rate significantly impact the margins of business as
they they are unable to predict future exchange rates.
Social and Cultural
Factors
In
the modern world the the free time of consumers have been reducing over the
time where the consumers have been loaded with work at their workplace and
personal commitments. Therefore, the modern trade requires new methods to save
time such as no lengthy queues at the cashier, home delivery and extended
versions of the online store of M & S to increase sales by leveraging on busy
life styles of people.
The
clothing preference of people depends on the cultural and religious values
where the strategy of M & S needs to be adapted to suit the cultural and
religious values of the people. As an example, the clothing fashions in Middle
East is based on Islamic traditions where the women are required cover their
full body this would limit the opportunity for M & S to trade the
traditional set of items in middle east. Further, clothing traditions in India
are shaped by Hindu religious values and Indian culture which is identified
completely different to the UK clothing fashions resulting in a challenge for M
& S to market its standardized product range at India.
Not
only the clothing preferences, the food preferences of customers also depend on
the culture and religious values where the food preferences of customers change
from country to country depending on the local cuisine too. As an example, due
to the influence of Hinduism, in India the food sellers operate without beef in
their cuisine as majority in India who believe in Hinduism does not consume
beef. Similarly, Islamic nations such as Saudi Arabia, Oman and Middle Eastern
Countries require a food to prepared according to halal approved manner using
only halal certified ingredients as customers who believe in Islamic religious
value consume food that are prepared according to halal standards and operating
under halal standards require removing pork related items from restaurants.
Therefore, the cultural and religious values of consumers have a big impact on
the M & S food division and customization to the standardized products are
required to meet the demands in locales based cultural and religious values.
Technological Factors
As
a multinational company looking forward to excel in its strategy, M & S is
significantly impacted by the changes in the technological environment which
changes at a rapid pace in current business environment. There has been a
significant increase in the mobile payment methods during the recent past where
the online payments are expected to hit USD 740 Billion in 2010 to USD 2700 in
2015. (Vertical Edge Limited, 2011) The increase in online payments are caused
by increased usage in credit cards/debit cards and change in the perception
about online transaction security where the customers have recently developed
trust on online merchants and online payment verification systems such as
Paypal to enter their credit card credentials. (Vertical Edge Limited, 2011)
This change provides a significant opportunity for M & S Money to increase
sales for their credit card divisions and the M & S online store to expand
its online sales targeting a larger segment of customers. In additional to the
online payments methods, mobile payment methods also emerge in the market
allowing a greater flexibility for customers to make their purchases via mobile
phones simply by disclosing credentials to the merchant on mobile phone and
simply order the goods. (Skoczkowski, nd) The growth projected in the mobile money field has been
significant where it was expected to have 2.7 transactions in 2007 37 Billion
transactions by 2011. (Skoczkowski, nd) Similar to the credit card
payments, running a mobile payment platform requires a supporting bank to
provide payment gateways and since M & S money can facilitate the banking
process it gives a strategic advantage for M & S to venture in to the
mobile payment methods for its clothing, gifts and food sectors.
Environment Factors
During
the recent past, there has been significant trend in companies going green due
to external pressures as well as businesses understanding the importance of
sustainability. (Wood, 2011) With the green initiatives, companies have adapted
strategies to minimize waste, save energy, create green manufacturing and
encourage suppliers to go green making it a trendy approach to position the
business as a socially responsible entity. (Woods, 2011) Therefore, it provides
an opportunity for M & S to improve their green initiatives and position
themselves as a green organization in customer’s mind which could impact the
buying decisions of customers on ethical grounds.
The
climate change and the seasonal changes caused by the natural environment have a
great impact on the clothing preferences of the customers. When the winter
arrives in UK and other European countries demand for winter clothes are
expected to grow whereas during the summer demand for summer clothes are
expected to grow. (Peacock, 2011) Further, clothing preference significantly
varies from countries with warm climates such as Saudi Arabia to countries with
a cool climate such as UK. This gives the opportunity for M & S to produce
clothes to suit the requirement of season and climate conditions of countries
and meet the demand.
In
the recent past, the world was exposed to many natural disasters such as
earthquakes, Tsunami, floods and cyclones and the recent reports suggests that
natural disasters could increase in the future leading to an uncertain future.
(CBC News, 2011) Recent earthquake/Tsunami situations in Indonesia and flood in
Thailand have negatively affected M & S business operations in those
countries and there is a significant threat identified as a result of predicted
increase in natural disaster in the future.
Legal Factors
Operating
in a global environment requires companies to be in line with the global legal
system as well as the local legal systems of countries in which they have
operations. As an example, as M & S venture in to China, labour policies
adapted in China should be within the labour regulations of Chinese government
and also it needs to comply with the standards of International Labour
Organization. Similarly, since M & S operates in the food and beverages industry,
the process in which the food business is carried out should be in line with
the food product standards that are enforced at local levels. Apart from the
labour and food product regulations, the companies starting businesses in other
countries also should comply with the companies law of those countries where
the entity needs to be duly incorporated in those countries according to
respective laws while ensuring that the reporting occurs as an when required. Micheal Porter’s Five
Forces Analysis
Porter’s
Five forces analysis is a tool that is developed to identify the threats and
opportunities resulting from the task environment of the business which is
comprised of the forces that business closely interact with. (Henry, 2008) Five
forces analysis for M & S can be conducted as follows:
Buyer Power                                  
The
buyer power of M & S consumers is identified to be low as the customers are
unable to influence the prices. Prices are set high as the target audience is
high income earners seeking for luxurious life style. Further, since there are
a large number of buyers in the market, the power of individual buyer is very
low and as the revenue contribution by individual buyers is a very low, the
bargaining power of individual buyers is concluded to be low. Due to above
mentioned reasons; the low bargaining power of the customer is identified as a
opportunity for M & S as they can decide on the selling price.
Supplier Power
M
& S is a large scale buyer who is in a position to bargain and decide on
the price and therefore the supplier power is considered to be low. Due to the
large quantities purchased, M & S receive bulk discount and due to the
established the brand name it is easy for M & S to bargain with suppliers
to build business relationships. Further, suppliers are given other additional
benefits such as technology transfers by M & S, suppliers are under
obligations to give priority to produce goods for M & S reducing the
bargaining power of suppliers. Therefore, M & S has significant control over
its supplier base and it can be identified as a positive environment factor.
Threat of Substitutes
M
& S operates in the high street segment and there are ample substitutes
available for up market products where goods of similar nature are sold at
reasonable prices in normal shops. For example, substitute for luxurious food
items can be found at regular fast food restaurants such as KFC and McDonalds
indicating that there is a significant threat from substitute products. Threat of New Entrants
Except
for the banking industry, other industries in which M & S operates does not
have major entry barriers or major exit barriers. Entering into a restaurant
business or clothing business does not require major capital investments and
they are identified to have high level of margins making it attractive for new
entrants to enter the market. Therefore, M & S is faced with significant
threat from the new entrants to the market.
Rivalry among Existing
Competitors
The
number of players in the up market clothing and food industry is large and they
compete with each other to increase/retain their market share. However, each
store tries to differentiate themselves from the competitors where they
concentrate on product value and brand values rather than price war. Since each
competitor reflects unique values of their brand, customers become loyal to
those stores reducing the cut throat competitions to somehow grab the customer.
This indicates an opportunity for M & S differentiate themselves using
their unique brand values. SWOT Analysis
SWOT
analysis is carried out to identify the strategic position of the organization
where it provides insights from the internal organizations by means of
strengths and weaknesses where external organization is evaluated as opportunities
and threats. (Dealtry, 1992)
Strengths of M & S

M
& S has presence in more than 40 countries giving it the opportunity to
cater to a larget customer segment and earn revenue. (M & S Corporate
Website, 2012)

M
& S employs 78,000 people in their business process
and these employees are well talented and given training to enhance their
skills to perform their tasks. (M & S Corporate
Website, 2012)  

M
& S has a large supplier base of 2000 suppliers
around the world providing best quality products at lower prices due to the
strategic partnerships. (M & S Corporate
Website, 2012)
Weaknesses of M & S

M
& S’s policy is to concentrate more on its UK business rather than
expanding its operations in other countries. Having its concentration in a
market which is affected by a financial crisis can be seen a weakness as the
market could collapse. (M & S Corporate Website, 2012)

The
reports suggests that Marks and Spence has high prices when compared to
competitors who are operating in the similar market and it has led them lose
the market share in the recent past. (Felsted, 2012) Opportunities of M &
S

As
explained in the technology analysis the mobile money industry is growing at a
rapid pace and M & S could capitalize on it and
launch mobile stores.

As
explained in the economic analysis, Asian countries such as India and China
have reported high economic growth where M & S could expand its operations
in those countries to generate better results.
Cheap Sourcing due to
trade policy
The
trade policy of EU and UK allows subsidies for developing business relationship
with developing countries and M & S has opportunity to utilize it to obtain
cheaper supplies.
Threat of M & S
Reduction in consumer
income
Induction
in consumer income has forced customers to look for cheap substitutes leading
to drop in sales for M & S.
Fluctuation in exchange
rates
Significant
fluctuations in the exchange rate give rise to exchange rate losses when
operating in global business environment.

Political
unrest in Middle East and African countries increases the global political risk
where the operations in Middle East region as well as global operations are at
a risk of economies getting slowed down. Conclusion
An
in depth analysis of the environment in which M & S operates was conducted
and based on the PESTEL analysis it was identified that economic environment
gives rise to significant threats due to fall in consumer income. Technological
environment has given rise opportunities where M & S could capitalize on.
The Porter’s five forces analysis indicated positive signals except for threat
of substitutes. Based on the environment analysis and the internal analysis, a
SWOT analysis was compiled as the final section of the report which can be used
for business decision making. References
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Measures
of Income Growth in UK
Source: Jin et al, (2011)
Appendix B
Exchange
Rate Fluctuations
Source: X Rate, (2012)