PESTEL analysis is typically used for the analysis of the external environmental factors which is based on six governing aspects which are political, economic, social, technological, environmental and legal. This strategic framework provides the basic idea of how an organization is operating. The different factors of this framework are important to understand the operating environment of a company which helps in identifying the potential risks. Each factor of this framework has its own significant effect on the company. The five governing factors of PESTLE are
Political factors
It takes into consideration, the governmental factors which have its direct influence on the organization’s operation. It is mainly concerned with the governmental policies formulated that affects the economy of a country and hence affects the organization and its process. The trading tariffs, trade restrictions, fiscal policies laid down by the government affects the organization’s process and its operation.
Economic factors
They are dependent on a particular country’s economy. A change in the country’s inflation rate, and the exchange rate will have its effect on the products and services which are offered by the country. This will directly hamper the buying power of the customer and will affect the organization’s revenue.
Social factors
It related to the current social condition of a country. Factors such as gender distribution, fashion trends, population, age etc. are the major determinants related to this.
Technological factors
Technological factors are directly concerned with the use of innovative ideas and technologies that are used in the organization’s operational process. Automation of a process, use of advanced technologies like AI are the concerned factors (Camisón and Villar-López, 2014).
Environmental factors
It includes the changes in the ecological aspect and surrounding of the organization. The change in weather, climate, and surroundings is crucial from the organization’s point of view as it might affect its operations.
It can be analyzed that to conduct the activities in a smooth manner the company has to focus more on price regulations and also on wage legislation. It is seen that law enforcement system has made Australia one of the essential markets in the region of Asia and Pacific. Next factor is the economic factor in which the industry focuses on inflation and deflation rate and also it is seen that in Australia the economic growth rate was enhanced. Australia is on 10th position in conducting the activities.
As it is seen that there is strong and stable financial system. In social factors, there is a collection of diversified people and also this factor has given shape to the culture on a national level which consists of a small female population if the comparison is made with men. In technological factors, the role of Australia in international science and technology collaboration was at a dominating level, as in 1998 high rate of technology was exported. In environmental factors, water scarcity is seen and there is a problem of water availability as well. In legal factors, the Australian system related with legal matters is based on the belief in the law, justice, and judiciary.
To understand the competitive environment of any business, Porter Five Forces tool is a very powerful tool that helps in analyzing the company’s strengths and weaknesses. Porter’s five forces framework is discussed as follows
Industry rivalry
It is related to the competitive advantage, a company has over its rival industry. Due to the extreme competition in the market, the prices of the products and services offered is affected (Liu and Atuahene-Gima, 2018).
Power of supplier
This power addresses the total number of supplier any particular organization is having in a country. Larger the number of suppliers, lower is their powers, smaller the number of suppliers, higher is their powers (Hill, Jones, and Schilling, 2014).
Power of customers
This deals with the number of buyers or customers a company has in present. More the number of customers of a product, the price will be decided by the buyers of the product, not by the organization (Wheelen et al., 2017).
Threat-related to substitution
The threat of the competitor’s products and services that are available to a customer possess a great risk for the organization. If a customer is presented with more options, the pressure is created on the price of that particular product or service (Van Alstyne et al., 2016).
The threat of new entrants in the market
The ability to enter the market by new organizations poses a great threat to an organization who has already established itself as a market leader. If the new entrant is holding up with the market in terms of price and product offered then the current company will be weakened significantly (Oberholzer-Gee and Yao, 2017).
(Source: Porter five force analysis, 2018).
It is seen that threat of new entrants is high and just due to this, companies offer more discounts so that the potential customers can be attracted. The supplier’s power has a dominant position in the market so that emphasis is given more on creating the supply chain with many suppliers. Power of buyer is more demanding and the profitability of the industry has enhanced. Next is threats of substitute products in which it is seen that substitution of a product can be done easily so it is important for the companies to focus on being service oriented. Last is rivalry against the competitors which is very intense and give impact on the overall profitability.
For the internal and external environmental analysis of an organization, SWOT analysis framework is an important tool which provides the detailed analysis of a company’s process. This framework helps in identifying the strengths, weaknesses, opportunities, and threats associated with it. This can be helpful in a strategic formulation of an organization’s activities and its process (Ahmadi, Dileepan, and Wheatley, 2016).
Strengths
It is related to various marketing mix and also with the market share of the company.
Weakness
It is concerned with the proper utilization of the resources so that financial position can be maintained (Steffen, 2017).
Opportunities
It is related to the opportunities that will help the company to expand the market share. The niche markets are considered as an essential opportunity (Pervan, Curak, and Pavic Kramaric, 2017).
Threats
This gives focuses on the competition level and also the changes in the level of prices. If the company does not use the latest technology then it is one of the threats which can give negative impact (Bell and Rochford, 2016).
Strength
The agricultural industry offers proper quality assurance programs and also there is a strategic balance of properties and farms. For instance, AACO is the company which has a developed operating system as best practices are taken into consideration. So, the goodwill maintained in the market is one of the strengths of the company.
Weakness
The weakness possessed by the company is that there is a large amount of operating cost which is involved in the process. Also, the company has faced net loss which is the biggest concern in the present scenario. There is also enhancement in the complexity and processes to satisfy the requirements of the animal rights forums.
Opportunities
It is seen that the industry has enhanced the activities in various countries and also adopted various value added processes like innovative technologies which have enhanced the growth.
Threats
The threat is from the competitors and also from the slowing down of economic reforms.
Conclusion
To conclude, it is important for the company to consider proper development tools so that proper analysis can be made effectively of macro and microenvironment which can help in identifying the potential gaps and can make the organization process more effective and efficient
References
Ahmadi, M., Dileepan, P. and Wheatley, K.K., 2016. A SWOT analysis of big data. Journal of Education for Business, 91(5), pp.289-294.
Bell, G.G. and Rochford, L., 2016. Rediscovering SWOT’s integrative nature: A new understanding of an old framework. The International Journal of Management Education, 14(3), pp.310-326.
Camisón, C. and Villar-López, A., 2014. Organizational innovation as an enabler of technological innovation capabilities and firm performance. Journal of business research, 67(1), pp.2891-2902.
Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.
Liu, W. and Atuahene-Gima, K., 2018. Enhancing product innovation performance in a dysfunctional competitive environment: The roles of competitive strategies and market-based assets. Industrial Marketing Management.
Oberholzer-Gee, F. and Yao, D.A., 2017. Integrated Strategy: Residual Market Imperfections as the Foundation of Sustainable Competitive Advantage. Harvard Business School Working Paper.
Pervan, M., Curak, M. and Pavic Kramaric, T., 2017. The Influence of Industry Characteristics and Dynamic Capabilities on Firms’ Profitability. International Journal of Financial Studies, 6(1), p.4.
Porter five force analysis., 2018. edrawsoft. [Online]. Available at: https://www.edrawsoft.com/five-forces-chart.php.[Accessed on 1 May, 2018].
Steffen, B., 2017. The physics of software tools: SWOT analysis and vision. International Journal on Software Tools for Technology Transfer, 19(1), pp.1-7.
Van Alstyne, M.W., Parker, G.G. and Choudary, S.P., 2016. Pipelines, platforms, and the new rules of strategy. Harvard Business Review, 94(4), pp.54-62.
Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearson
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