External Environment and Its Importance for All Businesses - Essay Example

Business environment Contents Contents 2 Section 3 External environment and its importance for all businesses 3 What is PEST analysis is and why itwould be a useful tool for Bianchi 4 The 4 dimensions of PEST analysis 4 Section 2 6 PEST analysis of UK Bicycle industry 6 Impact on Bianchi’s business opportunities in United Kingdom 8 Section 3 9 Recommendation 9 9 References 10 Section 1 External environment and its importance for all businesses The business environment of any company consists of two major parts. These are the internal environment and the external environment. The external environment can be further divided into the macro level and the micro level of the external environment. The external environment encompass the external business situations and the external stakeholder analysis for any company. The macro level or the broad level of external environment includes an analysis of factors like the socio cultural forces, the technological forces, the political forces, the legal forces and the economic forces (The Guardian, 2013). The micro level or the task environment consist of the competitive forces and the environmental uncertainty and external stakeholders of a business. The relationship of a company with its external environment is difficult. As such, it is important for all types of companies to have an understanding of the way in which the external environment functions and changes. The external environment of any company is an essential driver of the success or failure of the company because they support the five main objectives of any company which are survival, growth, profitability, efficiency and stability. The constraints and opportunities in the external environment of a business are significant factors that can impact a business. Also, the external environment is a multifaceted and dynamic environment which undergoes continuous change. So, in order to remain in competition and sustain, a company has to essentially analyse the external business environment in a regular manner. What is PEST analysis is and why it would be a useful tool for Bianchi PEST analysis is an important strategic management tool used by companies to analyse the external business environment. The PEST analysis includes an analysis of the political, economic, social and technological factors in the external environment that may directly or indirectly impact the survival, growth and profitability of a company. Bianchi will uses the PEST analysis tool to understand the political, economic, social and technological environment prevailing in the United Kingdom. The company can also use the tool to calculate the opportunities and threats in the external business environment of the United Kingdom bicycle industry. PEST analysis is a necessary analysis to conduct by any business when it plans to enter into a new market. Therefore, it is also necessary for Bianchi to uses the tool before taking decisions for expanding its business into the United Kingdom market. The existing situations in the external business environment can affect the penetration level, future success and profitability of Bianchi in the new market. Also, the PEST analysis can use by the company as a tool to analyse and evaluate the changes in the external environment of the business in its home market, Italy. This will help Bianchi to maintain competiveness and achieve sustainability for the business in the short term and long term scenarios (Thompson, 2002). Therefore, the company should uses the PEST analysis for making the decisions regarding its expansion as well as for the regular reporting of the business. The 4 dimensions of PEST analysis There are four main dimensions of the PEST analysis. These are The political factors The economic factors The Social factors The technological factors. The political factors usually consider the degree to which the government of any nation intervenes in the economic functioning of the nation. The political factors analysed in a PEST analysis covers the areas like labour law, tax policies, trade restrictions, political stability, tariffs, environmental laws etc. The political factors may also include the consideration of how the government of any country influences the education, health and infrastructure of an economy. This dimension may encompass the consideration of merit goods which the government wants to provide and demerit goods which the government does not want to provide (Johnson and Scholes, 2002). The economic factors include the factors like economic growth, exchange rates, interest rates and inflation rates in an economy. The economic factors has major impacts on the operability, success and sustainability of a business. These are also significant factors that are to be considered while taking the corporate and business decisions for a company. For example: The exchange rates can directly impact the cost of export and import and the supply of imported products and services in an economy (British cycling, 2012). Also, the interest rates can directly impact the cost of capital of a company and therefore, also impact the extent to which a company can grow in that economy. The social factors encompass the social aspects like population growth rate, safety requirements, age and income distribution, health consciousness, lifestyle, standards of living etc. The trends among the population represent the requirements and demands of the consumer groups in the nation. The social factors also include a consideration of the mind sets, expectations, preferences and needs of the existing and potential customers in a market. The technological factors are becoming more significant in the modern business environment wherein the needs for sustainability and innovation are increasing in an accelerated rate. The technological aspects include the research and development activities. The technology incentives, automation, innovations and the degree of technological changes experienced by an industry is handful. The technological factors are significant for companies because they help to determine the barriers to entry in a market, influence crucial strategic decisions and also directly affect the quality and cost of products of a company. Section 2 PEST analysis of UK Bicycle industry Political factors: The political factors like tax policies, government support, laws and revolutions, trade agreements etc. are highly influential factors that can create both opportunities and advantages for an organization. The PEST analysis of the United Kingdom bicycle market establishes that the political environment of United Kingdom has been highly supportive of all types of two wheeler industries including the bicycle industry. However, the bicycle businesses operating in this market have to focus extensively on the quality and safety requirements as specified by the legal policies governing this market. The import taxes for bicycles are high. As such, the pricing of the products in this industry is much controlled by the laws related to import activities. Other than these, the bike trail rules and regulations imposed by the government of United Kingdom from 2010 are other regulatory factors that are to be considered by the companies operating in this industry (Greater London Authority, 2012). Economic factors: All types of businesses are affected by both the national and the international economic factors like inflation rates, interest rates, business cycle, population income, fiscal policy etc. The economic environment of United Kingdom is also found to be beneficial for the bicycle industry. It can be mentioned in this respect, that the bicycle industry of the United Kingdom is one of the few industries that have remained unaffected by the great financial recession of 2008. According to an article published in the Guardian, the market for bicycles and cycling goods in the United Kingdom will increase by more than 25% from 2013 to 2015 and the consumer value of this market will exceed £3 Billion mark by the year 2015 (The Guardian, 2013). According to a Mintel report published in the year 2010, the bicycle industry in United Kingdom will experience accelerated growth in the coming five to ten years and would emerge as a significant revenue generator for the economy. Social factors: The social factors that affect the bicycle industry are identified to be the most influential factors that have shaped the current landscape of this industry. The shift in lifestyle changes among the medium and high class consumers in the country have boosted the growth of bicycle sales. The increasing interest of the population towards maintaining fitness and adopting a healthy lifestyle have also acted as a favourable factor that has helped to increase the revenues in this industry. The bicycles are used as common modes of transport by the people in the United Kingdom. Of late, riding a bicycle has also emerged as a popular hobby. Many companies also encourage their employees to ride bicycles to work because cycling is found to give a re-energized feeling that helps the employees to become physically fit and more engaged in their work. Also, the popularity of enthusiastic cycling, bicycle races and other cycling activities have encouraged more number of people in the country to engage actively in cycling. Technological Factors: The technological factors also play a crucial role in the functioning of the bicycle manufacturing and selling industry. Innovative manufacturing is the keyword for improving the product quality and performance and therefore, most of the companies operating in this industry in the United Kingdom have to invest heavily in their research and development departments. Innovation in product design as well as product portfolio is essential for achieving competitiveness and continued success in this market (Thompson, 2002). Obsolescence of technologies and products is a major drawback for the bicycle manufacturing businesses. So, the companies conducting their businesses in this industry have to continuously improve and innovate in order to make the end products more efficient and convenient. Also the need for sustainable business practices like energy conservation and the adoption of green practices are other technological requirements of the bicycle market. Impact on Bianchi’s business opportunities in United Kingdom The PEST analysis of the bicycle industry in the United Kingdom indicate that there are ample opportunities for a new business in this industry. The political, social and economic condition of the country seems to be highly favourable for Bianchi. However, the company would has to ensure that it is equipped to invest sufficiently in the arena of research and development so as to ensure continuous innovation. Since the usage of bicycle for both personal and commercial purposes is increasing, therefore, the time can be found to be most favourable for Bianchi to enter into the United Kingdom market (British cycling, 2012). The government initiatives, social inclinations and the energy conserving and green factors related to the bicycle industry seems to have ensured a promising future for this industry. The focuses of the government of United Kingdom on encouraging cycling activities an sports in different states ensure that the industry remains a profitable, competitive and functional industry in the future years as well. Section 3 Recommendation It recommended that Bianchi should consider expanding its business in the United Kingdom since the external environment of the new market seems to be much beneficial and supportive for the success and growth of the company in the short term and the long term scenario. However, the management of Bianchi should develop suitable strategies to penetrate the market more efficiently. As found from the PEST analysis, focussing on the technological capabilities of the business would be the most necessary strategy for achieving a competitive position in this market. Also, the company seems to have the appropriate resources for investing in innovation and development (Bianchi Corporate Website, 2014). Therefore, it can be said that the internal capabilities of Bianchi are in line with the requirements of the external environment in the United Kingdom. References Bianchi Corporate Website. 2014. Product Development. [Online]. Available at http://www.bianchi.com/It/technology/bianchi-technologies.aspx#ProductDevelopment. [Accessed on 25 November 2014]. British cycling. 2012. After the gold rush: 200,000 rise in regular cyclists. [Online]. Available at http://www.britishcycling.org.uk/about/article/bc20121206-about-bc-news-After-the-gold-rush--200-000-rise-in-regular-cyclists-0. [Accessed on 25 November 2014]. Greater London Authority. 2012. Mayor’s Vision for Cycling. [Online]. Available at https://www.london.gov.uk/priorities/transport/cycling-revolutionAchi. [Accessed on 25 November 2014]. Johnson, G. & Scholes, K. 2002. Exploring Corporate Strategy: Text and Cases. Harlow, Essex: Pearson Education Limited. The Guardian. 2013. Cycling groups welcome announcement of £77m government fund. [Online]. Available at http://www.theguardian.com/lifeandstyle/2013/aug/12/cycling-groups-welcome-government-fund. [Accessed on 25 November 2014]. Thompson, J. 2002. Strategic Management, 4th Edition. London: Thompson. Read More