Purpose of PESTLE Analysis - Essay Example

Define the purpose of PESTLE analysis and spell out some of the main constituents of each factor Managers are usually the top decision making organ in any organization. Nevertheless, their decisions are always affected by certain macro-environmental factors. These include trade barriers, tax changes, changes in government policy, introduction of new laws, and demographic changes among others. For ease of analysis, managers usually categorize these factors using the PESTLE model. The model thus assists the managers in establishing the performance of a person or business in relation to the prevailing external environment. PESTLE analysis can also be used for future planning and strategic management. The factors analyzed using PESTLE model includes political, economic, social, technological, and legal and environment (Henry 2008, P.51). Political factors in this case include government policies, conflicts, and wars, pressure groups, trading policies, grand, findings and initiatives and government term and change. Economic factors include general taxation, situation of home economy and trends, market and trade cycles, international economies and trends, factors affecting industries, monetary issues, exchange, and interest rates among others. Social factors analyzed include demographics, lifestyle trends, media views, consumer’ patterns of buying, Company, brand and technology image, lifestyle trends, consumer attitudes and preferences, and religious/ethnic factors. Others include major events and influences, publicity and advertising and changes in laws that impact on social factors. Technological factors include technological advancement, maturity of technology, laws governing technology, and consumer purchasing mechanism among others. Legal factors on the other hand include current and future legislations, European/foreign legislations and regulatory processes and bodies. Finally, environmental factors include corporate social responsibility expectations and awareness, environmental legislations, consumer buying patterns, public awareness on issues affecting the environment and political issues pertaining to the environment (Allen 2010, P.54). Present forecast trends for one of your chosen element of each factor up to 2015 with a brief explanation. Political Wars and conflicts are some of the elements of the political factors that affect an organization’s strategic decisions and performance. Wars and conflicts usually come because of political instability and lack of democracy in a country. The UK is one of the most stable countries politically, which has witnessed minimal incidences of wars and political unrest for more than 3 decades. This trend is expected remain constant in the future following the measures instituted by the government of the day. Nevertheless, terrorist attacks remain a major threat to the country, which is likely to cause wars and conflicts (Wright 2003, p.22-31). The Euro which is used in the UK, has proved to be a stable currency over time much like the Euro zone in which it is used. Stability of the Euro Courtesy of http://europeandcis.undp.org Economic Economic situation and trend is one of the elements under economic factors that are likely to affect an organization’s strategic decisions and performance. This is because a stronger economy usually signifies good things to come while a weak economy only portrays bad things to come. The UK economy is arguably among the world’s strongest economies. It, however, ranks seventh by GDP and eighth by purchasing power parity (PPP). In Europe alone, it ranks third largest by GDP. Despite this being the case, the nation has been facing a crisis since the 2007-2008 financial meltdown in which the economy shrunk by 4.9%. Nevertheless, the economy has made significant improvement since 2009 in which it only shrunk by 0.2%. Despite the crisis, the economy is projected to return to growth from last quarter of 2012 and the growth expected to remain the same in the near future up to 2015 (BBC News, 2012). Fig 1: Estimated Annual GDP growth for the UK and other regions Courtesy of http://www.legalandgeneral.com Fig 2: Real GDP of the UK compared to those of the US and Euro zone Courtesy of http://www.leftfootforward.org Social The world is currently witnessing unprecedented change in lifestyle. For instance, many people across the UK prefer buying readymade foods arguing that they are faster and consume less time to prepare. Nevertheless, with the diseases associated with the food consumed, the UK government is at the forefront of encouraging people to change their lifestyle as a means to preventing diseases like cancer. This advocacy is causing a lot of threat to many industries as it is projected that people may soon totally change their lifestyles completely thereby affecting many industries across the UK and beyond (Allen 2010, p.56-58). Technological The world is currently witnessing unprecedented technological advancement in almost all sectors of the economy. The advancements are said to affect hugely the both the strategic decisions and performance of an organization. The UK is one such county that has experienced remarkable growth in its technological environment over the last few years. It is noted that technological advancements being witnessed in the UK have forced mangers to work for longer hours because of increased workload and more stress. The UK is making strides to ensure that the it fully becomes technology oriented in the next few years. This implies that almost everything will be computerized throughout the UK (Institute of Leadership & Management 2011). Legal Government legislations, both current and future affects greatly on the strategic decisions and overall performance of an organization. One such current legislation in the offing within the UK parliament is the strategic export control legislation, which is likely to affect the strategic decisions of much organization throughout the UK and beyond. Other legislations are still pending in parliament, which are likely to affect manager’s strategic decisions and performance (Office for Budget Responsibility 2012, p.13-16). Environmental Environmental legislations are an element of environmental factors that impacts a lot on mangers strategic decision-making and performance. For instance, the world is currently grappling with the effects of global warming caused by carbon emissions to the atmosphere. In order to reduce carbon emissions, the UK has been ahead in ensuring that laws are passed that limits the amount of emissions allowed by companies. The other environmental law likely to have a lot of impact is the government’s intention to cut red tape on rules regarding land, wildlife, air, and noise pollution according to The Guardian (2012). Discuss the implication of your findings with respect to the UK domestic market in terms of risk, costs, and benefits for setting up a manufacturing base in the UK. Political The prevailing political situation indeed affects greatly on the performance of any industry in a country. Because of this, many investors prefer setting up an industry in a country, which is stable politically. Based on the findings regarding the status of wars and conflicts in the country, it is evident that the UK is stable and there is no possibility of the country engaging in war or any form of conflicts in the few years to come. This means that the prevailing environment favors the setting up of a manufacturing industry. The only threat to setting up manufacturing industry in the UK has been only the terrorist attacks. Nevertheless, the UK government has put in place all control and prevention measures to ensure that the country is safe and secure for business investors and the general public (Wright 2003, p.22-31). The fact that the political environment is expected to remain stable in coming years will be greatly beneficial to the industry. This is so given that it will have the capacity to conduct its activities without fear of sabotage or attacks, or any form of government interference. Another benefit likely to impact on the company is that it will be able to transact business within the country with ease due to the hospitable environment offered by political stability (Wright 2003, p.22-31). Economical Currently, the UK has not recovered fully from the recent economic crisis according to the finding. As such, its state does not favor setting up of a manufacturing industry currently. This is its currency is still trading weak against other world currencies and the fact that inflation rates is also very high making resources that may be needed for setting up the industry very expensive. This implies that setting up a manufacturing industry at this moment will certainly be a costly and risky venture to take. Despite this being the prevailing situation, the future prospect of the economy is promising, as the country is said to have begun stabilizing. As such, for the industry to benefit from the UK market, it would be imperative for the management to wait a little bit until the late 2012 when the economy is projected to recover fully from the crisis it is facing. The company will be able to get cheaper resources, labor, and other services. The other benefits that would certainly be witnessed are that the citizen’s purchasing power would have improved thereby enabling the company to benefit from the sales of its goods in the domestic market (Office for Budget Responsibility 2012, P.16-35). Social Understanding the social lifestyle trend of a country is vital when mmmaking decisions related to the kind of industry to set up. This is because it determines whether the products the company is intending to manufacture would have any demand or not. The findings revealed that many UK residents are becoming more sensitive to the kind of products they consume occasioned by rising cases of cancer and other food related diseases. This has also been increased by government’s advocacy for citizens to consume healthy foods. This implies that any organization that intends to set up a manufacturing company must be very keen to ensure that the products manufactured conforms with the social trends of the consumers, lest the company end up having no one to purchase its products (Allen 2010, p.56-58). It is important for every organization to understand the social trends in the UK before setting up the industry. The benefit of doing this is that the company will be producing products that are on high demand thereby increasing its sales turnover and profits. This in turn will see the company expand very fast within the country due to warn reception both from the consumers, government and consumer protection organizations in the country. Technological The findings revealed that the UK is advancing very fast in term of technology from almost all sectors of the economy. This has improved doing business within the UK market since it has improved communication at all levelness throughout the country. Technological advancement has also seen transportation of people and good become easier and cheaper. An example is the construction of the London Underground, which has improved efficiency in the transport sector (Government Office for Science 2010, p.3-9). Since Advancement is still projected to continue in the near future, this makes the UK a good place to set up a manufacturing company (Government Office for Science 2010, p.3-9). This is because the company will benefit from cheap labor since it can decide to automate most of its operations by applying more advanced technologies resident in the country thereby reducing manufacturing cost. The fact that technology has improved the transport sector would also be an advantage to the business since it will find it easy transporting its products from the company site to the local market and in the foreign markets. Also, the organization will be able to promote its products easily through the e-commerce technology y that is readily available in the UK, thereby improving efficiency. Legal Government legislations both current and future have a lot of impact on an industry. This is because it determines the kind of business that a company may engage in or may render the business in question illegal after being set up (Office for Budget Responsibility 2012, p.13-16). It is for this reasons that it is imperative for managers to first analyze the legal situation of a county before proceeding to invest in a country. The findings reveal that the UK government is currently intending to introduce certain bills in parliament which would likely impact on the industry being set up. This follows the introduction of export restriction, that is, the dual-use or military products export restrictions. Such restrictions should therefore be factored in before setting up a manufacturing industry in the UK. Environment As earlier stated, environmental pollution is a major concern in many countries the world over. This is so considering its harmful impacts on the environment. The UK government has put measures in place by setting the maximum limits of greenhouse gaseous emissions allowed of any company (The Guardian 2012). Therefore, before any industry is set up, managers must ensure that the environmental safety standards are adhered to failure to which may lead to the company being fines or closed altogether. However, adhering with these safety standards are not easy and requires additional investments which is costly. Despite the cost, complying with the rules will see the company receive favors from the government and the community around. Conclusion In overall, the UK appears to be a good country for setting up a manufacturing business in the near future following its favorable political, economical, social, technological, legal, and environmental situation, both currently and in the near future. References Allen, M. (2010), Analyzing the organizational environment. London: Select Knowledge Limited Wright, A. (2003), British politics: A very short introduction. Oxford: Oxford University Press. BBC News (2012). UK economy in deep crisis, Vince Cable says. October 3. http://www.bbc.co.uk/news/business-19812990 (Accessed 17 Oct. 2012) Government Office for Science (2010), Technology and innovation futures: UK growth opportunities for the 2020s. Foresight Horizon Scanning Center. Pp.1-40. Henry, A. (2008), Understanding strategic management. Oxford: Oxford University Press. Institute of Leadership & Management (2011), UK firms are struggling to keep pace with technological advances of last 10 years. 2 December. http://www.i-l-m.com/research-and-comment/10294.aspx (Accessed 17 Oct. 2012). Office for Budget Responsibility (2012). Economic and fiscal outlook march 2012. London: The Stationary Office. The Guardian (2012). Environmental regulation set to be slashed. 16 March. (Accessed 17 Oct. 2012): http://www.guardian.co.uk/environment/2012/mar/16/environmental-regulations-slashed-red-tape. Read More