PEST Analysis in the Business World - Report Example

PEST Analysis PEST Analyses are useful analytical techniques in the business world. PEST stands for political, economic, social and technological factors that indirectly affect business activities by impacting the competitive area of business operations. For the purpose of this report, the competitive area that has been seriously affected is the financial sector. Banks, financial institutions and credit facilities are badly affected by the current financial meltdown that originated from Wall Street in America, with giants in financial industry like Lehman Brothers and AIG bearing the brunt of this crisis. Wilson and Gilligan (2005, p.123) highlight some important factors that constitute PEST analyses as stated below: (i) Political factors: These factors include but not limited to political and legal structures, political alliances, foreign trade legislation, trade union power, pressure groups, taxation policies, legislature structures, employment legislation and monopoly restrictions. (ii) Economic factors: These involve inflation rates, money supply, business cycles, trading blocks, the nature and bases of competition domestically and internationally, investment level and unemployment. (iii) Social factors: These factors include demographics, lifestyles, attitudes, behaviour and behaviour patterns, consumerism, education level and social mobility. (iv) Technological factors: These factors include but not limited to the level and focuses of government and industrial R&D expenditure, speed of technology transfer, technological shifts, the direction of technological transfer, the costs of technology and product lifecycles. 　　　　　　　　　PEST analyses on Tesco Tesco is Britain’s largest retailer of grocery, clothing, consumer electronics, and operates general merchandising chain. It commands a greater share of UK market in both food and non-food categories (Humby, Hunt & Phillips 2007, p.1). Even though Tesco enjoys great patronage because of its high customer loyalty, the current financial crisis is indirectly affecting Tesco’s business activities in the following ways: (i) Economic effects: The economy in UK has resulted in many workers being laid off. As the level of unemployment rises, those in that population automatically lost their purchasing ability; because they have no money to order from Tesco stores. It has been reported that UK is currently in economic recession, like every other Western European economy; what this circumstance signifies is that people tend to cut back on their expenses. This attitude could rob Tesco of continuous in-flow of capital that is needed to keep the company operating. As banks face a crisis that see their customers’ deposits dwindled over the past months, Tesco will increasingly find it difficult to secure loans as operating capital to sustain its business activities. Worse still, the current financial problem has discouraged potential investors that could have provided the cash Tesco seriously needed. Also, the emergence of low-cost domestic retail shops have threatened the survival of Tesco as shoppers choose to flock to stores where they could purchase the same sets of merchandise at relatively cheaper prices. This tense economic condition has prompted a drastic change in usual trading practices as traders unilaterally manipulate the prices of goods they sell in order to increase the level of customers’ patronage. This monopolistic approach could affect Tesco, which operates on long-term principle and relies on recurrent revenues that have been planned long before the financial crisis struck. (ii) Technological impacts: As Tesco struggles to maintain its usual amount of operating capital; in the meantime the company finds it imperative to cut down non-exigency expenses. And this might include expenditure on Raw material and development (R&D), purchase of new technologies, and the re-engineering of the previously acquired technologies. The adverse effect of this circumstance is that Tesco might slide into inefficiency. And this could result in low-performance that could be transferred to the quality and quantity of Tesco’s goods. If such a situation persists, Tesco sets to lose its current customers’ loyalty; and there could be a drastic reduction in sales volume. This could lead to gradual loss of revenues, and if the trend is left unchecked, Tesco could be heading towards bankruptcy. (iii) Social implication: As long as this financial crisis continues, Tesco customers are likely to adopt a different lifestyle, possibly assuming a more moderate or cheaper lifestyle that could help them curtail spending so much on some goods. This sudden change in consumers’ attitude could spell doom for Tesco. The Company would have to struggle to source cash elsewhere to be in business; an action that may be unsuccessful as banks and financial institutions are embroiled in serious financial problem. Therefore, there would be perceptible shift in the demography of Tesco’s buyers: it is possible that older consumers may shun Tesco for local markets to buy their grocery and other food products, while young people continue to patronize Tesco because of the Tesco’s comfy environment and the attractiveness of the goods on display. However, young people tend to spend less, compared to the elderly shoppers. (iv) Political effects: As Tesco faces grim economic condition as a result of the current financial crisis; the company would have to re-consider its contribution to UK taxation policies. Some workers may be laid off to reduce income taxes, or the company may employ the service of pressure groups to coerce British Government to instigate some changes in the employment legislation. British Government and the financial crisis In the wake of the international financial crisis, the British Government has taken some dramatic approaches to stem the effects of these problems. Some of these approaches are: (a) Financial regulation: The Bank of England’s infusion of 50 billion pounds into the financial system is a timely attempt to support UK banks. This will make cash available for businesses that may be experiencing financial crunches. As fearful investors stay away from investing in companies due to the continuous depreciation in share values, this action by the Bank of England would swell banks’ financial deposit as the volume of money in the system circulates uniformly; from the depositors to the banks, and finally to the cash-strapped businesses. Sharing important financial between Bank of England and the banks could help determine the extent of damage the international financial crisis has done or will do to UK financial operations. (b) Palliative legislation: The British Government is preparing to make some necessary changes in the laws that would assist struggling businesses to stay afloat. This will be done by re-organizing the mortgage financing and its policy so as to reduce the problems existing in the economy due to the liquidity problems some UK institutions and customers are going through. While this change in legislation is essential at this moment is that the market has been abused by the financial industry in its bid to maximize profits and undermine the grave repercussions of financial impropriety. These purported changes might put into consideration creating financial cushion for UK companies in order to withstand similar financial meltdown in the future. Tesco’s responses to the British Government’ Policies In the face of the current financial hardship, Tesco will immensely benefit from the redemptive attempts of the British Government policies. The explanations below reveal how: Availability of finances: Much cash in the financial system means much deposit in the banks (Richardson et al 1997, 202). And in case Tesco runs short of operating capital, it could resort to borrowing some loans to improve its financial standing and keep running. If the Bank of England has refused to infuse such huge amount of money into the financial circulation, there would be financial hard up for most citizens, as well as the businesses. The control of inflation: Inflation could be controlled when there is much money in the circulation (Hudson, 1983). Therefore, the prices of goods/services would be relatively constant for a certain period of time. And the consumers wouldn’t be dissuaded from making bulk purchases. On the other hand, a hike in commodity price is likely going to reduce the amount of such commodities Tesco could sell within a specific period of time. Employment: Tesco would not be compelled to fire some of its workers if the company has funds to keep operating. Infusion of cash into the financial system would provide the necessary funds Tesco needed (Graham 2008). Business-friendly legislation: The financial crisis will force the British Government to make laws and policies that would encourage Tesco’s business operations. For example, the reduction in taxes and the banks’ lending rates would certainly help Tesco to be cost-efficient and profit making (Baldwin & Cave 1999, p. 293). A diagram depicting the possible UK Consumer’s pattern during financial crisis Price Goods/services References 1. Humby, C, Hunt, T & Phillips, T 2007, Scoring Points: How Tesco Continues to Win Customer Loyalty, Kogan Page Publishers, London. 2. Wilson. M S & Gilligan, C 2005, Strategic Marketing Management: Planning, Implementation and Control, Butterworth-Heinemann, Oxford. 3. Graham, R 2008, ‘Tesco Chief Sir Terry Leahy urges government to do more to protect businesses’, The Telegraph, 11 November, viewed on 4 December, 2008, http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/3439449/Tesco-chief-Sir-Terry-Leahy-urges-Government-to-do-more-to-protect-businesses.html. 4. Hudson, J 1983, Inflation: A Theoretical Survey and Synthesis, Routledge, New York. 5. Baldwin, R & Cave, M 1999, Understanding Regulation: Theory, Strategy, and Practice, Oxford University Press, Oxford. 6. Richardson, G, Teece, D & Oxford University Press 1997, Information and Investment: A Study in the Working of the Competitive Economy, Oxford University Press,Oxford. Read More