Pestle analysis - Coursework Example

PESTLE ANALYSIS Name: Course: Date: Before starting on forecasting and planning business operations, it is important to study the external environment. The level of understanding of the environment in which a business operates or plans to venture into the future determines the quality of forecasting and plans that are formulated for the various business functions (Cipd.co.uk, 2013). The external environment is continually changing, and this implies that firms should take proactive steps in order to be ahead of these changes. Quality planning and forecasting are key drivers to survival and sustainable growth of any business enterprise. Business external environment can be analyzed through the PESTEL tool. Political factors Political factors compose the stability of political environment and policies of political parties and movements in the in the area of business operation (Cartwright, 2002). Political factors can interfere with aspects that directly affect business. For example, they can influence tax policies or government’s engagement in trading agreements. A firm should examine the political factors in order to identify opportunities and risks in a particular market posed by the political factors. Forecasting and planning can always be modified with comprehensive knowledge of these factors. Economic Factors Economic factors include economic growth rates, employment levels, unemployment, costs of raw materials such as petrol and steel, interest rates and monetary policies, inflation rates and exchange rates (PESTLE Analysis, 2011). These factors directly affect business. Despite varying from one country to another, these factors are highly susceptible to change. For example, the economy undergoes a series of fluctuations that are linked to booms and slumps in economic activity. During boom, almost all firms gain while most firms lose out during slump. A comprehensive study on economic factors can enable a business to gain insight on the risks involved in particular market and decide whether to take the risks and expand to the region (Srdjevic, Bajcetic and Srdjevic, 2012). For example, a proper examination would reveal whether economic conditions are right or not. If they are right, the risk involved will subsequently be low, and the firm may incorporate these favorable in its forecasting and planning. Sociological factors Sociological factors include events that socially impact on the market and the community (Worthington and Britton, 2006). In this regard, the people in which the business operates or plans to venture must be assessed in terms of the business operations advantages and disadvantages to their social life. Sociological factors that need to be considered include culture, norms, healthy consciousness, career attitudes and population dynamics. For any business enterprise to thrive, it must meet the sociological expectations of the target market. For instance, not all products or services a firm is planning to offer may be acceptable in all markets due to cultural and norm limitations. Therefore, examining the external environment would enable the firm to focus on planning on those operations that are compatible with a particular market. Technological factors Technological factors take into account all events that affect technology. Technology becomes outdated within a short period of time (Campbell and Craig, 2005). The firm should, therefore, consider this before embarking on investments that are technology intensive. Technological advancement trends must be examined properly in order to avoid investing in assets or products that are already outdated or that cannot keep up with changing technology, which would amount to huge losses to the firm. It is also through examination of technological environment that a firm can get to know the kind of upgrading it needs in order to circumvent barriers to market entry that are created by changes in technology. Legal Factors Legal factors comprise all legal aspects such as taxation, quotas, imports, exports and employment. These factors directly affect business operations. For example, the business has to pay tax and comply with labor laws (PESTLE Analysis, 2011). Non-compliance or violation of these factors leads to conflict with legal bodies and, therefore, jeopardizes successful existence of the business. Full understanding of legal aspects of the area of operation can avoid such situations. Projections and plans must incorporate legal factors. Environmental Factors Under environmental factors, issues that need to be analyzed include ecological and environmental aspects that could either be social or economic in nature. These include geographic location, climate, weather, natural disasters, and access by road, rail and air, and ground contamination. The location of a business influence the operations that a business can do (Srdjevic, Bajcetic and Srdjevic, 2012). In this regard, factoring in environmental factors in planning and forecasting would enable a business to formulate strategies that correspond to requirements of the environment. Application of PESTLE Analysis to Cirque du Soleil With more than a billion dollars annual profit, Cirque du Soleil positions itself among the leading brands in the entertainment industry. The company holds mega acrobat shows across the world. The preparation of these shows take a full year and, therefore, the company is involved in a lot of forecasting and planning. Subsequently, taking into account all external environment factors in its strategic operations is critical for improvement and stability of its good market positioning (BBC, 2013). The nature of business operations makes it critical to examine the legal factors in the countries it holds it performances. Acrobatics can be dangerous to the performers as evidenced by the case where in one of its mega performance show in the U.S, one of the acrobats tripped and fell to her death. Consequently, the company was fined by the U.S regulators for not having safe working conditions. In future shows, the company’s management must have a comprehensive knowledge of legal issues on safety of working conditions and integrate the information obtained in its strategic decisions in order to ensure safety of the acrobats. Further, the company must be conversant with tax laws of the countries in which it holds its shows since non-compliance could jeopardize its future performances in that country. Sociological factors are important to Cirque du Soleil with respect to the nature of services it offers. Success of the company directly depends on how well people of the countries it holds shows receive the service. This is influenced by culture of a specific people. For example, the company noted that Canada is devoid of circus culture. It was not economically feasible to confine its operations in Canada, so it started exploring U.S, European and Asian markets. This careful selection of markets is ascribed to the companys success. For example, it has shifted its focus on China. Its success in China will depend on Chinese people acrobatics and circus culture. If people value acrobatics and circus, they will be willing to spend on attending the company’s shows. Therefore, sociological factors need to carefully examine. Due to the high costs of holding performances, the company must charge high entrance fees to the shows. Therefore, economic factors of a specific country must be evaluated before deciding on the viability of a market. For example, a country where economy is in recession may imply that most people are unemployed or have low incomes and may, therefore, forego luxuries such as expensive shows. It might not be prudent to hold shows in such a country. Further, economic factors such as cost of raw materials (for example, fabrics for costume design) should be assessed in different countries. Technological factors also need to be evaluated in the study of external environment. The nature of the company’s operations require intensive use of technology. For example, the weaving of more than 150 kilometers of fabric into costumes that can survive fire and water, and other equipment used for acrobatics must use the most recent technology to ensure efficiency in all dimensions. It may, therefore, be important for the company to be well-informed about trends in technologies in the entertainment industry. Finally, politics of target country may influence Cirque du Soleil’s ability to hold shows. Unstable political environment may be dangerous to the company’s economic interests since politics directly influence factors such as tax policies. In this respect, the company should examine politics of the new target markets such as China for determination of potential risks posed by political environment of such a country. Bibliography BBC, 2013. How Cirque du Soleil became a billion dollar business. Campbell, D. and Craig, T., 2005. Organizations and the business environment. Amsterdam: Elsevier Butterworth-Heinemann. Cipd.co.uk, (2013). PESTLE Analysis. Resource summary. Available at http://www.cipd.co.uk/hr-resources/factsheets/pestle-analysis.aspx [Accessed 22 Nov. 2014]. Cartwright, R., 2002. Mastering marketing management. New York: Palgave. PESTLE Analysis, 2011. PESTLE Analysis: Business Environmental Analysis. [online] Available at: http://pestleanalysis.com/pestle-analysis-business-environmental-analysis/ [Accessed 22 Nov. 2014]. Srdjevic, Z., Bajcetic, R. and Srdjevic, B. (2012). Identifying the Criteria Set for Multi-criteria Decision Making Based on SWOT/PESTLE Analysis: A Case Study of Reconstructing A Water Intake Structure. Water Resources Management, 26(12), pp.3379-3393. Worthington, I. and Britton, C., 2006. The business environment. Harlow: Financial Times Prentice Hall. Read More