Business Enviroment - PEST Analysis for the Bicycle Business in the UK - Case Study Example

PEST Analysis for the Bicycle Business in the UK Table of Contents I. PEST Analysis Overview 5 A. The External Environment 5 B. What PEST Analysis Is5 C. Four Dimensions in a PEST Analysis 6 II. PEST Analysis for the Bicycle Business in the UK 8 A. Political Factors 8 B. Economic Factors 8 C. Social Factors 9 D. Technological Factors 10 III. Conclusion 10 References 12 I. PEST Analysis Overview A. The External Environment In the real world some countries and markets are better than others in terms of their being conducive to good business. In the case of Bianchi, it is important to know what the general environment is in the United Kingdom prior to making a decision to branch out into this country or not. A country may have a large market for bicycles, for instance, but if the political environment is shaky, it makes little sense for a business to venture into that country. On the other hand, if the economy is faltering, then it may not make sense too for a firm to venture into that country, because the markets may be weak and demand for its products may not exist. In the same vein, social conditions have to be studied and assessed to find out whether social factors are conducive to a firm branching out into a country. For instance, if social values are strongly pro-environment, a solar company may make a lot of headway and have good business prospects. Meanwhile, the acceptance of modern telecommunications, the dispersion of smart phones and even bicycles, need prior technology infrastructure such as phone networks, to happen. Moreover, the fact that the external environment is dynamic means that scanning the external environment and examining the relevant factors that impact business ought to be something that happens perpetually and regularly. This is a kind of barometer that the business can look at on a regular basis to know where it is relative to external environmental contexts. (Auzair 2011; Hedman and Kalling 2003; Pagell and Krause 2003; Venkatraman and Prescott 2006; Aosa and Machuki 2011). B. What PEST Analysis Is From the above discussion we are able to get a glimpse of what a PEST analysis is. It is an assessment model or framework for the external business environment that firms must face up to on a daily basis. Strategically, a PEST analysis provides a barometer reading of the most relevant factors to making business decisions from the business environment. PEST is an acronym that stands for Political Factors, Economic Factors, Social Factors, and Technological Factors. Each of these factors affect the way a business operate and affect business decisions in a profound way, and all of them taken together can constitute a kind of measure to assess what the external environment is. These can be construed as the givens of operating in a certain geography or business environment, that a firm has to be able to work with (QuickMBA 2010; NetMBA 2010). C. Four Dimensions in a PEST Analysis Political Factors are external environmental factors relating to government, the stability of the political regime, the legal system and the way it is able to honor and enforce contracts, whether the system is vulnerable to internal and external threats of upheavals and attacks, whether the legal system honors intellectual property, factors relating to taxation, human resources factors such as wage and labor laws, regulations of products including pricing and labeling, other relevant laws and regulations that may impact business decisions. Changes in the political environment can have severe consequences for a company. For instance, in the event of a coup or an invasion, such as when another country invades or goes to war with another, laws on contracts may become unenforceable and so a business incurs a risk of losing everything that it has invested in a country. (QuickMBA 2010; NetMBA 2010).. Economic factors relate to economic systems in place, whether centralized or free market, what the quality of the manpower and infrastructure is, rates of economic growth, inflation, rates of interest, costs of labor, and other relevant microeconomic and macroeconomic factors such as exchange rate regimes, level of trade with other countries, degree of government meddling with the markets, what the natural competitive advantages of a country are, level of income, and the like. In a country where the foreign exchange rate fluctuates wildly, businesses will have a hard time making pricing and investment decisions (QuickMBA 2010; NetMBA 2010). Social factors include aspects of culture such as degree of acceptance or revulsion towards certain technologies and products, gender issues, demographic characteristics, class systems, degree of liberality or conservatism, whether westernized or traditional in terms of cultural values, and the like. Where a society for instance has changing social attitudes towards fast food, then those changes can impact business decisions for firms in that industry (QuickMBA 2010; NetMBA 2010). Technological factors relate to breakthroughs in technology, degree of diffusion and acceptance of certain relevant technologies, degree of maturity of technologies relative to products and services offerings, the impact of technological changes on business viability and product acceptance, and the like. Where the technological infrastructure for telecommunications is weak, for instance, then it can be difficult for a company selling smart phones to make a good case for venturing into that country (QuickMBA 2010; NetMBA 2010). II. PEST Analysis for the Bicycle Business in the UK A. Political Factors The United Kingdom has always enjoyed a very stable political system with a strong justice system and a well-developed legal system that has been exported throughout the world, and has been kind to the flourishing of all kinds of businesses. Tax laws are also predictable but they do change over time, even as the legal aspects of taxation are also well-developed. Democratic and parliament-based, the United Kingdom government has ever been a bastion of stability and continuity for the rest of Europe and the west. This being the case, one can say from a general perspective that political factors are stable and are conducive for Bianchi’s plans to branch out into the United Kingdom (Central Intelligence Agency 2014). That said, the political environment in the UK is not static, and there are ever-present threats to its stability, among them tax issues relating to the power of the UK government to levy taxes. These issues have impact on the overall stability and the level of risk associated with any sweeping changes in taxation in the UK, as well as have impacts as well on the ability of ordinary people to make purchases of all kinds of products and services(Jones 2014). B. Economic Factors In the long run, economic prospects in the UK are excellent, and natural growth over time should favor those who want to invest in the UK market for the long haul. If investment decisions have a shorter time horizon, then short term economic factors are relevant. In the UK, one can see that 2011 onwards have been years of tepid economic growth, and prospects for the short term suggest that there will be no quick economic recovery for the UK .This has affected the UK government’s fiscal goes of doing away with fiscal deficits by this time, and tepid growth impacts the ability of consumers to consume as well. Large taxes and higher numbers of poor people translate to lower purchasing power and reduced incomes to spend on less important products such as bikes. Therefore taxation seems to be a looming issue, and one can definitely impact business prospects for Bianchi. This is a very important consideration when it comes to assessing whether or not this is a good time for Bianchi to venture into the UK or whether it is better off waiting for the economic tide to turn so to speak, and for the UK to get on a more sustainable, upward economic track (Bruce and Schomberg 2014; Worstall 2014). C. Social Factors Socially, there is a wide acceptance of the use of bicycles not just for leisure activities but also as primary modes of transport, and with the endorsement of the city mayor of London of biking as a primary commute, the social acceptability of bicycles has taken on the aspect of coolness, fashion, and independent thinking. The centrality of biking in the plans for the transport future of London makes biking too as something that is forward thinking and something associated with the cosmopolitanism of London and of the United Kingdom in general. This is backed up by substantial allocations of public funds for the development of biking infrastructure in London and other parts of the UK, all of these again translating to the social elevation of biking as something that is good for everyone and something that will allow ordinary Britons to be good guys, or on the good side of the law as well. All these translates to social factors in the United Kingdom being conducive to plans by Bianchi to branch out into the UK (Greater London Authority 2014; Siddique and Walker 2013). D. Technological Factors As an advanced European economy with developed technological infrastructures, the technological progress in the UK can be deemed at par with the conditions that meet Bianchi in its domestic market and in other markets where it is already present. If anything, the UK’s expected investments in technology moving forward should equip it with the ability to absorb and develop markets for all kinds of products and services. Therefore, no technological factors are relevant for the UK market alone, that Bianchi will not have to deal with generally as part of its normal business activities and planning (Central Intelligence Agency 2014). III. Conclusion Economic and political realities in the United Kingdom in the short to medium term suggest that there may be issues with Bianchi branching out into the UK market in the short term, even as such realities may not be different than the realities that the company faces in its home market and in other markets where it is now present. Moreover, such realities in the UK market may not necessarily be worse in comparison to other prospect markets. Taxation issues may hurt spending power and disposable income levels in the short term, so that may dampen demand for Bianchi bikes. On the other hand, socially, the level of acceptance of bikes is high, and over time, one can expect the overall economy to improve. Moreover, in comparison to other countries, the UK has a relatively robust economy with a strong currency. Therefore, on the whole, the long0-term prospects for getting into the UK market are good. Bianchi will do well to enter the UK market as a long-term play, to establish itself and ride on the improving economy in the long term (Greater London Authority 2014; Siddique and Walker 2013; Central Intelligence Agency 2014; Bruce and Schomberg 2014; Worstall 2014). References Aosa, EA and Machuki, VN (2011). The influence of the external environment on the performance of publicly quoted companies in Kenya. Prime Journal of Business Administration and Management (BAM) 1 (7). [Online] Available from: https://profiles.uonbi.ac.ke/eaosa/publications/influence-external-environment-performance-publicly-quoted-companies-kenya [Accessed 24 November 2014] Auzair, S. (2011). The Effect of Business Strategy and External Environment on Management Control Systems: A Study of Malaysian Hotels. International Journal of Business and Social Science 2 (13). 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Strategic Management Journal 11 (1). [Online] Available from: http://onlinelibrary.wiley.com/doi/10.1002/smj.4250110102/abstract/ [Accessed 24 November 2014] Worstall, T. (2014). Record Numbers of UK Working Families in Poverty Due to High Taxes, Not Low Wages. Forbes.com.[Online] Available from: http://www.forbes.com/sites/timworstall/2014/11/24/record-numbers-of-uk-working-families-in-poverty-due-to-high-taxes-not-low-wages/ [Accessed 24 November 2014] Read More