PESTEL Framework of Volvo and Challenges the Company Is Likely to Face - Case Study Example

Critically Apply PESTEL Framework to Volvo Identify the Challenges the Company is Likely to Face in the Future and Related Strategic Advice Contents Part 1 3 Part 2 8 References 12 Part 1 PESTEL analysis is a framework that is used to scan and analyze the organization’s external macro environment. It also used to understand the impact of external factors on the organization. This analysis is required for planning to launch a new product or expand the area of market for an existing product. This analysis will give a bird’s eye view about the entire environment from all aspects. Political factors include tax policy, employment and labour law, environmental regulations, trade restrictions, political stability of that particular country, tariffs etc. (Allen, 2012, pp.54-56). Government regulation, other legal issues and any other formal and informal rules are also included in the political factors. Economic factors include the growth of the economy, interest rate, inflation rate etc. Business operations and decision making procedure depends on the economic factors. Social factors indicate demographic and cultural factors of the environment which are mainly population growth rate, career attitudes, emphasis on safety, age distribution etc. The cost and quality of the output depends on the technological factors. These are technology incentives, R & D activities, rate of technological changes, automation etc. The legal factors influence the operation of the company, the demand and cost of its product. Consumer law, health and safety law, discrimination law, employment law, antitrust law etc are included in it. Environmental factors refer to the environmental aspects and ecological factors such as climate, climate change, weather etc. The PESTLE analysis is used to examine the future as well as the current state of the industry in which an organization belongs to (Hasan, 2013, pp. 1-5). Company Description Here PESTLE analysis has to do on the company Volvo. It is a Swedish manufacturing company which is doing business in the international market. Headquarter of this company is Gothenburg, Sweden. Being a multinational company Volvo mainly do the production, distribution and selling activities. The products that the company offers are mainly buses, trucks [Renault trucks and Mack trucks], construction equipments etc. The company also provides financial services and supplies industrial and marine drive systems. Approximately 1, 10, 000 employees are working in this company. The company was founded on 14th April, 1927. Now if the company wants expand its business in UK then it has to do the PESTLE analysis at first to realize the macro economic factors. PESTLE Framework Political Factors Government laws and regulation for starting the business, various security measurement and restrictions of the country are included in the political factors. In UK laws and regulations related automobile industry are related to the environmental benefits of the country. So the Volvo Company has to take initiative to protect the environmental issues at the time of manufacturing automobiles. Government foreign policies and taxes part is the difficult part for launching a business. The foreign policies are very much important for establishing any product in the foreign market. Introduction of new scheme in UK automobile industry is also an important aspect in this case. The present regulation of the country encourages in production of high mileage cars (Slamanig, 2013, pp.1-4). Economic Factors Economic factor includes taxation charges, interest rate, exchange rate, economic growth, customer’s purchasing power, inflation etc. Export of vehicles will be hampered due to the fluctuation of exchange rate in the international trade. A weak currency will make the export procedure easier. Now a day an economic slowdown can be shown in many countries around the world and UK is not an exception. Here also inflation and interest rate are very much unstable. Especially the automobile industry is suffering a lot due to inflation and economic crisis in UK. There is a positive relationship between national level of income and demand of car. Change in GDP helps to increase the demand of cars in the economy. In the time of recession if GDP is reduced by 5% then demand of car will also be decreased by 10%. In the year 2009, 30% demand of car has been reduced in the automobile sector. Again expectations for demand can be shown during economic upturn. Social Factors Life style trend, buying trend, culture etc. are important to analyze social factors. The size of the potential market and the demand of the consumer are affected by the social factors. Improved social network and community in the country influenced people to buy a new car. The skill of the staffs is in high demand in the worldwide market. So their life style and expectations are also high. In such case demand of automobile products will be increased. The life style and expectations of students are also high from their parents and also their self dependency. This is another reason to increase the sale figures (Cheverton, 2005, pp.72-75). Most of the families in UK have minimum two sources of income. So a car in each family is very much needed to support their life style. Going to office, taking children to school, doing shopping at super markets all these work can be done smoothly by purchasing a car. The citizen of UK is living a fast life and for this reason a car is essential in each family. A car is also a symbol of wealth and success which a person want show to his community or peer group. So it is another reason for purchasing this product. Technological Factors Innovation of new technology is most important technological factor in this country. Renewable energy needs to be set up by the individual and government to implement and promote new technologies in the automobile business sector. Heavy investment is required to reduce the cost of production in the car industry. The company will achieve competitive advantages after using improved technology in their production. Modification of technology also creates an advanced feature in the product. On the other hand restriction of technology is helping to protect environmental benefit in the country. New and sophisticated design of the vehicle will attract more customers and generate more revenue in the business (Griffin, 2010, pp.127-130). Information technology also plays a critical role in both the customers and the suppliers end. Legal Factors New laws or directives of the government are included in the legal factors. Strict pollution norms are set up across the UK and there are so many restrictions to protect the environment of the country. Environmental Factors The Company decided to produce eco friendly vehicle after considering the environmental factors in mind. Awareness about the global warming and green house effect are increasing day by day and UK government strictly maintains these issues. They have taken necessary steps to maintain the quality of environment. So business activities should be set up after considering the mentioned steps. EURO norms have been implemented in the developing as well as developed countries in the world (Dransfield, 2001, pp.20-26). Possible Future Challenges identified from PESTEL analysis The company Volvo also will face some challenges in future. These are as follows: As the global warming is increasing day by day so the company has to take more advanced technology for producing more eco friendly vehicle. The responsibility to reduce any bad impact on the environment will also be increased. Huge number of vehicles is required to fulfil the demand of increased population. More advanced equipment and engine are required to gain competitive advantage in the future growing market. New unique design has to be implemented to fulfil the customer’s requirement. Legal action will be more rigid to protect the environment. So the company has to take strategic steps so that it can earn revenue and simultaneously maintain all the legal actions which are in favour of environment (Williams and Green, 1997, pp.8-14). Future foreign policies will be a challenge to them. Natural disaster, storm, flood, earthquake etc environmental reasons will hamper the business activities in future. So necessary steps and provisions have to maintain by the company to face such kind of situations. Changing rate of interest will be a challenge to the company. If the interest rate will be increased then the customers always will not able to take loan for purchasing an expensive car (Millward and Singleton, 2002, pp. 3-6). Inflation will reduce the purchasing power of the consumers. Here it will be another challenge to the company. Shortage of natural resources and raw material also will be a challenge to the company. Rapidly growing population is decreasing the quantity of natural resources and this will be a threat to the production procedure of the company. The presence of other and emerging car manufacturing companies will increase the competition in the market. In this competitive stage, holding the stable position of the company in the market will be challenge to them (Enarsson, 2006, pp. 43-48). Part 2 Strategic Advices Strategic decisions can be defined as some well planned decisions by which a company can do its business activities in an organized way. Strategic advice generally helps a company to be dedicated towards customers, institution and society. To gain competitive advantages strategic advice should be followed by the company. The company Volvo should take some strategies for betterment of their business. These strategies are as follows: The company should be transparent about their performance, strategies and ambition to its customers. It should adopt modern and high technologies for producing more improved vehicle to remain competitive in the market. New equipment should be installed and new design should be innovated to cope up with the changing taste of the customers. The company should launch eco friendly vehicle to protect the environment of the country. The pollution will be controlled by using such kind of vehicle. The company can also be able to maintain all the government provided laws, rules and regulations which will be favour to run the business activities in a smooth and clear way (Sadler, 2003, pp. 13-15). Code of conduct should be maintained and corporate social responsibilities must be included among them. Supply cost plays an important role and influences the price of the product. It should be the matter of consideration during inflation and economic crisis. Raw material supply cost, production unit efficiency etc are included in the supply cost. The company Volvo can manage its supply cost by setting up its production unit at different locations. This will also increase the opportunity of employment. Reducing the supply cost also helps in reducing the transportation costs and business process can be done in flexible way (Jeffs, 2008, pp. 12-19). Labour productivity is required to implement new designs of vehicle. Maximum utilization of working capital also depending on the labour productivity. So company should look after at this point. Providing economies of scale to the customers will be another strategy. It helps to recover high capital cost through high volume of output. The company should promote their new launched design and eco friendly vehicle in a different way to attract the attention of customers. The customers who do not like the pollution they will definitely purchase this vehicle. Most of the public in UK do not like pollution. So the vehicle will be a demandable position in that market but promotion through a proper channel is required (Sekhar, 2009, pp. 12-15). For example direct marketing of the company should be very strong. Advertisement through print media, electronic media, banner, poster, and social media should be attractive. The web site should be well briefed. The company should secure its brand value through launching new product design. It should create evaluation tool for design proposals. In case of launching new design the company should identify the ingredients which will be used in the production purpose. The design strategy will provide customer advantage and it is concerned about the product identity. The company should look after three core values for the future improvement of their business. These three core values are safety; quality and environment care. These core values will be based on product development and will meet the customer’s need. The company should provide such kind of product or services that can be trusted and get customer’s support. High quality should be provided which is expected from the loyal customers. Advanced surface treatment, co ordinate materials also will be provided with the product. Quality will give the competitive advantage in the market (Freeman, 2010, pp. 43-47). Safety is other part of core values. This will minimize the probable risk factors and reduce chances of accidents. Safety is needed in all steps like making design, production procedure and usage of the product. Volvo has already meet the highest functional and operational safety demand in the world market but as the expectation becomes high day by day so it has to maintain and improve the safety qualities within the product. Providing safety door lock and SIPS side impact protection system the company can gain the reliability of customers within very short span of time. Modern technology and heavy investment are required for launching new design and improved quality products. Modification of technology and adding new attractive feature in the vehicle will also be an advantage to the company for the growth of the business (Nasr, Yule and Bendig, 2002, pp. 257-261). The company should arrange environmental program with high goals. The company also can create environmental awareness among people which will be effective for getting any permission which is required for the business from government. Interest towards environment is a large area. Company should take proper steps in case of production procedure also. Otherwise from the production procedure the environment will be affected. Exciting car experience should be provided by the company. People of UK love to do adventure and feel excitement. Especially the young group of the country. If they will not get this type of advantage from the vehicles of Volvo then they will move to buy another existing brand in the market. To retain this kind of customers, company should take appropriate strategies for giving exciting experience through their vehicle to the customers (Casson and Godley, 2000, pp. 3-6). The company should take strategy for expanding their market in the BRICK countries as there is high scope for flourishing the business. Volvo should concern about the utilization of natural resources and try to reduce the miss use of these resources. For example it can be said that if they will take proper steps to reduce the consumption of fuel then the country and the nation will be benefitted and natural resource will be saved. The company should be concerned about the environmental changes, demographic changes, changes of urbanization, recyclability, climate change etc. The company should focus on the use of health related technologies and energy efficiencies. Crush tested technologies can also be used for betterment of the business. References Allen, M. 2012. Analysing the Organisational Environment. Cambridge: Select Knowledge Limited. Casson, M. and Godley, A. 2000. Cultural Factors in Economic Growth. New York: Springer. Cheverton, P. 2005. Key Marketing Skills: Strategies, Tools and Techniques for Marketing Success. London: Kogan Page Publishers. Dransfield, R. 2001. Corporate Strategy. Oxford: Heinemann. Enarsson, L. 2006. Future Logistics Challenges. Copenhagen: Copenhagen Business School Press DK. Freeman, R. 2010. Strategic Management: A Stakeholder Approach. Cambridge: Cambridge University Press. Griffin, D. 2010. Business with a Purpose: Starting, Building, Managing and Protecting Your New Business. New York: Easy Brain Labs Inc. Hasan, R. 2013. Apple Inc. - An Analysis: PESTEL analysis, Porter’s 5 Forces analysis, SWOT analysis, Comprehensive analysis of financial ratios, and Comprehensive analysis of share performance of Apple Inc. Germany: GRIN Verlag. Jeffs, C. 2008. Strategic Management. Los Angeles: SAGE. Millward, R. and Singleton, J. 2002. 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