PESTEL Analysis of Al Baik - Report Example

PESTEL Analysis of Al Baik Name Institution Course Date 1.0 Introduction A number of factors influences and affects the environment that a business organization operates. These factors should be identified, understood and analyzed to make sound decisions that will ensure optimum performance of the organization is achieved. PESTEL analysis aims at analyzing these factors and determining in which ways that they do influence the establishment and growth of an organization. It involves identifying the political, economic, social-cultural, technological, legal and environmental conditions that have a positive or negative impact on an organization. The PESTEL analysis helps an organization to determine what to do and what it should avoid. In general PESTEL is a strategic planning tool used to evaluate the external environment before starting a business organization. This report will analyze factors that can enable Al Baik expand their fast food business in Egypt. Al Baik is a Saudi Arabia company that began in 1974 and its objective was to provide high quality but affordable food products and served fast foods in an inviting and clean environment. The company has grown across the country and is thinking of investing aboard. The company has identified Egypt as potential foreign country and this report intend to provide a PESTEL analysis of the country to help the company administration in making this decision. 2.0 Country Profile Egypt lie in the north east side of the African continent .It is a major crossroad between Middle East, Africa, Europe and west and south Asia. The country has an economic freedom score of 55.2, making its economy among the freest in the 2015 index. This is a higher index compared to previous year. The improvements can be attributed to labor, monetary, and investment freedom. Over the past five years, its freedom score has gradually declined. However, this decline has come to a halt in the 2015 index (HobbsRivlin 2012). There is, therefore, a need for further actions in order to restore and improve economic freedom to counter economic stagnation and poverty. Under some past economic reforms Egypt has relaxed many price controls, reduced subsidiaries, cut taxes, investment, liberalized trade and reduced inflation. The western desert accounts for about two-thirds of the country’s land area thereby limiting its agricultural sector. However, some of this desert land is being developed into agricultural land. Egypt is well endowed with minerals and energy resources like natural gas, phosphates, iron ore, petroleum and gold. In summary, the country’s main economic sectors are agricultural, construction, communication, tourism and ICT (Hanna & In Ḥāmid 2011). 3.0 PESTEL Analysis PESTEL analysis will help to identify the factors that affect the country’s economic performance such as Egypt. The political bit of it discusses the evolution of the political scenario in the country. The economic landscape section outlines the performance of the country in terms of GDP growth which is composed by agriculture, industry and services. PESTEL analysis categorizes these factors affecting the organization under six headings, namely: 3.10 Political Analysis Economic analyst Koptiuch notes that Egypt’s economic situation is intrinsically tied to the political one (Koptiuch 2012). The political situation is improving from the recent wars and Al Baik can therefore feel safe to expand their restaurants anywhere in the country. 3.1.1 Power Scramble for power has ceased in the country and there is a state of peace. The opposition political party in the country has stopped the violent demonstrations thus further making the country a good economic hub. The president of Egypt Mr. Morsi policy of calling foreign investors to invest in the country can be a major incentive to Al Baik since the government is trying to rally development (Hanna In Ḥāmid 2011). 3.1.2 Taxation policy Egyptian law imposes taxes on all foreign companies and branches of foreign companies with headquarters abroad. However, Egypt has negotiated a free-trade agreement and a company like Al Baik can therefore operate without fearing the taxes and tariffs that can be charged. The country is also a member of various bilateral agreements with other African and Arab countries. As a company in one of the countries that have signed treaties with Egypt, Al Baik is free to operate its business in the country (Rienner2014). 3.20 Economic Analysis The economic analysis involves evaluation of economic factors such as economic growth, interest rates, exchange rates and inflation rates among other factors. 3.2.1 Unemployment levels In Egypt the unemployment rate measures the number of people in search of jobs as a percentage of the labor force. The table below provides an illustration on the trends in the labor market. Calendar Event Actual Previous Forecast 2014-02 unemployment rate 13.4 13.4 13.6 2014-05 unemployment rate 13.4 13.4 13.7 2015-05 unemployment rate 12.9 13.1 13.1 2015-05 unemployment rate 12.9 12.9 13.0 In 2005, the government sold 209 public companies to private sector. This privatization increased the level of unemployment. Al Baik can therefore face no major problem when looking for people to work in their restaurants and other fast food outlets that they can be operating 3.2.2 Inflation Between 2008 and 2011, the prices of food especially for grains increased. This led to calls for the government to provide assistance to the population of more than 40% (HobbsRivlin 2012).The country faced a long-term supply and demand repercussion of the global financial crisis on the national economy. Its gains from annual growth rate failed to reduce the poverty level and only benefited the rich. As a result, the number of population living under the poverty levels increased to about 50% leading to social-economic crisis (HobbsRivlin 2012). The government came up with some comprehensive reforms to cope with the inflation levels. One of the reforms was to allow foreign companies operate for a period of about 10 years without any interference. This can be a motivation to Al Baik since they will operate without fearing the termination of lease period. 3.2.3 Gross Domestic Product Currently, the GDP is growing at a rate of 7% per annum due to successful diversification. According to the World Bank Country Classification, Egypt has been promoted from a low income class to lower middle income class. The table below illustrates the level of the country’s level of GDP in recent years. Year 1981 1991 2001 2005 2006 GDP (PPP) Per capita, (US$) 1354.81 2524.99 3685.98 4316.59 4534.82 GDP per Capita at constant prices, (EGP) 3121.85 4075.47 5138.36 5519.09 5692.24 GDP per Capita at Current Prices (US$) 411.20 2098.71 5493.28 7890.65 8707.88 GDP per capita at current Prices, (US$) 58742 869.30 1460.98 1315.75 1517.85 Table 1(Hanna & In Ḥāmid 2011) The growing level of GDP shows that the economy is growing over time. Al Baik can therefore take advantage of the growing economy and expand their fast food business. This will be promising since the business will grow just as the economy is growing. The cost of putting business at this time can be low since the economy is not yet at its peak. The cost that Al Baik can incur to expand their fast food restaurants can therefore be low as compared to another time and place. 3.3 Social-cultural Analysis Social-cultural factors often look at the cultural aspects and include; population growth rate, age distribution, career attitudes and emphasis on safety and health consciousness. 3.3.1 Population Egypt is the most populous country in the Middle East and also the third most populous in the African continent (Mishrif 2014). This makes it good market for a business. Every man must eat; therefore the large population is a good market for a food related business like Al Baik fast food business. 3.3.2 Education Education is free through the university and compulsory from age 6 to 15. According to Rached and Dina (2010), the number of population in primary and secondary education has been on the rise. Al Baik can set their fast food restaurants around these institutions of learning and provide their food services to this large number of students. 3.3.2 Language and Religion The vast majority of Egyptians are native speakers of modern Egyptian Arabic. Being a company from another Arabic speaking country, Al Baik will not face any major barrier as far as language is concerned. The use of the native language will even be an added advantage to expand even in the local centers. 3.4 Technological Analysis Technological factors look at elements such as technological incentives, the rate of technological change, recent technological developments and automation. The country has increased its spending in IT from US$1.3 billion to US$2.1billion by 2014 (Mishrif 2014). A number of policies such as lower corporate taxes and deductions for training costs have also been implemented to attract foreign investors in Information technology. The improvements in technology have enabled the use of cashless payments on services and goods. Al Baik can therefore use the service in their service delivery. This will even prevent cases of robbery in their restaurants (Hanna & In Ḥāmid 2011). 3.5 Legal Analysis Trade and business are affected by the legal and regulatory framework which can either be those which affect the general environment of doing business or those which specifically impacts trade and investment operations. Legal environment involves laws that have been passed to guide and control operations in the business places to ensure free and fair trade. There are laws in the country that protect business from consumer exploitation. This can be a motivation element to Al Baik since they will be safe from any consumer conflict that may arise in the process of operations (Rienner 2014). 3.5.1nvestment laws Investment in Egypt is governed and regulated by companies law, capital market law and investment law of 1997.Foreign investors can invest and do business in the country without restrictions so long as one have been cleared by the national security agencies. However some activities are not open to direct investment by foreign investors. They include; i. acting as a commercial agent ii. importing with a purpose of trading in Egypt Egyptian law allows foreign investors in the country to establish any of the following types of companies: i. limited liability companies ii. joint stock company Foreign investors are not necessarily required to have a permanent presence in the country. They can therefore, be able to set up a branch or office or appointing a commercial agent to sell and distribute their products in the markets. With all these incentives on foreign investors, Al Baik can comfortably put their plan in action and expand the restaurants in all the major centers that they can be able to reach (Mishrif 2014). 3.5.2 International agreements and treaties In 30th June 1995 Egypt joined world trade organization (WTO). Egypt is also a party to the Pan-Arab Free Trade Area and COMESA (HobbsRivlin 2012). It has a bilateral free trade agreement with Turkey and an association agreement with the European Union. Foreign companies are allowed to freely do business in the country. Al Baik can therefore put their restaurants in operation since the country has no issues with business that help develop the economy (Koptiuch 2012). 3.5.3 Labor laws The law addresses labor training and certification. This was an achievement since it guarantees employers a market of reasonably skilled labor to employ. A company like Al Baik dealing with foods requires well trained personnel’s in their restaurants. The laws in the country help to provide such qualified and trained people in the job place. Al Baik will not therefore face any problem when looking for their work force (Mishrif 2014). 3.6 Environmental Analysis 3.6.1 Waste disposal The environment conditions in the country had not been encouraging prompting the Suzie to state that one can hardly walk in the country without seeing dump sites spread all over the place. In order to address the condition, the government through the ministry of environment has established some strategies to ensure that the city was brought to a good shape and clean. The Ministry of Environment registered 44 local disposal companies to take over the disposal responsibilities in Cairo. It also launched a public awareness campaign to get people sort organic and non-organic waste in their homes. This is a good thing for Al Baik since poor disposal can cause a health problem that may then lead to the closure of food outlets in the city by the Ministry of Health. The hygienic conditions are good for Al Baik food and restaurant business (Koptiuch 2012). 4.0 Discussion Starting from the large population that is a major market to the growing economy that is improving the purchasing power of the people, Al Baik has all the reasons to expand their fast food restaurants in Egypt. The law does not block foreign investors .One only needs to comply with the rules and regulations set aside. 5.0 Conclusion and recommendations The objective of the Egyptian government is to achieve growth through local and foreign investors. It is doing so by trying to improve the business environment by means of action in trade, taxation and finance. A company like Al-Baik can, therefore, feel comfortable to set up their Restaurant as the country is willing to help all investors to boost its economy. The large number of people also forms a ready market to their Fried Chicken Breast. References HobbsRivlin, P., 2012, Economic Policy and Performance in The Arab World. Lynne: Boulder. Hanna, N., & In Ḥāmid, R. A., 2011, Society and economy in Egypt and the Eastern Mediterranean, 1600-1900: Essays in honor of André Raymond. Cairo: American University. Koptiuch, K., 2012, A poetics of political economy in Egypt. Minneapolis, Minn: University of Minnesota Press Mishrif, A., 2014, Investing in the Middle East: The political economy of European direct investment in Egypt. London: Tauris Academic Studies.. Rienner P., 2014, Egypt. Philadelphia: Chelsea House Publisher’s. Rached, E. & Dina C., 2009, . Research for Development in The Middle East And North Africa. Ottawa: IDRC. Read More

 

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