The Best Freelance Content Writer In Malaysia
Freelance Content Writer In Malaysia: In this article, we will discuss on the PEST Analysis using the example of IKEA.
Francis Aguilar a Harvard professor is referred to as the inventor of this tool. He called it ETPS – Economic, Technological, Political, and Social– as the four main components to scan the external Business Environment in his 1967 book “Scanning the Business Environment”. Within the next couple of years, the name “ETPS” was adjusted to create a current abbreviation: “PEST”.
Sample writing on PEST Analysis: The example of IKEA
These factors affect the companies in terms of legal issues and government regulations and define the formal and informal rules under which any businesses must operate when in that specific country. Examples are: Political stability, Tax policy, Employment and labor law, Tariffs, Trade restrictions, etc
The income after tax of any firm in a market is affected by the level of corporate taxes imposed by the political authorities. Therefore, the taxes reduce the profit of the businesses. For example, the tax is posed by the United Kingdom (UK), Unites States (US) and Japan is respectively: 30%, 35%, 42% (PwC, 2012) of the business profit. Thus, IKEA’s regional profits are facing regional tax laws.
In addition to the corporate tax, tariffs and trade restrictions affect the business as well. Some of the main reasons for imposing trade and tariffs are protecting new industries, local employment, and national security. When tariffs are imposed, on imported goods, the price of those goods will increase, which will benefit the local manufacturers who are not obligated to reduce their price. In the case of IKEA Company, who relies on the local manufacturers for its inventory rather than the external manufacturer; allow the company to sell at the local market’s price. Hence, the trade barriers and the tariffs have a low impact on the company’s profit.
The political stability of the country is the main component of the political factors that affect the businesses. In Poland, for example, after the communist government collapsed (1945-1989), the political situation of the country dramatically changed; affecting the relationship between buyers and seller of the company. (Ella Odrowaz, November 10, 2009). Likewise about 20 to 30 years ago, part of the IKEA’s suppliers in East German forced political prisoners to manufacture products that sold to the retailer (The Blaze, 2012a). The company’s connection with accused suppliers, in the middle of political unsteadiness of the country, negatively affects business and consumer view of the corporation.
Represent the factors which affect the business decision making and operations of the firms. These factors include Inflation rate, Interest rates, Economic growth…
The economic growth of a market influences the revenue of its firms. For instance, countries with rapidly growing economy provide a high standard of living. Therefore, the disposable income of the consumer increase along with its purchasing power, thus the demand also increases as well as the firms’ profits. The emerging economy (China, Vietnam, India…) showing high economic growth, assure a bright future to IKEA Company.
The inflation rate is an important factor affecting businesses’ profit by reducing the consumers’ purchasing power. For example, the high inflation rate in the United Kingdom (BBC news 2012) changed the consumer’s behavior and generates the shortage of recourses caused by the destabilizing market which had a negative effect on IKEA by dramatically decreasing its profit in the UK.
Another factor such as the cost of labor has some impact on businesses as well. In countries like China and India popular for their low-cost yet skilled labor, offers the company high-profit margin. That is the main reason why IKEA opened a manufacturing firm in China, improving the low-cost strategy of the corporation.
Refer to demographic and the cultural aspects of the environment. For example, when the consumers become more health conscious, the demand for the firm’s product may reduce. Other examples include Age distribution, Population growth rate, Emphasis on safety, Career attitudes.
Changes in demographic variables (age, family size…) of countries influence the strategic decisions taken by firms. For example, aging population such as Japan and Germany are less likely to buy furniture. However, young populations demand more value of money and simplicity item such as beautifully designed furniture such as IKEA’s products.
The demands of some products are influenced by demographic changes. For example, a large shift from rural to urban area by the population will lead to an increase in the demand for furniture (low-cost) since new families need to settle down. IKEA will become one of the best choices. Therefore, the revenue of the company will increase.
In the same way, fashion trends, cultural factors, consumer’s behavior and taste also control demand, less bulky, trendier, and easy-to-assemble furniture.
These factors influence the cost-quality of the outputs. They determine the barriers to entry as well as the minimum level of efficient production. Technological Factors include Automation, Technology incentives, Rate of technological, change R&D activity.
Easy access to the retailer’s online store provides IKEA with large selling opportunity. Furthermore, technology improvement in the retail section such as mobile and online payment, member cards; help the consumer to experience easier
The company has a unique attribute in the industry such as self-assembly. This attribute allows the company to transport its products in flat-packs dropping the risks of damage the furniture while delivering the product.
The increasing popularity and reliance of businesses on social media as an unconventional marketing channel benefits firms by increasing awareness and reach amongst target market, market ability factor, increased website traffic, ability to develop community and relationship with customers (Forbes.com, 2012) and so forth.