PEST Analysis of ABC Clothing Company
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With the introduction of open international trade, businesses now have more opportunities to offer their products and services to foreign markets. In order to do this, companies typically answer the questions as to which foreign market will they be entering, how will they enter it and when will be the best time to enter it. Once the company has identified it market prospect, it is then important that the company analyze and understand its selected market segments.
This paper primarily provides the PEST Analysis of ABC Clothing Company in line with the planned expansion in international business operations. This provides insightful details regarding different factors of in the external environment that an organization must monitor. After which, this paper will attempt to select one of the most essential factors that must be given emphasis by the company in order to sustain their competitive advantage among their competitors for the foreseeable future. Further, this report will also outline the role of marketing research to support the company's decision making process.
International expansion is one of the main representations of business success as it suggests the company’s ability to meet foreign market demands and supply resources needed for foreign operations. Financially, operating abroad can be demanding; in addition, the company would need to adjust a number of its standard operation in order to adjust to foreign business practices. In other words, there are many risks involved in global trade. As this business activity requires significant resource allocation, the companies must then ensure that they are capable of overcoming possible risks and will be able to achieve success.
One way of doing this is by analyzing the environment that the companies wish to invest on. It is important that business entrepreneurs are aware of the distinct features of each foreign setting; in this way, the investors will know how to address the risks in the most effective way. If for example the food company is from the West, establishing a branch in the Eastern section will naturally make western and eastern differences apparent. In ABC Clothing Company’s case, the company has been operating successfully based on Western standards; as it aims to expand into newer international markets such as Asia, this concept applies very well to the company.
Foreign origins have distinct differences on various aspects like politics, philosophy, society and history. Hence, it is imperative that entrepreneurs understand their market prospects well. From this aspect, learning and adaptation are perhaps the two most important factors that should be present.
The Marketing Environment
Today’s market is characterized by highly competitive organizations which are all vying for consumer’s loyalty. Firms are faced with the challenge to maintain their own competitive edge to be able to survive and be successful. Strategies are carefully planned and executed to gain the ultimate goal of all: company growth. However, external factors are not the only elements which influence growth. There are also internal factors, components working within the organization which shape the direction of the company.
The company’s marketing environment influences the business organization directly. This includes the suppliers that deal directly or indirectly to the people within the business organization, the consumers and customers who demand for the products or services offered by the company, and other local stakeholders who influence the decision-making process or affected by the business decisions made by the business firm. As such, the marketing environment of a particular company describes the relationship between firms and the driving forces that control this relationship who are members of a specific industry wherein the relationship is local and the firm may exercise a degree of influence.
PEST Analysis Overview
The environment we live in can be very volatile. All organization has its considered internal weaknesses and strengths, but the outside world will also have a major impact on the organization’s future. PEST Analysis is a popular marketing management tool and method of examining the many different external factors affecting an organization. The acronym PEST stands for the following: Political, this is the current and potential influences from political pressures; Economic, the local, national and world economy impact; Sociological, the ways in which changes in society affect the organization; and Technological, the effect of new and emerging technology.
Since the company is offering clothing designs for all ages which depend on the needs and demands of their customers, there are some external factors that the company must consider in order to stay in the competitive world of business. The following are some of the factors within the external environment that the management of the company must consider.
• Political (Legal) Aspects
A company will not be able to gain success, good reputation and trust if it will not consider legal and political sector as part of their strategy. Political and legal sectors include the needs of the company to follow the given policies and regulations of the government in order to be considered as legal and authorized business company. In this manner, ABC Clothing Company should be able to consider political and legal aspects so as to show that they value the policies and regulations of the government in any of the business operations.
- tax policy
- employment laws
- political stability
- environmental regulations
- trade and tariff restrictions
• Economic Aspects
It is important that a certain company must also give enough attention to its economic stability. The economic goal of a certain industry is like an axis in which other objectives or goals are revolving. The economic factor involves the context in which an industry belongs, i.e. the configuration of the competition in which a company operates the active demand of the products, general economic condition of the nation or region, conditions in relation with other industries, and the situation of the resource markets.
- economic stability
- economic growth
- interest rates
- inflation rates
- exchange rates
• Socio-cultural Sector
Society and culture is an important factor that must be given emphasis by any business, specifically those who are operating in the global arena. It is important that the company must operate in compliance with the social systems in order to gain good reputation and effective public image. On the other hand, cultural aspects is equally essential, in order to understand the various needs of different individuals that belongs to different cultures.
- population growth rate
- age distribution
- career attitudes
- consumer behavior
- religion and culture itself
• Technological Aspects
The complexities of achieving business success through increased efficiency, effectiveness and competitiveness, combined with innovative applications of modern technology, has heightened the awareness of both technology and business managers towards more strategically oriented approaches for planning and management of any industry. Hence, it is important that a company must be able to give consideration to the technological aspects.
- distribution and communication channels
- technology incentives
- rate of technological change
- environmental and ecological aspect
- barriers to entry
- production level
- outsourcing decisions
Emphasis on Economics
The marketing concept has been defined as ‘the key to achieving organizational goals’ and the marketing concept rests on ‘market focus, customer orientation, coordinated marketing and profitability’. In a profit making business the firm obviously has to try and achieve this level of customer satisfaction as a way of staying ahead of the competition and making a profit. Traditionally, marketing has been utilized by the private sector in decisively increasing the capabilities of an organization. Marketing can be considered as one of the most important element underpinning successful business creation. The importance of marketing concept incorporates oft-repeated elements such as: customer orientation; integrated marketing efforts; and resultant profitability.
In marketing operations, the marketing manager must have the ability to strategically decide the most essential external environment factors to be monitored in order to sustain the competitive advantage of the company in the future. In the case of ABC Clothing Company, the marketing manager of the company should give focus on the economic aspects. As mentioned, economic aspects includes the possible conditions needed in order to gain competitive advantage within the marketplace. Economic sectors include all the possible factors that drive an industry to know where it belongs such as the condition of its competitors, entire economic situation of the region and nation in which the company is operating. In this particular case, ABC Clothing Company is operating in different areas or regions of the world, including Asian market.
In this manner, the marketing manager, should be able to consider economic sectors in its monitoring to ensure that ABC Clothing Company adheres to all elements of economic factors of the external environment. Just like what big as well as small multinational companies that are operating globally. Herein, the marketing manager should be able to monitor the economic status of a certain country where the company is currently operating or the economic status of a country in which the company would plan to operate in the future. It is said that if a country with a good economic status or which is economically stable, there is possibility to gain more customers which would avail the quality products offered by the company.
Companies in the industry sell to a few large customers/buyers. Likewise, the industry also displays an apparent impracticality for customers/buyers to switch from one source of supply to another. This is reflected by the cost of raw materials as well as the costs of operations. Moreover, the products offered by companies in the industry are essentially interchangeable and indistinguishable. The product could also be considered as a commodity for the retail industry especially in the clothing business. Moreover, the industry shows that the cost of the product and service represents a relatively large percentage of the buyer’s and customer’s total cost. Nonetheless, the customers could if desired backward-integrate specifically by acquiring a company in the industry to which is included. The following are micro-environmental aspects that are necessary to consider.
Many suppliers provide raw materials to the industry. Moreover, companies in the industry are not likely to backward-integrate. On the other hand, it could also be posited that the companies in the industry are the primary source of revenues for the suppliers. This makes the competition among suppliers more rigid. Likewise, if raw -material costs get out of line, companies in the industry would be able to have a hard time using a different type of raw material to produce the product. The industry is also characterized with the quality and costs of raw materials having a significant impact on the quality and price of the products and services produced by the industry.
Moreover, the raw materials provided by suppliers are essentially interchangeable and indistinguishable. The raw materials are essentially commodities. Likewise, in an industry where loyalty is also considered necessary, there is also the possibility for the suppliers to forward-integrate.
Rivalry Among Competitors
Companies in the industry considered to be diverse in their history and culture and in how they do business. Moreover, the product/service sold by the industry has low storage costs or is not perishable. Nonetheless, the industry is experiencing fast market growth.
The products offered by companies in the industry are essentially interchangeable and indistinguishable. It has also been established that the product provided by the company is a commodity to a major part of its stakeholders. Moreover, it also shows that there are considerable numbers of large competitors that dominate the industry.
In the said industry, companies in the industry have high fixed costs and spend a lot of money on plant and equipment. Likewise, production capacity, to be economically feasible, must be done in large, expensive increments. Significant barriers as well hinder companies that want to exit the industry. These include regulations, labor agreements, costs of closing facilities, and the absence of secondary market for assets. In addition, it could also be observed that staying in the industry is of great strategic importance to companies in the industry, probably because they have nowhere else to go.
Threats of New Entrants
The economies of scale play a significant role in the cost of produce the product and service. Companies in the industry have low fixed costs and spend relatively little on plant and equipment. Moreover, competitors in the industry are not likely to cut their price to defend their market position. In an industry experiencing fast market growth, patents, proprietary knowledge, and brand reputation are also considered as barriers for companies entering the industry.
Threat of Substitute Products
The price of substitute products is more expensive. This provides the industry a great following. Moreover, the quality, features and benefits of substitute products are generally lower.
The Role of Marketing Research in Decision Making Process
The structured method of marketing research has enabled countless of producers and consumers alike to better understand their relationship. Generally, the role of marketing research in every business environment is to provide information that are necessary in the decision making processes for the development and benefit of the company.
There are numerous studies conducted to verify the potential effects of information in business environment obtained through marketing research. The value of information in decision making is proven especially in enhancing performance, reducing uncertainty, and processing business plans. The information collected through marketing research, may it be qualitative or quantitative in nature is essential in the overall being of the company.
Furthermore, there are other several experimental studies that have proved that marketing research is indeed an important element in companies' success formulae. give evidence that the level of use of marketing research is positively related to company effectiveness. Every effort exerted in the research process is justified when the by-product is the optimal performance of the business. In the same way, that more successful companies carry out marketing research, in sharp contrast to less successful companies. Focusing on small firms’ environment, found a positive relationship between the use of environmental information and small firm financial performance.
Decisions based on marketing research information are an important factor in overall business success. These studies show the linkage of marketing research and company’s performance. Again, the role of marketing research in the decision making process of the company is to provide imperative information that is very vital in the growth, success and survival of the marketing course of the product in relation to the business as a whole.
The results of the PEST analysis carried out on the macro-environment of ABC Clothing Company indicated very significant effects for the industry and company itself. Therefore, one could conclude that the international expansion of ABC Clothing Company is expected to be feasible and grow faster than average. Regardless of current trends and unpredicted circumstances, the company is now ready for the implementation of plans.
In relation to the role of marketing research in decision making processes of the company, it could be considered that marketing research is undeniable one of the most important tool in starting a business. Thus, its role is indispensable in the process of business expansion especially to the case of ABC Clothing Company who is now ready for international take-off of its operations and products.