Topic 1: Business Environment
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1.5 External environment

Prepare a PEST analysis for a given situation and use it to analyze the impact of the external environment on a firm.

Evaluate the impact on a firm’s objectives and strategy of change in any of the PEST/PESTLE factors.



Everything external to the business organization is analyzed through the use of a particularly effective tool known as the PEST, STEP, PESTLE or STEEPLE. These variations are simply acronyms that serve to represent four (as in PEST and STEP) to six (as in PESTLE AND STEEPLE) elements of the external environment.
The PEST (political, economic, sociological, technological) analysis is the same acronym in a different variation such as STEP.
PESTLE (political, economic, sociological, technological, legal and environmental.
STEEPLE is a variations of the PESTLE acronym


Another acronym used is the PEST-G, with “G” representing Green or environmental factors. These Social/Cultural, Technological, Economic, Environmental, Political, Legal and Ethical elements all represent opportunities and threats to the goals or objectives of the business organization. Therefore, it is an effective tool in determining the impact of the external environment on the business organization. In essence not all the elements may effect the organization, and in this situation only those that are effected will be applied.

Let us assume that a multinational corporation is considering expansion into the highly attractive Chinese market. There are numerous considerations that need to be taken into account in order to secure the most advantageous transition process. In applying the PESTLE as a tool the following considerations can be taken into account.

Political


China has a communist political system and the political decisions that are made may indeed impact the expanding business directly. Most students are confused as to how the Political element of the tool is defined. This area concerns itself with how political events that are national or global may affect business prospects, therefore the degree to which the government affects the environment that the business operates within.

In political systems that are democratic, the political arm of government know as the Legislature is responsible for creating law, but what we are concerned with are the events surrounding the creation of the law or policy. Political debates will result in lobbying activity and general political overtures. Politicians may make statements that lead to concerns of war or an election may result in a new government that does not look favorably upon business and free enterprise. These would be considered Political influences on business. If however, governments move past the legal arena and pass bills or acts of parliament, the ensuing legislation would fall under the Legal category.

Economic
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A business that seeks to move to China may find the economy in a different cycle of the boom bust period. In an economy such as China with GDP (Gross Domestic Product) growth rates that are very high, the opportunities would be quite attractive and drive decisions. This has been the case with the high and continued influx of foreign corporations into the China market.
Social/cultural




As an external element that may present opportunities of threats, an examination of the Social and Cultural environment involves the societal norms, traditions religion, language and customs that may impact or benefit the business organization in achieving its objectives. China has a rich and varied tradition and the language and culture of the Chinese society has proven to be challenging for many foreign entrants in the market. Although there is a widespread acceptance and general desire to emulate western norms, which in itself represents an opportunity, this may also be a challenge. For example, the marketing activity must conform to the norms of acceptance within the new cultural boundaries. The use of slogans formerly adopted by the business may need to be rewritten in order to more appropriately conform to the indigenous society and its norms.

Technological

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The rapid pace and impact of technology on an organization must continually be monitored in order to ensure the aforementioned threats are minimized and the opportunities optimized. However, if our fictitious Corporation were relocating to China the technological standards may present unforeseen challenges of compatibility. Certain measures have been set to ensure standards for compatibility the organization known as ISO (International Standard Organization). However, the consequences of technology becoming outdated or obsolete, or for that matter enhancing production through Computer Aided Design (CAD) or Computer Aided Manufacturing (CAM) are all technological elements that need to be taken into account.


Environmental



The climate has become very unpredictable and swings in temperatures and weather patterns are being around the globe. Governments have been called to action and have forged policies that seek to curtail the negative human impact on the environment. Therefore, as legislation is enacted and measures are put into place to control these so called negative externalities, production related costs could rise. It should also be noted the “green business” presents some formidable opportunities for proactive businesses.

Legal



When laws are enacted or retracted the overall business strategy may be affected. This in turn may present opportunities or threats to the business and its overall strategy. Our corporation in China would have to become familiar with the new laws of the country and ensure that it is in compliance. Recently in China as in most parts of the world laws have been introduced to encourage the use of “green” energy efficient vehicles. As an external influence this element of the tool for analyzing the external environment is extremely important. Businesses that are not in compliance could have their very survival put into question.

Ethical

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As consumers become better informed they are placing greater demands on businesses to meet and adopt specified codes of conduct. By consequence, business ethics has begun to play a vital role in the overall strategy of a business. This is highlighted by the increasing role being taken by pressure groups or community organizations that place increasing demands for social and environmentally responsible businesses. The media in turn has tended to be the vehicle by which pressure groups influence business strategy.

Analyse the impact that external opportunities and threats may have on business objectives and strategy.

Explain how external opportunities and threats can impact on business decision-making and SWOT (strengths, weaknesses, opportunities, threats) analysis.



The businesses global, operational, and tactical planning will be predicated on the success of all the factors that influence the outcome. The external environment can be effectively assessed with the use of the PESTLE analysis to determine external opportunities or threats on the basis of each element in the tool. The PESTLE analysis can be moved forward by using it in conjunction with the SWOT analysis, allowing business to align positively with the powerful forces that influence the working environment. The SWOT and PESTLE allow business to adapt to the conditions of the external environment and not oppose or work against them.
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Economist make that claim that resources are scarce and that human wants are unlimited. This juxtaposition is a paradox that raises debatable outcomes on the environment and faith in technology.

Do Business Organization contribute to raising our standards of living? Are the current activities of business sustainable?


We continue this week with building our understanding of the external environment and how government responses to the objectives of growth, unemployment, inflation and the balance of payments will affect the business organization.
Your assignment is the following:

Complete the readings in the following link The Economic Context of Business and based on what you have learned post in the Discussion Tab some thoughts on the question in 150 words or more. Respond to one other comment.