Environmental Analysis

• An integrated understanding of the external and internal environment is essential for firms to understand the present and predict the future.

INTRODUCTION

INTRODUCTION

Firm’s external environment is divided into three major areas.

1. General 2. Industry3. Competitor

General Environment

• It is composed of dimensions in the broader society that influence an industry and firm within it.

• PESTEL Analysis is used to analyze General Environment

Industry Environment

• It is a set of factors that directly influence a firm and its competitive actions and competitive response.

• Five Force Model is used to analyze Industry Environment.

Competitor Analysis

• How to gather and interpret the information about the competitor is called Competitor Analysis.

Environment Analysis

• Analysis of General Environment focused on the future.

• Analysis of Industry Environment is focused on the factors and conditions influencing a firm’s profitability within a industry.

• Analysis of Competitors is focused on predicting the dynamics of competitor’s actions, response and intension.

Environment Analysis

• Performance improves when the firm integrates the insights provided by analyses of all environments.

Components of External Environmental Analysis

1. Scanning : Identifying early signals of environment changes and trends

2. Monitoring: Detecting meaning through ongoing observations of environmental changes and trends.

Components of External Environmental Analysis

3. Forecasting : Developing projections of anticipated outcomes based on monitored changes and trends

4. Assessing : Determining the timings and importance of environmental changes and trends for firm’s strategies and their management

General Environmental Analysis

• PESTEL analysis is used to analyze General Environment.

P = PoliticalE = EconomicalS = SocioculturalT = TechnologicalE = EnvironmentalL = Legal

1.Political Factors

Political factors, are how and to what degreeGovernment intervenes in the economy. Political stability. Tax policy Trade policyEx: Tata Nano

1.Political Factors

Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods).

Furthermore, governments have great influence on the health, education, infrastructure, and of a nation.

1.Political Factors

Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system.

2.Economical Factors

These factors have major impacts on how businesses operate and make decisions.

Economic growth Interest rate Exchange rate Inflation rate Etc ……

2.Economical Factors

Ex. Interest rate affects on cost of capital Exchange rates affect price of imported goods

Inflation may provoke higher wage demands

3.Sociocultural Factors

Factors includecultural aspects health consciousness, population growth rate, age distribution, career attitudes,emphasis on safety.

3.Sociocultural Factors

Social factors include the Trends in social factors affect the demand for a company's products and how that company operates.

3.Sociocultural Factors

• The ageing population also has impact on demand: for example, demand for medicines has increased whereas demand for toys is falling

4.Technological Factors

Technological factors include R & D, Automation, Technological Change

4.Technological Factors

They can determine barriers to entry minimum efficient production level and influence outsourcing decisions.

Furthermore, technological shifts can affect costs, quality, and lead to innovation

4.Technological Factors

Ex : MP3 players, Computer games, Online gambling High definition TVs Online shopping Computer aided design

5.Environmental Factors

Environmental factors include ecological and environmental aspects such as

Weather climate and climate change which may especially affect industries such as

tourism, farming, and insurance.

5.Environmental Factors

• Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones

5.Environmental Factors

GLOBAL WARMING

The general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.

6.Legal Factors

Legal factors include Consumer Protection law, Company’s Act, Minimum Wage Act, Equal Remuneration Act

These factors can affect how a company operates, its costs, and the demand for its products.

PESTEL Analysis Of Cosmetic Industry

Political Factors:• 2% reduction in excise duty. ( Free Trade

Zone)• Foreign trade regulation (Imported cosmetics have to be registered)

PESTEL Analysis Of Cosmetic Industry

Economical Factors : • Disposable Income• High Net worth

PESTEL Analysis Of Cosmetic Industry

Socio cultural Factors :

• Income distribution• Social Mobility• Life Style Change

PESTEL Analysis Of Cosmetic Industry

Technological Factor : • Nanotechnology

PESTEL Analysis Of Cosmetic Industry

Environment Factor :

• Waste disposal

PESTEL Analysis Of Cosmetic Industry

Legal Factors :• The Drugs and Cosmetics Act, 1940 • The Pharmacy Act, 1948 • The Drugs and Magic Remedies (Objectionable

Advertisement) Act, 1954 • The Narcotic Drugs and Psychotropic Substances Act,

1985 • The Medicinal and Toilet Preparations (Excise Duties)

Act, 1956