Assignment 3 unit 1 - PESTLE SWOT Porters 5 forces PDF

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PESTLE SWOT Porters 5 forces...

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Mohamud Hersi

INTRODUCTION I am continuing with my work placement in the Economic Development Unit (EDU) at my local council working with the officers who are responsible for publications, brochures and guides. I have been asked to select and investigate a large business that trades in the European Union (EU) and use this research to write a report that evaluates the effects of the environment on that business.

PESTLE analysis of JLR For my P5 I am going to be talking about the external factors that are going to be affecting JLR, this includes political, economic, social, technological, and the environmental factors Political: Political influences are factors that determine to what extent the government can influence the economy or a certain industry, this can include the systems of the government in international countries or how politically stable they are and the extent of which they welcome a trade from foreign sources. A political factor that is going to affect JLR is corporation tax, the tax that is imposed by the government as an alternative source of revenue, separate from other taxes. Currently, in the UK, one of the major countries that they have operations in, corporation tax is set at 20% of the company’s annual profits; this means that in 2016 the amount paid in corporate income tax was £4.44 billion, as this is 20% of their £22.2 billion. At the moment this is a manageable sum to allow continued

Mohamud Hersi survival; however, if the tax was to rise then JLR would suffer as a result, as 2016, was an indication that though sales have risen, profits are down by 40% and if corporate tax was to rise they would need to pay more and more resulting in them having less money to fit the weaknesses that they have. On 20th January 2015 the business Secretary, Vince Cable announced that £11.3 million of government funding alongside a further £2.8 million from investments and £16.4 million in-kind contributions, a one-time donation sourced from a non-profit organisation, totalling in £30.5 million, has been invested into the automotive industry. The project was developed through the Automotive Council’s Business Environment and Skills Group, as a way of bringing big automotive companies together so that there is insurance that in the future the skills that are required are met for UK vehicle manufacturing and supply chain. This means that JLR is going to be able to gain personnel who possess the skills that are necessary for the car industry, with more staff who are better at their job means that they are going to be able to lay off the less qualified staff thus saving them money. A government’s policy attaining to foreign trade in an international market is another political factor in which would have an impact on JLR’s international operations. If a government looks unfavourably on foreign businesses in their country they may, as a result, become indirectly hostile towards JLR by imposing stringent taxes, and new regulation upon them. In the past there have been cases recorded in which hostile governments have forcibly taken control of, or have acquired a controlling interest in some private sector companies, this is usually done due to a political policy that is designed to serve the purpose of improving the social and economic well-being by extending state control. This could be seen as a preventive measure, which is going to stop JLR planned expansion into these countries, thus denying them access to an additional source of income and opportunities for growing their brand’s image and strength. In the UK VAT is at 20% and as such means that JLR’s prices are likely to change and will increase as a result. As a large company, they are likely, as other big businesses have done, is to absorb the VAT and accept a reduction in their profits. This would be the more sensible option especially since they are operating in a very competitive market as the price of their product is an important differentiator. However, if they are in an area where competition isn’t high or their customers are making their decisions based upon differentiators other than price, JLR will be able to increase their prices without having to sacrifice their customers. The balance between input and output is one of the main considerations when JLR decided on becoming VAT registered. Input tax is VAT being paid on the goods on they buy whereas output tax is VAT on the goods sold, if output exceeds input in any given fiscal year, the difference is then paid to HMRC (Her Majesty’s Revenue and Custom). The change in the VAT rate could affect the balance between their input and output, for example, if they increase their prices as per the new VAT rate, then their output tax will then be higher than it was in the previous year. However, their

Mohamud Hersi suppliers may not have risen their prices in accordance with the VAT rate which means that JLR’s input tax is going to be lower. At the end of the year, they are going to have to pay VAT to HMRC. Economical: Economic influences are factors that determine the economy's performance and that will directly affect a company with long-standing effects. This can be the economic prosperity and stability of a country. An important economic factor that will affect JLR the inflation rate, the inflation rate has been steadily rising throughout the year, starting at 0.5 in July and has been rising culminating in it being at a 1.8 as of January 2017 and is still projected to rise to a maximum of 2.7 in the fourth quarter, as estimated by the trading economics website. A high level of inflation will result in the cost of borrowing large portions of money is going to increase, resulting in JLR having to pay more money when they take out loans. This will affect JLR when trading internationally, as it means that if they borrow money to pay for something in another country and that country’s currency is stronger than the one they are borrowing the money from. Another factor that will influence JLR the unemployment rate, as this will heavily depend on the state of the economy, which will determine how many people, has a job. When there is a high rate of unemployment in a country JLR will not have a sustainable level of employees to operate with. In addition to this, when there is a high rate of people who are unemployed, means that there is going to be an increase in the number of people who isn't with low levels of disposable income to able to spend of luxury vehicles that are offered by JLR, meaning that they will struggle to maintain operation within that country. As of the end of July 2016, the unemployment rate in the UK was at a record low, at 4.9% the lowest it has been in eleven years. The fact that the rate of unemployment is low is very good for JLR, as it means that their customers are going to have a job where they are going to be getting money which allows them to spend their money on JLR products such as the Jaguar XE, the cheapest brand new product on their website, also they will be able to purchase a brand new Range Rover Velar if they would prefer a Land Rover product, which would cost them a price starting from £44,830, if they aren’t able to afford that they have cheaper alternatives, such as a much cheaper Discovery Sport, from Land Rover, sitting at £28,355. However, when there is a high level of unemployment then obviously the amount of customers they have is going to sharply decrease, which in turn will either mean that they are going to lose out on revenue or they are going have to raise their prices to compensate for their loss of customers. Inclusion in a trading bloc is another economic factor that will influence JLR, as being within a trading bloc, who JLR is, the European Union, has both advantages and disadvantages for JLR. By being included in the EU means that they are going to be exempt from paying both quotas and tariffs, and because of this it allows them to move freely their products through European Union countries, products such as that

Mohamud Hersi if the Range Rover Evoque, or the Jaguar XJ. The freedom to be able to move their products through Europe means that they can keep prices of their products low and as such will increase the revenue they are getting. Moreover, they will not need to have any concern for competitors who are outside of the EU trading bloc, and this will allow for the opportunity for growth/expansion within EU countries. However, in contrast to this, other multinational company rivals, could become stronger and more widespread than JLR and could steal way their customers as they are enticing them with newer and fresher products, making JLR miss revenue, rivals such as that of Peugeot or Volvo, both of which operates in the same trading bloc as JLR, selling luxury vehicles that is able to rival JLR in price, as, for example, one of Volvo’s cars the Volvo XC90 costs a total of £55,401.10 and even though this may be a little too high for the customers, they have the option of a 37 month payment plan of £579 a month, which is a lower monthly plan when compared to a JLR vehicle of similar price, the Land Rover Sport 3.0. costing £63,545.00 with a 36 month plan of £599.00, and as such this could entice JLR’s customers to switch who they buy their luxury vehicle from as they could see a £20 decline in monthly payments a more manageable situation. Social: The social factors are the determinants that influence the social environment of the market the business is operating in, such as that of certain cultural trends, demographics and population, etc. An example of a social factor that is going to influence JLT the lifestyle of the customers, as people have access to more higher paid jobs due to there being an increase in the availability of education. In the UK, there are approximately 8.7 million children in school in the UK, with 1.8 million students in secondary school, and over a third going on to higher education at the age of 18. Showing how the education system in the UK has evolved, as in 1947 the age of which children left school 15 and 16 meaning that they would have lacked the necessary skills and knowledge that would have been important to get a good job, however with the standards raising there are more and more people who access to better paid jobs, and as such they are going to have enough disposable income to be able to afford the luxury cars that JLR sells. In addition to this, better education means that JLR is going to have a wider range of people who are qualified for their work, of which have more opportunities for growth and advancements in the business. International Education, a multinational non-profit organisation, used to promotes the principle of a quality education that is funded publicly and is to be available to every student in every country regardless of race, and due to this organisation, the educational standards in international countries are going to be improved thus having the same effect as in the UK. Due to the rate of educated people rising, there are going be people who are going to want to go into jobs that are going to match to their qualifications meaning that JLR could also lose out on the amount of better-qualified staff in their workforce.

Mohamud Hersi Another social influence is the buying habits of their customers, as knowing how their customers are spending their money can greatly help JLR in evaluating which of their products they should take priority, as they see which of their products are buying over another, for example, if the majority of customers are purchasing one particular vehicle, containing certain features over another, JLR could respond to this by replacing the vehicle that isn’t selling with the one that customers have favoured, so, by doing this JLR will be keeping up with the demand of the customer and thus increasing their sales. In addition to this, knowing the shopping habits of the customers outside of the business can also be beneficial for JLR, as it will help them by giving them an insight into their competitors who and how they are able to remain competitive with them or how they are performing better than JLR, by doing this will give them a firm foundation for improvement for the future. According to thee BBC website, the average household in the UK owes a record amount £12,887, and this is even before their mortgages are taken into account, these figures were based on research from the Office for National Statistics (ONS). However, these figures have been inflated since student loans have been included, which has been quickly increasing over the past couple of years. Figures from the end of November 2016, shows that student loan is at a total of £192bn, the highest it's been since 2008. This affects JLR as if their customers being in debt will mean that they aren’t going to be able to afford to buy a brand new luxury car. This means that they are going to be getting less revenue. Technological: These factors pertain to the technological innovations in technology those impacts on the operational capability of River Island. A technological factor that influences JLR is the use of social media, including that of Facebook, Twitter, LinkedIn and Pinterest, which has introduced a major opportunity for JLR to gain the attention of potential customers, as well as building up their brand's image. A business can achieve this, such as creating a brand profile on Facebook and using broadband podcasting applications as a way of advertising their products, or deals/sales in various ways. An advantage of using social media is that it provides an excellent opportunity for word of mouth as a way of spreading awareness of the brand, people have been connected on a global scale and are casually interacting with each other lives through the use of online observations and as such when one person does something simple, such as liking a Facebook page another person is going to able to this, spreading positive awareness. Individuals are going to be far more trusting of their peers' opinions than that of a stranger's. Millions of people online are reviewing products and services of a company via social media and YouTube videos, of which many are shared and disseminated on various other social media websites thus spreading awareness in addition to the customer's opinion. Furthermore, JLR may see the negative reviews that they have been given and reach out to this dissatisfied customer (thus using social media as a way of

Mohamud Hersi communicating with their customers) and find out the issue as well finding out innovative ways of improvement for their products and/or services. Another technological influence that affects JLR is the use of the internet as a medium for customers to view and order products. Not only is the inclusion of a website effective at giving their customers a forum from which they can view products without having to leave their home, it also allows for them to purchase the products online, paying for which with PayPal or via a card, and having said product delivered to their local store for the customer to pick up at their convenience. Also having a website is an inexpensive source of advertising, easily maintained, convenient for the customer and is environmentally friendly. This will have beneficial impact that this would have on for JLR is that it would likely increase their customer base as they are broadening the amount of potential customers they can advertise to, and as such will increase the chances of them purchasing a vehicle, increasing the revenue that JLR gets. Legal: Another factor is the consumer law, this stipulates how consumers are entitled to a free: repair, replacement, discount or refund from the seller if the product they bought did not conform to the contract of sale, meaning that, as an example, if a customer bought a vehicle from them and when they got home they discovered that the car had a defect on the inside or found out that it didn't perform as advertised, the customer would be within their rights to take the product back to the shop for them to repair, replace, give them a discount or give them a full refund. This is good for JLR as it will build a stronger brand image as the customers are going to be purchasing a product with the knowledge that if there is anything wrong with the product they are going to be cared for within their legal rights, which can also encourage customer loyalty. The United Kingdom Labour Law dictates a regulation of the relations between an employer and their employee and their unions. People who work within the UK are entitled to rights, which will benefit them for a minimum charter of rights found within various acts. These rights includes: the right to a minimum wage of £7.20 an hour for over 25 year olds, the right to 28 days of paid holiday, break from work, the Pension Act of 2008 giving the right to be automatically enrolled in a basic occupational pension in which the funds are protected by the Pension Act. Another legal factor that is going to affect JLR is the discrimination law; the Equality Act 2010 was introduced as to legally protect people against any form of discrimination in the workplace. The types of discrimination that employees are protected against includes: age, being or becoming a transsexual person, being married or in a civil partnership, being pregnant or on maternity leave, disability, race including colour, nationality, ethnic or national origin, religion, belief or lack of religion/belief, sex, sexual orientation. The legal ramifications of any alleged discriminatory actions can result in very serious problems for the whole company

Mohamud Hersi domestically and internationally, such as severely damaging their public image as well as draining their legal budget. Damage to their image could result in a lot fewer customers purchasing any of their products causing a steep decline in revenue. The legal factors are going to affect the international operations of JLR because by following them and staying on the right side of the law, thus allowing for their survival and means that they will be able to export their products from the UK to their international stores. In addition to this, by staying legal means that they won’t be subjected to big, public lawsuits, that will not only be damaging for their image and reputation but will also cause a decline in their stock value, informally known as “stock-drop lawsuits”, affecting them not only domestically but also internationally. Environmental: These are factors that are influenced or determined by the surrounding environment, e.g. weather, location or tourism. Tourism is an environmental factor that affects JLR, as it can create a boom in their revenue, with an influx of customers that they get whom have a lot of disposable income and are looking to buy a vehicle contain features or aesthetics, that they may not find in their home country/countries. However, in contrast to this, the opposite effect could happen, as tourism could provide them with an increase in completion from their rivals, as this is where the tourists are spending their money. Another environmental factor is the regulations put in place by the government that River needs to follow. The regulation of their daily activities is one way in which government agencies are protecting the environment, and as such JLR will need to follow these rules and meet certain standards as a way of reducing the adverse effects that the activities that they conduct have on the environment. In addition to this, they will need to ensure that the vehicles that they sell fall within certain limitations on the amount of CO2 that they exert. JLR’s contribution to tackling environmental problems has gained them the further admiration from the BITC, as in 2007 they had drawn up a five-year environmental strategy. First of all, they aimed for a 21% reduction in energy consumption per vehicle when manufacturing cars. The second aim was to have a 69% reduction in landfill waste which is a particular area in which they feel very ambitious towards. When the plan was drawn up JLR looked over their waste streams as to determine how they could re-use hose materials, this subject has been a focus ever since, with aims to cut out waste altogether by 2020. A third environmental success of the co...