Introduction
Reader’s Digest Association, Inc. is the publisher of Reader’s Digest, a popular general-interest magazine which is being read around the world. Over the years, the company became successful and ventured into other businesses such as books, music, videos, TV movies, and special-interest magazines. However, the company was not able to sustain its growth. Internal weaknesses as well as changes in the business environment caused the company to stagnate. This paper examines the macro-environment and industry environment of Reader’s Digest as it venture in China and Hong Kong.
PEST Analysis
Political
A China
- Discussing political issues and sensitive topics must be avoided by Reader’s Digest in China (T).
- The company’s operation is also subject to Chinese environmental regulations and protection (T).
- The Chinese government places some restrictions in international trade. Consumer protection is also an important aspect in operating in China and Hong Kong as well as contract enforcement (T).
- The business environment in China is different from the United States, as private companies compete with many state-run enterprises (T)
B. Hong Kong
- Although Hong Kong’s regulations and policies are less restricted than China’s, Hong Kong is still under the Chinese Government (T).
Economic
A. China
- The Chinese economy is experiencing a decline (T).
- The income of the Chinese consumer is declining as well as the purchasing power (T).
- High unemployment affects the economy and more companies are closing down causing an increase in the number of lay-offs (T).
- Inflation rates are rising (T).
- The costs of operating in China is also on the rise 9T).
- Financial policies and regulations are different from the United States. Reader’s Digest will be subjected to a difficult process of borrowing money from Chinese banks (T).
B. Hong Kong
- Hong Kong is still the leading business hub in Asia (O).
- Hong Kong is affected by the Global Economic Crisis (T).
Socio-demographic
A. China
- The educational sphere in China continues to improve (O).
- Literacy is also rising (O).
- Chinese are increasing their English literacy enabling them to appreciate English magazines such as Reader’s Digest (O).
- The need to translate English contents is still there, but more and more readers are becoming able to understand and speak English (O).
B. Hong Kong
- In Hong Kong, readers are not attracted by the design and the contents of Reader’s Digest (T).
- Hong Kong readers are looking for magazines (or published materials) that are fast-paced and that will keep them updated (T).
- Reader’s Digest continues to attract mature readers but younger readers are not interested (O).
Technological
A. China
- The company is using the Internet to reach readers and to market Reader’s Digest (O).
- The Internet is quickly becoming an important ingredient in the business of Reader’s Digest (O).
- The company uses a website, which can attract the younger crowd (O).
- Internet is a convenient way for the company to reach readers as computer usage in China is increasing and Hong Kong sits at the center of technological developments in Asia (O).
- More and more Chinese readers are becoming tech-savvy (O).
B. Hong Kong
- Computer and Internet users are looking for quickly updated information and visually attractive contents (O).
- The website is also popular as it offers information free of charge and the contents are easy to share (O).
- E-books (Electronic Books) are becoming popular among consumers (T).
- The company also make use of technologies in its business operations such as Enterprise Resource Planning System (ERPS) (O).
Porter’s Five Forces (Both China and Hong Kong)
Threat of New Entrants (Weak)
- New companies will find it difficult to enter the publishing industry in China.
- Large companies such as Reader’s Digest have an advantage as they have access of distribution.
- These companies have extensive database regarding the customers and the industry, things that new companies lack.
- There is also a low chance of entering the Chinese publishing market for new companies as the Chinese government imposes tight restrictions on the mass media.
- Large existing companies also have the advantage of economies of scale. In addition, brand identity is important in the publishing sector.
- New publishers will find it difficult to penetrate the publishing industry as readers tend to be loyal to their chosen brands.
Power of Sellers/Suppliers (Weak)
- Achieving economies of scale entails that publishing houses impose demands on their suppliers.
- Publishing houses purchase products from suppliers at extremely low prices. Distributors are paid lowly.
- Reader’s Digest has a high command over its sellers and suppliers because of its massive readership and high market value.
Power of Buyers (Strong)
- Buyers have a high power because of the presence of substitutes.
- As there are more media and formats to choose from, publishing houses such as Reader’s Digest need to offer incentive to consumers to retain them.
Threat of Substitutes (Strong)
- Reader’s Digest continues to lose market shares, as consumers are becoming more interested in other media and formats.
- The internet offer the widest database of data and information. Sales continue to drop as consumers favor the Internet as a source of information which are free of charge.
Industry Rivalry (Medium)
- Industry growth rate is low because people prefer online reading.
- Reader’s Digest fails to attract younger readers because it is perceived as an old style magazine.
Conclusion
From the discussion above, I can say that Reader’s Digest is in a difficult situation right now. Its entrance to China and Hong Kong provides both threats and opportunities.
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Credit:ivythesis.typepad.com
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