Research Korner: PESTEL Examples

Environmental Analysis of Travelodge UK

Environmental Analysis of Travelodge UK   The Travelodge UK chain of budget hotels is the second largest in the United Kingdom, with 380 branches in the UK, Ireland and Spain which are offering more or less 20,000 rooms. The chain employs innovative marketing strategies that have resulted in 6.5 million guests staying in their hotels in 2010 and 2.2 million people visiting their website each month.[1]    Travelodge is the lowest-priced hotel that offers more value for money spent and is committed to a healthy environment with its 100% smoke-free policy. The hotel allows  browsers to compare its rate with those of other establishments and to check what it offers for the lowest price, which is basically towel, pillows and tea. It also provides personalized directions to the location of the preferred hotel branch of customers, as well as a mobile booking service for time-pressed customers. Travelodge prioritizes the privacy and security of customers in their online and mobile transactions and has a customer-friendly website. The chain’s focus on low price and the C and D market is its competitive edge and what makes it attractive to budget-conscious travelers. This also accounts for its 31% market share in budget hotels.[2]   The business strategy suitable for Travelodge UK can be analyzed using several models or frameworks. The Political, Economic, Social, Technological, Legal and Environmental (PESTLE) analysis tool considers the bigger picture in which the business is operating. By understanding the operating environment of a business independent of its internal operations, the business can take advantage of the opportunities and minimize  the threats both present therein. PESTLE is useful in understanding risks connected with market growth and decline, and their relevance in the position, potential and direction of the business.[3] Porter’s 5 Forces modeling framework for business analysis considers the following factors:[4] Rivalry – refers to the striving of firms for a competitive edge over their rivals. Threat of Substitutes – refers to the impact on product demand of price changes in products of other industries. Buyer Power – refers to the price determination by the buyer in a market where there are many suppliers. Supplier Power – refers to the impact of high-priced raw materials to the business. Threats of New Entrants and Entry Barriers – refers to the entry of new firms in the industry that will pose competition and the artificial lowering of prices by the business to prevent potential market entrants. The Boston Consulting Group (BCG) matrix tool considers the life cycle of a product in a portfolio to determine the priorities of a business. The categories in a portfolio are the following: [5] Stars – refer to high growth, high market share products that use plenty of cash. Cash Cows – refer to low growth, high market share products that need minimal investments. Dogs – refer to low growth, low market share products that should be minimized and avoided by a business. Question Marks – refer to high growth, low market share products that demand plenty of cash and effort to increase market share. The Ansoff growth vector matrix considers the business’s present and potential products and markets via the following product-market combinations:[6] Market Penetration – refers to achieving growth with existing products and markets. Market Development – refers to achieving growth by introducing products to new markets. Product Development – refers to developing new products for existing markets. Diversification --  refers to achieving growth by developing new products for new markets.   After reviewing these business analysis frameworks, my choice for the most suitable and recommendable for Travelodge UK is the PESTLE analysis tool. This well established and patronized budget hotel business must continuously monitor economic, social, technological and environmental developments both locally and globally in order  to make adjustments as needed. Regular and potential customers are seeking more  value for money spent, convenience, excellent customer service and environment friendly settings in these times of economic uncertainty. 	 	 		 		 		 		 		[1] “Strategic Analysis of 		Travelodge, UK”, 4 June 2011, <http://ivythesis.typepad.com/term_paper_topics/2011/06/strategic-analysis-of-travelodge-uk.html> 		 		[accessed 8 June 2011] 	 		 		 		 		 		[2] ibid 	 		 		 		 		 		[3] “PEST/PESTLE Analysis Tool – 		History and Templates”, RapidBI, 29 January 2007, 		 		<http://rapidbi.com/created/the-pestle-analysis-tool/>  [accessed 8 June 		2011] 	 		 		 		 		 		[4] “Porter’s Five Forces” 		QuickMBA, 2010, <http://www.quickmba.com/strategy/porter.shtml> 		 		[accessed 8 June 2011] 	 		 		 		 		 		[5] “BCG Matrix”, Value Based 		Management.net, 7 January 2011, 		<http://www.valuebasedmanagement.net/methods_bcgmatrix.html>  		[accessed 8 June 2011] 	 		 		 		 		 		[6] “Ansoff Matrix”, 		VectorStudy.com, 2008, <http://vectorstudy.com/management_theories/ansoff_matrix.htm> 		 [accessed 8 June 2011]

Environmental Analysis of Travelodge UK

Environmental Analysis of Travelodge UK The Travelodge UK chain of budget hotels is the second largest in the United Kingdom, wit...

Finance and Growth Strategies

Finance and Growth Strategies         Risks Risk is defined as the existence of uncertainty about future outcomes to an economist. Basically, risk is a key factor in economic life because people and firms make irrevocable investments in research and product development, plant and equipment, inventory, and human capital, without knowing whether the future cash flows from these investments will be sufficient to compensate both debt and equity holders. If such real investments do not generate their required returns, then the financial claims on these returns will decline in value. A key conceptual advance in risk analysis occurred when analysts began to describe the risk of an investment as being equivalent to the distribution of potential outcomes, where the distribution consists of all possible outcomes weighted by their relative probability of occurrence.     Risk is not only a source of randomness on the return of investment but also a measure of this variability because the probabilities of various outcomes are known (Stickney & Weil 1997 G-80 and Culp 2001 p. 80).  Actually, elimination of risks to avoid untoward results should address initially two questions; namely, is it complete elimination and what is the cost of any reduction?  For example, there is a chance that an asteroid could hit the earth according to some experts but would the probability of the event (i.e. 1 in 1 billion) can be substantial enough to create the need to create homes in caves and underground which have monetary and non-monetary costs (Culp 2001 p. 7).  Lastly, preferring zero risk is equated to a risk-averse person.  For example, even though the probability of wining a $1,400 raffles ticket at a cost $700 is 50%, a risk-averse person will not bet his $700 due to the adversity on having nothing.  This despite the expected value of buying the raffle ticket and betting is $700 (i.e. ½ ($0) + ½ ($1,400) = $700) which means there is an equal probability of doubling his money (Culp 2001 p. 8). Actually, in measuring risk, variance, standard deviation, diversification, unique risk and market risk is considered. Variance is a measure of volatility and is the average value of squared deviations from mean; standard deviation is also a measure of volatility and is the square root of the average value of squared deviations from the mean; diversification is the strategy designed to reduce risk by spreading the portfolio across many investments.   Total Risks             Consistent with a rational market, individuals and other entities expect and are promised with higher (lower) returns if they engaged in investments with higher (lower) risks.  Shareholders are concern with total risk because it is a measure of the risk of an exposure of business portfolio that is comprised by the sum of market and firm-specific risks.  Due to this, investors can reduce their total risk through diversification without altering their expected return (Das 1993 p. 293).  However, this incentive is less attractive to contemporary investors because firm-specific risks are automatically considered when they hold a certain number of securities.  As a result, firm specific risk becomes irrelevant to investment motivation because investors do not have to bear the firm-specific risk and therefore do not have to be compensated (Das 1993 p. 295).                    To measure the total risk of a portfolio, correlation and covariance should used (Mcmenamin 1999).             The first step to do is to get the return of the portfolio.  This is merely the sum of expected returns of single-asset multiplied with their proportional share in the investment amount.  Say I have $1000 and opted it to invest in stocks and bonds in two different companies.  If I will invest 50:50 on each financial instrument, their earlier computed single-asset expected values should be reduced to 50% and be totaled.  In the same manner, their earlier computed standard deviation should be reduced to 50% or their share of the $1000 investment.  However, the problem of the preceding statement is that the standard deviation or the risk could lead to inaccurate decision information.  Due to complexity of two-factor and much of the multi-factor portfolio than single-asset, the procedure requires further information about stocks and securities.   Distinction between Systematic and Unsystematic Risks It is important for an investor or a firm to assess associated risks for every business engagement.  There are risks attached to inability to repay short-loan liabilities due to abrupt demand payment.  On the other hand, a more long-term security can extend the debtor days of the investor but still risks on paying large interest and principal can lead to default.  Therefore, assessment is required to know the level of risks associated to a given level of return on certain assets (Stickney & Weil 1997).  In this regard, unsystematic risks are those risks associated with price changes due to unique characteristics of certain securities that can be eliminated or minimized through diversification (Investopedia 2009).  On the other hand, systematic risks are risks found in the entire class of assets which implies that they are sensitive to economic changes and market shocks.  In effect, the latter kind of risk is less diversifiable and assets in a portfolio are more prone to inherent risks.  Perhaps, when assets outperform the market, systematic risks can show its superiority in terms of higher returns with the security. It is suggested that when an investor participates in the marketplace, he is compensated by systematic risks and not unsystematic risks (Risk Glossary 2009).  This is consistent to the dogma that returns and risks have positive relationship, that is, when returns increase or decrease the same thing happens to risks.  The adverse effects of unsystematic risks is ultimately dissolve in the marketplace as the investor net exposure is hedged through diversification by merely holding a number or combination of assets.  Therefore, the only risks that should be in question is the systematic risks in which the investor cannot fully depict.  In effect, the investor’s returns only confront systematic risks in the marketplace.  Markowitz efficiency frontier can clarify this statement (cited in Hitt, M, Hoskisson, R & Ireland D 2003).  This frontier not only shows the optimal portfolio but also indicates how a risk-taking investor can maximize returns.  The frontier assumes that there is no effect from trading costs like commissions rather the factors that can affect decision is on return and risk factors.  All points in the efficiency frontier are diversifiable because it is a combination of risk-return trade-offs.  All the points that lie in the efficiency frontier and therefore its constituent assets diminished specific risks associated with individual assets.  This is because of diversification.  However, it is to be noted that systematic risk or the risk in the market or external factors are not stabilized and always moving.   Derivation of Unsystematic Risk Business risk is related to operating features of a firm while financial risk is related to the strategies behind the capital structure of a firm (Mcmenamin 1999).  The former is a type of risk that is outside the control of firms and hardly affected by certain tactics and strategies because business risk is very dynamic and uncertain.  On the other hand, the latter involves factors within the scope of managerial control because it arises from borrowed funds the company is bound to pay unlike equity funds.  However, they are both under the definition of systematic risk or inherent risks of companies that cannot be reduced by diversification strategies.  Business risks includes example such as the sensitivity of competitive structure of an industry to changes in macroeconomic variables such as inflation and interest rates.  On the other hand, the more debt a firm has a greater level of financial risk or inability to meet such obligation. Valuation can come directly to the firm.  This is referred to as business risk (Bolten 2000).  For example, its integration effort has indicators of failing (partly indicated in high employee turn-over from a proposed merger), thus, requires greater returns for the heightened risks of integration failure.  On the other hand, electric utilities initially have relatively lower business risk compared to aggressive and expanding firms.  This is so the expected earnings will not largely depart from the original due to business risks.              Lastly, financial risk basically provides valuation of investors that the firm can control (Bolten 2000).  By merely looking in its financial statements, an investor can decipher financial risk involve in his stock investment.  In the similar manner, he can assume his position of its value.  For example, in capital structuring, common stock price will be undervalued when the firm is over- or under-leveraged.  Although leveraging is good for the health of the firm, this suggest relatively complex forecast of future earnings of investors.  This may also mean that debt servicing requirements might not be met, and as a result, it can affect the dividend pay-out or long-term goals of investors in their stakes on the firm.  In additional, the level and duration of loan repayments is taken into consideration to calculate financial risk.  Another, leverage buy-outs can dramatically pull the price of common stock.             Derivation of Systematic Risk For example, every stock in London Stock Exchange is uncorrelated with every stock; the beta coefficient is zero (Investopedia 2009).  In this case, it will be possible to hold a portfolio in LSE that has risk-free.  Investors would be acting like a casino owner having to only wait at the end of the day to receive fees from the players.  The owner will accumulate earnings without any risks in playing rather only responsible for maintaining the venue.  With zero betas, game theory will not hold and stock markets will never exist as correlated risk is the source of all risk in the diversified portfolio.  On individual assets, beta represents volatility and liquidity of the market place while on portfolio perspective it refers to investor’s level of risk adversity.  Beta is estimated through times series analysis and linear regression models (Risk Glossary 2009) like estimating ninety trading days of simple returns used as estimators for covariance and variance.  Negative betas can be derived by holding securities that move against the market, shorting stocks and putting on options.  However, betas are limited because they are only based on historical market data (Risk Grades 2009).  As such, future implications to investments cannot be inserted in the decision-making criteria.  Variables are identified based on their past performance and any future or expected changes are not taken into consideration.  In effect, investors that accept and address this limitation often lead to speculation for a possible war, major earthquake, political scandal and other stock market related events due to the inability of the beta to represent the overall perception of the market about the future trends.  In effect, it can be said that the limitation of the beta caused the stock market bubbles and other economic crisis that adversely affected the lives of the people; both rich and poor as over-speculation in the market lead to distorting the real performance of the market rather mere expectations of market participants without any proven level of superior output.   Director’s Comments             In the above discussions, the first comment that portfolio of stocks need to only consider systematic risk is valid.  This is because the total risk of their holdings is already diversified by investing in different firms; therefore, unsystematic risk becomes irrelevant.  The second statement only becomes crucial if the company is holding only minimal number of portfolio.  However, total risk becomes important when the company decided to hedge their risks by holding government bonds which is said to be risk-free asset.  In this regard, focusing only on systematic risk is limited in gaining the minimum level of risk.  The third statement is true because when the expected return is smaller than the whole market the security in question is underperforming while when it is smaller than the risk-free asset the trade-off between risk and return is not optimized. Actually, the concepts of cash flows, risks, and shareholder value, are extremely important in financial management. They form its fundamental building blocks, have a profound effect on financial decision-making, on the value of a business, and consequently on the wealth of its owners. Profits do not represent cash flows (Mcmenamin 1999).   Although profits may be used as the traditional accounting measure of a firm’s financial performance and a firm may report healthy profits in its annual accounts, it does not necessarily mean that cash is actually available to pay bills and fund investment. For example, depreciation and other provisions are included in a profit and loss account but they are not cash flow items (Mcmenamin 1999).          Basically, time value of money or TVM is an investment principle in which investors prefers to receive the money as early as possible and that the value attached to present money holdings is greater than future or expected money holdings even they have the same nominal values (Mcmenamin 1999; Investopedia 2009).  This is because market effects such as inflation, change in interest rates and regulations can increase or decrease the future value of assets, thus, making them more exposed to risks (Mcmenamin 1999).  Deferral in consumption has also some forms of sacrifices which happens when an investor dedicatees present income and wealth to investments.  In effect, the investor would demand interest to compensate such investment due to these reasons.  For example, a loan requires interest payments, collateral and other forms of guarantees which indicate that TVM principle holds in the transaction.  Further, equity investments in the form of stocks also provide dividends in both money and other assets as well as capital gains in the price of the stock.  These are mere resolution of investors to compensate their sacrifices through the guide of TVM principle.  TVM is the foundation of discounting future cash flows although applied in most big business that plans to undergo huge financing for a project or several projects.  The table below shows an investment project with cash flows that can contribute to firm’s value up to three years.  As observed, forecasted sales needed to be converted in to their present values to be able to adhere to TVM principle.  There is a standard table of future/ present values in which a particular discounts rate and specific year can be cross referenced to determine the discount rate for the particular year (e.g. .901).  As observed, as the value of future sales increase and/ or their timing go further from the present, the discount rate tends to be lower which means future inflows are deducted with relatively more discounts.  Thus, discounting is a practical application on how investors assess associated risks for a particular return.  That is, as returns tend to go further into the future, their value depreciates because moving further to the future suggests more ambiguity than the current time.  And so, the higher the returns of these futuristic returns, the higher will be the deductions of the discount.  This situation is consistent to the positive relationship of risk and return.           	 		 			 			 			Project 1: DIY Renovations 		 		 			 			 			Year 			 			 			Sales 			 			 			Initial Outlay 			 			 			Discount rate (at 11%) 			 			 			PV 		 		 			 			 			- 			 			 			- 			 			 			75,000.00 			 			 			1.000 			 			 			75,000.00 		 		 			 			 			1.00 			 			 			10,000.00 			 			 			- 			 			 			.901 			 			 			9,010.00 		 		 			 			 			2.00 			 			 			30,000.00 			 			 			- 			 			 			.812 			 			 			24,360.00 		 		 			 			 			3.00 			 			 			100,000.00 			 			 			- 			 			 			.731 			 			 			73,100.00 		 		 			 			 			  			 			 			  			 			 			  			 			 			NPV = 			 			 			31,470.00 		 	   The terminal year cash flow is relevant in financial analysis particularly in investment and budgeting because of its ability to estimate annual cash flows that a firm can have at specific number of years in the future (Mcmenamin 1999).  The method allows the inclusion of the value of future cash flows to mitigate valuing problems.  Computation is less complex since the use of constant rate for a going concern firm is suggested.  When computed in present value terms, it can readily be added to the present value of free cash flows to determine the value of the business.  On the other hand, when the firm is planning for dissolution, the approach can easily show the bearing to defer or expedite dissolution stages as getting the returns for a certain number of years in the future is possible.  Thus, the approach is flexible and a tool for forecasting.  However, this strength have back clash making it necessary to consider some important factors.  The discount rate and growth rate undergo perpetuity which means that there value remain constant from year 1 to year N (the final year).  In the contrary, market conditions as well as internal performance of the firm are always vague especially on hi-tech and internet-based industries.  In effect, environmental scanning and internal audit should be used to be able to have a more accurate representation of future PESTEL, industry, competitor and corporate strategy implications to discount and growth rate.   Lotus Bloom Bar and Restaurant   	 		 			 			 			End of the Year 			 			 			Cash Flow (in ₤) 			 			 			Discount rate at 12% 			 			 			Present Values (in ₤) 		 		 			 			 			0 			 			 			 100,000.00) 			 			 			1.000 			 			 			 100,000.000) 		 		 			 			 			1 			 			 			    10,000.00 			 			 			0.893 			 			 			      8,930.000 		 		 			 			 			2 			 			 			    20,000.00 			 			 			0.797 			 			 			    15,940.000 		 		 			 			 			3 			 			 			    40,000.00 			 			 			0.712 			 			 			    28,480.000 		 		 			 			 			4 			 			 			    50,000.00 			 			 			0.636 			 			 			    31,800.000 		 		 			 			 			5 			 			 			    30,000.00 			 			 			0.567 			 			 			    17,010.000 		 		 			 			 			TOTAL 			 			 			50,000.00 			 			 			Net Present Value = 			 			 			      2,160.000 		 	   Since the NPV has positive value (₤ 2,160.00), the expansion of product line of the company tends to increase investors wealth, thus, should be a worth while strategy.  However, as the NPV value is a mere 2%, the figure suggests minimal return for investors despite five years waiting to recoup and profit from their investments.  Aside from minimal compensation to adhere the time value of money, the investment also failed to sufficiently compensate investors from the risk of the new product line being eaten by competition or ignored by customers.  Due to this, it is concluded that other investment alternatives should be sought and make this option the last resort or as a means to diversify risk.            Bibliography   Bolten, S (2000) Stock Market Cycles: A Practical Explanation, Quorum Books, Westport, CT.   Culp, C (2001) The Risk Management Process: Business Strategy and Tactics, Wiley, New York.   Das, D (ed) (1993) International Finance: Contemporary Issues, Routledge, New York.   Hitt, M, Hoskisson, R & Ireland D (2003) Strategic Management: Competitiveness and Globalization, 5th Edition, South Western; Thomson Learning, Singapore.   Investopedia (2009) Systematic Risks viewed 18 April 2009, <www.investopedia.com>   Investopedia (2009) Unsystematic Risks viewed 18 April 2009, <www.investopedia.com>   Mcmenamin, J (1999) Financial Management: An Introduction, Routledge, London.   Risk Glossary (2009) Unsystematic Risks and Systematic Risks viewed 18 April 2009, <www.riskglosarry.com>   Risk Grades (2009) Times Series Analysis viewed 18 April 2009, <www.riskgrades.com>   Stickney, C & Weil, R (1997) Financial Accounting: An Introduction to Concepts, Methods and Uses, 8th Edition, Harcourt Brace and Company, Fl.

Finance and Growth Strategies

Finance and Growth Strategies Risks Risk is defined as the existence of uncertainty about future outcomes to an econom...

PESTLE ANALYSIS on the UK Housing Sector

Political Many building companies still hold onto large stocks of land for much of which there is not yet planning permission for building. Successive governments in many countries, at national and local levels, have attempted to stimulate house building activity in order to address the housing shortage. They have provided incentives to encourage new builds, especially low cost accommodation, and have eased planning restrictions. Yet new house building has often lagged well behind need. Also, need is not always translated into demand. Economic Levels of economic growth and poor mortgage availability seriously impact the housing market. In the UK and North America, for example, most people aspire to own their own house (as opposed to renting accommodation) and usually achieve this by placing an often small deposit on a house and borrowing the bulk of its cost at competitive interest rates. These substantial loans or mortgages are usually repaid over the long term. Commonly, rates are adjusted by the Central Bank to control general inflation, not normally to influence the housing market. However, a change of interest rate from say 4% to 6% within a year may lead to a 50% increase in the monthly repayment required of mortgage holders. This simply may not be affordable in all cases, particularly in times of economic hardship or national recession. Social/socio-cultural Nevertheless, brown-field development is central to many regeneration ambitions, given the stimulation new sustainable development can make to depressed areas. Others lobby for the development of sustainable communities which provide a balance of housing and other services such as education, and retail and leisure facilities, and which aim to avoid future social problems. Many house owners occasionally ˜top-up their loan when moving to a more expensive property or borrowing further to buy a car or to fund their spending habits, using their home as security. Mortgage interest rates in the medium and long term are broadly aligned to prevailing national interest rates set by central banks, which vary from time to time due to prevailing economic conditions. Technological The house building industry in most world economies is highly cyclical and currently in rapid decline. In the last two years, due in large part to the credit-crunch initially and economic recession latterly, both the number of house sales and house prices have fallen significantly. A number of large and previously highly profitable house builders have gone out of business and many building sites and newly completed houses are left abandoned. In Spain, for example, there is an estimated three-year supply of new holiday or second-homes vacant and unsold. Yet in many countries there is a housing shortage and long waiting lists for social housing. Businesses such as shops, consumer goods manufacturers, importers and personal service companies thrive in such circumstances. However, if you buy a new house for $300,000 on a 95% loan, and within two years the house is only worth $200,000, your attitude towards spending might have radically changed. The scenarios included here are entirely fictional. Any resemblance of the information in the scenarios to real persons or organizations, actual or perceived, is purely coincidental. Legal Higher interest rates mean that mortgages become more expensive, and this deters many would-be purchasers from buying more expensive property. Economic growth is closely related to consumer spending levels. Buoyant house values in many countries are believed to encourage consumer spending as people are less concerned about increasing their borrowing or using their credit cards when sitting on a major asset. Government, which largely controls the planning processes in most societies, is usually concerned to ensure that house builders provide ample low cost housing in addition to larger, more lavish properties (on which the profit margins for builders are usually higher). Environmental Environmental groups are concerned about the detrimental impact of housing development on the countryside. There are government-backed grant incentives, particularly in many European countries, to use brown-field sites rather than destroy open countryside, although such sites are often in run-down, less desirable city areas.

PESTLE ANALYSIS on the UK Housing Sector

Political Many building companies still hold onto large stocks of land for much of which there is not yet planning permission for building....

Hong Kong Business Logistics: External Environment Analysis By PESTEL

Hong Kong Business Logistics: External Environment Analysis   Logistic industry is considered as one of the four pillar industries in Hong Kong (Logistics Industry Training Advisory Committee, 2006). The logistics industry in Hong Kong is consists of air transportation, sea transportation, traditional freight forwarding and the emerging 3PL industry. Air and sea transportation industries perform the major of logistic functions that have helped to transformed Hong Kong into a transportation hub for Asia, while 3PL is considered as the sub-set of the entire logistics industry that is currently under developed (Rioni, 2002).  However, the logistic industry of Hong Kong is facing different challenges due to globalization and technology that must be considered by the government of the city, in order to ensure that their dominance in the global logistic market will be maintained (Logistics Industry Training Advisory Committee, 2006). PESTEL Analysis In addition to the Political, Economic, Social and Technological influences which affect any industry, it is also important to focus on the physical environment and legal environment in order to analyze the status or condition of a given industry in a given period of time (Lewis & Trevitt, 2000). Because of the fact that the environment is changing and these factors can help industries to focus on what to do in order to ensure good flow of resources, together with the good relationship or connection between the stakeholders.   Table 1 PESTEL Analysis of Hong Kong Logistics Industry 	 		 		 		 		Political Factors 		 		 		·           		 		 		 		Closer Economic Partnership Arrangement (CEPA) 		 		·           		 		 		good relationship with China. 	 	 		 		 		 		Economic Factors 		 		 		·           		 		 		low import and export volumes of seaport and airport in Hong Kong and 		South 		 		China; 		 		·           		 		 		negative 		 		GDP growth period of buyers’ market; 		 		·           		 		 		economic boom in China which result to increasing competition with 		Shenzhen, China; 		 		·           		 		 		high land transport cost and 		 		terminal handling charges. 	 	 		 		 		 		Social Factors 		 		 		·           		 		 		awareness towards safety and health policies. 	 	 		 		 		 		Technological Factors 		 		 		·           		 		 		GPS 		 		·           		 		 		 		Automated Transport and Decision Support System (DSS). 	 	 		 		 		 		Environmental Factors 		 		 		·           		 		 		huge consolidated world city base; 		 		·           		 		 		unique geographical location; 		 		·           		 		 		 		green trade war. 	 	 		 		 		 		Legal Factors 		 		 		·           		 		 		government and the public has the authorities to build and operate the 		 		harbor; 		 		·           		 		 		 		Trade bloc. 	   Political In terms of political factor, the relationship of Hong Kong with Mainland China is considered as the biggest aspect. In the past, in spite of the special status of Hong Kong, its ships are not permitted in order to undertake maritime transport and towage services between the ports of Mainland China (Chan, Ng, & Wong, 2003). However, this situation had changed after the Mainland and Hong Kong Closer Economic Partnership Arrangements (CEPA) was signed on June 29, 2003. This is the first free trade agreement that ever concluded by the said two territories. CEPA had been able to open new opportunities for Hong Kong, which particularly focus on opening a huge markets for Hong Kong goods and services, at the same time enhance the already closed economic cooperation and integration between Mainland and Hong Kong (Trade and Industry Department, 2005). As a result, it had helped to create more healthy relationship with Mainland. However, although the said openness has affected Hong Kong in positive manner, it had affected Hong Kong in negative manner in the economic matter, primarily the issue of increasing competition from the neighboring regions (Trade and Industry Department, 2005). The economic boom of Mainland enables the country to improve its transportation facilities including ports. As a result, In 2008, the consolidated container throughput of Shanghai and that of Pearl River Delta (PRD) soared by 148% nd 142% compare in 2003. This is somewhat high compare with the 20% increase in Hong Kong. There have been different comments that due to the rapid growth of the economy of Mainland in recent years, the demand for inbound and outbound freight services has been enormous, however, Hong Kong, on the other hand, has failed to seize the opportunity to acquire a bigger market share (THB 2009). Economic However, due to the global financial crisis, Hong Kong logistic industry is being affected. In December of 2008, the export volumes out of China (which is the manufacturing base of Hong Kong) had dropped by 9% in terms of local currency. Thus, the export and import volumes of all the seaports and airports in Hong Kong and South China have recorded negative growth figures. Aside from that, during the first half of 2009, the main buyers’ market including US and Europe are continuing to report negative GDP growth figures quarterly (Leung, 2009). Above all, two of the important factors which affect the competitiveness of the Hong Kong port are the high land transport cost and Terminal Handling Charges. The current charge levels are considered as too high and are causing some cargo to move away from Hong Kong (Hong Kong Shippers' Counci, n.d.l). Social On the other hand, as of now, the entire country is facing different problems regarding outbreak of different diseases like the past SARS and the recent A(H1N1), which have affected and still affecting the flow of products and the schedule of different passenger and cargo airlines and ships. According to Hong Kong Airport Authority in March of 2003, the passenger traffic has decreased by 14.4% yearly to 2.51 million, while cargo volume declined by 11.8% by 237,000 tones (The University of Hong Kong, n.d.). Technological Technology is one of the most important factors which influence the growth and decline of any industry in the world. As of now, application of technology in any industry and business is considered as a must because of the fact that we are already in the information era, where in information is being considered as one of the most important resources that can be used by the company to ensure their position in the market. Primarily, Automated Transport and Decision Support System (DSS) is being used in the container terminal sector in order to manage the space as well as the allocation of different resources including the transportation and the human resource. On March 7, 2002, the Intelligent Transport Services (ITS) was introduced which linked different recent technological advancement including mobile access devices, GPS, differential global positioning system (DGPS), geographic information system (GIS) and wireless digital data communication, together with the distribution network which focused on capturing, manipulating, analyzing and displaying spatial data (International Mail Centre of Hong Kong Post). Environmental On the other hand, in terms of environmental factors, it can be said that Hong Kong has its advantage with Mainland China and other countries in the world. Hong Kong had formed a huge and consolidated work city based which made the city to maintain its global city status against Mainland China (Ling, 2004). As a result, it made Hong Kong to have a geographic location advantage, together with the fact that Hong Kong had already established its economic condition in the world. In addition, Hong Kong is also focusing on the different activities and strategies that will help to strengthen their geographic locations including the different facilities inside the territory. One of this is the construction of the Hong Kong-Zhuhai-Macao Bridge (THB 2009). Above all, it is important to include the aspect of being “green”. As of now, people around the world, including the different organizations, both governmental and non-governmental to focus on the different activities that would help to lessen hazardous gases that is causing global warming or climate change. One of the important aspects to consider is the possibility of the green trade war. Legislative However, due to the fact that the government of Hong Kong is in great control over the establishments and buildings of different ports in the city, it can limit the development of transportation industry. On the other hand, legislative aspects have a great impact over the success of Hong Kong logistics. As a matter of fact, in spite of the proliferation of port facilities in the PRD, some of the PRD cargoes still choose to route through Hong Kong because of its comprehensive and frequent liner shipping schedules, free port status, efficient customs procedures and convenience in intermodal transport system (THB 2009). Aside from that, it is also important to consider the different regulations that are being implemented by different international organizations or known as the trade bloc. Trade bloc aims to organize a common market in order to promote harmonious and balanced development of economic activities as well as closer relationships among the Member States. This help to strengthen the negotiation to the different external parties. As a result, customs procedures and external tariffs are usually the same and internal trade among the members is usually free. This include: European Union (EU), North American Free Trade Agreement (NAFTA), Common Market of South Treaty (MERCOSUR) (Winstar 2009), Bibliography Chan, F., Ng, J., & Wong, B. (2003). Shipping and logistic law. Hong Kong University Press. Hong Kong Shippers' Council. (n.d.). Logistic 05. Retrieved August 11, 2009, from Hong Kong Shippers' Council: http://www.hkshippers.org.hk/pdf/chairman_message_e0105.pdf. International Mail Centre of Hong Kong Post. (n.d.). A Seminar on "The Application of Automatic Vehicle Locationing in Logistics and Vehicle Fleet Management". Retrieved August 11, 2009, from International Mail Centre of Hong Kong Post: http://www.hkctl.vtc.edu.hk/hkctl/servlet/ctlGetFile?file=/hkctl/public/bulletin/HKCTL_Newsletter%20Issue%209_5-8.pdf. Leung, K. (2009). Tough times ahead for Hong Kong. Retrieved August 11, 2009, from CILT World: http://web.ebscohost.com/. Lewis, R., & Trevitt, R. (2000). Business for advanced gnvq. Nelson Thornes. Ling, W. S. (2004, April). Globalization and competition for a "World City" status between Hong Kong and Shanghai in China. Retrieved August 11, 2009, from Hong Kong Baptist University: http://libproject.hkbu.edu.hk/trsimage/hp/01013726.pdf. Logistics Industry Training Advisory Committee. (2006, August). Logistic industry. Retrieved August 11, 2008, from The Government of the Hong Kong Special Administrative Region of the People's republic of China: http://www.hkqf.gov.hk/media/RC_publicity_ITAC_logistics_e.pdf. Rioni, S. G. (2002). Hong Kong in focus. Nova Publisher. THB 2009, Challenges Faced by Hong Kong as a Maritime and Logistics, Retrieved August 11, 2009,  http://www.thb.gov.hk/eng/legislative/transport/replies/maritime/2009/200906101. The University of Hong Kong. (n.d.). Industry Report: Logistics industry. Retrieved August 11, 2009, from The University of Hong Kong: http://www.acrc.org.hk/sars/industry.asp?doc=logistic. Trade and Industry Department. (2005). Mainland and Hong Kong Closer Economic Partnership Arrangements. Retrieved August 11, 2009, from The Government and Industry Department: http://www.tid.gov.hk/english/cepa/cepa_overview.html Winstar 2009, Import Regulations of Hong Kong’s Major Trading Partners, Retrieved August 14, 2009, http://winstar-logistics.com.hk/en/support/rule/introducation.htm

Hong Kong Business Logistics: External Environment Analysis By PESTEL

Hong Kong Business Logistics: External Environment Analysis Logistic industry is considered as one of the four pillar industries i...

Global Business & International Business

Introduction             Political and social environment, as the macro environment of any business, considerably have an impact in the international and global business spectrum.  In this paper, it discusses about the basic nature of international and global business, exploring into the external environment influences using the Political, Economic, Socio-cultural, Environmental and the Likely Future Trends (PESTEL) analysis. The PESTEL analysis, despite of it not being able to capture all the complexities of the external environment, it can still aide the firm in the development of an appropriate strategic framework.  Further, it seeks to discuss the future developments of the international and global business, with emphasis in the political and the social environment   Main Part International Business and Global Business Seemingly, international and global business sounds synonymous.  However, both businesses with its complexities, have different and varying nature.  International business pertains to the cumulative topics that deals with the companies expressing interest to operate in several companies.  Companies that are operating internationally is sometimes referred to as a multinational corporations (MNC’s), McDonalds, General Motors, Sony, General Electric, and so on, as it examples, and that of which generally have a subsidiary.  As the operations of international business venture increases, it is can be considered a contributing factor leading to globalization.  Thus, integral to globalization process is an increase in the intensity of competition in the international marketplace. Global business, on the other hand, presumably covers a vast field and it’s broader than that of an international business.  Fundamentally, the orientation of a global business focuses on the exploitation of business opportunities across boundaries to achieve corporate goals synergistically.  Moreover, it takes into consideration the overall effect of diverse markets in the designing and in the implementation of strategic objectives.    The PESTEL Trend In an international and global business setting, corporations must carefully and thoroughly foresee rather than oversee the macro environment especially in the context of political and social components.  It is evident that social, cultural, political and economic factors can either push or hold back the process of globalization.  Among the key aspects in the use of PESTEL analysis are to grasp the pivotal drivers of change, the focus impact of environmental factors, the combination of effects, and the like.  To gain an in-depth analysis of the political and social environment, it is deemed important to look into the respective PESTEL analysis, and not only focusing on the social and political context because these factors are somewhat dependent over the rest of the factors.   Political The political influence generally includes the stability of the government, policy of taxation, regulations of the foreign trade and social welfare policies.  In this paper we would look into how the international and global business should adopt and fit in into the political arena, particularly in the country that holds a capitalist political ideology, and in the imposition of tax law. The capitalist is descriptive of the country sparing some parts of its economic activity to local citizens.  Foreign-owned firms, in this regard, generously offer a tempting target for local politicians, and such that, firms already operating in a foreign country braces an ongoing public relations problems as they may be harassed by the local populace. With the fact that majority of foreign firms are wealthier, plausible cases of exploitations can surmount and indirectly found somewhere, which in turn, are counteracted in a means of a façade, like for instance, international firms promoting the locals to a managerial positions.  Another factor that has an influence politically are the imposition of local tax law that is applicable and are mandated by individual countries to foreign companies.  In some countries, especially the corrupt countries, there are cases, in which international operations are asked more than their normal tax payments. An import duty like in Saudi Arabia, for example, is a local tax not levied on local firms or companies but is being levied to international firms.  Consequently, the income taxes levied to the international and global business operations have a direct affect on the businesses net profitability, resulting to changes in financial planning, new investments, dividend payouts, and similar factors.  Similarly, the sales and excise taxes required on final products affect prices.  Simply, stated the political ideology trend interrelates with both international and local barriers, such that political philosophies of the leaders of a particular country are highly influenced from which the political leader has been a part of.  Additionally, the political attitudes and philosophies held by a political leader mirrors partly in the sociological and educational factor in the given country.   Economic Generally, economic analysis encompasses the particular country’s business cycles, GNP trends, interest rates, money supply, inflation rate, unemployment rate and the disposable income.  The importance of determining resources would likely predict the competitiveness of a country as stressed by the conventional trade theories.  Consequently, it prompts for international firms to ensure that adequate resources that are of sufficient quality can be accessible and the availability of the said resources are present.  Thus, access to global resource base is a key factor influencing international production.  For both international and global business, labor quality is a determinant of competitiveness such that it is resistant of imitation and the most immobile factors.  To be specific, the IMS has a profound impact on the global business environment such that it evolves in a set of exchange rates between the states and primarily is the basis of trade. The importance of IMS is valuable because it enables states to finance respective trade deficits and in the accessibility of enterprise access in the realization of strategies.  Overall, the economic factors, both domestic and foreign, tend to alter rather rapidly, resulting to great alterations in the legal rules.  Further, country may now in turn, imposed very tight exchange controls, restrictions in the profit remissions and strict in the import restrictions.  Nevertheless, the failure of an international and global business to anticipate and miss out economic developments spells profit lost.    Socio-cultural The socio-cultural context typically comprises the population demographics, population’s income distribution, social mobility, consumerism, level of education, technological efforts and among others.  Among the PESTEL trend, socio-cultural analysis is the most difficult to look into since aside from its unpredictability, it is said to be barely readily quantifiable.  Citizens of every country greatly have a deep sense of national identity.  By deep it connotes it is difficult to alter or can be instantly transformed.  For international and global businesses to fit in they must be adaptive, recognize and give utmost respect to the national identity projected by the local populace.  National identity impacts the foreign firms or companies into two folds; one is the indirect effect from the laws, restrictions, regulations that mirrors the national attitudes and two is the direct and unofficial, such as aggressive attacks towards a United Stated embassy in a dominantly Muslim country.  Also evident is the way the local populace views foreigners, since in some countries foreigners are being viewed evil and opportunists.  Although, there are also countries who views foreigners as only hope for development.  From the sense of natural identity that is innate to the people, emerges the national ideology that can be viewed as a linkage of the citizen to the country, like it is a unified thinking and strong beliefs often leading to stereotyping.  Political leaders reflect on the national ideology and the attitudes of the people and are largely considered most of the time.  For instance, the Egyptian president publicly expresses disgust over the Americans, he is expressing reflectively the strong national ideology he held being an Egyptian.  The sociological analysis, as been discussed, revealed that it is interlock with both legal-political and economic analysis.  EnvironmentaI Environmental analysis includes the measures of environment protection, competition law, employment law, product safety, and basically all factors that are related to environment.  In fact, according to Hurell and Kingsbury (1992), the interaction between economic development and the complex, often fragile ecosystems on which that development depends has become an international political and economic issue.  In this paper, we would particularly be discussing about the labor law.  As a general rule, all countries necessitate the foreign corporation to treat the local employees just like local firms have rightfully treated the locals. It is mandated that foreign companies should and must at all times observe the local labor legislation.  The local labor legislation varies between countries that are indicative of the presence of the variety of political factors.  Like in the communist country, for example, unions are banned and are subject to authoritative management.  An alternatively second type of labor law is existent such that foreign firm employees are treated disparately by local employees.  Common law of this type is embodied in countries like Costa Rica, wherein 90 percent of the workforce should be Costa Rican and must receive 85 percent of the salary wage.  Likely Future Trends Lastly, are the likely future trends in the operation of international and global businesses.  For instance, energy as a key resource for all businesses, when it will be used as a political weapon, its impact will be significant to the economic growth.  That is why, countries like the United Stated who have dispute to some of the Middle East countries, are forced to find and develop alternative sources of energy.  By being not able to do so, would mean that in the future, United States would extremely suffer in the scarcity of energy.  Future Developments With economic institutions such as the World Trade Organization (WTO), the World Bank (WB) and the International Monetary Fund (IMF) monitoring and implementing fair practices in the business, the future development of international and global business would likely lead into globalization.  The degree to which businesses has been internationalized is a function of changes and developments in the world economy. Towards the twentieth century, apparently, changes in the world economy deeply affects business, politics, society, citizens and the interaction between the stakeholders is what is come to be known as globalization.  Globalization as defined by the International Monetary Fund (IMF), is the growing interdependence of countries world-wide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology.  By growing interdependence of economies, it pertains to the increasing acceptance of economic liberalism that serves as a precursor to globalization.  Moreover, as competitive liberalism extends into domestic economic policy had somewhat deepened the roots of globalization. The changing regulations and attitudes promotes additional and more opportunities for investment security, like the increasing participation of privatization programs in developed countries, like the United Kingdom, at one level.  Interestingly, included in the key drivers that characterize the future growth of international and global business, are the involvement of international governance and regulation (the political environment) and the convergence of socio-cultural.  First, is the stretch of international governance and regulation, wherein, it is at first formulated in a regional level like the European Union or at the international level.  Second, is the socio-cultural convergence as a resulting consequence of liberalization and the emergent outstretch of the global communication technology. It is like the continuing efforts of international and global business to foster a careful dealing with the hard to transform social and cultural components as a barrier have been somewhat conquered already but does not necessarily mean that there are altered to a very great extent, however, there is only an accommodation with regards to the operation of the international and global business. Conclusion   The development of both international and global businesses extends their opportunities to maximize profits and gain a competitive edge.  However, with the presence of macro environment that is hard to penetrate, these businesses looks for means to get through and get over the barriers for them to penetrate successfully.  Political environments are dependent with the social environment such that political leaders are mainly influenced from pertinent social factors.  The social factors, on the other hand, also have a political influence such that they are subject to the political environment they are operating.    The future marked by globalization offers boundless growth and prosperity, not only for the developed countries but for the developing countries as well.  But given its opportunities, there are also the negative impacts globalization can bring such as further widening the gap between the rich and the poor promoting inequality, anarchy in the economy, surrender in political control and the extreme negative impact may be the lost of cultural identity of a country.

Global Business & International Business

Introduction Political and social environment, as the macro environment of any business, considerably have an impact in the...