PESTLE analysis is a powerful tool that can show any enterprise the viability of any investment or product that it plans to launch in the market. Therefore, any business leader should develop a PESTLE analysis so that they can correctly assess the effectiveness of their business strategies.
What is PESTLE Analysis?
A PESTLE analysis refers to a marketing concept where an entity evaluates how external and internal factors, which are political, economic, social, technological, legal, and environmental, affect its operating environment. The name PESTLE is an acronym for political, economic, social, technological, legal, and environmental analysis. Through PESTLE analysis, an entity evaluates how the mentioned factors can affect its operations both in the short-term and long-term. This model is often used alongside other analytical tools such as SWOT analysis, Porter’s Fiver Forces analysis, and VRIO analysis to allow an entity to have a detailed understanding of how underlying internal and external factors affect its operations. Although PESTLE analysis is mostly done by businesses, it can be undertaking by any entity including NGOs, governments, and public institutions.
Why You Should Undertake a PESTLE Analysis for Your Business?
There are various reasons why a company should undertake a PESTLE analysis. For an entity to succeed in its endeavors, it needs the following things that can be enabled using a PESTLE analysis:
- To enable the development of suitable products for the market.
- To create a recognizable brand.
- To create customer loyalty.
- To establish appropriate marketing styles.
- To identify your unique selling position
- To attract investors to your company.
- To identify the weaknesses in the existing business model.
- To identify opportunities in the market.
How to Create a PESTLE Analysis?
When developing the PESTLE analysis, it is important to describe each of the six variables used in the creation of the model. The analysis mainly focuses on how each of these variables interacts with the entity.
Political Factors: Government laws and bilateral agreements, and politics
Political factors often entail the government national, regional, or international policies that have the potential of affecting a company’s operations. These factors often present themselves in the form of legislative bills, international agreements, regulations, and international conventions. When analyzing this section, a researcher considers the following:
- Tax policies
- Regional agreements (WTO, EU, NAFTA, and AGOA)
- Financial policies.
- Employment and workers laws and rights.
- Health and safety laws.
- Political stability
- Environmental laws etc.
While there are many potential factors that an entity should consider, often it always focuses on those relevant to its operations.
Economic Factors: Finance and Trade
These factors entail the economic feasibility and environment affecting an entity’s operations. The factors of consideration vary, but largely center on financial regulations, economic prospects, and profits. Ideally, the researcher should consider these factors:
- A country’s economic growth rate
- Ease of doing business in a region/ country
- Inflation rates
- Access to credit
- Income levels of potential customers.
In practice, the economic factor is the main elements that should be considered by a profit-making business. Since an entity should be profitable to remain a going concern, the management should consistently examine issues relating to economic factors and continuously implement appropriate strategic policies.
Social factors: People and Society
Social factors are often dynamic and unpredictable, and changes in this aspect can make a company irrelevant if it does not adopt. A company must always ensure its products are in line with current trends and a society’s preferences and culture. For example, when entering the Indian market, KFC had to consider Indian’s (mostly Hindu) culture of not eating beef. An entity should consider the following factors:
- Culture and subculture
- Lifestyle and social trends (fashion)
- Family size,
- Health and religion etc.
Since social factors affect customers’ attitudes and perceptions of the seller, any entity needs to consider this element before introducing any new product or launching any new project.
• Technology Factor: IT, Social Media, Electronics
Technology currently directly and indirectly influences how people communicate, work, relate, trade, and socialize. Whether you are in a tech-related sector or not, an individuals’ needs to evaluate their technology factors that influence their business or relations with customers. A business should consider the following:
- Wireless connections
- Internet availability
- Internet of things (IoT)
- Distribution and supply chains
Since technology helps in making business operations easier, efficient, while still allowing a company to reach more clients, an entity should continuously update itself with the most relevant technologies. For example, the technological change towards smartphones led to the downfall of Nokia from a global leader in telecommunication, and this was mostly because of the company’s slow rate of embracing modern technology.
Legal factors: Laws and Bylaws
Laws can determine whether a company succeeds in its operations or fails. Besides, some laws can complicate or make it easier for firms to do business. Some of the legal factors to consider include:
- Copyright laws
- Consumer protection laws.
- Business registration and establishment regulations.
- Health and safety laws
- Environmental laws
- Financial regulations
From a PESTLE view, environmental factors entail the natural environment and working/ business environment. Natural environmental protection has become a major concern for most individuals worldwide. In response, most countries have established laws and policies to protect the environment. These regulations are on waste disposal, recycling of waste, pollutants, and emission of toxic gases. Besides, a business should consider the working environment such as corruption levels in a country, security, transport network, ease of doing business, and culture.
Writing a PESTLE Analysis Research Paper
Writing a PESTLE analysis paper is pretty easy if you understand what is largely required in this type of task. An easy what to write this paper is to develop an outline structure, that has the introduction, body, and conclusion section.
- Introduction Section
In this part, you should give a small description of the business and state the research objective as undertaking a PESTLE analysis.
- Body Section
This part contains the actual PESTLE analysis of the paper. The researcher needs to examine each element of PESTLE separately to ensure a thorough investigation of all internal and external factors affecting the entity.
- Conclusion section
The researcher indicates the findings of the research in this part. Also, the researcher states appropriate recommendations depending on the findings in the body section.
Example of a PESTLE Research Paper
Huawei Company PESTLE, SWOT, and VRIO Analysis
This report entails a proposal strategy that will ensure that Huawei achieves the ultimate goal of becoming a trillion-dollar company. The report begins by analyzing the background of the company. Huawei has its objectives, mission and vision statements outlined. The core values of the company are also listed. The report then continues to analyze the strategic environment of the company. The frameworks used include SWOT and PESTEL. The SWOT analysis is useful in understanding the strengths and weaknesses of the company. The SWOT analysis is also insightful as it helps in recognizing the threats and opportunities of the company.
PESTEL analysis is a useful framework for analyzing the external strategic environment of Huawei. It shows how these external elements impact the performance of the company and how to possibly capitalize on them. This report also provides a critical analysis of the internal capabilities of the company using the VRIO framework. The VRIO framework is essential to highlight the competitive advantage that Huawei holds and how to exploit these resources to fully benefit the company. The report concludes with plausible recommendations of how Huawei can emerge to be a trillion-dollar company. These recommendations seek to guide Huawei through maintaining its competence and market position in the long run.
Introduction: Huawei Inc. PESTLE, VRIO, and SWOT Analysis
This report has various segments, each explaining different aspects of the company. Notably, the report analyzes the Huawei Company and a proposed strategy that would propel the company into becoming a trillion-dollar company. The executive summary deals with a detailed summary of the entire report. The organization background sheds some light on the company’s values, mission, and vision. Afterwards, the analysis of the strategic environment especially focuses on the SWOT and PESTEL analyses. The critical analysis of the strategic organization to best achieve the trillion-dollar target. This report uses the VRIO analytical framework for an in-depth critical analysis. The report finally concludes with the recommendations on how to ensure that Huawei achieves its million-dollar target.
Huawei Technologies co. Inc. is a giant telecommunications company whose headquarters are in Shenzen, Guangdong, China. The company was started in 1987 as a private company. Currently, Huawei mostly specializes in the smartphone industry as well as telecommunications. The company has outlined its purpose, mission, and vision that highlight its strategic goals. Huawei’s mission is to develop a digitally connected world by investing in innovative technologies. Likewise, the vision of the company is to ensure that the world is fully connected. Importantly, the company centers its core values on being an open company that is focused on customer-centricity. Huawei purposes to make quality, affordable, and innovative smart devices.
Huawei is a Chinese company. China is the global hub form manufacturing operations. As many companies flock to offshore their manufacturing operations to China, Huawei is already locally based, thus ensuring that there are minimal offshoring costs (Micheli and Carrillo, 2016). Whilst being a Chinese company, Huawei has access to low production costs, thus able to offer their products at a lower cost compared to its competitors.
Chinese products have a lower and suspicious perception in the global market as being inferior products. Thus, Huawei suffers from this collective stereotyping. In fact, many Chinese companies are increasingly being accused of forging and infringing on patented designs from western engineering firms and technologies (Micheli and Carrillo, 2016).
Currently, there has been an increased interest in artificial intelligence, machine learning, and the use of smart devices in all aspects of individuals lives and industrial activities. As a leader in 5G technology, Huawei stands to make significant incomes because its innovations will be quintessential in making an interconnected world (Li, 2019). In this regard, industrial 4.0, which will mostly use 5G technology provides significant opportunities for the company.
The current geopolitical impasse between China and the USA threatens the success of Huawei. The USA has been requesting its partner countries to ban Huawei products, particularly its 5G technology (Li, 2019). The USA has also requested its companies not to share their android technologies and research programs with Huawei Inc.
Huawei products are sold in various parts of the world, thus, making it subject to political forces and changes. The company is particularly dependent on the political forces that involve China (Zhang and Huang, 2019). Lately, Huawei bears the brunt of the ongoing China-USA political conflict that involves trade politics.
Huawei relies on the economic aspect of the strategic environment to ensure its success. Notably, the company is subject to macro environments of the target markets such as the European Union and Africa. If the target market performs fairly or outstandingly, Huawei’s revenue increases. If the target markets have declining economies, Huawei’s revenue will reduce.
As the global business environment relies on the Chinese market for production, there is a general perception that relates Chinese products to inferiority. Thus, Huawei suffers from this notion as consumers steer away from Chinese companies. However, the increased social trends towards smart devices are likely to enhance the company’s sales prospect in the future.
Huawei boasts of having the 5G network infrastructure that has impressive speed at a lower cost. As competitors work towards coming up with a reliable 5G network, Huawei is investing in hardware that best supports the network, making them market leaders (Huawei.com, 2019).
The company being a technological one, needs to tread carefully on the area surrounding patent and copyright law by creating a balance between infringements and protecting their technologies. In addition, the company needs to adhere to multiple consumer and environmental laws for different countries.
Huawei needs to adhere to a wide range of environmental laws in its various markets. Notably, Huawei has invested a lot in environmental conservation efforts (Chernysheva, Bakulina, and Bich, 2019). Huawei is operating in a monopolistic business environment, and this helps the company to protect its market using branding tactics.
By using a VRIO analysis, Huawei can assess its internal resources to determine whether these resources can provide a competitive advantage in the market. The VRIO analysis focuses on four critical factors that determine whether they offer a sustained competitive advantage or not. This section discusses these four factors at length.
Huawei’s financial resources are very important as they help the company invest in any potential opportunities that might arise. Furthermore, the financial might of the company ensures that it invests in an intensive R&D as well as combatting any external threats such as competition (Godinho and Ferreira, 2013).
Huawei depends on its employees to produce quality products and services, and also, in achieving the success of the company goals and objectives. By training its staff, Huawei ensures that they remain competent, well-motivated, loyal, and appreciative workforce. By having well-remunerated employees, Huawei is able to retain its most valuable employees as well as attract prospective talents in the market.
The R&D department is also a valuable resource to Huawei. Huawei patents most of its technologies and they remain critical to the success of the company. Through patents, Huawei upholds its innovations and provides quality products that serve to meet its quality demands criterion. Furthermore, through licensing some of its patents to other companies, Huawei has a reliable revenue stream.
Once again, the financial might and resources of Huawei is a rare resource. Most companies lack the financial resources that propel the growth and investment of the companies and only a handful of companies can compete with Huawei in terms of financial power (Chernysheva, Bakulina, and Bich, 2019).
Furthermore, the supply chain and logistics management of the company is a rare resource. As many companies fail to come up with distribution channels in new markets, Huawei has a reliable network. Importantly, only a few companies can compete with Huawei in terms of distribution channels.
Huawei has gradually developed its distribution channels over the years. For rival companies to achieve such a distribution channel, they have to invest deeply which does not guarantee similar success to Huawei’s. The patents are also very difficult to imitate due to the legal restrictions. Companies have to come up with their unique innovative technologies and designs that are not similar to Huawei’s (Li and Alon, 2019; Zhang and Huang, 2019). Furthermore, the procedure for having a patent is lengthy and costly.
Huawei organization is properly structured in various semi-autonomous departments, and this enables the firm to be efficient in its operations. For example, the company has an almost independent but adequately funded research and development department that continuously develops innovative products and technologies (Huawei, 2019). The company also has and efficient production facility that allows the company to manufacture quality phones at affordable prices. Leadership at the organization’s departments is usually based on merit, and this makes employees to continuously enhance their skills and productivity.
First, the company needs to embark on an intensive corporate social responsibility (CSR) project to widen its reach to potential clients. Through pushing for the sustainability notion, the company will have a better brand image and reputation. Currently, Huawei suffers from the inferiority complex associated with the majority of Chinese companies and products. Having a good and effective CSR campaign, Huawei will have a better global reputation that will ease its penetration into new markets and growth strategies.
Likewise, by deciding to focus more on emerging markets that have an increased economic growth rate, Huawei Inc. will capture new and untapped markets. As most companies settle on the United States and European Union markets, Huawei should venture into the African and Latin American markets. These markets have an attractive potential to emerge in the next few years (Joo, Oh, and Lee, 2016). Furthermore, with the limited competition into these markets, Huawei is able to diversify and capitalize on improving its revenue (Joo, Oh, and Lee, 2016). Furthermore, given the reliable trade relations between the Chinese government and these local governments, Huawei will have an easy time conducting their business in these markets which spell of untapped potential.
Over the past few years, Huawei has stayed ahead of the curve in terms of innovative technologies and designs. Notably, Huawei has mainly focused on product innovation (Xu, 2019). Their smartphones have new and exciting features with the allowance of updates into later versions. The company also has its own application development store which invites various web and application developers into designing and coming up with apps specially customized for Huawei (Godinho and Ferreira, 2013). These innovations elevate the company into a highly innovative company.
The company needs to not only focus on product innovation, but also in customer innovation. Whereas the user experience entirely depends on the product, the company needs to invest in consumer behavior to capture their needs and demands. Different markets have different needs and demands. For instance, the needs of the Latin American market may vary from the African market and the Asian market. Through understanding these variants and different demands, Huawei can deliver according to their required needs.
According to Cremer and Tao (2015), out of the 91 mainland Chinese companies on the Fortune Global 500 list, only Huawei earns more revenue from the abroad market than in the Chinese market. Most companies suffer in the abroad markets due to the shift in organizational culture. For instance, Shangri-La faces a challenge in cultural transformation into overseas markets (Droulers and Hefferman, 2007). Huawei, however, has managed to handle the organizational culture shift into the abroad market and derived success from it.
Nonetheless, Huawei needs to adopt a customer-first attitude. By first considering the customer, Huawei will have a larger market share (Cremer, and Tao, 2015). Encouraging the employees to prioritize the needs and demands of the customers will create a better relationship with the customer base. Essentially, this relationship will uphold customer retention and also attract more customers. In addition, by having a customer-first attitude, Huawei’s brand image will flourish, thus, edging out the competition (Cremer, and Tao, 2015).
Also, employee dedication will improve the success of the company. Through having a dedicated workforce, Huawei will give purpose to its employees, who will in turn find joy and contentment in their work (Nakai and Tanaka, 2010). Importantly, employee dedication encourages the workers to be more innovative and feel appreciated as part of the company. Some of the ways to ensure that the company achieves employee dedication are through promoting workforce diversity, equal opportunities for career growth and development, proper remuneration, and have an overall incentive performance system.
Huawei should focus on selling its smart devices that have 5G technology to customers. The technology industry is very dynamic and these companies need to have constant innovation, or risk being left behind (Nakai and Tanaka, 2010; Guo, Zhang, Dodgson, and Gann, 2019). Currently, Huawei stands ahead of the pack through its 5G network. As other companies are devising ways on how come up with 5G network infrastructure, Huawei needs to be planning on how to market their hardware that supports 5G network. This strategy can enable the company to acquire significant market by been a first-mover.
Huawei can also sell and license its 5G technologies to other smart device manufacturers. Not all companies have the capability of making Huawei’s innovations in 5G due to the lack of research experts or because Huawei has already patented essential technologies needed in future 5G developments. Selling technology to other players in the smart devices market will enable the company to gain a significant market and control over the use of 5G. In addition, it will also provide considerable incomes for the company.
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|Strength||Huawei is a leader in research and technology, particularly 5G technology. Huawei enjoys significant government support, and this enables the firm to expand its operations. Huawei has significant financial resources that it can use to market its products and make innovative items.|
|Weakness||There are biased views regarding the quality of Huawei products, primarily because it is a Chinese company. However, the company makes quality smart devices.|
|Opportunity||Huawei boasts of the best and latest technologies in 5G.|
|Threat||Huawei suffers from significant geopolitical risks between China and the USA. Accordingly, there is a risk that its market can be restrained.|
|Political||Huawei faces significant geopolitical risks due to the current conflicts between the USA and China. Huawei enjoys close and friendly relations with the Chinese government.|
|Economic||Huawei is located in China, which is currently enjoying significant economic growth. Therefore, there is considerable risk of its business expansion.|
|Sociocultural||There has been an increased desire for smart devices in most nations. As a leading manufacturer of smart devices, there are high chances the business will expand in the future.|
|Environmental||Huawei has undertaken measures to protect its environment by using technologies that are environmentally friendly. Huawei is in a monopolistic competitive business environment. Therefore, the risks posed to its position are only those from major brands like Samsung, Apple, and Nokia that have equally major brand recognition.|
|Legal||Huawei adheres to legal requirements, and it protects its products using patent rights. Therefore, there are low risks of its items been imitated.|
|Valuable||Products and technologies from Huawei, such as the 5G technology are valuable due to their use in artificial intelligence.|
|Rare||Huawei has access to rare resources such as financial resources and distribution channels.|
|Imitability||It is difficult to imitate Huawei’s products because they are patented. Therefore, while major manufacturers have the ability to copy their products, it is impossible to imitate their items.|
|Organization||Huawei has a sound organization structure that enables it to manufacture and distribute its items. Huawei has significant investments in research and innovation, and this enables the firm to continually develop new products and remain competitive in its industry.|
|Strategic Theme: Reaching the trillion-dollar mark|
|Financial||Increase % of revenue from both developed and developing nations||% Revenue from existing locations||> 25% year 1 > 50% year 2 > 100% year 3 > 200% year 4 > 500% year 5 > 800% year 8 > 1000% year 10||Huawei’s net income for 2018 were $107 billion, and therefore, it can easily reach the $1 trillion mark in terms of valuation. -Capturing markets with low competition and a gradual growth in sales and brand image will increase its valuation.|
|Attract new customers and retain existing customers over a longer period||# of new markets and demographics||>25% year 1 > 50% year 2 > 100% year 3 > 200% year 4 > 500% year 5 > 800% year 8 > 1000% year 10||Local and global marketing/PR campaigns|
|Increase number of new locations||# of industry partnerships for enterprise research||25% year 1 > 50% year 2 > 100% year 3 > 200% year 4 > 500% year 5 > 800% year 8 > 1000% year 10||-Embarking on an intensive market research Penetrating new global markets|
|Customer Process Attract new customers and retain existing customers over a longer period||Increasing variety of products for different consumers||> 10% year 1 > 20% year 2 > 30% year 3 > 50% year 4 > 70% year 5 > 80% year 8 > 100% year 10||Develop innovative products and sell them at an affordable price.|