Pestel Analysis for UKs Chemical Industry - Case Study Example

Table of Contents Castrol Business Strategy 1 Introduction 1 Literature Review 2 PESTEL Analysis for UK’s Chemical Industry 4 Political 4 Economic 5 Social 5 Technological 6 Environmental 6 Legal 6 Porters 5 Analysis of UK’s Chemical Industry 7 Bargaining power of buyers 8 Bargaining power of suppliers 8 Threats of new market entrants 9 Threat of substitute goods 9 Degree of competition 9 Castrol’s SWOT Analysis 10 Strengths 10 Weaknesses 10 Opportunities 10 Threats 11 Conclusion 11 Castrol Business Strategy Introduction It is important for organizations to evaluate their internal and external environments so as to develop effective strategic objectives (Harris & Pritchard 2004). An organization’s strategic analysis allows for the determination of the long-run objectives and goals, implementation of practices, and efficient allocation of resources ensuring organizational success (Harris & Pritchard 2004). Also, the strategic analysis enables the organization to position itself competitively in an increasingly dynamic environment. The aim of the paper is to discuss the existing literature regarding the importance and needs of environmental evaluation. Also, strategic analysis the trends within the business environment of the Chemical industry in the U.K. is conducted using PESTEL framework. Also, using the Porter’s five forces, critical analysis of the industry is undertaken including the evaluation of Castrol’s internal and external environment. Castrol’s internal and external environment involves the assessment of the strengths, weaknesses, opportunities and threats. Literature Review Evaluation of environmental risks significant for the organization’s assessment of the processes and activities necessitating effective decisions (Goodstein, Nolan & Pfeiffer 1993). Especially for downstream oil operation, several literature has been developed describing the importance and need for environmental evaluation so as to maximize the likelihood of making correct choices (Alexander 2002). It is argued that risk evaluation should consider the different types of risks connected so as to obtain the testing requirements (Goodstein, Nolan & Pfeiffer 1993). Various scholars postulate that risks can be used to describe more dimensional occurrences (Seuring & Müller 2008). According to studies by (Seuring & Müller 2008), the multidimensionality of risks comprises of three factors including; variability of loss values, expected loss, and uncertainty of the mental models applied. Studies by (Seuring & Müller 2008) dispute the notion that risks considers the negative occurrences and argues that risk is significant to progress and disasters offer learning opportunities. It is augmented in other studies that the balance between risks and opportunities needs to be carefully conserved by the management responsible for the project (Seuring & Müller 2008). Risk management is thought to be the process of handling uncertainties and risks according to various scholarly studies (Goodstein, Nolan & Pfeiffer 1993). Therefore, environmental analysis is essential in eliminating inefficiencies within the planning processes so as to avoid damages and losses to individuals and organizations (Goodstein, Nolan & Pfeiffer 1993). Environmental analysis conducted allows for the evaluation of both short-term and long-term concerns of organizations (Goodstein, Nolan & Pfeiffer 1993). It is postulated that the significance of both the internal and external environment allows for development of processes that identifies and responds to the uncertainties (Goodstein, Nolan & Pfeiffer 1993). Despite limited research in marketing and research, it is important to note the significance of incorporating contingency planning to the entire strategic business processes. Integrating environmental analysis of organizations into strategic planning processes results into competitive advantages by the firms according to scholars (Kennerley & Neely 2003). Environmental analysis is considered a process that require effective management processes for the undisclosed uncertainties (Kennerley & Neely 2003). The benefits of evaluation and management includes; increased information regarding risks, better response measures, and reduction of the potential impact of the uncertainties (Kennerley & Neely 2003). For effective management of the risks and uncertainties evaluated, studies illustrate steps through which risk management process can be undertaken. The steps are inclusive of; planning, identification of risk occurrences, risk assessment, and mitigation processes (Kennerley & Neely 2003). PESTEL Analysis for UK’s Chemical Industry The PESTEL analysis for U.K. corporations identifies the major external impacts to the industry influencing the operations of firms. The environment in which PEST analysis considers; political, social economic, and technological, legal, and environmental (Harris & Pritchard 2004). Political The analysis of the political climate involves the consideration of concerns such as; uncertainty of military invasion, political stability, contract enforcement, and legal structures, tariffs, and industry safety regulations (Harris & Pritchard 2004). The United Kingdom is a democratic nation that is stable and minimally affected by internal civil unrests. The country is on an increased level alert regarding terrorism since the war in Iraq (Eppler 2006). The country’s Department for Transport oversees the approval of private firms offering security in airports. The expansion of the European Union allows for increased export growth of the industry despite increased competition from other manufacturers. The country’s wage reforms introduced by the country in 1999 described the National Minimum Wage for employees thereby securing the rights of workers (Eppler 2006). Also, other legislations and regulation exist in managing the production standards ensuring product quality of the industry. Economic The evaluation of the industry’s economics considers; the type of economic system, comparative advantages of the host country, government intervention, stability of the currency, and exchange rate stability of host nation. Also, it is important to evaluate the country’s growth rate, interest rates, and rate of inflation (Alexander 2002). The robust economic growth experienced by the county provides a viable market for the sustainable future of the industry. The country has managed to maintain stable inflation and interest rates after the economic downturn thereby restoring confidence to investors. Also, the stability of interest rates minimizes the risks exposure of the industry and offers opportunities for finances (Eppler 2006). The increased disposable incomes of consumers in the U.K. provide a market for the products and services of the company ensuring its profitability (Eppler 2006). Social The social analysis of the industry covers areas including; culture, demographics, education, and entrepreneurial spirit. The population of U.K. is estimated to be 64.1 million with a majority being the young population (Gilmour & Radford 2007). The young and growing population presents a sustainable market for the company’s future endeavors as a result of positive consumption trends. The consumer market is becoming increasingly aware of the effects of climate change and, therefore, defining their tastes and preferences. There is a growing trend of consumer purchase of fuel and lubricant efficient vehicles and machines (Gilmour & Radford 2007). The concerns of consumers are addressed by strategic changes in production ensuring quality and efficient products for use by consumers. Also, the continued decrease in the rate of unemployment in the U.K. after the economic slump presents opportunities for growth for the company. The company is actively involved in various community support programs and campaigns concerning HIV/ AIDS and road safety initiatives (Gilmour & Radford 2007). Technological The evaluation of technological advancement considers the following; the impact of technology on products, recent technological enhancements, the impact of technology on costs, and impact on technological diffusion and impact on the structure of the value chain (Gilmour & Radford 2007). The rate of technological advancement and penetration is significant in the U.K in areas such as; the internet and telecommunication sectors. The opportunities presented by the internet and telecommunication allows for swift product distribution networks and expansion of new frontier markets. Also, the enhancement of technology in the production of the lubricant has allowed organizations to develop cost effective techniques and high-quality products. Castrol has developed relations with leading scientific, manufacturers, and technical centers ensuring continuous technological developments. Environmental The company Castrol has numerous branches internationally influenced by different natural conditions and cultural make-up of the respective environment in which it operates. Adverse weather and climate changes in the U.K. minimally affects the business directly. Environmental conservation regulations instituted globally allow for the production of efficient products ensuring environmental sustainability. Legal The legal considerations of the company involve the patents obtained by the organization. Also, the company has a clear framework with which it uses as a guideline for its operations within the confines of the country’s laws. The company has a legal mandate to inform its shareholders of the changes and impacts to investments and revenues of the enterprise. Porters 5 Analysis of UK’s Chemical Industry Porters five forces analysis is a structure for industry evaluation and development of business strategy. The Porters five forces determine the environment’s competitive intensity and the overall industry potential for profit (Smith & Htoo 2014). The Porters five forces are inclusive of; the bargaining power of buyers, bargaining power of supplier, threats of new market entrants, the threat of substitute goods, and the degree of competition. Bargaining power of buyers The bargaining power of buyers illustrates the intensity of force possessed by consumers enough to influence the company’s operations. In case, there is a single customer with significant impact on the enterprise then the buyer power is considered substantial (Smith & Htoo 2014). Factors that lead to increased bargaining power of consumers include; a limited number of customers, high volume purchases by the customer, minimal costs incurred by users when switching to competition (Smith & Htoo 2014). Also, increased price sensitivity by users and ability to do without the commodity increases the power of buyers. Bargaining power of suppliers The bargaining power of vendors is regarded as the influence of suppliers to the organization. The bargaining power of suppliers is great if there is a great impact on the organization’s volumes and margins as a result of a single vendor. The factors leading to increased bargaining power of suppliers include; a limited number of suppliers in the market, a small number of substitute goods, and increased the cost of switching to another product. Also, increased power by suppliers exist when the product is of great importance to consumers, and the supply industry has increased profitability as compared to the buyer industry (Smith & Htoo 2014). Despite numerous oil companies, the domination of the industry is by a small number of dominant suppliers. The industry capital requirements are immense and, therefore, minimal competition among the providers (Smith & Htoo 2014). On the other hand, the few number of major suppliers results in increased supplier power thereby influencing prices of commodities. Threats of new market entrants The threat of new market entrants affects the level of industry competition and equally the revenues obtained by the existing market participants. Certain factors exist to limit the threat to the market posed by new market entrants, and they are inclusive of; increased customer loyalty to the existing products, specific buyer incentives such as; frequent purchases programs, and high fixed costs required to set up a company (Eppler 2006). Also, new market entrants are barred from the industry due to limited resource availability, increased costs incurred by consumers in switching organizations, and stringent legislations and regulations regarding market entry. The barriers to entry of the chemical industry in the U.K. includes; need for highly skilled employees, government and political interference, immense capital requirements, and increased physical risks and hazards (Eppler 2006). Threat of substitute goods The availability of substitute products reflects the possibility of consumers switching to the alternative good determined by the costs of switching. The threat to the organization is immense if the switching costs are low and numerous substitute products are available (Smith & Htoo 2014). Factors influencing substitute products are inclusive of; similarity of substitute goods. The substitute products available for the industry emanate from the industry producers of; gas, coal, and solar power (Smith & Htoo 2014). Degree of competition The industry’s degree of competition illustrates the force of competition between the existing rival firms within the industry. It is imperative to note that increased degree of competition in an industry results in minimal returns obtained by the competitive firms (Gilmour & Radford 2007). The increased degree of rivalry or competition is as a result of; numerous market participants with no major company, and minimal differentiation between the rival companies’ products and services. Also, increased market rivalry is determined by the extent of industry maturity (Eppler 2006). For instance; mature industry experiencing minimal growth allows companies to grow by increasing the market share by taking the customers of rival firms. Castrol’s SWOT Analysis The company’s SWOT analysis evaluates the significant strengths and weaknesses. Also, the opportunities and threats faced by the organization are considered so as to develop a sufficient competitive industry advantage (Gilmour & Radford 2007). Strengths Robust sales and distribution network for its products Increased revenues and high profitability Minimal labor costs incurred Availability of monetary assistance Extensive coverage of the domestic market The company’s economies of scale create barriers to entry for new market participants Weaknesses Increased competition in the market Possibility of high rates on loans for business development Ineffective costs structure Insufficient investment in the company’s research and development Inappropriate tax framework Minimal diversification of the organization’s brand portfolio Opportunities A growing and dynamic U.K. economy Possibility of increased profitability and growth rates for the company Possibility of being a market leader in various energy and alternative fuel markets from intensive investments in research and development Partnership opportunities with individual nations ensuring infrastructural growth and efficient position of the company in environmental sustainability and innovation (Eppler 2006). Threats Incorporation of technological advancements is a concern for the company Stringent and restrictive government rules and regulations Environmental concerns necessitating corporate social responsibility strategies Fluctuating global oil prices pose a threat to the organization’s profitability Conclusion Overall, strategic analysis of the organization is critical to its survival in the long-term hence and ascertaining its sustainability. Environmental analysis is necessary since practical decisions are made by the organization in managing the uncertainties. The trends within the Chemical industry in the U.K. depicts a viable future for business incorporating enhanced technology. Also, the political and economic environment of the country offers the organization conducive environment for the operation because of the ascertained stability and security. The industry forces evaluation illustrate the increased barriers to entry by new participants and competition mainly by few major industry participants. Bibliography Alexander, D. 2002, From civil defence to civil protection-and back again. Disaster Prevention and Management: An International Journal, 11(3), 209-213. Eppler, C. M. 2006, A Q1 mindset towards bulk lubricant distribution within British Columbia (Doctoral dissertation, Faculty of Business Administration-Simon Fraser University). Gilmour, D., & Radford, A. 2007, Using OD to Enhance Shareholder Value: Delivering Business Results in BP Castrol Marine. Organization Development Journal, 25(3), P97. Goodstein, L. D., Nolan, T. M., & Pfeiffer, J. W. 1993, Applied strategic planning. McGraw-Hill. Harris, S., & Pritchard, C. 2004, Industrial ecology as a learning process in business strategy. Progress in Industrial Ecology, an International Journal, 1(1-3), 89-111. Kennerley, M., & Neely, A. 2003, Measuring performance in a changing business environment. International Journal of Operations & Production Management, 23(2), 213-229. Seuring, S., & Müller, M. 2008, From a literature review to a conceptual framework for sustainable supply chain management. Journal of cleaner production, 16(15), 1699-1710. Smith, M. F., & Htoo, N. 2014, Energy Security:, Security for Whom?. Yale Human Rights and Development Journal, 11(1), 12. Read More