PESTLE Analysis of Nufarm - Case Study Example

PESTLE ANALYSIS: NUFARM Name Course Professor’s name University name City, State Date of submission Executive Summary 3 Introduction 4 Economic 5 Political 6 Socio-cultural 9 References 11 Executive Summary The report is prepared for Nufarm, an Australia based company which considers an expansion strategy to the international market. The company targets India. The report has tackled the economic, political, foreign direct investment, financial, legal and socio-cultural factors in Indian economy. The analysis of these macro-environmental factors established that India is a feasible market for Nufarm's international expansion strategy due to the enabling environment in the country. The report is divided into three major segments, the introduction, discussion segment and the conclusion which also includes critical recommendations for the firm. They are discussed below. International Business Management Introduction According to Nufarm Limited (2015), the company is based in Australia. It specializes in the manufacture and marketing of agricultural crop protection products that aid farmers in enhancing their crop protection against any damage caused by factors such as weeds, pests and disease. The company’s operations are segmented into two major categories: Crop Protection Seed Technologies The Crop Protection section. This manufactures and sells crop protection products to cushion against harm as previously aforementioned caused. The Seed Technologies section deals with seeds and seed treatment products. Its operations are based in the following cities: Australia New Zealand Asia Europe Americas Furthermore, the head offices are in Laverton, Melbourne. The company was founded in 1957 by Max Fremder in Melbourne, Australia. The Nufarm businesses are coordinated by an Australian-based global executive panel with wide experience in the business. This report provides the macro-environmental profile of India based on the PESTEL analysis. It aims at developing an international business plan for Nufarm Limited, an Australian company, which is considering entry into the Indian market. It covers the economic, political, foreign direct investment, financial, legal and socio-cultural factors in Indian economy. It also compares the findings of the analysis to the prevailing situations in the agricultural industry of Australia, the home country of Nufarm, and the world in general. It presents a current scenario (for the year 2014), and a forecast based on this scenario for the next four years. The scenario is to examine the target country from the viewpoint of Nufarm. Economic Economic stability. According to PWC (2012), the state that is ranked fourth biggest globally with regards to PPP is India. It has a GDP per capita of US$3,039. The country’s economy has been considerably stable, since industrial reform policies of 1991 were established. The Indian economy is diversified into numerous activities that range from IT to subsistence farming. The agricultural sector accounts for 13.9% of the GDP. In the years 2012-2013, this was estimated to be growing at a rate of 7.6%. This was as a result of the growth in the agricultural sector of 2.5%. Other than agriculture, the growth of Indian economy is also based on the quick urbanization; poverty alleviation; improvements in the vital infrastructure; and policies such as: Industrial licensing reduction Foreign capital liberalization, Formation of FIBP This growth has presented opportunities for foreign investment. Nonetheless, there are significant challenges that still face the country, despite all the economic progress. They include Budget deficits, High inflation rates Government debt Improving infrastructure Agricultural productivity Economic infrastructure. According to PWC (2012), the economic reforms in India stem from the political consensus that cuts across the country’s diverse political parties. The political bodies have promoted an open society characterized by strong human rights besides an environment which is conducive for free economic venture. India’s reliable institutions have seen foreign investors develop confidence in the economic environment. Furthermore, India is currently one of the most lucrative new markets across the globe in terms of skilled and technical manpower. In summary, the country enjoys a relatively stable economy and a rapid economic growth. Agriculture is one of the major sectors in the economy with high growth rate and high contribution to the GDP. This provides an opportunity for investors, especially in the agricultural sector Political Political environment relates to the fiscal policy, policy towards foreign capital and technology, industrial policy, and business policies. As noted by Javaid (2013), sovereign nations have internationally recognized rights to regulate the entry of foreign firms into their territories to do business. Therefore, a marketer who considers to an expansion to international markets must pay attention to the political environment of the country. According to Vernikasharma (2014), the following are facts about India: One –It is one of the largest democracies Two – it is run by a federal government. Three –Its political environment is highly influenced by the government, political parties, ideologies and the different politicians' interests Four –It has a well established tax system implemented by the Union Gocvernment. These taxes include the income and sa other hand, local governemtn bodies are mandated with the rest of taxes such as the octroi and utilities. Privatization is also influenced and the government encourages free business through a variety of programs. According to Griff (2006), an international business is bound by its home country’s common laws and customs as well as the laws in all the host countries in which its operations are based in. Both of these laws and customs can vitally affect the operations of international companies since they determine the markets where the company can sell its goods and services; the pricing systems of the firms for their goods and services; the costs of the factors of production; and, in some cases, the location of economic activity. According to Javaid (2013), the political environment of a market is unique to every country. Javaid (2013) points out that the political stability of a target country is an important consideration when developing an internationalization strategy. Political instability may lead to seizure or destruction of private property; suspension of normal business; nationalization of industries; and industrial action by the workforce. This instability may lead to huge losses for a business. Moreover, there may be trade and investment restrictions, which are the barriers imposed by the government on the free international trade. These barriers can be categorized as; “restrictions on franchising, licensing, technology transfer; lack of copyright protection; standards, testing, labelling and certifications; and import policies” (Javaid, 2013, p.6) Restraining forces such as “social and cultural opposition against foreign business” (Javaid, 2013, p.6) may hinder international trade. Government policies and regulations may hinder or motivate international business. According to PWC (2012), the judicial system of India has earned the good name and public confidence in its autonomy and impartiality. Appointments of judges have no political considerations and the judges are eminent persons in society. The Judiciary constitutes The Supreme Court The High Courts The lower Courts In any Court proceedings that take place in both the High & Supreme Court, English is the designated official language of communication. Moreover, the Austrade helps companies that intend on carrying out their operations overseas on top of being resident in Australia, in international market requirements advice as well as in the selection of relevant international contacts. Furthermore, it provides advice and information useful in reducing the time, cost and risk of exporting. In addition, it provides a variety of trading services to any exporter out to effectively establish their business in the new market niche, subject to being an Australian resident. The markets covered are in Asia Africa The Middle East Latin America Russia Austrade's IRI, (International Readiness Indicator), an online tool designed with the sole purpose of helping new exporters and businesses set up in Australia determines their firm’s readiness for exporting. The Indicator draws on Austrade’s experience in assisting Australian firms enter international markets. It focuses on the key aspects of what it takes to be ready for export and compete successfully in overseas markets. In summary, the political stability of the country and the enabling environment that the political class provides makes it easy to do business in India Socio-cultural According to Vernikasharma (2014), the social factors are defined as those changes that would directly affect a business environment. India has been experiencing an increase in ageing population hence the reason for the increase in pension costs and older workers employment. For instance, out of a population of 1.2 billion in the country, 70% belong to the 15-65 years age group. According to Shashi (2007), Cultural globalization (which is the convergence of cultures across the world), is evident in India’s history. The Indian culture is distinguished by its exceptional capability to take in and bring into line other cultures. This cultural globalization can be traced back to the 16th century, when the South Indians were exporting their culture to the South East Asians. This was done by individuals who went there to peacefully trade, teach and persuade. To date the culture is still evident in Thailand, Java, Philippine and Cambodia as depicted in certain practices, products, buildings and sculptures. Buddhism, a prominent religion in Cambodia, was introduced by the Indians. The Cambodian culture, music and mythology were also influenced by the Indian culture. Presently, the Indian culture draws heavily from Islam and Christianity. Indians have also embraced certain cultures, sports, and architects from other cultures. Generally, the Indian culture has been globalized. This feature sets it apart from the rest of the world. According to NIOS (2012), major determinants of social and political organization in India today are: Religion, Caste, and Language. India is a country of different religious faiths. People from various communities such as Hindus, Sikhs, Muslims, Christians, and Parsees live in India. The hostility of one community towards the other creates tension and clashes between religious communities. This has led to the deaths of hundreds of people in communal riots. It breeds hatred and mutual suspicion. Communalism poses a great challenge to democracy and the unity of the country, hence hinders the economic development of the country. In summary, the socio-cultural condition has both good and bad aspects. The good aspects are; the cultural globalization, which enables the Indian culture to absorb other cultures; and the big population, with a big percentage in the middle class, which provides a bigger market for anyone considering doing business in India. The negative aspects relate to; the communal aggressiveness which creates tension and clashes between different religious groups; and the fact that the Indian population is made of a high percentage of the aging people References Australia.gov.au, 2013. India country brief. [Online] Available at: http://www.WzE4147.tmp/India%20country%20brief%20-%20Australian%20Government%20Department%20of%20%20Foreign%20Affairs%20and%20Trade.html [Accessed 16 January 2015]. Bethuel, K., 2010. Determinants of Foreign Direct Investment in Kenya: New evidence, Nairobi, Kenya: The University of Nairobi. Binstead, T., 2014. Nufarm soars as better weather drives crops. [Online] Available at: http://www.smh.com.au/business/nufarm-soars-as-better-weather-drives-crops-20140923-10kt6t.html [Accessed 15 January 2015]. Confederation of India Industry, 2013. India as an Agriculture and High Value Food Powerhouse: A New Vision for 2030, India: McKinsey & Company. Coskun, R., 2001. Determinants of direct foreign investment in Turkey. European Business Review, 13 (4), pp. 221-226. Griff, 2006. Legal, Technological and Political forces. The world's Market Places. Javaid, T., 2013. Effects of Politics on International Business. Slideshare. NIOS, 2012. Agriculture in India. Social Science, pp. 251-271. Nufarm, 2015. Company Website: Grow a better tomorrow. [Online] Available at: http://www.nufarm.com/ [Accessed 16 January 2015]. Price Waterhouse Coopers, 2012. Doing Business in India. HSBC Commercial Banking, pp. 1-20. Read More