1.5. External Environment

External Environment

In a broad sense we can define the external environment as everything which lies beyond the boundaries of the organisation and has the potential to affect the organisation. The external environment in which an organisation has to operate is in a continual state of flux, constantly subject to change. Consumer tastes change, governments change, new laws are introduced, market structures change, new technology revolutionises production processes; the examples of change are endless. The organisation’s ability to respond and cope with these changes in the environment is one of the most important determinants of its success and ability to survive.

Environmental influences – STEEPLE (Social, technological, environmental, economic, political, legal and ethical)

Social and cultural influences

Social, cultural, demographic and geographic factors shape the way in which we live, work, and consume and have a major impact upon virtually all organisations. New trends are creating a different type of consumer and consequently a need for different products and services and organisation strategies.

There are many social and cultural influences including:

▪ Birth and death rates

▪ Immigration and emigration rates

▪ Disposable income

▪ Life styles

▪ Attitudes towards work

▪ Buying habits

▪ Educational standards

▪ Attitudes towards leisure and quality

▪ Pollution control (opinion on)

▪ Energy conservation (prevalence)

▪ Ethical concerns

▪ Social responsibility

Cultures and international business

Informal institutions come from socially transmitted information and are part of the heritage that we call culture. They tell individuals in a society what behaviours are considered right and proper, and what would be unacceptable. Typically, cultures have no clearly defined origin, but have evolved over time. Those within a society tend to perceive their own culture as ‘natural, rational and morally right’. This self-centred mentality is known as ethnocentrism. Culture can be seen as the collective programming of the mind that develops over time which distinguishes the members of one group or category of people from another. Though we talk about the French culture and the Japanese culture, culture is not necessarily divided by national boundaries. Some countries like Switzerland even have multiple distinct cultures. Similarly, some cultures transcend national boundaries. For example, you might think of how the values promoted by Islam influence many countries.

Culture has been described as ‘the way things are done round here’ and also as the shared norms, values and assumptions of a group, organisation or society that translate into distinctive behaviours. The social rules that govern people’s actions towards one another are called norms, which you can think of as the routine conventions of everyday life like dress codes, social manners and accepted codes of conduct. What determines culture? The values and norms of a culture evolve over time and are a function of a number of factors at work in a society including religion, political and economic philosophies, education, language and social structure.

Context approach to culture

Context is the underlying background upon which interaction takes place. In low-context cultures (such as in North American and western European countries), communication is usually taken at face value without much reliance on unspoken context. In other words, yes means yes. In contrast, in high-context cultures (such as Arab and Asian countries), communication relies a lot on the underlying, unspoken context, which is as important as the words used. For example, ‘yes’ does not necessarily mean ‘yes, I agree’, it might mean ‘yes, I hear you’. Failure to understand context and differences in interaction style can lead to misunderstandings in international business. According to this theory, Chinese, Korean, Japanese and Arab cultures are high context, while German, Canadian and Swiss, for example, are low context.

What are the implications of national culture for managers?

It is vital for international businesses to develop cross-cultural literacy. To be successful, you have to be able to conform and adapt to the value system and norms of the host country. One way you can gain knowledge of the local culture is to hire local citizens. Developing a cadre of cosmopolitan managers who have been exposed to different cultures can also be helpful. It is important to avoid being ethnocentric, believing that your ethnic group or culture is superior to that of others. A second reason for companies to be aware of cultural differences is the link between culture and competitive advantage. The value systems and norms of a country influence the costs of doing business, which of course then affect the competitive advantage of the company. A society’s class structure affects the relationship between management and labour, for example – look at Japan’s strong worker loyalty system, where lifetime employment guarantees affect the success of Japanese companies. Similarly, it has been suggested that a more individualistic culture promotes entrepreneurial activities as compared to a culture that emphasises collective behaviour. These differences provide companies with insight as to which countries are most likely to produce competitors, and which countries will be the best for investing or selling.

Task 2: How different is organisational culture in a Chinese firm in comparison to a western multinational?

Task 3: Using Hofstede’s Cultural Dimensions, if you were doing business with a US company, what cultural differences would you need to take into account compared to doing business with a company from mainland China?

See the webpage - https://www.hofstede-insights.com/product/compare-countries/

Technological influences

Technological influences are often the most apparent and dramatic. Revolutionary technological changes and discoveries in recent times represent major opportunities and threats that management must be aware of and they must assess their impact. Some innovations may create new industries as well as dislodging others. This can be seen as creative and obstructive. Since accelerating technological change also shortens the average product life cycle, organisations need to anticipate the change that new technologies bring with them. These changes may affect not only manufacturing but other functional areas e.g. personnel (recruiting and training people to operate new technology, how to shed redundant labour) and finance (how to finance new equipment expenditure).

Technological change

In this section we are looking at some other areas where technological change has had an impact on business.

Change

Change tends to affect business in terms of:

• Products

• Materials

• Processes

• Systems

Let's look at each of these in turn.

Products

The application of science and technology means that new products and services are forever entering the market. The possibility of 'first mover advantage' is a strong motivator for many businesses. Much time and money is spent on developing new ways of reducing the period that passes between the first idea and the actual appearance of the product and advantages that correct technical applications can make to product life cycles. All of us are aware of the digital age, the use of mobile forms of communication and medical advances. It is in these areas that many of the new products will appear.

Task 4: Consider what goods and services may appear next in:

• the mobile phone market

• the entertainment market

Materials

Adapting new, or previously unused materials can reduce costs, improve quality and boost productivity. Genetically modified (GM) foods are foods derived from genetically modified organisms (GMOs). Genetically modified organisms have had specific changes introduced into their DNA by genetic engineering techniques. There is some controversy about the techniques behind this. Critics object to GM foods on several grounds, including safety issues, ecological concerns, and economic concerns raised by the fact that these organisms are subject to intellectual property law.

Suggested future applications GMOs include drugs in food, such as bananas that produce human vaccines against infectious diseases, metabolically engineered fish that mature more quickly, fruit and nut trees that yield years earlier, foods no longer containing properties associated with common intolerances, and plants that produce new plastics with unique properties.

Nanotechnology: The next industrial revolution

However, even more significant than GM technology is the miniaturisation of the materials we use. You are probably more than familiar with the downsizing of technology. Data memory cards for use in cameras, MP3s etc have becoming increasingly small at the same time that their memory capabilities increase. However, these familiar objects are about to be eclipsed by the developments in nanotechnology - by something we cannot see.

I want to build a billion tiny factories, models of each other, which are manufacturing simultaneously. . . The principles of physics, as far as I can see, do not speak against the possibility of manoeuvring things atom by atom. It is not an attempt to violate any laws; it is something, in principle, that can be done; but in practice, it has not been done because we are too big.

Richard Feynman, Nobel Prize winner in physics

Nanotechnology is the science of building machines at a subatomic level. When K. Eric Drexler popularized the word 'nanotechnology' in the 1980's, he was talking about building machines on the scale of molecules, a few nanometers wide-motors, robot arms, and even whole computers, far smaller than a cell.

This new technology offers huge opportunities for business in the creation of machines and processes beyond our imagination a couple of decades ago. Machines that function at a molecular level, medical applications that are astounding and even solutions to climate change with re-engineering of nature. However, you may be surprised to know that nanotechnology is already in everyday products on sale, such as:

• Sunscreens containing nanoparticles of zinc oxide

• Self-cleaning glass in conservatories using nanoparticles to break down and loosen dirt

• Clothing coated with nanoparticles, give better protection from UV radiation. and help repel water and other materials, making the clothing stain-resistant.

• Scratch-resistant coatings on everything from cars to eyeglass lenses

• Tennis racquets - the VS Nanotube Power racket. Is made of carbon nanotube-infused graphite, meaning the racket is very light, yet many times stronger than steel

If you wish to read more, there is an excellent summary of nanotechnology can be found on the 'howstuffworks' site.

Processes

Technology has been applied to the ways in which products are designed and manufactured.

Computer-aided design (CAD) employs computer technology for the design of real and virtual objects and in the drafting of technical and engineering drawings, in automotive, shipbuilding, and aerospace industries and industrial and architectural design. CAD techniques are also used in the entertainments industry to produce computer animation for special effects.

CAD is an input into:

Computer-aided manufacturing (CAM), which is the use of computer software to control tools and machinery in manufacturing as well as assisting management systems, transportation and storage. The primary purpose of CAM is to speed up the production process while introducing greater precision in cutting and moulding to minimise waste and reduce production costs.

Systems

These too have been radically transformed by technology. In marketing, the Internet is now a major way of reaching both current and potential customers. Communications are virtually instantaneous to anywhere on the globe. Stock control and financial records can be kept electronically, allowing for easier access and faster response to change.

Task 5: Form groups of 4-5 (maximum 5 groups in total); each group will be assigned a video or set of videos to watch and note down how Chinese firms are innovating and being affected by changes in society

How will technology, and in particular AI, reshape business organisations and practices?

Task 6: More chips please?

The major European supermarkets have been putting IT at the front of their drive for lower costs, improved customer service and more information about their customers. Bar codes, check-out scanners, automatic product re-ordering systems, automated stock control programs, robot-con- trolled transport systems in warehouses, chip and pin machines for payment, loyalty cards that record each individual shopper’s purchases and internet shopping for customers – the list of IT applications employed by the large supermarkets is almost endless.

Some of these systems have been controversial. For example, centralised ordering and delivery of products reduced the independence and control of individual store managers. The rapid growth of internet shopping left some companies with a shortage of stock and delivery vehicles, which led to poor service. Some smaller suppliers who have been unable to cope with the cost of introducing compatible IT systems to take orders from the huge retailers have been dropped.

The latest development is causing further controversy. RFID or radio frequency ID tagging involves putting a small chip and coiled antenna, at the initial point of production, into every item sold through the supermarkets. Unlike bar codes that are manually scanned, the RFID simply broadcasts its presence and data, such as sell-by date, to electronic receivers or readers. German supermarket chain Metro already uses RFID and claims that food can be easily traced back to the farm where it is produced, queues at tills no longer exist as customer’s bills are calculated instantly as they pass by a receiver and all products are tracked at each stage of the supply chain – ‘We know where everything is!’

Consumer groups are concerned that shoppers will be tracked and traceable too – not just the goods they have bought. Is this an invasion of privacy? Unions are opposed to it as it could lead to many redundancies due to its non- manual operation. Some supermarket managers fear yet another IT initiative that will mean even more central control over them and they fear breakdowns in the system and lack of training in dealing with problems.

Questions

1. What do you understand by the term ‘information technology’? [2]
2. Outline how any two of the IT systems mentioned in the case study are likely to benefit customers. [6]
3. Analyse the likely benefits of supermarkets using RFID to trace and collect data from every product they sell. [6]

4. Discuss whether all supermarkets should have the adoption of RFID technology as a major strategy. [10]

Source: Business and Management for the IB Diploma

The ecological environment

A key area of corporate social responsibility is the impact that a firm has on the environment and this may attract significant media coverage.

There is a tendency to assume that this impact is mostly negative. However, business may have positive impacts on the local environment and national environment. For example, firms fund improvements in the local infrastructure and provide community facilities. They may improve the environment by taking derelict sites and redeveloping these to provide local amenities.

However, much of the focus on this aspect of the external environment will always be on pollution and other negative effects of production. These are called 'negative externalities'. and include:

• Congestion caused on the use of local services - roads etc.

• Noise - noise is also a form of pollution and many forms of business activity are noisy

• Air and water pollution - a side effect of many production processes is pollution of some form, though there are often options to minimise these side effects.

• Use of non-renewable resources - many processes use fossil fuels or other non-renewable resources. These are by their very nature un-replaceable and so will have a serious impact on future economic activity.

There are many ways that businesses can reduce the negative effects of their operations and work with stakeholders to promote more environmentally friendlier practices:

To minimise damage to the environment, businesses consider:

• Reducing emissions

• Producing or using lead-free fuels and other 'greener' sources of energy, e.g. renewable resources or energies. It is not uncommon for business developments to include sources of wind and solar energy on site.

• Incorporating cleaner production methods in new buildings, plants etc.

To reduce levels of waste they:

• Improve industry re-cycling programmes

• Encourage energy management schemes

• Offer free long-life shopping bags or other bio-sensitive packaging of products

To try to raise environmental awareness, they:

• Ask staff for ideas

• Promote customer awareness and participation

• Publish literature such as sustainability reports

To help protect the environment, they:

• Donate money for environmental projects that directly affect their stakeholders

• Fund or sponsor education programmes

• Provide recycling facilities

To assist the community, they support:

• Tree planting

• Urban re-generation schemes

Task 7: Can the Fashion Industry be sustainable? Note down the 5 major ways/methods/practices that Patagonia is integrating sustainability into their operations.

Task 9: Please form 4 groups. Each group will take one article. The task is to identify the short-term and long-term effects of the change in the economic factor on the organisation

Political and legal influences

Various legal and governmental factors may constrain an organisation’s actions and impact on the level of opportunities and threats affecting the organisation. Local and foreign governments are major regulators, subsidisers, employers and customers of organisations. Some organisations depend heavily on Government contracts and subsidies which may mean that for those organisations the appraisal of the political environment may well be the most important aspect of the external audit.

▪ Changes in the tax laws

▪ Political alignments

▪ Business-government relations

▪ Patent laws

▪ Environmental protection law

▪ Government expenditure

▪ Monopolies legislation

▪ Monetary Policy

▪ Government regulations

▪ Size of government budgets

▪ Government relations with foreign countries

Legal systems are also important for dealing with several other essential

issues for international businesses:

• Property rights. Property rights are the legal rights over the use to which a resource is put and over the use of any income that may be derived from that resource. In some countries, even though there are laws protecting property, the laws are not consistently enforced. Property rights can be violated through private actions and through public actions. Private violations like theft, piracy or blackmail are done by individuals. When public officials like politicians and bureaucrats violate property rights, they might use legal mechanisms such as levying excessive taxes, as in Venezuela in the 2000s, or requiring special expensive licences, or even simply taking assets into state control.

• Intellectual property issues. Intellectual property rights are rights associated with the ownership of intellectual property – which can include anything from computer software or a chemical formula for a new drug to a screenplay or a music score. Intellectual property can be protected in three ways:

i. A patent gives the inventor of a new product or process exclusive rights to manufacture, use or sell the invention.

ii. A copyright is the exclusive right of authors, composers, playwrights, artists and publishers to publish and dispose of their work as they see fit.

iii. A trademark is a design or name that may be officially registered, that allow merchants or manufacturers to designate or differentiate their products.

Protection of intellectual property rights varies by country. China and Thailand are currently among the world’s biggest violators of intellectual property rights. In Latin America, about 68 per cent of all software is pirated, and in China some studies estimate that 86 per cent of software is pirated. Nearly 200 countries have signed the Paris Convention for the Protection of Industrial Property to protect intellectual property rights, and are part of the World Property Organization, but enforcement of property regulations is still lax in many countries. What can you do if your intellectual property is stolen? You can lobby your government to take action. You can also file your own lawsuit. For example, Starbucks was successful in suing a Chinese company that opened stores that were almost replicas of the traditional Starbucks store.

• Product safety and product liability. Product safety laws set certain standards to which a product must adhere and product liability involves holding a company and its officers responsible when a product causes injury, death or damage. These vary greatly across countries.

This often leads to an ethical dilemma for companies. What should a company do if the standards in a foreign market are lower than the standards at home? Should they comply with home standards even if this puts them at a competitive disadvantage?

Corporate governance. This involves the rules by which shareholders and other interested parties control corporate decision makers. Variations across countries are closely related to differences in economic and legal systems. Generally, common law systems have evolved in ways that provide strong protection for financial investors (i.e. shareholders). In civil law countries, for example Germany and Denmark, the law tends to offer less protection for shareholders and more rights to other stakeholders in the company – for example, non-managerial employees who tend to be represented on corporate supervisory boards.

Task 10: How are domestic and foreign changes in the political sphere affecting companies in the technology space in China?

Task 11: How are political changes in both China and the United States going to affect Tesla's future financial position?

Ethics

Ethics refers to the principles of right and wrong, standards and norms of conduct governing individual and company behaviour. Ethics are not only an important part of informal institutions but are also deeply reflected in formal laws and regulations. Business ethics are the accepted principles of right or wrong governing the conduct of business people. An ethical strategy is a course of action that does not violate these principles.

Managing ethics overseas is challenging because what is ethical in one country may be unethical elsewhere. How should you deal with ethical dilemmas that arise when operating internationally? The Friedman doctrine argues that the only responsibility of business is to increase profits. Friedman (1970) claimed that as long as the company stayed within the letter of the law, ethics did not enter the equation. So, in other words, he would argue that it is not the responsibility of a company to take on social expenditures beyond what is mandated by law, and what is required to run a business efficiently. What Hill (2010) calls the naïve immoralist approach argues that if a manager of a multinational company sees that companies from other countries are not following ethical norms in a host country, that manager should ignore the norms as well. Peng and Meyer (2011) suggest three approaches.

• Ethical relativism follows the saying ‘When in Rome, do as the Romans do’.

• Ethical imperialism refers to the absolute belief that ‘There is only one set of ethics and we have it’.

Companies often run into problems adopting either of these two approaches. Therefore Donaldson (1996) suggests a ‘middle of the road’ approach in international business by observing three principles when overseas – respect for human dignity and human rights, respect for local traditions, and respect for institutional context. In practice these principles may clash in specific circumstances, leaving the business manager to behave as diplomatically as he/she can in the prevailing situation. Ethics provides a useful bridge between culture, language, religion and the subject of a major way forward – corporate social responsibility.

Corporate Social Responsibility

Corporate social responsibility (CSR) is defined as the consideration of, and response to, issues beyond the narrow economic, technical and legal requirements of the company in order to accomplish social benefits along with the traditional economic gains the company seeks.

A stakeholder view of the company sees a business as responsible not just to its shareholders for its performance, but also to a much wider constituency. There are primary stakeholder groups on whom the company directly relies for its continuous survival and prosperity – managers, employees, customers, shareholders, governments. There are also secondary stakeholder groups who do not engage in transactions with the company, but who influence or are affected by the company, though they are not essential for its survival (e.g. Global Exchange in the Starbucks case). As a result of rising global concerns and the stakeholder view, companies increasingly develop CSR triple bottom line strategies that take into account their economic, social and environmental performance. One example of taking CSR action is Starbucks, an example which you can read about as the opening case in Peng and Meyer (2011) Chapter 10, pp.296–97.

International businesses are faced with at least four major CSR concerns:

The environment is currently a high profile topic, especially the irreversible damage that man-made pollution is causing. A key concern is sustainability, defined as the ability to meet the needs of the present without compromising the ability of future generations to meet their needs. Because many countries are establishing strong environmental regulations to try to limit further damage, companies are having to adopt new, often costly measures to abide by the laws. For example, new regulations may be forcing your company to take costly steps to stay within the law. Should you shift your production to another country where the laws do not exist, or are only loosely enforced?

See Why Note 7 fiasco is a green light for Samsung on handling e-waste - http://www.scmp.com/comment/insight-opinion/article/2040179/why-note-7-fiasco-green-light-samsung-handling-e-waste

Employment practices frequently present ethical dilemmas. Suppose work conditions in a host country are inferior to those in the home country. Which standards should be applied – the home country standards or the host country standards? Nike found itself in the midst of a huge controversy in the mid-1990s when it was reported that the working conditions at some of its sub-contractors were poor. While neither the sub-contractor nor Nike were actually breaking the law, there was strong reason to suspect that workers were being exploited. Nike was forced by public pressure to establish a code of conduct for all of its sub-contractors, and implement a monitoring system to ensure that the code was followed. The pressure to lower conditions in foreign operations is particularly strong with ‘footloose plants’ that are labour intensive and can easily relocate when local regulations get tighter. Another problem area is where an MNE buys products or components from foreign companies. MNEs like Adidas sometimes introduce standards of engagement on their suppliers. These are written policies and standards for corporate conduct and ethics. But what happens if suppliers fail to meet standards or provide misleading evidence?

Human rights. Human rights and freedoms are not respected in all countries. Think about the apartheid system that denied basic political rights to black people in South Africa, for example. Should companies do business in countries with repressive regimes? Some people argue that the presence of multinational companies actually helps bring change to these countries. Others, however, argue that some countries like Myanmar, which has one of the worst human rights records in the world, are so brutally repressive that no investment can be justified.

Corruption: Is it necessary to be ethical when dealing with corrupt government or individuals? This is something companies have to consider. At what point does ‘gift giving’ become bribery, for example? From a government perspective, bribery is invariably not allowed. The Organisation for Cooperation and Development (OECD) passed an anti-bribery measure in 1997, which obligates member states to make the bribery of foreign public officials a criminal offence. Despite laws like these, bribery continues to be a common practice for some companies. In fact, some economists believe that in certain cases speed payments, or payments made to speed up approval for business investments, can be justified, for example, if they enhance public welfare by creating jobs. Others argue, however, that corruption can become ingrained as a way of doing business, and hard to stop if it is part of a country’s way of getting things done.

Task 12: Read the following articles about Starbucks and Xiaomi. Identify as many external environment connections as you can.

STEEPLE analysis of a given organisation

PESTLE of Tesla

Tesla Motors, Inc.’s electric automobile sales revenues are increasing, along with improving profitability. This condition indicates Tesla’s effectiveness in considering the external factors in the remote or macro-environment of the business, as shown in this PESTEL/PESTLE analysis.

Political Factors Affecting Tesla’s Business

This part of the PESTEL/PESTLE Analysis identifies the governmental impacts on businesses and the remote or macro-environment. In the case of Tesla and the automotive industry, the following political external factors are significant:

1. Governmental incentives for electric automobiles (opportunity)

2. Expanding free trade agreements (opportunity)

3. Political stability in the majority of major markets (opportunity)

Tesla Motors, Inc. has an opportunity to strengthen its financial performance through incentives from governments. This external factor directly relates with the insignificant carbon emissions of the company’s products. In addition, expanding free trade agreements open opportunities for Tesla to expand its operations internationally. On the other hand, the political stability of major markets makes the remote or macro-environment favorable to the company’s market penetration strategies. In this part of the PESTEL/PESTLE analysis of Tesla, political external factors present opportunities for growing the automotive business.

Economic Factors Important to Tesla Motors, Inc.

The effects of economic conditions on the remote or macro-environment are considered in this part of the PESTEL/PESTLE Analysis. Tesla needs to address the following economic external factors that influence the automotive market:

1. Decreasing battery costs (opportunity)

2. Decreasing renewable energy costs (opportunity)

3. Economic stability issues (threat)

Tesla’s business performance benefits from lower battery costs. For example, this external factor translates to affordability of the company’s electric automobile products. In relation, the decreasing renewable energy costs make Tesla’s products more attractive, considering that the business improves as renewable energy solutions becomes more popular. However, economic stability issues threaten the company’s financial performance, especially in Europe and Asia. This part of the PESTEL/PESTLE analysis of Tesla Motors, Inc. highlights major opportunities for growth, despite the threat of economic instability in the remote or macro-environment of the automotive industry.

Social/Sociocultural Factors Influencing Tesla’s Business Environment

Social conditions and trends affect a firm’s remote or macro-environment, as shown in this part of the PESTEL/PESTLE Analysis. The sociocultural external factors important in Tesla’s business are as follows:

1. Increasingly popularity of low-carbon lifestyles (opportunity)

2. Increasing preference for renewable energy (opportunity)

3. Improving wealth distribution in developing markets (opportunity)

Tesla has growth opportunities based on the rising popularity of low-carbon lifestyles and increasing preference for renewable energy. These external factors improve market demand for the company’s electric vehicles and related products. In addition, Tesla has an opportunity to boost its financial performance based on the increasing wealth distribution in developing markets. In this part of the PESTEL/PESTLE analysis, Tesla can internationally grow its business based on sociocultural opportunities in its remote or macro-environment.

Technological Factors in Tesla’s Business

This part of the PESTEL/PESTLE Analysis determines how technologies influence the company’s remote or macro-environment. The following technological external factors are significant in Tesla’s automotive business:

1. High rate of technological change (opportunity & threat)

2. Increasing automation in business (opportunity)

3. Increasing popularity of online mobile systems (opportunity)

The high rate of technological change presents opportunity for Tesla to enhance its products’ technologies, accordingly. However, this external factor also threatens the company in terms of the potential rapid obsolescence of technologies used in its products. Nonetheless, Tesla also has growth opportunities through further automation of its business processes. In addition, the increasing popularity of online mobile systems should prompt the company to increasingly integrate these systems in its automobiles. The technological condition of the remote or macro-environment, as shown in this part of the PESTEL/PESTLE analysis of Tesla, emphasizes opportunities for growth based on technological enhancement.

Ecological/Environmental Factors

A firm’s remote or macro-environment is subject to the effects of ecological conditions covered in this part of the PESTEL/PESTLE Analysis. In Tesla’s case, the following ecological external factors affect the market:

1. Climate change (opportunity)

2. Expanding environmental programs (opportunity)

3. Rising standards on waste disposal (opportunity)

Tesla Motors, Inc. has opportunities to promote its electric vehicles based on concerns on climate change, expanding environmental programs, and rising standards on waste disposal. For example, the company’s electric vehicles are considered suitable in directly addressing these external factors linked to business sustainability and environmentally friendly products. This part of the PESTEL/PESTLE analysis shows that Tesla has significant growth opportunities based on the nature of its products.

Legal Factors

In this part of the PESTEL/PESTLE Analysis, the effects of regulatory factors on the remote or macro-environment are determined. Tesla Motors, Inc.’s strategies must include the following legal external factors:

1. Expanding international patent protection (opportunity)

2. Energy consumption regulations (opportunity)

3. Dealership sales regulation in the United States (opportunity & threat)

Tesla has opportunities to safely expand its business overseas, considering expanding international patent protection. In addition, the company has the opportunity to promote its electric vehicles, based on energy consumption regulations that client organizations must follow. Also, Tesla has an opportunity to grow through direct sales, which is allowed in many states in the U.S. However, this external factor is also a threat, considering that other states do not allow direct sales and, instead, require dealerships to transact with customers in the automotive market (Read: SWOT Analysis of Tesla Motors, Inc.). Based on the legal conditions of the remote or macro-environment shown in this part of the PESTEL/PESTLE analysis, Tesla can expect growth opportunities.

Tesla’s PESTEL/PESTLE Analysis – Recommendations

Tesla Motors, Inc.’s profitability improves over time. The company is also in a position to improve its operations in the global automotive market. As shown in this PESTEL/PESTLE analysis of Tesla, there are a variety of opportunities that facilitate further growth of the business. For example, free trade agreements make it easier to expand internationally. Thus, a recommendation is for Tesla to globally expand its operations. It is also recommended that the company should increase its marketing aggressiveness to increase its market share, especially in countries other than the United States. This move could reduce market-based risk, considering that Tesla has limited sales operations in overseas markets.

References

• Automotive Products: Expanding a Key Industry to TPP Countries – International Trade Administration.
• Gillespie, A. (2007). PESTEL analysis of the macro-environment. Foundations of Economics, Oxford University Press, USA.
• Housing Industry Association (2011). An Introduction to PESTLE Analysis. HIA Ltd.
• Murphey, M., & Gause, R. (1974). UCF Research Guides. Industry Analysis. PESTLE Analysis. Business Horizons, 17(5), 27-38.
• Roper, K. (2012, November). BIM Implementation: PESTEL Drivers & Barriers (Cross-national Analysis). In World Workplace 2012. IFMA.
• Tesla Motors, Inc. Form 10-K.

Source - http://panmore.com/tesla-motors-inc-pestel-pestle-analysis-recommendations

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