PEST AnalysisBusinesses,especially in the modern day, need to be aware of external forces if they areto survive and prosper. They should be able to identify and review their ownstrengths and weaknesses in regards to these factors and one established methodthat can be used to do this task is PEST analysis. PEST analysis stands forPolitical, Economic, Social, and Technological analysis and describes aframework of macro-enviromental factors that are used in the environmentalscanning component of strategic management. (Gupta, 2013). This essay willfocus on the UK-based multinational corporation, Jaguar Land Rover (JLR) andwill critically discuss and analyse how each factor from the PEST frameworkapplies to JLR.
The data that will be used in this assignment will be from anassortment of sources, varying from business articles to the company’s annualreport (Jaguar Land Rover, 2017). This essay will mainly be focusing on the UKin regards to each PEST factor but will also include other ventures such as JLR’sventures into the Chinese market.PoliticalIn regardsto political factors, there are many that affect JLR in their current state butalso some that can affect the company going forward, into the future. The mainpolitical decision that will affect JLR is the recent Brexit vote. As theUnited Kingdom (UK) has voted to leave the European Union (EU), this will havea massive effect on businesses that are located and based in the UK in thefuture, as they will no longer have access to the European single market, atleast as easily as they did before, which will be detrimental as it could beharder to trade with countries within the EU (depending on the trade deal thatis acquired by the UK government between the UK and the EU in the future). Brexitaffects JLR as it can deter international suppliers and make them less willingto commit to the country with Chief Executive Ralf Speth saying, “Inwardinvestment takes longer or is reduced, so the number of suppliers that we canconvince to come to the UK is really more or less limited now,” (Reuters, 2017).
This gives JLR a smaller choice when choosing suppliers, meaning costs couldincrease for the business as they have less options to choose from and thesepotential suppliers may also decide to increase their price due to theiruncertainty in the UK economy post-Brexit. As well asaffecting its choice of suppliers, Brexit also affect JLR’s workforce. With theUK leaving the EU, higher immigration controls will be introduced which willmean that JLR might not be able to attract top engineers, as quoted by RalfSpeth (Independent, 2017). If JLR are unable to attract top-level engineersfrom outside the UK, then this means the quality of their workforce will belower than it potentially could be, leading to a possible decline in thequality of their future products and a loss in competitiveness against theirforeign competitors.Other keypolitical decisions would be interest rates. Currently, interest rates in theUK are at 0.50% (BoE, 2017) after being raised from 0.25%, and are likely torise twice more over the next three years, according to Bank of Englandgovernor Mark Carney (BBC News, 2017).
Low interest rates can be of importantvalue to JLR as it means that they are then able to borrow large amounts ofmoney at much lower rates. This borrowed money can then be used to expand thebusiness through the various means such as investing into new ideas, fundingresearch and development (R), or creating new factories. If interestrates were to rise in the future (as quoted above by Mark Carney) then JLRwould have to spend more capital on paying back previous loans however, whichmay prove problematic for their future endeavoursOne benefitthat JLR achieves from operating in the UK is the low-risk politicalenvironment that allows JLR to conduct operations with ease, as the UK’s politicalsystem is based around parliamentary democracy, as opposed to China, whose politicalsystem is based around being a socialist/communist state. The political risk inChina can be somewhat high for foreign companies as there are multiple factorsto consider such as currency inconvertibility, currency devaluation, and thereis a unique form of political risk in China which is the battle between thecountry’s central government and the local governments over applicable law(Fogel, 2010). None of these issues are applicable to the political environmentin the UK, which makes operating in the UK’s low risk environment an advantagefor JLR.EconomicEconomicfactors can refer to factors such as exchange rates, business cycles anddifferential economic growth rates (Johnson et al, 2008)