External Macro Environment In Which The Firm Operates Marketing Essay

What is STEP Analysis? A scan of the external macro environment in which the firm operates can be expressed with the help of STEP analysis. STEP stands for Social, Technological, Economic and Political. This analysis is most commonly used to measure the market. It a strategic tool which shows the growth or fall of the company. For conducting a market research step analysis has proved to be very beneficial because it shows different situations, market potential and suitability of the market. It basically works on four perspectives which would enable us to understand the logical structure that in turn helps us in understanding, presentation and clear discussions and in decision making. They allow us to look at the pros and cons in a very detailed manner. [pic] The business analysis tool STEP can be used to analyze industries, business segments, particular market or whole economy. It provides a driving force to the micro environment. This tool identifies the object of analysis showing a difference between current situation and potential future of a company’s business. It also identifies the highest importance in the past of the company and also 11indicates to what extent it might change in future and how this will interfere with the organization or the whole industry. STEP is not a mere list of drivers it is rather a starting point for further analysis of the external environment. It is possible to identify the different external drivers for changing the company’s perspective of operation. These are such drivers that change the industry’s structure or market structure and influence all the criteria of a business. STEP at different levels also impacts the analysis of particular drivers in an organization to drive into further globalization. The combination of factors like the regularization of trade barriers, communication technology, and competitive pressure on local market converging customer’s preference influence the change. STEP offers an easy comprehensive planning of a company or organization. Factors: 4Social Factors: Includes the cultural aspects, demographics, career attributes, health consciousness, population rate17of the external environment. Changes in the4social factors affect the demand for a company’s product and how it runs in the market. 28Some social factors include:• Demographics • Class structure • Education • Culture(gender roles etc) • Entrepreneurial spirit • Attitudes ( health, environmental consciousness, etc) • Leisure interests • Media views • Law changes affecting social factors • Brand, company, technology image • Ethnic/religious factors • Advertising and publicity • Ethical issues • Major events and influences • Consumer buying patterns Technological 17Factors: Includes the environmental and ecological aspects. It checks the15barriers to entry minimize the efficient production level and influence the outsourcing decisions. Some technological factors include:• R & D activity • Automation • Technology incentives • Rate of technological change • Recent technological developments • Technology’s impact on product offering • Impact on cost structure • Impact on value chain structure • Rate of technological diffusion • Maturity of technology • Replacement technology/solutions • Global communications • Intellectual property issues • Technology access, licensing, patents • Consumer buying mechanisms/technology 4Economic Factors: Include economic growth, interest rates, and inflation rates. It helps in the expansion of the business and growth of the company. They affect on the purchasing potential of the client. Some economic factors include: • Type of economic system in countries of operation • Government intervention in the free market • Comparative advantages of the host country • Exchange rates and stability of host country currency • Efficiency of financial markets • Infrastructure quality • Skill level of workforce • Labor costs • Business cycle stage(e.g. prosperity,recession,recovery) • Economic growth rate • Discretionary income • Unemployment rate • Inflation rate • Interest rates Political Factors: this shows how or to what extent the government intrudes in the economy. It checks the political stability, tax policy and goods and services both in the good and bad ones. Some political factors include: • Political stability • Risk of military invasion • Legal framework for contract enforcement • Intellectual property protection • Trade regulations and tariffs • Favored trading partners • Anti – trust laws • Pricing regulations • Taxation – tax rates and incentives • Wage legislation – minimum wage and overtime • Work week • Mandatory employee benefits • Industrial safety regulations • Production labeling requirements Advantages of STEP: It’s a simple process which shows us the border view of the business environment and only investment required for this is time. It helps us in developing strategic thinking and awareness of any kind of threats. It helps 7to anticipate future difficulties and to take immediate action to avoid their effect Disadvantages of STEP: It 7only covers the external environment and the results need to be checked with other things like the competitors and organization. Collection of data is large so it makes it difficult while analyzing the situation and the major cause or reason is the rapid change in the environment which will not allow us to anticipate the difficulties in the future. Sometimes we over simplify the data which is easily used to scant the data. The access to external data is time consuming and costly. STEP ANALYSIS OF 19TATA MOTORS: India’s largest automobile company is Tata Motors limited. Tata Group was established in the 19 th century by Jamsheed Tata. They have spread their horizons in over 40 countries across six continents in different operations. A 16leader by far in commercial vehicle segment and also second largest in passenger vehicles, mid size 24car and utility vehicle segments. It’ s considered as 9world’s fifth largest medium and heavy commercial vehicle manufacturer and world’s second largest medium and heavy bus manufacturer with revenues of rupees 32,426 cores. They have a very different management style of doing business compared to western companies. 1In 1945 Tata Motors India’s largest automobile company was launched. 10Tata’s global expansion ambition started with Ratan Tata. They started marketing there commercial and heavy vehicles in different countries of the world. The global expansion made a crumbling 10inward looking family and a renovated global firm with revenue of 15.3 billion dollars. And it also earns 20% of the total sales from other countries and targeting to reach 30% in the near future. The trend which currently running in the business organizations are acquisitions joint ventures or international mergers this not only deals with merging different corporate cultures but also the national cultures. The best two car making companies struck deal that is Tata and Ford over the sales. The 8best known names in the British car making concluded after months of tough negotiations thousands of workers of Jaguar and Land Rover vehicle plants 8have been sold to the Indian conglomerate Tata Company. Tata Motors have to get familiar with British business culture as they already have an 12acquisition of steel producer Corus as they need to understand as to how the unique motoring heritage of 23jaguar and land Rover has been in business. For last 20 years US car manufactures Ford had owned Jaguar and Land Rover and there is a different management business practice and a different pulse of the customer in their own country or even with North American but this would be a biggest challenge with Indian ownership for management and production staff will be the same as before. There are many theories which say that international mergers or acquisition have failed by 80%. Now Tata Motors need to ensure that 13key to their success will be understanding the national and corporate cultures and also 13to maintain clear and open channels of communication with the most important element in a business that is the employee who has been working with jaguar and Land Rover. STEP Analysis Social Every company mainly depends on the opinions, beliefs and general attitude of the clients in the company which directly affects the performance of the company’s growth. From the very high like the CEO, President, Investors to the very low like the line workers whose thoughts, culture and attitude define the future of a company for their profit or lose. 26Tata Motors generally uses the integration method and rarely opts for the separation technique with their foreign clients they acquired. While there were 1some economic issues that Tata Motors faced must be looked from a more localized perspective. For example the market of cars in India is very much different from that of the market in Italy. In India one billion people are more than that compared with Italy. The demographics of the market for average income have a very high per capita when compared to the Indians and as the Italians tend to drive larger and fancier cars. Italian market considers that due to Tata’s global market which is into different countries think that all the products from Tata Motors might not do well in the market for example the Nano car. In addition Tata Motors should view 1from a global perspective as their operations are across the entire globe but they also have to maintain a local market understanding and knowledge while coming to the product positioning and their placement throughout the different markets where they conduct their business in. In 2004, 3Korea’s second largest truck maker Daewoo Commercial Vehicles Company was acquired by the Tata Motors. Tata took an integrated approach 1rather than de-culturation or assimilating Daewoo. Tata1continued building and marketing for Daewoo’s current models as well as introducing few new models globally just as it had been done under the Korean management. In the global market Tata Motors have a new acquisition that is 6Jaguar and Land Rover and they need to be very strategical as to how they handle this new acquisition. For the British car makers under the Ford manufacturers Land Rover is still striving however Jaguar was the trouble child for Ford. During the 18 years sales strategy and revenue Jaguar coasted Ford some $10 billion especially in its potential market like America, its most important market. Global markets, business and Industry analysts had a strong point as to what value Tata Motors could add to Ford where in they accomplished two luxury cars with what strategy or promotion makers of trucks and basic car manufacturer would give a big difference globally and justify the two luxury car accomplishment. In luxury automobile market the first and foremost 1good approach for the immediate future was to keep Jaguar and Land Rover separated in the marketing strategy and also associated as two different luxury cars. In summation Tata 1does a good job of integrating some aspects of their large multi-national conglomerate into new acquisitions; however, the company must also understand that separation from the name Tata can be valuable in some social areas. Technology Tata Motors and its parent company the Tata Group are leading in the game of technology field. The Tata Group has over 20 publicly listed enterprises which operate in more than 80 countries world wide. This shows that Tata Motors has lots of experience and resources from their research and development purpose. The foundation of the company’s growth depends on the deep understanding of the economic stimuli and the customer’ s needs and the ability to translate them into customer desired model through leading edge R&D. Tata Motors has employed 1,400 scientists and engineers for its Research and Development team which is ahead of the pack in Indian and the international market. Tata was the first in India to launch 3first Sports Utility Vehicle the first indigenously developed Light Commercial Vehicle. And in 1998 Tata Indica was the first fully indigenous passenger car and recently Tata launched 1the world’s cheapest production car the Tata Nano. In the automotive industry it has increasingly become crucial for the manufacturers to stay on the top of the technology curve while there are new problems rising such as escalating gas prices and pollution problems. Tata recognizes all this and dedicates a lot of time in research and development and gives the proper resources to work on so that it can 1be even with or ahead of its competitors and with global trends and changing economies also. To survive in the automobile industry the manufacturer must change, adapt and evolve to stay competitive in the game and that is what Tata is doing with its extensive research and development and their rapid growth. 18Economic Tata Motors functions globally with economic perspective and simultaneously on each individual market.1Since 2004 the global approach made Tata Motors to adapt from different regions within whole automotive industry and there has been 1a rapid growth period expanding or forming a joint venture over five countries worldwide. The global experience and resources from five continents made them versatile as any variable change in the market makes them to get information and address any issues from resources all over the world. 1For instance if the price of the aluminum required to make engine blocks rises up in Kenya. Tata has the option to get aluminum from Europe or Asia there other suppliers. They normally get production done in Ukraine or Russia. Tata Motors constantly have to monitor fluctuations in currency rates globally. Tata Vehicles profitability depends on the currency fluctuations which equates to higher or lower demands for the vehicles. It also shows that there might be 1rise in cost or drop in returns. Tata Motors have to monitor 1not just domestic currency the Rupee but also the dollar, euro, bhat, won and pound to name just a few. As the Rupee is strong against the Dollar does not mean it is strong against all other countries. The influence currency is very important as capital investment will develop and prosper in a company’s economic status. After the global acquisition especially with Jaguar and Land Rover lot of changes occurred in every sector. Meanwhile the stock market has seen a re rating after announcing the above 21acquisition of Tata Motors. Jaguar and Land Rover’ s domestic sales have shown good increase in the last few months. However after two days of the announcement of this new venture Tata Motors made the stocks dip by 4.6% however the stock rose by 3.4% on Friday and closed at Rs 751.65. Well the conversion and acquisition by Tata Motors will add 30 million shares simultaneously in a short term. They have lot of pressure and estimation given by IDFC – SSKI. Over all the business analysts think that this is a good opportunity for investors as company would look out for better growth in the near future. Political As Tata operates in different countries across the globe hence it has to operate with prime priority to the political conditions in respective countries and also 20abide by rules and regulations of the laws in all the countries. The laws enforced for commerce, trade growth and investment in a particular country are dependant on the local and regional government. The success of local market and its economies depends on regional, national and local market influence. Tata Motors made an agreement with Ford on March 26th 2008 to purchase 12Jaguar and Land Rover vehicles. Tata Motors need to be equipped about laws regulating not only 1in the home country that is the United Kingdom but in other countries where Jaguar and Land Rover operate in. Tata’s headquarters in5Mumbai India strictly regulates operations in all dealership and subsidiaries although it knows and abides by all labor laws for different countries they have to watch for the political changes in manufacturing plants. It is an important criteria to expand and grow into new markets in future for Tata Motors currently the revenues from international business is about 18% although 14company’s objective is to expand its international business both organic and inorganic ways. The ultimate responsibility of the headquarters 5is to make sure each individual office and branch are operating by the local laws and the most important duty is 1to be taken care of regional or local level. The 1company’s growth internationally is a thorough understanding of economic stimulation and customer needs and abides by the laws. Methodology They were economic issues faced by Tata Motors as Tata Motors acquired Jaguar and LandRover for US $2.3 billion in 2003. They raised a bridge loan from the consortium bank for US $ 3 billion. They were under an acute financial crisis as 6the sales of Jaguar and Land Rover in 2009 started decreasing and a greater impact on the sales of luxury vehicles due to global financial crisis was high Jaguar and Land Rover could not generate working capital so 6Jaguar and Land Rover needed to run the operations after acquisition by Tata. 6Jaguar and Land Rover needed investments and they asked them to pay around US $ 2 billion by the end of 2009 to fulfill the bridge loan. For refinancing Tata Motors came with two right issues which opened in the September October 2008 as it was supposed to get the promoters of the company out of drastic fall of share price of Tata Motors. As US$ 1 billion of bridge loan had to be refinanced so Tata Motors called for public and issued non convertible debentures. Back home in India Tata Motors launched the commercial vehicle small car Nano and it required more time than excepted and as the Indian economy didn’t have right potential of any possibility to increase any domestic customer demand of the customer however the global economy growth slowed down and this effected global automobile industry. Tata Motors had a risk factor ahead 3for the growth of Jaguar and Land Rover. Tata Motors expected that this deal would put them 27in the lead in the global market of automobiles. As Ratan Tata was excepting the deal did not turn in that way. As the recession had hit the global financial market in a very big way in the US this lead to lot of unexpected problems for Tata Motors. As the disastrous financial problems in the year 2008-09 Rattan Tata was still in his positive self and told that they will regain from all their loses. Although social issues were a major hitch in the beginning Tata motors generally uses the integration method and never uses the separation technique with their acquisition. However the company understood 1that separation from the name Tata can be valuable in some social areas. They used de culturation technique. In luxury automobile market the first and fore most 1good approach for the immediate future was to keep Jaguar and Land Rover separated in the marketing strategy and also associated as two different luxury cars. In summation Tata 1does a good job of integrating some aspects of their target into multinational conglomerate the new acquisition. Conclusion An appropriate tool for external business environment is STEP Analysis. The strategic tool is to understand 2the big picture of the environment in which business operates. This enables to take advantage of the opportunities and minimize threats by company’s business activities to grow strong for the company into future the strategic planning should be done correctly with STEP analysis the company can see with clarity 22strategic opportunities and threats for a company and also a longer horizon of time. The changes in outside environment and 25the potential forces looming the horizon of a company. 2Firms can take the strategic planning process out of the arena of today and make changes and step ahead 2into the horizon of tomorrow. STEP is not a tool where its rigid compartments with ideas need to be sorted it is a better thought of a set of hooks that can be used to fish for important facts and changes in the company. 2It does not matter which hook they were attached to what matters is the factor of influence can be fished out. Eventually writing up the analysis for a company you need not mention STEP labels. It is all in one and one in all a strategic game plan. Reference http://www.businessballs.com/pestanalysisfreetemplate.htm http://www.quickmba.com/strategy/pest/ http://www.netmba.com/strategy/pest/ http://www.coursework4you.co.uk/essays-and-dissertations/pest-analysis.php http://www.projectsmart.co.uk/pest-analysis.html https://portfolio.du.edu/portfolio/getportfoliofile?uid=111804