project 1

Based on my classmates’ choices of tools, I still believe that the tools I selected are superior to theirs. This reasoning is grounded on the fact that both PESTEL and the Porters 5 Forces will help the firm gain insight of the external forces that may affect its operations in the Chinese market. As indicated in my previous post, PESTEL explores the political, economic, social-cultural, technological, environmental, and legal forces that are likely to affect a firm’s operations in a specific market. The listed types of forces are important indicators of success of a business especially in a new market. Given a choice of several countries to choose from, a global marketer should choose a country which is stable politically and which has a strong economy. Additionally, a marketer should consider social and technological factors that are likely to affect the business operations in the new market. Countries with high technological advancement, for example, may be better choices than those that are behind technologically because technology presents opportunities for cost savings (Rothaermel, 2015). Technological related savings may occur in terms of reduced marketing costs as firms may utilize the internet to market their products as opposed to the traditional media which is highly expensive. Lastly, environmental and legal factors are important considerations for firms planning to penetrate new markets (Yap, 2012). These two factors would be especially important for firms in the furniture industry because most countries are currently enacting legislations to protect their forests. In addition to PESTEL, the porter’s 5 forces tool is equally important because it assesses the level of competition in the prospective new market. A firm contemplating to penetrate a new market must be wary of the rival organizations that are present in the target market otherwise if such considerations are not made, the new entrant may be suppressed by the rivals before it establishes a sustainable market share. Such suppression would especially occur if the rival firms are big enough to benefit from economies of scale.

What evidence do you have to support your decision?

According to Khan, Alam & Alam (2015), PESTEL is a non-ignorable tool for investors planning to penetrate the global market. The view is grounded on the fact that investors need to understand the business environment of the countries in which they wish to invest. This opinion is seconded by Jarzabkowski & Giulietti (2007), who argue that the potential of a market to favor a firm’s success can only be measured by analyzing the external forces that may impact business operations. Jarzabkowski & Giulietti (2007) specifically cites factors, such as, corruption and protectionist laws as key factors for consideration. In addition to the evidence cited above, Sarbah & Otu-Nyarko (2014), found that more than 40% of global strategy failures were directly attributed to lack of proper external environment analysis. In addition to the six PESTEL factors, Yap (2012) observes that firms must examine the rivals before penetrating a new market. This analysis, he argues, can only be achieved by using the porters 5 forces tool.

Tool 1: PESTEL ANALYSIS- China (WordPress, 2015)

Tool 2: Porters Five Forces Analysis (WordPress, 2013)

Substitutes

Similar products from rivals

Moderate

Supplier

Buyers

Rivals

S low weak High

The buyers of the company’s products

Suppliers of the raw materials

Low

Potential New Entrants

Jarzabkowski, P., & Giulietti, M. (2007). Strategic management as an applied science, but not as we (academics) know it1.

Khan, U. A., Alam, M. N., & Alam, S. (2015). A critical analysis of internal and external environment of Apple Inc. International Journal of Economics, Commerce and Management, 3(6), 955-961.

Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.

Sarbah, A., & Otu-Nyarko, D. (2014). An Overview of the Design School of Strategic Management (Strategy Formulation as a Process of Conception). Open Journal of Business and Management, 2(03), 231.

WordPress (2015). PESTEL Analysis for China. Retrieved from http://freepestelanalysis.com/pestle-analysis-of-china/

Yap, J. (2012). Adapting Porter’s Strategy Formulation Process and Generic Strategies Model in Today’s Competitive Business Environment. Singapore Management Journal, 1(1), 38-99.