Therefore, it is important for businesses to monitor political developments and government policies to assess the potential impact on their operations and develop appropriate strategies to respond to them.

Following are the explanation of political factors:

• Government stability: The stability and effectiveness of a government can impact the business environment. Political instability can lead to uncertainty, and changes in government policies can impact businesses.
• Tax policies: Tax policies set by the government can have a significant impact on businesses, affecting their profitability and investment decisions.
• Trade regulations: Trade regulations such as tariffs, import and export laws, and trade agreements can impact businesses by affecting their supply chain and customer base.
• Labor laws: The government’s labor policies, such as minimum wage laws, working hours, and safety regulations, can impact businesses’ operations and costs.
• Political risk: Political risks, such as political unrest, terrorism, and war, can significantly impact businesses and their operations.
• Government spending: Government spending, such as infrastructure development, can create opportunities for businesses in related industries.
• Intellectual property protection: The government’s policies on intellectual property protection can impact businesses’ ability to protect their innovations and competitive advantage.
• Regulations and compliance: Regulations on areas such as data privacy, environmental protection, and health and safety can impact businesses’ operations and costs.

It is import to understand these political factors  for businesses to develop strategies to navigate the business environment and stay competitive.

Company Information

Political Factors

The political factors have a profound influence on the e-commerce platforms as the timely delivery of packages is dependent upon the stability in the region. In case of ongoing conflicts, the delivery operations are negatively affected with a higher likelihood of delayed delivery. For instance, the war between Russia and Ukraine slows down supply chain process.

South Asian countries such as Pakistan and Sri Lanka have frequent political disturbances. Such an unstable political climate makes the environment unpredictable and the companies have to be extra vigilant to cope with conflict. In case of a violent outbreak in the city, the management has to take the necessary steps to safe guard the well being of the employees.

Government’s policies pertaining to tax have a direct impact on the way business operations are managed. In case of Daraz, the withholding tax implemented on the retailers is determined by the government’s guidelines. Another implication of political factors is the input in e-commerce platforms in the form of FDI.

In 2018, the acquisition of Daraz by Alibaba was managed under the related policies of the government (Russell, 2018). The decision to acquire the company was made after analysis of the overall political climate and the growth chances of business in South Asia. Moreover, the amiable trading ties between the South Asian countries facilitated in the acquisition process.

Economic Factors

The economic prosperity of a country supports its businesses to flourish, while poor economic performance limits the growth chances of an organization. There are various forces in the economic domain that have the potential to effect business operations and profitability. These factors include the rate of inflation, price of energy, tax rate, labor market dynamics etc.

Despite being a leading e-commerce company, Daraz is negatively affected due to the declining economic situation in South Asian countries. For example, Pakistan has been experiencing economic decline, high rate of inflation and increased taxation are some of the factors that have lead to the decision of 11% workforce reduction.

Another factor that has influenced the performance of the company was the lower subsidies being offered by the government. The change in subsidies has altered the revenue of Daraz, along with the rising cost of operations due to high prices of energy and fuel. The management of supply chain and transportation cost structure has been significantly altered (Shahid, 2023).

Social Factors

The e-commerce users are increasing in South Asian regions which provide a suitable growth opportunity to companies such as Daraz. Businesses are becoming more involved in the use of digital medium for selling their products besides the traditional sources. In addition, buyers are becoming more depending on online based purchasing.

Pandemic has opened up new business opportunities for e-commerce companies as the demand for online purchase of household items such as grocery shifted towards digital medium. Daraz has expanded its scope of operations and included groceries and medicines as well besides other product ranges to address the evolving customer demand.

The company has been able to capitalize on the interest of people in products that are available at a lower price and sale discounts. People are interested in 11:11 offers which capture the attention of a significant ratio of the Daraz users. The company was able to achieve sales of 66 crore within the first hour of the initiation of the 11:11 sale, which was a record achievement.

Despite the positive social factors, Daraz faces two major challenges when it comes to social dynamics. Doubts about the authenticity of online platforms among the public and education of the sellers are main barriers in the fast growth of the company (Alam, 2022). Due to the low credibility of the company, it has been facing loss in Pakistan.

Technological Factors

Technology is required to run the e-commerce platform, with minimal disruption due to glitches. The supply chain process and inventory management is also dependent on the use of suitable technology. Daraz is using various technology tools to ensure smooth e-commerce operations and maintain relevance with the target market needs, such as jQuery and Google Analytics.

Digital revolution has facilitated the increase of online users of the company, making it a leading name in South Asia. In Sri Lanka alone, Daraz has 140,000 sellers, including 50,000 SMEs as well (CBR, 2022). Innovative technologies have further developed the company’s operations as live streaming and personalized app usage make the market reach more effective.

Legal Factors

The online selling platforms are governed by cyber security laws, which are put in place to protect the consumers from issues related to their data privacy. Moreover, these laws aim to protect the buyers from being a target of fraudulent sellers. The Information Technology Act of 2000 is also relevant for Daraz as the online processes are guided by these regulations (Jabbar, 2023).

Daraz also has to follow the regulations related to including sellers as a part of their platform and making sure that the items being sold are in accordance to legal requirements. The management also has to implement the employment laws that are relevant for its region of operations.

Environmental Factors

The environmental protection initiatives by Daraz include the use of renewable energy and adding low fuel consumption or electric vehicles. The management has shifted towards paperless handling of documentation, relying on digital medium as a sustainable alternative. In case of the packaging, the company is using material that can be recycled for further use (Daraz Group, 2023).

Conclusion

Daraz has been able to gain a strong position in the South Asian countries through the use of technology and innovation. The company faces issues in Pakistan, nevertheless is performing well in other countries. The industry provides opportunities for growth due to rising number of digital users and shifting focus towards online purchasing.

References

• Alam, K. (2022). Low trust and seller education biggest challenges in Pakistan ecommerce, says Daraz CEO. Dawn. Retrieved from: https://www.dawn.com/news/1714897
• CBR (2022). Daraz Commits to Boosting the Digital Economy in Sri Lanka. Ceylon Business Reporter. Retrieved from: https://cbr.lk/economics/daraz-commits-to-boosting-the-digital-economy-in-sri-lanka/
• Daraz Group (2023). Our Impact. Retrieved from: https://daraz.com/our-impact/
• Jabbar, A. (2023). E-commerce laws and their challenges in Pakistan. Pakistan Today. Retrieved from: https://www.pakistantoday.com.pk/2023/02/05/e-commerce-laws-and-their-challenges-in-pakistan/
• Russell, J. (2018). Alibaba buys Rocket Internet’s Daraz to expand its e-commerce empire into South Asia. Tech Crunch. Retrieved from: https://techcrunch.com/2018/05/08/alibaba-buys-rocket-internets-daraz/
• Shahid A. (2023). Chinese ecommerce giant Alibaba-backed Daraz cuts workforce by 11%. Reuters. Retrieved from: https://www.reuters.com/technology/chinese-ecommerce-giant-alibaba-backed-daraz-cuts-workforce-by-11-2023-02-07/

Political Factors

As IKEA is operating across the globe, over 41 countries, it is important for the company to follow the rules and regulations of each. IKEA to consider the political stability of the country for successful operations. Political disability might cause the loss in revenue for the company. One of the main examples of this can be strict policies for importing and exporting of goods, which demotivates the company in entering in that country. It is necessary for IKEA to remain stable in order to prevent its revenue from risk.

IKEA is considering entering in the Asian market after analyzing the relationship between India and China. However, running operations in Pakistan is still not into consideration due to political disability and custom charges (Frue, 2018).

Economic Factors

The GDP, per capita income, purchasing power, employment rate, and inflation has great impact on IKEA’s business operations. These factors are responsible for the economic slowdown. IKEA has successfully managed its prices very well. This helps in reducing the pressure arise due to economic fluctuations. However, IKEA still needs to be careful with this factor. Due to Covid, many country is facing with employment issues and people are price sensitive. IKEA’s prices are affordable and low as compared to competitors; the sales of IKEA are not affected negatively (Pratap, 2017).

Social Factors

Before entering in new market, it is important for the company to understand the cultural and social factors. IKEA analyze this factor very well, but still had to face backlash, when its photo-shopped pictures of women in Saudi Arabia for promotion. Furthermore, understanding the social trend of every country, it is operating in is very important. Producing the furniture or accessories according to the trend will boost the sales. As people prefer to buy online, it is important for IKEA t have social presence and keep updating the websites to increase the sales (Shaw, 2019).

Technological Factors

Technology is becoming very important these days. From finance to marketing, customer service to human resource, hence everywhere, businesses need information technology for providing better services to their consumers. IKEA always focuses on providing the experience to its customers through digital channels which feels like convenient shopping experience. IKEA has increased the expectations of consumers and focus on providing best customer service. Ikea believes that customer service leads towards more sale. Cognitive intelligence and artificial intelligence which have enabled the retailers for understanding consumer behavior (Pratap, 2017).

Environmental Factors

As people are more considerate towards environment and climate change, it becomes a big responsibility for the companies to provide the services and products which are sustainable and environmentally friendly. IKEA recently released its 2030 sustainability strategy which highly focuses towards recycled and renewable materials. It is very difficult for IKEA as it has 400+ stores across the globe, but it is determined to achieve this. Moreover, IKEA is also investing in wind and solar panels and sourcing cotton and wood as sustainable sources (Frue, 2018).

Legal Factors

Legal factors are always risky for businesses as rules and regulations changes with the period of time, and any hassle with laws can be costly for the companies. IKEA have faced several issues over furniture in past. Hence, IKEA now make sure its products are safe from any lawsuits and has patents. Although IKEA had recovered financial loss but the damage on the goodwill was big. Before starting business in any new country, it is important for IKEA to consider the legal factors (Shaw, 2019).

Conclusion

To conclude the PESTEL analysis of IKEA, it is seen that company is performing very well by considering all the factors and expanding its operations. It is also intended to enter in Asian markets. This helps IKEA is evaluating the critical factors which can affect the business adversely.

References

Frue, K. 2018. PESTLE analysis of IKEA. [Online], Available at: https://pestleanalysis.com/pestle-analysis-of-ikea/, [Accessed on: 25th April, 2021].
IKEA, 2021. About us. [Online], Available at: https://about.ikea.com/en/about-us, [Accessed on: 25th April, 2021].
Pratap, A. 2017. IKEA PESTEL analysis. [Online], Available at: https://notesmatic.com/2017/04/ikea-pestel-analysis/, [Accessed on: 25th April, 2021].
Shaw, A. 2019. IKEA Pestel analysis. [Online], Available at: https://www.marketingtutor.net/ikea-pestle-analysis/, [Accessed on: 25th April, 2021].

The post PESTEL/PEST Analysis of IKEA first appeared on Free PESTEL Analysis.]]> 533 https://freepestelanalysis.com/steep-and-steeple-analysis-comparison/ Thu, 28 Jan 2016 18:08:08 +0000 http://freepestelanalysis.com/?p=223 Whenever analyses are carried out, they are conducted with the intention to know the business environment better. They help in determining the major trends in business and if there are any factors who cause these trends, if yes then what are these factors, how long have they been affecting the trends and with what magnitude, […]

PESTLE/PESTLE Analysis

It analyzes the Political events and the role government in determining the fate of industry like giving tax holidays, giving import relaxations and export benefits, liberalization of economy, investment in R&D and many other similar issues. Economic factors include interest rate determination which then translates into determining inflation of the country, credit terms and purchasing power parity, tax laws etc. S stands for social concerns that the business might be facing like minimum wage laws, underage employment, equal opportunity in employment, changes in lifestyle and values of people according to the demographic and psychographic profiles of people. Technological advancements dictate the pace of the progress in an industry like in Smartphone manufacturing either innovate every six months or die like Blackberry. In such industries new products and processes are evolving everyday and a company has to keep pace with it and invest in R&D. The other two factors are environmental and law which defines the legal boundaries and frameworks within which a business has to operate and cannot out step those even there is more profit. (Nishadha, 2012)

SWOT Analysis

It is an abbreviation for strength, weakness, opportunities and threat. Strength and weakness reflect the internal situation for a business whereas opportunities and threat portray the external conditions that a firm has to face while competing in the industry. This analysis reveals the strong suits on which the firm can capitalize on and leverage from those positive characteristics whereas the weaknesses tells where the firm needs to improve if it wants to increase its sales and beat the competition and be the market leader. Opportunities are actually untapped areas where the firm can increase its business and hence be more successful and threats are from which the firm has to be careful because they can make the firm’s business more difficult for example threat of new entrants because the industry profit margins have increased considerably, this means that the firm has to invest more on building its brand and partner relationships to give new entrants a tough time.

Advantages and Disadvantages of PESTLE

There are some plus and minuses attached with both analysis, both aren’t answering all the questions that need to be answered through an analysis. PESTLE analysis simplifies the situation through major macro environment factors, it helps in identifying the threats through external factors that can develop in future and hence helps in forecasting the situation, it enables an organization to develop strategies in order to counter the broader business problems and it equips an organization to enter a market both nationally and internationally.

However the analysis done through this is so simple that people tend to simplify the real world situations as well, it is a continuous and ongoing process that needs to be updated frequently as the situation changes but organization fail to realize this and consider it one time operation only, the information collected through this analysis is too subjective and need further improvement and quantitative work done on it and it does not cover any internal evaluation which is kind of incomplete analysis as one cannot determine the course of action without knowing one’s abilities and skills, for example if PESTLE analysis indicates that future global market for Smartphone will quadruple and hence investment in technology now will reap the fruits later but a company’s financial position does not allow it to invest then this analysis will not help in making an informed decision. Almost all of the data collected for this analysis is from external source which puts a question mark on its authenticity as well as makes its time consuming and costly activity. (Advantages and Disadvantages)

Advantages And Disadvantages Of SWOT

SWOT analysis presents the information in the most simplest and easy to comprehend manner while covering important areas like company’s ability to outperform its competitors and its weaknesses to be addressed, highlighted in unambiguous manner. It can be used to assess a new project or an existing project; it will outlay the stretch scope and future difficulties in conducting business.

It lacks the prioritization of the key problem areas it highlights for example it has highlighted that because of its technological superiority the company has the opportunity to extend its market locally or globally, but it will not indicate when and in business world timing is everything. It highlights the possible threats to a business but does not define the course of action that a firm must take to address that problem like the business is bombarded with counterfeit products that are almost similar in function and benefits, but does not indicate or notify what a firm must do in order to differentiate itself from Me-too products. It generates a lot of data through the analysis of a firm’s situation but not all the data is useful to the firm. So many external factors are missed as a result of this analysis because it does not include every external factor that affects the business. The data collected needs to be updated or the quick pace of the changing world makes it irrelevant. (PEST Chart and SWOT Analysis)

Recommendation

To use and rely on any one kind of analysis is not wise. These analyses complement each as what is missing in one is present in the other. Both of them should be used together to make the most out of them and actually benefit from the exercise otherwise it will be waste of resources as the information collected won’t be updated and valuable and might be possible, incomplete. As a result of this whatever decision is taken in the light of these analyses might backfire and harm the company in the long run.

Bibliography

Advantages and Disadvantages. (n.d.). Retrieved January 7, 2016, from free-management-ebooks: http://www.free-management-ebooks.com/faqst/pestle-09.htm

Nishadha. (2012, March 27). SWOT Analysis Vs PEST Analysis and When to Use Them. Retrieved January 6, 2016, from creately: http://creately.com/blog/diagrams/swot-analysis-vs-pest-analysis/

PEST Chart and SWOT Analysis. (n.d.). Retrieved January 7, 2016, from Edraw Visualization solutions: https://www.edrawsoft.com/pest-chart-swot-analysis.php

Therefore it is important to consider these factors apart from business specific issues.

Political Factors

As the full form suggests it calls for analyzing the political factors like policy of government regarding import/export, trade liberalization and restrictions, tax regimes and tax holidays according to government’s interest in sectors, foreign policy and investment plans, openness in accepting FDIs, laws regarding minimum wages and working hours, trade and unionization support, environmental laws and regulations, rent seeking and corruption, efficiency in setting up or selling off business. All these factors described actually effect the cost of doing business in a country. Businessmen or marketers will want political stability so that there idea is well received and does not go down the drain due to political frictions.

Economic Factors

Economic factors pertains to interest rate or inflation fluctuations that might favor or hurt the purchasing power of the customers or Increase Company’s borrowing cost, any factor that intervenes with the demand and supply of the product comes in this domain. It includes exchange rate fluctuations in case of raw material import or major contribution being made through export, employment opportunities created by the state as it increases the purchasing power of customers. Credit terms are very critical in all financial matters. Financial crisis of 2008 was originated by banks that went too easy on credit terms when giving housing loans to customers, customers started defaulting because of acquiring loan which was more than their paying back ability. People started selling their loans to other individuals and hence the whole system collapsed. Too stringent policies are also not favorable to growth economies because then entrepreneurs do not get encouraged to implement their ideas fearing the financial liabilities.

Social Factors

Social factors includes issues like child labor, equal employment opportunity which that particular sector has to face and the product will be facing too if it chooses to operate in that particular sector. It assesses the mental approach of individuals in a given society given their demographic and psychographic. Education, age, income, life style and trends, for example in Japan majority of the population is old age therefore the social issues that they have are regarding pension funds, old homes and the products and services that they need would be related to their age. These social issues arise from the living standards and cultural norms of the region, like in some parts of the world women are not given equal opportunity as men to participate in economic activities and hence gender inequality is born. Few countries condemn child labor and state it as being illegal whereas other countries are so poor that they cannot survive unless each and every member of the family is working.

Technological Factors

Technological involves the technological advancements and developments that are happening and might happen in the future and how the product and business can take advantage of these developments. This includes the modernization of processes and procedures through invention of new technology which would increase the efficiency and productivity. These technological improvements also open doors to new venues of investments and close doors for some. For example the latest developments have put Netflix, Walkman, VCRs, CD players, greeting cards, landlines out of business. It is very important to know the pace with which world is shifting as it puts many things to obsolesce. In this era if a business is not being innovative and evolving in terms of its product offerings or its procedures then it is setting up itself for liquidation. Customers tend to view innovative and creative companies as favorable and become loyal to them as they think they have the answer to their needs and problems.

Environmental Factors

Environment analysis includes the environmental hazards that company has to be cautious about as government and public in general are sensitive to these issues. In some countries there are heavy fines and penalties for not obeying the environmental laws and behaving in reckless manner. Usually companies are penalized for dumping waste in clean water source which becomes health hazard for beneficiaries of that source or not utilizing the resources efficiently, hence wasting resources which are already scarce and costing a lot. Companies need to analyze the kind of pollution they will create and kind of restrictions government has against this kind of pollution.

Legal Factors

Laws it have to follow if it wishes to operate in that particular region comprises Legal factor. When a business is set up in a country or a region after bearing all the costs and expenses then it becomes important to know if it will be safeguarded against copycats and other frauds. Patent, trademark and other trade secrets law should be strong and implemented as only in this manner a business can function in a healthy environment. Otherwise infringements will take away the competitive advantage of the company over others that it has acquired after substantial investment in technology, research and development and hiring best resource. Other than this it is necessary to know the local laws that are subject to change according to local preferences but are enforced nevertheless like minimum wage laws. Violation of any such law could earn company a bad name and expense in the form of fine that will eat away the revenues.