This is the detailed PESTEL Analysis of ITC (Indian Tabacco Company) which is an Indian multinational conglomerate company headquartered in Kolkata, West Bengal. ITC was established in 1910 as the Imperial Tobacco Company of India Limited, and it was renamed as the India Tobacco Company Limited in 1970. ITC is the largest cigarette manufacturer in India with a market share of around 50%, and it is also one of the leading FMCG companies in India with a diversified portfolio of products including cigarettes, hotels, paperboards & specialty papers, packaging, agri-business, branded apparel, personal care products, and packaged foods & confectionery.
Political Factors
The Indian government’s actions to reduce smoking rates have been driven by a number of political factors. One of the primary reasons behind these efforts is a concern for public health. Smoking poses a significant health risk, and the government is keen to reduce smoking rates in order to improve public health outcomes. To achieve this goal, the government has implemented a range of anti-smoking policies, including increasing taxes on tobacco products, banning smoking in public places, and launching public awareness campaigns about the health risks of smoking.
These measures have had a negative impact on ITC’s sales and profits, as demand for tobacco products has decreased in response. The increase in taxes on tobacco products has made them more expensive, which has made them less affordable for many consumers (Mitra Debnath, 2019). This has resulted in a decline in demand for tobacco products, which has directly impacted ITC’s sales and profits. Additionally, the crackdown on public smoking has reduced the visibility of tobacco products and their use in public, further dampening demand.
Given the Indian government’s commitment to reducing smoking rates and promoting public health, it is likely that these political factors will continue to affect ITC’s business in the future. As such, the company may need to explore new avenues of growth to remain competitive in this changing landscape.
Economic Factors
ITC’s strong economic growth in recent years has led to increased demand for its products from both domestic and international consumers. The company has benefited from higher incomes and disposable incomes among Indian consumers, as well as the strengthening of the Indian rupee against major currencies. This has made ITC’s products more affordable for international customers, boosting demand even further.
ITC’s sound economic management has played a key role in its success, with the company investing heavily in research and development to create innovative products that meet the needs of its customers (Yadav et al., 2020). The company’s focus on quality and customer service has also helped to drive growth, ensuring that it remains one of the leading companies in the Indian market.
Social Factors
The social factors driving the decline in demand for tobacco products are primarily related to changing attitudes towards smoking. Over the past few decades, there has been a growing awareness of the health risks associated with smoking tobacco, and this has led many people to give up smoking or avoid taking it up in the first place. In addition, there are social norms that have shifted away from smoking as well.
Smoking is no longer seen as a fashionable or popular habit, especially among young people who tend to be more health-conscious and aware of the risks involved. This shift in attitudes has been helped along by a number of public health campaigns and regulations aimed at reducing tobacco use. For example, warning labels on cigarette packages have become more prominent and explicit, and tobacco advertising has been restricted in many places.
All of these efforts have contributed to a general decline in demand for tobacco products, and it is likely that this trend will continue in the future.
Technological factors
Technological factors have played an important role in shaping ITC’s business strategy. The company has recognized the importance of investing in technology to keep up with changing consumer preferences and behaviors. One way in which ITC has leveraged technology is by developing new tobacco products and packaging that appeal to modern consumers.
This includes products that are marketed as being lower in tar and nicotine, as well as products that come in more environmentally-friendly packaging. Through its investment in technology, ITC has been able to innovate and create products that cater to changing consumer demands (Shaik & Maddu, 2019). In addition to product innovation, ITC has also invested in e-commerce platforms that allow consumers to purchase its products online.
This has enabled the company to reach a wider audience and make its products more accessible to consumers who prefer to shop online. By leveraging technology, ITC has been able to tap into the growing e-commerce trend and stay ahead of the curve in terms of meeting consumer needs and preferences.
Overall, technological factors have had a significant impact on ITC’s business strategy. By embracing technology and investing in innovation, the company has been able to remain competitive in a rapidly changing industry.
Environmental Factors
Environmental factors have become increasingly important for companies operating in the tobacco industry, and ITC is no exception. One of the main environmental factors that has impacted ITC’s business is the large number of small farmers who grow tobacco leaves for the company in India. To mitigate the environmental impact of its operations, ITC has been working with these farmers to implement sustainable agricultural practices.
This includes practices such as crop rotation, organic farming and use of environment-friendly fertilizers, which can help to reduce soil erosion, improve soil health and preserve natural resources. ITC has also taken steps to reduce the greenhouse gas emissions associated with its manufacturing processes. For example, the company has implemented energy-efficient technologies and equipment across its manufacturing facilities, which can help to reduce energy consumption and greenhouse gas emissions (Mukherjee & Mishra, 2019).
By implementing sustainable agricultural practices and reducing its environmental footprint, ITC has not only helped to protect the environment but also ensures that it continues to have access to a stable supply of tobacco leaves from its suppliers. This approach highlights the importance of considering environmental factors in business operations as well as the need to work closely with stakeholders to promote sustainability across the entire value chain.
Legal factors
Out of these six factors, the legal environment is perhaps the most complex and challenging to navigate. This is because laws are constantly changing and can vary significantly from one jurisdiction to another. It is essential for companies to stay abreast of all relevant legal developments in order to avoid any potential pitfalls. For example, new environmental regulations could require businesses to change the way they operate in order to comply with the law. Failure to do so could lead to hefty fines or even closure of the business.
Similarly, employment laws are always evolving, and it is crucial for employers to ensure they are up-to-date with latest legislation in order to avoid any costly disputes with employees. The legal environment can therefore be a minefield for businesses if they fail to keep on top of developments. However, by taking a proactive approach and seek professional advice when needed, companies can minimize the risks posed by the legal environment and continue to thrive in spite of challenges.
Conclusion
In conclusion, the PESTEL analysis of ITC Limited highlights the importance of understanding external factors that impact the company’s operations. The analysis shows that ITC operates in a complex business environment that is influenced by various factors such as political and legal factors, economic conditions, social and cultural factors, technological advancements, environmental concerns, and legal and regulatory requirements.
ITC has navigated these external factors by investing in research and development, expanding its business lines, and adopting new technologies such as digitalization and sustainability practices. ITC has also prioritized sustainability initiatives to address social and environmental concerns. However, ITC must remain vigilant in monitoring and responding to external factors to maintain its position as a leader in the Indian market.
By conducting a thorough PESTEL analysis, ITC can better understand the external factors affecting its business and develop effective strategies to mitigate risks and capitalize on opportunities for growth.
References
- Mukherjee, S., & Mishra, U. S. (2019). Government interventions on tobacco control in India: A critical review. Indian Journal of Human Development, 13(2), 183-194.
- Shaik, F. B., & Maddu, N. (2019). Smokeless tobacco products profile and pictorial warning labels in India: A review. Population Medicine, 1(December).
- Yadav, A., Ling, P., & Glantz, S. (2020). Smokeless tobacco industry’s brand stretching in India. Tobacco control, 29(e1), e147-e149.
- Mitra Debnath, R. (2019). Enhancing customer satisfaction using Kaizen: a case study of Imperial Tobacco Company (ITC). Journal of Advances in Management Research, 16(3), 277-293.