A PEST analysis outlines the framework of macro-environmental factors used in the environmental scanning component of business strategic management. The factors analyzed include that of political, economic, social, and technological- with environmental and legal often times being included. This report will outline these factors as it correlates to the e-commerce retail industry.
Political/Legal (Government) Factor:
Ecommerce retailers benefit from political stability. This condition creates an opportunity for the company to expand or diversify its business in developed countries. For example, e-commerce giant, Amazon could expand its brick-and-mortar operations in the United States to complement its e-commerce business. Ultimately, the external factor of overall governmental support for e-commerce is also an opportunity. The support provided by the government fosters continuous expansion in relevant markets. This expansion can also pose a threat to e-commerce retailers as it can lead to a rise in competition. The government also impacts e-commerce ventures financially by providing things such as backed loans, which can help struggling retailers grow. Government policies can also impose regulations that increase costs which could be a hinderance to businesses. It is for this reason that managers should stay updated on legislation as it correlates to company operating and procedures. This is especially true If a business is distributing or expanding in places like Asia which comes with a lot of Red tape. Protecting businesses from this red tape and other potential hinderances such as cyber security is another way in which the government attempts to help. Additionally, government-supported road and transportation infrastructure which is utilized to move merchandise and bring customers to retail locations is another benefit. From financial assistance to trade policies, the political factor poses a medium impact on the e-commerce industry.
Economic Factor:
Economic and governmental factors often overlap in areas such as import laws, export laws, and inflation which can decrease consumer purchasing power. Most retail companies operate within the sphere of influence outside the company that shapes how companies do business, or “macro environment”. The nature of retail sales itself is navigated by the economic environment. E-commerce performance relies on the situation of the economies where business operations take place, be it online or non-online. The likelihood of e-commerce success is increased by economic stability. This dynamic reduces economic issues which ultimately minimizes risks to the company’s online retail business expansion. There is the opportunity for growth in developing countries for e-commerce businesses. This occurs when there’s an availability of increased disposable incomes in developing markets which ultimately increases the company’s financial performance. Contrastingly, an economic recession can present a threat to e-commerce businesses. A weak economy decreases consumer confidence which can lead to less spending, declining sales and force retailers to lower prices. Ultimately, whether it’s the opportunity to increase disposable income or threat of an economic recession, the economic factor poses a high impact threat on the e-commerce industry.
Social Factor:
The retail industry is often under pressure to develop and implement socially responsible business practices. A few examples of these practices are selling environmentally friendly products, placing warnings or restrictions on potentially harmful goods, or even removing recalled or controversial products. One sociocultural dynamic in particular that impacts the e-commerce industry is increasing wealth disparity. Wealth disparity is the gap between the rich and the poor. This exists in many countries and poses a threat against e-commerce businesses. The threat lies in the decrease of disposable income and the corresponding decrease of the macro-environment of the industry. Contrastingly, higher disposable income levels are more favorable in increasing e-commerce companies’ potential revenues. An increasing amount of consumerism creates opportunities for growing the e-commerce and IT services business. Ultimately, the changes in social values and trends impact the goods being sold and how retailers relate to consumers. These impacts correlating to the social factor display the low impact it has on the e-commerce retail industry.
Technologic Factor:
Technology not only creates new products for retail companies to sell, but also plays a major role in the way e-commerce retail companies do business. However, businesses within the e-commerce industry face the threat of rapid technological discontinuance. This threat creates pressure for the company to continuously develop and improve its technological assets. This ultimately creates an opportunity in optimizing the business. Technological advancements such as the developments of ICT has led to growth of the e-commerce industry. It has also made communication more efficient, faster, easier, and more economical within the industry. An e-commerce company’s investment in information technology can improve its competitive advantage and protect the business from industry competitors. These improvements can also lead to an increase of information and communications technology resource efficiencies. Even with the opportunity for many technological advancements, the threat of cybercrime still looms. This threaten could also impact the quality of customer experience and the business integrity overall. As such, e-commerce businesses should be proactive and invest in the necessary technological measures to ensure it remains protected.
In conclusion, each PEST factor presents opportunities and threats to the e-commerce retail industry. In the end, there are more opportunities presented. The e-commerce industry has held steady and continuously increased over the years. It is projected to continue expanding in the future. E-commerce giant Amazon is proof that the e-commerce retail industry is not slowing down any time soon and the potential for success if an e-commerce venture is handled efficiently.
References:
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