Pestle analysis by definition is A model, which involves the collection
and portrayal of information about external and internal factors, which have Or may have, an impact on business. (Strategicmanagementinsight.com, 2013). Pestel analysis in this report would help to understand the trends that are prevalent in India in relation to Bicycle parts industry.
Political Environment:
National --- In a country like India, political influence is a necessity if one wants to start a business. India is the biggest democracy in the world and had a multi party political system (Ezinearticles.com, 2013). The legislative branch has a bicameral parliament comprising Lok-Sabha and Rajya-Sabha (Ernest & Young, 2013). With numerous political parties at national and state level, it becomes difficult to get approval from all parties to start a business. Also, different political parties have different ideologies, some approve of FDI and Joint venture, whereas others do not (Ezinearticles.com, 2013).
State --- the state of Punjab is known for bicycle and bicycle parts manufacturing (SME world, 2011). The political system in the state has recently been not supportive of businesses. The present political party in power is Shironmani Akali Dal BJP coalition. Support towards industry has been minimal from this government (Punjabnewsline, 2013).
Privatization --- Privatization means reduction in political interference in the management of businesses. India introduced Privatization, liberalization and globalization in 1991. Therefore, the concept introduction has led to high growth in Indian industry and been supportive for international and local business (Forbes India, 2013).
Stability --- The political system in the country has remained stable in the recent years. The country has elections every 5 years. The next general elections are in the year 2014.
Economic Environment:
India ranks 119 in 2013 index of economic freedom. Indias institutional shortcomings undermine Indias long-term development. Corruption in the economy has risen in recent times, which can also be noted form various cases as noted in the news. India ranks 23 rd out of 41 countries in Asia-Pacific reason.
Quick Facts:
Population 1.2 Billion GDP (PPP) $4.5 trillion 7.2% growth 8.1% 5 year compound annual growth $3,694 per capita Unemployment 9.8% Inflation (CPI) 8.6% FDI Inflow $31.6 Billion
The tariff rates are very high, 8.2%, moreover, the complexity of the barriers non-tariff and tariff, further worsen the situation. However, India showed a high growth rate in previous year. As a part of BRIC countries, India is one of the fastest among emerging economies in the world. With high growth over last 5 years, the scope of developing a business in highly populated country is also high. In context of bicycle industry, the low GDP signifies relatively poor population, suggesting growth of low cost bicycles. (Heritage.org, 2013).
Social Environment
India is a highly diverse country with number of religions, languages, economic groups, etc. India is known for Gender distinctions, social and cultural differences. Caste system and religious and ethnic groups largely dominate Indian social system (Competition master, 2013).
The social environment of any country has a huge impact on the businesses of a country. In India until 1985, the focus was more towards selling rather than consumer satisfaction. Increase in competition and introduction of globalization has led to change in this trend. The shift became more towards customers (BMS, 2013). The literacy rate is constantly rising, education level and development of media industry has made consumers more aware about their rights. Consumer protection act 1986 further alerted consumers from exploitation (BMS, 2013). The employees and workers are becoming more aware about their rights. Workers are demanding better wages, incentives and working environment. The social environment in India is highly influenced by worker awareness (BMS, 2013). The social system is a very delicate issue in a diverse country like India.
In context of bicycle industry, due to high number of competitors, the customer has more bargaining power. The increasing awareness among customers is a big influence to bicycle industry.
Technological Environment
For many years in the past India didnt have a favorable attitude towards latest technology to meet foreign standards. The technological level in India has greatly risen after independence. 500 new technological institutes have come up for providing education to Indian students. India also has a strong technical policy for importing technology from foreign countries for promoting industry in the country. The IT sector in India is growing at a 35% growth rate; India is also second largest user of E-commerce after China (Business education, 2013). The reservation of certain industries for small scale further came in way of adopting modern technology. The government of India gives a 100% tax exemption for expenses incurred in research of technology. Also, state financial institutions are helping uplift technology in domestic industries. (BMS, 2013).
In context of bicycle industry, as most of bicycle industry is in small- scale sector, the technology upgradation was unintentionally avoided. The technology in foreign countries like China and Taiwan is advanced in relation to bicycle industry. Therefore, the bicycle companies had been importing parts produced from foreign countries (TI Cycles, 2013). The unavailable of technology and high cost of importing technology from foreign countries is one of the major factors behind low technological development in bicycle industry in India.
Environmental Issues
The list of environmental issues in India is extensive. Deforestation, soil erosion, over grazing, air pollutants from industries, agricultural pesticides and huge over straining of natural resources are some of the major issues (CIA world factbook, 2013). In business world, the barriers of corruption, red tapism, lack of transparency are some of the issues prevailing in business environment. Rapid industrialization and growing population are straining natural resources and environment (Saksena, 2007). The focus is shifting towards using renewable resources. India sources 34% of its energy consumption from renewable sources. US in contrast sources only 7% (NRDC, 2009).
Forecasts suggest that by 2030, India could have a major environmental issue of pollution from fossil fuels burning emissions (McKinsey & Co., 2009). There have been plans by the government to reduce the pollution emissions. Some of the plans are for; Reducing T&D losses in the power sector, increasing the use of clean coal technology, increasing clean and renewable power in Indias power mix, Expanding forest cover, improving energy efficiency in steel plants. (McKinsey & Co., 2009).
In context of proposed project, environmental issues are a big concern. The government has shown concern over pollutant issues from industrial sector. In terms of bicycle industry, bicycle is promoted by government as a means of transport as an ecofriendly option but also, as the processes are steel related, forging and chemical use, environmental sustainability is a key concerns.
Legal Environment
Indias laws are derived from English common law and seem recognizable to American, Canadian, British, Australia and New Zealand attorney (Amritt.com, 2013). The most important act, which governs and regulates all the business activities in India, is Companies Act, 1956. It contains all the provisions related to management and running of businesses in India. It encompasses the rights, responsibilities, and duties of directors, owners and promoters. All the provisions like raising capital, audits, power consumption etc. are in the companies act (Business.gov.in, 2013).
Other important acts are; Indian contract act, 1872, Industrial dispute act, 1951, Trade unions act, Foreign exchange management act, 1999. The arbitration and conciliation Act, 1996 is the act that deals with commercial arbitration of both domestic and international companies. As a member of WTO, the laws in India meet the requirements of TRIPS, Intellectual property policies etc.
The bicycle industry in India is no exception and is also governed by these laws. However, the increasing issues of Labor related issues are a concern for industry (BBC, 2006).
5 Force industry analyses This tool helps to understand where the power lies in a business. It helps in analyzing industry attractiveness, if the industry is suitable to move into or not. This involves analyzing Suppliers power, buyers power, competition, substitutes, and new entrants.
Suppliers Power --- (Low) The number of suppliers for Aluminum based cotter less chain wheel is high. The main raw material being Aluminum sheets, are readily available. The inputs are readily available from multiple sources (Indiamart.com, 2013). Ludhiana is situated close to Mandi Gobindgarh, which is a metal producers cluster, which helps in availability. Other support industries are also present due to existing bicycle manufacturing units cluster (Clusterobservatory.com, 2013). Therefore, the bargaining power of suppliers is low. Buyers Power --- (Low Domestic / Medium International) The number of buyers is relatively high. The product is being bought by OEMs from foreign countries like Taiwan, Japan (Avoncycles.com, 2013). The main reason for imports is technologically advanced technology and lack of economies of scale (SupportBiz.com, 2012). The increasing GDP suggests that the demand would also rise (Rushlane.com, 2013). Therefore, the buyers power in domestic purchase is low, whereas if sourced from international sources, medium.
Competitors --- (Low) The number of competitors producing Aluminum based cotter less chain wheel on large scale is low. Most of the production is at cottage industry level, which lacks technology and economies of scale (hyd- news.blogspot.co.uk, 2009). The competition, which is more intense, is from the international firms like Shimano and Sun tool. The large OEMs import the goods from these competitors. These companies have high technology and enjoy economies of scale in manufacturing of bicycle parts (Shimano, 2013). Therefore, the level of competition in domestic market is low. New Entrants --- (Medium) The threat of new entrants in India is low. The lack of technology and skill has had an effect on new entrants in bicycle industry. The increasing inflow of goods from China also has decreased the profitability scope for new entrants (yesPunjab.com, 2013). However, the low cost of manufacturing and setup makes this industry very attractive for existing bicycle parts manufacturers. Another reason is the gap that exists in supply of quality products, which is being fulfilled through imports. Therefore, the new entrants are medium but in large scale and at international level are high. Substitutes --- (Low) The substitutes to Aluminum bases cotter-less chain-wheel are low. The main substitute being Carbon fiber based Chain-wheel, which is half the weight of Aluminum (Stealthcycling.com, 2013) and steel based chain wheel, which is heavier than Aluminum. Therefore, the substitutes are low