BUSINESS
ANALYSIS OF PESTLE AND MICHAEL
POLICY
PORTER'S ASSIGNMENT # 2
SEC: C GROUP # 4 SUBMITTED TO:
PROF. GHULAM AHMAD RANA
SUBMITTED BY: HIRA AHMED SANA SUBHANI MARYAM ATIQ AZWAR BIN ANWAR SIKANDER MAHMOOD UMER KARAMAT AHMAD ALI
L1S09MBAM2010 L1S09MBAM2011 L1S08BBAM2032 L1S08BBAM0155 L1S08BBAM2136 L1F06BBAM2147 L1S08BBAM2079
Cool Industries (Pvt) Limited, was established in 1973 and grew to a leading Home Appliances manufacturing Company in Pakistan, in a very short span of time. This was achieved by the tireless efforts of our devoted Management, highly motivated professionals and dedicated team work, committed to excel in the quality and services. Cool Industries (Pvt) Limited, has highly skilled professionals, responding rapidly to the market needs. With the most modern and high-tech CAD manufacturing facilities, our products capture over 80% of the local market for Refrigerators, Deep Freezers, Air Conditioners and other home appliances. The company manufactures Refrigerators, Deep Freezers, Air Conditioners, Washing Machines, Microwave Ovens and many other quality home appliances, with the production ratio exceeding the overall production of Pakistan's appliances manufacturers.
POLITICAL ANALYSIS:
Political conditions of Pakistan have been very unstable for the past decade and are still on the verge of decline. Almost every industry of Pakistan has faced a striking disaster during this period. This situation has given a high rate boost to the already present problems like energy crisis, low living standards of the people, unavailability of basic needs and much more. Waves is working in home appliance industry that highly depends on the energy availability, production fulfillments, trading and transportation facilities etc. for all these issues the present government’s policies are very uncertain and unclear. There can’t be seen any prominent efforts by the government in resolving the energy crisis issue. This can lead to high production costs for the home appliances industry. However, import and export of such products has very much been encouraged by the government and has encouraged many foreign investors to invest in this industry. But due to unstable security conditions of Pakistan this effort is not being fruitful up to the mark. Many already working foreign companies are trying to move out of Pakistan. One of the basic reasons of this attitude also lies in the fact that the present government has increased duty rates on these products. In 2009, these rates were from 25% to 35% on air conditioners/ refrigerators, electric fans, toasters, micro wave ovens; televisions etc while 20% to 30% rates on electric ovens/ cooking ranges. Presently they have been much more increased. This can cause a barrier for the new comers to enter in this industry and a difficulty for the already present companies like waves. Other governments like that of china are also providing manufacturing facilities at low cost. This can reduce manufacturing cost for this industry due to cheaper labor, electricity availability and cheaper manufacturing units. Therefore a political analysis for this industry shows that the political environment is not so favorable for this industry to flourish.
ECONOMICAL ANALYSIS:
Pakistan’s economic conditions started to drop in the early 2007 and up to 2010 they have faced a large set back due to the depressed consumer credit market, slow progress of public sector programs, inflation, reduction in subsidies, security threat, instability in the state and energy crisis.. The exports declined by 6% and imports by 10%. The only thing that became a silver lining was the increment in remittances by 22%. Shortages of energy and power do not let the boom enter into the industrial sector so home appliance industry had to suffer. In addition the sanction applied by IMF on different sectors creating a hurdle. This resulted in unemployment and services sector decline. Because of security crisis the graph of investment does not take any surge. The beginning of declining in core inflation is a hopeful factor but the domestic inflation is on peak. The poverty in country rise Pakistan has the highest population growth. The largest population represents a large potential market for goods and services yet the condition are deplorable. All these factors have affected home appliance Sector. The buying powers of people have declined. Due to inflation manufacturing costs have increased. The value of money has decreased so investing in such an industry is not that much favorable economically.
SOCIAL ANALYSIS:
Pakistan is a country where status differentiations are very much in and every status level has its own lifestyle and buying patterns. Mainly the population of Pakistan either belongs to lower class, middle class or elite class. CHANGING LIFESTYLES:
Although the lifestyle of every class is changing at a fast pace, still the social factors affecting these lifestyle are same like always. People are more money and time oriented now. They are moving from traditional values towards western lifestyles. Now people prefer living separately than in joint families. As family size has decreased so more and more homes are required for each separate family and hence more are more home appliances are needs in turn. So it overall increases demand for home appliances products and especially for freezing unit industry. BUYING PATTERN
In Pakistan people mostly purchase home appliances at the time of occasion like marriages as dowry item and it has changed the sales patterns. Now the sale for freezing unit is not seasonal but it is sold throughout the year. The availability of different products has also affected the buying patterns INCOME DIFFERENCES:
Home appliance industry is mostly profitable in Pakistan by either the elite class or the middle to some extent. For elite class affording latest home appliances’ models is never a problem rather it suits their status consciousness. It is also somehow convenient for the middle class to afford such “luxuries”. But in the lower class, home appliance industry can’t find much pot ential customers. BASIC NECESSITY FOR LIFE:
More economic development made it possible that people are considering freezing units as a basic necessity of life, and it overall increases demand for this industry
HOT WEATHER:
Pakistan is a country where people enjoy all four seasons, but summer stays more than others seasons, and overall climate in summer is very hot. People now purchase more freezing units in summer for their convenience and it also increase in demand. GROWTH IN POPULATION:
Pakistan is among the top ten most populous countries of the world, increase in population also increase in demand for the products and it also increase demand for freezing unit industry . TECHNOLOGICAL ANALYSIS:
The technology of this industry has taken a very positive change. Older Refrigerators were used to be manufactured by a type of gas called Freon. Freon is the brand name of the gas. This gas chemically is called chlorofluorocarbon or CFC. This gas was disastrous for the environment and was said to damage the ozone layer if leaks from refrigerators. Today's refrigerator technology is changing day by day. Globalization has made possible to transfer things/products from one country to other within days and this is happening because of fast mode of transportation and communication. Modern refrigerators don't use CFC because CFCs are harmful to the atmosphere if released. Instead they use another type of gas called HFC134a, also called tetrafluoroethane. HFC turns into a liquid when it is cooled to -15.9 degrees Fahrenheit (-26.6 degrees Celsius). A motor and compressor squeezes the HFC. When it is compressed, it heats up as it is pressurized. When you pass the compressed gas through the coils on the back or bottom of a modern refrigerator, the warmer gas can lose its heat to the air in the room. Some appliances includes micro processor based control that allows adaptive defrost .Certain parameters are monitored and the control software determines the moment of defrosting. In freezing units, products are made energy efficient keeping the view that People have to buy both refrigerators and deep freezers for capacity purposes.
Refrigerator like automatic operation for intelligent operation is a new feature. Vitamin C technology is using for fresh food storage. Slide-out shelf for easy food access is new trend. Automatic problem detecting and warming system, door cooling warning system, optimized condensing system. Water dispensers are also attached with new units. Nowadays industry is focusing on low noise operation and low energy consumption products. LEGAL ENVIRONMENT
Home appliance industry is particularly looked upon legally when it comes to energy usage, recycling methods and anti dumping. Legally this industry is bound to consume energy and manufacture energy dependent products effectively and efficiently. In a country like Pakistan where there is already energy crisis, a company like waves has to take care by providing its customers with such products that cater this problem it their own way. Moreover recycling methods are also very important. Recently, introducing some environment friendly techniques for refrigerators have helped this industry flourish. Law also forbids dumping in this industry i.e. The export of a product at a price (export price) lowers than the price it normally charges on its own home market (normal value). Dumping can harm the domestic industry by reducing its sales volume and market shares, as well as its sales prices. This in turn can result in decline in profitability, job losses and, in the worst case, in the domestic industry going out of business. Therefore it is not allowed. ENVIRONMENTAL ANALYSIS:
Environment of Pakistan is although certain and precise but not for business industries. Pakistan enjoys all 4 seasons but primarily summer stays more. Therefore home appliance industry particularly manufacturing freezing units can be very profitable in this environment. However climatic disasters like the earthquake of 2005 and recent flood disaster has turned this environment very unfavorable for this industry. These disasters where on one hand have turned the lives of people towards economic crisis have also damaged many established businesses, created transportation problems, and hence the production costs.
PROBLEMS AND OPPORTUNITIES:
The new entrant threat is low as the entry barriers in this industry are high, including high capital cost, government policies, already existing strong brand names, and a concentrated and highly competitive market. But there is an opportunity in this industry as Pakistan as people’s buying pattern is changing. There is a major change in buying patterns of people, from the last few years’ per capita income increased and living standard of the people also changed which overall increased the demand for freezing units. Decrease in family side also increased the demand which increase. Hot weathers and increase in population also increase the demand for products which overall increased the production. Demand on the occasions like marriages also increased which also increased the production capacity.
The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates.
POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCT:
The potential development of substitute products is very high in the market and many companies are working on same business in Pakistan e.g. DWALANCE, PEL, HAIER. But the WAVES has prevented the threat of substitutes by offering diversified products like COOL Bank and TRIPLETS and ice makers. POTENTIAL ENTRY OF NEW COMPETITOR: HIGH INVESTMENT:
Threat for new entrants is high in this industry, partly due to the fact that this industry is a lucrative industry and is very attractive for foreign companies. But in order to really make a mark in this industry, you need to have strong investment and funding. FOREIGN BRANDS:
Foreign brands like LG, HAIER etc. are a big threat for local brands. The quality and brand image of foreign brands is high as compared to local brands
RIVALRY AMONG COMPETING:
We can examine the rivalry by different aspects Market share of any company tells about its strong and weak position in the market, and in refrigerator industry Dawlance and Waves are close competitors. DAWLANCE is a market leader in refrigerator with 42% share. PEL has 34% market share Waves has 20% market share. 4% shares are others. To defeat the competitor Waves works on different strategies. INNOVATION:
Waves Company believed on the innovations so Waves has proudly introduced miraculous "Cool Bank Technology” Waves Cool Bank technology facilitates not only the consumers but also the country in its need to economize scarce energy resources. The Cool Bank refrigerators and deep freezers consist of double back up system, one stores electricity and other stores cooling. In case of power failure or load shedding, Cool Bank provides internal light and cooling to maintain temperature up to 5 hours. Contrary to Cool Bank, common refrigerators and deep freezers loose their cooling rapidly within 20~30 minutes and food gets spoiled. PRODUCT RANGE:
There are many products of Waves Company like refrigerators, deep freezers, air conditioner, visi cooler, microwave ovens, washing machines and home appliances. VERTICAL INTEGRATION:
Wave’s network of authorized dealers spread all over Pakistan. Wave’s distribution channel is through the retailers and his outlets.
BARGAINING POWER OF CUSTOMER:
There are so many products and brands are available in market at different prices and the bargaining power of the customer will be high due to many alternatives products are available in market, the customers preferred to purchase lower price products while the other if there are few brands in the market, then the customers power will be weak position for purchasing due to this the companies raises the prices of products and earn higher profits. If we see the Pakistani industries the bargaining power of the customers is very high due to the variety of products are present in the market at different prices. So the customers can choose the products according to his requirements. BARGAINING POWER OF SUPPLY:
Suppliers can be viewed as a threat when they are in few numbers in the market. In that case, the suppliers are able to force up the price of inputs. The after effects of that can result in the reduction in the quality of inputs. If the suppliers of Waves Company are weak then the industry will force the suppliers to reduce the prices of inputs or product and demand for higher quality. If the suppliers are selling the products that have few substitutes and differentiated from others, then the suppliers are always in good bargaining position.
