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Diploma in Business
Unit Number and Title
Unit 1 Business Environment Assignment
Severstal is the Russian organization that is located in Cherepovets, Russia. The products served by the organization are steel, metal ware, large diameter pipe etc. Severstal is one of the largest Russian steel makers that have developed its international strategy through various acquisitions. The vision of the business strategy is to become one of the major players in the international market. The current report asses the environment of the global industry under which Severstal can use the PESTEL analysis and it also identify the Porter’s five forces analysis that Severstal plays in the global environment. With the help of PESTEL analysis Severstal can easily identify the divers of change in the overall market and it facilitates the business to achieve the business goals easily. PESTEL analysis contains six main factors that are main elements of the business Political, economical, social, technological, environmental and legal factors.
Figure 1 Severstal Logo
(Source: Severstal logo, 2016)
PESTEL analysis assists the organization to identify the factors that affects the organization at various levels. Global organization has to do the PESTEL analysis to sustain in the market and evaluate the changes that affects the growth of organization. PESTEL framework reflects the reasons of changes at the work place. The PESTEL framework might be used to assess the future trends in political, economical, technological, social, environmental and legal environments. It also helps the business to identify the concept of change that is suitable for the business to develop the market for the Severstal. It contains various groups and business with different objectives.
Figure 2 PESTEL analysis
(Source: PESTEL analysis, 2016)
The first element of the PESTEL analysis is political factor that affects the organization from outside the boundaries of the organization and also help the business to overcome the barriers. In the recent trends all the global organizations are focused to improve the business environment and elect to achieve the economic development at the work place. All the business are trading at the business that if the management is not able to achieve the management goals than it would affect the profit ratio of the organization (Vitaliy, 2015). Any slowdown in the economy may affect the profit margin of the organization and they are not able to meet the deadline of the business. The political factors affects the Severstal in various way like change in the rules and regulations of the government, export policy, import policy etc. The political analysis may help the global organization to eradicate the political hurdles for the growth of the organization. To achieve the organizational goals management has to evaluate the political factors that may affect the mission and vision of the Severstal. As per the case the Severstal is the international organization and various political factors affects the growth of the business like hurdle in acquisition of the business, to set the new venture in different location etc.
A stable political government is important for the growth of business as the business and tax regulation remains stable, The regular changes in governmental regulation may affect the business policies and also hamper the profit ratio of the business. It can be said that political factors may affect the growth of the business and its operations.
The economic factors may hamper the growth of the business in various ways like currency rate fluctuations, government rules, business currency changes etc. It may affect the Severstal by which management is not able to achieve the business goals. Due to changes in the economic factors different outcomes may affect the business like high transportation cost, mismatch in the prices of raw material etc. Due this kind of changes it may affects the production rate of the business and prices of finished goods may increased and it may hamper the overall growth of the organization. Steel industry is filled with various competitors that may affect the growth of business and it also affects the profit margin of organization. For instance the price of steel ore may be increased and it directly affects the sales volume of the Severstal (Rachet, 2014). Management has to develop effective relation with raw material supplier of any fluctuation may arise in the prices of the steel or iron ore than they will inform the Severstal. Another factor that affects the organization is currency fluctuation that affect the business transaction like prices of dollar may increased and prices of euro may be declined than it will affect the money flow in the Severstal.
The economic factors may raise the chance of bankruptcy and affects the financial position of the organization. It is the duty of organization that conducts the survey to identify the economic factors that affects the overall growth of the business.
Social factors are those factors that affects the business by various ways like societal issues, government intervention CSR activity etc. Social issue may affect the business and may leads to the closure of the business. As per the case Severstal is bind to do the social activities in the organization. Severstal has already embedded sustainability principles into its general contracts and set out clear expectations in various areas like health and safety, environment and social dialogue. CSR activities are the responsibility of the business that provides a platform to the business to promote the products of Severstal socially (Grünig and Kühn, 2015). As per the case steel is made up of iron ore and it extracts various harmful gases that pollute the environment. To protect the environment management has to take the initiative to protect the environment by planting the trees, maintain the garden at the work place etc. This kind of factors may help the Severstal to develop the good brand image and also increase the customer base for the organization.
Technological factors may help the management to raise the production of finished goods and also assists the business to provide advance technology to the employees for better outcome. This kind of factors may facilitate the management to get the better outcome of the industrial products and adopt that kind of technology that decreases the rate of pollution. Innovation in technology may help the management to reach the goal very easily and also increase the rate of return on the products. Development in the revolutionary steelmaking process that is CO2 reduction in steel making process that helps facilitates the management to protect the earth from pollution. R&D plays vital role in the technology up gradation and it may assists the business adopt the suitable technology for the growth of the business (Jurevicius, 2013). Another face of the technology due to lack of technology Severstal is not able to compete in the market for example UK has latest technology to produce the best steel but European countries does not have the latest machinery to produce the products than lack of technology may hamper the growth of business.
It can be said that technology plays vital role in the growth of the organization and also assists the management to adopt that kind of machinery which increases greater customer support.
Environmental factors may bind the steel industry to raise the production due to the reason of environment pollution. It is the factor that management cannot ignore and also help the management to the social awareness by protecting the environment. Environment protection contains various issues like waste disposal, pollution, protection of resources etc. This all factors are main elements that all the organizations have to follow.
Legal factors are the rules and regulations that bind the management to achieve the desired goals. These kinds of factors are related to the government laws that affect the business in different situations. This kind of factors may slow down the growth rate of the organization and hamper the success rate of the organization (Obloj, 2013). For example Severstal wants to enter in UK for the business expansion purpose but various laws affects the growth of the organization by which they are not able to enter in the other country. Sometimes relation between two countries is bad than various multinational organizations are not able to sustain in the market. Lack of coordination among the nations may be the reason of growth for the organization.
Porter’s Five Forces may help the management to identify the factors that affect the business in very significant manner. Porter’s five forces analysis is the framework that helps the management to identify the level of competition in the whole industry and assists the management to develop the business strategy. It may help the management to identify the five forces that may affect the organization intentionally and affects the profit margin of the organization. The five forces are threat of new entrant, power of suppliers, and power of buyer, threat of substitute and industry rivalry. It is a part of research and development that help the business to identify current position of the organization in the market.
Figure 3 Porter’s Five Forces
(Source: Porter’s Five Forces, 2016)
In industry organization various factors one of them is threat of new entrant. Under this Severstal has feared that if any new entrant will enter in the market of Europe than it will affect the overall growth of the organization. It is the duty of manager to identify the factors that affect the business. Entry of new steel manufacturing organization will hamper the profit ratio of the organization and also reduce the overall production of the organization (E. Dobbs, 2014). Severstal has to implement that kind of strategy that no new entrant will capture the market share of Severstal. The good will of the organization is positive in the market so business has no fear to lose the market share or customer base. On contrary Russian government allows only those industries that do not affect the present organizations in the market. Another duty of Severstal is to eliminate the extra cost from the production unit to gain the competitive advantage. Threat of new entrant may hamper the overall growth of the business and also reduce the customer base for the organization. For example Arcelor Mittal is the biggest competitor of the Severstal in Russia but sometimes organization gain the competitive advantage because of home country.
Power of suppliers is the most essential element is the overall growth of the organization. It is duty of manager to maintain the good relation with the buyer by which they are able to gain the competitive advantage. Supplier is the main element in the overall production process of the organization and also helps business get the raw material for the finished goods (Magretta, 2013). Severstal has the duty to find that kind of supplier which give low rate raw material to the Severstal and also deliver the expected quality raw material. Supplier has monopoly that may hamper the productivity of organization but as per the case Severstal maintain the effective relation with the supplier by which they do not face that kind of problems. Supplier help the management to stain in the market and management make the contract for several years by which organization did not face the problem shortage of raw material or high price of raw material.
Power of Buyer is another element that helps the management to gain the competitive advantage. In the Russia Severstal has various competitors but organization has strong customer base and it is local organization so all the Russian clients easily trust on Severstal. Management has strong customer base and that help the management to deliver the quality products. The main buyer of products of Severstal is government and Severstal is the Europe based organization so it would help the business to easily get the government tenders. Customers of Severstal trust’s on products of the organization and they get the return for which they are paying. Sometimes new comers may affect the overall strategy of the organization but due to low rates of the products and services did not hamper the customer of the organization (Lee.et.al.2012). Severstal get the raw material at very low rates and it helps the management to deliver the goods at low rates to the clients so the preference of the buyer is Severstal.
Threat of substitutes this element may affect the organization to in very significant manner by which organization may face the decrement in profit ratio. For example the substitute of the steel is iron and customers are attracting towards the iron then management may face the big loss. New entrants in the steel industry are coming with various substitutes of the steel and this kind of alternatives may hamper the overall growth of the business. It is the duty of organization to identify the alternative to get rid from this kind of problems. There are many alternatives of steel that is hard plastic, iron, copper etc. So research and development department of the organization has to identify the upcoming trends by which business will not suffer the loss (Rothaermel, 2015). Substitute of the products and services in the market may affect the production capacity of the business and they have the duty to come up with the new ideas to eradicate this kind of issues.
Industry Rivalry affects the quality of the products and also hampers the profit ratio of the organization. It is duty of the organization keep the information about the competitors in the market and also identifies their marketing strategy. Marketing department of the Severstal conducts the research in the market to identify the customer base of the rivalry organization. The manager also tries to assess their mission and vision by they are able to eradicate the factors that will affect the growth of business. These are the wide competitive force that applies direct competitive rivalry between the organization and its rivals in the market. Russia allows less business to enter in the market of the Russia but sometimes many sectors have high competition that affects the overall growth of the business. Competitive rival are the businesses with the same goods that aim the same customer group (Perdana.et.al.2012). The segment of this kind of organization is same but they try to eliminate the extra cost and focused to provide the economic products to the customers. This force is attached with the other four forces and binds the organization to meet the expectations of the customers.
Pestel analysis may facilitate the organization to identify the factors that are affecting the organization in very significant manner. The political, economical, health social, technological, environmental and legal factors affect the business and create the barrier for the business. Legal factors may binds the business in the business expansion and also reduce the productivity of the organization. It also helps the management to identify the targeted customers for the organization and also help the business to identify the latest technology in the market. Porter’s five forces may help the business to identify the threats that affects the business like threat of new entrant, buyer power, supplier power, substitute of the products and rivalry.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24
Grünig, R. and Kühn, R., 2015. Global Environmental Analysis. In The Strategy Planning Process (pp. 89-96). Springer Berlin Heidelberg.
Jurevicius, O., 2013. PEST & PESTEL Analysis,". Strategic Management Insight, 13, p.2013.
Lee, H., Kim, M.S. and Park, Y., 2012. An analytic network process approach to operationalization of five forces model. Applied Mathematical Modelling, 36(4), pp.1783-1795.
Magretta, J., 2013. Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press.
Obloj, K., 2013. The passion and discipline of strategy. Springer.