All right.

00:08 Welcome, everyone, to Module number 2, where I'm going to 00:12 introduce quite a few management tools to you. 00:15 What I want to focus on in this topic and the next one is 00:19 how to conduct a PESTEL analysis. 00:23 PESTEL analysis is a very, very useful tool to look at 00:28 the external environment and here, looking at factors such 00:33 as the Political, Economic, the Sociocultural, the 00:38 Technological, the Environment itself, and the Legal 00:42 environment. 00:43 But let's kick off with the political environment. 00:48 So let me illustrate that here, political. 00:54 And what exactly are we looking at when we look at the 00:57 political environment? 00:59 One crucial factor would be, for example, taxes. 01:03 In Australia, the government just introduced the mining 01:07 tax, which had quite a bit of an impact on the big miners, 01:12 such as Rio Tinto and BHP Billiton. 01:15 Other examples would be the income tax of 75% for top 01:21 earners in France, for example. 01:24 Another good example for taxes that the government is 01:27 imposing is the goods and services tax or the VAT, as 01:30 the Americans call it. 01:32 So basically that is just increasing the price of goods 01:37 and services that consumers purchase. 01:39 Here in Australia, we have a GST of 10%, whereas in Europe 01:44 the GST, for example, in Germany is 19%, which is twice 01:48 as high, and consequently makes 01:50 goods much more expensive. 01:53 Another area we'll be looking in the political environment 01:56 would be tariffs. 01:59 Typical tariffs would be import taxes. 02:03 For example, the government in Germany is imposing import 02:07 taxes on cars from Japan. 02:10 And that makes quite sense, because what they're trying to 02:13 do is they're trying to protect the 02:15 car industry in Germany. 02:17 So here, the premium car manufacturers, such as BMW, 02:21 Audi, Mercedes, Volkswagen, Porsche, et cetera, are 02:25 protected by these taxes. 02:27 And consequently, if the Japanese are trying to import 02:31 a Toyota or another Japanese car, these cars become more 02:36 expensive and consequently less attractive than German 02:41 manufactured cars. 02:42 Another example for a tariff would be-- let's just think 02:46 about China.

02:48 A lot of things are manufactured in China these 02:50 days, especially when we look at clothing and at garments. 02:56 And just imagine the Chinese government is deciding at some 03:00 stage to impose a 20% tariff on all exports to Europe, to 03:08 the US, to Asia Pacific, which would basically mean that 03:13 goods that are being manufactured in China that are 03:17 now exported or imported to European countries will become 03:22 20% more expensive. 03:23 And 20% more on imports, that's quite something that 03:28 organisations have to carry. 03:31 Another area you might want to look at is regulations, 03:35 regulations such as trading hours, for example. 03:39 Stores can't open in most countries 24/7. 03:45 Other areas that you might want to look into are working 03:50 hours of workers and employees, which in some 03:54 countries, for example, in France in some industry are 03:56 restricted to 35 hours per week. 03:59 Or look at Australia, the regulations around selling and 04:03 promoting alcohol. 04:05 I guess the same applies in the US. 04:07 Or looking at the plain packaging regulation that was 04:11 just introduced for cigarettes being sold in Australia. 04:15 So I think you start to get an idea what we're looking at 04:19 when we're looking at the political environment. 04:21 OK. 04:22 The next area that I would like to look into is the 04:25 economic environment. 04:30 Economic. 04:32 There we go. 04:34 The economic environment is pretty much concerned around 04:39 business and consumer sentiment. 04:42 If business sentiment or consumer sentiment are very 04:44 high, that is good times for business, because consumers 04:49 and businesses are purchasing. 04:51 It sort of means we are looking at the mood of 04:55 businesses or the mood of consumers. 04:57 And if they're in a good mood, if sentiment is high, 05:01 consequently their purchasing product. 05:04 Now, the economy always goes through cycles. 05:07 And I think you're all aware of the global financial crisis 05:11 that we went through in 2007, which has actually resulted 05:15 into recession in the US, in Germany, lots of other 05:20 European countries. 05:21 And well, I can say in Australia we were lucky. 05:24 We never had recession. 05:27 If you were to define recession, just on the side,

05:30 it's actually two consecutive quarters of negative 05:33 growth of the GDP. 05:35 And that basically means six months of negative growth, or 05:39 decline in the GDP, and that something Australia has 05:42 successfully circumnavigated in the past few years. 05:48 During tough economic times that we've seen in the past, 05:54 usually consumers sort of reduce their spending on 05:58 discretionary items. 05:59 Discretionary items are nonessential items that 06:04 consumers don't need. 06:07 And you could count under those holidays, a big plasma 06:14 TV or LED TV, whatever the new technology is. 06:19 These are all items you don't necessarily need, but you 06:22 would like to have them. 06:23 Now if you're sure that you're going to maintain your job for 06:27 the next couple of years and everything is looking 06:29 prosperous, business are growing, consequently 06:32 businesses spending money and so do consumers. 06:38 I'll give you an example of industries that are typically 06:41 affected by the economic environment. 06:43 So have a look at the recruitment industry. 06:47 Quite understandably, during times of recession or economic 06:52 slowdown, companies aren't recruiting. 06:55 So consequently, recruitment companies are not selling 07:00 recruitment candidates to organisations. 07:04 So their services will be less in demand. 07:08 On the other hand, if we look at sales of Domino's or 07:12 McDonald's, we saw that during the recession that we've seen 07:18 in the US and in Europe, sales of Domino's and McDonald's 07:23 have actually been quite unaffected. 07:25 In fact, they have slightly increased during that time. 07:29 So just to give you an idea, recession is not necessarily 07:32 something that is negative for all businesses. 07:35 Obviously fast food businesses are probably 07:38 thriving in those times. 07:40 However, premium goods or luxury good manufacturers are 07:44 having a hard time. 07:47 Let's now move on to the social or sociocultural 07:50 environment. 07:54 The sociocultural environment, what we're looking here at is, 07:58 for example, demographics. 08:00 When we're talking about demographics, we mean age, 08:04 gender, education, income, et cetera. 08:08 So in that respect we're also looking at what's the size of 08:13 the family unit. 08:15 And if we have a look at family units over the past 50

08:19 years, let's say, we realise that family 08:21 units have become smaller. 08:23 There's hardly anyone out there, especially in Europe or 08:27 in the US, if we exclude the southern Mediterranean 08:32 European countries, where grandma and grandpa are still 08:36 living with the family. 08:37 Family size is becoming smaller and smaller. 08:41 Young couples are sort of pushing the time when they 08:44 have children further and further back. 08:48 And that has an impact on businesses and the goods that 08:52 they're selling. 08:53 Also, the role of the woman. 08:55 The woman nowadays is not staying at home anymore and 09:00 just looking after the kids. 09:02 Women are in the workforce. 09:04 And if you think about it, well, who's doing the cooking? 09:07 Who's cleaning up the house? 09:09 Who's doing the ironing? 09:10 Who's looking after the kids? 09:12 Well, these are all services that are highly in demand now 09:16 due to the change in the sociocultural environment, 09:19 here just illustrating the change that women now being in 09:25 the workforce, not staying at home, and how that impacts on 09:29 the business environment in general. 09:32 Another good example would be an increase 09:35 of ready-to-go meals. 09:37 People are becoming increasingly time poor. 09:40 It's all about time. 09:41 Time matters. 09:42 And you've probably heard time is money, right? 09:45 So cooking at home for one hour and relaxing after that 09:50 is not an option anymore. 09:52 You come home. 09:53 You quickly want to have food, and then you want to have 09:55 leisure time or you want to go to bed if you 09:57 work very long hours. 09:59 Consequently, the industry for fast ready-to-go meals, so to 10:06 say, is growing. 10:07 And that is an industry I would definitely 10:10 invest my money in. 10:12 OK. 10:12 Now that we've discussed the sociocultural environment, 10:14 let's have a look at the technological environment. 10:21 Technology. 10:24 OK. 10:25 In terms of technology, changes are so rapid.

10:30 Changes are pretty much happening every day. 10:34 The iPad, the iPad mini, new generations of the iPhone are 10:39 coming out. 10:40 The Australian government is rolling out the NBN network, 10:44 which is enabling Australia to have internet speeds of up to 10:48 100 megabits. 10:51 In that respect, technology is making the world a smaller 10:55 place to do business in. 10:57 Online retailers around the globe are succeeding in 11:01 selling goods not only in their home country, in their 11:05 domestic area, but also overseas and in 11:09 international markets. 11:12 Shipments, technology around shipping products from A to B, 11:17 all this is going hand in hand and is enabling businesses to 11:21 do business more easily overseas. 11:24 And consequently, the world is actually 11:26 becoming a smaller place. 11:29 Think about online retailing. 11:31 Think about the IT industries. 11:36 These are all industries and areas 11:38 that are growing heavily. 11:40 OK. 11:41 Let's have a look at the environment and how that 11:46 actually impacts on businesses. 11:52 Well, just think about climatic changes. 11:55 Here in Australia, we had very dry periods, heatwaves. 12:00 There have been tornadoes, cyclones. 12:04 And all this is happening probably 12:07 due to climatic changes. 12:09 Now, obviously that impacts on tourism. 12:14 And also if you think about the industry that is selling 12:18 heaters, fans, and air conditioning, of course the 12:22 climate, an increase in climate or decrease, will 12:26 impact on these businesses. 12:28 So global warming is something that is of interest for quite 12:33 a few businesses and opens new doors. 12:37 The last area that I would like to look at is the legal 12:40 environment. 12:41 So let's have a look at the legal environment. 12:44 Now, you'll find that the legal environment is sometimes 12:47 included in the political environment. 12:50 But I would like to look at it separately for now. 12:53 So under the legal environment, we would have a 12:55 look at employment laws, for example, consumer laws in 12:59 different countries, health and safety regulations and 13:03 laws, taxation laws, and legal obligations that come with an

13:08 organisation operating in different countries. 13:12 To summarise I think you've seen that the external 13:16 environment is quite big.