Pestle Analysis

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