IB Business and Management – Pre-Released Case Study 2015
PEST Analysis
IB Business and Management: www.IBBusinessandManagement.com
IB BUSINESS AND MANAGEMENT – PRE-RELEASED CASE STUDY 2015: PEST ANALYSIS
Important! Bear in mind that the IB examiner is not looking for a nicely set out quadrant with brief bulletpointed outlines of the identified Political, Economic, Social and Technological factors within the
external environment. Explain each point.
It is also unlikely that an examination question will focus the external environment on Alejandra herself,
but rather her company ‘LadyA Management Limited’ and it will do so in a way to address the three
strategic options presented by the business consultants. Thus, the PEST should be used to address
questions associated with strategic analysis leading to strategic choice and the implementation of a
strategy.
Explain why each point identified is relevant to the company. Use these explanations to help you draw
overall, informed and justified conclusions regarding strategy for LAM. Make it impossible for the
examiner to award you anything less than full marks for the critical thinking component of the mark
scheme!
PEST ANALYSIS FOR LADYA MANAGEMENT LIMITED (LAM) AS AT JANUARY 2015
POLITICAL
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Increasing political stability in South American countries, with few exceptions (e.g., Venezuela).
Holding concerts and promotional events in these countries will become less risky and political
stability may accelerate economic growth and development in South American economies.
Political stability in Malaysia – currently ranks 78th in the democracy ranking and 37th in the world
corruption rank.
New legislation in America regarding internet access by consumers – so called ‘net neutrality’
legislation could impact music download and streaming sites, and music distribution and
consumption in general.
New legislation in America: e.g., The Stop Online Piracy Act (SOPA) is a United States bill being
debated by the legislature. It is designed to expand the ability of U.S. law enforcement to combat
online copyright infringement and online trafficking in counterfeit goods.
IB Business and Management – Pre-Released Case Study 2015
PEST Analysis
ECONOMIC
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Economic downturns negatively affect revenues, and international markets such as Europe and
Japan have had moribund economies for a long time depressing demand in these countries.
Interest bearing finance can be obtained at historically low interest rates as American monetary
policy continues to be loose. More finance can be raised and increased gearing can increase
company profitability with astute investment strategies.
The American economy, her largest market, has been growing strongly as of late. Consumer
incomes will be increasing as more people find employment and average wages begin to
increase. Sales in general are likely to increase.
Increasing wealth and incomes in South American countries could drive demand for music and
concert sales and other LadyA products.
Exchange rate fluctuations between the Malaysian Ringgit and the US dollar. A relatively low US
dollar will increase costs and reduce profitability. Although increased risk can be mitigated by
having a dollar hedging strategy, and the opposite would apply if global markets were to be
developed (a lower US dollar would increase the profitability of exported products).
Music labels demanding a greater share of revenues as global music sales decline.
Monopoly positions being exploited by important companies central to LAM’s business operations.
For example, Google with search engine and internet advertising and Ticketek in ticketing concert
sales.
Strengthening US dollar reduces dollar denominated demand by overseas consumers, and reduces
revenues when foreign currency is converted into $US. Makes exporting less profitable.
SOCIAL
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Product sales and revenue streams for LAM appear to be heavily reliant on the position of Alejandra
being a major media star. LadyA has just peaked in terms of her popularity and earnings power. If
consumer tastes and preferences change so too will the power of the company’s brand.
Increasing size of Latin American population in the US – by 2030 the Hispanic population will grow
to over 70 million and account for twenty per cent of the US population. This is a population that is
relatively young compared to other ethnic demographics and therefore likely consume more of
LadyA’s music and products.
South American markets becoming more influenced by American culture (cf. globalisation) and
American music and concerts are likely to experience increased demand.
Other international markets becoming more globalised. Easier access to overseas markets and
increased demand for American and Latin music is likely (albeit from low levels in certain Asian,
African and European countries).
An increasing social awareness of global issues such malnutrition in developing countries,
homelessness in big cities, or international trafficking of children.
Societal norms regarding age and gender. In the US, many female musicians and film stars struggle
to remain popular in their forties: modelling jobs are harder to get; girls and younger women
typically prefer younger musicians and stars; and the idea of selling youthfulness becomes more
difficult as women grow older. The age of LadyA and increased competition by younger musicians
and stars will likely reduce company revenues sooner rather than later.
Changes in tastes and preferences (e.g., manufactured pop is no longer perceived as being cool)
in the LadyA target market may negatively impact demand if LadyA is unable to adjust.
IB Business and Management – Pre-Released Case Study 2015
PEST Analysis
TECHNOLOGICAL
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The ubiquity of smartphones and new apps (e.g. Android and iPhone) being developed all of the
time. This is of great consequence to how music is consumed and distributed.
An increasing presence of social media in the lives of individuals enables new ways to
communicate with potential consumers and promote products.
LAM produces relatively generic cosmetic and perfume products, likely without real innovation and
being heavily reliant on brand name for product positioning and not actual quality. Technological
advances by competitors in developing new products may place LAM at a disadvantage.
Licensing LadyA songs to music streaming services such as Pandora and Spotify.
Developing an e-commerce distribution model (zero intermediary channel). This would boost profit
margins on these products and/or allow for competitive pricing to increase sales volumes and
market share.
Increasing efficiencies in production as manufacturers incorporate new technology into their
production processes and invest in new plant and equipment could drive down costs.
Increased efficiency and increased capital intensity in American manufacturing means that less
labour is required in the manufacturing process, thus negating overseas manufacturing
advantages in terms of cheap labour.
Low barriers to entry by competitors into the music industry being facilitated by technological
advances (e.g. YouTube channels being easily established and music videos becoming less
expensive to produce).
Viral videos of competitors capturing market share.
Falling traditional music sales decreasing income in probably the company’s most important
revenue stream.
Music sharing technology becoming more user friendly or more socially acceptable, thus increasing
the proportion of LadyA’s music that can be illegally shared further reducing this revenue stream.
CONCLUSION
The PEST analysis of the external environment that LAM operates in points towards two key themes that
need to be carefully considered and planned for by the management of the company. The first being
that new technology in the music industry and internet technologies are causing large and fast
changes in this industry. By and large, new technologies are difficult to plan for in advance, but
incorporating a technology-centric focus into corporate culture will allow LAM to rapidly adjust to and
take advantage of new technologies in the way music is consumed and produced, and potential
consumers are communicated with.
Social factors are also very important to LAM. There are opportunities with shifting demographics in the
main US market. The Hispanic population is increasing at a relatively rapid pace, and this population is
generally younger than other comparison groups. The Hispanic audience, teenage girls and young
women are key market segments targeted by LAM. Increasing focus on a growing segment (Hispanic
females) may provide an opportunity to sell more product, increase brand recognition and entrench
brand loyalty. At the same time, globalisation allows American and Hispanic music to be more
accessible, familiar and popular in other parts of the world. LAM does not have an explicit international
marketing strategy, it should fast develop one and use e-commerce as a distribution model as young
consumers are very familiar with it.
Source: IBBusinessandManagement.com