An understanding of the environment surrounding a firm is an essential element of the development of corporate strategy, because environment is the critical factor which either facilitates or thwarts the march of a firm by giving opportunities or posing threats. PEST is one tool to understand the surrounding environment.
Simply stated, PEST is a checklist of factors arranged under four headings: political, economic, socio-cultural and technological and the first letters of the four groups are strung together to make an acronym, PEST. ( Lynch 1997a, p.94). Lynch calls them Political future, Socio-cultural future, Economic future and Technological future. Since future derives its trends from the past, the environment what existed till now and what is at present is scanned to figure out what it will become in the future.
Political future covers forecasts on political parties, trade blocks, legislation on issues that impact the way business is done, relations between government and the organisation, and government’s stance towards business, competition and monopolies. Amazon should keep track of governments around the world and their outlook towards online retailing. Economic future gives forecast on matters such as GDP, inflation, consumer’s income and disposition towards consumption, currency fluctuations, unemployment, investments by state, energy, communication, transport costs, interest rates and so on.
Expanding incomes, spouse’s participation in family earnings and so on make them crave for alternatives to physical shopping, and the services of Amazon befit their needs. It is a positive signal for Amazon. Socio-Cultural future covers forecasts on shifts in values and culture, change in lifestyle, attitude to work and leisure, environment concerns of the people, education and health, demographic changes and distribution of income.
That people across the globe want to change their lifestyles and have the best in their lives is a godsend opportunity that Amazon can cash in on. Technological future gives forecasts about likely new products, new research initiatives, new patents, competitor’s investments on technology, developments in remotely connected industries ( Lynch 1997b, p.94). The outlook of the current technological environment presents both opportunities and challenges. To elaborate, changes in technology may help Amazon develop and bring in best technology and best products, and employ best delivery systems. On the other hand, changes in technology are not only likely to encourage the entry of new rivals but may also pressure Amazon to invest more in technology to pre-empt the moves of the competitors.
Another tool to understand the competitive environment, particularly, the rivalry from similar firms, and to stay ahead of them is Strategic Group Analysis. “A strategic group is a set of firms emphasising similar strategic dimensions to use a similar strategy. The competition between firms within a strategic group is greater than the competition between a member of a strategic group and companies outside the strategic group. Another way of saying this is that intra-strategic group competition is more intense than is inter-strategic group competition.” ( Hit et al 2007, p.60).
From a competitive standpoint, the kind of technological leadership, distribution system, product quality, pricing and customer service that Amazon has, sets it apart from eBay, Wal-Mart, Google, Apple, Yahoo! and the like. But Barnes and Noble and Wal-Mart’s E-How belong to the same strategic group as Amazon does, and hence the competition is not only intense at present, but they have the potential to take Amazon down. Particularly, the size and capability of Wal-Mart apparently pose a serious challenge to Amazon. eBay is a in different class insofar as it works to facilitate the transactions between consumers (C2C). It follows that Amazon has to guard itself against the possible strategic and competitive moves from Wal-Mart and Barnes and Noble.
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