PESTEL Analysis of the Macro Environment

G8 Education Limited is a locally owned Australian company that derives its revenue from providing early education services. The company has approximately 7,730 people operating its services in Australia. It operates eighteen services within the education line which exist as its brands. This makes the company one of the largest ASX listed childcare companies (IBIS World 2017, p. 2). This essay is an analysis of the macro and micro environment that the company operates.

The macro environment involves factors that affect the entire economy of business.  These influences depend on the interrelatedness of the factors that exist since some factors affect the whole industry while others affect specific industries only (Porter 2008, p. 2). To understand the macro environment of G8 Education, PESTEL analysis is used to examine political, economic, social, technological, environmental and legal factors that affect the business. This tool is used to identify possible threats and opportunities that impact the industry and are outside its control.

Political factors relate to the government and its goodwill in supporting the business environment that the firm operates in. These factors include legislation, tax policies, safety laws and political stability in the country which affect the entire economy. Ranked number fifteen with ease of doing business, Australia offers the best business environment for childhood education (Australian Trade and Investment Commission 2017, p.  8). G8 Education is enjoying political stability in Australia that has created better consumer services for the company to operate. Australia offers a stable and robust performing economy due to its proven economic resilience and sustained growth that provides a safe and low-risk environment for doing business. Being a modern, developed and stable nation, it offers competitive drivers that encourage investment. Molnar (2002) adds that Australia has a transparent regulatory system and sound governance frameworks that lead to economic resilience. This economic freedom that the country offers have created a better business environment that attracts foreign investments which may have negative impacts on G8 Education.

Economic factors relate to rats of inflation, taxes imposed by the government and unemployment that influence the way the economy behaves. This is because businesses are not recession proof thus the need to develop strategies for dealing with such variations. The country offers one of the highest growth rates of the developed world with its GDP estimated at 2.2% in 2017 (Australian Trade & Investment Commission 2017, p. 6). The fact that the unemployment rate in the country is low makes the business environment better since it means that most people can afford child education. This creates high future opportunities for G8 Education since there are higher economic benefits that the company derives.

Political Factors

Social factors involve consumers and the way they purchase products basing on factors like demography, ethnicity, social status lifestyle changes, immediate needs and trends in the industry. Consumers shape the way the organization operates since they are the one who choose what is important to them. Trends affect most consumers since people tend to influence each other. According to Bruce (2012, p. 12), the social context of education in Australia is changing as the government takes the initiative for children under five years. According to G8 Education (2018) by creating a higher focus on the importance of early childhood education, the company has established itself as a pillar of education in the society increasing its ability to survive in the macro social environment. This has increased its recognition in the society through its corporate social responsibility initiatives.

Technological factors relate to advancements in technology; both the ones used to develop products and those used to run the business efficiently to compete with others within the industry. Technological changes in the county have impacted the value chain making education efficient which leads to reduced business risks and challenges faced by G8 Education. G8 Education as one of the best companies that have adopted technological advancements in the sector. It enjoys business benefits of technological advancements and economies of scale that have allowed it to dominate the industry.

Environmental factors set norms and standards of business operation that impact profits. The Australian business environment calls for greener technologies to reduce the carbon effects that the firm will suffer. To survive the environmental impact of the business environment, G8 Education complies with the Australian environmental requirements by adopting the green environmental approach which shows respect for the environment and at the same time sustainable environmental responsibility to teach children to learn environmental management. The company does not only comply with environmental conservation but rather focusses on equity and fairness by taking actions that will have a positive impact on the future generation (G8 Education 2018, pp. 6). These include minimizing consumption, recycling consumables and supporting environmental awareness.

Legal frameworks control and regulate the business environment through setting conditions that define the way a business operates. Copyright laws, employment laws and consumer protection laws shape and determine the way the business environment looks like. The legal framework in the country is based on the political goodwill of the government to support early childhood education. This has created a better environment for business operation since the government has taken the role from parents. G8 Education complies with all the legal requirements of the industry to avoid the consequences of non-compliance.

Economic Factors

Porter’s five forces analysis is a tool for analyzing business competition by determining the competitive intensity and attractiveness of the industry.  These forces exist at the microenvironment which consists of forces close to the firm that affects its ability to reach out to its customers and make profit (Porter 2008, p. 78). Any change in one of the factors forces the business to reassess the marketplace to develop new strategies. These forces are power of suppliers, threat of subsidies, bargaining power of buyers, the rivalry of competitors and threat of new entrants.

The bargaining power of suppliers is high because there are many companies that are operating in the consumer sector. This makes the competition for raw materials high which decreases the margin that G8 Education Limited earns in the market. Further, dominant suppliers have better negotiation power leading to higher prices for the consumer services filed which lowers the overall profitability.

The bargaining power of buyers is high since they have a lot of demands and expectations. Consumers buy the best and quality offers that they get by using the minimum prices. This means that G8 Education has to offer quality services and at the same time offer competitive prices that can attract more buyers (Bell 2015, pp. 3). The autonomy of buyers and the availability of information makes it easy for buyers to increase their bargaining power since they can compare the options that they have with what G8 Education offers.

The threat of substitutes is not high since the nature of education that the company offers is different. Even though there are other services like Dropbox and google drive that can change the quality of education. These services work well for older adults who can take instructions easily. Therefore, the value proposition that the substitutes offer is an opportunity rather than a threat since G8 Education can build itself around the business proposition that these companies provide (G8 Education 2016, p. 18). Further, G8 Education provides a variety of early childhood education brands that limit the power of substitutes.

Since Australia offers a good business environment for investing, the threat of new entrants is high since the business environment is good. Further, transparency in regulation and government policy creates a stable and attractive environment that is easy for business (Ogutu & Martin 2015, p. 5). Also, new entrants bring innovation and new ways of doing business that make the business more competitive. However, the company has solved this challenge by acquiring most education affiliated institutions so that the threat of new entrants can be reduced (G8 Education 2010, p. 11). In addition to that, the developing interest of the Australian government in education makes the threat of new entrants high since it sets conditions that allow smooth operation and service delivery to children.

Social Factors

G8 Education operates in a competitive customer service industry which can impact the proceeds the business reaps. However, G8 has built sustainable differentiation of its products. G8 Education competes with other competitors like Affinity group which create high competition in the industry. This calls for the need to develop aggressive strategies to survive the industry challenges. Further, competition remains high due to easy market entry of other competitors. However, the firm remains better placed since it has the best strategies for surviving environmental forces.

Conclusion

Sridhar, et al. (2016, P. 216) suggests that firms can use micro and macro environment analysis to develop business strategies for surviving internal and external business challenges. To survive the business challenges from the macro and microenvironment forces, G8 Education needs to build economies of scale to lower its fixed costs per unit and at the same time invest in research and development to define standards of operation that make it difficult for new entrants. G8 Education has to establish a competitive advantage that will lead to survival. G8 Education needs to strengthen its internal competitive advantage and work on adopting to the business environment that it faces. By balancing the five forces and developing strategies to ensure that the company adopts to the challenges in the external environment.

References

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Bell, N., 2015. Is G8 Education the market’s best sell?. The Sydney Morning Herald, 12 March.

Bruce, T., 2012. Early Childhood Education. 4th ed. s.l.:Hodder Education.

Education, G., 2016. G8 Education-Investor Presentation, s.l.: G8 Education Limited.

G8Education, 2010. G8 Education Limited, s.l.: Balvane Securities.

G8Education, 2018. Company Overview. [Online] Available at: https://g8education.edu.au/about-us/company-overview/
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G8Education, 2018. Corporate Social Responsibility (CSR). [Online] Available at: https://g8education.edu.au/about-us/corporate-social-responsibility/[Accessed 19 july 2018].

IBISWorld, 2017. G8 Education Limited – Profile Company Report Australia, s.l.: IBIS World.

Molnar, A., 2002. School Reform Proposals: The Research Evidence. Greenwhich: Information Age Publishich.

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Porter, M. E., 2008. The Five Competitive Forces that Shape Strategy. Harvard Business Review, 88(1), pp. 78-93.

Sridhar, R. et al., 2016. A Political, Economic, Social, Technological, Legal and Environmental (PESTLE) approach for assessment of coastal zone management practice in India. International Review of Public Administration, 21(33), pp. 216-232.