PESTEL and Porter’s Five Forces Analysis
There are many factors that influence the beer industry. They include the internal factors, which are unique to that business, and external factors. External factors do not necessarily originate or can not be associated with the industry directly. This is with respect to production costs, quality setting and maintenance.
This is mainly so because such factors are mostly beyond a certain industry, and tend to take a universal effect on it. Just as it is the case with many other sectors in the economy, the global forces at play have a bearing and/or influence of some sort on the industry (Radcliff, 2008).
The European beer industry is, therefore, not an exception. It is subject to particular global forces that shape its various dimensions with respect to markets and market shares. Others include current earnings as well as projected earnings, suitability and sustenance with respect to growth over time and the capacity to expand and diversify for individual companies within those industries (Gillespie, 2007).
Generally speaking, the European beer industry has undergone massive development over the decades, considering that it is among some of the oldest industries in the continent. Global forces that have been in play such that they have had an impact on the industry are viewed as macro economical. Most of them have been and are still dynamic, ideally responding to changes in human knowledge and ways of doing things (Radcliff, 2008).
The different European countries have had varying political systems which in their own ways either encourage or discourage the well being of the industry. Government policies, fiscal or otherwise that favour such as low taxation on beer, ale and other products from the industry not only encourage its growth by promoting positive reception by the market, but also sets the stage for entry into the market by more firms that seek to take advantage of the promising returns in the long run.
Similarly, higher taxation and strict legislation on production, possession and consumption of the same products have a shrinking effect on the viability and sustainability of the industry. This is because such measures restrict the profit margins especially in the case where such margins are solely reliant on the volumes of sales.
Moreover, government directives on quality of the products have a bearing on the industry’s capacity as it effectively allows or locks out investments in the same with respect to the investors’ ability to meet those standards. Many European countries have had governments that have had their focus on industrial growth as key to development, and therefore put in place policies that not only seek to boost the growth of the various industries- beer included (Gillespie, 2007).
The ever changing economic environment always has a bearing on any industry in any country; therefore the beer industry is not excluded. Different elements of the economy have some form of influence on the industry directly or indirectly.
In an economy where the cost of capital is relatively high, the levels of investment in this industry would be hampered, thus greatly dwarfing its potential. This is because such high costs of capital decrease the profit worthiness of the industry, as compared to when such costs are relatively lower (Gillespie, 2007).
SWOT Analysis and Trend Effect
Basing argument on one of the beer brands produced in Europe (Heineken), I will critically analyze the markets various forces at apply looking at strengths opportunities weaknesses and threats. Inflation and economic depression are some of the elements of this factor that have significant bearing on this and other industries.
Whereas inflation has the effect of driving away consumers of these products who may choose to turn to other necessities or worse still cheaper substitutes due to the nature and level of urgency of their needs with respect to the high prices of goods, economic depression limits the predictability of the return in the industry especially in the money markets. Inflation generally has the effect of lowering sales volumes for the particular products and increasing the costs of production for individual firms (Porter, 1995).
Exchange rates are another crucial element that has to be considered as it determines among others key magnitudes of levels of input by the industry. This is especially the case where firms rely on imports for their inputs, and or target export markets for their products. Most European countries are not self sufficient when it comes to sourcing of such materials as barley, and therefore have to rely on supplies from other countries mainly from Africa, Asia and the Americas.
Acquisition of such inputs is usually at world market prices as fixed to the dollar. The higher a country’s currency strength is to the dollar the better placed its industries are in purchasing imports, and the cheaper its export products will be. Similarly, the weaker the currency the more the firms in its industries will have to pay for their imports, and the more they would earn from exports.
Since economic depressions affect a vast region of the economy, the liquidity of the firms in the industry is threatened, and in some cases, forced to go under or operate in heavy losses in anticipation of economic recovery. European countries have strived to adjust to the economic factors favourably to ensure that the twists that occur in the world economy do not cripple the industry (Radcliff, 2008).
Different social environments require their own distinctive approach when analyzing the kind of effect they would have on any particular industry. This is because the varying people set up and behaviours follow specific patterns that may define the nature and their acceptable standards for specific products.
For example, in some European cultures, production and consumption of alcoholic products such as beer is limited to say a specific group of people, defined by age, gender or social status. In some cultures, the same is forbidden altogether for everybody. Some cultures have provisions for what products would qualify for legal production and consumption, and have general guidelines to the same (Radcliff, 2008).
Demographically, the socio- cultural provisions of the society determine the nature, distribution and size of the target market for the firms in the industry. For example, most European countries have age limits for consumers of alcohol, as well as provisions for distribution points for alcoholic products.
For societies where the consumption limit favour the greater majority of the population with regard to distribution, the beer industry enjoys relatively high levels of growth and success as compared to when such limits only allow a smaller portion of the population to consume the products. In some cases, these social stands may be determined by the tenets of the predominant religion in a particular region.
Most countries in Europe are predominantly liberal in religious issues, and therefore do not necessarily command restrictions of any kind to the production and use of beer products. This means that there is always going to be a market for such products. However, this is not the case with a few countries where some predominant religions have a bearing on the consumption of alcoholic and other malt products since the restriction adopted by the people would discourage the flourishing of the industry (Porter, 1995).
Europe is the cradle for the technological era, and has been on the forefront in making inventions and innovations in virtually all fields. The beer industry in almost all countries is therefore among the beneficiaries of the advantages that come with technology. The methods of production have adopted safer modes that are efficient in quality maintenance, uniformity, volume of output and time.
This ensures that consumer safety is not compromised, and that the industry is able to compete effectively with other industries as it is compelled to invest in research and technology so as to come up with better and more efficient ways of doing things. Technology is improved each day, and therefore the need for firms to set up special departments or acquire the services of other specializing firms to carry out these kinds of research on their behalf.
In the long run, the industry is able to come up with environmental friendly ways of production as well as develop new products to add to its line. For example, through investment in research, several European brewing experts were able to come up with non alcoholic malt based drinks which have since been widely adopted through out the world.
The beer industry deals with consumer products- those which are obtained for use directly by the user. For their safety, there are requirements by law that seek to provide the necessary protection. These laws define the nature of interaction that is acceptable between the producers of a product, the product itself and the consumer.
They also ensure that the consumers are protected from exploitation and or injury due to consumption of the said product. Other areas such laws may cover include matters of discrimination and the safety of the workers in those production firms (Porter, 1995).
The welfare of the people is sovereign in all Europe, and the legal framework in countries in Europe requires that players in this industry comply with the statutory requirements as provided for the particular countries. This has ensured that firms stick to ethics both internally and externally by providing measures that check the industry.
The effect of the external factors to any firm may be detrimental to the industry especially if there is an imbalance of any nature. The industry therefore has to carefully examine these factors and how they relate to each other with respect to the particular industry. In this case, the beer industry in Europe has been able to sustain its growth and hold its position by carrying out Industry Analysis.
As a result, the beer industry in Europe ha enjoyed relatively positive growth over the years, and as thus it remains a significant industry in the continent (Porter, 1995).
Reference List
Gillespie, M. (2007) PESTEL Analysis of the Macro-Environment. Oxford University Press. Web.
Porter, E. (1995) Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Routledge Publishers.
Radcliff, H. (2008) Industry Analysis: Complete Overview. Oxford: Blackwell Publishing Ltd.