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In the contemporary business world, a business can either thrive or plunge depending on the several internal and external business factors. In business management, carrying out a business environmental scanning helps entrepreneurs to evaluate the level of their business progresses and the manner in which different environmental factors influence business performance (Gupta 35). Industrial changes are external factors that directly influence the performance of a company on both short-term and long-term basis (Grundy 220). Therefore, this essay assesses the Real Estate Industry using the PESTEL analysis model and the Five Force Model Analysis to scan some significant issues in its macroeconomic environment.
The macroeconomic environment of the Real Estate Industry
The real estate business is the most booming sector department, with several investments rapidly increasing in different competitive environments. Globally, governments are boosting the real estate sector through tax subsidies, through some enabling policies, and through the trade-based investment plans that are slowly revamping the sector. These are the positive impacts in the real estate business. In addition, several market-enabling factors have been spurring growth and development in the real estate business.
In analyzing the external environment of the Real Estate Industry, this report utilized two business assessment tools known as the PESTEL business model and the Five Force business model. According to Gupta (34), PESTEL stands for the Political, Economic, Social, Technological, Environmental, and Legal factors that influence a business environment.
PESTEL Analysis on the Real Estate Industry
The interest of this analysis in the PESTEL model hinged upon two critical aspects of business survival. The analysis focused only on the legal and environmental aspects that researchers often describe as potential factors that can influence a business (Gupta 35). Globally, legal changes seem to influence the real estate business. Although the business relies majorly on the private investors, it is still a state-controlled activity, where laws and regulations apply.
Globally, the real estate business is currently enjoying some significant improvements in the land protection and tenancy laws. Governments are supporting several policies, Acts, and legislations that boost the real estate sector. These are positive changes in the growth of the real estates.
In the PESTEL business assessment model, a business environment is a macro environment factor that can affect a business (Gupta 36). Environmentally, the real estate department is enjoying an increase in the raw material providers, the presence of sustainable business rules, and an increase in the numbers of clients and investors. The investment policies safeguarding the actions of the land investors have provided friendly regulations that protect the environment and the rights of the investors as well.
However, the latest issues arising from the real estate business is that the cost of protecting the depletion of environment has gone high because several investors in the residential and commercial buildings are failing to observe environmental standards.
Five Forces Model on the Real Estate Industry
In the real estate business, competition and core competencies are considerable factors in the success of a real estate business. The Porter’s five forces business assessment can significantly help to determine the business competitiveness (Grundy 217). According to Porter, the threats of the new entrants, the bargaining power of the suppliers, and the threats of the substitute products, are the dynamic aspects that contribute to the industrial competitive rivalry (Grundy 214). For the Real Estate Industry, emergent real estate companies are relentlessly appearing in the real estate market. Giant, privately owned real estate companies from the well-established investors are creating a gradual competition. However, some global investment policies slightly neutralize the impact of the new entrants.
The power of the suppliers to bargain is not an applicable concept in the real estate business. In the real estate business, the business dynamics include geographical location, living standards, and competition. These dynamics determine the pricing strategies in the real estate firms. In terms of the threats from the substitute products, the real estate business of is not substitutable to any business strategy.
This makes the Real Estate business to enjoy an elastic market that lacks the threat of a competitive substitution product. Therefore, in terms of its discernible strategic group, the Real Estate Industry falls under the free private sector, where inter-company competition, pricing strategies, house designing, regional aspects, and customer’s ability to buy or rent houses, determine the progress of the business.
As business competition, and challenges become foreseeable in the practices of the contemporary businesses, assessing the external environment or the macro environment is essential for business survival. Assessing the external factors that influence the success and survival of a business, and especially those factors directly associated with a firm’s industrial sector, makes a firm understand its business environment and design competitive strategies to counter the growing challenges.
In the Real Estate Industry, potential and aspiring investors must understand the industrial aspects of the real estate such as the threats of the new entrants, the bargaining power of the suppliers, and the underlying environmental and legal issues. Globally, several changes in the above factors seem to influence the course of the real estate business.
Grundy, Tony. “Rethinking and reinventing Michael Porter’s five forces model.” Strategic Change 15.5(2006): 213–229. Print.
Gupta, Abhishek. “Environment & PEST Analysis: An Approach to External Business Environment.” International Journal of Modern Social Sciences 2.1(2013): 34-43. Print.