PESTEL Analysis for Retail Sector
The PESTEL Analysis is an analysis of six key macro level elements which impact business and the decisions that they make. The retail sector on the other hand entails the sale of goods and services from a fixed location like a departmental store, kiosk or boutique, or through mail in small quantities that are directly consumed by the buyers. Besides, it should be noted that retailing can also include subordinated services like delivery. The buyers can be individuals or businesses based on the product. The PESTEL Analysis looks into factors like political, economic, social, technological, environmental and legal.
There are various kinds of political factors for the retail industry. Such factors can be impacting the sector currently and also have an impact in the future. Some of those macro level elements that players in the retail industry need to look into include rate of tax levied by the government, interest rates, political stability, consumer protection and foreign exchange rates for retail businesses that are operating on an international platform.
The economic environment is yet another aspect of PESTEL analysis that is very crucial for the retail sector. All those businesses that fall under the retail sector have to be up to date with the economic situation of the country in order to survive and make profits since when the economy is doing badly, spending habits shift. This in-turn impacts demand and supply.
Social and cultural changes that take place in a country are also of great importance to players in the retail industry. Such changes may have significant impacts on the performance of the sector. For instance, in a country whereby the population is culturally diverse like the UK, retailers have to be on the look out to supply products and services that can suit the various needs of buyers in order to perform well. The retail industry has to know how to manage diversity in order to benefit from the market.
In almost every sector today, technology is taking center stage. For instance, many consumers are today opting to shop online. Thus, it is very important that players in the retail industry are very keen to adapt to the technological changes in order to meet the various needs of buyers. Through technology, retail businesses can develop better relationships with the customers.
Since retailers operate on fixed locations, it is also important to consider the physical environment. Retailers have to be keen on selecting environment that is conducive for their target customers, the location is ideal in determining the number of customers that a business can attract. Besides, retailers should also be keen on the impact that their businesses have on the environment since that too can impact their performance.
For any business, there are always certain legal minimum standards that have to be met. Besides, there are also various pieces of legislations that are made from time to time in order to control the way in which retailers operate. These are important to look into so as to avoid getting on the wrong side of the law.
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PESTEL analysis is an analytical tool that is used for the strategic planning of a business. It is a means through which a business is able to review the political, economical, social, environmental and legal issues that impact its operations. It should be noted that these six factors can either affect a business positively or negatively. In conducting the PESTEL analysis, managers and owners of businesses can follow certain guidelines or answer some questions in order to come up with the results.
In the PESTEL analysis, political factors are mainly external to the operations of a company. They can include elements like government regulations or even the activities of individuals that can impact the performance of the company or business. Through conducting a review of the political factors, a company can determine how increase in revenue will impact its tax liability, the barriers to its entry into new markets based on the existing laws and also the results of its violation of political regulations and laws.
Economical factors are also classified as external in the PESTEL Analysis. When looking at these factors, it is important to note that there are certain economic trends that a company cannot manipulate like consumer income, spending habits, available credit, inflation, interest rates and current money supply levels. However, a company must keep these factors in check and operate within a given boundary in order to match the prevailing economic atmosphere. For instance, taking lots of debts when the interest rates are expected to hike in the future can have very bad consequences on a business.
Social factors of this analysis are related to the cultural trends and demographics in a local economy. It should be noted that demand for goods and services changes as the population ages. Thus, it can be argued that such a population has a higher demand for healthcare compared to electronics. Besides, a constantly growing population a result of higher birth rates or immigration impacts a change in preferences.
Environmental factors highlight the physical environment where a company or business operates. It comprises of natural resources like minerals, wildlife, waterways among others. Besides, companies have to also consider their impact on the environment and the opinion of the public regarding their practices.
Technological factors are of increasing concern in the PESTEL analysis. As the technology keeps changing, it is also expected that a company should adapt to them. A good company or business should always be aware of the emerging technologies in order to take advantage of them. Failure to keep with the changes can give your competitors an upper hand.
Legal factors in PESTEL analysis refer to the future changes in the existing laws and regulations. Governments often add or amend certain laws and regulations that can impact business activities to varying extents. It is very important for every company or business to stay up to date with information on government regulations in order to know how to frame their activities for profitability. For companies or businesses that operate internationally, it is important to consider the laws of other countries as well.
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Political Factors Affecting Tesco
Tesco is arguably one of the largest supermarket chains in the United Kingdom. Thus, it is in the spotlight at almost all the times that decisions need to be made with regards to business activities and other players in the industry. Thus, it is expected that there are quite a number of factors, some political that can impact its operations or the way that it does business. Read through to find out about some of the political factors that impact Tesco.
It should be noted that politics play a great role when it comes to the regulation of business activities. This occurs through laws and legislations that are sanctioned by bodies like the European Union, the UK government and the World Trade Organization. There are several elements that politics can impact like fiscal policy, import and excise duty. Besides, it should be noted that through politics, it can also be easier to acquire infrastructure. For instance, the UK government has been very instrumental in the expansion of Tesco through the provision of good quality communications infrastructure. The UK government has provided broadband and landline phones. Besides, it has also made sure that waste and sewerage is removed from the streets. In this way, Tesco has been able to reduce the costs of its operations and enabled it to open up branches in various localities.
In the UK where Tesco does business, there are quite a number of trade unions that in one way or another can affect the way in which Tesco does business. Employees who are registered with trade unions usually have certain rights that may not be in line with the policies of Tesco. In most occasions, Tesco has not approved hiring employees who are affiliated to certain trade unions on grounds that they impose certain laws that are against the way in which their operations are scheduled to run. For instance, employees who are affiliated to trade unions often demand pay hikes, a move that has not gone down so well with Tesco considering that they are being pushed by trade unions to increase salaries for their employees even when they do not have such plans. In the event that the company fails to deliver the request, trade unions result to industrial action that ends up paralyzing the operations of Tesco.
Through policies formulated by the European Union, Tesco can now enjoy a viable trading platform and even expend its operations to an international scale. This is because the European Union allows the free movement of goods, services, people and capital across all its 27 member states.
When looking at the political factors affecting Tesco, it is also important to look into the aspect of import duty. This type of duty is levied on goods that are imported into a country and affects Tesco considering the fact that it imports some of its products from China and some East Asian nations.
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Technological Factors Affecting Tourism
Tourism is an industry that is considered to be quite volatile and unpredictable. Thus, it can be easily impacted by almost all kinds of factors including social, economic, political, environmental, legal as well as technological. However, this paper specifically examines some of the technological factors that impact the tourism sector. Going by the trends, technology is constantly changing. These changes can have different impacts on the tourism industry.
Technological factors in the tourism industry are quite many and can range from medical developments to the innovation of space tourism. Besides, it is also through technology that communication has been enhanced, an achievement that has been very helpful to the tourism industry. Through the development of better communication technologies, many people have been swayed to engage in tourist activities since it has enhanced safety. In fact, it has enabled tourists to now communicate easily with their families and others at their own convenience, thus, peace of mind. Besides, the development of enhanced communication has also made it much easier for people who are interested in tourism to make bookings and plan with travel agencies at their own convenience. Thanks to technology, tourists can now conduct bookings easily through the internet.
Another technological factor that continues to grow the tourism industry is innovation. It is as a result of technology that tourists can now have a choice of how to enjoy their vacations with regards to traveling vessels. Today, there are spacecrafts that can be used by those who are interested in touring the space and other bodies that people were unable to visit in the past. Technology has greatly enhanced the tourism sector since it has brought in a new life and meaning to the industry. There are even some kinds of equipment that tourists can now enjoy using while on vacation to make their experience more fulfilling.
Infrastructure is yet another technological factor that affects tourism. In the past, many people would not go on tours to certain places as a result of poor infrastructure like road and rail networks, lack of hotels and resorts among others. As a result of technology, better road and rail networks have been developed; resorts and hotels are being developed, thus enhancing tourism activities. However, it should be noted that not all the problems regarding infrastructure have been successfully solved since there are still quite a number of nations and regions lagging behind. This only hurts the tourism sector since it scares away potential tourists.
Technology has led to the development of various kinds of safety gadgets that can be used in the case of disasters. For instance, today it is much easier for tourists to even tell the weather conditions in various places that they plan to visit. This has played a major role in instilling confidence in tourists such that they can now visit various places without worries. This has enabled many people to embrace tourism as an activity. Without such gadgets, not so many people would be interested in tourism.
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Economic Factors Affecting Farming
It is doubtless that farming is one of the oldest professions in the world. Nonetheless, there are numerous economic factors, which affect this profession. Today, farmers all over the world confront a range of challenges in a complex economic environment. For example, customers have access to the global market and have a variety of farm products to choose. Oftentimes, farmers are at the mercy of the weather and economic factors. In this article, we discuss these economic factors, which largely affect farming in the world.
To start with, prices of commodities have far-reaching effects on farming. For instance, the price of some farm products is pegged on factors like the weather and future projections by investors in the market. The demand for these commodities for food and nonfood uses further complicate the situation. In most cases, farmers make profit or losses depending on the rates the buyers in the industry are willing to pay for the products. International factors equally have a hand in determining the price of commodities in the local market because of the existing market linkages globally. Consider the performance of a country’s currency! Under normal market conditions, the strength or weaknesses of the dollar will by far affect prices since farmers compete not only with American producers but also with others from all over the world.
Government policies on levies and subsidies also affect farming industry. For example, the American government gives financial support to corn and soy farmers since the federal policy assumes that mass production of such foodstuffs would keep food prices lower. Additionally, this policy ensures that farmers have a measure of stability and allows consumers to acquire a range of processed goods at affordable prices. This applies to products, which are manufactured from commodity crops under the government’s consideration. The basis of this policy is to encourage farmers to continue continue producing these regardless of market trends and conditions.
Another economic factor that affects farming is labor and immigration legislations. In most cases, most agricultural activities depend on labor that is informal and attracts low pay. Furthermore, migrant farmers living illegally in countries play pivotal role in promoting farming activities. However, their illegality affects their effectiveness in offering value addition services to the industry. Because of the poor pay of most jobs on the farm, most native are not willing to take up the jobs. The baseline of this is that most immigration laws affect farming since they have impact on the availability of labor in a country. In countries like India, famers prefer using the cheap and readily available labor as opposed to machinery. On the other hand, the United Kingdom and Japan utilize machines more because of expensive labor. Here, people on the farm could be skilled or not as long as they can use the available machinery. Common machines include tractors, milking machines and harvesters.
Technology also affects farming in different, with numerous advancements. A common area where technology is applied on the farm is through machines and irrigation. The two types of technology play a major role in increasing agricultural products.
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Economic Factors Affecting Tourism
Tourism plays a major role in most economies in the world. Even though this role varies from country to country, there are various factors, which affect the performance of the tourism industry. In this essay, we shall discuss in details different factors, which affect the performance of tourism.
Firstly, there are many hidden costs attached to tourism, which may in turn have unfavorable effects on the host country. Research however reveals that richer countries have a higher likelihood of benefiting from tourism as compared to those that are poorly developed. While this is the case, most poor nations are usually in need of income and creation of new jobs for their local people and hardly realize these benefits from the tourism industry. This is because most of the tourism revenues are always transferred to foreign countries, leaving host nations in poor economic states. Additionally, tourism leads to exclusion of domestic products and businesses. Thus, some people, or leaders may not embrace tourism activities that negatively affect the performance of their local commodities.
It is important to note that countries support tourism initiatives to get revenues for their economies, which is the expenditure that remains after eliminating taxes, wages and profits. In most countries around the world, about 80% of travelers’ expenditures are directed to airlines, international companies and hotels. When this happens, the local workers and companies hardly feel the fruits of tourism. This is called leakages.
Additionally, local businesses hardly support tourism since the industry affects their businesses. In most cases, tourists go for all-inclusive packages, denying local business people chance to make money from visiting guests. For example, when tourists choose to operate from a resort or cruise ship, they deprive the locals the market for their products. Research shows that all-inclusive accommodation hotels make a lot of money even though they usually have a limited economic impact to the host country.
Additionally, the infrastructure of a country can affect the performance of the industry in different ways. For tourism to thrive in any economy, a country requires good transport and communication networks. For instance, there should be easy international connectivity through airports to facilitate entry and exist of tourists from different parts of the world. No tourist would enjoy visiting a country that lacks connection to leading international cities. This applies to the local transport system, which has to be in good state to attract guests from all over the world. In the event a country ventures into the tourism industry with poor infrastructure, it is likely to incur huge expenses in order to attain standards.
Unlike other industries, tourism offers seasonal opportunities. For example, people prefer travelling during the winter season to other destinations like Africa, which do not experience these seasons. This situation leads to economic challenges for countries, which largely depend on the sector. For workers in this sector, they lack job security, as they can be rendered jobless once the peak season is over. Because of this, some entrepreneurs and governments do not invest heavily in the industry because of its unreliability.
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External Influences on Tesco
Tesco is a leading supermarket chain operating in six countries, mainly in Europe. These countries include the United Kingdom, Hungary, Republic of Ireland, Poland, Turkey, Czech Republic and Slovakia. Tesco also has stores in Asian countries like Japan, Malaysia, and South Korea among others. Like many multinational companies in the world, there are various external factors, which affect the performance of Tesco, as you will notice in this essay. These external facilities are mainly political and legislative, even though economic, social, environmental and technological factors come into play too.
Regarding employment laws, the government requires retailers to offer a range of jobs, including high-skilled, lower-paid, locally based, and centrally located jobs among others. This legislation is in place to ensure that organization meet the diverse needs of the population, ranging from students, senior citizens in the society and parents. Tesco understands the fact that retailers have a bigger role in creating jobs in any economy. It hires more students, aged and disabled workers who earn lower salaries. This category stands for desirable employees because of the high staff turnover of the industry.
Secondly, Tesco has a concern for economic factor since they influence costs, demand, profits, and prices. In most economies, unemployment is a major factor because it affects effective demand negatively. Normally, employment serves as a source of income, which gives people the power to purchase. When unemployment hit high levels, this power reduces, affecting the performance of Tesco. Even though most of these economic factors are usually out of the company’s control, they have significant impact on the performance of business organizations.
Socio-cultural factors also affect Tesco. Because of social changes in the United Kingdom, shopping trends among people have drastically changed. Today, most people prefer one-stop and bulk shopping. To keep pace with these changing trends, Tesco has increased its stock of non-food items on the shelves to ensure that its customers enjoy shopping at one point for their convenience. UK retailers are also shifting to value added services because of demographic changes in the country. Some of these factors include the aging UK population, decline home meal preparation and increased number of female workers in the country. Consumers are also more informed and concerned about health issues, which has direct impact on demand. This is also affecting their attitude towards certain foods in the market. To adapt to this changing mix, Tesco is increasing its organic products on shelves because of consumers’ beliefs.
Though it is a micro-environmental factor, technology has influenced Tesco’s development of most of its products. Importantly, new technology in the market benefits customers and the company simultaneously. Tesco has achieved high customer satisfaction because of convenient shopping, presence of personalized goods and services and availability of products. Tesco stores employ a wide range of technologies, including wireless devices, electronic shelve labeling, radio frequency identification, intelligent scale and self-checkout machine. Most of these technologies have improved Tesco’s efficiency in meeting the changing needs of customers and keeping pace with the stiff competition among retailers.
Environmentally, Tesco has to align its operations with government laws, which requires firms to beware of their responsibility in the society through environmental protection. Through regulation and governance, Tesco focuses at greater corporate social responsibility and ensuring that it gives back to the people in different ways. Government regulations like Food Retailing Commission (FRC) equally affect Tesco’s activities as the law dictates how firms interact with suppliers and controls alteration of prices without prior notice to concerned parties.
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Social Economic Factors Affecting Tourism
Tourism remains the backbone of most economies in the world in terms providing jobs to people and earning revenues to governments across the globe. While this is the case, it is important to note that there are various factors, which affect Tourism in the world. These factors vary from country to country depending on other prevailing conditions in the market. In this essay, we shall discuss socio-economic factors that effect tourism industry.
The leading factor affecting tourism development is accessibility. Experts argue that this is the most important because of its impact. For instance, a city or nation can only thrive in tourism if it is accessible. In other words, it must have effective transport and communication networks to attract tourists. This infrastructure includes good road, modern airports, railway line and well-developed water transport systems. Accessibility allows tourists to visit all attraction sites with ease, devoid of inconveniences and extra costs. If a tourist wishes to visit far attraction sites in remote areas, within a short time, then the best alternative is flying. However, this can only happen if the government has tourism industry at heart and has invested heavily in the sector. In most cases, tourists hardly prefer waterways unless one wants to enjoy luxurious experience to visit isolated areas like attractive islands.
The second socio-economic factor that affects tourism is accommodation. Tourists prefer visiting places, which offer good accommodation and catering services. However, tourists have varying tastes and preferences for these facilities. For example, their lifestyles, expected services, standard of living and financial ability largely determine their choices. Accommodation centers ought to be classified i.e. star hotels for proper planning.
A wide range of classes gives tourists easy time selecting the most convenient and affordable package. Prices for these services have to be reasonable, as no one would wish to spend his or her whole fortunes on trip to an island or a visit to a national park somewhere. It is up to the government to carry out baseline surveys and establish the accommodation needs of its tourism sector in order to offer viable solutions. Besides standard accommodation facilities, security also plays a major role as tourism sectors in terror-free countries thrive more than in areas prone to war and attacks.
Thirdly, existing amenities largely affect the growth of tourism in the market. Besides a country developing tourist attraction sites, these have to be well maintained to earn reasonable and sustainable revenue to the people. Other facilities should be present to make the site a complete haven of fun. Among these amenities, include surfing, skiing, fishing, safari adventure, rowing, and roping among others. Besides these, emergency services should be present. For example, tourists need evacuation in case of an emergency like accident or security alert. Such services include the availability of ambulance services, emergency call lines and standby choppers to airlift victims whenever need arises. Where tourist attraction sites are privately owned, it would be the responsibility of shareholders to provide these services. Otherwise, the government has to invest in tourism amenities to make it a lucrative source of revenue. Other ancillary services like banking, hospitals, internet and insurance are also important in attracting and holding tourists. All these factors work toward economic development whenever the industry thrives.
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Factors Affecting Tea Production in Kenya
Although tea is a major cash crop in Kenya, there are several factors affecting tea production in this country. Tea is a third major earner of foreign exchange in Kenya after horticulture and tourism. GWL Caine introduced tea in 1903 in Limuru. Commercial production of tea in Kenya began in 1924. Black tea is the major tea produced in Kenya with major producers of tea producing white, yellow and green tea.
Today, tea supports many livelihoods of Kenya both indirectly and directly. It also impact on the Kenyan economy. However, there are many factors that affect tea production in Kenya and this implies that these factors affect the livelihoods that depend on tea.
One of the major factors affecting tea production in Kenya is climate change. Just like in other countries, climate change is causing unpredictable harvests. This is because climate change is causing unpredictable amount of rainy and dry seasons. Tea farmers can no longer plan on production activities effectively such as when to apply fertilizers or prune their tea bushes. It is also becoming difficult to plan their future which in turn impact on their productivity.
Usually, yields from tea bushes are high with quality tea at temperature ranging from 18 to 32 degree Celsius. Global warming is causing increase in temperatures by up to 2 degree Celsius making some tea production regions in Kenya unsuitable for this agricultural activity.
Economic Partnership Agreement signed between the ACP and the European Union ended preferential access to trade to EU market for the ACP products with tea included. Creation of the regional markets via regional trade agreements including the East Africa Community is a major element of EPA. The effects of these regional trade agreements on the tea production industry in Kenya are still unknown. For instance, Ugandan businesses have complained about the domination of the market by the competitive Kenyan manufacturing sector.
Globalization is also affecting tea production in Kenya. Globalization causes differences in the economic outcomes for downstream and upstream actors. That is, increased power and profits for the retailers in global-north which affect global-south producers negatively.
For instance, in 2009 Omen which is a research firm indicated that power in the worldwide tea industry is concentrated in four Trans-National companies only. These are Van Rees, Tata Tetley, James Finley and Unilever. These companies influence setting of prices at the tea auctions in Sri-Lanka, India, and Kenya which are the main markets where approximately 70 percent of the worldwide tea is traded.
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Factors Affecting Automobile Industry in India
Facts about the automobile industry in India
The automobile industry in India is one of the most important industries and it contributes at least 22 % towards the country’s GDP. This industry has grown over the years leading to India being ranked at 7th place in the world for production of automobiles. It is estimated that India produces a total of 17.5 million vehicles every year, 2.3 million of which are exported to other markets. This figure is expected to double with certain government interventions.
Five factors affecting the automobile industry in India
There are several factors that have affected the automobile industry in India. These include:
- Market size. India’s automobile industry has grown largely because of its large market size. The industry has had its fair share of both local and foreign consumers leading to higher production levels. The domestic market has experienced huge sales in two-wheeler vehicles with an estimated 11.3% growth recorded between April 2013 and 2014. There is also a huge market for passenger car sales within the domestic market. The sales for utility vehicles during this period were higher amongst the foreign consumers with a 298% increase in exports of these vehicles. The growing domestic income is expected to make motor vehicles more affordable for local consumers and thus increase the domestic market size for India’s automobile industry.
- Government regulations. The automobile industry in India has received extensive government support and this has encouraged a lot of foreign direct investment in the industry. The government permits 100% foreign direct investment in this industry and it is fully delicensed making it easy for investors to penetrate it and set up shop in India. Additionally, there are also tax incentives and investors can actually export the automobiles for free.
- Research and Development. There have been many research and development initiatives, both private and governmental. These are aimed at improving the automobile industry in India. The government started the Automotive Component Manufacturers Association of India (ACMA) which is an apex body that deals with the automobile industry in India. This body looks into matters such as upgrading of technology in the industry, collecting information on industrial events and trends as well as disseminating this information to relevant stakeholders. The body does this through research and also promotes trade in both domestic and foreign circles. On their part, private investors have also set up research and development initiatives within their companies. For instance the Mahindra and Mahindra research centre for electric vehicles in order to enhance their services in India.
- There are many investors from all over the world who are part of the automobile industry in India. This has created competition amongst several renowned brands of automobiles. The competition has in turn led to economies of scale with most companies working hard to meet the demands of both domestic and foreign consumers.
- Stable economy. Many experts predict that the future of the automobile industry in India is bright. However this is subject to the economic stability of the country and currency inflation rates. Economic stability and low inflation will increase incomes for majority of Indians and raise the domestic consumption of automobiles in the country.
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Factors Affecting Indian Economic Growth
India is one of the fastest growing economies. Since introducing the concept of free market in 1991, the Asian country has experienced rapid growth and is predicted to grow even further. As at 2011, India was ranked 11th in terms of nominal GDP and fourth in terms of GDP purchasing power parity (PPP). India has one of the highest populations in the world and a bustling manufacturing sector. In addition to this the country has changed its economic policies since independence in order to propel economic growth further. It is also known to save a lot and this has helped it to stabilize and grow.
All in all there are several factors that currently affect the Indian economic growth and these include:
- Capital flows and Stock Exchange Market. India has had a very steady flow of capital from both foreign and local investors. In addition to this, the country also has a thriving stock market and this has helped it gain capital. With this amount of capital, India has less to worry about in case the GDP rates fall. This is because its currency can still get overvalued given its steady flow of capital.
- The RBI ranks. The currency of India largely depends on the rankings by RBI. The RBI is in charge of managing the balance of payments for India. Slight changes in the RBI assessments can have a huge impact on the currency of India and lead to either over assessment or under rankings of the country’s economy.
- Global currency trends of economically powerful countries. India like many other countries has economic and currency links with powerful countries such as US, UK, Japan, Canada and others. When the currencies of these countries are undervalued, India’s currency is also likely to depreciate. On the other hand an appreciation of these currencies has similar effects on India’s currency. These global currency trends therefore influence India’s economic growth.
- Political changes. Political setup in India also influences its economic growth. A change in the country governance often leads to changes in economic policies especially with regard to importation and exportation of goods and services. Political changes also impact on the tax rates and may affect the investment climate which ultimately influences the economic growth rate of the country.
- Energy and oil. India imports oil in large quantities. This is an essential commodity and it affects India’s economic growth rate. When crude oil prices in the world market fluctuate, India’s currency cannot remain stable. High oil prices result in high inflation rates hence overvaluing of India’s currency.
- Demographics and poverty rates. India is one of the most populous countries in the world and economists predict that its population will rise by over 300 million by 2030. In as much as this population growth may be good in terms of larger markets, it is costly to maintain and can only be fruitful if India puts in place measures to provide its citizens with social, educational and economic needs. Otherwise poverty rates which are already high will increase with this population and drag the economic growth rate of the country.
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Factors Affecting the Leather Industry in India
Background facts on India’s leather industry
India is the second largest producer of leather garments and footwear in the world and its leather industry has grown substantially in the past decades. Between 2011 and 2014, the estimated growth rate of this industry was 8.5% and analysts predict better figures in the near future.
The main factors affecting India’s leather industry
As one of the top ten contributors to India’s GDP, the leather industry rakes in 7.5 billion dollars annually and the country has thus invested heavily in it. There are many factors that have affected the growth of the leather industry in India.
- Availability of raw materials. According to experts, 11% of sheep and goats in the world are found in India. This number almost double for buffalos and cattle with an estimated 21% of this population thriving in India. There is therefore a huge supply of hides and skins which are necessary raw materials in the leather industry. India has a comparative advantage in this industry because of the ready supply of these raw materials hence the growth of the industry.
- Presence of human capital. The leather industry is highly capital intensive. In India it employs more than 2.5 million people with an estimated 30% of the female population being absorbed in the industry. India’s high population and readily available cheap human resource has been instrumental in propelling forward the leather industry. It has encouraged both local and foreign investors to put their stakes in this industry.
- Support industries. There are several support industries which have helped the leather industry to grow. Industries such as chemical, machinery and tool industries have played a major role in the growth of the leather industry. Since chemicals, machinery and tools have been readily available, the leather industry is able to run more efficiently. There are also other support services such as transport, telecommunications and distribution services which have also enhanced the growth of the leather industry.
- Research and development investment. There have been major changes in the leather industry in India over the past decade. The quality of shoes has improved because of these design and manufacturing changes. This is due to varied investments in the research and development areas. These have resulted in new developments and more efficient methods of production. There are also many up and coming designers who have invented better designs for shoes that are more cost effective to make. Additionally, the industry is embracing new trends and this has increased its European market.
- Huge market. India’s leather industry accounts for 3% in the global market. This industry has a huge market is comprised of both domestic and foreign consumers. It is estimated that around 95% of all the shoes manufactured in India are purchased locally. Besides China, India is the second largest supplier of shoes in the world. There are also several leather articles that cater for both the local and foreign markets. India thus supplies articles such as saddles, gloves, jackets and bags to both foreign and local consumers. According to statistics, the major foreign destinations for India’s leather products include European Union (64%), USA (9%), Hong Kong (7%), UAE (2% and Africa (1%). Ultimately the leather industry in India has grown steadily due to this market.
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Important factors affecting the location of industries in India
In 2013, India had a nominal GDP of $1.87 trillion and was ranked 10th largest economy in the world. 26% of India’s GDP comes from its vibrant industrial sector. The main industries which have contributed to India’s rapid economic growth in the past decade include:
- Textile industry
- Petroleum and chemical production
Many investors, both local and foreign are rushing to India to set up industrial firms. There are several factors that affect the location of industries in India and these are what the investors look at before setting up their businesses.
- Availability of raw materials. Different industries require diverse raw materials. The availability of certain raw materials in some parts of India has led to the influx of industries that use these raw materials in these areas. For instance, sugar production industries have been set up in areas where there is large production of sugarcane. Additionally, the leather industry has thrived more in areas known for cattle, buffalo, goat and sheep farming. The raw materials therefore determine industrial locations. Textile industries are also located in areas that produce most cotton.
- Supply of labour. Whilst a few of the industrial firms may be capital intensive, most are labour intensive. In India the supply of cheap labour has been a huge influence in the location of industries. Most of the industries require many workers to run efficiently. Even though it has been argued that setting up firms can attract laborers from outside a location, many firms prefer to start industries in areas with constant supply of cost effective labor. Some provinces in India have fewer industries because of poor supply of labor and unproductive workforces.
- Market access. The proximity of the industries to the required markets has also influenced the location of industries. Most of the industries have been set up nearer the markets so as to ease distribution of goods and products. This is why some of the industries are closer to the cities because this is where the consumers are.
- Transport and distribution facilities. The availability of good road, rail and air networks has been a major factor in the location of industries in India. Most investors prefer to set shop in areas that are well connected. This makes it easier for them to distribute the manufactured products to their clients and markets.
- Power supply. Power supply greatly influences the location of industries in India because production is heavily dependent on power. Areas where power supply is erratic have fewer industries because this affects the cost of production and also slows down production rates. Most investors in India therefore tend to choose areas that have reliable supply of power.
- Financial factors. Areas with easy access to financial help in India tend to have more industries. Cities such as Bombay developed economically and industrially because many rich people were lending out capital to those who had viable industrial and economic ventures. Furthermore, the government has given out tax incentives to the investors setting up industries in remote parts of India in order to encourage more industrial investment in such areas.
- Environmental and climatic factors. There are certain industries which rely on climatic and environmental conditions to thrive. Such is the textile industry in India. The textile industries are set up in humid climates where cotton grows well.
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Effects of Income Inequality in Brazil
Despite the fact that Brazil has been recording an impressive economic growth, the country is still dealing with income inequality. In 2010, the country had a gross domestic product of 7.5% and in the last couple of decades income inequality has risen in the country.
The GINI coefficient in the country has decreased slowly from 0.596 in 2001 to 0.543 in 2009 and though this is the case, there is still a major problem in regard to income disparity. The richest people in the country who make up 1% of the population enjoy the highest income level which makes up 13% of the entire household income.
The percentage is the same as that of the poorest 50% which is roughly about eighty million Brazilians. Because of this inequality, the poverty levels in the county are inconsistent with the country’s economy. People who have an income of USD 6.1 per day in Brazil are classified as middle class earners and many of them are likely to fall into poverty once more if the issue of income inequality is not effectively addressed.
What is more, most of the Brazilians that fall in the middle class category are also known to have high debt service costs which in turn make them vulnerable financially. Of 200 million people in Brazil (as of 2013) 40 billion and roughly 100 million are reported to live in poor standards according to a report released by the World Bank. This is despite the fact that the country has kept the inflation down for close to two decades and there has been steady economic growth as well as stabilization of the currency.
The public service has failed to keep up with its income provision and public services in the country are provided by municipalities and states. The health sector has especially been impacted by income inequality despite the fact it was identified in 1998 as a fundamental right. The health system in the country suffers from underfunding while health spending remains low.
There is also a shortage of medical stuff which in turn results to insufficient access to the most basic health services. Education is another sector affected by income inequality when measured by international standards. There is limit to social mobility and the inequality is attributed to pre-determined circumstances of the people such as gender, family, background and race.
Until income inequality is effectively addressed in Brazil, the people will continue to suffer and the numbers of those living below the poverty line will continue to rise as well.
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Effects of Income Inequality in South Africa
Apartheid in South Africa came to an end in 1994 and despite this fact the country still records the highest income inequality globally as measured by Gini Index. As a matter of fact, income inequality is the biggest and major challenge facing the nation and it is detrimental not only to economic development but the business environment as well.
- Real gross domestic product in SA between 200 and 2001 averaged 3.6% which was on par with average global growth. Despite the fact that the country has recorded high economic gains, it still has the highest level of unequal income distribution with a 63.6% Gini Index in 2011 relatively unchanged from the 2000 Gini index of 63.5%.
- Between 2000 and 2011, there has been a widening of the gap between the richest 10 percent households and the poorest 10 percent households. During this time, the average disposable household income was an increase of 14.4 percent and 26.8 percent.
Income inequality in South Africa has lowered the people’s standard of life and it has also proved to be economically inefficient. According to the president of the Center for Global Development Nancy Birdsall (2007) income inequality makes it impossible for the markets to function their best because of resources that remain unused as well as diminished demand.
In addition to this, it also creates a society that does not support rational thinking thus limiting regulatory effects of government and creating unstable markets. Because of this, there is a decrease in consumption, the GDP is driven down and so is the economic progress within a country. Income inequality also hinders growth and as a result, the country ceases to develop as a result of capital influx.
- Income inequality which is on a rise in South Africa is a major challenge for the country and it adversely affects social political stability, impedes progress of education and health, while at the same time impacting economic development.
- Because of huge income variations, there is increased poverty incidence in South Africa and this has contributed to high crime rates. In 2011, reports indicate that the country had the 8th largest homicide rate.
- While the United Nations Development Programme’s (UNDP) classifies South Africa as middle income country, it also reports that it has the highest levels of poverty with a large portion of the population living below the poverty line. What is more, a large percentage of the population in the country is classified as low income earners.
- Income disparities also limit growth of middle income earners though the size of this class can also provide ideal opportunities for non essential consumer goods industry.
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