THE UNIVERSITY OF NORTHAMPTON

NORTHAMPTON BUSINESS SCHOOL

AMITY INSTITUDE OF HIGHER EDUCATION

MASTER OF BUSINESS ADMINISTRATION

STRATEGIC MARKETING
MKTM028 AS1

PESTEL Analysis Report: Pollution eating bicycle implementation in China.

Module leader: Dr Stephen Castle

Tutor: Prof Jag Chelumbrun

Submitted by: Benjamin Nicolas WAI CHOON

Student ID: 18401383
Date of submission: 27th November 2017
Centre: AGBS
Word count: 1981 words
Contents
Executive Summary ............................................................................................................................. 3
Introduction ............................................................................................................................................ 4
PESTEL Analysis overview ................................................................................................................. 4
Strengths and Weaknesses of using PESTEL analysis ................................................................. 5
PESTEL Analysis of China .................................................................................................................. 6
Recommendations................................................................................................................................ 9
REFERENCE LIST ............................................................................................................................. 10

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Executive Summary
A company willing to launch a newly invented environmental friendly bicycle in China
has issued a request to have a complete report to have a better view of if they can
enter the Chinese market. This report is a gathering of information from the study
conducted and brings some recommendations further to the investigation done. The
report was conducted using the PESTEL analysis framework of political, economic,
social, technological, environmental and legal (Song et al, 2017). Many business
organizations use the PESTEL analysis framework to conduct researches to study if
the macro environment is propitious before entering a new market (Yüksel , 2012).

China is the world largest goods manufacturer (Jiang and Zheng, 2017; Kahn and
Yardley, 2007) and in 2017 the expected growth of GDP is expected to be at 6%
(BOFIT, 2016). China industrial companies have reported 5.58 trillion Yuan profit
from January 2017 to September 2017, which characterizes a progress of 22.8% as
compared to last year at the same period and growth rate, was 14.4% point’s faster
year on year (China Daily, 2017). These performances make China a very promising
country to launch the pollution eating bicycle as the bicycle market was estimated to
have 18 million users at the end of 2016 and was predicted to increase by 200,000
users on a monthly basis (PR, 2017).

The report will mainly focus on the economic, social and environmental factors of the
PESTEL analysis framework as they are most concerned with the implementation of
the pollution eating bicycle. The Technological factor was not considered because it
will be brought by the company itself as the design and development will be done in-
house. The Legal factor also was not taken into consideration as same is impacted
by the political situation and it was concluded that the actual political environment in
China is stable (Zheng, 2017).The economic basics of China are very strong and the
country has recorded a high economic growth over the past three decades (Country
Profile: China, 2014) and at the same time the bicycle industry is facing a high rise in
demand (PR, 2017). Social factors are in line with the launching of environmental
friendly products as the Chinese people are now condemning emission of pollution
and are giving more importance to reduce transport by motor vehicle in cities (Parkin,
2012).

This report recommended that the pollution eating bicycle company enters the
Chinese market based on several factors but two main points are shown below.

 As pollution problem is becoming more critical for the government, they are
investing in the bicycle sharing. This is a good opportunity to propose the
pollution eating bicycle as it will contribute to solve two problems at a time
which are decrease number of motor vehicle and will contribute to have
cleaner air.
 The Chinese increasing population is also a good opportunity as this will
enlarge the bicycle market and it will be easier to get a market share.

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Introduction
This report was conducted using the PESTEL framework of political, economic,
social, technological, environmental and legal (Song et al, 2017) to study the
strategic implementation of a pollution eating bicycle company to China. PESTEL
analysis is one of the most easy, popular and widely used tool (Raszkowski , 2016)
and it has mainly two utilities for an organization (Yüksel , 2012). The first utility is
that it helps the organization to have a better idea in which macro environment it
operates and the second utility is that it helps to bring statistics and information to
strategic managers so that they can foresee in what situations they could get in
(Yüksel , 2012).This report was based on only three factors of the PESTEL
framework which is economic, social and environmental. These three factors were
chosen as they are most applicable to the bicycle industry and that they are in line
with the Chinese population views regarding sustainable energies.

As air pollution in China has become a critical and national issue which is gently
impacting the public health and hence the long-term economic expansion of the
country (Kahn and Yardley, 2007). The Chinese government has invested in the
bicycle sharing project to support the growing demand in this market (Yang et al,
2015). A good point to be noted is that the China’s bicycle market was consisted of
about 18 million users in year ended 2016 and it is rising at a constant rate due to the
success of the bicycle sharing concept implemented in 2014 (PR, 2017).

PESTEL Analysis overview

Political aspect (P):

The political aspects are related to what the government legislations and legal
frameworks the company will have to follow (Issa, Chang and Issa, 2010) and how
these will influence the success and profitability of the company (Arline, 2017).

Economic aspect (E):

The economic environment is very critical as this will seriously have an effect on the
company’s long term performance. E.g a rise in inflation rate will affect the pricing of
products and services. The inflation rate will also have an impact on the purchasing
power of the customers. Other economic aspects which should be considered are
interest rate, unemployment rate among others (Rastogi and Trivedi, 2016).

Social aspects (S):

The Social factor is related to the demographic, community and cultural tradition
characteristics of the targeted market and one example is customer tastes (HO,
2014).

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Technological aspects (T):

This aspect relate to revolution in technology which may touch the company
positively as well as negatively. Technology is associated with the technological
knowledge that a market has (Rastogi and Trivedi, 2016).

Environmental aspects (E):

The environmental protection is becoming more and more and area of concern,
hence having an effect on many businesses. The common trend being toward more
ecologically friendly product and procedures are having a great impact on demand
(Gillespie, 2007).

Legal aspects (L):

The Legal aspects are associated with the company’s legal environment in which it is
operating. Legal issues can have an influence on the financial performance of the
business. E.g changes in law may have an effect on the sales of a company is some
restrictions are brought to the product or service provided (Gillespie, 2007).

(Dockalikova and Klozikova , 2014, p.421)

Strengths and Weaknesses of using PESTEL analysis

Strengths
 PESTEL is a straightforward framework, very easy to understand and to make
use of (Tiduko, 2017).
 PESTEL help companies to recognize in advance potential dangers and
opportunities and to act accordingly (Tiduko, 2017).

Weaknesses
 Environment may change rapidly and this can create issues to forecast the
future (Tiduko, 2017).
 I may be not cost effective as PESTEL analysis should be carried out
frequently as the environment changes. (Tiduko, 2017).

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PESTEL Analysis of China
The analysis will be based on only three factors of PESTEL which are economic,
social and environmental

Economic

China’s Economy
China has become the largest manufacturing and exporter of goods in the world due
to its fast industrial development (Jiang and Zheng, 2017; Kahn and Yardley, 2007)
and the third world’s trading power (Country Profile: China, 2014). In terms of foreign
exchange reserves, China has the world largest reserve and is also the world largest
destination of foreign direct investment (Xiaohe Zhang, 2015). The expected growth
of GDP for 2017 is 6% (BOFIT, 2016). Industrial companies in China reported 5.58
trillion Yuan profit from January 2017 to September 2017, which represents an
increase of 22.8% year-on-year and growth rate was 14.4% points faster than last
year at the same period (China Daily, 2017). The fast growing economy has also
brought a big problem of pollution and this has become a national issue which is
gently impacting the public health and hence negatively impacting the long-term
economic expansion of the country (Kahn and Yardley, 2007).

Bicycle industry growth

Bicycle sharing in China was introduced in 2014 and has become more popular with
an estimation of 18 million users at the ended of 2016 which is forecasted to increase
by 200,000 users per month in 2017 (PR, 2017). In 2016 China produced 60 million
bicycles and the expansion of the bicycle sharing market in second half of year 2016
has created an increase in demand for 1 million bicycles per month (PR, 2017). In
addition, to support the increasing in demand of bicycle sharing more than one
hundred city governments have participated in the setting up of public sharing
bicycles structure (Yang et al, 2015). The bicycle market in China being constantly
rising the implementation of a bicycle company will surely be profitable and this type
of business being supported by the government will be very positive for the pollution
eating bicycle.

Other Economic aspects to be considered

1. Cheap labor (Country Profile: China, 2014).

2. Currency volatility; Currency depreciation has cause many organization to
review their budget (Bruno and Shin, 2016).
3. Inflation rate; Inflation should be considered as this have an impact on the
product pricing and salaries of employees, which can result in less profit that
expected (Bruno and Shin, 2016).
4. Financial sector liberalization; decreasing tax rate for private organization and
low income earners (Xiaohe Zhang, 2015).

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Social

The world most populous country is China and in 1980 they implemented the one
children policy to control the rate of increase of the population (Country Profile:
China, 2014). However, in 2016 China abolished the one children policy which has
been in place as there were an increase in the population age hence an increase in
newborn babies of over 2 million were noted compared to preceding years (China
Economic Review, 2017). Following this trend the Chinese population is estimated to
reach a peak of 1.45 billion in 2030 and then stabilize to about 1.4 billion until 2050
(China Economic Review, 2017). The enlargement of the population means that the
market also will enlarge which will surely be beneficial for the bicycle company.

China’s rate of unemployment.

In October 2017 China’s urban rate of unemployment dropped by 5% and new jobs
created was 11.9 million which already exceeded the target for the year which was
11 million (China Daily, 2017). This decrease in unemployment can be assigned to
the fact that the government of China has put more importance on the well-being of
Chinese people by increasing wages and since 2008 the inequalities has known a
decrease due to rapid salaries progression (Country Profile: China, 2014). Since
then, China has realized an overall decrease in poverty and there was also a
decrease in the gap between rich and poor (Country Profile: China, 2014).The annual
average wages of a Chinese urban worker is about 42,833 Yuan in the private sector
(NUMBERS, 2017) which is relatively cheap labor (Country Profile: China, 2014).

China’s culture regarding bicycles.

The Chinese had a distinctive history throughout the world as they built a bicycle
mass transit system (Lusk, 2012). This is without doubt because China was a country
where people were always delighted to travel by bicycle (Margolin, 2016) and this is
why in the years Seventies and Eighties the most popular type of transportation was
bicycle. (WWD, 2012) and Parkin (2012) supported that in many big capitals nearly
all Chinese possessed a bicycle. In 2014 bicycle sharing was introduced in the
Chinese cities and since then the concept has known a huge success and is counting
more users year after year (PR, 2017).

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Environmental

Since 1978, China has undergone fast change from an agricultural-based economy
to a large scale industrial production economy (Tan and Eguavoen, 2017). This
economic change have also brought along negative environmental changes (Lora-
Wainwright, 2014), which have brought China to register a premature death of over 1
million members of its population per year in latest years due to air pollution (Wong,
2013), statement which was also supported by Hongyan et al (2017). Fortunately,
China’s people are now more frequently taking actions to show their concern about
environmental pollution through civil legal action, petitions, complaints and mass
protests (Lora-Wainwright, 2014).Pollution problem being intensely discussed in
public did that researchers expected that the government will not be able not to
attend the pollution problem in China (Lo and Leung, 2000). However the inaction of
the government regarding pollution problems have contributed to a sense of deprives
and non-credibility towards them (He et al, 2012). By chance, at the same time the
evolutions in new technologies have brought a lot in the development of the green
industry which has increase the awareness of the Chinese people (Sima, 2011).
Since 2005, the Chinese policy makers started to understand the importance of
green industry enlargement and that it plays a key role in the sustainable
development, later the pollution problem was brought to the Shanghai World Expo of
2010 where major emphasis was put on sustainable development which theme was
‘better city, better life’(Parkin, 2012, p.175). Subsequently, in March 2014 the
Chinese government started fighting environmental pollution issues (Lu Hui, 2014
cited in Jiangfeng, 2016) as Chinese has become further anxious about the
environmental conservation (Li and Yang, (2015) p.59). Since 2008 the central
government of China has supported the scientific concept of development which is
based on building environmental friendly cities (Parkin, 2012). As air pollution in
china is being a major environmental problem for the public as well as for the
government (Jiangfeng, 2016); the Chinese populations are being encouraged to get
back to their bicycle by a common urban program towards saving the environment
(WWD, 2012). This is where the implementation of the pollution eating bicycle will
contribute to fight pollution problems in Chinese cities.

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Recommendations
This report recommended that the pollution eating bicycle company enters the
Chinese market based on the following points.

 The growth in the bicycle sharing industry is a very good opportunity to

propose the pollution eating bicycle to the cities which are investing in sharing
bicycle project.
 As the air pollution is a very critical issue for both the government and the
population of China, the green technologies available in the pollution eating
bicycle will surely be accepted without difficulties as it will contribute to solve
two problems at a time which are decrease number of motor vehicle in cities
and will contribute to have cleaner air.
 Chinese people won’t find it difficult to travel via bicycle as this mean of
transport was one of the most popular and it is taking a new start among the
new generation.
 There are plenty of spaces dedicated for bicycles in China.
 The decreasing percentage of unemployment in China means that the
Chinese people are having higher purchasing power hence it is a good
opportunity to launch new product on their market.
 The Chinese average salaries are low; this is a very good point for the
company as fixed costs related to employees’ salaries won’t be high.
 The increasing population is also a good opportunity as this will enlarge the
bicycle market and it will be easier to get a market share.

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