BIZ202 The Business Environment

Running head: BUSINESS ENVIRONMENT
Business environment
Name of the student
Name of the university
Author note

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Introduction
Similar to the micro environmental factors, the contemporary business organizations are
also having the impacts and relevancy of the macro factors. This is due to the reason that the
current business factors are rapidly changing and evolving and it is getting more important for
the business entities to cope up with these changes. In this case, determination of the external
changes is relevant (Gupta, 2013). IGA is one of the leading retail players operating in
Australian market. However, the intensely competitive market scenario for them is leading to the
importance for measuring and evaluating the risks and impacts of the external factors. The
diversity of the external business factors is also getting increased with time. Hence, these factors
should be analyzed from different perspectives.
This report will discuss about the external business factors for IGA on the basis of the
PESTLE factors. In addition, the major challenges to be faced from these factors will also be
identified and solutions will be discussed.
Identification of macro factors
Political factors
Australia is having political stable economy with having democratically elected
government with pro business approach. It is reported in the global economy and that long term
political risks in the country are on the lower side. This denotes that IGA will have lower sets of
political risks in doing their business in Australia. However, on the other hand, it is also reported
in the same data facts that political stability in Australia is fluctuating in nature, which may pose
challenges (Navarro-García, Arenas-Gaitán & Rondán-Cataluña, 2014). This is due to the reason
that lack of political stability will create barriers in the seamless process of business operations.

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In terms of the corruption perception index also, Australia is continuously slipping with 88 in
2011 to 79 to 2016 (theglobaleconomy.com, 2019). This denotes that impact of corruption is
increasing in the country and it will also have negative impact on the business of IGA. The
capitalistic approach of the government is actually helping the retailers to have lower political
interference and maximization of profitability.
Economical factors
Inflation is on the rise in Australia as it is identified that inflation rate went up from 1.3 to
1.9 between 2016 and 2017. Thus, the more will be the rate of inflation, the more will be the cost
of the end products, which will ultimately reduce the sales volume and business viability.
Moreover, in the case of the retail sector, consumer goods will be badly affected by the higher
inflation rate. IGA will find much lower sets of customers for their products. In addition, the
economic growth of Australia is also showing diminishing trend as it is reported that Australia’s
economic growth came down from 2.83 to 1.96 between 2016 and 2017 (theglobaleconomy.com,
2019). This will also pose challenge for the retail sector as the lower will be the economical
growth; the lower will be the purchasing power of the customers. In terms of the foreign
exchange rate of the Australian currency, diminishing trend is identified. It is reported that value
of Australian currency compared to Dollar decreased from 1.28 in 2009 to 1.04 in 2014. Thus, it
will be challenging for IGA to initiate the international trading process due to the reason that
they will incur loss in the process due to the devaluation of the Australian currency. It is also
identified that the rate of taxation in goods and services is increasing in Australia (Bishop et al.,
2013). Thus, the more will be the rate of tax, the more will be the end price. This will also create
barriers in the targeting strategies of the retail brands.

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Social factors
Social factors are having major influence on the business trend of the retail industry due
to the reason that consumer goods are the major revenue generator for this industry. In terms of
the rate of unemployment, positive signs are identified due to the fact that rate of unemployment
of Australia got reduced from 6.06 in 2014 to 5.47 in 2018 (theglobaleconomy.com, 2019). Thus,
the lower will be the rate of unemployment; the more will be the purchasing power of the
customers. Retail sector will be benefited from it. However, on the other hand, it is identified that
the population size is rapidly increasing in Australia, which will have opportunities for their
retail sector because the more will be the size of the population, the more will be the market size
for the retailers along with more demand (Musick & Chaloupka, 2017). The rate of social
globalization is also increasing in Australia in constant basis and this will also have positive
impact on the retailers. The Australian retailers are having the opportunity to offer the global
standardized products in a globalized market.
Technological factors
Australia is showing poor ranking in terms of innovation index. It is reported that the
level of innovation in the country got down from 55.2 in 2015 to 51.8 in 2017
(theglobaleconomy.com, 2019). This shows that the access to innovation is getting lowered for
the retailers. However, in the current business scenario, innovation is important for the
Australian retailers to stay relevant with the global competition. However, Australia is growing
in terms of the overall globalization, and this can help the retailers to get the access to the global
technologies.
Legal factors

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Australia is having strong regulatory quality with showing constant increase in the
ranking. This denotes that intensity of legal formalities and regulations is getting higher for
doing business in Australia. It is also denoting that retailers in Australia will have to face higher
impact of regulations in their business process, which may increase the complexities (Frias-
Aceituno, Rodriguez-Ariza & Garcia-Sanchez, 2013). However, Australia is having favorable
diplomatic relationships with the other major economies and this will have favorable impact on
the retailers. In addition, it is also identified that incentives and tax benefits are being provided in
exporting products from Australia. This can also benefit the retailers in tapping the foreign
markets beyond the national boundary.
Environmental factors
The legal formalities and regulations are also covering the environmental factors also and
thus it is important for the retailers from Australia to adhere to the environmental standards.
Australia is one of the leading countries in terms of carbon neutrality and the retailers operating
in the country will also have to align to these factors. This will cause incurrence of added cost for
them, which will in turn increase the cost of operation and reduction in profitability. However,
on the other hand, environmental factors can also help IGA in gaining competitive advantages
due to the reason that average cost of operation can get reduced. For instance, usage of
renewable sources of energy over the non-renewable sources will reduce the energy bill for
them. Thus, the profit margin can get increased.
Identification of the solutions
It is recommended that foreign market operations can be a major solution for IGA in
regards to the above identified issues. This is due to the reason that the external factors cannot be

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changed or managed by the internal efficiencies. With the help of the foreign market operations,
IGA will be able to reduce the dependability from the Australian market and thus the impacts of
the identified factors will also lowered (Ang, Benischke & Doh, 2015). Moreover, with having
foreign market operations, they will also be able to tap the opportunities by means of incentives
and benefits due to exporting. It should also be noted that with the foreign market presence of
IGA, the average volume and market size will get increased for them and this will ensure in have
lower cost of operation. IGA will be able to achieve the economies of scale in less time.
It is also recommended that diversification strategy can also be initiated. This is due to
the reason that IGA is already having their favorable brand value and identity in the Australian
market and they can leverage their brand elements in entering in new markets. This will help
them to tap the larger customer segments along with tapping the growing opportunities in other
business sectors (Bowen, Baker & Powell, 2015). Diversification will also help IGA to operate
in the foreign markets due to the reason that not all the potential countries will have opportunities
in the retail sector. In this case, initiation of the diversification strategy can be beneficial to tap
the potential segments in the host country.
Conclusion
This can be concluded that there are numbers of challenges to be faced by IGA in terms
of their external business environment. With the help of the PESTLE analysis, these factors are
identified. It is identified that the major challenge for IGA is the fluctuating economic
environment in the country. On the basis of all the identified challenges, it is recommended that
entering in the foreign market and diversification strategy can be effective and suitable for IGA
in maintaining their competitiveness. Both these strategies can help IGA in having larger market

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opportunities in the global as well as national market. Moreover, this report also concludes that
the above stated strategies will also ensure that the negative factors in doing business in Australia
will have lower intensity on IGA.

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Reference
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