Political Environment Analysis Report

Running head; FINANCE
Finance
Name of the Student:
Name of the University
Author’s Note

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Appendix
Company External Analysis
1.0 PESTEL Analysis
PESTEL Analysis can be considered as an effective tool to conduct the macro
economic analysis or analysis of external factors of any organization. The main factors on the
basis of which this external analysis is done are: Political factors, Economic factors, Social
factors, Technological factors, Environmental factors and Legal factors. PESTEL Analysis is
considered as an integral part of the macro economic analysis where it provides minute
details about the operating challenges that Costco Wholesale might face while operating the
macroeconomic environment in near future. The PESTEL Analysis of Costco Wholesale are
as follows:
1.1 Political factors
Political factors are one of the key factors in the PESTEL Analysis that plays a
significant role in ascertaining the political environment that might impact the profitability of
Costco Wholesale in the long run relating to its operation in a specific market or country.
Costco Wholesale operates in more than a dozen countries and owing to is diversified
operation and selling products at a discount and through a number of other stores are exposed
to numerous political environments and system risks (C-25). The management of Costco
Wholesale should consider the following factors while thinking of spreading its business even
further.
 Political stability of the country.
 Importance of variety stores and discount structure in the country.
 Probable risk of invasion of military.

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 Level of bureaucracy prevalent in the country that might impact the business of the
Costco Wholesale.
 The prevalent level of corruption in the country.
 Laws for protection of Intellectual properties in the country.
 Laws relating to contract enforcement.
 Tariffs and prevalent trade regulations.
 Prevalent Anti-trust laws.
 Taxation policies.
 Favorable trading partner of the country.
 Regulations concerning pricing strategy.
 Legal framework for wages.
 Any prevalent employee benefits that are mandatory to follow and many others.
1.1.1. In the present context, Costco Wholesale has it presence in more than 200 stores
outside the national boundary of the US. It has its presence in more than 494 stores all
across 43 states in the USA and Puerto Rico. Owing to its presence in these Lsified
political environment, it is exposed to different system related risks and above all, the
political disruptions, turmoil and political instability hugely affects its business
thereby hampering its profitability. A stable government without any political
disruptions could boost its sales, operation and most importantly improve its
profitability.
1.1.2. There are other two important implications of that the current political environment in
USA could impose on Costco Wholesale Corporation. The current political scenario
in USA under the present leadership is stable and business friendly as well as the
trade agreement named NAFTA would benefit the organization especially in terms of
removal of tariff between the North American countries of USA, Canada and Mexico.
However, one political scenario of US – China tradeoff could impose certain
restrictions on it and may hamper its business as well as portability.
1.2 Economic factors
Economic factors are those factors which are of utmost importance to a firm as it
relates to its growth, market standing, profitability and future expansion. This analysis of
outside economic factors identifies the aggregate demand for its produced goods, it’s much
needed investment to effectively produce and supply the effective quantity to meet the market

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demand and at the same time reduce wastage. The economic environmental factor also
identifies market competition so that the management could formulate an effective strategy to
combat such competition and gain a competitive advantage for the firm. There are numerous
economic factors, however, the ones which are of utmost importance to Costco Wholesale
and the management must consider the factors while expanding its business are as follows:
 Type of prevailing economic system in the country.
 Stability of the economic system.
 Government intervention possibility in the free market operation of demand and
supply.
 Efficacy of the financial markets prevailing in the country.
 Stability of exchange rates in the country especially the rates of exchange with the
most favorable trading partner.
 Level of existing infrastructure in the country.
 Mandatory provisions that needs to be followed while fixation of price or framing
discount policies.
 Competitive and comparative advantages that Costco Wholesale could gain operating
in the market.
 Level of education and existing skill set of the labor force.
 Economic growth rate.
 Present business cycle.
 Unemployment rate.
 Rate of inflation.
 Prevalent rates of Interest.
1.2.1 In the present context, post the recession period, different industries have reduced the
prices of the goods and have started to give discounts to its clients especially the people who

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bought goods in a bulk and retail industry including Costco Wholesale was no exception.
They too started to follow the same economic trend. Owing to its huge operation level and
market standing, did not suffered much loss and soon brought the majority of the market
share under its belt.
1.2.2 This changing economic trend was a blessing in disguise. The overall retail sector
where Costco is a major shareholder has generated a total volume of $20 trillion as of 2015
and is expected to grow even further to $28 trillion by 2020..
1.2.3 The increasing trade agreements of the Government of USA with other countries will
open up new avenues for Costco Wholesale to enter and gain a competitive and comparative
edge over all other firms operating in the retail industry. These can be considered as positive
and promising signs for Costco Wholesale for the years to come.
1.3 Social factors
Social factors are equally important like all other factors that forms the part of the
PESTEL Analysis. It helps the organization to identify and understand how the society thinks
their ways of doing things which may impact the business, productivity and most importantly
the profitability of the organization. It also helps the management to identify and understand
how well the organization and its business strategies appeals as well as how far it is
acceptable to the members of the society. The following social factors are of utmost
importance for the management of Costco Wholesale to be considered before formulating
strategies for expanding its business:
 Demographic structure of the country.
 Level of education and skill set of the labor force.
 Interest of common people.
 Existing culture within the society.

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 Structure of social class and hierarchy.
 Attitudes of common people towards health and environmental hazards and many
more.
1.3.1 A business cannot stand alone in the market. It has to carefully examine all the present
socio cultural environment in which it operates or thinking to expand its business in. The
socio cultural and demographic trends have changed in the recent times where people have
become busier in their day to day lives. Modern people are no longer able to visit the stores to
shop and more or less depends on E-commerce websites.
1.3.2 Costco have identified such changes in social patterns and have taken many steps like
introduction of e-commerce websites and mobile applications to list all its products online at
the most competitive price and deliver the goods bought by its customer’s right at their
doorsteps. This has enhanced its sales and profit manifold in recent times.
1.3.3 The management have considered all the above mentioned social factors for
formulating more strategies that would enhance its present sales and profitability and at the
same time would enable it to easily expand its business within the country and abroad.
1.4 Technological factors
There has been a rapid change and development in the field of technology over the
years. The disruption rate in the fields of technology has been tremendous post the
globalization era, especially over the last decade. The technology which is considered best in
class at present becomes obsolete tomorrow with the invention of newer technologies and
rapid development in this field. Today a technological analysis of the market and industry has
been very necessary to keep alive in the market. It is not only the technological analysis that
keeps the firm alive in the market but also the speed at which new technologies are replacing
the previous best have become essential for a firm to know. Technological factors are of