Competitive Strategy Development: PESTEL, Porter's Five Forces, Ansoff

This essay examines competitive strategy development tools, focusing on PESTEL, Porter's Five Forces, and the Ansoff Matrix. It explains how organizations use PESTEL to scan the macro-environment (Political, Economic, Social, Technological, Ecological, and Legal factors) for market analysis, exemplified by HSBC's market entry strategy in New Zealand. Porter's Five Forces, including the threat of new entrants, competitive rivalry, threats of substitutes, bargaining power of customers, and bargaining power of suppliers, are discussed in the context of Aldi's competitive challenges. The essay further details Ansoff's Product/Market Expansion Grid, covering market penetration, product development, market development, and diversification strategies, illustrated by automotive companies' electric car innovations and HSBC's diversification into insurance. The conclusion emphasizes the importance of these tools for organizations planning to expand and enter new markets, providing a comprehensive overview of their practical applications in strategic decision-making.

Competitive strategy
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Introduction
Diverse businesses around the globe use various competition strategy development tools
to scan the environment they are doing business in order for them to gain a competitive
advantage. Recent research conducted by Issa, Chang and Issa, (2010 P.73-80) shown that
businesses that often review their strategic development tools to be aware of the macro and
microenvironment they are operating are more likely to differentiate their processes and products
leading to sustainability and high-profit margins. The strategy development tools that are
commonly used by various organizations to assess the level of competition in the market and
environment of doing a business include PESTEL, PEST, SWOT Ansoff and Five Porter Forces.
Therefore, the essay seeks to examine PESTEL, Five Porters’ Forces of competition and Ansoff
as a strategy development tools that are practically used in the organizational context to examine
competition.
Explanation of the competitive models used in the business
PESTEL
A PESTEL is a business development tool that organizations often use to describes
macro-environmental factors (external factors)that are used in scanning of the environment into
which a business operates or planning to launch a new process, products or service (Yuksel,
2012 p. 52). PESTEL is abbreviated from Political, Economic, Social, Technological, Ecological
and Legal. The combination of the factors forms PESTEL analysis.
PESTEL is used by organizations to assess the external environment. Organizations uses
Political Factors as a component of PESTEL to determine the degree to which a government can
impact a their businesses or industry in which they operates. For example, organizations provides
an assessment of political factors such as taxation, trade tariffs and fiscal policy in order for them
to determine the extent of market profitability and attractiveness. Organization also uses

Economic factors as a component of PESTEL to determine the economic performance of a
country or a region that has a direct impact on a company and which may have long-term effects.
For example, an organization can determine economic factors such as rates of inflation, Gross
Domestic Product (GDP), Foreign Direct Investment, foreign exchange rates and interest rates to
assess the profitability of a market. Organizations also used Social factors as a component of
PESTEL to scrutinize the social environment of the industry or market it operates. According to
Bîrsan, Shuleski and Cristea, (2016 p.2), an organization can determine the social factors such as
demographic, geographic, cultural trends and population to assess the market profitability and
come up with strategies of penetrating or expanding its operations. Organizations also uses Legal
factors as a component of PESTEL to analyse laws that are imposed by a particular country and
which affects the business environment. For example, laws such as labour laws, safety standards
and consumer protection laws may restrict some organizations from operating in a particular
region or country. Organizations also uses Technological factors as a component of PESTEL to
analyse innovations in technology like the current trend of sustainability and disruption
technologies that might affect the way a business operates in a particular market. The
technologies may include Research and Development, automation and awareness of technology a
market possess. Organizations also uses Environmental as a PESTEL factor to assess the
environment or natural disaster that may impact a business. Examples of environment factors
that can lead to businesses incurring losses at a particular region include climate change, floods,
weather and other environmental offsets.
HBSC is a multinational company that often conducts PESTEL analysis before deciding
which market entry or strategy to use in order to successfully penetrate into competitive markets.
For example, before penetrating into New Zealand market, the company company conducted

PESTEL analysis and found that New Zealand had a political stability, there was availability of
skilled and unskilled labour, high population, changing patterns of consumers, interest rates were
attractive, government interference was very low, technological access was good, trade freedom,
no natural calamities affected the country for the last ten years and the country had high
individualism, low power index and low-risk avoidance cultures (Paton, Bajek, Okada and
McIvor (2010 765-781). After analyzing the political factors, the country penetrated successfully
using Joint ventures strategy and later used franchising to expand its operations.
Porters Five Forces
Porter’s Five Forces is a competition model that was created by Michael E Porter in 1979
(Wu, Tseng and Chiu, 2012 p.1-9). Porter created the framework to help assess the position of a
business in a market or industry, determine the intensity of competition and how a market is
attractive in the context of profitability. According to Porter’s model, the five forces that
determine the level of competition include a threat of new entrant in the market, competition
rivalry, Threats of substitutes, bargaining power of customers and bargaining power of suppliers
in the market.
The five porters’ forces as defined by Porter are useful as they help organizations to
identify where the competition power lies and strategize on how to survive the competition
(skandari, Miri, Gholami and Nia, 2015 p.185). Organization uses the bargaining power of
suppliers to determine how it is easier for a supplier to drive prices up or down. For example,
cost of switching from one customer to another, supplier strength, product and service
uniqueness and a number of suppliers in the market are some of the elements organizations
assesses to determine the market profitability. Organizations also uses the buying power of
customers to assess how easier or difficult customers can drive prices up or down. For example,
organizations consider various purchasing powers of customers’ elements such as customer

loyalty, number of buyers in the market, switching costs of buyers to determine the competitive
position and business position in the market. Competitor’s rivalry assesses the capability and
number of competitors in the market to determine how a business is profitable. The threat of
substitutes assesses the number of existing brands in the market offering the same product to
determine the competition level. Threats of new entrants involve new businesses with
undifferentiated or differentiated products entering the market resulting to sharing of existing
customers.
Organizations practically uses the Porters’ Five Forces to determine the intensity of
competition.Aldi is an organization that has been impacted by Porters Five Force. For example,
with the supplier power in the industry being low, the prices of products has gone down which I
impacting the profitability. With purchasing power of customers being very high and there is a
few powerful buyers, customers dictate the prices resulting to marginalized profit. With the
market having many competitors offering undifferentiated services and products, the market has
turned to be unattractive and the profits reduced. With the availability of substitutes offering the
same products, the customers’ switches easily to alternatives when the prices are high. The
switching of customers to alternatives reduces profitability of Aldi, the attractiveness of the
market and the power of suppliers. With new entrants in the market attracted by a profitable
market, the prices goes down resulting to losses. For example,with industry which Aldi
Company operates without a strong durable market entry barriers such as high capital
requirement to penetrate, economies of scale, patents or government policies, the new entrants
penetrate easily hence decreasing profitability (Niu, Dong and Chen ( 2012 p.68-76)
Ansoff
Ansoff also known as “Product/ Market Expansion Grid” is a model that organizations
across the world use to plan and analyses their strategies for growth (Basu, 2017 p, 482). The

model was founded by H. Igor Ansoff and it involves four strategies which assist organizations
to analyze and understand risks of growing their business. The four strategies that are involved in
the Ansoff Model include Market Penetration, Product Development, Market Development and
diversification (Al-Bostanji, 2015, p.71)
Ansoff and its four strategies are used by an organization to strategize for growth by
focusing on the present and potential products to be launched in the market (Rudnicki and
Vagner, 2014 p.1-20). Market penetration is used by an organization that focuses on generating
more revenues by selling existing products to existing markets. Diversification aim at penetrating
a new market by launching new products. Market development aims at using existing products to
penetrate into new markets and finally, product development involves the launching of a new
product into the existing markets.
Ansoff model has been practically used in various organizations. For example, various
automotive companies have used product development strategy to innovate electric cars that
address the contemporary changing need of conserving the environment (Magnusson and
Berggren (2011 p.313). In Market and Development strategies, Adidas and Nike companies have
expanded their operation to China and Asia regions by offering the same product to new
demographic. In diversification strategy, HBSC which operates under banking and finance has
diversified its product to include Insurance services.
Conclusion
In conclusion, competitive development tools are very essential for organizations
planning to expand and enter new markets. PESTEL is a tool used to scan an external
environment in which business is operating or intends to penetrate. PESTEL is abbreviated from
Political, Economic, Social, Technological, Ecological and Legal. Porter’s five forces are used to

analyze the intensity of competition and market attractiveness. Ansoff framework is used by
organizations to analyze and understand the risks of their businesses
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