Impact of Environment on Business and Strategic Decisions

1. Part 2, Lecture 4
The external
environment:
PEST analysis
Professor John
Tribe
Tourism Strategy

2. © John Tribe
Part 2: Strategic Analysis
 Strategic analysis utilises techniques for situational analysis. This
involves reporting on the current and future opportunities and threats
and strengths and weaknesses facing the organisation.
 Opportunities and threats summarise the external environmental
factors that a tourism organisation faces. The key elements of the
external environment may be summarised as C-PEST factors which
refer to the
 competitive
 political
 economic
 socio-cultural, and,
 technological environments.
 Of these, PEST factors are analysed in lecture4, whilst the
competitive environment is considered in lecture 5.
 Strengths and weaknesses analysis summarises the state of the
internal resources of an organisation. Resource analysis is
undertaken in lecture 6.
 All these factors are brought together in a comprehensive SWOT
analysis at the end of chapter 6, thus concluding strategic analysis
and part 2.

3. © John Tribe
Learning Outcomes
After this lecture and studying related
materials you should be able to understand:
 the political environment
 the economic environment
 the socio-cultural environment
 the technological environment
and critically evaluate, explain and apply the
above concepts.

4. © John Tribe

5. © John Tribe
Case Study 4: Tourism and
the 2008 Economic Crisis
 2008 can be added to the list of significant economic
crises which include the Great Depression (1929-35)
and the Asian Economic Crisis of 1997-8.
 By 2007 an unsustainable set of economic conditions
were developing.

6. © John Tribe
Tourism and the 2008
Economic Crisis
 Property price inflation was particularly evident,
fuelled by optimistic expectations and cheap and
easy availability of loans.
 But the property boom faltered in the USA and
was soon followed by banking crises in Freddie
Mac and Fanny Mae, the Northern Rock and
Lehman Bros. In the tourism sector XL Holidays
collapsed in UK. A domino effect occurred and the
root cause of the subsequent economic crisis is
easy to trace.

7. © John Tribe
Tourism and the 2008
Economic Crisis
 The causes can be attributed to:
Market madness and unrealistic optimism ..
Overpriced assets – particularly property prices..
Bad debt..
Deregulation of the banks..
A change in banking culture from the conservative to the
risky..
Short-term pay incentives overshadowing long-term
sustainability in the banking ..sector.
High oil prices..
Globalization and international connectivity enabling the
crisis to spread...
 The economic crisis caused a run on the banks,
followed by their nationalisation /partial
nationalisation in the UK and elsewhere.

8. © John Tribe
Tourism and the 2008
Economic Crisis
Two quarters of falling output in 2008
confirmed the arrival of a recession in both the
UK and the US.
For tourism, the UNWTO predicted stagnation
(0% growth) or even slight decline (-1% to -2%)
throughout 2009. Amongst those most
affected were the Americas and Europe as
most of their source markets were affected by
recession.

9. © John Tribe
The political environment
Since tourism entities are affected by current
and new government legislation, it is
important to understand the location of
political power, how political power may
change in the future and the likely effects of
this on policy (Burns & Novelli, 2009).
The next slide distinguishes between policy
objectives of typical democratic political
parties of the left and of the right.

10. © John Tribe
The political environment
Left wing
(e.g. Labour / Democrat parties)
Right wing
(e.g. Conservative / Republican
parties)
*need to control the free market
*pro trade unions
*some state ownership of industry
*progressive taxation
*regulation of industry
*higher government spending and
taxes
*reduce inequality of incomes
*provision of jobs a priority
*comprehensive welfare state
*poverty reduction and social
mobility goals
*supremacy of the free market
*anti trade unions
*private ownership of industry
*proportional taxation
*minimal state interference
*low taxes and government spending
*inequality of income as incentive
*control of state spending a priority
*minimal welfare state
*belief in self-help

11. © John Tribe
Discussion Point: Opportunities
and threats in the changing
political environment
 Competition policy
 Health and safety
 Transport and
infrastructure
 Global carbon
agreements and targets
 Taxation and spending
plans
 Disability and access
legislation
 Foreign policy
 Visa policy
 Regulation and
deregulation
 Regeneration plans
 Employment and
training policy
 Travel advisories
 Minimum wages
 Security, unrest.

12. © John Tribe
The Economic Environment
 The economic environment (Tribe, 2016) affects
different types of tourism entities in different ways.
 The success of an international tourism destination such
as Mallorca, Spain, will be affected by economic
fluctuations in those countries which supply the majority of
its visitors (tourism generating countries), as well as its
economic attractiveness compared to competitive resorts.
 Tour operators such as Kuoni (Switzerland ) and TUI
(Germany/UK), face a number of economic environments.
First, domestic economic environments affect the
expenditure patterns of their clients. Second, the variety of
different international economic environments in which their
tourism product is located affects the supply of the tourism
package.
 Providers of tourism services will find the international
economic environment affects the demand for their services
and the costs of supplying those services.

13. © John Tribe
A dynamic environment

14. © John Tribe
What are the key variables?
The economic environment affects
organizations in the leisure and tourism sector
in two main ways.
 Changes in the economic environment can affect
the demand for an organization’s products
 Changes may affect an organization’s costs.
These are set out in the next sections
 Additionally background factors such as share
and property prices may affect organizations.

15. © John Tribe
Borrowing Employment Taxes
Expectations Disposable
Income
Benefits
Government
Expenditure
Household
Consumption
Savings
Exports Demand Imports
Investment Tourism Organisation
The economic
environment and demand

16. © John Tribe
The economic environment
and demand
The key macroeconomic factors affecting
demand for tourism industries are:
 household consumption
 export and import demand
 government expenditure
 investment

17. © John Tribe
What determines the level of
household consumption?
Borrowing Employment Taxes
Expectations Disposable
Income
Benefits
Household
Consumption
Savings
Imports

18. © John Tribe
What determines the level of
household consumption?
real household’s disposable income
employment
benefits and taxes
borrowing and savings
expectations

19. © John Tribe
The economic environment
and costs
Interest
Rates
Exchange
Rate
Inflation
Rate /
Oil Prices
Tourism
Organization
Indirect
Taxes

20. © John Tribe
The economic environment
and costs
The key macroeconomic factors affecting costs
of recreation, leisure and tourism goods and
services are:
 interest rates
 Inflation / oil prices
 the exchange rate
 indirect taxes

21. © John Tribe
Opportunities and Threats in
the Economic Environment
Opportunities Threats
Low interest rates High interest rates
Low unemployment High unemployment
High consumer expenditure Low consumer expenditure
Low oil and other commodity
prices
High oil and other commodity
prices
Low Taxes High Taxes
Favorable exchange rate Unfavorable exchange rate
Stable prices Inflation
Optimistic expectations Pessimistic Expectations

22. © John Tribe
Destinations
Economy
Z
Economy
Y
Economy
x
Destination

23. © John Tribe
The sociocultural
environment
Factors in the socio-cultural environment of
tourism entities include
 the size and structure of the population
 lifestyles and inter-cultural differences
 other factors (including attitudes and values about
travel, availability of paid leave and
unemployment)
 tourist motivations
 attitudes to the environment

24. © John Tribe
The technological
environment
The technological environment offers both
opportunities and threats:
 Opportunities may be found in cheaper provision,
or improvements in goods and services, in better
marketing or easier distribution.
 However technology may result in an
organisation's product or service becoming
obsolete, or subject to new forms of competition.
The technological environment may be
divided into Information Communication
Technology and other technology.

25. © John Tribe
Information
Communication Technology
 ICT relevant to tourism encompasses information
search, purchase of services, post travel
engagement and networking.
 It includes information and reservation systems for
airlines, hotels and attractions, timetables for
transport systems, search engines (e.g. Google)
online travel services (e.g. Expedia, Orbitz,
Lastminute.com, Opodo, Travelocity and edreams),
destination management systems (e.g.
visitbritain.com), networking and web 2.0 portals
(e.g. tripadvisor.com) and price comparison sites
(e.g. travelsupermarket.com).

26. © John Tribe
Other Technology
 Other areas where technologies have had a
significant impact on tourism include:
 Construction techniques - allowing faster erection of
buildings.
 Bridge technology – extending access and cutting journey
times.
 Materials – lighter and more durable materials.
 Glass – especially with better insulation properties.
 Fuels – e.g. biofuels/hybrids
 Energy – especially alternative sources of energy such as
wind and solar power.
 Security scanning – which enables quicker and more
accurate passenger checking at airports.

27. © John Tribe
Summary of PEST

28. © John Tribe
Task recap
 Provide a brief PEST analysis for your destination or
organisation
Opportunities Threats
Political
Economic
Socio-cultural
Technological

29. © John Tribe
Review of Key Terms
 Political analysis: The effects of government policy and laws.
 Economic analysis: Understanding what economic factors will
affect tourism entities and how these economic factors are
changing.
 Consumers' expenditure: The amount of money consumers
actually spend.
 Exchange rates: The value of a country's currency in terms of
other currencies.
 Interest rates - The cost of borrowing.
 Expectations: The way people feel about future economic
prospects (optimistic or pessimistic).
 Socio-cultural analysis: Understanding changes in population size
and structure as well as changes in consumer tastes, preferences
and broader cultural shifts.
 Technological analysis: Analysing changes in science and
technology to understand how these will impact on tourism
entities.
 ICT: Information and Communication Technology

30. © John Tribe
Discussion Questions
1. Explain how changes in government or government policy
might affect a named tourism entity.
2. Evaluate the economic environment for a named destination
3. Explain how changes in
 exchange rates
 consumers' expenditure
 taxation, and
 interest rates
may affect the business of a named airline. What other
economic factors might be relevant to your analysis?
4. What opportunities and threats are destinations facing from
changes in ICT?
5. Provide a PEST analysis for the provider of a major theme
park, distinguishing between opportunities and threats.

31. Part 2, Lecture 4
The external
environment:
PEST analysis
The End
Tourism Strategy