PEST Analysis of United Parcel Services

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United Parcel Services is one of the largest international packaging, delivery, and logistics company and is located in Atlanta, in the United States. The firm has operations in over 220 countries and services around eight million people daily as per their 2017 report (UPS, 2017). For any company to develop and grow their market various factors must be considered; one of the most significant analytical tools for evaluating the external environment in which a business will be operating is the PEST analysis. The assessment helps in extrapolating the performance of the firm in the long run. The term PEST is an abbreviation referring to political, economic, social, and environmental factors that are going to affect the operations of the business. This essay will look into the possible expansion of UPS Airlines cargo division into a new country using the PEST model.

Political

            Political factors refer to the analysis of how legal issues and government regulations will affect the operations of the UPS cargo division to ensure the firm continues to be successful and profitable in the new market. Among the key political factors that affect the operation of the business, including political stability, tax guidelines, employment laws and trade regulations. The company needs to consider the local power structures and shifts to understanding how they will affect the business.

            Different countries have different regulatory processes, some different from the United States. For example, in a country like China, the model of administration is communism. This means that while most processes that are handled electronically in the US, in China they need to be manually stamped through the various levels of administration (Ambler, Witzel & Xi, 2016). Hence, the time required to accomplish these tasks is lengthy and more costly. For the company to be successful in such a country, it is required to develop a full administrative team dedicated to these activities.

            Another political factor of interest is the government policies. Each country has its administrative policies that suit it. In the United States, the company needs to negotiate with the respective local governments to put up business, despite having approvals from the federal government. Because of the nature of cargo business; a lot of logistics is required, hence UPS needs to negotiate with the various local governments to ensure success in the new market.

            UPS will also have to contend with favored trading partners in the new markets. China, for example, has had a poor record for individual rights to carry out business for its citizen (Ambler, Witzel & Xi, 2016). However, in the last few decades, the communist government has started to balance between private and government businesses. Despite almost a third of the economy still under the administration, the country has been able to develop a market economy whilst working under communism. The unique model of business environment has created a more favorable environment for the local Chinese companies that know how to circumnavigate through the various government requirements.

Economic

            Microenvironment factors such as competition affect the competitive advantage of a business, while macro environmental features such as interest rates, inflation, and economic cycle, saving rates, and foreign exchange influences the collective investment and demand in an economy. UPS can utilize a country's economic characteristics such as inflation, growth rate, consumer spending, and economic indicators to predict the growth of the organization.

            The current introduction of trade tariffs by the United States administration has seen different countries respond and this is expected to affect the air cargo industry. The government introduced a 10 and 25 percent tariff on aluminum and steel from Canada, additionally, a twenty-five percent tariff has been imposed on Chinese goods worth almost $50 billion (Aircargonews, 2018). This has seen these countries respond in kind. Despite most of these goods not being transported by air, these tariffs are expected to have a ripple effect on the sector. Expansion into these countries requires the firm to brace for the effects of these economic wars.

            Weather is another economic feature that cargo airlines have to deal with both locally and internationally. Conditions such as low cloud, rain, fog, may hinder visibility at or around airports; thunderstorms and strong winds can make it uncomfortable for pilots to control the planes. Lightning strikes near airports can also result in the shutting down of airports (Airservices, 2017). These weather disruptions can result in re-routing, the diversion from intended destinations, and delays. UPS need to vary their operations to accommodate weather delays and airport shutdowns. The firm needs to take into account the weather cycles of the destination of interest.

            Labor costs and productivity in the economy is another important economic factor for a firm to consider when expanding. Cargo airline is a service industry and hence it is a labor-intensive. Every major airline employs flight attendants, pilots, baggage handlers, mechanics, logistics personnel, cooks, security personnel, cleaners, lawyers, accountant, and managers. A substantial amount of revenue generated by the companies is used to pay the large workforce and thus a very thin profit. UPS should expand to a country where despite the cost of labor, the firm remains productive to ensure its continued competitiveness.

Social

            These factors analyze the culture and demographics of the market of interest. They enable the business to make informed decisions on the needs of the target market and the motivation to purchase the firm's products. Some of the social factors include job market trends, age distribution, culture, ethical and religious beliefs, and lifestyle changes.

            Changes in lifestyle are a major issue in most countries. More consumers are becoming more satisfied with online services as compared to the traditional store model. This can be evidenced by the exponential growth of online retail firms throughout the world. For example in China, more people are tech-savvy, with most carrying out their purchases through smartphones (Millward, 2017). With a heavy online presence, including a website and a mobile phone application, this development is a great opportunity for UPS.

            Education level and standards is also another key social feature that the company must take into concern when moving to new markets. The airline requires an educated workforce to handle the various elements of its operations, to ensure the company’s competitiveness; an educated population needs to provide these services. Having a more educated workforce has been shown to have the effect of increased production of the organization. To ensure profitability of the new market, the firm needs to ensure the required staff will be available in the country of interest or shipping expatriates will also be profitable.

 Cultural difference is another major factor of concern for UPS to consider. Many countries have a varying culture with the west.  For a country like China, for example, Confucianism, which is a respect for the elders, and Guanxi, which is the network of relationship, plays important role in business interactions. These practices ensure more obedience, teamwork, and easier flow of information (More Than Shipping, 2014). Operating in a new market requires UPS to ensure they respect the culture of the host for continued smooth operations.

Technological

A technological revolution is occurring fast in every aspect of human life.  The transport industry has been one key casualty of these changes. The growth of Uber from the traditional taxi and development of driverless cars by Google and Tesla are the hallmarks of this industry. The way cargo airlines such as UPS delivers products to its clients has also been greatly affected, this includes the technology development by competitors, the effect of technology on total costs and its lifecycle.

            Most consumers are preferring easier methods of obtaining carrier services, tracking their commodities, and paying of the necessary taxes and duties. With the surge in smartphones, most people favor mobile applications compared to traditional websites. UPS i-parcel service is able to bridge that gap by creating a personalized, end-to-end feel that allows consumers to follow all the costs related to their delivery and at the same time track it. This ensures smooth flow of orders through borders and reduces the unnecessary costs (UPS, n.d)

Technology has also greatly influenced product offering. A country like China, for example, has an estimated 731 million internet users, 95 percent of who access it by phone (Millward, 2017). The Internet is a driving force behind e-commerce and its availability at the projected market can highly influence development. The impact of the internet on business means that UPS needs to expand into a region that is well serviced by the service.

Big data analytics is another technological advancement that a firm can utilize to make its deliveries more efficient. Organizations are looking into ways to increase their profits and push off competition in almost every means. Big firms that handle millions of cargo on a daily basis can analyze the information obtained from their records to obtain possible insights. UPS has, for example, using the data obtained to create precise shipping routes for their trucks to reduce the overall carbon footprint. The data obtained can also be used to generate new markets that were previously untapped. 

Key factors that affect business operations

Government policies play an integral part in the operation of any business. The state establishes different regulations that guide business practices. Some regulations affect the business directly while others influence it directly. In different levels of administration, a firm needs to be flexible enough to accommodate the changes in policies and rules. Presently America is engaging in trade wars with different partners by imposing tariffs and sanctions to different countries. These include the European Union, Canada, Turkey, Iran, and Russia (Brew, Hadfield, Toubia, Goetz & Walterman, 2018). These economic battles will have a knock-on effect on the air cargo sector and ultimately UPS Corporation. Each business needs to understand its clients and understanding their culture is key in capturing their attention towards the products. Culture is defined as the collective programming of the mind, which differentiates a group of people from the other (Ali, 2018). Culture is inherited and is important as it helps the firm fit into the society and hence remains profitable. Big data analytics is a relatively new development that has resulted from big corporations obtaining a large amount of data from its suppliers, clients, and workforce. Utilizing this information has been shown to elevate the competitive advantage of a firm, in addition, to ease decision-making, and develop the entrepreneurial spirit (Ziora, 2015). Hence, this technology is important for UPS to utilize.

Readiness

UPS is a public traded company in the United States with operations in almost all countries in the world; this means that the company has an unlimited source of capital to move to these new markets. With highly industrializing countries in Asia and Africa, There is an increased demand for airfreight services. Among the key challenges the company will face in its expansion include the rising cost of fuel, European economic problems and the practice of some American manufacturers moving their production from Asia to Mexico thus resulting in a change of transport from airfreight to road (Terry, 2018). Notwithstanding the problems they might face, the sector is growing from developing markets. UPS, for example, has a pharmaceutical hub in China to accommodate pharma shippers. The company has also invested heavily in technology, with a state of the art website and the i-parcel application, which play a key role in improving customer experience. The UPS smart logistic is a key technology that is of great significance for the company when growing (UPS, 2017). UPS has a team of policy experts that help guide the organization on government policies when expanding to new countries (UPS, 2017).

Conclusion

            The PEST analysis is used to determine how various factors will affect the performance of the business in the end. Different regulatory processes, government policies and companies that are favored by the state were identified as among the major political factors that would affect UPS. While trade tariff wars between American and different states, the cost of labor and weather were identified as key economic factors that would influence the firm. The social factors include cultural difference, education standards and changes in lifestyle. While development of a mobile application, availability of internet and big data analytics were identified as technological factors that can influence the expansion of the company.

Reference

Ali, M. (2018). Impact of culture on international Business. Retrieved from

https://www.linkedin.com/pulse/impact-culture-international-business-ali-muhammad-mba-acca-uk-/

Aircargonews. (2018). Air cargo braces for the impact of trade tariff. Retrieved from

https://www.aircargonews.net/news/policy/single-view/news/air-cargo-braces-for-the-impact-of-trade-tariffs.html

Airservices. (2017). Impact of weather on operations | Airservices. Retrieved from

http://www.airservicesaustralia.com/services/how-air-traffic-control-works/impact-of-weather/

Ambler, T., Witzel, M., & Xi, C. (2016). Doing Business in China (4th ed., p. 90-120). Taylor &

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Brew, J., Hadfield, F., Toubia, S., Goetz, E., & Walterman, C. (2018). Latest U.S. Trade

Actions/Tariffs and Other Countries Retaliatory Measures - Updated August 16, 2018 | International Trade Law. Retrieved from https://www.cmtradelaw.com/2018/06/latest-u-s-trade-actions-tariffs-and-other-countries-retaliatory-measures/

Millward, S. (2017). Tech in Asia - Connecting Asia's startup ecosystem. Retrieved from https://www.techinasia.com/china-731-million-internet-users-end-2016

More Than Shipping. (2014, 05 16). Retrieved from Cultural Factors for doing Business in China: www.morethanshipping.com/cultural-factors-in-doing-business-in-china/

Terry, L. (2018). Air Cargo’s Future: Ready for Anything - Inbound Logistics. Retrieved from

            http://www.inboundlogistics.com/cms/article/air-cargos-future-ready-for-anything/

UPS. (2017). UPS Annual Report 2017. Retrieved from

            https://pressroom.ups.com/assets/pdf/2017_UPS_Annual_Report.pdf

UPS. (n.d.). Retrieved from UPS Connect: https://upsconnect.com/business-insights/asian-trade/

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January 19, 2024
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