PEST ANALYSIS

For this PEST analysis I will be analyzing the apparel manufacturing industry (NAICS
code # 315) within the united states. In particular I will be going in-depth on the U.S
industry comprised of establishments primarily engaged in manufacturing of men's,
women’s, boys' and girl’s jeans, dungarees, other separate trousers, jean
jackets, and shorts from purchased fabric.

POLITCAL ANALYSIS

Political factors can have a direct impact on the way business operates. Decisions made
by the government affect our every day lives and can come in the form of policy or
legislation. For the United States of America our government and nation is ran under a
democracy. In this capitalistic, free market-oriented economy, corporations and other
private firms make the vast majority of microeconomic decisions, and governments
prefer to take a minimal role in the domestic economy. As a result, the U.S. has a small
social safety net, and business firms in the U.S. face considerably less regulation than
firms in many other nations (Wikipedia).
Employee rights in the United States have a substantial effect on business. With the
apparel industry being labor-intensive, the effect employee laws have are significant.
Employee laws to consider are minimum wage, over time, benefits and health and safety
regulations.
“With the exception of Arizona, Louisiana, Mississippi, Alabama, Tennessee, and
South Carolina all states have a minimum wage requirements. The Fair Labor Standards
Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor
standards affecting full-time and part-time workers in the private sector and in Federal,
State, and local governments (DOL). Covered nonexempt workers are entitled to a
minimum wage of not less than $5.15 an hour. Overtime pay at a rate of not less than one
and one-half times their regular rates of pay is required after 40 hours of work in a
workweek” (DOL). As well as minimum wage and over-time pay, employees are
given the right to benefit plans.
The ERISA, which is the Employee Retirement Income Security Act, sets uniform
minimum standards to ensure that employee benefit plans are established and maintained
in a fair and financially sound manner. In addition, employers have an obligation to
provide promised benefits and satisfy ERISA's requirements for managing and
administering private pension and welfare plans (DOL).
In addition to pay regulations there are also health and safety regulations. OSHA, which
stands for Occupational Safety and Health Administration helps regulate employee safety
standards in all industries of the United States. Workers in the apparel manufacturers are
exposed to many harmful chemicals and noises which include cotton dust, dyes, and
machine noise. Also a major ill-health problem that is predominate in this industry is
musculoskeletal discomfort from repetitive movement and sitting. OSHA requires annual
safety training for employees, as well as ventilation and noise regulations (BLS). To
operate in this industry it is vital to comply with these standards.
Trade regulations are probably the single most important factor influencing this industry
in the United States. Since the apparel industry is labor-intensive, it is exposed to
overseas competition from nations where their employees receive much lower wages. By
1999 the proportion of domestically made United States’ retail apparel dropped to
just 12 percent (BLS). As of January 1, 2005 all quotas for apparel and textile products
will be lifted among members of the World Trade Organization, which includes most of
the United States trading partners (WTO). The removal of quota and other trade barriers
will serve to increase the competitive edge of countries with a mature textile and clothing
industry
The United States has other trade agreements with nations such as China. The U.S-China
Textile Memorandum of Understanding is an established agreement between the
Government of the United States and China on restraint levels for certain textile products,
produced or manufactured in China and exported to the United States during three one-
year periods beginning on January 1, 2006 and extending through December 31, 2008
(U.S CBP). Operations are also subject to the effects of international trade agreements
and regulations such as the North American Free Trade Agreement, the Dominican
Republic Central American Free Trade Agreement, and the Egypt Qualified Industrial
Zone program (Levi).

ECONOMIC ANALYSIS

All businesses are affected by economical factors nationally and globally. A strong
economy indicates positive results for businesses and consumers, and a weak economy
indicates quite the opposite. For the apparel industry in the united states, the future does
not look promising. Wage and salary employment in the apparel industry is expected to
decline 69 percent through 2012, compared with an increase of 16 percent for all
industries combined. The expected decline translates into 245,000 lost jobs over the
period—greater than the decrease for almost any other industry (BLS). The
Decline in employment can be attributed to increase in imports, new automation
machinery, and cost-cutting pressure from increase global competition.
Real GDP increased 3.5 percent in 2005, compared to an increase of 4.1 in 2004. The
increase was contributed to an increase in personal consumption expenditures, equipment
and software, exports, and residential fixed investment (BEA). The value added by the
apparel manufacturing industry contributing to the Gross Domestic Product is down to
18.9 billion in 2004 from 25.1 billion in 2000.
Nonfarm payroll employment increased by 193,000 in January of 2006, and the
unemployment rate fell to 4.7 percent. The unemployment rate had ranged from 4.9 to 5.1
percent during most of 2005. The average hourly earnings is up from 16.16 in August of
2005 to 16.41 in January of 2006 (BLS). However, the consumer price index is also up
0.7 percent, but this can be contributed to unstable and high energy prices. Pressure from
inflation is also causing interest to rise, the Federal Reserve has raised its target funds rate
14 straight times by a quarter-percentage point each time to 4.5 percent, in order to gain
control on inflation (Isidore).
The major components of spending—food, housing, apparel and services,
transportation, healthcare, entertainment, and personal insurance and
pensions—account for about 90 percent of total expenditures, and of these, only
the change in apparel and services was statistically significant in 2003, decreasing by 6.2
percent (BLS). Overall, consumer spending was up in the final quarter of 2005. Spending
by households, which accounts for almost two-thirds of GDP, rose by 0.7 per cent in the
three months to December. This is the largest quarter-on-quarter increase since autumn
2004 - matching a strong rise in retail sales at the end of last year - and is a sign that
consumer spending grew after a slow start to 2005 (Isidore).

SOCIAL ANALYSIS

Demographics is essentially population characteristics. It is the statistics on individuals in

a region in terms of age, sex, marital status, income, ethnicity, and other personal
attributes that may determine buying patterns. Understanding this basic information about
a population can help a firm determine whether or not its products or service will appeal
to customers and how many potential customers for these products or services might have
(Barney, pg. 35).
From 1990 to 2000 the population increased by 13 percent in the United States. 75.1
percent of the nations 284.1 million people are White compared to 12.5 percent Hispanic
or Latino, and 12.3 percent Black or African American. Educational attainment of the
population 25 years and over for the United States is up. In 1990, 75 percent had earned a
high school diploma or more, and 20.3 percent had earned a bachelors degree or more. In
2000, those stats increased to 80.4 percent, now have a high school diploma or more, and
24.4 percent have a bachelors degree or more. Of the 284.1 million people, 143.4 million
were female and 138.1 million male (Census).
Overall, the number of househo...

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3.1 Degree of Rivalry

Degree of rivalry denotes the intensity of competition within the industry. Videocon,

LG, samsung, Sony, Onida, are the big competitors in television industry. Although

Videocon, another major player has managed to hold its own in the midst of the

onslaught from the Korean majors, though profits have suffered. Other large Indian

companies in the top of the list are Mirc Electronics. While Mirc Electronics is

managing to hold its share by adopting value for money strategy, BPL is facing tough

time, experiencing drastic decline in market share. Sony, Philips, Akai, Sansui, Aiwa,

Toshiba and now Hyundai are the other foreign brands in the market. The industry is

based on numbers game and companies will have to maintain a fine balance between

catering to lifestyle requirements and meeting the needs of average consumer.

3.1.1 Competitor Analysis
A detailed analysis of some of the major players is done below:
LG ELECTRONICS

LG Electronics rightly understood the consumer motivations to create magnetic

products, price them strategically, position them sharply and keep making the

magnetism more potent. Having understood the finer differences in consumer

motivations, it opted for sharp- arrow ‘reasons-to-buy’ differentiation over the

‘blanket-all approach’ taken by most of the other players. It is an aggressive

marketer. It focuses on low and medium price products.

SAMSUNG
Initially the strategy of Samsung in India was to create premium image by

emphasising global brand. After facing stiff competition from another Korean major-

LG, Samsung also started playing price game. In 2004 it reverted back to its premium

positioning, although it resulted in some loss of market share. In line with the Global

Digital Initiative of the Parent Company, Samsung India is seeking to acquire digital

leadership in India by introducing its digital ready televisions like the 40" LCD

Projection TV, 43" Projection TV and the Plano series of Flat Colour televisions.

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ONIDA

Its popular devil ad although had engendered a strong emotional pull towards the

brand, technologically it represented no advancement. The company plugged the gap

by touting its digital technology. Like Videocon, it has also been able to hold its

market share. The world-class quality of Onida has enabled the company to make a

breakthrough on the export front. It has technical tie- up with the Japan Victor

Company, better known as JVC. So focused is Onida on positioning itself on the

premium, high- tech plank that it is even planning to push its own envelope on

obsolescence, much. The strategy is aimed at further broad basing the product

offering of the company, which has largely dominated the top-end of the television

market, across multiple market segments.

VIDEOCON

Videocon has always been a price player and has an image of a low price brand. This

entails providing more features at a given price vis-à-vis competitors. It has taken

over multinational brands to cater to unserved segments, like Sansui- to flank the

flagship brand Videocon in the low to mid priced segment, essentially to fight against

brands like BPL, Philips, Onida and taken over Akai- tail end brand for brands like

Aiwa.

Videocon is one of the largest manufacturers of television and its components in

India and thus has advantages of economies of scale and low cost due to

indigenisation. It has the widest distribution network in India with more than 5000
dealers in the major cities. It also has a strong base in the semi-urban and rural

markets. Due to its multi-brand strategy, it has at present multiple brands at the same

price point. This has led to a state of diffused positioning for its brands. It has also led

to a cannibalisation of sales among these brands. The flagship brand Videocon has

lost market share due to the presence of Sansui in the same segment. Because of

reduction in import duties on CPT the cost advantage of Videocon is also on the

decline. Hence it is facing rough weather and also trying to boost exports.

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Besides understanding the strategy adopted by different players, several other factors-

industry growth, concentration and balance, corporate stakes, fixed cost, and product

differences need to be analysed to determine the extent of rivalry between the

existing Players.
3.2 The threat of potential new entrants (low)
High capital required entering into television industry, which needed large investment

on technology, distribution, service outlets and plant. Difficulty for customers in

switching cost, when they are satisfied with their current product as well as difficultly

for new entrants to have product differentiation because customers had already

familiar with those established consumer electronics companies, therefore new

entrants have to spend a lot on branding and customer knowledge. It is difficult to

obtain a license; successful applicant has to undergo through a form of competitive

evaluation, such as a comparative evaluation process.

Threat of entry is determined by the entry barriers, which act to prevent new firms

from entering the industry. A lower entry barrier makes it difficult for the existing

producers to remain profitable for long. When profits increase, additional firms will

enter the market to take advantage of the high profit levels and over time drive down

profits of all firms in the industry. When profits decrease, some firms will exit the

market, thus restoring the market equilibrium. Barriers to entry arise from several

sources:
3.2.1 Access to Distribution Channels

A strong distribution network is absolutely essential to compete in this industry. Not

only does it guarantee a country wide reach for a company’s products but is also

necessary for providing good after sales service.

Videocon has implemented ERP system, which helps in integrating the

manufacturing, marketing, procurement and distribution services with the corporate

office

LG Electronics sells in 1800 towns and cities with a population of 1,00,000 and

above.

Samsung also has a widespread service network, which includes 123 exclusive

service centres and 200 distributors in any town with more than 1 lakh population.

All BPL dealers are linked via VSAT nodes, ensuring online availability of

information on inventory status and sales movement.

Distribution hence is difficult and costly as established firms dominate distribution.

Large incentives are required to gain entry into the distribution channels and further

gain recommendation to retailers from the dealers.

3.2.2 Brand Salience

With little product differentiation and parity products, it is imperative that distinct

images are created in the minds of consumers through positioning and brand building.

MNCs have been able to compress the cost of brand building by amortising the cost

of sponsoring international events across a larger footprint straddling multiple

countries.
3.2.3 Capital Investment and Economies of Scale

Television industry is capital intensive and players have made huge investments

in putting up state of the art manufacturing facilities. Videocon has seven

manufacturing site in India Sony India had a production capacity of 300,000 CTV

sets with capacity utilisation of 66%. Samsung is investing $4 mn to expand its CTV
manufacturing capacity at Noida to 800,000 units per year. The existing capacity of

the plant is around 600,000 units. Other players like Mirc Electronics, LG have also

set up manufacturing facilities in India. The market players need sales volume to

achieve economies of scale, which is difficult because of large number of

competitors. Apart from investments in manufacturing the industry requires huge

working capital to manage inventories.

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Supply chain mgmt. and inventory management thus becoming crucial toDetermining

profitability. With regard to sourcing funds, MNCs are better placed Than their

Indian counterparts as they manage to get funds from their parent Companies at low

rates of interest. Huge capital requirement thus can act as barrierto entry.
3.3 Threat of Substitutes goods (low)
In Porter’s model, substitute products refer to products in other industries.there is few

substitutes from other industry if any. Most of them seem to be obsolete or have one foot out

of door. Internet though emerging as an infotainment medium is very low in penetration.

Moreover the industry has responded to the future threat by introducing a TV that can

provide functions of the Internet along with regular features, e.g., BPL digital that includes

Internet and cellular facilities.

3.4 bargaining power of Buyer (high)
The power of buyers is the impact that consumers can have on a producing industry. Buyer

power influences the prices that a firm can charge. Buyer power is influenced by various

factors as follows:
3.4.1 Buyer Concentration
The industry is akin to consumer durables whose end users are fragmented. Hence
buyers do not have any specific influence on producers.
3.4.2 Buyer Switching Cost

The cost incurred by consumer in switching from one television brand to another is

practically zero. Brand loyalty is low. Hence the companies cannot rest on their

laurels and have to be on their tenterhooks to retain the customers.

3.4.3 Price Sensitivity

Market is highly price conscious and promotion driven. With the onslaught of

VIDEOCON’s major price cuts and promotional schemes, this market has now become
a promotion driven one. To successfully compete in this industry, even premium

players like Sony, LG have had to come up with schemes. LG and Philips have

Been the most aggressive amongst industry leaders as far as pricing is

Concerned and hence their realisation shave been lower than industry average.
Industry leaders like LG focus on low- medium priced CTV, while Samsung has
Moved gradually towards higher priced CTVs. The domestic high-end
CTV prices will follow the global price trend of declining prices. However, the
Prices of domestic products would be higher than those of global products due
To negligible demand in the domestic market and hence most likely to be met
Through imports. market is highly price sensitive as the
Demand has increased with fall in prices.
3.5 Bargaining power of supplier (low)
In television industry, there is low bargaing power of Supplier’s because big global

supply chain management.there is direct negotation with supplier in order to encourge

reliable supply, faster delivery and lower price. Bargaining power influences the cost

and quality of input material. Higher supplier power raises the input cost, thereby

reducing the industry profitability. The most critical component in manufacturing

television is the picture tube. It constitutes around 50% of the cost of television.

While Black and White picture tubes are made in India, many manufacturers still

need to import colour picture tubes.

The other important components include electronic circuit boards, tuners, high-

tension transformers and moulded plastic casings. The demand

For colour picture tubes (CPT) has been rising steadily. But at the same time owing

To customs and import liberalisation, they had to face competition from imports

During1993-1997. A sharp reduction in import duty from 85% to 40% between

1994-96 and further down to 20% by 2004 was announced to gear the manufacturers

of picture tubes to face competition from foreign players. As a result of spurt in

Demand in 1990s, the CPT manufacturers expanded capacities, which resulted in

Excess capacity in the domestic market. Samtel Colour, LG Hotline and JCT
Electronics are the major domestic CPT manufacturers The picture tube industry is

both technology and capital-intensive industry.

At the same time bulk orders in raw material procurement fetch more discounts,

which gives the larger players an advantage over their smaller counterparts. The CPT,

the most critical component in a CTV has no alternate use and therefore, the CPT

industry is solely dependent on CTV players, mainly domestic and partly exports.

Hence larger players like LG, Samsung and Mirc etc. are able to negotiate better

deals unlike other players.