This report will discuss the likely future changes in the Political, Economic, Social, Technological and Legal environments and the ways in which they will affect the business Jaguar Land Rover Automotive PLC future profitability. The data in which will be used in this report will be secondary data including statistics, reports, published documents and press information.
Jaguar Land Rover Automotive PLC is a British multinational automotive company in which designs, develops, manufactures and sells luxury and executive cars such as the Jaguar; XE, XF, XJ, E-Pace, F-Pace, F-Type and the I-Pace Concept, and Land Rover specialises in four-wheel-drive vehicles, including the Land Rover; Discovery and the Discovery Sport, Range Rover; Evoque, Velar and Sport. In 2016, the automotive business had a revenue of £24.3 billion and a profit of £1.31 billion after tax (Jaguar Land Rover, 2016).
The research carried out was collected from multiple secondary sources, in which the reliability and accuracy of the research relies primarily on the source itself. The research comes from reliable sources including the Financial and Broadsheet Press using news articles from the Business News Daily, The Guardian, The Independent, etc, in which there is a serious tone to their articles and editorials. In addition to this, the Annual Reports from the official Jaguar Land Rover website were used in order to provide a more accurate, in-depth analysis of the businesses profitability.
Political factors are an integral part of PESTLE analysis; government regulations and legal factors are assessed in terms of their ability to affect the business environment and trade markets (Pestle Analysis, n.d.). One political influence on Jaguar Land Rover is Brexit; Brexit is the term in which is used for the prospective withdrawal of the UK from the European Union. A referendum, a vote in which nearly every one of voting age can participate in, was held on Thursday 23 June 2016, to decide whether the UK should remain or leave the European Union, leave won by 51.9% to 48.1% – in which the referendum turnout was 71.8%, with more than 30 million people voting (BBC, 2017). As shown in figure 1, Brexit caused a sudden drop in the value of the pound as in June 2016 it crashed to its lowest levels in 31 years.
Brexit will have significant implications on Jaguar Land Rovers profitability as according to internal documents at pro-remain carmaker estimates that their annual profit could be cut by £1bn (Guardian, 2016), due to the fact that the cost of trade will increase. The analysis expects the £1bn hit – which will occur by 2020 – to come from a 10pc levy on vehicles being exported to Europe and 4pc imports of components for the production of vehicles. This would be the case if the current free trade agreements were to end and standard World Trade Organisation levels applied, according to Reuters (Guardian, 2016). In addition, the UK government will have to agree a trade deal which imposes tariffs, tariffs are a form of tax in which will make imported goods more expenses. As there will be extra costs for Jaguar Land Rover, this will subsequently affect profitability and according to the Guardian (2016), this is likely to cost JLR in the low hundreds of millions.
In addition to this, Brexit will also have implications on Jaguar Land Rover due to higher immigration controls; they may not be able to attract top engineers after Britain leaves the EU. This is because many of its engineers come from outside the European Union and work in the UK with Tier 2 skilled worker visas (Work Permit, 2013). This may affect Jaguar Land Rover as they may find it difficult to find employees with the skills and qualifications in which they require, therefore it would complicate the employment process within the business itself.
Economic factors are the determinants of an economy’s performance in which will have direct implications on a business, one example being inflation. According to figure 2, inflation reached a six level high in November 2017 of 3.1%, this subsequently raises the cost of living for UK households. A rise in the inflation rate of any economy would affect the way companies’ price their products and services. In addition to this, it would also affect the purchasing power of a consumer and change demand/supply models for that economy (Pestle Analysis, n.d.). Inflation would subsequently affect Jaguar Land Rover as it would result in the prices of their vehicles increasing, this would implicate the demand and supply; as there may be less demand for the vehicles in which they sell. This would subsequently affect the businesses profitability; according to the Jaguar Land Rover Annual Report, in 2016 the business had a profit of £1.31 billion after tax (Jaguar Land Rover, 2016), therefore due to inflation reaching a six level high in November 2017, their profits may decrease by 2018.
Social factors analyse the demographic and cultural aspects of the company’s market. These factors help businesses examine consumer needs and determine what pushes them to make purchases. Among the items that should be examined are demographics, population growth rates, age distribution, attitudes towards work and job market trends, according to Post (2017).
Technological factors are an integral part of PESTLE analysis; defined as ones in which relate to the presence and development of technology on either a local or global scale (Pestle Analysis, n.d.).
An organisation must understand what is legal and allowed within the territories they operate in. They also must be aware of any change in legislation and the impact this may have on business operations. Factors include employment legislation, consumer law, healthy and safety, international as well as trade regulation and restrictions. Political factors do cross over with legal factors; however, the key difference is that political factors are led by government policy, whereas legal factors must be complied with (Oxford College of Marketing, n.d.).
Environmental factors relate to the influence of the surrounding environment and the impact of ecological aspects. With the rise in importance Corporate Sustainability Responsibility, this element is becoming more important and factors include climate, recycling procedures, carbon footprint, waste disposal and sustainability (Oxford College of Marketing, n.d.).