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Evaluation of Business - Aviation Industry in Malaysia

Essay by   •  October 5, 2011  •  Case Study  •  2,023 Words (9 Pages)  •  1,394 Views

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INTRODUCTION

Without any doubt evaluation of business is extremely important if business owners and top managers want to achieve success. This is a natural desire for everyone who either owns or runs business. Business evaluation is not only about evaluation of co performance but also assessment of its position in various environments and based on various factors. It often happens that external environments every business is forced to operate in make a great impact on business performance. That's why it is imperative to analyze such factors and work out a number of solutions and tools to solve problems or create such favorable conditions that the company never gets into trouble. PESTE analysis is one of the most popular analysis types since on the one hand it is rather simple but on the other hand very representative. PEST stands for political, economic, social and technological environments. As known, business cannot function in a complete isolation, and thus these factors may play a great role in business development. It is impossible to say which factor is the most important as everything depends on the company that performs PESTE analysis, its current position, problems and concerns, relations with government and public organizations. In this assignment will talk about PESTE analysis components. All industries are influenced by PESTE factors. For example, some of the PESTE factors affecting the airline industry in recent year.

The aviation industry in Malaysia is dominated by two airlines. These are Malaysia Airlines and Air Asia. According to O'Connell and Williams (2005), Malaysia Airlines has been classified as a full service airline while Air Asia has been classified as a low cost airline. Malaysia Airlines, the national airline of Malaysia is serving both international and domestic routes across 100 destinations worldwide (including code-sharing flights). It has one of the largest fleet sizes in South East Asia and is one of only six airlines to have been awarded a 5-star rating by Skytrax.

On the other hand, Air Asia is the first low cost airline in the region, and it operates scheduled domestic and international flights over 75 destinations in 21 countries. The competition between Malaysia Airlines and Air Asia has been fierce in particular as regards the price factor. Air Asia has been aggressively promoting itself with the tagline of "Now Everyone Can Fly". This has challenged the branding position of the long-known Malaysia Airlines. Both airlines serve different customers base and offer different services experience. However, this may not necessarily be true in the cases of domestic flights and some short distant international flights, where the services differentiation is rather minimal. Nevertheless, it is expected that the customer satisfaction level for both airlines is different as the customers' perception on full service airlines and low cost airlines are different.

PESTE ANALYSIS

PEST analysis before creating business plans or making decisions, it is important to analyse and identified the external environment. This can be achieved through a PESTE analysis, for example an investigation of the Political, Economic, Social, Technological and Environment influences on a business. In addition it is also important to be aware of the actions of competitors. These forces are continually in a state of change. Businesses need to take a pro-active approach and be ahead of these changes, rather than hurriedly making alterations to products and processes in a reactive way. PESTE analysis is concerned with the environmental influences on a business. The acronym stands for the Political, Economic, Social, and Technological issues that could affect the strategic development of a business. According to the Internet Centre for Management and Business Administration, Anon (2003), identifying PESTE influences is a useful way of summarising the external environment in which a business operates. However, it must be followed up by consideration of how a business should respond to these influences. PESTE analysis has the very important role to identify the opportunities and the threats from the macro environment of a business.

POLITICAL

The PESTE analysis of a business usually begins with examination of the political issues that may affect it. The Political environmental such as regulation and protection, corporate and consumer taxation; governmental influence on supply and demand, government legislation, and competition regulation. The political environment influences demand in several ways. Government legislation influences all that can and cannot be bought and in what circumstances. Also, government plays a role in determining the distribution of wealth and income in the country through taxation and the welfare system. On the other hand, there are three main ways in which government affects supply. Firstly, government can propose legislation on how firms should operate, what they can produce, how they can produce it, and what inputs they can use to do it. Secondly, government may specify how certain groups should move (safety standards). And finally, government can also affect firms' costs through taxes and subsidies. The political environment can have certain effects on the amusement park, such as governmental changes through laws defining the age limit for using the facilities. This may result in decreased numbers of visitors, especially young people. Through taxation and the welfare system, government will prevent more people from visiting the park; people will have to pay taxes on income and support the welfare system of the country. Also, by enforcing heavy taxes, government will indirectly lead to increases of the firm's costs and respectively the final price of the product or service. Through health and safety regulations, the government may find some of the facilities unsafe and not permit their operation. This will lead to losses for the park from unrealized ticket sales. On the other hand, government may also give subsidies to the firm that will increase the supply, and this will lead to an increase of the firm's profits. So, political influences can have both positive and negative effects on the park.

ECONOMIC

The political analysis is followed by the assessment of the economic issues that may have

effects on the business. As mentioned by Doyle (1994), those economic matters

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