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The second component would be economic, which encompasses cost of production, currency exchange rates, and cost of capital. The third component is the social environment, which encompasses social change and global convergence. The fourth component is the technological environment, which encompasses global technology scanning and technology clusters and the spread of the Internet (Mellahi, 2005, pp. 37-49). Furthermore, another way of analyzing it would be examining the external environment according to Porter’s Five Forces. These forces would be 1) rivalry – how intense is the rivalry/competition among the firms in the industry? 2) buyers – how much power do buyer have? What can be done to neutralize their power? 3) new entrants – how easy or difficult is it to enter the industry? How can entry barriers be erected? 4) suppliers – How much power do suppliers have? What accounts for their power? What can be done to neutralize their power? and 5) substitutes – are there substitute products or services? What effect do these substitutes have? (Ungson amp. Wong, 2008, p. 59). For the PEST analysis, it is clear that one of the external drivers for this business is the global recession. …
Therefore, the buyers for the products will have more leverage to negotiate. Moreover, this also plays into Porter’s five forces at the supplier level. Weak economies would indicate that suppliers will not have as much power as in a good economy, due to the fact that buyers have more power. Thus, in these economies that are weak, Air Products will also be weak. This is shown in the fact that Air Products is facing pricing pressures, and there is excess in the manufacturing facilities, unanticipated contract terminations and project delays. Moreover, there is competition and the inability of the company to compete effectively, which affects sales and financial performance. This plays into the economic aspect of the PEST analysis and the rivalry arm of the Porter’s five forces analysis. The reason why this implicates the economic aspect of the PEST analysis is that the economics of the different countries is the reason for the inability to compete, and rivalry because rivalry with other countries is the external driver that is implicated by the competition. Also implicated in Porter’s Five Forces is the threat of substitutes, for these rivals might produce products that can be a substitute for the products Air Products produces, and these substitutes might be less expensive, which would further cut into Air Products’ market share. The other external force is the fact that there is a shortage of raw materials, and there are increased costs in energy sources. This implicates the economic end of the PEST analysis, because one of the aspects of the economic end of the PEST analysis is the cost of production. Obviously, a shortage of raw materials or the fact that these raw materials are increasing in price affects the cost of production.