A PESTEL ANALYSIS OF THE E-COMMERCE INDUSTRY
The Ecommerce industry has experienced solid growth in the recent years and apart from some fluctuations in the global economy, the situation has remained favorable for its growth. China and US are the largest of the e-markets. However, growth rate is expected to be even higher than US in the Asia Pacific region. The US e-retail market is among the largest ones in the world. Apart from Amazon, Ebay and Alibaba, there are a number of important players in the market like Walmart, Coles and Best Buy. The technological factors have also supported the growth of the Ecommerce industry. Growth in the use of mobile devices has also pushed the ecommerce sales higher. A larger number of people are now shopping using their mobile phones.
There are several factors apart from economic, technological and political that affect the global ecommerce industry. This is a PESTEL analysis of the ecommerce industry that analyzes how these various forces can affect the ecommerce industry and how deep their impact can be on this sector.
While the threats may not be the same before the e-retailers as the physical retailers, still there are several political hurdles before them. There are several risk factors affecting the e-businesses. For example for the global leaders like Amazon, growth in Asia pacific region can be made difficult by the Red tape. Several news reports highlight how Red Tape in India can become major difficulty in the way of new businesses trying to extend their presence there. The political and regulatory challenges before the e-businesses have kept rising. The growth of Ecommerce in EU has also been challenged by political factors.
EU has kept targeting technology giants from the US. Google and Amazon have already been targeted by EU. Such issues can be a threat to the growth of ecommerce in Europe and it is why several sources predict that the growth rate of ecommerce in Europe is going to be low. Political issues are not limited to just those discussed above but there are many more. Political stability in most regions of the world leads to economic stability. Political chaos can result in disruption of online and physical businesses. Overall, political issues can have a significant impact on ecommerce and its growth. Any industry sector needs a favorable political environment for growth in any market region.
Economic factors are very significant in terms of business. Whether it is an online business or physical, economic factors can have a significant effect on it. It is because economic factors are directly related to business and their effect is also direct on business revenue and profits. During the global financial crisis, spending had decreased. People had adopted cost cutting measures as the level of economic activity and employment had gone down. During such periods when economic activity has gone down, the profits and revenue of businesses can go down.
E-businesses too cannot remain unaffected. Economic fluctuations since the recession have also kept affecting businesses from time to time since the recession. In several economies like Russia, Brazil and India, these economic fluctuations affected both global and local businesses. Now that the recession has passed and economic activity has returned on track, the ecommerce industry has flourished in the recent years. Higher economic activity means faster growth and higher revenue for the Ecommerce industry whereas lower economic activity means just its opposite.
During the pandemic too, businesses across several sectors were affected by the temporary recession like situation. However, this time while the pandemic had a negative impact on businesses on one hand, on the other, it also drove sales through online channels higher. Ecommerce received a boost since more and more people were shopping online as physical retail stores were closed. However, in several areas consumer spending fell since unemployment was high and people were spending on essential items mainly. In this way, economic factors can have a direct and deep impact in the ecommerce industry.
Socio cultural factors too have a deep impact in ecommerce industry. Most importantly e-retail brands find it the easiest to flourish locally. Growth in foreign markets can be full of challenges. Changing trends can also have an impact on businesses. The growing use of mobile technology has affected ecommerce. In most societies the mobile technology has been very popular and a larger number of people worldwide are now using mobile gadgets for shopping and other purposes.
Socio cultural factors affect businesses in other ways too. Cultural factors have an impact on how these ecommerce businesses market themselves. In several societies of the world ecommerce is still seen as a sign of Westernization due to which it has seen low growth in these areas. However, changing demographic composition of the global population has proved favorable for ecommerce brands. Around the world, the millennial and Gen Z customers like to shop online. These two generations are the main target of ecommerce brands and they are also among the most tech savvy buyers.
Technological factors are very important in the context of the ecommerce industry. It is because the industry relies heavily on technology. Everything is based on technology in e-retail from sales to customer service. All the ecommerce brands are in a race to be technologically ahead of their competitors. From Amazon to E-bay and Flipkart, every brand is investing a lot in technology to find faster growth. Not just the ecommerce brands, but the physical retailers like Walmart, Costco and Target have also moved towards an omnichannel shopping experience. They are serving their customers through both physical and online channels.
Technology decides several things in the ecommerce world from popularity to profits. The reason that Amazon is ahead of the others is because it is technologically ahead of the others. It has managed its customer experience so well that its popularity is very high. Amazon is the largest R&D spender in the entire industry and it is also a key reason it is at the leadership position in this sector. Technology is essential for attracting and retaining customers. In this way, technology is a major influence on digital businesses and in case of ecommerce, technological factors acquire a very special importance.
Environmental factors too have a special importance in the context of Ecommerce industry. While the direct environmental impact of this industry is very low, it still focuses heavily on sustainability. Brands like Amazon have invested heavily in environment and sustainability. Even in Ecommerce there are several areas where investing in sustainability can be highly profitable. From sustainable packaging to waste reduction and renewable energy, there are several areas where the e-retailers can invest in sustainability. Amazon has invested in renewable energy to gain freedom from the use of non-renewable energy resources.
Legal compliance is just as important for the digital businesses as physical businesses globally. Any tussle with the law can be a costly affair and even the e-retail brands can become a target unless they take care of compliance. It is why the big E-retail brands have separate teams to take care of the legal issues. Non compliance can result in financial losses as well as loss of image and reputation. From labor laws to sustainability laws, there are several areas where the e-retail brands have to be careful regarding compliance. Moreover, these laws differ from nation to nation and market to market and compliance in every area is important. So, in case of the companies operating internationally, law can lead to major pressures and an increase their operational costs. The e-retail brands also have to be careful about the applicable laws and compliance.