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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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factors of Business environment :

Business environment is very important to an organization which will help the firm to identify opportunities and getting the first mover advantage. Besides that, it can also improve performance of an organization. The companies that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period. Environmental understanding helps an organization in improving their image by showing their sensitivity to the environment within which they are working.

Environment of a business involved the internal and external factor that influencing a business decision.

 Internal environment are the factor that will affect the business directly, which involve 1- customer

2- employees

3- shareholders

4- competitors

5- supplier

6- stakeholders.

 External environment refers to the factors that influence the organization indirectly, which involve :

1- political

2- economic

3- social technology

4- legislation

5- environment

6- demographic

PESTLE Analysis

A PESTLE analysis is a method for reviewing the micro environment (external factors) that impacts a company's ability to plan . Its stand for: political, economic, sociological, technological, legal and environmental. By considering PESTLE analysis, a company can change direction, build contingencies and identify new opportunities. It is an important part in the strategic decision making.

PESTLE Analysis of Audi


Political factors highlight the government laws and regulations, security measures and restrictions which can apply to the whole industry. Laws and regulations had affected the automobile industry since its outburst. These laws generally revolved around the environmental norms that were to be fulfilled by any car industry. Thus the car manufacturers had to take care of the environmental issues during manufacturing of cars. Audi has to always careful about launching new cars and give the proper safety equipments on it. For example Audi manufacture one of their cars without any airbags that could be illegal so it's they always checked all the cars and awarded that safe of the car. Taxes and government foreign policies are critical for the automobile industry. The foreign policies help to us decide the probability of success in the global market.


Economic factors related to the exchange rates, economic growth globally and the business setting prevailing in the industry. The financial crisis reduces the disposable income of consumers. If the interest rate goes high, it will affect to Audi and other automobile company of sales and profit. This means that, if the interest rates going high, the customer will not buying a new cars and not investing any money. One of the important point is unemployment, if people do not doing any job, they will not buy any luxury cars and this is not good for automobile industry. Besides that, during inflation period, if the petrol's price went up, as well as the derived product's price will also went up and this will affect the sales and profit of automobile industry.


Social factors include the changes in cultures and demographics globally apart from change in buying pattern and capacity of the consumer. In current market, day-by-day new fashion and life style is changing so, it's is hard to deal with the customer need and what they wants. Audi is always care of the product which the customer really needs and market demand. Besides that, population also affects the Audi's market. If the family's size is reducing, which mean that a family does not need to buy extra luxury cars for their family members and this can help the family to save the money.


Technologies are more important factor for Audi . This is because the other competitors are using a new technology to give a better performance against to other company. Audi has had to invest in technology in order to maintain its competitive advantage and be able to offer high quality vehicles. They improved the cars to new developments which used new and stylish design to overcome the decreased margins in the industry.


Legal factors are concern with the legal environment in which industry operate. BMW's products must be in accordance to the legal requirements which relating to safety standards and measurements to make sure that is suitable for people to use. Different countries got different legal rules and regulation regarding the manufacturing facilities and exporting and importing of the products.


The environment factors which Audi have to go through is emphasizing on recycling and reducing waste. The new trend of environmental issues lead customers preferences to the new concepts of cars like eco-friendly cars and hybrid cars. As the global warming is increasing, people are more responsible and concerned about the decisions of buying the cars and prefer eco friendly low imitation cars.

Ansoff Matrix

Market Penetration

Market penetration occurs when a company penetrates a market with its current products. Audi is having an upper hand in the EUROPEAN and NORTH AMERICAN markets. Its  still a leader in the premium middle class car segment. Audi has a selected target group with a good UK automobile market share.

Product Development

Product development occurs when a company develops new products catering to the same market. Audi is launching a number of new models in future that would expand its business like the Audi  which are readily available in the European market.

Market Development

This means offering existing products to new markets. Audi is putting a lot of emphasis on entering new markets for its future prospects. It is focusing on markets like China, India and Brazil. The sales reached 90,536 up 38% in China; 6,398 up 1195 in Brazil and 3,619 up 24% in India, hitting a record . In these countries the economies are growing and there are young educated professionals who are going for such cars.


Diversification is the name given to the growth strategy where a business markets new products in new markets. Audi has already achieved diversification through  developing its name .

Porters Five forces

Threat of New Entry

Threat of new entrant is dependent on the challenges faces during entry into the industry or entry barriers. In order to enter the automobile market, a huge amount of capital is required for the high initial investments and fixed costs. In addition, an entering firm would need to have a great amount of tacit and explicit knowledge to design and manufacture products. Besides that, there is limited access to specialized suppliers in automobile industry. It takes time for new entrants to get a place and the reputation in the minds of the consumers.

Threat of Substitute

Audi has a very strong brand image and is known for its reputation in the world. However, the threat of substitutes may come from the manufacture of leading car manufacturing companies and sports bike companies. The threat may as well come from the Government with its awareness about fuel emissions and environmental issues. It encourages citizens to use public transport and reduce traffic issues. It is positioned in the exclusive car range where there exist many substitutes for Audi like Mercedes and Toyota. Thus, the threat of substitutes for Audi is medium.

Bargaining Power of Buyers

Marketing and advertising are the important aspects to influence and attract customers in automobile market. Nowadays, automobile company designs attractive catalogues and brochures which will attract customers. Customers are depending on reviews from magazines, catalogues, brochures and websites. These reviews give a lot of car's information for customer to make comparison between the same segment cars. The information about pricing, features and models of the cars play a vital role on the customer's decision of purchasing. All these knowledge sources gradually increase the bargaining power of customers.

Bargaining power of Supplier

Suppliers play a major role in manufacturing the products of the company. The cost of supplies affects the profitability of the company and they may also affect the cost of the products and the distribution of the products. But, not all suppliers can have an effect on the prices. Some suppliers are smaller and do not have that much power over the pricing and distribution of their products. However, there are not that many small parts manufacturers in automobile market. Audi has good supply chain management system and had long relationship with suppliers. They very concerned about the quality of its products so it is very particular about the suppliers and their costs.

Rivalry Among Existing Competitors

Automobile industry has a very competitive environment because there are many companies involve in this industry. Audi has many global companies such as in the car manufacturing companies, their competitors include Mercedes Benz, and Toyota; However, now there is an increasing competition and demand over hybrid cars since there is a lot of technology development and factors such as increase in the fuel efficiency and environmental friendly cars are attracting the customers and developing the automotive market.

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