PEST Analysis of Italian Market

PEST Analysis Introduction

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the differ ent macro-environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework.

Figure 5.1 Factors in PEST Analysis Compositions Political factors are how and what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include

goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bad thing). Furthermore, governments have great influence on the health, education, and infrastructure of a nation. Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy. Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers). Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsour cing decisions. Furthermore, technological shifts can af fect costs, quality, and lead to innovation. Applicability of Factors The model's factors will vary in importance to a given company based on its industry and the goods it produces. For example, consumer and Business to Business (B2B) companies tend to be more affected by the social factors, while a global defense contractor would tend to be more affected by political factors. Additionally, factors that are more likely to change in the future or more relevant to a given company will carry greater importance. For example, a company which has borrowed heavily will need to focus more on the economic factors (especially interest rates and exchange rates).

Furthermore, conglomerate companies who produce a wide range of products (such as Sony, Disney, or BP) may find it more useful to analyze one department of its company at a time with the PEST model, thus focusing on the specific factors relevant to that one department. A company may also wish to divide factors into geographical relevance, such as local, national, and global. Political Factor in Italy On June 2nd, 1946 Italy, which was previously a Monarchy ruled by the same house which had ruled Italy since the early 1800s. After the results of a popular referendum which was intended only to determine whether the Head of State should be elected by popular vote or come from a family dynasty. In either case, The Head of State, would appoint members of the government, but not govern personally.

The Italian republic is democratically represented by the parliament. The President of the republic is elected for a period of 7 years by parliament and then nominates the Prime Minister who proposed the other ministers, pending the approval of the President who officially nominates them. The Judiciary is independent of the executive and the legislature. As such, the President represents the unity of the nation and carries several responsibilities previously given to the King of Italy. He is elected by the lawmakers, appoints the executive and is the president of the judiciary. He is also the commander in chief of the armed forces. The President is also the guardian of the Italian Constitution and can openly reject anti-constitutional laws by refusing to sign them. National elections appoint the parliament

with the exception of some life senators, currently 7 (three of which are previous Presidents) and are elected for a maximum of five years. There are about a hundred provinces in twenty regions in the Italian State, these regions being considered in the Italian Constitution. A prefect oversees each province and represents, reports and is appointed by the central government. From the political point of view Italy is an ideal country where to export Huaweis product. It has good international relationships, especially with other EU countries where we are already present and with the China. There are no restrictions to the importation or the exportation of capitals and goods. The accounting system follows International Accounting Standards (IAS), the same adopted by all EU countries. There is a stable political regime with a multi-party system, which can ensure the certainty of law and the respect of contractual rights. However lawsuits tend to be lasting and expensive, and this could represent a risk in case of a contractual breach. Economic Environment The Italian Economic Environment is also quite good for our project. Italian economy is based on services and industry. The per capita GDP is $30,200 that is much higher than China ($4,000), but which is enough to ensure the population with the possibility to save some of their budget for the acquisition of expensive products. In addition income is better distributed than China: looking at the Gini Index, Italy has a 36 and China have a 50 (where 0 means equally distributed and 100 means unequally distributed). If we bear in mind the different dimensions of the two countries all the other economic indicators can be considered similar. Just the Unemployment rate is a little bit higher in China, 9.3% against 7%, but it is not very relevant. Individual Economic 1) Freedom from Internal Control Italian citizens are free to move within the boundaries of the countr y as they please. No form of restriction of personal freedom is permitted. In extraordinary situations, the authority of public safety may adopt temporary provisions, which will have to be

communicated within 48 hours to the judicial authority. If the judicial authority does not validate these provisions within the 48 hours, they will be revoked without taking effect. And Italians are also free to travel in and out of the country without restrictions and have possibility to immigrate or return at any given time with no further consequences. 2) Communication Systems The largest communication system in Italy is cell phones, which has various providers and each provider has various plans. There is a plan that will fit each and every person (it is predicted that by 2007 the diffusion cell phones among the population will reach 105% a cell phone per citizen). Internet has been growing in the past few years, but the big internet boom happened in 2001. There were more companies providing internet and better connection over the country. But the more advanced part of Italy in communication is the north comparing with south of Italy which is not very popular. And now the education system is introducing internet in Italian schools. 3) Foreign Currency Transactions Since 2002, all the monetary transactions in Italy and most of European countries are European currency issuing Euro. And now, Euro is very stable and powerful which are one of the best currencies in the world and most transactions now are already in Euro. This also encourages tourism to increase thanks to the unified currency with twelve countries. 4) Economic Statistics Italy was believed to have accurate economics statistics and which was visualized on several public statistic web sites. However, the economic statistic is no longer believed due to the big crack that happened. Parallax, one of the biggest Italian companies with known worldwide, affected a lot of worldwide markets. 5) High Wage Policies Compared to the rest of Europe countries, Italy has low wages. This is a great factor that discourages people to go work for such a low wage, and family not afford the products sold in the country due to the low working force. The major businesses are obligated to export their factories in countries where there are more working force for lower wages like

India or Pakistan. It is very hard for the average worker to afford a family and provide them with expensive items. 6) Foreign Trade Impacts Italy's trade has been increasing from year to year since it has joined the European Union. The quantity of goods imported and exported are both high. In 2003, Italy imported a total of 135 million Euros and exported 1.096 million Euros exports. 7) Protection of Foreign Currency Earning Enterprises Having one of the most powerful economies in the world, Italy still maintains an open economy. It is a part of the EU and the multilateral economic organization G8, as well as a member of IMF and WTO. This provides Italy with a high protection from foreign currency earning enterprises. Social and Culture Actually, Italy has a population of 58,147,733 inhabitants. The 98.4% of them are literates, and the 66.4% of them are aged between 15 and 64 years. It must be highlighted the fact that in Italy are present 72 million mobile telephones: Italians have a strong culture of always being locatable, and for this reason, they in average hold 1,25 mobile phones each person, more than every other country. On the other hand, they are not yet ver y confident with more modern issues like as internet: just 28,870,000 inhabitants can be considered internet users. For this reason, we can look at them like as conservatives. Technological Environments They are not interested in assembling our product directly in Italy, but just in importing it from the countries where they have already established some plants. For such reason, from a technological point of view, Italy is mainly interested in the level of transportation and telecommunication infrastructures, rather than in the research intensity or in the university system. Italy actually has 19,459 km of railways (16th in the world), 484,688 km of . Italy imports more than it

roadways (11th in the world), and 133 airports distributed on the territory. The telephone system is modern and well developed, fax is widely used and mobile signal covers almost all the Italian territory. Summary: The Development Status of Italian Telecommunications Market Italy's well-developed and open telecommunications market, which is Europe's third largest telecom market. At the end of March 2005, the penetration rate of fixed-line, Internet, broadband connections and mobile phone were 53.5%, 33.6%, 8.9% and 105% which fixed telephone market is in fourth place around Europe; and which Internet and broadband market is relatively small and backward comparing with other country in Western Europe; however, the mobile telecommunications market is one of Europe's most developed markets. In r ecent years, the rapid growth of broadband market in Italy, audio and multimedia become a new focus of competition; and mobile market has always shown a good prospects. In Italy, the capacity of telecommunications equipment production is weak, most of which equipment are provided by Alcatel, Marconi, and other international telecommunications manufacturer. However, the competition of Italian telecom market oper ators are very fierce, including the world's sixth large telecom operators - Telecom Italia Group, which dominates almost all Italian telecom market. Other major operators including WIND, Vodafone, H3G, FASTWEB, and so on, form a number of disputes operators to compete for the market. So, from this statistic data shown, this is why Huawei choose to enter the Italy mobile market as a cut; at the same time, this provides a good opportunity for Chinese telecom equipment manufacturers, Huawei, can refer to this trend to develop and produce marketable products or provide new services. The Chinese telecom operators with competitiveness can also be actively considered entering into the Italian market, which take the broadband and mobile telecommunications market as a breakthr ough. According to requirement of market oriented to identify market needs and provide effective services, it will lay a good foundation in the European telecommunications market. ,

Politecnico Di Milano
The following table shows the overall condition of the Italian telecommunications market. Table 6.1 The Overall Situation of Fixed-Line Telecommunications Market Fixed Telephone Lines in use 2.645 million line Density of Fixed-Line Telephone 53.50% Telecom Italia Operator WIND Vodafone
Source: Development Status of Italy Telecommunications Market Report
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Table 6.2 The Overall Situation of the Italian Internet Market Amount of computers connected to Internet 626536 Internet users 1950 Internet penetration 33.60% ISPs 256 Main ISPs TIN.it
Source: Development Status of Italy Telecommunications Market Report

Table 6.3 The Overall Situation of the Italian Broadband Market Broadband Users 4.86 million DSL user 4.44 million ISDN user 5.83 million Broadband penetration 8.90%
Source: Development Status of Italy Telecommunications Market Report

Table 6.4 The Overall Situation of the Italian Mobile Market Mobile Phone user 61.40 million Growth rate 7% Mobile phone penetration 105% TIM Vodafone Main Operator WIND H3G
Source: Development Status of Italy Telecommunications Market Report

Table 6.5 List of Channels and Line in Italy (Unit: Thousands) Year 2003 2004 2005 2006 2007 2008 PSTN line 22,569 22,244 21,943 21,372 20,731 20,254 Growth Rate - -0.14% -1.40% -2.60% -3.00% -2.30% ISDN Line 4,584 5,856 6,644 6,943 7,110 7,117 - -27.70% 13.50% 4.50% 2.40% 0.10% Growth Rate 48 430 1,001 2,376 4,234 5,661 Broadband
40 Development

Status of Italy Telecommunications Market Report

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