PESTEL Analysis of Taobao


by Shamsul
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PESTEL Analysis of Taobao

PESTEL analysis of Taobao will highlight its political, economic, social, technological, environmental, and legal factors. It is a leading online shopping platform in China, owned by Alibaba Group. It was launched in May 2003 and is currently headquartered in Hangzhou. The platform has displaced various online shopping giants like Amazon, e-Bay, and more in its region. Its revenue could be more encouraging due to its free of cost services. Read on to explore the complete PESTEL analysis of Taobao.


Political Factors Impacting Taobao

The cost of running a business and long-term sustainability are both impacted by political culture and other factors. Not only do transnational corporations but businesses like Taobao heavily rely on political factors when making investment decisions. Governmental structure, democratic institutions, the likelihood of a military coup, armed conflict, law and order in the marketplace, etc., are a few examples of political factors.

1- Separation of Political Responsibilities Among the Various Government Entities

The likelihood of one agency exerting excessive pressure is decreased by a large number of government agencies. On the other hand, it does lengthen the business process and raise the cost of clearances and certifications.

2- Democracy and Other Democratic Bodies

Felix Oberholzer-Gee and Julie M. Wulf contend that further strengthening of democratic institutions is necessary to enable companies like Taobao to flourish in an environment that is free from corruption and characterized by political stability. Increasing transparency and lowering corruption in the nation are two benefits of strengthening democratic institutions.

3- Role of Local Government

Since enforcement agencies typically report to domestic governments regarding laws, local governments significantly impact the policy-making and regulation-implementation processes.

4- Independence of Judiciary

The country’s judiciary is mainly independent in business and commerce decisions. Businesses encounter difficulties when proprietary technology and public interest differ, as was the case in South Africa, where the judiciary and government allowed the sale of generic AIDS medications despite the patents of multinational corporations.

5- Risk of Terrorist Attacks

We think that businesses like Taobao must adapt to operating in the wake of a terrorist attack in the post-9/11 world. To lessen the losses brought on by terrorist attacks, it is a wise course of action to use hedging instruments like insurance.

6- Regulations and Deregulations from the Government

In accordance with WTO standards, the government abides by all laws and rules. Both the creation of policies and their implementation follow a consistent pattern.

7- Changes in Government Policy and Change in Government

The formulation of policies is consistent from one government to the next. Second, governments abide by the agreements made by the earlier administrations.

8- Government Budget Size

Both local governments and the national government are operating deficit budgets, which is boosting development in the short term but could cause an increase in inflation in the medium term. Investment grade is the bond rating for the federal government.


Economic Factors Impacting Taobao

The economic conditions in a given nation or region directly impact the market’s overall attractiveness. GDP growth rate, inflation rate, disposable income level, and other economic variables should be assessed by Taobao in both the current market and any future markets.

1- Foreign Exchange Rate

Before venturing into a new market, Taobao should be cautious about past forex risks. Due to currency risk in Argentina, Venezuela, and Brazil, numerous businesses have suffered losses in recent years. In the nation of Mexico’s frequent currency crisis, numerous US corporations have suffered losses.

2- Productivity of the Workforce

Despite the fact that salaries have not increased to reflect these gains, the US labor force’s productivity has increased by 25 to 30 percent over the past two decades. Taobao may be able to employ qualified workers at market-competitive wages.

3- Economic Growth Rate and GDP Trends

Growing economic demand is indicated by faster GDP growth. Taobao can take advantage of this factor by broadening its product offering and focusing on new market segments. Analyzing the shifts in consumer purchasing patterns and newly emerging value propositions is an excellent place to begin.

4- Demand Transitions from the Goods to the Service Economy

Compared to the shares of the economy’s manufacturing, agricultural, and goods sectors, the share of services is constantly rising.

5- Spending Trend of Government

As mentioned in the political section, the nation’s government is operating deficit budgets. The implication for the company is that it could increase short-term product sales while exposing it to medium-term currency and depreciation risk.

6- Monetary and Fiscal Policies

The tax break culture has raised the debit and could cause financial difficulties for the economy in the future.

7- Inequality Index

The degree of inequality is an excellent indicator of a society’s harmony and progress. Both temporarily and permanently, it can cause consumption and uncertainty suppression. Crime and conflict are more likely to occur when a country has extreme income inequality.


Social Factors Impacting Taobao

Social factors like social power structures, women’s participation in the workforce, and demographic trends have a significant impact on not only the economy of the country but also on the availability of talent in the workforce and customer demand.

1- Attitude Towards Immigrants and Types of Immigrations

In light of recent events like immigrant detention on the southern US border and Brexit, immigration policy has been intensely scrutinized. Taobao ought to be able to maneuver in such a peaceful environment.

2- Attitude Toward Power

Different societies and cultures around the world have different views on power. In contrast to the West, where power is something to rebel against, Asia respects power. Taobao should carefully assess its attitude toward authority before kicking off a marketing campaign for its goods and services.

3- Birth Rate

The birth rate is another reliable predictor of the future. On the strength of a higher level of immigration and a slightly higher birth rate, the USA has dodged the stationary economy of the EU.

4- Level of Immigration and Immigration Policies

What the nation’s immigration policies are, how many people immigrate, and which industries promote immigration. Taobao can decide if it can hire talent from around the world to work in that specific market.

5- Awareness in Society and Level of Social Impacts

Higher pressure from non-governmental agencies, higher customer activism, and pressure groups are frequently a result of higher levels of social concerns in society.

6- Societal Standards and Hierarchy

The acceptable standards and hierarchy also influence the types and degrees of consumption in that society. The power to make decisions frequently lies at the top of societies with strong hierarchies.

7- Type of Social Contract Between Society and Government

Taobao must comprehend the type of social contract between society and the state before entering a market. For instance, the United Kingdom health structure is state-owned and contracts at the government level govern everything. It has been really difficult for United States companies to enter the United Kingdom health market.

8- Gender Roles

Taobao can use the labor market’s gender composition to determine how liberal society is, how much it values women’s rights, and how much influence women have over consumer choices and societal issues. Indicators of household disposable income, priorities, and related demands can be found in the gender distribution of the labor force.


Technological Factors Impacting Taobao

Business models in many different sectors are being disrupted by technology. The macro-environment is being impacted by a number of technology trends, including advances in AI (Artificial Intelligence), the use of big data analytics and machine learning to forecast user behavior, and the increasing importance of corporations over other service providers.

1- Protection of Technology and Property Rights

The legal standing of different property rights and IPR (intellectual property rights) protections that are common in the United States should be examined by Taobao.

2- 5G Infrastructure

Worldwide efforts are being made to get ready for the installation of 5G infrastructure. Taobao needs to evaluate the extent to which the domestic market is prepared for the rollout of 5G connectivity.

3- R&D Investment Levels

There are excellent chances of creating a self-sustaining ecosystem that fosters innovation if a significant technological sector investment exists. Taobao can take advantage of this circumstance to hire the most qualified workers.

4- Digital and Transparency Drive

The company can combat corruption by digitizing a number of business processes.


5- Integration of New Technology

Because it attempted to enter China before smartphones were widely used there, Uber was unsuccessful. The company needs to develop a plan that can take into account infrastructure, societal values, and its business model.

6- Chances of Technology Disruption

Technology disruption in various industries is highly likely in a nation with a concentration of tech firms. Taobao needs to determine whether it can withstand the rapid change of technological disruption in its sector.

7- Cost of Doing Business and Trends

Taobao needs to evaluate the level of automation and trends in the cost of production in the market. In the not too distant future, manufacturing and production will be the industry most significantly impacted by technological advancement.

8- Partner Empowerment in the Supply Chain

Taobao should investigate the ways in which supply chain stakeholders can benefit from technology. This could aid the platform in increasing supply chain flexibility and transparency.


Environmental Factors Impacting Taobao

Environmental considerations are quickly gaining popularity among policymakers, regulators, and consumers. Over 20 percent of the world’s species will go extinct by the turn of this century due to climate and ecosystem changes.

1- Climate Change

How will climate change impact the company’s supply chain and business model? When shipments from one region of the world are delayed due to an abrupt climate change, for instance, a rigid supply chain can result in bottlenecks.

2- Impact of Environmental Agencies on Taobao

In order to protect norms, environmental standards enforcement organizations play a crucial role. However, these organizations frequently use process stalling in developing nations as a bribery demand tactic. Taobao should take care of that because such behaviors exist in some nations.

3- Paris Climate Agreement

What are the nation’s commitments under the Paris Climate Agreement, and how well-received is the agreement nationwide? For instance, there was uncertainty because Trump needed to uphold the United States’ commitments.

4- Corporate and Social Responsibilities

Are Taobao’s current CSR initiatives still relevant in the new market or do they require a new initiative to serve the potential market?

5- Environmental Regulations

Environmental regulation has an impact on the industry’s dynamics of absolute cost advantage.

6- Customer Activism Related to Environmental Issues

Taobao needs to be aware of the extent of customer activism related to environmental issues. It will support the company in creating eco-friendly products and avoiding PR stumbling blocks.

7- Focus on Renewable Energy Sources and Technologies

What percentage of the budget is allocated to using renewable energy sources, and how can the company invest in this to gain a competitive advantage?


Legal Factors Impacting Taobao

Conditions for entering the market, laws governing how to operate in the marketplace, and procedures for resolving conflicts with other investors are all governed by legal factors frequently. Taobao may encounter numerous difficulties if the legal system needs to be stronger, including consumer petitions and shakedowns by legal bodies.

1- Securities Law

What the country’s securities laws are, and what requirements must be met for a platform to list on a national stock exchange.

2- Respect for Common Law

Is the nation governed by common law, which is the same for all organizations—domestic and foreign—to disputes? Although the legal process is unpredictable, Taobao cannot be confident in the verdicts.

3- Transparency in Court Processes

For decisions to be consistent and fair, transparency is necessary. If the process is consistent and open, Taobao will be more confident in its ability to make future plans.

4- Business Laws

Taobao must evaluate the business laws in a new market to determine how they differ from those in its home market before entering.

5- Consumer Protection Laws

Taobao needs to be aware of consumer laws, how frequently they are enforced, how the government views consumer protection laws, and how activist groups participate in the enforcement of customer protection laws.

6- Intellectual Property Rights

Taobao should evaluate the level of protection provided by the nation’s legal framework for intellectual property rights.

7- Health and Safety Laws

What does Taobao need to do in order to comply with national safety and health laws? Taobao would be better served by conducting extensive research prior to venturing into the market because different nations have different attitudes toward safety and health.


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