The method to analysis the external environment of Malaysia fragrances market, we can use PESTEL. By using the PESTEL, the perfume firms will know what environment factors are affecting their organization. In the following is showing the 6 types of PESTEL may affect the perfume firms:
Political
Taxation Policy ( the abolished of import duties on the 300 goods which preferred by tourists and local)
In 15 October 2010, the government announce proposed to be abolished the import duties at 5 % to 30% on the 300 goods such as handbags, golf balls, perfumes to attract more tourist consume in Malaysia showed in the Malaysia Budget 2011.
That means in forecast, consumer will purchase more perfume due to the abolished of duties, demand of perfume will also rise, the equilibrium of price will decrease and the equilibrium of quantity will increase.
The Employees Provident Fund (EPF) dividends rate of 4.5% to 5.65% from 2008 to 2009 year. (Employees Provident Fund )
While the EPF dividends rate increase, the net salary of employees will reduce, the employees’ purchasing power will also decrease that will lead to the supply earn less profit.
Economic
Unemployment rate had been fluctuating decreased from 3.8% January 2009 to 3.3% July 2010 by Principal Statistics of Labour Force, Malaysia August 2010.
When the unemployment rates decrease 0.5%, that mean majority of people can find a job and earning money, thus they wouldn’t face the financial problems. In this situation, they will increase consumption of individual, increase in the quantity demand of luxury product and Malaysia fragrances market also will increase profit.
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From January 2009 to July 2010, there were downward trend, from 3.9% to 1.9%, in the inflation rate .( Trading economics.com; Department of Statistics Malaysia)
Due to that situation the price of product will fall, the luxury goods and services for consumption will increase hence an increase in the money supply.
In Malaysia the Interest Rate from January to November 2010 is 2.00% to 2.75%. (Bank Negara Malaysia)
When increase the rate of interest would attract more people to save money into the bank, thus people will spend less consumption of luxury product such as perfume, luxury watch, and so on. In that situation, it will affect the profit of supply become less.
Social
Population demographics in January 2008- July 2010 increase 2.58% from 27.54 million to 28.25 million ( Malaysia, Economic Planning Unit)
In July 2010 the total population of male is more than women that will affect the sales of the Malaysia fragrances market. When male are more than women, the demands of perfume reduce because the majority of buyer is women.
Lifestyle changes
According to the human way of life began to change the way people shopping mentality will also change. For example, in previous times, people like to buy dolls and clothes to friends or relative on festival but nowadays people will prefer to buy perfume and luxury product as a gift give to other because of this the sales of fragrances increased in recently.
Human slowly began to use perfume when person outing or working hours
Showing other people how hygiene is the person, make themselves more attractive to others gender and give other people positive image to customer (IFRA) because of this case the demand of perfume increase.
Cross-cultural issues
Malaysia is a country which has many different ethnic consequently the good have to be presented in different ways such as packing and advertising. Purpose is to attract more consumers from different ethnic to buy perfume increase the units’ sales of the perfume firms.
Technological
Speed of technology transfer the Fragrance Materials such as flower
Lifespan of the flower are very short therefore the firms should have a fast speed of technology to transfer material.( Katie Charles 2008 ) Those materials to produce a perfume in the transfer should not change the colour / odour; otherwise it will affect the final result perfume and the amount of perfume sales.
Internet facilities (world wide web)
Today, people can easily read news online and via the Internet to obtain information from around the world. When the internet posted the information about the perfume has toxic, everyone will know the news in short moment that will affect the world’s perfume sales.
For instance, on 26 October 2010 reported the 92.3% perfumes containing phthalates found by Beijing CDC testing. (admin 2010) Phthalates is a chemical which can damage the lung, reduce sperm count in men, learning disabilities and also will increase risk of breast cancer. (Jesse Gunther, eHow Contributor 2010)
Online buying perfume
Malaysia internet users keep on growth from 47.8% in year 2007 to 65.7% in year 2009(Malaysian Communications and Multimedia Commission (MCMC) and The International Telecommunication Union (ITU)) therefore build up the online buying shop in internet can help the perfume firms to expand the business, save electric bills and rental.
Discover the new modern technologies to quickly extract the essence of raw material to increase the unit of perfume
With a shorter time to maceration extraction and steam or dry distillation of leaves or flowers to extract the essence of material such as grapefruit, vanilla, roses, jasmine, iris, lavender and so on.
Use system to know about consumer behaviour
For instance, the firm’s uses Customer Relation Management system (CRM) to know what customers prefer and need. By that all information the firms will know what item should produce more and what item should produce less to reduce risk of the loss in the company. (What is CRM?)
Environmental
Environment protection laws (ENVIRONMENTAL QUALITY ACT, 1974)
The important issue in the world is Global warming, the government set the law no person are allowed except licensed release any wastes into the atmosphere. Anyone who violates the provisions, conviction liable to a fine below thousand ringgit per day, imprisonment or both. These chemical such as phthalates can damage the atmosphere, depletion of the ozone layer, climate change and quickly dissolute into the atmosphere that is the reason why government agreed to reduce carbon dioxide. ( WWF Global)
Due to non-renewable resource yield less and less such as oil, the government commitment to increase the oil price of RON95 and Diesel by RM0.05 per litter at July 2010(Office of Prime Minister of Malaysia)
This will affect the consumer and industry pay more for petrol and manufacture. That will lead to the supply increasing the price to cover up the cost and the good for consumption will reduce.
Appropriate to deal with those materials such as flowers after the extraction of the essence
The firms can reuse those flowers to make other product such as decorations or soil. Those recycle product can enlarge the profit of the perfume market.
Legal
Occupational Safety and Health (Classification, Packaging and Labelling of Hazardous Chemicals) Regulations 1997 [Act 514] administered by Department of Environment
International Fragrance Association (IFRA) sent an information letter 582 and 533 requires product ingredients to be listed on product labels. Anyone who violates the provisions, conviction liable to a fine below thousand ringgit, imprisonment or both.
The Malaysian Customs Act 1967 and Customs Regulations 1977
Agent and the owner should submit the export/import declaration form and follow the law when need transfer item to overseas or import product.( Asean, Malaysia)
Occupational Safety and Health Act (OSHA) 1994 (ACT 514)
According to guidelines on ACT 514 by department of occupational safety and health industry must provide a salary workplace to worker. If any organization didn’t follow the regulation, government will sue the organization or close down the business in short term. If grave dangerous to employee will close down the business in long term.PART B
I believe that nowadays everyone at least will have one or two those luxury goods, for example, perfume, luxury cars, jewellery, wine, Hi-fi and antique furniture in their house. Thus the firms of luxury goods including Malaysia fragrances firms will be possible to make a profit in Malaysia, but Malaysia fragrances firms also can be easily affected by external environment. External environments are issues surrounding an organization, which cannot control by organizational members, may influence the company strategic plans. (Business Dictionary) [1] Through the PESTEL analyses we can knows what the current external business environment may be affect the perfume firms in Malaysia. In the following, there are three most important issues currently facing in Malaysia perfume firms.
Economic Factors
The first and most importantly issues facing by fragrances firms is economic factors. As we know the economic rippling effect it will affect the performance of markets, the volume of item purchase and the salary of employment will fluctuate decrease or increase.
Unemployment
Unemployment and inflation is inverse relationship whenever unemployment is high, inflation is low. (Roger A. Arnold, 2008) [2] For instance, July 2010 the unemployment rate is 3.3% whereas inflation rate is 1.90% as can be seen from the figure 1.
Unemployment
3.3%
1.90% Inflation
Figure 1 Inflation and unemployment is inverse relationship
The conclusion of Principal Statistics of Labour Force (2010) was reported unemployment rate had been fluctuating decreased from 3.8% January 2009 to 3.3% July 2010. [3] When the unemployment rates decrease 0.5%, it may provide a positive figure and outlook for business because majority of people can find a job and earning money, and the percentage of face individual financial problems may decline. In this situation, the purchasing power of individual will increase; raise in the quantity demand of luxury product includes perfumes.
Inflation Rate
Figure 2 Inflation Rate (trading economics.com, Department of Statistics Malaysia)
Besides that, when there is inflation rate slightly drop, the cost of product or transportation will slightly drop, change in the pattern of demand in the economy and expectations. (DEVIFA and KARUNAGARAN, 2007) [4] For example, from January 2009 to July 2010, there were downward trend, from 3.9% to 1.9%, in the inflation rate is shown in Figure 2. (Trading economics.com; Department of Statistics Malaysia) [5] which may affect the transportation cost slightly decrease such as aeroplane ticket, train therefore the net export will raise. Due to that situation the price of product will fall, the luxury goods and services include perfume for consumption will raise hence the company’s total revenue will also increase.
Interest Rate
Figure 3 Interest Rate (trading economics.com; Bank Negara Malaysia)
As can be seen from the figure 3, in Malaysia the deposit interest rates from January to November 2010 are 2.00% to 2.75%. (Malaysia, Bank Negara Malaysia) [6] When there was an upward trend in deposit interest rates, it would attract more people to save money into the bank, real GDP decrease. Thus people will spend less consumption of luxury product such as perfume and luxury watch. In that situation, it will affect the profit of supply become less due to a reduced amount of quantity demand of perfume.
Social Factors
Another factor currently facing by the perfume firms is social factors. Social factor generally includes population demographics, lifestyle Change, attitudes to work and leisure.
Population Demographics
In January 2008 till July 2010, the population demographics keep on increasing in each 58 seconds from 27.54 million to 28.25 million. (Malaysia, Economic Planning Unit) [7] In this case, it may be a good situation from business man. On the other hand, this situation not good news from Malaysia perfume firms because in July 2010 the total population of male is more than women. When male are more than women, the demands of perfume will reduce because the majority of perfume buyer is women. The reason why men rarely buy fragrances is majority of men were thought it is not masculine while using perfumes. (S.S. YOGA 2010) [8] Therefore the sales of the Malaysia fragrances market decrease, perfume firms earn less profit. In case of that, the organizations must clear understanding which group of gender they must force for business development.
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Lifestyle Change
Furthermore, Malaysians didn’t think properly before they buy an item or purchase things on credit because they prefer to have newer items especially luxury goods. (Money: What does money mean to you? 2010) [9] They will have one concept in their mind especially the person who believes Jesus said “Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.” (Matthew 6:34) so they will enjoy every moment they have and start to change their lifestyle.
According to the human way of life began to change the way people shopping mentality will also change. For example, in previous times, people like to buy dolls and clothes as a gift for their friends or relative on festival time. Nowadays people will prefer to buy perfume and luxury product as a gift for other because of this situations the sales of fragrances increased in festival season such as Christmas and Valentine’s Day.
Attitudes to work and leisure
In addition, odour of a person can be showing other people how hygiene is the person. (International Fragrance Association) [10] For that reason, human slowly began to use perfume when person outing or working hours to make themselves more attractive to others gender and leave a positive image for other people or customers. Hence the increase of the amount of perfume buyer as showed in the Malaysia fragrances market between 2004 and 2009 the growth rate increased 3.8%. (Fragrances in Malaysia to 2014, Datamonitor, 2010) [11]
Cross-Cultural Issues
Lastly point of social factors is cross-cultural issues. As we know Malaysia is a country which has many different ethnic consequently the goods of the firms have to be present in different ways such as packing and advertising. The reason why the firms should present their goods in different way, it is because different ethnic will have different favourite colour, number, flower, and odour. For instance, majority of Chinese like gold colour (it signify prosperity), Malayan like green colour (related to Islam) and Indian like orange colour (represent courage).
Besides that, Chinese like the number 8 do not like the number 4 because “eight” in Cantonese equal to “fai (wealth)” instead the pronounce “four” in Chinese meaning as “si (die)”. Accordingly, the perfume firms should set the price in nice number such as RM98.80 and choose an attractive packaging for the product before being place on the market. The purpose of this is to attract more consumers from different ethnic to buy perfume. Through this process of understand the way of human thinking, the demand of purchase perfume increase slightly, the company’s total revenue increase and provide optimistic outlook for business.
Technological
Last but not least external environment is technological factors. Technological improvement will be help the organizations work more efficient, cut cost, and increase the output of production in long term.
Speed of technology transfer the Fragrance Materials such as flower
As we know in Malaysia from November to January is monsoon. Recently in November 2010 the weather of Malaysia becomes wet and almost half month of November there is rainy days as showed in Monthly Rainfall Review by Malaysian Meteorological Department 1958. [12] When there has been a run of rainy days, the harvest of flower was delayed because of bad weather and the time of materials reach factory could be delay because it will have traffic jam in the road. Lifespan of the flower are very short (Katie Charles, 2008) [13] therefore the firms should have a fast speed of technology to transfer those materials. Those materials to produce a perfume in the transfer should not change the colour / odour; otherwise it will affect the final result perfume and the amount of perfume sales.
Internet facilities (world wide web)
Today, people concerned about health and also can easily read news online and via the Internet to obtain information from around the world. When the internet posted the information about the perfume has toxic, everyone will know the news in short moment that will affect the world’s perfume sales. For instance, on 26 October 2010 reported the 92.3% perfumes containing phthalates found by Beijing CDC testing. (Admin 2010) [14] Phthalates is a chemical which can damage the lung, reduce sperm count in men, learning disabilities and also will increase risk of breast cancer. (Jesse Gunther, eHow Contributor 2010) [15] Because of this news perfume has toxic have been posted on website and seen by people around the world. It will affect consumer do not want to purchases perfume because consumer was afraid that perfume will harm their health. In the case of that, it will be negative impact on the perfume market, the quantity of perfume required reduce.
Online buying perfume
Besides that, Malaysia internet users keep on growth from 47.8% in year 2007 to 65.7% in year 2009(Malaysian Communications And Multimedia Commission and The International Telecommunication Union ) [16] therefore build up the online buying shop in internet can help perfume firms to expand the business, save electric bills and rental. Nowadays Malaysia internet has many online shops such as Malaysia Iseten online shopping, online baby shops kasihkusayang, Gucci Shopping bag in internet and Sony Style Malaysia also have online purchasing. Online shopping become very convenience for public thus adults and teenage like to online purchase item such as clothes, hand phone, MP4 and so on(Christopher Curtis 2010). [17]
Internet purchases items become a trend of adults and teenagers (Soo Wern Jun, 2010) [18] , the perfume firms should catch up the trend set up the online shopping to enlarge the business. The suppler should sell fragrances in internet although the consumer can’t smell it. Sellers can list products ingredients on the Internet to allow public know about the fundamental ingredients to make perfumes or explain how to smell like. In additions, the fragrance firms can prepare a few questions to define which fragrance best expresses who they are. The purpose of this is recommendations people which suitable to them, this will easy for people to choose perfume. From this strategic of selling product, it will increase the demand of perfume and optimistic outlooks for business.
Discover the new modern technologies to quickly extract the essence of raw material
Furthermore perfume firms can discover the new modern technologies to quickly extract the essence of raw material to increase the unit of perfume and reduce the fragrance price. With a shorter time to maceration extraction, Ethanol extraction, and steam or dry distillation of leaves or flowers to extract the essence of material such as grapefruit, vanilla, roses, jasmine, iris, lavender and so on.
Use system to know about consumer behaviour
In the 21 century, the world become technological, everything around the world must be efficiency and effectiveness. To achieve the goals of effectively and effectiveness, the company should install a good systems in research and development department to manage the company in well performance. For instance, fragrance firms can set up the Customer Relation Management system (CRM) in all the department stores in Malaysia. The system can link all information from each store and gather the customer’s information to HQ department or strategic level. While firms are using CRM, they can know what customers prefer and need. Besides that, the perfume firms can collect customer data and get closely with customer through CRM system. (What is CRM?) [19] By that all information the firms will know what item should produce more and what item should produce less to reduce risk of the loss and increase profit in the business.
By PESTEL analysis fragrance firms in Malaysia can make a decision in advance to avoid or reduce the risk of make loss. In addition, the fragrance firms can know which external environment may seriously affect the company’s financial and sales, rather than no information support business development or decision-making and trust to instinct.
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