Good Argumentative Essay On Strategic Management: External Analysis


PEST Analysis

PEST analysis is mainly concerned with the main influences from an external environment on any business. It is an acronym standing for Political, Economic, Social and technological influences that may affect how the business functions. It is a simple but a powerful tool that will help any organization understand its external environment better. By using the PEST Analysis, Harley-Davidsons will ensure that its strategic plans are allied positively with forces of change affecting the market. The PEST analysis will also help the company avoid involving itself in actions that are prone to failure in the future because of unforeseencircumstances. When exploring a new market in another country, the analysis will be useful as it will help the company develop awareness of the new environment’s realities as well as eliminate assumptions and come up with ways to adapt.

Political factors

Examples of the political aspects that might affect the development of Harley-Davidsons include Government stability, tax policies, trade and tariffs control, press freedom, rules and regulations, employment and social legislation among others. The environmental Protection Agency (EPA), for example, is an agency that regulates motorcycle and other automobile emissions. The company has to follow the agency’s policies without failure. One of the company’s long term strategies is to increase international sales. The company sells its products globally in over 67 countries including the Latin America, European countries and the Asia Pacific among others. International sales, however, are subject to a lot of risks including political instability as well as foreign tariffs and other international trade barriers. When these kinds of risks, occur, the companies may experience delays, increased costs and other disruptions that could result in loss of earnings and revenues.

Economic factors

Harley-Davidson is the biggest manufacturer of motorcycles globally. It captures half the American market and more than a third of the international market. Motorcycles are viewed as luxury goods, and in order to overcome the economic factors, the company competes solely on the designs of motorcycles and the quality instead of the price. This helps keep the margins high. In the year 2011, the gross margin was approximated to be 34%. Despite the economic troubles facing the U.S, as well as the international market, the company still reports stellar growth as the company’s income for the year was 190 million dollars, which was an increase from that of the previous year.

Social Factors

The company realizes that any organization needs to be more aware and responsible of the social impacts of the community as well as the environmental. Some of the social factors the company has to be aware of before making any strategic plans include, rate of population growth, the health of the population, the attitudes and education of the people, as well as their lifestyle choices. The company mainly targets people with excess incomes and the aging couples. A population with more aging people with excess income is a good sign for the company. The American population growth for the veterans has since increased by more than 1%, which is a good sign, for the company as its market is growing.

Technological factors

The technological factors that may affect the company include, force of the emerging technologies, communication costs, the internet impacts as well as the effects of technology transfer. The company invested in computer based control systems such as the inventory control system so as to manage the company’s inventory. The design of the motorcycles is mainly impacted by design. The company, therefore, has to invest in software’s that will enable it to come up with best of designs.

Porter’s Five Forces Analysis

The porter’s five forces analysis model is a tool that helps a company assess where the power lies. It will help the company analyze the position it is in at the moment, its strengths as well as the strengths of the position it is planning to be in the future. When the company understands well where its power lies, it becomes easy to take advantage of the opportunities presented and avoid those that are deemed to fail. Normally, the tool was used to determine whether new products are capable of making profits. The model assumes that there are five forces that determine where the power lies in any business situation.
– Bargaining power of suppliers – This is where the company assesses whether it is easy for suppliers to increase the prices. This will be bent by the number of suppliers; whether their products are exceptional, the cost that will be incurred if the company was to switch from one supplier to another and the strength of control the suppliers have over the company. The bargaining power of suppliers for Harley-Davidsons is considered to be high. This is because the company has few suppliers and need more help from them making the suppliers more powerful. The company reduced the number of suppliers but increased their quality. This strategy helped protect the company from increased prices from the suppliers.
– Bargaining power of buyers- The buyers have the ability to drive down the prices. The company, therefore, has to analyze how easy it is for its buyers to do this. This will be highly determined by the number of buyers, the value of every individual buyer to the company, and the price the buyer will have to incur to switch from the company’s products to other products. When a company is dealing with few buyers, they are normally able to control the terms, but, in this case, Harley-Davidsons has very many buyers, therefore, the bargaining power of the buyers is very low.
– Threat of new entrants- The Company has to analyze the threats caused by the entrance of new people or companies in the market. This threat is considered to be very low as the market has a high entry barrier and requires a lot of capital to start. There are some existing companies offering the same products, but they are small scale and are not a major threat to Harley-Davidsons.
– Threat of substitute products – This threat is caused, when a client develops the ability to swap to another product offering the same purpose as that of Harley-Davidsons. Some of the products that the customer may substitute the motorcycles for are cars, scooter bikes and sport bikes. These are the main products. The threat is considered to be low-moderate.
– Rivalry among competitors- The number of competitors and their capabilities are what will determine the threat the rivalry imposes to the company. The company has three major competitors: Honda, Yamaha and Suzuki. These companies have good financial capabilities, and good marketing resources, therefore, the threat is considered to be high. The help from the government and the ITC, however, helped Harley-Davidsons gain more ground in the market and beat its competitors.


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