Pestel for Whisky

PART A: PESTEL analysis on the external business environment of Malaysia based whisky industry. Political factors•According to International Trade and Industry Minister Datuk Mustapa Mohamed (2010), there will be no tariff reduction on the export of alcohol from Malaysia. This will become a threat to the whisky industry in Malaysia as the price of the whisky will remain high in global market and thus they will lose the competitive advantage on it. The demand of their products will drop as the selling price is high compared to others.

Based on the Budget 2011, Prime Minister Datuk Seri Najib Tun Razak (2010) said that the government will not further increase the excise duty on the alcoholic beverages for the coming year. This will not further exert the pressure to the whisky industry and also consumers especially in this economic downturn. When the excise duty is not increased, the price for the whisky will not be further raised and therefore the industry is expected to have growth in sales and profits.

As stated in Budget 2011, the government will increase the service tax from 5% to 6% starting on 1 of January 2011. The advertising expenditure of the alcoholic beverages is expected to be dropped as government proposed to impose service tax on paid television broadcast services. The increase in service tax will definitely cause the fall in the will of whisky manufacturer and seller to advertise through the powerful media, television. As a result, the demand of consumers on whisky will decrease as they will not be aware of the latest news and promotions on whisky.

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Economic factors•In the official statistics by Department of Statistics Malaysia, the Consumer price index (CPI) for alcoholic beverages has increased 4% in September of 2010(134. 3) compared to the same month in 2009(130. 3) in which the base year is in 2005(100). The increase of 4% in CPI for alcoholic beverages indicates that the price for whisky has increased by 4% in a year and this will further decrease the purchasing power of consumers for whisky. In other words, Malaysians need to pay more money for the same amount of whisky they consume.

This is a threat to whisky industry as this will further decrease the demand. The consumers will switch their taste to other beverages instead of whisky and therefore the industry is expected to have a loss in profit. •According to Trading Economics, the unemployment rate in Malaysia was reported as 3. 20% in the third quarter of 2010 and this has decreased by 0. 4% as compared to same quarter in the last year. This brings a good sign and opportunity to the whisky industry as the workers in Malaysia are increasing. a)More people are getting their job and contributing their skills and knowledge to the economy of Malaysia.

With the workers available in Malaysia, whisky industry can expand its market by developing new products through research and development to attract more consumers. The whisky industry is also able to supply more by employing more workers in the market. Besides that, the geographical area of whisky industry can be improved and widened by opening more shops for sales so that the consumers can buy the whisky anytime and anywhere when they want it. In fact, workers are the basic element and component in the work of expanding the whisky industry. )From the point of demand, the decrease in unemployment rate will also increase the demand for whisky as more people are working and they have more ability to purchase whisky for better enjoyment of life. •2011 per capita income is expected to go up by 6. 1% to RM28, 000, while income in terms of purchasing power parity will hit US$16,000 (Malaysia Budget 2011). When the income of Malaysians increases, the consumers will be more able and willing to purchase whisky, the luxury good to increase their quality of social life.

This will then result in an increase of demand for whisky and boost up the sales of whisky. Whisky industry is expected to expand and earn more profit in the year 2011. •In the report of Department of Statistics Malaysia, the Gross Domestic Product(GDP) growth rate for the second quarter of year 2010 has increased drastically to 8. 9% as compared to the same period of time for last year(-3. 9%). GDP is the amount of goods and services produced in a year. The increase of GDP indicates the economic growth in Malaysia.

When the economy is in a good condition, the standard of living of Malaysians will also increase and they tend to spend and consume more on luxury goods. In this case, the consumption of whisky will become more as the spending of Malaysians on luxury goods is getting higher as the indication of the growth in the value of GDP. Social factors•Based on the statistics by Department of Statistic and Economic Planning Unit, the population of Malaysia has increased from 26. 75miliions in 2005 to 28. 96 millions in 2010 and 63. % of the total population falls in the age between 15 and 64. The increase in population size in Malaysia will bring a better opportunity to whisky industry as the demand of the industry towards labour force can be fulfilled that will cause a higher development and expansion of the industry. The supply of industry will also increase with the workers available in the market of Malaysia. While more than half of population of Malaysia achieves the drinking age limit (above 18) and this will increase the potential consumers and demand for whisky in future. Dr. Jim Swan, an independent consultant to the worldwide drinks industry (2005) said that drinking whisky can help protect human against cancer. This thesis is originated from a research that showed the people who drink single malt whiskies have greater health benefits rather than drinking red wines. Dr. Jim Swan(2005) further explained that single malt whiskies have more ellagic acid than red wine and this ellagic acid is a highly effective ‘free radical scavenger’ that ‘absorbs’ rogue cells that occur in the body during eating.

When the citizens of Malaysia aware of the health benefit from drinking whisky, more people will probably start to consume whisky and the existing consumers will also increase their consumption on whisky. This will create better opportunity to whisky industry from the side of demand on whisky and profitable of the industry. •According to a new study by researchers (2010) at the National Institute on Alcohol Abuse and Alcoholism (NIAAA), National Cancer Institute (NCI), and the U. S. Department of Agriculture (USDA), alcohol reduces the quality of diet.

It is stated in the study that people who drink more are also likely to eat less fruit and consume more calories from a combination of alcoholic beverages and foods high in unhealthy fats and added sugars. The increased alcohol intake will therefore cause a harmful effect to human health such as the formation of cardiovascular disease, certain cancers, and other chronic health problems. When more Malaysians are concerned about the finding of this new study, the demand of whisky will drop as they will be more health conscious and thus reduce the consumption of whisky.

This brings a negative effect to the whisky industry. Technological factors•A ? 1. 8m research project aiming to identify the genes that could lead to improvements in the quality of barley, one of the most commonly used raw materials in making whisky was carried out by Scottish Crop Research Institute. The project leader, Dr. Robbie Waugh(2005) said that they expect to be able to identify the genes that could lead to improvements in the quality of barley that will be of interest to growers, producers and drinkers.

This will be a good opportunity to whisky industry as a higher quality of whisky is able to be produced by using better quality of the raw materials. Consequently, the demand for whisky is expected to be higher as more consumers desire for a consumption of better quality of whisky. •In the article of Process Industry Informer (2010), it is stated that a new evaporation system based on Alfa Laval plate heat exchanger technology has been introduced to increase the concentration and quality of the Pot Ale, a by-product from the first distillation stage in malt whisky production.

The Pot Ale has many valuable functions and usages and one of them is the making of spent malted barley grains (Dark Grains) that is further used for production of whisky. This technology has helped to reduce the disposability of whisky industry for the wastes being produced and instead the wastes are being used for other better purposes that benefit to the whisky industry and also the country. •According to International Telecommunication Union, the internet users in Malaysia have increased about 50% over the ten years from 15% in 2000 to 64. % in 2010. This will bring opportunity to the whisky industry as advertising through online could be done to increase the sales of whisky. Through the online advertising, the whisky industry can save their cost and therefore achieve a higher profitability. The money that is saved can be used for better benefits for the industry such as research and development of new products and technology. Online advertising is also time efficient and provides a higher ability to spread over Malaysia and this will cause the expansion of industry in terms of sales.

Environmental factors•In the article of The Sunday Times by Jonathan Leake(2010), a relatively new environmental technology-anaerobic digestion will be introduced and developed in the whisky industry. This new technology involves the using of anaerobic digesters to convert thousands of tons of yeasty waste into methane gas that will be further burned to create energy. By this way, the waste that is produced through the process of manufacturing whisky can be reduced and this will reduce the negative impact on the environment.

At the same time, the energy produced from the waste can be used to make electricity and meet the power needs of the industry. As a result, the production cost will be reduced and a higher profit in the whisky industry will be achieved. •A new research project is conducted to find new methods of turning spent grain, a dry waste product of brewing and distilling, into bio ethanol, a more environmentally friendly alternative to fossil fuels (Professor Graeme Walker, 2007).

The use of bio ethanol in running the cars will be more environmental friendly as it causes less pollution to the earth. Bio-ethanol produces less greenhouse gas emissions as compared to fossil fuels and this offers an opportunity for whisky industry to fulfill its Corporate Social Responsibility (CSR) to the environment. Besides that, this new finding can help to create a business opportunity for the whisky industry as the waste products can be reused for the production of bio ethanol which is expected to be the main sources for cars in future. According to Gavin Hewitt, Chief Executive of The Scotch Whisky Association (2009), the launch of Scotch Whisky Industry Environmental Strategy will be a pioneering industry-wide environment strategy to reduce the impact of whisky production processes to the environment. Under this environment strategy, the reduction of fossil fuels usage by 80% in year 2050 that is equivalent to 750,000 tonnes of carbon dioxide is one the main target and objective.

This is a long term strategy and needs a cooperation of all sectors within whisky industry to achieve the objectives of a clean environment in future. This is a good sign to the whisky industry as the demand of consumers will rise as the consumers will continue using whisky after they aware of their roles and contribution of consuming whisky to a better environment. Legal factors•Under Islamic law, consumption of alcohol, alone, is considered one of the most serious Hadd crimes and is strictly forbidden in Malaysia (Surah Al-Maaidah verse 90).

Islam is the official religion of Malaysia and out of 28. 96 millions of population in 2010, 67% is bumiputera that follow Islam (Department of Statistic and Economic Planning Unit, 2010). This means that the main market for whisky industry in Malaysia is the Chinese and Indians drinkers. In other words, the market of whisky industry in Malaysia is restricted to just a small proportion of population and therefore the demand for whisky is not as high as other countries.

The production of whisky is limited and low in amount for supply as to meet the low demand for whisky. In this case, whisky industry will not gain much profit from the sales of whisky in Malaysia due to the Islamic laws being obeyed by Malaysians. •According to Malaysia’s 1976 Excise Act, anyone who manufactures and sells any alcoholic beverages or intoxicating liquors needs to apply for a license and pay the license fees accordingly. The license gives the right to the people in the industry to manufacture and selling whisky.

Any operating of business and industry without a license is said to be against the Malaysia’s rules and regulations and legal actions will be taken. The license needs to be renewed every year and this becomes a fixed cost for the whisky industry. The whisky industry will have to incur the high operating cost for a long term and thus it affects the whole industry from the aspect of the profitability. •As in the article published in Herald Scotland (2010), Malaysia has been granted applications for “Scotch Whisky” to be protected as a “geographical indication of origin” (GI) by domestic laws.

The high level of protection through legal ways can prevent any cheap imitations to gain market share in Malaysia while at the same time protect the integrity of the Scotch whisky. The consumers are able to drink the original whisky that is high in quality and the demand for whisky will then increase. The whisky industry will gain benefit from it as the sales of whisky will go up when all the consumers in Malaysia are consuming the only and original whisky.