Recently, I was talking with a friend about market drivers and how they impact our business. He seemed a little surprised that, as a company which primarily works with Wisconsin customers, we would concern ourselves much with larger market forces.
Even though we are a local supplier, our customers ship all over the world. We see the impact of local market drivers, things like weather, transportation and labor. We also see the effect of larger macro or global market drivers through the effects on our customers.
All successful manufacturers – and businesses in general – have a sense of what’s going on globally, nationally and locally that affects productivity and profitability. Globally, the price of oil effects not just our cost to deliver, but our customers’ cost to deliver as well. At Nelson Container, national paper prices directly impact how much it costs to produce corrugated boxes. Locally, the employment rate will have an impact on our labor costs.
These are obvious examples, and from here it could be easy to start looking at everything in that light. But if we did that, we’d soon run the risk of being overwhelmed by all the things that could affect us, become paranoid and “frozen with fear.” It’s important to stay focused, make decisions and take risks as you grow a business. Most small and medium-sized manufacturers, at the end of the day, have pretty straightforward offers, so we can get the job done in an equally straightforward manner.
I like the PEST analysis. PEST stands for Political, Economic, Social and Technological factors outside your company’s control that could impact your market.
Political factors can be thought of as how the government impacts the economy. This can include tax policy, labor law, environmental law, trade restrictions, tariffs and political stability. There’s also the important impact of government on a nation’s infrastructure, education and overall health.
Economic factors include economic growth or contraction, interest rates, exchange rates, the inflation rate and other items that impact access to capital and the value of money in general.
Social factors include population growth, age, demographics and attitudes towards health. This is a big one right now for everyone, especially manufacturers. The changing of the guard from our current, aging workforce to a new generation of workers with different skills and priorities creates great opportunity, but also risk.
Technological factors include everything from production and process automation to communications bandwidth and the cost and speed of technological advances. Technology affects all of us, impacting costs, quality, barriers to entry, production efficiency and more.
There are good tools available online to help you do a general PEST analysis, which you can then use in the Opportunities and Threats quadrants of your SWOT (strengths, weakness, opportunities, threats) analysis, or just keep in mind when you make decisions. It helps us as we confront the risks involved in the decisions we must make at Nelson Container, and I hope it provides value for your company as well.
Tom Nelson is the President of Nelson Container, experts in custom corrugated packaging solutions. Learn more about Tom’s company today by visiting their website or email Nelson Container for a custom quote.