PESTEL Analysis of Sri Lanka

PESTEL Analysis of Sri Lanka

Introduction

Sri Lanka, officially the Democratic Socialist Republic of Sri Lanka, is a country in South Asia. Known until 1972 as Ceylon, Sri Lanka is an island surrounded by the Indian Ocean.

As a result of its location in the path of major sea routes, Sri Lanka is a strategic naval link between West Asia and South East Asia and was colonised by Portugese, Dutch and English and the latter ruled the country till 1948 and then Sri Lanka was given Independence.

As of 2010, Sri Lanka was one of the fastest growing economies of the world. Its stock exchange was Asia's best performing stock market during 2009 and 2010. (International Monitory Fund, 2011)

The commercial hub of Sri Lanka: Colombo

Political and Legal Factors

Political System:

Sri Lanka is a democratic, socialist republic and a unitary state which is governed by a semi-presidential system, with a mixture of a presidential system and a parliamentary system. It constitutes a parliamentary system governed under the Constitution of Sri Lanka. Most provisions of the Constitution of Sri Lanka can be amended by a two-thirds majority.

Sri Lanka has gone through a changing political scenario over the years and specially after the end of the civil war in 2009 and have gained a considerable political stability as the present government has a majority in the parliament. However there is a concern that too much power is centred among few individuals in the present governing regime and had been instances where politicians having interferences with the businesses and policy changes either to assist or restrict company operations.

Sri Lankan Parliament

Legal System:

The Legal system of Sri Lanka is a highly complex mixture of several laws. In fact, it exemplifies the absolute possibility for the coexistence of diverse elements of several legal systems for it gather together with a common framework, laws as

diverse in their origin as those of Rome and England, Holland and South Africa, Arabia, South India and old Ceylon .

The ethnic and religious diversity of the nation and the colonial history, which traced back to 1505 – 1948 are the major factors which had contributed to this complexity. Sri Lankan Legal system is influenced by English common law and Roman-Dutch owing to its colonial history. In addition, same is influenced by the ancient local system of laws of Sri Lanka - customary and personal laws such Kandyan, Thesawalamai law and Muslim law due to the varied character of the nation.

The the funadamental legal framework is alsomost similar to that of England.However the legal proceedings take a long time and at present 650,000 cases pending before the courts. ( Ministry of Justice of Sri Lanka,2011)

In recent years in Sri Lanka, there have been many significant legal changes that have affected firms' behaviour. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organisation's actions. In addition there are instances where the executive powers of the president have interfered with the local and international businesses which have created a negative outlook in general country ratings.

Labour Laws

Sri Lanka has strong labour policies which clearly stipulates the working hours, age limits, prohibition of child labour,industrial safety etc and the salaries are paid monthly.

In addition if an employee works on a Sunday not less than 11/2 times the daily rate of wages should be paid.

According to the Sri Lanka Labour Force Survey 4th quarter 2010, the population employed is 7.9 million, of which 5.2 million are men and 2.7 million are women out of a population of 20.6 million persons. ( Kumara, 2011)

Company Law

Sri Lanka has a strong company law framwork which dates back to 1963 Finance Act No 11 and it had been updated under a special provision to accomodate the legislature for Foreign Companies in 1974. (The World Law Guide, 2011) However there is also the Import and Export Control Act of 1969 which regulates the international businesses in Sri Lanka.

Enviromental Laws

Sri Lanka has many government authorities to regulate and protect the environment and many amendments were made to the constitution over the years.

The Central Environmental Authority (CEA) was established in August 1981 under the provision of the National Environmental Act No:47 of 1980. The Ministry of Environment and Natural Resources (ME&NR) which was established in December 2001 has the overall responsibility in the affairs of the CEA with the objective of integrating environmental considerations in the development process of the country. The CEA was given wider regulatory powers under the National Environment (Amendment) Acts No:56 of 1988 and No:53 of 2000. ( Central Enviornmental Authority, 2012)

Corruption

In the annual Corruption Perception Index (CPI) in 2010, Sri Lanka has increased its score marginally by 0.1 from last year to reach 3.2 points and is placed in the 91st position among 178 countries. Last year Sri Lanka was placed at 97 among 180 countries.

The Index, which focuses on corruption in the public sector, is conducted by Transparency International (TI), the global civil society organization leading the fight against corruption. The CPI Index though perception has been accepted as the most recognized and often quoted international index on corruption.

In the sub-region, except for Bhutan (5.7), Sri Lanka’s neighbouring countries have failed to record a significant increase. India’s score is 3.3 while Maldives (2.3), Bangladesh (2.4), Pakistan (2.3) and Nepal (2.2) continue to be below 3.0.Therefore it is evident though corruption is a concern in Sri Lanka, it is fairly better and is improving compared to other regional countries. ( Transparency International, 2010)

Economic Factors

Sri Lanka is recognized as a fast growing middle income country. According to the International Monetary Fund, Sri Lanka has a yearly gross domestic output of US$64 billion as of 2012. It has a GDP of US$158 billion in terms of purchasing power parity. Sri Lanka is in terms of per capita income, with a nominal value of US$2,435 and PPP value of US$5,220.It recorded a GDP growth of 8.3% in 2011. ( International Monitory Fund, 2011)

Plantation Worker and a Garment worker in Sri Lanka

In the 19th and 20th centuries, Sri Lanka became a plantation economy, famous for its production and export of cinnamon, rubber and Ceylon tea, which remains a trademark national export. The development of modern ports under British rule raised the strategic importance of the island as a centre of trade.

In 1977 the free market economy was introduced to the country, incorporating privatisation, deregulation and the promotion of private enterprise. While the production and export of tea, rubber, coffee, sugar and other agricultural commodities remains important, the nation has moved steadily towards an industrialised economy with the development of food processing, textiles, telecommunications and finance. ( Nubin ,2002)

In addition to these economic sectors, overseas employment contributes highly in foreign exchange, most of them from the Middle East. ( Ministry of Finance ,2011)As of 2010, service sector makes up 60% of GDP, industrial sector 28% and agriculture sector 12%. Private sector accounts for 85% of the economy. India is the largest trading partner of Sri Lanka.

The per capita income of Sri Lanka has doubled since 2005.During the same period, poverty has dropped from 15.2% to 7.6%, unemployment has dropped from 7.2% to 4.9%, market capitalization of CSE has quadrupled and budget deficit has doubled.90% of the households in Sri Lanka are electrified. ( Ministry of Finance ,2011)

Income inequality has also dropped in recent years, indicated by a gini coefficient of 0.36 in 2010.

The Global Competitiveness Report published by the World Economic Forum has listed Sri Lanka as a transitive economy, from factor-driven stage to efficiency-driven stage, ranking 52nd in the global competitiveness and 41st in goods market efficiency out of the 142 countries surveyed. Dow Jones classified Sri Lanka as an emerging market in 2010, and Citigroup classified it as a 3G country in February 2011.Sri Lanka ranks well above other South Asian countries in Human Development Index (HDI) with 0.658 points. ( Schwab, 2011)

Social Factors

Sri Lanka has a population of little over 20 million people and is far ahead of her South Asian neighbours in the accomplishment of human development goals. Life expectancy at birth is currently 75 yrs, and is close to the estimated lifespan in the developed countries. A high literacy rate of 92.5% has helped the nation to build a skilled labour market. Low mortality rates of 14 in 2010 and the steadily declining population growth of

below 1%; reflect the country’s progress in the sphere of social development. More than 67% of the population is in between 15 to 64 years old and as a result the country has a big skilled labour force.( Statistics Department, 2011)

Laboratory workers in the Sri Lanka Cosmetic Industry.

As a result, Radox has a better chance even if they manufacture the products in Sri Lanka and they would be able to garner much profits from the relatively cheap skilled labour compared to other South Asian countries. At present 95% of Unilever products are manufactured in Sri Lanka and using the economy of scale Radox could do the same. (Unilever, 2012)

In addition a large workforce means that they are ones who would be spending money and it is another indication that this tropical labour market would reach the herbal products from Britain even though the cost is high.

After the war, with the rapid development of private financial sector, many young peolpe have absorbed moderen trends and fashon a spending large amont of money for pleasure and beauty.The growing number of Tv channels and other digital mass media networks are a fine indicator to showcase such

developments taking place in the changing attitudes and consciousness of people.

Colombo Fashion week 2012

All these human development indicators are a tribute to Sri Lanka’s social service net work, which was established in the latter part of the 1940 decade, ensuring sound educational policies, an extensive health care programme and an effective medical system for all sectors of the nation.

Colombo Fashion Week 2012

Technological Factors

“Besides the human and natural resources available in a country market,the technological resources in that market may influence its attractiveness.” (Muhlbacher, 2006)

Transport:

Sri Lanka has a A and B class road network exceeding 12,000 kilometres (7,460 mi). The railway network, operated by the state-run national railway operator, Sri Lanka Railways, spans 1,447 kilometres (900 mi).

The receltly opened Southern Motorway has link Colombo and the down south to bloster the economu of the southern province. In addition the government has taken many initiatives to repair and develop the countries road network after the way, which itself has paved the way for a staggering growth rate of 8.3%in 2011.

Use of Internet and Mobile:

Sri Lanka has around 2 million internet users in 2011 and telecommunication is one of the fastest growing sectors in Sri Lanka. Sri Lanka's cellular subscriber base has shown a staggering 550% growth, from 2005 to 2010. ( Schwab, 2011)

Research and Development

(National Science Foundation, 2012)

According to the figure above, Sri Lanka had spent more than 5 billion us dollars on reaserch and development(R & D) in 2008.

Innovationa Potential and Intellectual property Issues:

According to the NSF survey (Amaradasa, et al., 2002), a total of 461 patents had been registered with the National Intellectual Property Office of Sri Lanka. The growth trend of a patent is a clear indication of the rising interest of innovators in protecting intellectual property.

Enviornmental Factors

Sri Lanka enjoys a tropical climate with varying temperatures according to location. Coastal or upland areas benefit from cool mountain or sea breezes all year round.

Monsoon season is between May to September in the South & West and October to April in the North & East of the country.

These monsoons give Sri Lanka its only seasons as it is located so near to the Equator. Temperatures average 27°C (80°F) in Colombo and 16°C (61°F) in Nuwara Eliya, which is on higher ground, all year round.

However with the increased number of development projects, there are many issues that have taken the attention. Deforestation, pollution, filling the marshy lands and in fact the unauthorized buildings have caused numerous environmental problems in Sri Lanka.

Sri Lanka being close to the equator and having a tropical rainy climate have influenced the life pattern of Sri Lankans tremendously. The hot weather and having enough water in the country give chance to have body wash regularly and thiscould be why the cosmetic industry has developed in Sri Lanka continously. Therfore Radox having its British and European background has a better chance of establishing itself in the Sri Lanakan market.