Henkel: Building a Winning Culture Harvard Case Solution & Analysis

PEST Analysis

Political

The political background for Saudi Arabia is very stable as the country does not possess any democratic system as there is no involvement of political parties in the country. Since there are no political parties in the country, there are very minimum chances of chaos, riot, and clashes amongst different parties. The particular system is ideal for a company as it helps them to develop a stable policy along with a smooth corporate and business strategy. Saudi Arabia possesses the governing system of royal family where the country is governed by a King. However, the economic situation of the country has evolved tremendously as the rulers have focused on improving the economic conditions of the country. There are no income taxes for Saudi and overseas employees, while the country has enabled taxes on companies for their profits earned in Saudi Arabia. There are many trade restrictions in the country for the purpose of licensing, gaining a working certificate, applying for the paper documentation, testing of the product, and many others (Thain & Bradley, 2014).

Economical

The interest rate in KSA is on the verge of continuous increment which has affected the business in the long run. The companies around the world working in the country face tremendous difficulties due to the increase in interest rates. Therefore, the interest rate stirs the prices of the products and the decrease of the average income. The rate is not stable in the country. This changes also enables change in the exchange rate for companies that have been operating from another country. The businesses are duly affected by importing and exporting of the raw materials. Although, despite of these negative factors involves in the country, there are also some positive factors which overhauls other negative factors. The economic growth of the country is on the verge of rising and in the phase of economic boom, this has allowed and provided opportunity for various foreign companies to make investment in the country which is overall considered beneficial for foreign companies and KSA is reducing the barriers for their entry.

Social

The religion that prevails in the country is Islam which is the dominant religion in the country. There is a mixture of the religion of Islam and the culture of Arab which makes a dynamic culture to prevail. The Muslims in KSA have a negative perception for western companies due to which Henkel faces many problems in setting up of business in the country (Thain & Bradley, 2014).

The Saudi culture opposes the women to appear in the commercials or in TV due to which Henkel had many problems had many problems in advertising their products as their higher priority of products are based on the influence of women which includes the industry of beauty care and home care. The country had the nag of speaking the Arab language and did not encouraged anyone to speak any other language than their original language as they considered it as sacred. Therefore, Henkel had to hire experts that have the ability to market their products in the Arabic language. The customer behavior were positive and in favor of the company as they promoted to try new products while shopping which created an opportunity for the company.

Technological

KSA region allowed the company to avail employees for low wages to develop their new and improved technological products. This has resulted the company in the low production cost and a high quality product. The company could also provide its customers with the facility of 24 hours customer service toll free number where customers could contact with the company in getting assistance for the company’s products or complaints.

Henkel has been meeting with its customers’ demand in regards with providing high technological products, while it has also allowed the company in synchronizing with the country’s aim to become a country with technologically equipped facilities.

Porter’s Five Forces Model

Threat of a New Entrant

There are very few suppliers for the company due to which it has significantly increased the cost of the company’s product. Therefore, Henkel has to reduce their profitability to maintain their price of their product according to the average industry price. This strategy has lowered the profitability of the company and increase in the direct and indirect overhead cost. Therefore, considering to this scenario a good opportunity for supplier is available but limited opportunity for companies in entering the KSA market. High entering barriers in the market have also affected the growth of the industry. This could only be increased if there are many suppliers for companies to provide better price offers to its customers (Thain & Bradley, 2014)..................................

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