Business Structures, PESTEL Analysis, and Porter’s Five Forces

Posted on Jan 17, 2025 in Economy

Limited Liability Companies (S.L.)

The Sociedad Limitada (S.L.) is the preferred legal form for small and medium-sized enterprises (SMEs) in Spain. The capital is divided into participaciones (holdings), and there are limitations to the free transfer of shares. The minimum capital for its establishment is €3,000. The Sociedad Limitada Unipersonal (S.L.U.) is formed by a single partner. It is governed by the Ley de Sociedades Limitadas.

Public Limited Companies (S.A.)

The Sociedad Anónima (S.A.) is the choice for companies that want to go public or those facing consolidation and expansion. The capital is divided into acciones (shares) that are freely transferable, and shareholders are not liable for the company’s debts. The minimum capital for its establishment is €60,000. When establishing the S.A., the shareholders must pay at least 25% of the capital. The regulation of this corporation and its management are more complex than the S.L. It is governed by the Ley de Sociedades Anónimas.

Listed Companies

The shares of some S.A. are quoted and traded in stock markets. These S.A. are known as listed or publicly traded companies (empresas cotizadas).

  • As with other S.A.s, the capital is split into shares, freely transferable, providing their owners with economic rights (namely, distribution of profits).
  • The organized financial markets (stock markets or stock exchanges) enable easy purchase/sale of shares in the case of public companies.
  • This provides liquidity to the shareholder investment.

PEST Analysis

  • Economic:
    • Development level
    • Resource availability
    • Growth rate
    • Inflation rate
    • Economic policy
    • Unemployment rate
    • Infrastructure
  • Socio-cultural:
    • Education level
    • Demographic variables
    • Income distribution
    • Cultural behaviors
  • Administrative-legal:
    • Political system
    • Government regulation
    • Fiscal policy
    • Labor regulation
    • Promotion of entrepreneurial activity
  • Technological-legal:
    • Political system
    • Government regulation
    • Fiscal policy
    • Labor regulation
    • Promotion of entrepreneurial activity

PESTEL Analysis

  • Environmental:
    • Environmental awareness
    • Use of materials such as transgenics
    • Green taxes
    • Specific environmental and recycling standards
    • Energy efficiency
  • Legal: Increasingly important as a result of the integration process in the E.U.
    • Competition regulation
    • Tax incentives and subsidies to certain sectors
    • Existence of supranational courts

Porter’s Five Forces Model

The competitive environment includes all those external factors that might affect a specific company’s results in a certain industry.

  • Porter’s Five Forces model allows to assess the current and/or potential attractiveness of the industry that the company operates in, in terms of profitability in the medium and long term.
  • Porter considers that the company must achieve a position in the industry where the firm can deal more effectively with the forces or they can influence those forces to be more favorable to them.
  • This model can be used by business managers to:
    • Better understand the industry context in which the firm operates to try and develop an edge over competitors.
    • Analyze the attractiveness of other industries when searching for new business opportunities.

Intensity of Existing Competition

It is the most important of the five forces and is determined by the following factors:

  • Growth rate of the industry
  • Extent of fixed costs in the total value of business
  • Degree of product differentiation

Potential Competition

The entry of new firms in the industry modifies capacity, market shares, changes in profit margins, etc. The degree of threat depends on existing entry barriers. Companies within the industry may react to defend their own interests. Due to the threat of a new competitor, a firm can react to preserve its competitive position in the following ways:

  • Passively: No reaction. The company expects the problems to disappear.
  • Defensive moves: From an established position of a firm, but without damaging the new competitor (example: increased advertising).
  • Threatening moves: Taking steps that threaten the consolidation of the new competitor (examples: lower prices, improvements in products and services).

Substitute Products

Substitutes are those products/services in different industries that perform a similar function or satisfy the same needs. The intensity of the threat depends on the price relative to the benefits and costs of change.

Bargaining Power of Buyers

If the buyers enjoy significant bargaining power in the industry, they can force down prices or demand better quality services. The circumstances that make buyers into a powerful group are:

  • High concentration
  • When there is no differentiation between products
  • Low switching costs for changing suppliers

Bargaining Power of Suppliers

Factors that contribute to strengthening the suppliers:

  • The customers that they serve are numerous and loosely organized collectively.
  • They sell their products in different sectors.
  • They provide an essential product, with no substitutes.