This business report presents a PESTEL analysis for Kingdom of Bahrain to determine external factors that influence the business environment and make recommendations for Kelly Services. The overall recommendation is to open an office in Bahrain. However, the company will have to mitigate the current political risks noted. Economic factors reflect the impacts of a slump in the global oil prices, but such effects will improve with new measures adopted.
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Socio-economic trends show overdependence on foreign labour, which will favour the company’s business, but it must observe related labour laws and employee rights. While the Internet is available and widely adopted (95% penetration), government interference continues to hinder its impacts. The legal system for property ownership is straightforward, but ownership is restricted to designated areas. Finally, Kelly Services should consider green products to support the government’s efforts to protect the environment.
Kelly Services, Inc. (Kelly) specialises in temporary staffing globally. The company’s operations are classified into three major business categories, including the US Commercial Staffing; Professional, Technical and Staffing Alternatives (PTSA), and International (Kelly Services, Inc. 2017). Alongside other conventional office services, Kelly seeks and provides professional and technical workforce across various industries and professions, such as education, science, information technology (IT), finance and accounting, engineering, healthcare and homecare, and legal. The company provides staffing services to a wide range of customer groups using about 2,600 independent, customer onsite and co-located offices in the US, the Americas, Europe, and the Asia-Pacific region (Kelly Services, Inc. 2017).
Established more than 70 years ago in 1946, the company now has more than 1,100 employees at the head office in Troy and additional 7,000 spread globally. The founder, William Russell Kelly is seen as the father of the modern temporary staffing industry. Kelly services first expanded to Canada in 1968, France in 1972, and today, it operates in more than 27 countries, listed on the NASDAQ Stock Exchange, is currently ranked 467 in the Fortune 500 list of America’s largest companies, and has won several awards.
A Management Consultant Report
In this report, the consultant has applied all aspects of PESTEL to analyse macro- environmental factors that affect business operations in Bahrain and make management recommendations for Kelly Services based on the up to date research on strategic trends on politics, economic, social, technological, legal, and environmental factors. These trends are important for strategic executives to ensure that they comprehend and prepare for entry into the country. Bahrain is a country that hosts many multinational firms, but getting qualified personnel is a major challenge for many firms.
The letters, PESTEL reflect Political, Economic, Social, Technological, Environmental, and Legal (PESTEL) factors for analysis. PESTEL is a framework used in a strategic management approach by consultants to assess and monitor external environment (macro-environmental) factors that affect business operations (University of Central Florida 2017). This tool is applicable across many industries (Rastogi & Trivedi 2016).
|Capital City||Population||GDP||Growth rate (GDP)||Inflation||Corporate Tax Rate||Unemployment||Oil and Gas||Labour Market / Demographics|
|Manama||1.3 million||$64.8 billion||3.2%||1.8%||Zero||1.2%||70% of the budget||Expatriates account for 75% of the workforce|
- Government type and stability: although Bahrain is relatively politically stable, it faces challenges related to home-grown sectarianism, incitement, violence, and terrorism. As the country struggles towards democracy, it has undertaken some legal measures to advance democracy, maintain security, stability, and unity of the people (Toumi 2016).
- Freedom of press: Bahrain continues restrictions on free press and free expression, and it is ranked 162nd out of 180 countries on the press freedom index by Reporters without Borders in 2016 (Americans for Democracy & Human Rights in Bahrain 2017)
- Rule of law: the judicial system is seen as corrupt, all judges are appointed by the ruling family, tendering may not be transparent, but expropriation and petty corruption are not common (Heritage Foundation 2017). The legal system sufficiently supports property acquisition and disposal (Heritage Foundation 2017).
- Level of bureaucracy: high-level influences occasionally hinder foreign direct investment
- Regulation and de-regulation trends: the political class continuously reviews regulations to attract foreign investors and now 100% foreign ownership is allowed, but the labour market is still highly controlled.
- Employment legislation: Bahrain allows only Bahraini citizens and companies to engage in foreign manpower supply (Servcorp 2013).
- Tax policy: no personal income tax imposed, most firms do not pay corporate tax, oil firms pay 46% tax, and the overall tax burden is 3.8% of the total domestic income (Heritage Foundation 2017).
- Trade and tariff controls: higher minimum capital is required to start a business, labour is controlled and no minimum wage is established but labour cost continues to rise.
- Potential changes in the political environment: Bahrain is most likely to continue with reforms toward democracy and tough laws in response to emerging domestic threats.
Based on the current political factors, Kelly Services will have to considered the best approaches to mitigate the above-mentioned political risk factors before investing in Bahrain.
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- Stage of business cycle: most companies in Bahrain are in the growth stage of their business cycle
- Population: Bahrain is a relatively small country with an estimated population of 1.36 million people. This number is expected to increase due to the increasing number of expatriates.
- Public spending: since 2009, the government adopted an expansionary public policy, which has created a large budget deficits and increasing debt levels, a situation that weakens the inclusive financial health of Bahrain. Thus, Bahrain requires fiscal reforms.
- Current and projected economic growth: the current GDP is $64.8 billion with a growth rate of 3.2% and $50,095 per capita. Following the drop in oil prices globally, this growth rate is most likely to decline in the period 2017-2018.
- Inflation and interest rates: the inflation rate (CPI) is 1.8%. It is estimated that the rate of inflation will continue to rise due to other issues associated with low oil prices. The rate of interest was 1.25% as at March 2017 (Trading Economics 2017).
- Unemployment and labour supply: the rate of unemployment is 1.2% (Heritage Foundation 2017).
- Labour costs: although there is no specific minimum wage set by the state, the cost of labour has continued to rise steadily and passed the overall productivity rate perhaps due to limited supply of qualified personnel. Additionally, the state controls all supply of foreign manpower.
- Levels of disposable income and income distribution: in 2015, consumer spending was estimated at 4774 BHD million and the per capita is $50,095. Generally, much of the wealth is controlled by the ruling class.
- Impact of globalization: 70 percent country’s budget revenue is supported by oil incomes. However, in the recent past, the government has focused on diversification. Consequently, Bahrain now hosts several multinational companies that serve the wider Gulf region. Additionally, Bahrain has signed a free trade agreement with the US.
- Potential impact of technological or other change on the economy: more and more companies continue to embrace technology in Bahrain, as some tech giants now have offices in the country.
- Ongoing and potential changes in the economic environment: since 2016, the government has cut subsidies on petroleum products, natural gas, water, food items, and electricity. Additional taxes may be introduced to supplement oil revenue.
- Population: immigrants constitute 55% of the entire population of 1.3 million people. With the changes in demographic characteristics, population growth is expected, but at a slow rate.
- Employment patterns and attitudes to work: notably, many Bahrainis prefer public service than the private sector. Although Bahrain has grown, most technical and professional jobs are held by expatriates, including Americans, British, and Indians. Generally, locals continue to shun some private job offerings and expect employment in the public sector. As such, reliance on foreign labour has persisted.
- Job market freedom: the job market is not all free due to restrictions on foreign supply of manpower. Not many women work outside their homes, according Islamic culture.
- Socio-cultural changes: more women now strive to enter the labour market in Bahrain, albeit slowly due to effects of social relations, cultural orientations, or family politics.
- Division of labour: majorities of the workforce are concentrated in industries, business, and services; an extremely low percentage is found in the agricultural sector because of the arable land. As mentioned above, many jobs are held by foreign employees, and they occupy all types of jobs from low skilled works to more specialised jobs, including investment banking. Foreign influences continue to change division of labour in Bahrain.
- The government heavily censors the Internet and access is restricted to some extent. It is believed that social media platforms, such as Twitter and Facebook are used to cause unrest through spreading highly inflammatory contents.
- Impact of emerging technologies: efforts to provide advanced infrastructures for Information Communication Technologies (ICT) are supported by regulatory policies that reflect the Kingdom’s commitment to developing the technology sector. Today, cloud computing, mobile technologies, creating apps, and sharing information, computing infrastructures, and the application of Artificial Intelligence (AI) technologies among other practices have started to gain traction in Bahrain (Carlson 2017). Additionally, small businesses and startups have also started to embrace technologies.
- Impact of internet: the Internet has opened opportunities for business growth and facilitated the concept of remote working. Today, more than 95% of the population is connected to the Internet. In fact, Bahrain is the country with the highest Internet penetration in the Gulf region.
- Research and development (R&D) activity: notably, Bahrain, as a country, has dedicated its R&D efforts to the oil industry. As such, it has developed more advanced technologies for the industry. Hence, majorities of other technologies are mainly introduced by foreign companies.
- Impact of technology transfer: multinational firms continue to introduce new technologies in the country. Cooper Fitch, for instance, has embraced social media and other platforms to advance its recruitment and human resource management in the country.
- Environmental laws: foreign firms must recgonise that Bahrain has enacted several laws to protect the environment. They are related to energy, water, air quality, biodiversity, land use, waste management, coastal areas protection, and the use of chemical substances. These laws are in relation to climate change policies.
- Demand for “green” products: Bahrain has increased its efforts to support green technologies. Notably, the need for higher energy efficiency, greener products and sustainable technologies has increased the rate at which novel products and innovations are introduced in Bahrain (Saxena 2015).
- Property ownership: as previously noted, the current laws protects foreigners’ rights to purchase and sell their property. Only Bahraini and GCC citizens can acquire land in any location of Bahrain. However, for foreigners and foreign firms, they can only acquire and own property and real estate in specific developed areas, such as the Greater Manama Area, Seef District, new tourism developments, and other areas within the range of the Bahrain Financial Harbour (BFH), the Bandar Al Seef Area and Lulu Islands (Ministry of Industry, Commerce, and Tourism 2017).
- Commercial agent: in any case the company is unable to get 100% ownership because of the nature of business (e.g. foreign manpower supply), then a commercial agent may be appointed. The law requires 51% ownership by Bahraini firms or Bahraini citizens. Due diligence is required.
- Agency law: the law requires both parties to register an agency agreement at the ministry. Any unregistered agency agreement is not recognised under the agency law. Agency laws tend to favour locals agents even if the contract states otherwise.
- Discrimination law: the new labour law No. 36 of 2012 prohibits discrimination in the payment of wages based on sex, ethnic origin, language, religion or beliefs among others.
- Employment law: the new labour law No. 36 of 2012 aims to promote the private sector by granting more rights to employees. Employers are expected to ensure improved working conditions, better investment plans for employees, clear contractual terms, and prohibit human trafficking and employee discrimination (Oxford Business Group 2017).
- Anticorruption: unlike other Gulf countries, Bahrain has introduced laws that make it an offence for both public officials and private company executives to give and receive gifts or privileges. Notably, Gulf countries have weak systems for implementing such laws.
- Health and safety laws: the law requires employers to ensure safe workplace environments, which are free from occupational and health hazards.
The recommendations provided are based on the current results of the PESTEL analysis for Bahrain. Overall, a recommendation is made for Kelly Services to open a branch office in Bahrain.
- Political factors present some risks, which Kelly Services will have to mitigate.
- Economic factors are generally favourable, but a decline in global oil prices cannot be ignored in that economy. Bahrain already hosts many multinational firms.
- Socio-economic factors shows that Kelly Services will have to rely on foreign workforce to recruit for any clients in Bahrain (over 75% of the workforce is made up of expatriates)
- Technologies continue to drive business operations, but social media tools are highly monitored and access to Internet is controlled by the government.
- For legal factors, the company will have to concentrate on property ownership, the use of a local agent, and the new labour laws.
- Laws to protect the environment are available, and the adoption of green products has increased steadily.
Americans for Democracy & Human Rights in Bahrain 2017, Bahrain’s recent attacks on press freedom. Web.
Carlson, T 2017, ‘The future of cloud computing in Bahrain‘, News of Bahrain. Web.
Heritage Foundation 2017, 2017 index of economic freedom. Web.
Kelly Services, Inc. 2017, Company overview. Web.
Ministry of Industry, Commerce, and Tourism 2017, Bahrain investor center. Web.
Oxford Business Group 2017, A look at Bahrain’s recent legislation on employment. Web.
Rastogi, N & Trivedi, MK 2016, ‘Pestle technique – a tool to identify external risks in construction projects construction projects’, International Research Journal of Engineering and Technology, vol. 3, no. 1, pp. 384-388.
Saxena, A 2015, ‘Bahrain backing projects with green technologies’, Gulf Digital News. Web.
Servcorp 2013, Guidelines for setting up a business in Bahrain. Web.
Toumi, H 2016, ‘Bahrain ‘to move ahead with rectifying political process’, Gulf News. Web.
Trading Economics 2017, Bahrain: economic indicators. Web.
University of Central Florida 2017, Business research – industry analysis. Web.