Externalities Environment and Analysis for Australian Fitness Industry

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Table of Contents

Executive summary
Introduction
PEST analysis of Australian fitness industry
Five forces analysis of the fitness industry
Conclusion
References
Appendices

Executive summary

The Australian fitness industry is a dynamic and integral part of the economy. The fitness industry has developed considerably over the last two decades, with numerous fitness centre chains commanding key markets across the country. Approximately 2 million Australians are using fitness centre services.

The impact of the fitness industry in Australia extends beyond its contribution to the economy. The study centers on the external factors that have direct bearing on the operation of the fitness industry in Australia. The study also explores the industrial economic perspective of the Australian fitness industry.

Introduction

Overview

Australian fitness industry comprises of a broad range of businesses, from undersized gyms and private training studios to big, multinational fitness chains and franchise. The services offered by this industry are also diverse and include a wide range of exercises and physical activity services for all the age brackets, plus customary gym-type activities.

In other words, the increased diversity of the Australian fitness industry creates a thin line between the traditional fitness centers and facilities offering miscellaneous specialized services (Australian Bureau of Statistics 2008, P.4-5).

Australian fitness industry has minimal barriers to the new entrants and is dominated by small and medium sized entities. Over the last decade, Australia has experienced a massive growth in the fitness industry and significant expansion of the fitness centers. Whereas the growth in the industry has remained solid, it has increasingly been moderated over the recent past. This is attributed to deepening market penetration.

The industry has also been experiencing some consolidation due to growth of fitness centers chains. Numerous independent centers have been acquired by larger chains or forced out of the business because of stiff competition (Australian Bureau of Statistics 2008, P. 6; Ma, 2011, P.228).

Similar to other service industries, Australia’s fitness industry is characterized by high number of informal or part-time employment. Over 80% of the workers employed in this industry are on casual or part-time basis. The industry offers a wide range of services including yoga, boot camp, Pilates in addition to non fitness services such as massage and related health services (Australian Government 2007, p. 3).

Report Purpose

The main purpose of this report is to identify political, environmental, economic, social, legal, and technological trends that have a direct influence on the operations of the fitness company. In addition, the report also analyses the main forces that determine the attractiveness of a fitness industry or otherwise the industrial economic perspective of the fitness industry.

PEST analysis of Australian fitness industry

PEST stands for political, economic, social and technological factors. This analysis assesses the impact of the above factors on the fitness industry in Australia. The results of this analysis can be used in taking advantage of the new opportunities and preparing contingency plans for threats in the industry (Porter 1980, P.3).

Political externalities

Political factors include legislation governing the operations of fitness industry.These legislations before being made into law were subjects of political concern debated upon and became policy documents. These regulations have wider effects in the Australian fitness industry. Australian laws governing the fitness industry are prescribed in the fitness industry code of practice under Fair Trading Act of 1992. This fitness act has undergone numerous amendments to match the dynamics of the fitness industry (Ready et al. 2005, p. 200).

The main objectives of these regulations are: to ensure proper standard of trading within the fitness industry. They also promote client confidence in the fitness industry. These regulations make sure that the management and workers in the fitness industry offer services in a fair and professional manner with the consumers’ interest at heart.

The fitness act supports the fitness industry and encourages Australian people to take part in regular fitness activities. The act provides a guideline through which rights and obligations of the suppliers and consumers can be met through services provided, complain resolution and sufficient procedures to solve the complaints (Ma, 2011, P.228; Australian Government 2007, p. 3).

Economic externalities

The current pressing challenge for the Australian fitness industry is the present concerns related to the present economic downturn. The significant momentum resulting into global recession has enabled Australia to avert technical recession. However, although the economic environment of Australia is much stable than other countries, the conditions are still unsatisfactory.

Even though the government stimulus payment to households and reduction in interest rates have facilitate retail spending, consumer spending is still below the anticipated threshold (Ready et al. 2005, p. 201). This condition has significantly presented operating challenges for the fitness industry in Australia.

A strong economic foundation and strong sports cultural environment offers a productive space for fitness industry. Improved standard of living and good income has a direct impact on the development of the fitness industry. Improved income enhances accessibility of fitness facilities and poor eating habits/ lifestyles which necessitates fitness exercise (Ma, 2011, P.229).

Social externalities

There are a number of social and demographic factors that have provided significant opportunities for the Australian fitness industry. These basically relates to the trends in the populace incidence of obesity and the dynamic age profile among the Australian people. Increased prevalence in the cases of obesity and the ageing population have led to considerable pressure on the government expenditure, requiring sizeable budgetary allocations for pensions and health related spending.

These pressures have made preventive health measures for instance services provided by the fitness industry more imperative. Modern fashion has also had a major impact on the demand for fitness services among the Australians. Youthful population which comprise of 60% of the Australian population are the main clientele for the fitness industry (Australian Bureau of Statistics 2008, P. 6; Ma, 2011, P.228; Giles‐Corti & Donovan 2002, p. 794).

Environmental externalities

Environmental factors play a significant role in the health matters and decisions related to health. Environment in this case includes both the natural and man-made environment (for instance workplace), socio-economic environment (include working environment) and other influences such as promotion of health or unhealthy habits. People’s environment as envisage in the above definition significantly impacts the development of fitness facilities and infrastructure (Xinghua 2003, p. 7-8).

Australian economy offers a wide range of employment opportunities associated with enormous difference in occurrence of factors which can have adverse effects on health. In Australia in 2010 it is estimated that over three million people suffered from work related health complications with around 10 million working days being lost to health problems. For instance inactive office lifestyle promotes risks of obesity.

Immobile workers underutilize their body energy which in turn transforms into fats. This is even made worse by the eating habits of the working class. Majority of the first foods consumed by these people are full of fats and carbohydrates.

In addition, Media channels in Australia are dominated with advertisements of energy-dense poor foods and drinks. Most employers in the Australia are promoting health lifestyle and exercises for their workers by offering changing and washing facilities, fitness classes and services of trainers to offer support and training (Ma 2011, p. 230; Giles‐Corti & Donovan 2002, p. 794).

Technological externalities

Exponential advancement of technologies has massive impacts in the fitness industry. Technology has played a major role in the transformation of business models particularly in the communication and data storage. For instance internet is increasingly shifting power to the consumers away from the suppliers.

Emergence of non-facility competition and brick and mortar business models in the Australian fitness industry has integrated digital and fitness world to an advanced level of consumer services at affordable costs. Technological advancement in the fitness industry has also seen the introduction electronic fitness monitoring equipments otherwise known as wellness on wheels.

These wheels have increased people’s participation in the physical fitness due to increased accessibility to fitness equipments (they can be bought and used domestically). Advancement in technology has also seen the introduction of video games with motion sensitive controllers which help in physical exercise, electronic machines for massage, new food supplements to help in keeping fit among others (Australian Government 2007, p. 4).

A number of fitness companies in Australia use technological advancement as their marketing strategy. These companies are always on toes when it comes to latest technologies and facilities in the fitness industry as a way retaining and acquiring new clientele. Other fitness companies opt to improve on their existing equipments instead of purchasing new ones.

Advancement in new technology has increased efficiency in the fitness industry, for instance nowadays there are cardio machines with personal analysis screens, with iPods and a USB device for tracking workouts. This has seen increased number of technological savvy, gadget loving Australian youths in the fitness centers. Through new technologies, individuals can train at home under guidance of online trainers and even buy DVDs to help them in their training programs (Australian Government 2007, p. 4; Ma, 2011, P.230).

Five forces analysis of the fitness industry

This model is based on the comprehensive outlook of the company’s strategies that meets the opportunities and threats within and without the industry. The five forces as identified by porters include threats to news entrants, bargaining power of suppliers and customers, threat of substitutes, and the rivalry within the industry (Porter 1980, p.3-4).

Australian fitness industry poses few barriers to the new entrants since the industry is dominated by small to medium sized entities which have not monopolized the industry. Barriers to the new entrants include the legislation governing fitness industry and cost of acquiring fitness facilities.

The industry has few established brands commanding loyalty and close relationship with the consumers. The bargaining power of the suppliers in the fitness industry in Australia is slightly low due tom lack of large dominant monopolies.

The bargaining power of the suppliers in the fitness industry is also low because of increased substitutes mainly drugs taking over physical exercises. Suppliers are trying to enhance their bargaining power in the industry through acquisition, forward integration and signing contracts with companies providing supplementary products and services (Porter 2008, p.80-81).

On the other hand, the consumers in the Australian fitness industry have more bargaining power and can impose pressure on the profit margins and volumes. Prices charged to the consumers by the fitness companies are not only influenced by the number of substitutes in the market but also the Australian law which protects consumers from exploitation.

The industry is also characterized by small entities and high concentration of consumers giving the latter upper hand of the suppliers. Australian consumers are price sensitive and are only willing to pay more for better quality. They are also very knowledgeable of the market and can not be exploited easily (Australian Government 2007, p.4).

There are numerous substitutes to services offered by the fitness industry in Australia for instance pharmacy based programs, dietary programs, personal programs and clinical procedures.

The most common programs embraced by Australian population to keep fit include jogging in the morning, cycling among others instead of visiting fitness centers. Such programs are costless but effective if adhered to, thus requires personal discipline and dedication.

The fitness industry is complemented by pharmaceutical products which are available in almost all the shopping outlets in Australia. Pharmaceutical companies producing these products have also entered into contracts with the fitness companies. A number of the Australian youth have opted to use anabolic steroids which are illegal. According to the report by the Australian Bureau of statistics, the use of steroids among the 8^th to 12^th grader has increased steadily over the last five years (Australian Bureau of Statistics 2008, p. 7).

Because of fragmented suppliers and consumers, Australian fitness industry encounters stiff competition within the industry. Most fitness entities struggle to retain their clientele and some are even pushed out of the business. The situation is made harder by lack of bargaining power on the parts of the suppliers, consumer’s perfect knowledge of the industry and external shocks. Australian fitness industry operates on almost perfect competitive market (Porter 2008, p.80-81)

Conclusion

PEST analysis of the Australian fitness industry provides an empirical overview of how external factor impacts the operations of the industry. The main purpose of this analysis is to explain the external business environment, its dynamics and forces that impel the changes.

Political, environment, social and technological factors rationalizes and guides the development of fitness industry. The fundamental idea behind PEST analysis is that the enterprise has to adjust itself to the externalities. This reflects the idea that business strategies and goals have to fit in between the capabilities and externalities and therefore it is necessary for an industry/ entity to adjust to the changes.

References

Australian Bureau of Statistics (2008) Employment in Sport and Recreation. Cat. No. 4148. Canberra.

Australian Government (2007) Intergenerational Report 2007. Canberra: Government press.

Giles‐Corti, B., & Donovan, R.J. (2002) The relative influence of individual, social and physical environment determinants of physical activity. Social Science & Medicine, 54, (12), 793‐812.

Ma, Y. (2011) Current Situation and Countermeasures of Fitness Clubs Industry of Shadong Province. International Journal of Business and Management, 6 (5), 228-230.

Porter, M. E. (2008) The five competitive forces that shape strategy. Harvard business review, 78-93.

Porter, M.E. (1980) Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.

Ready, A. E., Naimark, B. J., Tate, R., & Borseskie, S. L. (2005) Fitness centre membership is related to healthy behaviors. Journal of Sports Medicine and Physical Fitness, 45(2), 199‐207.

Xinghua, L. (2003) New Concept of Scientific Fitness. Guangzhou: Huacheng Publishing House

Appendices

Appendix 1: Porter’s Five Forces Model

Appendix 2: Corporate Survival Model

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