Analysis of the external environment of Paragon Union Berhad.

Paragon Union Bhd. operates as an investment holding company, which engages in the
manufacturing and distribution of commercial carpets, rugs, car carpets, and noise, vibration, and
harshness (NVH) components. It operates through the following business segments: Automotive,
Commercial, and non-Reportable Segments. The Automotive segment comprises of car carpets
and components. The Commercial segment offers commercial carpets. The Non-Reportable
Segments involves operations to subsidiary companies which are inactive and dormant. The
company was founded on January 1, 1994 and is headquartered in Cheras, Malaysia.
In the commercial sector Paragon is the preferred brand to most of the five star hotels,
commercial buildings, mosques, offices and government projects. Besides, we have more than
100 authorized dealers nationwide and around the world.
Besides the local market, we are also exporting our carpets to overseas countries such as Saudi
Arabia, Bangladesh, Sri Lanka, Singapore, Vietnam, Cambodia and others. Our goal is to
penetrate new markets in Asia Pacific, Australia and Europe.
Specialized in designing, manufacturing and sales of Axminster carpets, Machine Tufted Carpets,
Hand Tufted Carpets, Carpet Tiles and Carpet Rugs.
Most of the time, a company external analysis focus on its PESTEL, Michael 5 Porters and
SWOT.
The 5-forces model of competition
Porter five forces analysis is a framework used to analyze the level of competition within an
industry. Porter had referred to these forces as the micro environment, to contrast it with the
more general term macro environment. They consist of those forces close to a company that
affect its ability to serve its customers and make a profit. This model is good for analyzing the
external forces that directly impact the company and its business.

Threat of new entrants:

New entrants to an industry can raise the level of competition, thereby reducing its attractiveness.
The threat of new entrants largely depends on the barriers to entry. When barrier to entry is very
high, it means that threat of entry is low because significant barrier to entry exist. Entry of new
competitor will intensify the competition in the industry. The larger the pool of new entrants will
result in more changes of intense competition. However, we can restrict the firms from entering
the market by increasing the entry barriers. When we look in the carpet industry, we can find
that, there are few other companies that are producing similar products like Paragon. Those
companies are:
Sinotop Holdings Berhad
Winitex Sdn. Berhad.
Carpets & Rugs Industries S.D.
Syarikat Koon Fuat Industries Sdn. Bhd
Kampulan Powernet Berhad.
The car carpet industry also requires high fixed costs and has to spend relatively large amount of
money on machinery equipment and to maintain development and it might reach a few billion
Ringgit Malaysia.

The advanced technology required in the carpet industry does not only incur high capital
investment but also needs professional knowledge and skills (human resources) to ensure success
in the industry.
Therefore, from the number of company that are operating in the carpet industry, we can assume
that the barrier to entry is high.

Bargaining Power of Buyers:

Generally, the bargaining power of buyers is high when buyers have many choices and low when
buyers have few choices. Due to the freedom of importing from other countries such as Japan,
Indonesia, Singapore, etc, give higher bargaining buyer power to the Malaysian consumers.
With increased choice of carpet products, the bargaining power of buyers is high. At the same
time, buyer power can vary somewhat between market segments. Bargaining power of buyers is
greater in the carpet industry which means there are few dominant buyers and many sellers in the
industry and products are standardized. Buyers threaten to integrate backward into the industry
but suppliers do not threaten to integrate forward into the buyer's industry.
Paragon has used strategic alliances with most of the local and the international car
makers to reduce the bargaining power of buyers. To reduce the bargaining power of the buyer,
Paragon come up with different products. Paragon is ensuring that their customers remain loyal
to them while attracting new customers to use their products.

Bargaining Power of Suppliers:

The bargaining power of suppliers refers to more suppliers a firm has, the greater control it can
exercise over its suppliers. The bargaining power of suppliers is high when buyers have few
choices and low when buyers have many choices. Bargaining power of supplier will affect the
intensity of competition, especially if there are huge of suppliers, less availability of raw material
and the cost of switching supplier or raw material is high. These attributes in the industry gives
power to the supplier to enforce term and conditions on manufacturer and charge high cost of
raw material. In the carpet industry, increasing standardization and commoditization carpet

components leads to more competition among component suppliers, thus lowering supplier
bargaining position.
Paragon marketing strategy is the strategy which the suppliers can provide you with
the best for the highest cost. This makes the purchasing power to be entrusted more on the hand
of the market leaders, and this is another competitive advantage Paragon has over its competitors
in the Malaysian market.

Threat of substitutes:
The threat of substitute products or services refers to substitutes that customers can purchase if
your prices are too high. The threat of substitute products or services is high when there are
many substitutes for an organizations products or services and low where there are few
substitutes. In case of dissatisfaction with any of the features, customers can easily switch to the
competitors product because they have the almost exact or same kind of substitutes. Many of the
substitute products have emerged in the diversity of product that the carpet industry can offer.
Paragon has used a strategic alliance with the local and international car makers to deal
with the threat of substitutes in order to sustain during difficult situations.

Degree of rivalry:
This is caused by the current competitors of the same product. The rivalry among firms in an
industry is high when there is fierce competition and low when there is not. To increase the
rivalry of competitors Paragon uses the innovation strategies by co-operating with different car
companies locally and internationally. Paragon is a regional player in the carpet industry.
Paragon has strengthened its presence across Asia by having other branches in the region to
increase and protect its respective home markets and at the same time improve profitability.
Paragon makes alliances with strong companies to ensure that they are always at the top. For
example, BMW, NISSAN, GENERAL MOTORS are one of the best car makers in the
automotive industry around the world and have a significant presence in Europe, the Middle
East, Africa, Asia Pacific, and the United States. Paragons customers will be provided with the

best quality of products incomparable to others because of the strategic alliance it has with the
top branding cars.

PESTEL is a strategic analysis tool. It is often perceived as the most reliable analytical tool to
analyze the impacts of external issues. The acronym PESTEL stands for the 6 factors
(POLITICAL, ECONOMIC, SOCIAL, TECHNOLOGICAL, LEGAL AND ENVIRONMENL)
that may affect a company.
The constant global economic recession has hurt the macroeconomic environment which
Paragon operates in. The recession has hurt the consumers purchasing power.
Recent market research reflects that producers have cut down their production due to the
economic recession during the last ten years. Instead, they are shifting to options with lower
prices. This means that the firm can still influence the buying power by offering cheaper
products.
Paragon has taken steps to be a part of the automotive revolution. It has worked with top brand
cars and introduced various products in the industry.
These are the most obvious factors affecting the firms business. But there are many other factors
seeking attention.
We have divided and organized these issues according to the PESTEL factors. The following are
the details for how the factors impact business of Paragon.
Impacts of Political Factors on Paragon
The main political factor is about sourcing the raw materials. This has gathered a lot of the
attention from politicians in the West and from the source countries. For this reason, the
company wants to adhere to social and environmental norms. It is willing to follow the sourcing
strategies. It gives importance to fair trade practices.
Another impact is the need to follow the laws and regulations in the countries from where
Paragon buys the raw materials. Activism and increased political awareness in developing
countries have made this essential.

The regulatory pressures within the home market in Malaysia are also a factor. Multinationals
around the world are now subject to greater scrutiny of the business processes. The company
must monitor political stability within the country as well. In somehow, Malaysia is a good place
for Paragon to operate due to its stability.
Some other factors to consider are:

Tax policy

Employment laws

Impacts of Economic Factors on Paragon

The ongoing global economic recession is the prime external economic driver for Paragon. As I
already mentioned, this factor hurt the profitability of Paragon. This has convinced buyers to
shift to cheaper alternatives. As they did not quit buying cars and carpets, Paragon should seek an
opportunity here.
The company has to deal with rising labor and operational costs. The inflationary environment
and falling profitability is causing a lot of stress.
Some other economic factors which can affect Paragon are:

Local currency exchange rates

Local economic environment in different markets

Taxation level

Impacts of Socio-Cultural Factors on Paragon

As already stated, Paragon can offer cheaper products but it might have to sacrifice the quality.
This is the main socio-cultural challenge that the start-up faces. It will expand consumer base to
include the buyers from the lower and the middle-income tiers.

The green and ethical chic consumers are also concerning. They worry about social and
environmental costs of the brands. Paragon has to be aware of this trend.
The baby boomer generation is retiring. This means spending by older consumers will decrease.
Now, Paragon will have to exploit the Gen X as customers.
Other socio-cultural factors to focus on are:

Consumer preferences

Changing work patterns

Changes in lifestyles of population

The level of education of the population in local markets

Changing values among population.

Impacts of Technological Factors on Paragon

Paragon is in a good position to enjoy benefits of the emerging economy of Malaysia. Its
partnership with top brand cars make it easy for Paragon to sustain in the industry.
The company introduced other products in its industry that are important to the consumers. They
have now more choices when buying Paragon products. This is an added value to the brand. It
enhances the overall consumer experience.
Some other technological factors to keep in mind are:

Emergence of innovative technology

Biotechnological developments

Impacts of Environmental Factors Paragon

Many Paragon business practices concern activists and international advocacy groups. Even the
consumers have expressed issues. So, the company should take these into account to continue
holding consumers trust.

Some of the other environmental factors Paragon should worry about are:

Environmental rules and regulations

Environmental disasters in countries which produce cotton

Global warming and other environmental issues in a global level

Impacts of Legal Factors on Paragon

Paragon must ensure that it does not violate any laws and regulations in the home market and
countries from where they buy raw materials.
It should also stay alert about introduction of cotton production and consumption related policies
and regulations by health authorities.
Others factors that might affect the company are:

Introduction of severer customs and trade regulations

Licensing regulations related to the industry.

The PESTEL analysis above proves that Paragon has a quite stable external environment.
The key reason behind this might be because it operates in the carpet industry. This means
consumers might reduce consumption partially but will not stop buying completely.
So, as recession is the most important factor, Paragon has signed a strategic alliance with local
and international car manufacturers. This way it can retain its consumer base and also gain
consumer loyalty.
The strategic SWOT Analysis provides a comprehensive insight into the companys history,
corporate strategy, business and financial structure, management and operations. In our case as
we are focusing on the external environment of Paragon Union Berhad, we will just analyze two
components of the SWOT which are opportunity and threat.

Opportunity
View the growing demand in the industry, Paragon can extend its production and market in other
part of the world, introduce new products and services that consumers are willing to purchase
and venture its capital.
Threat
During the recession of 2008, a lot of great companies were affected including consumers, this
resulted in a deep financial crises around the world. Besides that, we have the technological
problem due to its continuous improvement.

Group mapping
When we look into the carpet industry in Malaysia, we can assume that without hesitation that
Paragon is at the top level of square due to its strategic alliance with the local and international
top brand cars, to its supply chains for five star hotels, malls, and mosque and government
projects.