PATAGONIA PESTLE ANALYSIS 1

Patagonia PESTLE Analysis

Alicia Tena Rosales

Salt Lake Community College

MGT 1060: Principles of International Business

Lon W. Schiffbauer, Ph.D.

November 30, 2023

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Patagonia PESTLE Analysis

The objective of conducting this PESTLE analysis is to assess the feasibility of

Patagonia’s expansion into the New Zealand market. Patagonia, known for its high-quality

clothing with minimal rework requirements and a reputation for excellence, is contemplating

international growth. The brand has successfully avoided product flaws that could result in

customers' returns, contributing to a positive work-of-mouth marketing strategy that emphasizes

quality. As CIPD (2023) notes, a PESTLE analysis provides crucial contextual information,

including insights into business direction, brand positioning growth targets, and potential risks

such as global pandemics.

Despite approximately half of Patagonia's current sales originating from outside the

United States, it's essential to consider the environmental impact of manufacturing. Given the

absence of guaranteed environmental benefits from reduced transportation costs, alternative

strategies may need exploration. With annual sales exceeding $1 billion, Patagonia has

demonstrated a commitment to corporate social responsibility. Notably, they have donated 2

percent of all stock and decision-making authority to a trust. Furthermore, the Chouinard family

has transferred the remaining 98 percent to a nonprofit organization named the Holdfast

Collective. This organization is dedicated to utilizing every dollar received to combat

environmental crises, protect biodiversity, and promote thriving communities (Chouinard, 2021).

The alignment of Patagonia's values with social and environmental causes adds a distinctive

layer to the PESTLE analysis, emphasizing the importance of sustainable practices in potential

market expansions.
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FIGURE 1: Patagonia Revenue

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POLITICAL

Overview

New Zealand operates as a parliamentary democracy within a constitutional monarchy,

being a Commonwealth realm. The legal framework is grounded in a common law system,

mirroring the English model, and includes specialized legislation and land courts for the Maori

community (CIA World Factbook, 2022). The country is structured with distinct Legislative and

Judicial branches. The political stability index for New Zealand is -2.5, indicating a relatively

weaker stability, while a score of 2.5 is considered strong. To provide context, the global average

in 2021, based on 193 countries, stands at -0.07 (The Global Economy, 2023). New Zealand

places a strong emphasis on the rule of law and exhibits a commitment to openness in global

trade and investment, factors that are deeply institutionalized within its governance framework

(Index Economic Freedom, 2023).

Regarding Patagonia

As per the information provided on the Patagonia website, the company boasts a global

presence with offices in the United States, the Netherlands, Japan, South Korea, Australia, Chile,

and Argentina (Patagonia, 2023). Considering the prospect of expanding business operations into

New Zealand, it's noteworthy that the country's major export partners include China (28%),

Australia (14%), the United States (9%), and Japan (6%) (CIA World Factbook, 2019). Patagonia

currently operates two distribution centers, facilitating the reception of goods from both domestic

and international factories, along with a network of over 70 stores worldwide.

The idea of extending manufacturing facilities into New Zealand aligns strategically with

the country's reputation for outdoor activities. Given Patagonia's focus on outdoor clothing and

gear, such an expansion could prove to be a judicious business move, capitalizing on the local
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market's affinity for outdoor pursuits. This move would not only tap into New Zealand's vibrant

outdoor culture but also potentially enhance the brand's global distribution network.
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ECONOMIC

Overview

New Zealand stands as a high-income Pacific island economy with robust sectors in

agriculture, manufacturing, tourism, and energy. The nation has achieved sustained economic

growth, boasting low unemployment rates and high living standards. Notably, there has been a

sharp resurgence in growth post the COVID-19 lockdown (CIA World Factbook, 2022).

According to the Index of Economic Freedom, New Zealand holds an economic freedom score

of 78.9, securing the 5th position in the 2023 Index. It is essential to observe that this score

represents a decline of 2.0 points compared to the previous year. While New Zealand ranks 4th

among 39 countries in the Asia-Pacific region, its overall score, while still above the global

average, no longer categorizes it as a "free" economy in the Index Economic Freedom (2023).

This nuanced analysis offers a comprehensive view of New Zealand's economic landscape,

encompassing both strengths and challenges in the context of economic freedom.

Regarding Patagonia

Venturing into the New Zealand market offers the opportunity to introduce solar panels

cantilevered over farmland, enabling a dual-purpose utilization for sun cultivation and crop

growth. Patagonia is actively exploring additional renewable investments in countries where it

already owns and operates offices and stores (Patagonia, 2023). This strategic move aligns with

the company's commitment to sustainability.

Considering Patagonia's impressive annual revenue of $209.1 million in 2021, the

potential for increased profitability is substantial. Expanding operations, particularly by opening

more stores globally, would solidify the brand's market presence and extend its reach to capture a

broader customer base. Currently, the company operates predominantly in the US and Canada,
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but tapping into the high demand for outdoor apparel in other parts of the world presents a

lucrative opportunity. With effective global expansion, Patagonia's revenue has the potential to

surpass the $3 billion mark, showcasing the significant growth prospects for the company in new

markets.
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SOCIAL

Overview

As of the latest estimates in 2023, New Zealand’s population stands at 5,109,792, ranking

125th globally. The population growth rate is recorded at 1.06%, ranking 88th (CIA Factbook,

2022).

The ethnic composition of New Zealand reflects a diverse society:

● European: 64.1%

● Maori: 16.5%

● Indian: 4.7%

● Samoan: 3.9%

● English: 1.7%

● New Zealander: 1%

● Other: 13.7% (2018 est.).

Languages spoken in New Zealand include:

● English (de facto official): 95.4%

● Maor (de jure official): 4%

● Samoan: 2.2%

● New Zealand Sign Language (de jure official): 0.5%

● Other or not stated: 17.2% (2018 est).

The age structure is distributed as follows:

● 0-14 years: 19.15% (male 503,190/female 475,527)

● 15-64 years: 64.36% (male 1,661,312/female 1,627,304)

● 65 years and over: 16.49% (2023 est.) (male 394,339/female 448,030).

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FIGURE 1: Population in New Zealand

Regarding Patagonia

The cultural ethos at Patagonia is centered around a commitment to excellence: "We don't

want someone who can just do a job; we want the best person for the job. Yet, we don't look for

'stars' seeking special treatment and perks. Our best efforts are collaborative, and the Patagonia

culture rewards the ensemble player while it barely tolerates those who need the limelight"

(Patagonia, 2023). Within the industry, the nearly 2,000 individuals employed directly by

Patagonia in offices, stores, and distribution centers receive fair compensation and attractive

benefits. These benefits include generous health care, subsidized child care (available in Ventura

and Reno), flexible work schedules, and paid time off for environmental internships (Patagonia,

2023). Notably, many employees at Patagonia share common values, prioritize quality, and

actively engage in environmental and community causes, fostering a sense of shared purpose

within the organization.

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TECHNOLOGIC

Overview

New Zealand boasts an advanced digital infrastructure, securing its position among the

top 20 countries globally for network coverage, 5G deployment, and internet speeds, according

to the Inclusive Internet Index and Speedtest Global Index. The country's internet connectivity to

the world is predominantly facilitated through the Southern Cross Cable, as highlighted by the

International Trade Administration. Notably, Southern Cross Cable's monopoly on the U.S. route

was disrupted in July 2017 with the operationalization of the US$445 million Hawaiki Cable,

connecting New Zealand, Australia, and the U.S.

In 2021, New Zealand's startup ecosystem witnessed remarkable growth, with recorded

increases in both the number of deals completed and the amount of capital invested. This growth

amounted to a notable 63% surge from the previous year in total funds invested, reflecting a

dynamic and thriving entrepreneurial landscape. (Source: New Zealand Angel Association).

Regarding Patagonia

Patagonia entrusts scientists with critical roles, utilizing various devices to assess material

performance, including water repellency, fabric pilling, shedding rates, and breathability. The

incorporation of such testing mechanisms aligns seamlessly with the brand's commitment to

quality and environmental sustainability. This approach is particularly relevant for New Zealand,

where public trust in scientists, government, and fellow Kiwis ranks highest among 12 countries

surveyed between March and December 2020.

Bringing environmental scientists into New Zealand presents an opportune strategy.

These experts can effectively gather data and provide valuable insights to product designers. By

leveraging their expertise, they can advise on materials that not only meet high-quality standards
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but also contribute to minimizing the carbon footprint associated with specific products. This

initiative not only aligns with Patagonia's ethos but also capitalizes on the favorable trust levels

towards scientists in the New Zealand context.

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LEGAL

Overview

New Zealand grapples with various environmental challenges, including concerns about

water quality and availability, rapid urbanization, deforestation, soil erosion, and degradation.

The native flora and fauna face significant threats from invasive species, exacerbating ecological

issues. The country's climate is characterized as temperate, marked by sharp regional variations

(CIA Factbook, 2022).

In terms of waste and recycling, New Zealand generates approximately 3.405 million

tons of municipal solid waste annually (2016 est.). On the water resources front, the nation has a

total renewable water resource of 327 billion cubic meters (2020 est.).

Notably, New Zealand has taken steps to address climate change, passing its Zero Carbon

amendment to the Climate Change Response Act in 2019. This legislative initiative aims to

achieve net-zero greenhouse gas emissions (excluding biogenic methane from agriculture and

waste) by 2050, as reported by the Climate Action Tracker.

In examining land use, the distribution is as follows:

● Agricultural land: 43.2% (2018 est.)

● Arable land: 1.8% (2018 est.)

● Permanent corps: 0.3% (2018 est.)

● Permanent pasture: 41.1% (2018 est.)

● Forest: 31.4% (2018 est.)

● Other: 25.4% (2018 est.).

This comprehensive overview highlights the multifaceted environmental landscape and the

concerted efforts being made in New Zealand to address and mitigate various ecological
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challenges.

Regarding Patagonia

Patagonia demonstrates a noteworthy commitment to environmental stewardship through

their self-imposed Earth tax, contributing 1% for the Planet to support nonprofits dedicated to

defending global air, land, and water (Patagonia, 2023). This approach aligns seamlessly with

New Zealand's collective pride in being residents of a "clean, green" country and their active role

in leading global climate change initiatives. The intricate climate of New Zealand further

underscores the significance of such initiatives. The country experiences a diverse climate

spectrum, ranging from warm subtropical conditions in the far north to cool temperate climates

in the south, and severe alpine conditions in mountainous areas. The alignment of Patagonia's

self-imposed Earth tax model with New Zealand's environmental consciousness presents an

opportunity for synergistic efforts in safeguarding the planet.

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ENVIRONMENT

Overview

New Zealand holds the 25th position in the Global Sustainability Index, an amalgamation

of prominent global indexes focusing on pollution, climate change, policy, energy, oceans, and

biodiversity. This comprehensive Global Index offers a holistic evaluation of the country's

sustainability efforts.

FIGURE 2: New Zealand Ranking

Concerning New Zealand's nationally determined contribution (NDC), the goal is to

achieve a reduction of emissions to 5% below 1990 levels by 2020 and 30% below 2005 levels

by 2030. Despite the government's declaration of the second-ever Zero Carbon Act in late 2019,

current projections indicate that New Zealand is veering off course to meet its 2030 targets. A

notable concern lies in the absence of policies to deter high-emission projects, leading New

Zealand to resort to purchasing international units, extending its emissions allowance until 2050.

This practice allows the country to borrow from the emission budgets of other nations (Earth.org,

2020). The juxtaposition of these sustainability efforts and challenges provides a nuanced

perspective on New Zealand's commitment to environmental stewardship.

Regarding Patagonia

The Patagonia apparel industry currently contributes to as much as 6.7% of global

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greenhouse gas emissions, releasing 2-3.29 billion tons of CO₂e into the atmosphere annually, as

reported by Quantis. The environmental impact is exacerbated by the cleaning and disposal of

garments, often ending up in landfills. This impact is on the rise with increasing consumer

purchases. Patagonia emphasizes the urgency to change this trajectory, warning that failure to do

so may result in locking in catastrophic effects of climate change (Patagonia, 2023). Bringing

Patagonia's sustainable practices into New Zealand has the potential not only to benefit the

environment but also to attract a greater customer base. The proximity to Australia further

enhances the feasibility and impact of such an initiative.

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RECOMMENDATIONS

The PESTLE analysis strongly recommends Patagonia's expansion into New Zealand,

primarily based on the significant growth potential within the market. Introducing Patagonia into

New Zealand is poised to be socially impactful, particularly due to the alignment of the brand

with the outdoor-centric culture prevalent in the country. The nature-loving culture in New

Zealand makes Patagonia's offerings well-suited, attracting individuals who appreciate and value

outdoor activities. This strategic move not only capitalizes on market opportunities but also

resonates with the cultural ethos of New Zealand, fostering a meaningful connection between

Patagonia and the local community.

Generic Strategies: Differentiation/Cost Leadership

Differentiation stands out as the most widely employed generic strategy for establishing a

competitive advantage. Patagonia strategically employs a combination of differentiation and cost

leadership strategies to accomplish its growth objectives. The cost leadership aspect involves

securing a competitive advantage by effectively lowering operational costs. This dual approach

allows Patagonia to distinguish itself in the market while simultaneously achieving efficiencies

that contribute to its overall growth strategy.

Value Discipline Strategies: Customer Intimacy

The renowned outdoor gear and clothing company, Patagonia, exemplifies a strategy

centered on cultivating intimacy with customers through extensive public relations initiatives,

providing a valuable lesson in trust and authenticity. At the core of Patagonia's mission and

values is a commitment to "build the best product, cause no unnecessary harm, use business to

inspire and implement solutions to the environmental crisis." This mission represents a

formidable and challenging goal, one that approaches the seemingly impossible. Yet, Patagonia's
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unwavering dedication to these principles underscores its commitment to authenticity and

transparency in fostering a genuine connection with its customers.

Grand Strategies: Market Share

The essence of Patagonia lies in being a fashionable outerwear brand cherished by

millions. Through continual evolution and a creative business approach, Patagonia has

transformed into a retail powerhouse and a champion of sustainable business practices.

International Strategy: Global Standardization Strategy

Patagonia extends its services to customers worldwide through the option of online

international orders. To place an order online, simply visit Patagonia's country of origin page and

choose your country and preferred language from the available options. Additionally, the online

store locator page enables customers to identify the locations of various Patagonia stores and

dealers. Apart from catering to customers in the United States, Patagonia serves an international

clientele, including those in countries such as Canada, Japan, Europe, Italy, Chile, and Argentina.

Alternative Geography

The PESTLE analysis strongly supports the idea of Patagonia expanding into New

Zealand, especially considering its appeal to outdoor enthusiasts and fashion aficionados.

Notably, the North Island of New Zealand features a central 'spine' of mountain ranges,

complemented by expansive, gently rolling farmland on either side. This geographical and

cultural landscape aligns well with Patagonia's ethos and product offerings, making it a

promising market for the brand's expansion.

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