PESTEL

Risk Management Technique – PESTEL

PESTEL, as a variant of PEST framework, is an external analysis framework used for identifying macro-environmental factors and presenting as a set of structured sub-headings to be taken into consideration. This is a strategic method to recognize the rise or decrease of the industry, business positions, business opportunity and direction. Organisations that successfully monitor and respond to changes in the macro-environment are able to differentiate from the competition and create a competitive advantage.

The identified factors can be broken down using the following elements:

  • Political. This factor indicates the policies that may impact specific industries or industries directly or indirectly formulated by government departments. The reason for these policies would be mainly as a means of regulating the market. Hence, it would include taxation policies, trade restrictions, tariffs, political stability, etc.
  • Economic. The factor regards mainly depend on the economic environment and performance of regions, including interest rates, exchange rates, inflation rates, employment or unemployment rates, raw material costs, etc. Obviously, it would greatly affect the operation and profitability of the organisation.
  • Societal. There are many changing trends in social environments, such as population growth, age distribution, education levels, cultural needs, changes in lifestyle, etc. It would be helpful for the organisation to understand the real needs and wants from these perspectives.
  • Technological. The development of science and technology has affected many industries. The technological factors can determine entry obstacles, optimise output performance and influence outsourcing decisions. In addition, advanced technologies will improve the performances on cost, efficiency and innovation. The factors could be considered as technology development especially in digital or mobile areas, automation, R&D, etc.
  • Environmental. Environmental and ecological impacts mainly come from climate, weather, resource consumption and waste emission. With the increasing awareness of environmental protection, organizations need to consider this aspect to meet consumers and natural ecology.
  • Legal. while there are some overlaps between political and legal aspects, the previous factors are led by government policies and the legal factors mainly focus on the order of societies within the territories. These include discrimination law, consumer law, antitrust law, employment law, health and safety law, etc.

Risk Management for Bilibili(2019) – Identifying Risks

All reference resources used are before 2019, the ‘current’ mentioned below refers to the beginning of 2019, and the ‘future ‘refers to the second half of 2019 and beyond.

IRM

Based on the collected information, the four major risks of Bilibili are classified and shown as the mind map above. The arrows among them represent the relationship of influencing among each risk. The major risks have been identified and discussed as follows.

  1. Distribution of income. The company prospectus(2018) shows the percentage of profit from mobile games increased by year, which are 65.7%, 65.4% and 83.4%  of the total net revenue from 2015 to 2017 respectively. During this period, Bilibili did not invest much budget in the mobile games market, thereby the number and size of mobile games Bilibili owns were not large. In addition, all of those mobile games Bilibili owns were offered from third-party game developers and publishers. However, there were significant returns brought by mobile game products and services. Especially in 2017, two of the games have a particularly strong income, which accounted for 71.8% and 12.7% of the total revenue from mobile games. While revenue from mobile games fell back to 61.7% (103.7 million US dollar) of the total net revenue (168.1 million US dollar), it increased by 15% compared to the same period of 2017 (90.2 million US dollar) (according to the data from Bilibili Investor Home). 
  2. Technology competence. A recent study(Kang et al., 2015) shows that it is widely believed that the Internet is a simple service system due to the degree of cash technology education. This allows users to carry more privacy protection options in the absence of understanding. Hence, any mistakes in platform network security can have a significant adverse impact on our business, operations and reputation, given the extreme trust of such users. Technologies could support operations and review content, reducing risk due to operational errors or content non-compliance.
  3. Monitoring by the regulators. There were two events of penalties by the Chinese government in the history of Bilibili, which happened in 2012 and 2018 respectively (Hangzhou Municipal Bureau of Culture, Radio, TV, Film, Press and Publication Bureau, 2012 and The China Media Project, 2018). The reasons for them were both because of the violation of the regulations. Therefore, if the videos, games and other content formats in the Platform are deemed to be in violation of any laws or regulations of the People’s Republic of China, the business, financial condition and results of operations of Bilibili may be materially and adversely affected.
  4. Quality of content provided in the platform. the prospectus of Bilibili (2018) points out that the PUG content attracts more users to the platform. In 2017, PUG video views accounted for 85.5% of its total video views, compared with 74.5% in 2016. However, the quality and quantity of the PUG content cannot be controlled effectively because the content is produced by users. The quality of the content will affect the number of users. Once the number of users declines, the company’s revenue will be affected. Moreover, the quality of the content also affects the regulatory results of government regulators, community culture and brand reputation. These aspects will directly affect the company’s revenue and development.

SWOT

Internal

External

PESTEL

Risk Matrix

There are reasons for the positioning of each risk as follows. 

  1. Distribution of income. As mentioned above, the revenue from mobile games accounted for a significant proportion of the total net revenue from 2015 to 2018. However, Bilibili has built a partnership with a number of famous game developers since 2018, such as GREE and Tencent.
  2. Technology competence. The population of active users of Bilibili has been over 77.5 million per month since 2018 (according to Simple investor). If the service is unavailable or security issues due to technical reasons, the company’s revenue and reputation will suffer huge losses. However, Bilibili mentions that there is almost no such problems have occurred since the operation of the platform.
  3. Monitoring by the regulators. Two serious penalties occurred in the company’s history, resulting in property damage and platform rectification.
  4. Quality of content provided in the platform. Bilibili announced that the size of the content acceptance team would be increased. However, even with a large number of manual acceptance, there is no guarantee that the quality of a large amount of content will be fully guaranteed.