PESTLE analysis

PESTLE analysis

Originally known as PEST Analysis, this is a macro environmental framework used to understand the impact of the external factors on the organization and is used as strategic analytical technique

• Political: These factors determine the extent to which a government may influence the economy or a certain industry. [For example] a government may impose a new tax or duty due to which entire revenue generating structures of organizations might change. Political factors include tax policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent.
  Political factors affect the organizations in terms of government regulations and legal issues and define both formal and informal rules under which the firm must operate. Examples are: Political stability, Tax policy, Employment and labor law, Environmental regulations, Trade restrictions, Tariffs etc.

•  Economic: These factors are determinants of an economy’s performance that directly impacts a company and have resonating long term effects. [For example] a rise in the inflation rate of any economy would affect the way companies’ price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns etc. It also accounts for the FDI (foreign direct investment) depending on certain specific industries who’re undergoing this analysis.
  Economic factors affect the business operations and decision making of the organization. For example the predicted recession is preventing the organizations from increasing the workforce. Other examples are: Economic growth, Interest rates, Inflation rate.

•  Social: These factors scrutinize the social environment of the market, and gauge determinants like cultural trends, demographics, population analytics etc. An example for this can be buying trends for Western countries like the US where there is high demand during the Holiday season.                                    
  Social factors refer to the cultural and demographic aspects of the environment. For example increase in the health consciousness may affect the demand of the company’s product. Other factor includes: Age distribution, Population growth rate, Emphasis on safety, Career attitudes.

•   Technological: These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to automation, research and development and the amount of technological awareness that a market possesses.
  Technological factors affect the cost and quality of the outputs. These also determine the barriers to entry and minimum efficient production level. Factors include: Automation, Technology, incentives, Rate of technological change, R&D activity

•  Legal: These factors have both external and internal sides. There are certain laws that affect the business environment in a certain country while there are certain policies that companies maintain for themselves. Legal analysis takes into account both of these angles and then charts out the strategies in light of these legislation's. For example, consumer laws, safety standards, labor laws etc.

• ·Environmental: These factors include all those that influence or are determined by the surrounding environment. This aspect of the PESTLE is crucial for certain industries particularly for example tourism, farming, agriculture etc. Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets etc.