PESTEL Model
Origin And Development Of Global Business
Name:- Phalguni Mutha.
Standard:- FY.BBA(IB).
Roll Number:- 86.
PESTEL
PESTEL model involves the collection and portrayal of information
about external factors which have or may have an impact on business.
PESTEL Analysis is a strategic framework used to evaluate the external
environment of a business by breaking down the opportunities and risks
into Political, Economic, Social, Technological, Environmental, and
Legal factors.
PESTEL Analysis can be an
effective framework to use in
Corporate Strategy Planning and
for identifying the pros and cons of
a Business Strategy. The PESTEL
framework is an extension of the
PEST strategic framework, one that
includes additional assessment of
the Environmental and Legal
factors that can impact a business.
In marketing, before any kind of strategy or tactical plan can be
implemented, it is fundamental to conduct a full situational analysis.
This analysis should be repeated every six months to identify any
changes in the macro-environment. Organisations that successfully
monitor and respond to changes in the macro-environment can
differentiate from the competition and thus have a competitive
advantage over others.
Below, we break down the key items of each of the 6 Factors of the
PESTEL framework (Political, Economic, Social, Technological,
Environmental, and Legal). Points derived from PESTEL Analysis is
also used to identify potential threats and weaknesses which are used
in a SWOT Analysis when identifying any strengths, weaknesses,
opportunities and threats to a business.
Let’s look at each element of a PESTEL analysis.
1. Political Factors: When looking at political factors, you are
looking at how government policy and actions intervene in the
economy and other factors that can affect a business. These
include factors that affect the extent and the impact of the
government on the economy of a country. For example, the laws,
taxation policies, monetary policies, etc are all a part of the
political environment. Additionally, some political factors to
consider are as follows:
The political stability of the country
• Political ideologies of the
government.
• Taxation policies.
• Regulatory practices and
governing bodies.
• Term of the government and
any expected changes in the
future.
• Influential political leaders and their ideas.
2. Economic Factors: An economic factor has a direct impact on
the economy and its performance, which in turn directly impacts
on the organisation and its profitability. Factors include interest
rates, employment or unemployment rates, raw material costs and
foreign exchange rates. These economic indicators are usually
measured and reported by Central Banks
and other Government Agencies.
• Economic growth.
• The current phase of the Trade
Cycle (Expansion, Depression,
etc).
• Inflation rates.
• Unemployment Rates.
• Current Interest Rates prevailing in the economy.
• Important factors of the specific industry.
• Consumer Spending potential.
3. Social Factors: The focus here is on the social environment and
identifying emerging trends. This helps a
marketer to further understand consumer
needs and wants in a social setting.
• Demographics of the market.
• Consumer Buying Patterns.
• Religious and Cultural factors.
• State and influence of the media.
• Lifestyle trends in place at the time.
4. Technical Factors: Technological factors are linked to
innovation in the industry, as well as innovation in the overall
economy. Not being up to date with the latest trends of a
particular industry can be extremely harmful to operations. The
changes in the technological environment can be either an
opportunity or a threat to the firm. Hence, some technological
factors to look for are:
• New production technology.
• Manufacturing technology
(increase in output, lowering of
production cost, etc.)
• New innovations.
• Intellectual Property, Patents, etc.
• Maturity of technology.
5. Environmental Factors: Environmental factors concern the
ecological impacts on business. As weather extremes become
more common, businesses need to plan how to adapt to these
changes. Key environmental factors include the following:
• Weather Conditions.
• Temperature.
• Climate Change.
• Pollution.
• Natural disasters (tsunami, tornadoes,
etc.)
Additionally, there is increasing importance for businesses to be
environmentally friendly with their operations, as evidenced by the
rise of Corporate Sustainability Responsibility (CSR) initiatives.
Examples of CSR initiatives include carbon footprint reduction
efforts and transitions into renewable material and energy sources.
6. Legal Factors: There is often uncertainty regarding the
difference between political and legal factors in the context of a
PESTEL analysis. Legal factors pertain to any legal forces that
define what a business can or cannot do. Political factors involve
the relationship between business and the government. Political
and legal factors can intersect when governmental bodies
introduce legislature and policies that
affect how businesses operate.
Legal factors include the following:
• Industry Regulation.
• Licenses & Permits.
• Labour Laws.
• Intellectual Property.
Combined, these six factors have a profound impact on the
opportunities and risks for a business. Before creating a business
valuation model, it’s important to understand how these factors may
impact the company’s ability to generate cash flow. Breaking down the
external environment helps identify key elements to be incorporated
into your business valuation. PESTEL analysis is also useful for initial
company screening, setting criteria that have to be fulfilled for analysis
to be considered. A PESTEL analysis helps an organisation identify the
external forces that could impact their market and analyse how they
could directly impact their business. It’s important when undertaking
such an analysis that the factors affecting the organisation are not just
identified but are also assessed – for example, what impact might they
have on the organisation? The outcomes can then be used to populate
the opportunities and threats in a SWOT analysis.
