1. What is a PESTEL analysis?

The PESTEL analysis is a strategic model and tool used by companies to assess the macro factors and drivers of the business environment. These factors, namely political, economic, social, technological, environmental and legal – are important as they influence the performance and standing of the business.

1.1. Why is PESTEL important?

These factors are also important to review when companies and businesses plan expansion in new geographic regions. Assessment of macroeconomic factors in the case of regional expansions becomes all the more important because of, the greater financial and resource risk involved.

The PESTEL model works as a strategic tool to help businesses understand the macro environment and identify present and potential opportunities and risks for the business. If the forces are negative, carrying out business in the market becomes harder because of the adverse impact of the PESTEL forces. However, if the drivers from the macro environment are positive, doing business becomes easier as business performance is enhanced because of the PESTEL forces.

1.2. How to use the PESTEL model?

It is important to understand how to do a PESTEL analysis critically and correctly to be able to use it as a strategic tool for decision making purposes. The most important part of doing a PESTEL analysis includes gathering information. The following sections will highlight the different information needed for the PESTEL factors, to be able to make optimal use of the strategic tool.

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2. Political

The political factor of the PESTEL analysis will assess when, why and how a government intervenes in the business environment, and takes actions that directly or indirectly influence the business. The political factors will critically review the various ways through which a government can impact business performance.

2.1. Government stability

This political factor will look at the strength of the government institutions, and political order in the country where their business operates. The political stability will also include factors of peace, control, civil wars, coups etc.

2.2. Bureaucracy

This political factor will assess whether important decisions relating to the country, economy and the overall business environment is being taken by state officials, or by elected representatives by different groups. Bureaucracy will also assess the influence of lobbying on different state-level decisions.

2.3. Corruption level

This political factor will review and critically assess the behaviour of those officials who influence the business environment and are in political power. A behavioural assessment will be for identifying any possible fraudulent, dishonest, and under the table, conduct carried out by these officials, which can influence the performance of the business.

2.4. Tax policy (rates and incentives)

Tax policy will assess the nature of tax rates for different business types in the market. Taxation policy assessment will include identifying whether the tax rate is favourable for the business or not – and whether it encourages local business development through incentives and subsidies.

2.5. Regulation/de-regulation

This section of the political factor will review the nature of regulation and deregulation of various industries in the market – especially the industry in focus. The inert relation of the industries will be highlighted in this section in brief detail. Additionally, the impact of regulation and deregulation on the industry in focus will also be discussed briefly.

2.6. Import restrictions (quality and quantity)

This section of the political factor will review any law, regulation and guideline that the government may have developed, and communicated with the businesses with terms of quality and quantity produced of various products and services. This information will assess whether businesses are following the regulation and the impact of the same.

2.7. Tariffs

The nature of tariffs imposed by the government will be discussed in this section. This section will also assess the influence that the tariffs have on the local industry being discussed, and also the impact they have on the consumer market at large.

2.8. Competition regulation

Competition regulation is an important aspect of political factors. The competition regulation will assess the nature of rivalry in the industry, and government intervention – if any – to control unfair means of competition between players – both local and international. Government intervention usually takes place through a policy or a regulation for directing healthy and ethical business competition amongst players.

3. Economic

Economic factors will look at those aspects of the economy, which will influence the overall growth of the industry, and in doing so, will also affect business performance and profitability.

3.1. Growth rates

The growth rate will look at the change in the overall value of goods and services being offered in the market or the country during a specific period. This will also look at the change in the gross domestic product (GDP) of the country over a specific period, and how it has improved or deteriorated.

3.2. Inflation rate

The inflation rate will assess the real value of money and currency, looking at how prices have changed over a specific period. The influence of the change in prices will be assessed concerning the industry. Additionally, how an increase or decrease in the inflation rate will influence the overall business market and the environment will also be detailed.

3.3. Interest rates

This will look at the rate at which banks and other official institutes lend money to the people. The impact of the interest rate will be observed in business expansion, and if it is supportive of business growth through financial assistance, or whether it dissuades business development. Interest rates will also be related to understanding business decisions of expansion through borrowing versus equity.

3.4. Exchange rates

The exchange rate will look at the value of the local currency in relation to other countries. This will be done to assess the impact of other currencies, as well as to judge the strength of the local currency for purposes of exports and imports, of raw materials as well as finished goods and services.

3.5. Unemployment trends

The unemployment trend will look at the unemployment rate in the economy. The factor will look at the percentage of people unemployed in the market forces. Unemployed persons will be defined and based on the definition used in the country or market – but mostly includes those people who do not work despite being able and willing to.

3.6. Labour costs

Labour costs will look at the direct as well as the indirect costs attached with labour in the form of direct wages and salaries, as well as other benefits that are given to employees in the particular country and industry. This will be assessed to gauge the financial strength of the industry as well as resourcefulness of the business in focus.

3.7. Credit availability

Credit availability refers to the amount of credit that businesses will be allowed to borrow at any given time. Credit availability assessment will be done to identify expansion and growth possibilities in the country and industry. This factor will also assess the means and sources of credit availability, and the readiness at which different businesses and industries can get credit.

4. Social

The social factors look at the socio-cultural aspects of the market and the population. The social factors comprise of those factors that help in understanding the values, beliefs, perceptions, and the overall lifestyle of the population. These factors help in relating specific industries and market products with the target consumers.

4.1. Health consciousness

Health consciousness will assess the population's inclination towards a healthy lifestyle. This will be reviewed by gauging the population’s inclination and application of fitness and exercising, as well as reviewing their dietary habits.

4.2. Education level

Inclination and preference of imported products and services will identify consumer’s priority and ability versus willingness to purchase between local and imported products. This identification will help in understanding the value system of the consumers, as well as in understating their aspirations and needs.

4.3. Attitudes toward imported goods and services

Inclination and preference of imported products and services will identify consumer’s priority and ability versus willingness to purchase between local and imported products. This identification will help in understanding the value system of the consumers, as well as in understating their aspirations and needs.

4.4. Attitudes toward product quality and customer service

Attitudes towards product quality and customer service will assess whether the population is product-centric only, or looks for other features in their purchases as well. Product centrism will mean that the population cares about the functionality of the product only. This will be assessed through their purchase decisions, as well as decisions regarding places and points of purchase.

4.5. Attitudes toward “green” or ecological products

This will observe the population's inclination towards a green lifestyle. This factor will assess how much of the population is inclined towards consuming environmentally friendly products – that are produced and sold through environmentally sustainable means. Attitudes towards green products will also assess and identify the population's attitude, interest, and participation in conserving renewable energy sources through their consumption and purchase patterns and decisions.

4.6. Population growth rate

The population growth rate will assess the increase in population over a specific period, and relate it to industry needs and company products/services.

4.7. Sex distribution

Sex distribution will look at the ration of male versus female in the market or the country, and relate it to the company-specific business.

4.8. Social classes

This will assess the different social classes present in the country or the market. Identification of the social classes can be made on several factors, including basic demographics (location/income/education).

4.9. Family size and structure

This will look at the different family structures and family forms present in the country. This may vary from nuclear families t extended families. This assessment should be done with the identification of values as well as resources available to a person for consumption purposes.

5. Technological

The technological factors will look at the upgradation and implementation of new technology in the industry and the overall market. These factors will assess the importance and influence of technological relevance in the country and how it affects the industry in particular.

5.1. Basic infrastructure level

The basic infrastructure level will assess how the market makes use of technology in routine life for development purposes. In specific, this will assess the level of investment in hardware, software, networks, data centres, facilities and related equipment by the country, industry and market to support business operations and activities.

5.2. Rate of technological change

Rate of technological change refers to the increase in efficiency in the market or the industry over a specific period based on improvement in technology. The rate of technological change will assess the change in inputs versus the enhanced change in outputs or results because of installation and upgradation of technology and technological processes.

5.3. Spending on technological research & development

This will assess how much a country, industry, or market invests in technological development and research. In particular, this will focus on the research and development investment in the industry, and more specifically, in the business in focus. A Higher level of investment in technological R&D will indicate a higher level of efficiency.

5.4. Legislation regarding technology

Legislation regarding new technology will assess the government rules and regulation regarding the development, implementation as well as import and export of technological infrastructure and developments. This can also involve legislation regarding copyrights and intellectual property rights. The section will look at how closely industries follow and are affected by these legislations.

5.5. Technology level in the specific industry

This will assess the level of technology use, upgradation, and technological research and development in a particular industry. This will be done by observing the consumption of technology for improving business operations and processes, as well as increasing efficiency.

5.6. Communication infrastructure

Communication refers to the technology used for building local and international communication. The communication infrastructure will particular assess the nature of the technology used for communication in terms of weight and accessibility, the form of communication being carried out, the time taken for the communication, and the response time. These factors will allow an overall review of how fast or slow communication is in a market.

5.7. Access to the newest technology

This factor will review the accessibility of new technology – from local as well as international sources – in a particular industry. This will look at trade blocks, trade contracts, political relations, financial strength and knowledge support for gaining easy access to, and implementing new technology in a particular business or industry.

5.8. Internet infrastructure and penetration

This will look at how widely the population makes use of the internet for various purposes – from personal use to social and professional use as well. This will also assess the penetration of internet in a country or industry through researching the consumption of smart mobile phones, and the use of the internet on them. This factor will also assess the use of social media for various reasons through the internet by the population.

6. Environmental

The environmental factors look at various ways through which industry, a market and business are impacted by the different forces and aspects of the environment.

6.1. Weather

This section will assess the weather of the country, and its suitability for manufacture, sales, and distribution. This will be done for all regional markets where the business operates to compare with the country of origin.

6.2. Climate change

Climate change will observe the changes in the regional as well as the global climate patterns. These patterns will be assessed and reviewed to identify their influence on the business operations directly through affecting raw materials and processes of production as well as indirectly through assessing their effect on consumer behavioural changes.

6.3. Laws regulating environment pollution

This section will look at the different legislation and laws in different regions where the business operates regarding environmental pollution. Legislations in developed countries often define processes to dispose of industrial waste as well as define levels of air and water pollution for particular industries and businesses. This section will review industry completion with these regulations as well as look at different alternatives that the industry may have developed to control pollution during manufacturing processes.

6.4. Recycling

Recycling will observe the level, ways and means of recycling waste product in a country or a market. In particular, it will assess how the industry recycles waste material and uses it in its business operations and processes. Recycling will also look at if manufacturers provide consumers with means of disposing of their developed and sold products and services in an environmentally sustainable manner through a defined route.

6.5. Waste management

Waste management will look at the process and activities of how waste is managed from the point of inception to final disposal in a particular market and industry. Waste management will assess different activities related to waste management such as collection, transportation, and disposal of waste as well as activities of sewage management.

6.6. “Green” or ecological products

Green products will review the acceptability of consumers towards consuming and using green products, i.e. those products and services that are produced using environmentally friendly and sustainable means. Green products will also review the availability and easy accessibility of green products and services in the market, and whether these are imported or locally produced. Also, this section look at the industry investment in green products, and the overall affordability of a green lifestyle.

6.7. Support for renewable energy

This section will look at the support that business or industry receives for making sustainable use of renewable energy, and renewable energy sources. This support can be done through government legislation, financial support to the industry through government subsidization, or investment in R&D processes for sustainable renewable energy and its sources during industrial consumption.

7. Legal

The legal factors for the PESTEL analysis will look at the different laws and regulations that impact the business and the industry as a whole. These laws and regulations must be adhered to without failure, and they can be local or international.

7.1. Anti-trust law

The anti-trust law will look at regulations and statues that are developed in favour of consumers to protect them from business rivalry, and unethical practices adopted by players during competition. The anti-trust laws will also include all regulations developed and implemented to ensure fair practice in business and competition to keep it in line with open market demands.

7.2. Discrimination law

The discrimination law will look at all legislation and regulations to prevent discrimination against certain groups. These laws will thus include all discriminatory factors such as age, sex, religion, race etc. Groups against which discrimination is practised are called protected groups. Discrimination law will thus include all regulations concerning the protected groups.

7.3. Copyright, patents / intellectual property law

These are all laws and regulations that have been drafted and implemented to protect the original works of authorship. The section will include a review of all laws which work towards protecting the original developer, or author, or thinker of various ideas, goods, and services.

7.4. Employment law

The employment law will look at the governing factors and regulations of the employee and the employer relation. This will include a review of employee and employer responsibilities, the nature of the contract and concerning regulations. The employment law will also look at the retirement plans and pension policies of the industry and the market as a whole.

7.5. Health and safety law

This section will review all legislation and regulations concerning the health and safety of the employees as well as the consumers during the business operations and business processes. This will also include regulations monitoring the environment of the workplace, the organizational culture and related regulations if any as well as the broader employee/consumer relation regulations. These regulations may be local or international.

8. PESTEL Template

9. References

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Wheeler, C., McDonald, F. & Greaves, I., 2003. Internationalization: Firm Strategies and Management. London: Palgrave Macmillan, UK.