How PESTEL analysis can bring a bigger picture of your firm's external environment
25 Jul 2014 7:34 am by Mark Dunn
PESTEL (political, economic, social, technological, environmental and legal) analysis is a strategic tool for understanding the macro-environmental factors that companies have to take into consideration when conducting analysis or market research. PESTEL analysis provides a framework for organisations to better understand their future business landscape through opportunities in market growth, especially when a firm is considering moving into new markets.
Political factors and stability can affect consumer confidence and business spending. Government regulation and taxation varies across national boundaries and international treaties such as the EU which favours trade among member countries. Other things to consider could be a country's foreign trade and social-welfare policies. Businesses should also consider the macroeconomic factors which will have short and long term effects on the success of their strategies. These include the current and forecast interest rates, employment levels, GDP per capita and current exchange rates between critical markets.
Social influences can vary across industries, local languages and age demographics in different countries will need to be considered. Local attitudes towards consumerism and gender roles in society can also have a critical effect. For example, Coca Cola has expanded into international markets due to increasing levels of consumerism outside the USA. It is also useful to consider pending legislation which could affect corporate policies e.g. maternity leave or domestic-partner benefits.
New technologies can make it possible for products to be made more cheaply and of better quality, as well as making changes to online stock trading. These changes have the potential to change the business landscape. Changes could be made through the local government funding research or increased focus on technology.
Environmental factors can encompass the management of waste and raw materials in consumer product companies, or pending ecological issues relevant to your industry. Similarly in consumer markets it can refer to biodegradable or recyclable packaging. Additionally there may be local environmental issues to address or factors to consider such as how activist groups such as PETA or Greenpeace affect your business.
Legal factors include the regulations and laws surrounding your region and organisation. These can be affected by whether the rule of law is well established or how quickly regulations are changed. Additionally there could be relevant consumer laws to consider such as the status of employment, health and safety and product safety laws. Many of PESTEL's factors are interrelated, such as the legal environment and political environment, where laws can only change in consistency with political will. The anti-bribery laws of many jurisdictions (notably the Foreign and Corrupt Practices Act in the US and the Bribery Act 2010 in the UK) will require a business to ensure that no part of its operation, in any jurisdiction in which it operates, commits bribery offences. Anti-bribery laws can present heightened liability risks for companies, directors and individuals. Non conformance with such legislation can lead to sanctions such as adverse publicity, fines and imprisonment.
LexisNexis® Entity Insight is a risk monitoring and alerting tool that proactively monitors key risk factors including PESTEL. The visual dashboard highlights a wide range of risks to help you gain a comprehensive view of your third parties and suppliers.