We are aware that both the micro and macro aspects of an economy have an impact on companies. Furthermore, the business itself has no control over these variables. PESTEL analysis is a tool that aids in the analysis of macro factors.
When launching a new business or expanding into a foreign market, this tool is extremely helpful. In order to provide a thorough understanding of a scenario and related internal and external aspects, it is frequently used in conjunction with other market analysis tools like the SWOT analysis and Porter’s Five Forces.
What is the meaning of PESTEL Analysis?
PESTEL analysis is a framework or methodology used by marketers to examine and keep track of the macro-environmental (external marketing environment) aspects that have an impact on an organization, business, or industry. PESTEL is an acronym that stands for Political, Economic, Social, Technological, Environmental and Legal factors. Recently, an additional ‘E’ for ‘Ethical’ has been added to this analysis. So it can also be referred to as PESTELE.
It encourages proactive activities and supports management’s decision-making process. As a result, the company responds to environmental changes and turns opportunities into results.
Is PESTEL same as SWOT?
- A PESTLE study reveals external elements that are primarily beyond your control, whereas a SWOT analysis concentrates on measures you can do internally to the corporate environment.
- While PESTEL is used to determine the impact of external environmental elements that may have an impact on business operations, especially when extending operations into different other locations, SWOT analyses can be used to determine the company’s existing market position.
- To find threats and weaknesses for a SWOT analysis, a PESTEL study is employed.
6 Key Factors of PESTEL Analysis
Political Factors: All of these variables have to do with how and to what extent the government interferes with the economy or a particular sector. Essentially, this category might include all of the effects that a government may have on your business.
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- Government stability/instability
- Corruption level
- Tax policies
- Freedom of press
- Government regulation and deregulation
- Special tariffs
- Political action committees
- Government involvement in trade unions and agreements
- Competition regulation
- Voter participation rates
- Amount of government protests
- Defense expenditures
- Level of government subsidies
- Bilateral relationships
- Import-export regulation/restrictions
- Trade control
- Lobbying activities
- Size of government budgets
Economic Factors: Due to how these factors affect consumer purchasing power and the potential to alter demand and supply patterns in the economy, they may have a long-term direct or indirect effect on a company. In turn, it has an impact on how much businesses charge for their goods and services.
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- Growth rate
- Interest rate
- Inflation rate
- Exchange rate
- Availability of credit
- Level of disposable income
- The propensity of people to spend
- Federal government budget deficits
- Gross domestic product trend
- Unemployment trend
- Stock market trends
- Price fluctuations
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Social Factors: They refer to changes or evolutions in stakeholders’ perspectives on life and leisure, which might have an impact on business operations. This aspect represents the demographic traits, norms, customs, and values of the population in which the organization operates.
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- Population size and growth rate
- Birth rates
- Death rates
- Immigration and emigration rates
- Life expectancy rates
- Age distribution
- Wealth distribution
- Social classes
- Per capita income
- Lifestyles
- Health consciousness
- Average disposable income
- Buying habits
- Ethical concerns
- Cultural norms and values
- Sex roles and distribution
- Religion and beliefs
- Racial equality
- Use of birth control
- Education level
- Minorities
- Crime levels
Technological Factors: These elements relate to technological advancements that could have a positive or negative impact on how the market and industry operate. You might be able to stop your business from spending a lot of money on a technology that would be quickly rendered outdated due to disruptive technological advancements elsewhere if you are aware of what is happening in the world of technology.
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- Technology Incentives
- Automation
- R&D activity
- Technological change
- Access to new technology
- Level of innovation
- Technological Awareness
- Internet Infrastructure
- Communication infrastructure
- The life cycle of technology
Environmental Factors: These factors are noticed recently. They have gained significance as a result of government-set pollution targets, carbon footprint goals, and targets for raw material scarcity.
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- Weather
- Climate
- Environmental policies
- Climate change
- Pressures from NGOs
- Natural disasters
- Air and water pollution
- Recycling standards
- Attitudes towards green products
- Support for renewable energy
Legal Factors: A legal factor is one that results from changes in the regulatory environment and may have an impact on the overall economy, a particular industry, or even a single business within a given sector.
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- Discrimination laws
- Antitrust laws
- Employment laws
- Consumer protection laws
- Copyright and patent laws
- Health and safety laws
- Education laws
- Consumer protection laws
- Data protection laws
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Is PESTEL Analysis a business problem-solver?
A PESTLE analysis is able to identify and analyze significant, long-term trends. This can assist with a variety of business planning circumstances, including:
- Strategic business planning
- Workforce Planning
- Marketing Planning
- Product development
- Organisational Change
Advantages of PESTEL analysis
- Helps in spotting business opportunities and gives a warning for significant threats
- Enables an organisation to predict future business threats and take action to avoid or minimise their impact
- It encourages companies to cultivate external and strategic thinking
- It promotes taking precise and informed business decisions
Conclusion:
It can be said that PESTLE analysis is an excellent method for firms that can be used for a number of things. It provides details on the potential effects of the six external influences on an organization. As a result, organizations may more easily plan for any issues brought on by these PESTLE variables.
