Prepared & Compiled by : Prof. Ajay Kumar Ganguly PESTEL analysis of t e ma!

ro"en#ironment

T ere are many fa!tors in t e ma!ro"en#ironment t at $ill effe!t t e de!isions of t e managers of any organisation. Ta% ! anges& ne$ la$s& trade barriers& demograp i! ! ange and go#ernment poli!y ! anges are all e%amples of ma!ro ! ange. To elp analyse t ese fa!tors managers !an !ategorise t em using t e PESTEL model. T is !lassifi!ation distinguis es bet$een: Politi!al fa!tors. T ese refer to go#ernment poli!y su! as t e degree of inter#ention in t e e!onomy. ' at goods and ser#i!es does a go#ernment $ant to pro#ide( To $ at e%tent does it belie#e in subsidising firms( ' at are its priorities in terms of business support( Politi!al de!isions !an impa!t on many #ital areas for business su! as t e edu!ation of t e $or)for!e& t e ealt of t e nation and t e *uality of t e infrastru!ture of t e e!onomy su! as t e road and rail system. E!onomi! fa!tors. T ese in!lude interest rates& ta%ation ! anges& e!onomi! gro$t & inflation and e%! ange rates. As you $ill see t roug out t e +,oundations of E!onomi!s+ boo) e!onomi! ! ange !an a#e a major impa!t on a firm-s be a#iour. ,or e%ample: o o ig er interest rates may deter in#estment be!ause it !osts more to borro$ a strong !urren!y may ma)e e%porting more diffi!ult be!ause it may raise t e pri!e in terms of foreign !urren!y inflation may pro#o)e ig er $age demands from employees and raise !osts ig er national in!ome gro$t may boost demand for a firm-s produ!ts

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So!ial fa!tors. C anges in so!ial trends !an impa!t on t e demand for a firm-s produ!ts and t e a#ailability and $illingness of indi#iduals to $or). .n t e /K& for e%ample& t e population as been ageing. T is as in!reased t e !osts for firms $ o are !ommitted to pension payments for t eir employees be!ause t eir staff are li#ing longer. .t also means some firms su! as Asda a#e started to re!ruit older employees to tap into t is gro$ing labour pool. T e ageing population also as impa!t on demand: for e%ample& demand for s eltered a!!ommodation and medi!ines as in!reased $ ereas demand for toys is falling. Te! nologi!al fa!tors: ne$ te! nologies !reate ne$ produ!ts and ne$ pro!esses. 0P1 players& !omputer games& online gambling and ig definition T2s are all ne$ mar)ets !reated by te! nologi!al ad#an!es. 3nline s opping& bar !oding and !omputer aided design are all impro#ements to t e $ay $e do business as a result of better te! nology. Te! nology !an redu!e !osts& impro#e *uality and lead to inno#ation. T ese de#elopments !an benefit !onsumers as $ell as t e organisations pro#iding t e produ!ts. 4

Prepared & Compiled by : Prof. Ajay Kumar Ganguly En#ironmental fa!tors: en#ironmental fa!tors in!lude t e $eat er and !limate ! ange. C anges in temperature !an impa!t on many industries in!luding farming& tourism and insuran!e. 'it major !limate ! anges o!!urring due to global $arming and $it greater en#ironmental a$areness t is e%ternal fa!tor is be!oming a signifi!ant issue for firms to !onsider. T e gro$ing desire to prote!t t e en#ironment is a#ing an impa!t on many industries su! as t e tra#el and transportation industries 5for e%ample& more ta%es being pla!ed on air tra#el and t e su!!ess of ybrid !ars6 and t e general mo#e to$ards more en#ironmentally friendly produ!ts and pro!esses is affe!ting demand patterns and !reating business opportunities. Legal fa!tors: t ese are related to t e legal en#ironment in $ i! firms operate. .n re!ent years in t e /K t ere a#e been many signifi!ant legal ! anges t at a#e affe!ted firms- be a#iour. T e introdu!tion of age dis!rimination and disability dis!rimination legislation& an in!rease in t e minimum $age and greater re*uirements for firms to re!y!le are e%amples of relati#ely re!ent la$s t at affe!t an organisation-s a!tions. Legal ! anges !an affe!t a firm-s !osts 5e.g. if ne$ systems and pro!edures a#e to be de#eloped6 and demand 5e.g. if t e la$ affe!ts t e li)eli ood of !ustomers buying t e good or using t e ser#i!e6.

7ifferent !ategories of la$ in!lude: !onsumer la$s8 t ese are designed to prote!t !ustomers against unfair pra!ti!es su! as misleading des!riptions of t e produ!t !ompetition la$s8 t ese are aimed at prote!ting small firms against bullying by larger firms and ensuring !ustomers are not e%ploited by firms $it monopoly po$er employment la$s8 t ese !o#er areas su! as redundan!y& dismissal& $or)ing ours and minimum $ages. T ey aim to prote!t employees against t e abuse of po$er by managers ealt and safety legislation8 t ese la$s are aimed at ensuring t e $or)pla!e is as safe as is reasonably pra!ti!al. T ey !o#er issues su! as training& reporting a!!idents and t e appropriate pro#ision of safety e*uipment 9y using t e PESTEL frame$or) $e !an analyse t e many different fa!tors in a firm-s ma!ro en#ironment. .n some !ases parti!ular issues may fit in se#eral !ategories. ,or e%ample& t e !reation of t e 0onetary Poli!y Committee by t e Labour go#ernment in 4::; as a body t at $as independent of go#ernment but ad t e ability to set interest rates $as a politi!al de!ision but as e!onomi! <

Prepared & Compiled by : Prof. Ajay Kumar Ganguly !onse*uen!es8 mean$ ile go#ernment e!onomi! poli!y !an influen!e in#estment in te! nology #ia ta%es and ta% !redits. .f a fa!tor !an appear in se#eral !ategories managers simply ma)e a de!ision of $ ere t ey t in) it best belongs. =o$e#er& it is important not to just list PESTEL fa!tors be!ause t is does not in itself tell managers #ery mu! . ' at managers need to do is to t in) about $ i! fa!tors are most li)ely to ! ange and $ i! ones $ill a#e t e greatest impa!t on t em i.e. ea! firm must identify t e )ey fa!tors in t eir o$n en#ironment. ,or some su! as p arma!euti!al !ompanies go#ernment regulation may be !riti!al8 for ot ers& per aps firms t at a#e borro$ed ea#ily& interest rate ! anges may be a uge issue. 0anagers must de!ide on t e relati#e importan!e of #arious fa!tors and one $ay of doing t is is to ran) or s!ore t e li)eli ood of a ! ange o!!urring and also rate t e impa!t if it did. T e ig er t e li)eli ood of a ! ange o!!urring and t e greater t e impa!t of any ! ange t e more signifi!ant t is fa!tor $ill be to t e firm-s planning. .t is also important $ en using PESTEL analysis to !onsider t e le#el at $ i! it is applied. ' en analysing !ompanies su! as Sony& C rysler& Co!a Cola& 9P and 7isney it is important to remember t at t ey a#e many different parts to t eir o#erall business " t ey in!lude many different di#isions and in some !ases many different brands. ' ilst it may be useful to !onsider t e $ ole business $ en using PESTEL in t at it may ig lig t some important fa!tors& managers may $ant to narro$ it do$n to a parti!ular part of t e business 5e.g. a spe!ifi! di#ision of Sony68 t is may be more useful be!ause it $ill fo!us on t e fa!tors rele#ant to t at part of t e business. T ey may also $ant to differentiate bet$een fa!tors $ i! are #ery lo!al& ot er $ i! are national and t ose $ i! are global.