PESTLE ANALYSIS
What is PESTLE Analysis? PESTLE analysis,
which is sometimes referred as PEST analysis, is a
strategic analysis tool for organisations to explore
and track the environment they’re operating in.
There are certain questions that one needs to ask while conducting this analysis, which give
them an idea of what things to keep in mind. They are:
• What is the political situation of the country and how can it affect the industry?
• What are the prevalent economic factors?
• How much importance does culture has in the market and what are its determinants?
• What technological innovations are likely to pop up and affect the market structure?
• Are there any current legislations that regulate the industry or can there be any change in the
legislations for the industry?
• What are the environmental concerns for the industry?
All the aspects of this technique are crucial for any industry a business might be in. More than
just understanding the market, this framework represents one of the vertebras of the backbone of
strategic management that not only defines what a company should do, but also accounts for an
organization’s goals and the strategies stringed to them.
The PESTLE Analysis includes 7 key factors:
• Political factors are basically how the government intervenes in the economy. Specifically,
political factors have areas including tax policy, labour law, environmental law, trade
restrictions, tariffs, and political stability. Political factors may also include goods and
services which the government aims to provide or be provided and those that the
government does not want to be provided. Furthermore, governments have a high impact
on the health, education, and infrastructure of a nation.
• Economic factors include economic growth, interest rates, exchange rates, inflation rate.
These factors greatly affect how businesses operate and make decisions. For example,
interest rates affect a firm's cost of capital and therefore to what extent a business grows
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PESTLE ANALYSIS
and expands. Exchange rates can affect the costs of exporting goods and the supply and
price of imported goods in an economy.
• Social factors include the cultural aspects and health consciousness, population growth
rate, age distribution, career attitudes and emphasis on safety. High trends in social factors
affect the demand for a company's products and how that company operates. For example,
the ageing population may imply a smaller and less-willing workforce (thus increasing the
cost of labour). Furthermore, companies may change various management strategies to
adapt to social trends caused from this (such as recruiting older workers).
• Technological factors include technological aspects like R&D activity, automation,
technology incentives and the rate of technological change. These can determine barriers to
entry, minimum efficient production level and influence the outsourcing decisions.
Furthermore, technological shifts would affect costs, quality, and lead to innovation.
• Legal factors include discrimination law, consumer law, antitrust law, employment law,
and health and safety law. These factors can affect how a company operates, its costs, and
the demand for its products.
• Environmental factors include ecological and environmental aspects such as weather,
climate, and climate change, which may especially affect industries such as tourism,
farming, and insurance. Furthermore, growing awareness of the potential impacts of climate
change is affecting how companies operate and the products they offer, both creating new
markets and diminishing or destroying existing ones.
Tip!
It may be so, that the importance of each of the
factors may be different to different kinds of
industries, but it is imperative to any strategy a
company wants to develop that they conduct
the PESTLE analysis as it forms a much more
comprehensive version of the SWOT analysis.
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PESTLE ANALYSIS
Guidance:
Political Factors Economic Factors
• Government stability • Business Cycles
• Taxation policy • GNP Trends
• Foreign trade regulations • Interest rates
• Social welfare policies • Money supply
• Inflation
• Unemployment
• Disposable income
Social Factors Technological Factors
• Population demographics • Government spending on research
• Income distribution • Government and industry focus on
technological effort
• Social mobility
• New discoveries/development
• Lifestyle changes
• Speed of technology transfer
• Attitudes to work and leisure
• Rates of obsolesces
• Consumerism
• Levels of education
Legal Factors Environmental
• Monopolies legislation • Environmental protection laws
• Employment law • Waste disposal
• Health and safety • Energy consumption
• Product safety
BeResilient is a programme fully funded by CITB
PESTLE ANALYSIS
Tool:
Political Factors Economic Factors
Social Factors Technological Factors
Legal Factors Environmental
BeResilient is a programme fully funded by CITB
