PESTLE analysis, which is sometimes referred as PEST analysis, is a concept in marketing principles. Moreover, this concept is used as a tool by companies to track the environment they’re operating in or are planning to launch a new project/product/service etc.PESTLE is a mnemonic which in its expanded form denotes P for Political, E for Economic, S for Social, T for Technological, L for Legal and E for Environmental. It gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep a track of while contemplating on a certain idea/plan.
Political and legal factors
Political and legal factors are here regarded as a unit. They refer to framework given by politics. The exist regulatory or legal frameworks, which can be binding for regions, nations or on an international basis. The frameworks deal with economical issues or issues concerning the labour market.Subsidies for instance fall in the category of economical issues. According to the degree of support through subsidies, a country can be more or less attractive for a company. With respect to the labour law of a country, it can highly influence location decisions, too. If e.g. the dismissal protection in a country is very good, a firm may tend to choose a country with a more flexible hire-and-fire-system.
Furthermore, political environment can have a significant influence on businesses, political factors affect consumer confidence and consumer and business spending. For instance, how stable is the political environment? This is particularly important for companies entering new markets. Government policies on regulation and taxation can vary from state to state and across national boundaries. Political considerations also encompass trade treaties, such as NAFTA, ASEAN, and EU. Such treaties tend to favor trade among the member countries but impose penalties or less favorable trade terms on nonmembers.
Economical factors deal with national or international economical developments and have a direct influence on supplier and consumer markets. Examples of economical factors that play a big role are: the GDP, the rate of inflation, interests, the change rate, employment or the situation of money markets. These economical factors influence demand, competition intensity, cost pressure and the will to invest. For instance, if the gross domestic product of a country is fairly low, the demand is in general lower than in countries with a higher GDP.
Social factors deal with social issues regarding the values, ideas, opinions and the culture of market participants. Market participants can be employees, customers or suppliers. Through their contact with the company, they influence it due to their opinions. The company needs to follow the market participant’s change of value and adapt its strategies. Nowadays, a change of values concerning environmental protection is on the move.
Technological environmental factors
Technological environmental factors are meanwhile of a great importance, especially for industrial companies, which underlie a fast technological change. The increasing speed of technological changes, like in microelectronics or robotics can either indicate risks or chances for a company. Particularly producing companies are affected of that fast evolution.
At last, environmental factors are becoming more and more important nowadays. They regard natural resources and the basis of human life. Among those, the availability of raw materials and energy is the main topic. As the availability of fossil fuels, like oil or coal, gets worse within the next decades, the dependency on those fuels stays pretty risky. Moreover, to show an ecological responsibility, companies should assess and reduce their ecological damage. Through rare raw materials and increasing pollution, an environmentally friendly management gets spotlighted more and more by the public interest.
Consequently, eco-friendly products or technologies can even signify a competitive advantage.
To maximise on the benefit of PESTEL it should be used on a regular basis within an organisation to enable identification of any changes in trends. The impact of any external factor may have more severe impact on any division or department but, PESTEL will enable clarification why change is needed and identify potential solutions. As with all techniques there advantages and disadvantages when ever using it.PASTEL includes some of these advatages;provides easy and simple to use framework for your analysis, helps to treduce threats and impacts of potential treats to your organisation.
And also helps you to asses the level of implications of entering a new market both globally and nationaly. However it is also associated with the following disadvantages; as users can over simplfy information used in decision making in an organisation, assumptions often form the basis for most of the data used, making any decision made based on such data subjective. Users must not also succumb to paralysis by analysis where they gather too much information and forget that the objective of this tool is the identification of issues so that action can be taken.