Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 1

Ch # 1 PESTEL analysis (I) - Political, Economic

and Social environment (PES)

INTRODUCTION TO EXTERNAL ENVIRONMENT (PESTEL ANALYSIS)

The environment of an organisation is a term that describes anything outside an organisation

that affects what it does or how it acts.

A famous method of analysing environmental factors is PESTEL

 P – Political factors
 E – Economic factors
 S – Social, cultural and demographic in luences
 T – Technological factors.
 E – Ecological factors
 L – Legal factors

Signi icance of environmental factors and its understanding

 These factors can have a signi icant effect on organisation

- Can affect its activities and pro itability
- Might affect the planning and other decision-making
 Management should monitor developments in the environment, and should consider how
organisation should respond to that.
 This type of analysis is sometimes called an environmental scan.

Tutor Note:
Kindly skim these irst 2 chapters quickly to get an idea of how these factors are affecting the
business. However focus should not be given on the retention / cramming of these chapters,
rather it should be on understanding. PESTEL should be covered as a whole keeping all factors
together and then practicing Ch 3 case studies to prepare for the paper in a more synced way.
 Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 2

THE SPECTRUM OF POLITICAL IDEOLOGIES

Factors Communism Socialism Democracy Democratic Dictatorial

Capitalism Capitalism
Alternative Extreme left Democratic Centre Right Wing Fascist
Names Radicals; (or) socialism (or) Left Moderates. Laissez Faire; (or) Capitalism; (or)
Dictatorial wing liberals Conservatism Extreme left
socialism Reactionaries
Means of All means of Important means Balance of public Least ownership Signi icant
production production must of production and private of means of control by state
be in hands of must be in hands ownership for production by over means of
state. of state with few means of state production
exceptions. production.
Private Not allowed. Allowed. Allowed. Maximum private As prescribed by
property property ruling regime.
Distribution Production and Distribution of State must play Large N/A
of output Distribution of output amongst role of guardian corporations can
output or people should be for all. lourish in this
earnings by the based on their system and charge
state as per input. their consumers
needs of people as much as want.
Individual No freedom in No individual Yes, individual Recognized with No individual
freedom making choices freedom freedom is few exceptions freedom
for consumption. recognised.
Nature of Egalitarian Everyone is equal International Elitist & oligarchy Extreme
society (Equal class-less in front of law but cooperation for (rule by the few inequalities
society) where differentiate the bene it of all rich & powerful) Authoritarian
every has equal people based on however they also Law favours elite Rule
material their ability and recognize their class of society.
contribution national interests. Status quo
Religion No ‘organized Religion is allowed Full religious Religious practice N/A
religion’. But in in this system. freedom. in all forms is
some form allowed.
individual
religion is ok
Attainment Change through Change through They want change Attainment of Any means
of goals/ any means peaceful means. but not at the cost national interest possible,
State possible Implementation of of tradition. Slow over international including
ideology including ideology through social change. cooperation. violence.
violence. social change. Protection of
national interest
at all costs.
Key terms N/A collectivism, N/A Individualism, N/A
(Features) economic equality, private
social service and ownership,
nationalization. self-interest,
Free market, open
competition,
privatization
Supporters Stalin and Lenin Fabiá n J.S. Mill, Keynes Friedman, Hayed, Hitler, Mussolini
and F.D. Roosevelt Reagon and and Franco
Thatcher
Countries Soviet Union Sweden Canada United States Spain,
Nazi Germany
Fascist Italy
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 3

Tutor’s Note: Diagram for understanding the spectrum

Introduction to Political Environment

 Politics in the world started since the establishment of society after agricultural revolution.
 Politics has been evolving since then according to experiences of society and their needs.
 We cannot ind a single de inition of politics which can satisfy all the intrinsic values.
- "Politics is the most concentrated expression of economics” (Vladimir Lenin)
- "Politics is distinctive form of rule whereby people act together through institutionalized
procedures to resolve differences, to conciliate diverse interests and values and to make
public policies in pursuit of common purposes." (Bernard Rowland Crick)
 Politics has direct or indirect impact on state, society, individual, economy and government
 Business activity is always dependent on the political policy and decision making.
 The political setup in any country depends upon various factors such as,
- Political ideology of the ruling political party and of the people in the society.
- Existing laws and regulations
- Socio-religious norms & constraints.
- Political opposition and their economic agendas.
 To become a successful business manager, one should take into consideration the political
environment for business, and then capitalize on opportunity available and mitigate risks.
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 4

IMPACT OF POLITICAL ENVIRONMENT ON BUSINESSES

 Many political decisions have serious economic and business implications.

 Important economic policies such as industrial policy, policy towards foreign capital and
technology, iscal policy and foreign trade policy are often political decisions.
 Business manager has to be familiar with ideologies and past approaches of key political
parties to analyze possible future policies of existing and forthcoming ruling parties.

Several ways in which political factors can affect business

Government spending

 Direction of state spending is based on its inherent political ideology.

- Govt inclined towards left would spend on public, free health, education for all etc
- Right- wing state would spend more on defense, international security, alliances etc

Taxation

 Various ideologies propose different sorts of (direct & indirect) taxation.

 Tax policies can have a massive effect on a business’ overhead and pro it margins.
 These policies may be used to:
- Reduce income of individuals and companies and thus reduce private expenditures
- Provide resources for public expenditures (roads, public schools, hospitals or parks)
- Exercise control over the private sector investment
- Improve country’s business competitive position

Economic policies

 Different political parties or individuals enact different policies to guide national economy
 A pro-agriculture political approach may not be able to pay attention to other sectors.
 An ideology relying on non-agriculture sector for economic growth may manage economy
that is not conducive for agriculture sector.

Labor Laws

 Political parties often focus minimum wages, insurance requirements, labor regulation etc
 Local labor laws are also affected by international labor regulations.
 Some Western economies do not allow imports from such countries who do not ensure
labor health policies, labor safety from ire hazard, proper work load etc.

International relationship and policies

 An ideology that support good international relation and welcomes foreign investments
will have direct impact on sustainability of local businesses.
 A protectionist policy (to save and promote own industry) may have different impact.
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 5

INTERACTION BETWEEN BUSINESSES AND THE GOVERNMENT

 Pressure groups and lobbying are 2 ways in which government decisions and policies are
managed by business owners.
 Political parties need the support of businesses – especially larger, in luential ones
(votes, contributions to economy, reduction of unemployment and party funding etc)
 Business manager should keep an eye on political parties in luenced by their supporters
from business community and pressure groups of businesses.

Financial incentive strategy

 Businesses may use their economic leverage to in luence public policymakers.
 They can use economic power to threaten to leave a city, state, or country unless a desired
political action is taken (that would favor the business).

Promoting a Constituency‐Building Strategy

 Businesses may in luence political environment by seeking support from organizations or

people who are also affected by policy or who are concerned with business’s position.
 Some of the in luencing approaches are as follows:

Stakeholder - Business may try mobilize employees, stockholders, customers, and local
Coalitions community to support their political agenda.
- If political issue is negative for business, it’s also negative for stakeholder
- Often, businesses organize programs to get stakeholders, acting as
lobbyists or voters, to in luence government of icials
Advocacy - These ads focus on organization’s views on controversial political issues.
Advertising - These issue advertisements can appear in newspaper, TV, or other media
Trade - Its coalitions of companies in the same or related industries
Associations - To coordinate efforts in promoting common interests of industry
- Some examples are:
* Federation of Pakistani Chambers of Commerce & Industry
* Overseas Investors Chambers of Commerce and Industry (OICCI),
* All Pakistan Textile Manufacturers Association (APTMA) voiced its
concerns over load shedding and hike in industrial tariffs since
- They represent many businesses include companies of all sizes & sectors
- The associations also publish widely circulated magazines and newsletters

Managing the Political Environment ‐ the Public Affairs Department

 In many organizations, managing political activity falls to department of public affairs

 Role of the public affairs department is to manage the irm’s interactions with governments
at all levels and to promote the irm’s interests in the political process.
 Creation of public affairs units is now a global trend
 Typical public affairs executive spends most of the day direct lobbying with politicians,
hosting visits by politicians to the company’s locations, or attending fund-raising activities.
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 6

ECONOMIC FACTORS

 Economic environment refers to the external factors and the broader economic trends that
can impact a business.
 It can be classi ied into microeconomic and macroeconomic environment.
 Microeconomic environment relates to consumers behaviour, market environment,
competition in the market and demand and supply forces prevalent in the market place.
 Macroeconomic relates to broad economic factors that affect the entire economy and all of
its participants, including individual business. The focus of this chapter is macroeconomics.

THE ECONOMIC CYCLE

 An economic cycle consists of several years of economic growth following by economic

recession.
- When national income increases from one year to the next, there is economic growth.
- When national income falls from one year to the next, there is economic recession (or
in extreme cases, economic decline).
 Government economic policy usually tries to achieve continued economic growth, but if
recession becomes unavoidable, policy is then aimed at making the recession as short and
as minor as possible.
 Business managers need to be aware of the stage of economic cycle in order to make and
implement effective business strategy.
(e.g. not launching a new product in a period of economic depression)

Economic indicators

An economic indicator is a type of economic data on a macroeconomic level, that helps in

evaluating the overall economy of a country.

Type Description Examples

Leading - To forecast at what stage the economy - Stock market index
economic will be in, at some time in the future. - Index of business con idence
indicators - These indicators, in particular give an - Manufacturers’ new orders
indication for whether a peak or - The money supply
trough will be reached in following 3- - New building permits for private
12 months. housing
Coincident - Events and measures that occur at the - Gross Domestic Product (GDP)
economic same time as a peak or trough occurs. - Number of people in employment
indicators - Used by governments to assess at - Industrial production
what stage in the cycle the economy is - Personal incomes
in. - Manufacturing and trade sales
Lagging - Used to assess whether an economy - Consumer Price Index (i.e. in lation)
economic has reached a peak or trough 3-12 - Unemployment
indicators months after it would have occurred. - Interest rates
- Average income
- Balance of Trade
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 7

STOCK MARKET INDEX

 Stock market is considered as one of the leading indicators

 Performance of a stock market is measured through stock market index.
 Stock market indices portray investors con idence in capital market
 High stock indices re lect potentially positive business prospects
 Stock market index is the index of the market capitalization of a section of stock market.
 Market capitalization is market value of a publicly traded company's outstanding shares.
- It is equal to share price multiplied by the number of shares outstanding.
- It re lects what investors are willing to pay for its stock.
- It’s a tool used by investors to describe market and to compare return on investments.
- It measures a company’s worth on the open market and its perceived future prospects
 Market capitalization could be based on:
- Full-cap (includes all of the shares issued by a company)
- Free-Float (proportion of total shares issued by a company that are readily available for
trading at the Stock Exchange, excluding shares held by controlling directors, sponsors,
promoters, government and other locked shares)

Stock Exchange Indices

KSE‐100 index
 The most recognized index of Pakistan Stock Exchange
 It includes the largest companies on the basis of market capitalization.
 The index represents 85% of all the market capitalization of the exchange.
 It is calculated using Free Float Market Capitalization methodology.
 The KSE100 has a base value of 1000 as of November, 1991.

All Share Index

 It consists of all listed companies on PSX based on Full Cap methodology.

Stock Exchanges Indices and Business Decisions

 Stock market's movements can impact companies in a number of ways.
 Rise and fall of share price values affects a company’s market capitalization
 Businesses also consider stock performance in decisions related to issue of shares.
 If a stock is performing well, a company might be encouraged to issue more shares because
they will be able to raise more capital at a higher value.
 Market value of a company is also an important factor when considering mergers etc
 Companies may hold shares as cash equivalents and value fall can lead to funding problem.
 Increase in stocks’ value may generate interest for new products or businesses

INTEREST RATES

 Amount of interest charged by lender on loan or amount paid by the bank on deposits.
 Interest rate as macroeconomic variable usually refers to regulated interest rate set by SBP
- This is base rate on which all other market interest rates depend.
- Karachi Interbank Offered Rate (KIBOR), is a daily reference rate at which banks offer to
lend unsecured funds to other banks in inter-bank money market
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 8

Impacts of Increase in interest rates

 It will discourage investment as it would be more dif icult for companies to earn good NPV
 It might encourage people to save, resulting in availability of more funds for investment.
 Consumption would fall for a number of reasons:
- High interest rates encourage people to save.
- It would result in lower disposable income for borrowers.
- It make it more expensive to borrow, so less consumption.
 Pro itability of banking sector's will increase (as their main business is lending)
 Increase in interest rate would increase the cost of doing business which will make it less
competitive in international market, which is full of low cost producers like Bangladesh etc
 Financing cost also increase signi icantly and impacts expansion or upgradation etc

Decrease in interest rates

 A decrease in interest rates would encourage investment as it would be easier for irms to
earn adequate return on projects. But, it might discourage saving, resulting in a reduction in
funds available for investment which would put upward pressure on interest rates.
 Consumption would rise for a number of reasons:
- Low interest rates discourage saving.
- It would result in higher disposable income for borrowers
- It make it less expensive to borrow, so more consumption

INFLATION

 In lation is the increase in price levels over time.

 Rate of in lation is measured using one or more price indices or cost indices, such as a
Consumer Price Index (CPI) or a Retail Price Index (RPI) or an Index of Wages Costs.
 Businesses are affected by in lation
 They have to pay more for resources (e.g. materials and labour).
 They will try to pass on their extra costs to their customers
(by raising the prices of their own goods and services).
 Individuals have to pay higher prices for goods and services, so they need more money to
pay for them.
 If they are in work, they might demand higher wages and salaries.
 This ‘in lationary spiral’ can go on inde initely
 Rate of in lation is also affected by in lationary expectations.
(Rate of in lation that businesses and individuals expect in future).

Implications of high in lation for National Economy

 Increases in national income are the result of two factors:
- Increase in ‘real’ quantity of goods and services; and
- Increases due to higher prices and costs.
 It is possible for measured national income to increase (due to in lation) when the real
economy is in recession (due to decrease in real quantities)
 Normally when the rate of in lation is high, and in lationary expectations are high, the ‘real’
economy is likely to stagnate or go into recession.
 A government might think that some in lation is unavoidable
 Rate of in lation and in lationary expectations should be kept under control, to give the ‘real
economy’ an opportunity to grow.
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 9

Implications of in lation (Social & Economic)

 In a time of in lation, debts such as bank loans fall in real value over time.
 Lenders and savers lose because the value of their loan or savings falls.
(e.g. a person with cash savings might be earning 3% after tax and in lation may be at 5%)
 Another effect is reduction in real value of ixed income or incomes raise less than in lation

GROSS DOMESTIC PRODUCT (GDP)

 GDP is a monetary measure of the market value of all the inal goods and services produced
within a country in a speci ic time period.
 It can be expressed as the GDP per capita (i.e. head of population) to compare economies.

Economic activity (GDP) = C + I + G + (X – M)

C = Amount of Consumption on goods and services
I = Amount spent on Investment in long-term assets
G = Amount of Government spending
X = Amount of Exports of goods and services
M = Amount of Imports of goods and services

 GDP is the total output from all of the sectors of an economy:

- Primary sector (agriculture, mining etc.)
- Secondary sector (manufacturing and construction); and
- Tertiary sector (services)
 GDP per capita is often considered an indicator of a country's standard of living,
 GDP does not include services and products that are produced by nation in other countries.
 GDP for a particular year is measured by two ways:
- Nominal GDP is the value at current prices in a speci ic time period, this includes the
impact of in lation and is normally higher than the GDP.
- Real GDP is an in lation adjusted value of GDP.

BALANCE OF PAYMENTS

 It measures the inancial transactions made between consumers, businesses and the
government in one country with others.
 It is calculated by adding up the value of all the goods that are exported (i.e. sold to other
countries) and imported (i.e. bought from other countries).
 It is made up by a combination, in a country, of:
- the current account
- the capital account
- of icial inancing account
 For any country, Surplus/de icit on trade = Net out low or in low of capital.
 Balance of payments (BOP) data is an important indicator for investment managers,
government policymakers, State bank, businessmen, etc.
 Businesses use BOP to examine market potential of a country, especially in the short term.
- A country with a large trade de icit is not as likely to import much
- Government may adopt a policy of trade restrictions, such as quotas or tariffs etc
- Government may promote industries focused on export
- Government may also promote local manufacturing to avoid huge amounts on imports
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 10

UNEMPLOYMENT

 Means that there are not enough jobs for the people who want them.
 In economic recession and falling demand for goods and services, many irms will make
some employees redundant due to low pro itability.
 Unemployment sometimes is caused by shortage of skilled labour.
(As technological complexity of industry increases, demand for skilled labour rises).
 Such a shortage of skilled labour can be managed through:
- Better standards of education
- More training
- Outsourcing to other countries (where skilled labor is available)
 High levels of unemployment are unwelcome in an economy because:
- That is damaging to society and the welfare of the people
- Economic growth is less than it could be

Unemployment and business decisions

 Less economic growth due to unemployment will directly affect businesses.

 Many households will have less income (resulting in lower sales)
 Demand for some cheaper products and services will increase
 Local companies might have to increase production due to higher demand.
 Businesses looking to recruit people may also be able to offer relatively lower pay.

Tutor Note (Summarising above all)

Change Consumers Businesses

Higher May spend less, as fewer May lower prices in order to
unemployment people are earning encourage people to buy
Lower May increase their spending, as May increase prices as demand
unemployment more people are in work increases
Increased interest May spend less, as they are May reduce products’ sizes but leave
rates encouraged to save the price unchanged, increasing the
pro it margin. (i.e. shrink lation)
Decreased May spend more, as there is May launch bigger versions of
interest rates less incentive to save products to charge higher prices
Increased value May spend more on imported May target new domestic markets
of Rupee goods, as they are relatively for their products to attract new
(exchange rate) cheap customers
Decreased value May spend less on imported May target new international
of Rupee goods, as they are relatively markets for their products as
(exchange rate) more expensive exports are cheaper
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 11

SOCIAL FACTORS AND THEIR INFLUENCE ON BUSINESS

 Attitudes, values, ethics, and lifestyles in luence what, how, where, and when people
purchase products or services, are dif icult to predict, de ine, and measure
 People of all ages have a broader range of interests.
 The demographics, or characteristics of population, change over time.
 As the proportions of children, teenagers, middle-aged consumers, and senior citizens in a
population change, so does the demand for a irm’s products.
 Business manager should be well versed with that external social environment
 Business need to respond to changes in society, including demographic changes.
 If they do not, they will continue to offer products and services that are less relevant.
 Examples of some social, cultural and demographic factors are:
- Outing and dining out habits of a particular area or particular region.
- Social media addiction.
- Domestic travelling and international travelling, especially in vacations.
- People interested and concerned with their looks when attending social gatherings.
- People concerned about health and weight.

Social factors in the environment refer to changes in habits, tastes, values and preferences. In
the short-term social attitudes and habits are also affected by fashion.
Cultural factors are the customs, traditions and behaviours of people in a given country it
also includes fashion trends and market activities in luencing actions and decisions.
Demographic factors are concerned with a speci ic aspect of society – the size, spread and
distribution of society.

Attitudes and Lifestyle

 Consumer lifestyles and attitudes are continually changing due to education, globalization,
urbanization, social media, advancements in technology and advertisements.
 These factors rapidly impact the dressing, house dé cor and food preferences.

Culture
 Businesses must understand the dynamics of different cultures. Eg.
- More focus on family values and joint family units in Pakistan than in the Europe
- A tea manufacturer would do better in Pakistan rather than US (who are coffee lovers)
- In only Pakistan you can see Tikka Pizza, Baluchi Pizza, Seekh Kebab Pizza etc.

Social and culture responsiveness

 It refers to people’s attitude to work and wealth; role of family, marriage, religion and
education; ethical issues and social responsiveness of business.
 Social environment of a given region can have a signi icant impact on success.

Wealth distribution – income and social status

 Socio-economic issues affect consumer spending such as poverty and unemployment
 Businesses have to de ine their target markets around different income groups. E.g.
- Luxury watch company would not advertise in classi ied ad sections of the newspaper.
- Supermarket targets middle to lower income segments by claiming lower prices
 Production plans of companies are made on basis of affordability of the relevant market.
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 12

Values and Ethics

 Ethics is “discipline dealing with what is good and bad and moral duty & obligation”.
 Moral managers follow the law not only in letter but also in spirit.
 Moral management approach is likely to be in best interests of organization in the long run.
 They practice and portray the following values:
- Honesty - Responsibility (Corporate Social
- Integrity Responsibility)
- Trustworthiness - Obedience to elders
- Loyalty - Respect of others
- Fairness - Righteous means of earning

Demography

 It is study of key statistics about the segments of a society, such as, age, gender, race and
ethnicity and location.
 It help the businesses de ine the markets for their products and services.
 It also determines the size and composition of the workforce.
 Demographics are at the heart of many business decisions.
 Businesses today must cater to the unique shopping preferences of different generations or
age groups, each of which require different marketing approaches and targeted products

Age groups
 Businesses much pay attention to buying needs and pattern of different age groups; E.g.
- Consumers born after 2000 (millennials) have been exposed to so much change in the
world as compared to parents, they demand products more aligned to their mentality.
- These are technologically savvy with comparatively larger disposable incomes to spend.
They spend more freely and spoiled by more options around them
- Other consumers such as Generation X (born between 1965 & 1980) and baby boomers
(between 1946 & 64) have their own spending patterns.
- Many boomers are nearing retirement and have money that they would prefer to spend
on health and comfort or other investment opportunities
 As the population ages, businesses are offering more products that appeal to middle-aged
and senior markets.

Ethnicity and nationality

 It is the segmentation or identi ication of people based on their cultural distinctiveness.
 This is generally expressed in language, values, religion, ritual, origin and ancestry.
 Companies should recognize the way different ethnic groups behave or react.
 Companies should also be mindful of the ethnic sensitivity. E.g.
- In Pakistan, an advertisement of hotel room showing a wine bottle is not acceptable
- Neckless with hanging cross would have good marketability in Christian community.

Ageing population
 For some Western countries, there is an ageing population issue.
 Birth rate is historically low, and the traditional family system is not being appreciated
 At same time, average life has been increasing and more people are living until an older age
 So a larger proportion of population will be of an older age
 In some years, there might be a relatively small working population and a relatively large
number of people in retirement.
 So businesses should pay attention to this change in ageing pattern in those countries
Chapter 1: PESTEL analysis (I) - Political, Economic and Social environment (PES) Page 13

Government policy for demographic change

 A government might try to develop a policy for social and demographic change.
 E.g. in a country with ageing population, government might consider following measures.
- Permitting immigration of people from other countries under a controlled scheme
- Increasing average age at which individuals may retire with state entitlement pension.
- Encouraging individuals to work beyond their normal retirement age.
- Providing some form of tax-incentive to individuals/couples who have more children.
Migrated or immigrant population:
 In modern world the international boundaries are fading away due to constant and ever-
increasing migration from one country to another due to several reasons.
 In many western countries, now there is a decreasing fertility rate however at the same
time the number of migrant population is increasing and their fertility rate is higher.
 This is directly affecting the market and businesses in Western world.
 Now there is a large market for the Eastern goods and products as well in those countries

Health
 Health and well-being are important for businesses to prosper in a society.
 Healthy individuals can contribute to economic progress in a country.
 Birth rates and life expectancy are important social indicators related to health that
businesses use while doing business planning.
(E.g. a higher birth rate would indicate a greater need for baby products)
 Life indicators could also have vital implications for health insurance companies
 Also a nation with a higher life expectancy is equipped with a larger labour force.
 Also for industries related to drugs, pharmaceuticals and medical equipment the health and
well- being statistics are an important factor to devise business strategies.

Education
 Businesses compete in global economy requiring higher levels of education and training.
 Illiteracy among the population threatens the ability of businesses to compete globally.
 Quality & quantity of educated population in a society directly impacts the strategy
 Good supply of educated and skilled work force helps companies to acquire good talent.
 Companies also adapt their advertising and communication according to the literacy level

Law and Order

 Law & order situation in either a speci ic vicinity, city or entire country affects the business.
 Following are some negative effects of an unfavorable law and order situation;
- Loss of staff and customers.
- Insurance/security costs become expensive.
- Loss of pro its due to stolen goods from businesses.
- Businesses spend money on installing effective security measures e.g. alarms.
- Foreign investment is discouraged and tourism is reduced.
- Business lose skilled people resulting to a decline in productivity.
- Cost of damage to property increases as businesses pay higher insurance premiums to
protect themselves.
- Lower pro its affect the decision to expand and employ more people/pay higher wages.
- Crime causes increase in health costs of employees due to injuries or stress.
E.g. During the period of political turmoil in Karachi, many businesses were threatened by
extortionists and they closed their units in Karachi and relocated them in other cities.