BUSINESS STRATEGY
PESTLE analysis
PESTLE analysis: the strategic analysis of a firm’s macroenvironment, including political,
economic, social, technological, legal and environmental factors.
This is another form of strategic analysis. The macro-environment means the wide ranging
and ‘big picture’ factors that could influence a firm’s future strategies.
PESTLE analysis is an acronym for:
P = political factors E = economic factors S = social factors
T = technological factors L= Legal factors E= Environmental factors
Political: Some parts of the world are politically unpredictable. It is important to pay special
attention if businesses try to operate in politically unstable countries. However, political
factors can also influence businesses in stable countries. The activities of pressure groups
can play a role in influencing business activity. Some examples,
• Members joining or leaving a trading bloc. This could disrupt financial markets and
create a great deal of uncertainty.
• Pressure groups such as trade unions, which aim to protect the rights of workers, can
affect businesses. For instance, they may be able to force up wages for their members.
This will raise business costs.
• Changes in government. E.g, a new government may want to introduce laws which
might have an impact on some businesses.
Economic: The general state of the economy can have a huge impact on business activity.
Since the financial crisis in 2008, a number of countries have suffered a recession. This has
made trading conditions very difficult for many businesses. However,
• falling unemployment might help to increase demand for many businesses
• stable inflation rate would create more certainty, which should encourage businesses
to invest for the future
• an appreciation of a currency might make exporting more difficult but it might also
make importing cheaper
• lower interest rates would make borrowing cheaper and encourage more investment
• some businesses may suffer badly during a recession. Businesses that produce goods
and services that are income elastic will tend to be worst affected during recession.
These include tourism, car producers, computer games companies and ‘white goods’
companies such as dealing with freezers, cookers, washing machines, etc. This is
because people can postpone purchases of these items until incomes pick up again.
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BUSINESS STRATEGY
Social: Over time there are likely to be changes in the way society operates. Although social
and cultural changes tend to be gradual, they can still have an impact.
• In most developed countries, greater numbers of people are going to university. This
could create the quality of human resources, which might benefit certain businesses
such as ICT.
• The population in many countries is aging i.e. the average age of population is rising.
This could affect demand patterns and create new opportunities for some businesses
such as healthcare.
• Increasing migration i.e. large numbers of people moving from one place to another
might increase the size of the potential workforce, making recruitment easier. It might
also provide a boost to demand.
• People appear to be becoming more health conscious. This might create opportunities
for certain businesses, such as those selling healthy foods or running yoga and fitness
centres.
Technological: The rate of technological change seems to be increasing all the time.
Businesses usually welcome technological developments because they can provide new
opportunities or help to improve efficiency.
• Changes in technology can shorten product life cycles. This is because new products
are quickly developed to replace ones that use older technology.
• Developments in technology often mean automation in the industry. This is often
welcome in developed countries because human resources are often said to be the
most expensive and difficult to manage. New technology also lowers unit costs in the
long run.
• The development of social media has helped to improve communications between
businesses and customers, This allows businesses to keep track of changing consumer
needs.
Legal: The government provides the legal framework in which businesses operate. However,
it also directs legislation at businesses to protect vulnerable groups i.e. groups that are easily
hurt or damaged that might otherwise be exploited.
• Business in the food industry are currently under pressure to reduce the amount of
sugar and salt they add to products. In some countries, governments have imposed
taxes on the use of sugar in certain products.
• In some countries, the government states that it wants to reduce the number of rules
and regulations addressing business behaviour. This might benefit a wide range of
businesses.
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BUSINESS STRATEGY
Environmental: People are increasingly protective of the environment; for example, because
of the threats posed by global warming. Business activities also sometimes threaten wildlife
and natural habitats.
• Some people prefer to buy environmentally friendly goods. This provides
opportunities for businesses to that specialise in these products.
• There are new ways of generating power using renewable sources rather than by
burning fossil fuels, such as oil and coal, which are providing new opportunities.
• The trend towards recycling is gathering pace in many countries. By using recycled
resources, businesses can cut their costs.
PESTLE evaluation
Any significant new business strategy should be preceded by a detailed analysis of the wider
environment in which the strategy has to operate and be successful. The use of PESTLE
analysis formalises this process and the results of the analysis should be an important part
of strategic decision-making. Once completed, PESTLE analysis cannot just stop. It may need
to be constantly updated and reviewed, especially in a rapidly changing wider environment.
For multinational businesses – or for a firm considering foreign expansion for the first time-
it will be important to undertake PEST analysis for each country being operated in.
Iqbal Mahmood
+8801712181293
mahmoodmunna169@[Link]
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