Overall, political factors are those that are driven by government actions and policies. They include, but are not limited to, considerations such as: To turn an avocado into guacamole, a cook can use a mortar and pestle. A mortar is a mash device in the shape of a baseball bat, while a pestle is a stable bowl in which brewing takes place. Similarly, PESTEL reflects the general environmental factors – political, economic, social, technological, environmental and legal – that can destroy an organization. In many cases, executives can prevent such outcomes by performing a PESTEL analysis to diagnose where significant opportunities and threats arise in the general environment. The study of the general environment involves an understanding of key factors and trends in society at large. PESTEL analysis is a popular framework for organizing and isolating these factors and trends as they affect the industries and businesses they contain. Below we describe each of the six dimensions associated with the PESTEL analysis: political, economic, social, technological, environmental and legal. These factors relate to technological innovations that may have a favourable or negative effect on the functioning of the industry and the market.
It is about automation, research and development, and technological awareness of a market. PEST (Political, Economic, Social and Technological) analysis is a management method that allows an organization to assess the main external factors affecting its operations in order to become more competitive in the market. As the acronym describes, these four areas are at the heart of this model. Example of an economic factor: Depending on where we are in the business cycle and what U.S. Treasury yields are doing, an equity analyst can adjust the discount rate in their model assumptions. It can have a significant impact on the valuations of the companies they cover. A PESTLE analysis provides contextual information about business direction, brand positioning, growth goals, and risks (e.g., another pandemic) to productivity. It can help determine the validity of existing products and services and define the development of new products. Meanwhile, farmers argue that tightening immigration policies would be harmful, as farmers rely heavily on cheap labor provided by illegal immigrants. In particular, if farmers were forced to employ only legal labour, this would significantly increase the cost of vegetables. Restaurant chains like Subway would then pay higher prices for lettuce, tomatoes and other perishables.
Subway would then have to decide whether to cover these costs or pass them on to customers by charging submarines more. Overall, any change in immigration policy will impact hospitals, farmers, restaurants, and many other organizations. Take legal factors, for example: A rating agency looks at the creditworthiness of a tech company that has significant growth prospects in emerging markets. The analyst must balance this growth trajectory with the inherent risk of intellectual property theft in some countries with weak legal infrastructure. Intellectual property theft can seriously compromise a company`s competitive advantage. In addition to being a positive social change, the widespread acceptance of women in the workforce has created significant opportunities for some organizations. Retailers like Talbot`s and Dillard`s sell business clothing to women. Subway and other restaurants benefit when scarce weather pushes dual-income families to buy takeout meals instead of cooking at home. Proposals to support businesses are often presented in political campaigns. POLITICS: When looking at political factors, you need to consider government policies and the political stability of your country. Other factors include tax implications, industry regulations, and global trade agreements and restrictions. While the impact of the tech segment on tech companies such as Panasonic and Apple is obvious, tech trends and events also help shape low-tech companies.
In 2009, Subway launched a service called Subway Now. This service allows customers to place their orders in advance via SMS and avoid queues in store. With this service, Subway also addresses a trend in the social segment of the general environment: the need to save time in today`s fast-paced society. A generation ago, ketchup was an essential part of every American pantry and salsa was a relatively unknown product. Today, however, food manufacturers in the United States sell more salsa than ketchup. This change reflects the social segment of the general environment. Social factors include demographic trends such as population size, age and ethnic composition, as well as cultural trends such as attitudes toward obesity and consumer activism (Figure 3.6 “Social Factors”). The explosive popularity of salsa reflects the growing number of Latinos in the United States over time, as well as the growing acceptance of Latino food by other ethnic groups. Examples of several important trends representing political factors in the general environment are presented below. The technology component takes into account the specific role and evolution of technologies within the sector and organisation, as well as wider technological applications, trends and changes. Public expenditure on technological research may also be of interest in this area. Social factors tend to be more difficult to quantify than economic factors.
They relate to changes or developments in the way stakeholders approach life and leisure, which in turn can affect business operations. Examples of social factors include: These factors determine the extent to which a government can influence the economy or a particular industry. For example, a government may impose a new tax or levy that allows entire organizations` revenue-generating structures to change. Political factors include fiscal policy, fiscal policy, trade tariffs, etc., which a government can impose around the fiscal year and significantly affect the business environment (economic environment). In the legal field, it is about how the courts influence commercial activities. Examples of important legal factors include labour laws, health and safety regulations, discrimination laws, and antitrust laws (Figure 3.11 “Legal Factors”). PEST analysis can also be applied to the assessment of an organization`s internal structure to identify strengths and weaknesses in national policy, economic prospects, social climate and technological base.