A PESTLE analysis is a strategic management tool that is used to identify, analyze, organize, and observe key external factors that can have an impact on a company now and in the future. This framework reviews and examines threats and opportunities due to Political, Economic, Social, Technological, Legal, and Environmental forces, to help in planning and decision-making.
It is very critical for businesses to understand the complete depth of PESTLE. It is as below:
1. Political factors
Political factors determine the extent to which a ruling government may control or influence the economy or a particular industry. For example, a government may impose a new tax due to which the entire revenue-generating system of organizations might change. Political factors include Fiscal policy, trade tariffs, tax policies, etc. that a government may levy around the fiscal year and it may affect the business environment to a great extent.
2. Economic factors
Economic factors are determinants of an economy’s performance that directly impacts a company and have resonating long term effects. For ex., a rise in the inflation rate of any economy would affect the way brands price their products and services. Economic factors include inflation rate, economic growth patterns, interest rates, foreign exchange rates, etc. It also accounts for the foreign direct investment depending on specific industries who’re undergoing this PESTLE analysis.
3. Social factors
These factors analyze the social environment of the market, and measure determinants like cultural trends, population analytics, demographics, etc. An example of this can be buying trends for countries like the US, where there is high demand during the Holiday season like Christmas.
4. Technological factors
Technological factors refer to innovations in technology that might affect the operations of the industry and the market favorably or unfavorably. This refers to research & development, automation, and the amount of technological awareness that a market possesses.
5. Legal factors
Legal factors have both external & internal sides. There are certain laws that affect the business environment in a particular country while there are certain policies that companies maintain for themselves. The legal analysis takes into account both of these angles and then formulate the strategies in light of these legislations. For example, consumer laws, labor laws, safety standards, etc.
6. Environmental factors
Environmental factors include all those that influence or are determined by the surrounding environment. This factor of the PESTLE is crucial for certain industries particularly for ex., tourism, farming, agriculture, etc. Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets, etc.