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TOPIC 1.5 EXTERNAL ENVIRONMENT
1.5.1 - STEEPLE Analysis
1. STEEPLE - an acronym for:
1. Social
2. Technological
3. Economic
4. Environmental
5. Political
6. Legal
7. Ethical
opportunities and threats of the external business environment.

2. the external factors are beyond the control of any individual organization but affect all businesses

3. STEEPLE is central to business strategy

1. i.e assessing the feasibility of an overseas investment project

4. opportunities - external factors that present chances for businesses

5. threats - external factors that can harm a business

6. importance of each opportunity and threat in a STEEPLE analysis → weighed in a scientific way
1. if the overall opportunities of a decision outweigh the threats, the business is likely to pursue
that option
2. However, note that in reality, external factors are subject to rapid and unforeseeable change.

7. KEY ADVANTAGE → the STEEPLE analysis is quite simple** to use.

1. other advantages:
1. helps managers to be thorough and logical (in analyzing external opportunities and
threats the business may face)
2. useful brainstorming and discussion tool
3. promotes proactive and forward thinking rather than static views
4. managers will be better informed and prepared to deal with external shocks
 Exam Tip!
1. not always necessary to conduct a full STEPLE analysis.
2. managers may prefer to use a PEST analysis
1. political factors include (where appropriate) legal opportunities and threats
2. social factors include (where appropriate) ethical and environmental opportunities and
threats
3. PEST Analysis → political, economic, social, technological

Worked example of a Steeple Analysis.

WORKED EXAMPLE: STEEPLE analysis of multinational companies operating in India

social
potential market of over 1.325 billion people (the second most populous country in the
world)
a large and well-educated English-speaking workforce of around 125 million people
large yet increasing discrepancies in the distribution of income and wealth
language barriers in rural cities, with potential clash of national cultures in a multilingual
and multi-ethnic country.
technological
growing number of technologically aware population (huge opportunities for firms
providing products such as mobile phones, personal computers and internet services)
major industries include communications technology, biotechnology, software,
automobiles, petrochemicals and pharmaceuticals
technologies are easily copied due to lack of appropriate legislation
economic
huge growth potential in financial markets
significant economic growth and rising disposable incomes (spending power) in India
improved infrastructure and market opportunities in Mumbai and New Delhi
relatively low costs of production (average wage rates are still very low)
most people are employed in the agricultural sector, with India being one of the world's
top producers of cereals (wheat, rice and sugar), meat, fruits, vegetables, tea, coffee,
cotton, coa and wool
Infrastructure and economic stability are less attractive than in other countries such as
China
the vast majority of the Indian population is still very poor
environmental
major changes for India include tackling air pollution, water pollution, littering, waste
disposal and environmental degradatiojn
 Indian government taking a mroe proactive approach to enforcing environmental
protection
political
political reform in India will encourage better trade relations with other nations
legislation is less stringent than in other nations, thus placing fewer costraints on
business activity
regarded as less politically stable and relatively corrupt compared with other countries in
the region
poor enforcement of patents and copyrights might discourage technology transfer to
India
legal
strict compliance for foreign bank accounts and heavy penalties for tax evasion
employment legislation is often overlooked, e.g. poaching of staff from competitors is
common
there are no specific data protection laws enforced in India
ethical
corruption is widespread, fuelling poverty and harming India's international
competitiveness
Slow business negotiations as the locals focus on establishing a trusting relationship as a
prerequisite to doing business in India
Indian culture is averse to critical disagreements, such as saying 'no', as this is seen as
being rather rude; disagreements should be expressed in an ethical way, using diplomatic
language
extremely difficult for foreign companies to penetrate the Indian economy without
partnering with a local Indian company

1.5.2 - Social opportunities and threats

1. social opportunities and threats can be divided into 3 sections: social, cultural, and demographic.
2. the values and attitudes of society towards a wide range of different issues (i.e business rights,
social welfare, women, religion or animal rights) can present both opportunities and threats for
businesses.
3. examples:
opportunities

the growing support for environmental protection → many organizations now reporting the non-
financial aspects of their operations
i.e recycling and waste management
a more liberal and modern social attitude towards women in most societies → businesses benefit
from flexible labour force
migration and increased awareness and acceptance of multiculturalism → more choice for
consumers
 ex. the most consumed take-out food in the UK is Indian curry, whilst the largest non-Asian
importer of Malaysian Laksa (spicy noodle soup) is Finland.
language → international affairs → the largest multinational companies are aware that the most
commonly spoken languages around the world are Mandarin, English, Spanish, and Hindi.
threats

societal pressures for business to act more ethically and socially responsibly can often result in
higher costs.
language → it is not always possible to translate marketing messages and other communications
across different languages and cultures.

1.5.3 - Technological opportunities and threats

1. advances in technology and work processes → improved productivity (an opportunity for the
business)

2. staying up to date with technological progress → high cost (a threat to the business)
1. e.g. Airbus faced lengthy delays in the production of A380 (the world’s largest commercial
aircraft) → subsequently had to compensate its customers i.e. Emirates Airlines and Singapore
Airlines.

3. technology affects all aspects of business functions. For instance, the internet has directly affected:
1. human resource management (in the recruitment process)
2. marketing (such as e-commerce)
3. finance (annual reports are published online)
4. operations management (such as access to benchmarking data)

4. opportunities that technology can bring to the businesses:

1. new working practices
1. working from home → information communication technology
2. video conferencing → costs of face-to-face meetings and international recruitment are cut
3. marketing activities → online advertising
2. increased productivity and efficiency gains
1. mass production of goods over a long period of time → robots and machines are much
faster and accurate than humans
2. unlike humans, machinery can be made to work very long hours without the need for
breaks, financial rewards, motivation or maternity leave!
3. firms are more likely to achieve zero defects (no wastage) from the use of technology.
4. Automated stock control systems can automatically reorder stocks.
5. capital-intensive firms can benefit from cost savings in the long run (despite the large
initial costs)
 3. quicker product development time
1. use of CAD/CAM technology (computer aided design and computer aided manufacturing) →
allows firms to produce prototypes quickly and cost-effectively → accelerating the design,
manufacturing and launch of new products
4. job creation
1. advances in technology → need for maintenance and technical support staff
1. i.e. programmers, hardware and software engineers, graphic designers and ICT
teachers / lecturers.
5. new products and new markets
1. technology = source of innovation → brings new products in the marketplace
1. e.g. wireless broadband services, smartphones, high-definition 3D smart televisions
and electric cars.
2. apple’s highly successful range of innovative products elevates the company to
become one of the most valuable businesses on the planet.

5. threats that technology presents to businesses:

1. technology is not always reliable or secure
1. computer failure or hacked files can present serious problems for businesses
1. e.g. in December 2013, over 40 million credit and debit card records were hacked from
US retailer Target
2. in 2018, Facebook was in trouble with the law due to a massive data scandal, with
allegations of misuse of personal data to influence the 2016 US presidential elections
and the Brexit vote (the UK leaving the European Union).
2. shorter product life cycles
1. equipment and software may become obsolete increasingly quicker → need upgrading
→can make it increasingly difficult for smaller firms to compete
3. it can be costly
1. products such as smartphones have shorter life cycles → businesses need to devote more
resources to new product development
4. job losses
1. automation → unemployment in the primary and secondary sectors
1. commercial farming, oil extraction and car manufacturing
2. in the tertiary sectors, many supermarket checkout assistants have been replaced with
self-service checkout machines
3. businesses need to carefully manage the process of staff redundancies

6. when adopting certain technologies, managers need to consider several factors:

1. cost → cost of purchase, installation, maintenance, depreciation, replacement and insurance of
new technologies.
2. benefits → expected gains in efficiency (measured by productivity, flexibility, and
communication)
3. human relations → such as the impact of resistance to change, and the impacts on morale,
flexible working patterns and workforce planning
 4. recruitment and training → such as the costs of training workers to adopt the new technologies,
the number of people who need training and where to find the time to train people

7. Opportunities and threats of Internet Technologies

1.5.4 - Economic opportunities and threats

1. economic environment → the state of economy in which businesses operate

2. state of economy → determined by the government’s ability to achieve four key economic objectives:
1. control inflation
2. reduce unemployment
3. achieve economic growth
4. have a healthy international trade balance
note: government policies used to achieve these fundamental goals will present opportunities
and threats for businesses

3. controlled inflation
1. inflation - the continual rise in the general level of prices in an economy.
2. most economists regard low and stable inflation as a prerequisite to achieving the other three
government economic objectives → (stable inflation) an absolute priority for economic
 prosperity
3. (threats =) inflation can complicate business planning and decision-making
1. for example, raw material costs, catalogue and menu prices, and wage claims are all
affected by inflation
4. essentially, inflation that is not controlled becomes a threat to businesses due to the higher
costs and the uncertainties that are caused.
5. inflation also affects the international competitiveness of a country
6. a nation that has a relatively higher inflation rate tends to be less price-competitive when
trading overseas → lead to a (1) fall in export earnings, (2) lower national output, and (3) higher
unemployment
7. inflation → can be caused by excessive demand in the economy (too much spending) or by
higher costs of production (leading to a rise in prices so that firms can maintain their profit
margins)
8. any factor that causes a rise in consumption, investment, government spending or
international trade earnings → increase the economy’s aggregate demand.
1. ex, household and firms will spend more money and at a faster rate if income levels are
very high, thereby fueling inflation
9. examples of higher costs = increased wages caused by trade union action, soaring raw material
prices caused by an oil crisis or higher rents demanded by landlords.

4. reduced unemployment
1. unemployment rate measures the proportion of a country’s workforce not in official
employment
2. governments aim to deal with the problems of unemployment because there are social costs of
high employment → presents threats to businesses
1. example = the unemployed suffer from stress, depression, and low self-esteem
2. the local community might suffer from poverty and increased crime levels
3. there is an increased burden on taxpayers to support government spending on welfare
benefits for the unemployed.
4. overall, the country’s international competitiveness is therefore likely to deteriorate.
3. in general, governments use a combination of policies to tackle unemployment

5. economic growth
 6. a healthy international trade balance

1.5.5 - Environmental opportunities and threats

1. individuals, organizations and governments are increasingly concerned about the negative impacts
of business activity on the natural environment.
2. no government intervention → private sector businesses are unlikely to consider the external costs of
business activity
1. external costs - costs incurred by society
2. examples of external costs: passive smoking, air and noise pollution, packaging waste and
global warming
3. climate change has been blames for the increase in natural disasters such as tsunamis and
hurricanes
3. changes in social attitudes towards the environment → businesses increasingly review their practices
4. Firms that do not respect the environment face ruining their reputation and long-term profitability.
5. compliance costs are too high → firms may choose not to become more environmentally friendly
6. the extent to which businesses consider environmental issue depends on:
1. their aims and objectives
2. the attitudes of workers and management
3. likely impact on their profits
4. available resources (financial , human, and capital)
 7. weather and seasonal changes → may present opportunities or threats
1. for instance, torrential rain or flooding will affect a large number of businesses, e.g. theme
parks, car wash firms and agricultural farmers (threat)
2. examples of disasters that caused major havoc in businesses →Indian Ocean tsunami
(Southeast Asia, 2014), Hurricane Katrina (USA, 2005), severe snow across Europe (December
2010), torrential floods (Australia, 2011) and Typhoon Haiyan (November 2013)
3. Extreme weather conditions in Russia reduced its GDP by more than 1% in 2010
4. Japan’s 9.0 magnitude earthquake in 2011 (the worst in the country’s history) caused damage
over $235 billion
5. Some businesses might be able to exploit changes in the season, such as tour operators
focusing on ski holidays in the winter and beach resorts in the summer (opportunity)
8. health scares and epidemics also present threats to businesses
1. ****outbreak of SARS (2003) and bird flu (2006 and 2017) → turmoil in China → many businesses
collapsed
2. Mad cow disease (late 19990s), foot and mouth disease (2001) and swine flu (2009) → similar
negative effects in Europe

1.5.6 - Political opportunities and threats

1. political stability (or instability) of a country and government policies (such as taxation and interest
rate policies) → provide both opportunities and threats for businesses
2. a laissez-faire government → adopts a free market approach to managing the economy → rarely
intervenes in business affairs
1. ADVANTAGE: leaving businesses to their own devices → stimulates healthy competition and
efficiency
2. also more likely to attract foreign direct investment (as it is easier to conduct business in such
countries)
3. in reality, most countries adopt an interventionist approach to managing the economy by using
legislation and policies to oversee business behavior and to influence the level of business activity.
4. Two commonly used government policies: fiscal policy and monetary policy
5. Fiscal policy
1. use of taxation and government expenditure policies to influence business activity
2. government → spends tax revenue it raises, in addition to other sources of government
revenue, on a number of areas including social security, health care, education, transport, and
infrastructure.
1. Deflationary fiscal policy
1. used when the economy experiences high rates of economic growth and inflation →
must be slowed down via combination of higher taxes, and reduced government
expenditure policies
2. Expansionary fiscal policy
1. used to boost business activity → to get the economy out of a recession.
2. done by a combination of tax cuts and increased public sector spending → creates
business opportunities
6. Monetary policy
 1. use of interest rate policy to affect the money supply and exchange rates in order to influence
business activity.
2. interest rate - the price of money, both in terms of *cost of borrowing *money and the return
for saving money into a bank account
3. if the economy is believed to be growing too fast, the government or the Central Bank is likely
to raise interest rates to combat the effects of inflation, and vice versa.
1. ex. in 2018, the Argentinian government raised interest rates to 40% in order to combat
inflation rates in excess of 25%
4. raising interest rates make borrowing less attractive because households and businesses face
higher interest repayments on their loans
1. in addition, those with existing credit card bills, loans and mortgages face escalating
interest repayments
5. higher interest rates automatically reduce people’s disposable income after all interest-bearing
loans have been paid.
1. hence, those with existing loans may need to reduce their overall spending.
6. an increase in interest rates is likely to reduce consumption and investment expenditure,
therefore being a threat to businesses, even though this may help to control inflation in the
economy.
7. increase in interest rates in a country → tends to stimulate demand for its currency (since
foreign investors are attracted by better returns on their savings.
1. If Germany and Australia have relatively higher interest rates that Japan or Taiwan, then
demand for Euros and Australian dollars would tend to rise thereby increasing the price (or
exchange rate) of these currencies
2. this causes the price of exports to be relatively higher and therefore is likely to reduce
demands for exports
8. (threats =) higher exchange rates tend to be a threat for domestic businesses int he long run
7. the government can also use deregulation to provide opportunities for business to prosper
1. deregulation - removal of government rules and regulations (bureaucracy) which constrain
business activity within a particular industry
2. (opportunity =) enhance efficiency and encourage more competition within the industry
8. (threat =)political corruption can be a major and ongoing threat for businesses
1. there is a strong correlation between corruption, poverty, and international competitiveness
(according to Transparency International - a global non-governmental organization)
1. i.e. higher levels of corruption in a country jeopardize the nation’s ability to alleviate
poverty and to be competitive on an international scale.

1.5.7 - Legal opportunities and threats

1. government → imposes rules, regulations and laws to ensure that the general public is protected
from adverse business activity
2. government intervention can protect the interests of businesses
3. common legislation affecting businesses include:
1. consumer protection legislation
 1. laws exist that make it illegal for business to provide false or misleading descriptions of
their products and services
2. products must meet certain quality standards and be fit for their purpose
3. businesses are held liable for any damage or injury caused by their defective products
2. employee protection legislation
1. these laws protect the interests and safety of workers
1. for instance, anti-discrimination legislation helps to ensure that businesses act fairly
towards their employees, irrespective of their age, gender, religion or ethnicity
3. competition legislation
1. laws ensure that anti-competitive practices are prohibited to protect customers and
smaller businesses from firms with monopoly power
2. government takes action against businesses deemed to be acting against public interest,
such as large firms engaging in price fixing or charging unjustifiably high prices
3. competition laws can also present opportunities
1. ex. copyright, trademark and patent laws give business legal protection against
competitors replicating their works or inventions → stimulate innovation → improve
the firm’s competitiveness
4. social and environmental protection legislation
1. laws exist to prevent or reduce the consumption of demerit goods (products that cause
additional costs to society)
1. e.g. tobacco, petrol, alcohol, gambling and illegal drugs
2. social costs (to the general public) of consuming demerit goods outweigh the private costs
of consumption (incurred by the consumer).
3. no government legislation → the consumption of these products would be higher and
therefore the costs to society would be *greater

1.5.8 - Ethical opportunities and threats

1. business ethics - moral principles that are, or should be, considered in business decision-making.
1. i.e. what is judged to be right or wrong by society
2. ethical firms act in a socially responsible way towards their stakeholders (especially their
customers, employees and the local community)
1. e.g. protecting the natural environment by using resources efficiently and minimizing waste
3. ethical firms pay their workers on time, do not employ workers below the legal minimum age or
allow their employees to operate in poor working conditions.
4. ethical firms fo not use misleading marketing or deal with corrupt suppliers, sponsors, or
governments
5. Although there are compliance costs in acting ethically, firms that are socially responsible can
benefit in several ways:
1. they attract and retain good quality workers
1. e.g. Google has a very loyal and dedicated workforce → astonishing working environment;
includes free buffet meals, gym access, laundry and a host of other on-site benefits
2. they attract new customers and retain existing ones
 1. remain competitive → businesses need to consider the impact of their operations on
society and the environment BECAUSE customers are increasingly concerned about
environmental protection and ethical business behavior
3. social responsibility generates good publicity and public relations
1. Organizations such as The Body Shop, The Co-operative and Friends of The Earth have
used their ethical stance to propel their business and mission (cause).
6. Businesses are increasingly prepared to have external social audits conducted
1. external social audits - reports on the ethical and social stance of a business → examined and
reported by an external agency
2. the social audit reports both external matters (such as a firm’s involvement in community
projects and the level of pollution caused by the firm) and internal issues (such as the efficiency
of its waste management processes and its ability to provide staff with a safe working
environment).
7. (threat = ) choosing to be ethical and socially responsible can bring benefits, but there are also
compliance costs involved with such decisions.
1. a business might not always be able to pursue the cheapest or most profitable option due to the
costs of being ethical and socially responsible.
2. for example, the cheapest supplier might not be chosen if it is perceived to be an unethical
business (by customers and other stakeholders)

Extra notes from research

1. Political → anything related to the government which can influence the business
which can include:
1. government policy
2. political (in)stability
3. corruption
4. foreign trade
5. tax policies
6. note: political factor CAN affect certain factors such as economic factors (economy), legal
factors (policies imposed), and social/environmental factors (health policies)

2. Economic → determinants of a certain economy’s performance

factors include:
1. economic growth
2. exchange rates
3. inflation rates
4. interest rates
5. disposable income of consumers
6. unemployment rates
 7. note: these factors may have a direct or indirect long-term impact on a company → affects the
purchasing power of consumers and can change the demand and supply in the economy →
affects how companies price their products and services
in countries with relatively low purchasing power → prices tend to also be lower

3. Social → demographic characteristics norms, customs, and values within which the organization
operates
includes:
1. population growth rate
2. age distribution
3. income levels
4. attitudes towards careers, health, lifestyle
5. cultural barriers
6. note: these factors are especially important for marketers → targeting certain customers
also says something about the local workforce and its willingness to work under certain
conditions
sometimes people separate social factors into
demographic factors
(inter) cultural factors

4. Technological → innovations in technology and regulations surrounding technology (which may

affect the industrial operation in the market favorably or unfavorably)
factors include:
1. technology incentives
2. level of innovation
3. r&d activity
4. technological change
5. technological awareness
6. note: these factors may influence decisions to enter or not enter certain industries, to launch or
not to launch certain products, or to outsource production activities abroad
knowing the situation technology-wise → prevent company from spending a lot of money on
developing technology that would become obsolete very soon due to disruptive technological
changes elsewhere

5. Environmental → ecological aspects; well-being of the planet

only recently
important → increasing scarcity of raw materials
pollution targets, carbon footprint targets set by governments
pressure from NGOs like GREENPEACE
factors include:
 1. weather
2. climate
3. environmental offsets
4. climate change
5. these factors: affect how companies operate and what kind of products they offer
lead to companies getting mroe involved in practices such as CSR (corporate social
responsibility) and sustainability

6. Legal → laws
factors include:
1. discrimination laws
2. antitrust laws
3. employment laws
4. consumer protection laws
5. copyright/patent laws
6. health/safety laws
companies are required to know what is legal or illegal in order to operate successfully and
rightfully
tricky for global trading (for organizations) because each country has their own sets os rules
and regulations
companies want to be aware of changes in legislation and the potential impact it may have on
your business in the future
a legal adviser or attorney is recommended to help with the legal affairs

the most important factor to consider in the steeple analysis may differ on the country a business is
in or the type of industry they are in
to put STEEPLE analysis into practice and use it properly → calculate the WEIGHTED AVERAGES of
the available options a business has
links that may help with weighted average calculation
https://tradingeconomics.com/
https://data.worldbank.org/
https://data.oecd.org/
https://www.theglobaleconomy.com/