PESTLE Analysis

Strategic management framework known as

PESTLE (Political, Economic, Social, Technological,
Legal, Environmental) Analysis which has emerged
to be an important apparatus for scanning the
internal and external factors impacting a business.
Contents
• What is PESTLE Analysis?
– Political Factors
– Economic Factors
– Social Factors
– Technological Factors
– Legal Factors
– Environmental Factors
• PESTLE Analysis Example — SONY
• Advantages And Disadvantages of PESTLE Analysis
– Advantages of PESTLE Analysis
– Disadvantages of PESTLE Analysis
• Summary
 What is PESTLE Analysis?
• A PESTLE Analysis is a hypothesis under the category of
marketing principles ensuring business growth and profitability.

• It is anatomy and a strategic management tool that helps to

scrutinize the macro-environmental factors that may have a
resonating influence on an organization’s accomplishments. The
acronym PESTLE is the shortened form of Political, Economic,
Social, Technological, Legal factors and Environmental factors.
The concept largely helps companies to acquire a transparent
insight into the intramural and extramural factors affecting their
organization. It also provides a general overview of the
environment from multifarious points before launching a new
project, new product, new service, etc.
 Political Factors
• Political factors usually indicate the authoritative powers that a government
possesses in the economy or, in case of a certain industry. Such factors consist
of policies of the government, extent of political stability, foreign trade policy,
fiscal policy, trade tariffs, labor law, health regulations, education system,
environmental law, infrastructure, corruption, and etcetera. All these aspects
need to be taken into account when evaluating the lucrativeness of a potential
market.

• Example: A government may levy a new tax policy or fiscal policy or trade
tariffs in a new financial year which can affect the revenue generation of
organizations to a large extent. Recently, the Government Of India has reduced
corporate tax rates to 22% from 30%. Consequently, this move will help the
top-notch companies to revive their profitability and would be a  good catalyst
for luring investment from foreign investors. The announcement also arrives at
a perfect time because major American organizations are involved in a trade
war with China and are finding alternative global manufacturing pedestals.
 Economic Factors
• Economic factors are crucial determinants and plays an important role in the
performance of an economy. Such factors generally end up becoming a key
decision-maker in the success or, failure of a company. A surge in the rate of
inflation of any economy can affect the pricing pattern of a companies’
products and services. In addition, it also impacts the purchasing power
parity of the consumers and brings about a change in the forces of demand
and supply in the economy. The economic factors include inflation rates,
exchange rates, interest rates, economic growth, gross domestic product,
unemployment rates, economic growth and disposable income of
consumers.

• EXAMPLE: In  India, in the past few weeks, vegetable prices have
skyrocketed and as a result, there is a rise in the rate of inflation.
Consequently, due to the hike in prices, the purchasing power of people has
gone down which ultimately indicates that there will be a fall in consumer
demand.
 Social Factors
Social factors pin-point the social environment in relation to the industries
and constitute the demographic features, customs, norms, and values of the
population within the operating periphery of the organization. Social factors
consider the population trends such as age distribution, cultural barriers,
income distribution, the growth rate of population, lifestyle attitudes, career
inclinations, and health consciousness.
All the above-mentioned aspects are very significant for marketing
strategists when earmarking the customer bases. Apart from that, the
factors also reveal information about the local workforce and their
compliance to work under certain conditions.

EXAMPLE: In today’s era, the demand for junk foods like Pizza and Burgers
has gone up extensively, especially amongst the younger generation. Thus,
companies like Dominos, Pizza Hut, Burger King and KFC are churning out
huge profits because of the consumers’ behavior. On the contrary, the same
doesn’t hold true for the people in rural areas. This is how social factors
affect companies’ revenue structure.
 Technological Factors
• Technological Factors have relevance to modernization in technology
which influences the performance of an industry. Such factors include a
level of innovation, research, and development (R&D) activity, amount of
technological awareness, technology incentives and automation.
Technological Factors highly affect the decisions regarding entry/exit in an
industry, launching of a new product and outsourcing production-related
activities. Possessing a sound knowledge regarding technology helps
companies from spending a lump sum amount of money on obtaining a
technology that would become obsolete in the near future due to the
innovation of newer technologies globally.
• EXAMPLE: The business space is filled with cautionary sagas of large scale
companies that became failures due to their inability to keep up with the
dynamic technological innovation. One such prominent example is Kodak,
a technology company that used to produce camera-centric products and
dominant in the photographic film market during most of the 19th
century. The breakthrough in digital photography contributed to the
catastrophic misfortune of their film-based business model.
 Legal Factors
• Legal factors include laws such as health and safety laws, discrimination
laws, safety standards, employment laws, consumer protection laws,
copyright and patent laws and antitrust laws. Every company is bound to
have awareness regarding the laws for the purpose of conducting ethical
business. In addition, a business owner also needs to be aware of any
possible alteration in legislation which may have an impact on the business
in the long term. Interestingly, the set of rules and regulations varies from
country to country. Analysis of legal factors figures out strategies based on
the backdrop of the legislations. However, it is always advised to have an
appointed lawyer or an attorney to guide through the complexities.

• EXAMPLE: Nestle had to take away the packets of Maggi from the stores’
shelves after the  Food Safety and Standards Authority of India (FSSAAI)
summoned Nestle because of their negligence to adhere with the laws of
food safety. Regulators found lead content beyond the permissible limit in
its instant noodle product.
 Environmental Factors
• Environmental factors have appeared to become a pivotal character
recently. They have become utterly valuable due to carbon footprint
targets, scarcity of raw materials and pollution targets fixed by
governments. Environmental factors include ecological facets like
climate change, weather conditions, environmental offsets which highly
govern tourism, agriculture, and farming industries. Especially, large-
scale campaigns regarding the burning issue of climate change are
leading to the change in operation and products of the companies.
Therefore, practices of Corporate Social Responsibility (CSR) and
Sustainability forms an integral part of the companies and is taking new
shapes with each passing day.

• EXAMPLE: Due to the imposition of government rules as a measure to

curb global warming, regulations on fossil fuel industries have increased
considerably and as a result, this move has started threatening the
thriving coal, oil, and gas industries.
• PESTLE Analysis Example — SONY
• Advantages of PESTLE Analysis
• PESTLE Analysis has a basic framework and follows a
simple process for conducting an assessment.
• It furnishes a mechanism that allows an organization to
pinpoint and cash in on golden opportunities and utilize
them to reinforce a firm’s business model.
• It helps to diminish the impact and consequences of
possible threats to an organization.
• It sanctions a company to examine the process of entering
untapped markets both nationally and internationally.
• It helps to build a custom of strategic thinking for
strengthening the company’s position.
• It is absolutely cost-effective and the cost to do any level of
the assessment isn’t exposed to oscillations.
• Disadvantages of PESTLE Analysis
• PESTLE analysis cannot showcase the full picture
because it only focuses on six factors that are external
in nature. In strategic planning, one needs to go
beyond these six factors which can provide internal
insights as well.
• The Political, Economic, Social, Technological, Legal and
Environmental factors are very dynamic in nature. Any
shift in any of these factors can change the result of
PESTLE Analysis drastically.
• PESTLE Analysis is time-consuming in general and
requires loads of data. Each of the factors needs to be
thoroughly examined to come to a conclusion and
thus, takes up a lot of time.
 Summary

• Summary