PESTEL Analysis

Lecture-4

Dr. J. K. Nayak
Department of Management Studies
 PESTEL Analysis

PESTEL Analysis
A PESTLE analysis is a tool, businesses use to assess macroeconomic factors that impact their operations.
Macroeconomics is the study of large-scale economic elements, often relating to countries as a whole. The factors
this analysis represents are political, economic, social, technological, legal and environmental.

Understanding PESTEL is critical prior to enter into a new country or region because home environment
does not give assurance that same strategies will also work in other countries.
 Political

• How stable is the political environment in the prospective country?

• What are the local taxation policies? How do these affect your business?
• Is the government involved in trading agreements, such as the European Union (EU), the North
American Free Trade Agreement (NAFTA), or the Association of Southeast Asian Nations
(ASEAN)?
• What are the country’s foreign-trade regulations?
• What are the country’s social-welfare policies?
• government type and stability
• freedom of press, rule of law, levels of bureaucracy & corruption
• regulation and de-regulation trends
• social and employment legislation
• tax policy and trade & tariff controls
• likely changes in the political environment
 Economic
What are the :
• current and forecasted interest rates?
• current level of inflation in the prospective country? What is it forecast to be? How does this affect the possible
growth of your market?
• local employment levels, and how are they changing?
• long-term prospects for the country’s economy, gross domestic product (GDP) per capita, and other economic
factors?
• current exchange rates between critical markets, and how will they affect production and distribution of your
goods?
• stage of business cycle
• labor supply and labor costs
• levels of disposable income & income distribution
• impact of globalization
• likely impact of technological or other change on the economy
• likely changes in the economic environment
 Sociocultural

What are the :

• country’s current demographics, and how are they changing?
• level and distribution of education and income?
• dominant local religions, and what influence do they have on consumer attitudes and opinions?
• level of consumerism, and what are the popular attitudes toward it?
• pending legislation could affect corporate social policies (e.g., domestic-partner benefits or maternity and
paternity leave)?
• attitudes toward work and leisure?
• population health, education & social mobility, and attitudes to these
• population employment patterns, job market freedom & attitudes to work
• press attitudes, public opinion, social attitudes & social taboos
• lifestyle choices and attitudes to these
• socio-cultural changes
• health consciousness
 Technological

What is the status of:

• local government and industry fund research, and are those levels changing?
• local governments and industry’s level of interest and focus on technology?
• status of intellectual property issues in the local environment?
• potentially disruptive technologies in adjacent industries creeping in at the edges of the focal industry?
• impact of emerging technologies
• impact of internet, reduction in communication costs & increased remote working
• research & development (R&D) activity
• impact of technology transfer
• degree of automation
• rate of technological change
 Environmental

How is/are the:

• local environmental issues?
• pending ecological or environmental issues relevant to your industry?
• activities of international activist groups (e.g., Greenpeace, Earth First!, and People for the Ethical
Treatment of Animals [PETA]) affect your business?
• environmental-protection laws?
• regulations regarding waste disposal and energy consumption?
• weather
• natural disasters
• climate
• climate change
• environmental taxes
• demand for "green" products
 Legal

What is the status of:

• antitrust law
• private property laws?
• legal protections for intellectual property?
• consumer laws?
• product safety laws?
• discrimination law
• employment law
• health & safety laws
 PESTEL-NIKE
• POLITICAL: low interest rate in its home country, favourable international tax agreements, receiving
government support for infrastructure, political backlash, legal framework for contract enforcement, antitrust
laws for apparel footwear, varying tax rates and regulations, industrial safety regulations, intellectual property
protection and litigation issues.
• ECONOMIC: rapid growth of developing markets, economically stable markets, low cost of labour, policy of
outsourcing
• SOCIOCULTURAL: improving consciousness about health and sport, growth of individual wealth in other
countries, rising emphasis on product safety and better quality
• TECHNOLOGICAL: use of advanced IT infrastructure for its operations and delivery, linking transaction and
supply chain, using contactless payments through mobile phones, high automation, integrated with mobile
technologies to reach out to its customers, better positioning on social media
• ENVIRONMENTAL: adaptation of latest quality control standards, using organic cotton for its products,
reduce carbon footprint and waste management, easier to recycle products,
• LEGAL: gender discrimination litigations, hostile work conditions, forging taxes, shady marketing practices
Political Factors
 Introduction

 Every country has its own political and legal system to maintain a recognized procedure for allocating valued
resources. It helps to make decisions about the duties and responsibilities of citizens and also about the rights and
privileges.
 In navigating different markets, firms must understand how and where the political and legal system converge and
diverse.
 Also determine where, when and how to adjust business practices, operating procedures, and strategies to meet the
challenges posed by local environment.

For example: Governments could alter their rules and regulations. This could in turn have an effect on a business.
The GOI has announced a big reduction in income tax rate for corporates. The government has slashed basic
corporate tax rate to 22% from 30% while for new manufacturing companies it has been cut down to 15% from
25% and the new tax rate will be applicable from the current fiscal (2019-2020) .
 The Political Environment
 Political system includes the complete set of institutions(parliament, state assembly), political organizations,
and interest groups (election commission).
 The relationships among institutions, and the political norms and rules that govern their functions.
 A political system shows some level of stability in social relation and it's usually effective when it’s supported
by a legitimate consensus of people who live under it.
for example: India is world largest democratic country has huge potential for world investors.
 Political instability jeopardizes companies which operate in the market and discourage potential investors.
for example: Somalia, Sudan and South Sudan, Syria, Libya which have been subject to disturbances as people
agitate for greater rights. In Libya, which held successful election in 2012 after the removal by popular revolt of
that country’s long standing dictator, Muammar Gaddafi.
 Fundamental Elements of Democratic Political Systems
• Freedom of opinion, press, religion, association, and access to
information
• Exercise of citizen power and civic responsibility, either
directly or through elected representatives
• Citizen equality in opportunity and treatment before the law
• Free, fair, and regular elections
• Majority rule coupled with protection of individual and
majority rights
• Fair and independent court system charged with protecting
individual rights and property
• Subordination of government to the rule of law
 Managing Political Risk and
Government Relations
1. Transfer risks
2. Operational risks
3. Ownership control risks
 Political Risks: Transfer Risks
• Government policies that limit transfer of capital, payments, production, people, and technology in and out of
country
– Tariffs on exports and imports
– Restrictions on exports
– Dividend remittance
– Capital repatriation
 Political Risks: Operational Risks
• Government policies and procedures that directly constrain management and performance of local operations
– Price controls
– Financing restrictions
– Export commitments
– Taxes
– Local sourcing requirements
– Trade barriers
 Political Risks:
Ownership Control Risks
• Government policies or actions that inhibit ownership or control of local operations
– Foreign-ownership limitations
– Pressure for local participation
– Confiscation(seizing of a company’s assets without payment)
– Expropriation (some reimbursement for the assets is made)
– Nationalization (government mandates local ownership)
Thank you