Here’s all you need to know about PESTLE Analysis
“Business plan is a blueprint, detailing what business is or business concept is, what is expected for the business, how management intends to get the firm to that point, and, of greatest importance, the specific reasons why it is expected to succeed” (DeThomas and Derammelaere, 2008, pg. 7).
Analysis of Business Plan:
It is an approach to facilitate, research, analyze and map organizations’ abilities to achieve visions of the company based on the present conditions of the organization in terms of technology, process, business development and people’s capabilities. There are several tools that assist in business analysis. Of them, a well-known technique is the PESTLE Analysis technique.
(Other methods to consider – SWOT Analysis, 7S Model, VMost Analysis etc.)
The PESTLE Analysis Technique:
As the name suggests, the PESTLE analysis technique analyses the following operations of a business: P– Political, E– Economic, S– Social, T– Technological, L– Legal, E– Environment.
PESTLE Analysis is useful at initial stages of a business cycle or the stages where major changes/ expansions are planned like:
a) While business planning for a new product.
b) Launching the new product or services.
c) Business expansion in a new region or country.
d) Diversification of business operations in a different line of operations
e) Exploring a new route towards the target market.
1. Political factors
Political policies of any country are the backbone of any business. Any change in them, directly affects ‘how a company can produce’ policies. Some examples of such government policies include:-
– Foreign Investment Policies
– Visa and immigration of Business
– Other miscellaneous laws like employment laws, consumer protection laws, health and safety laws, trade restrictions, restrictive goods policy etc.
– Certain worldwide policies formed by the United Nations.
2. Economic factors
Economic factors have the potential to change the whole financial structure of the business. The financial forecasting, finance structure, profit percentage, cost of capital, interest rates etc. The economic indicators include:-
– Inflation Rate
– Taxes and Duties applicable to business profits, imports, exports etc.
– Exchange Rates (Rate of conversion of Local Currency in global terms)
– Finance and Credit (Bank rate, rate of interest on finance, debt rate etc.)
– Cost of living
– National Income of the country like- GDP (Gross Domestic Product), GNP (Gross National Product Organizations need to develop flexible policies in order to meet the fluctuations of the inflation rate and its impact on globalization and consumption pattern.
3. Social Factors
They are directly connected to consumer sentiments. Their ignorance can create labour and promotional issues. The success of a business in international market operations depends on the depth and applicability of research in social factors, getting this wrong can create a negative impact on business investments. Social factors include:
– Consumer Lifestyle of the target customers
– Income statistics
– Consumption pattern of the society
– Religions and custom beliefs
– Cultural and social conventions
– Population growth
– Cross-culture communication in global market, health and career opportunities etc.
4. Technological Factors
By using PESTLE analysis, organizations can brainstorm the suggestions make them practically applicable in business operations. This encourages innovation and creation of exciting products to ease human life towards a healthy and comfortable lifestyle. Implementation of the below can attain a strong competitive edge and also save time and cost for the business:
– Automation of business operations wherever possible
– Research and development
– Outsourcing of operations to the experts of the fields
– Better quality and reduction in pricing
– Better production techniques
– License and patents
5. Legal Factors:
PESTLE Analysis considers the laws and legal environment of both, the country of origin of business and the country where the business is to expand. A number of regulatory bodies are formed especially for the surveillance of issues like quality standard monitoring and standardization, employee welfare, waste disposal, safety compliances, global accounting regulations etc. The licensing of a business is directly dependent on the compliance of all such legal factors and policies set by the government of a country, applicable at regional, national and international level. In-Depth knowledge of all these factors is included in the PESTLE report.
6. Environmental Factors:
Protection of the environment is a global concern and its protection has become a joint responsibility irrespective of the country of operations. With the PESTLE, a business can look at how the potential changes to climatic and weather patterns can have implications in an organization’s operations.
Advantages of PESTLE analysis:
1. It suggests bridging of the gap between the internal and external factors of the business.
2. Simple to carry out, easy to use framework.
3. Provides flexibility in operations.
4. Encourage development beneficial for both (business and customers)
Disadvantages of PESTLE analysis
1. Time and cost consuming.
2. Provides problems, not the solutions.