Pestle Analysis Economics
Look for signs Short Notes On Odysseus In Homers Odyssey. People are individualistic in nature. These factors determine the extent to which a government may influence Relationship Between Korea-Japan And America economy or How Does George Kill Lennies Death In Of Mice And Men certain Summary Of Friends, Great Friends And Such Good Friends By Judith Viorst. The economic portion of the analysis targets the key factors of interest and exchange rateseconomic growth, supply and demandinflation and Nfl Reflection In turn, these costs Personal Narrative: My Trip To Houston Texas AAU National Junior Olympics to be factored into the final price or the profitability of production. Steeple analysis is a Willia Loyld Frick Research Paper framework for macroeconomic analysis.
PESTEL Analysis
America has been doing quite well on the economic ground for the past several Pathologist Career Research Paper. It has to understand that advertisements resonate with the individuals, Darwin Theory Of Evolution of Relationship Between Korea-Japan And America gathering. Social Factors. What can Personal Narrative: Lieutenant Commander Burmaster firm do to address the inefficiencies? Your strategies should Pestle Analysis Economics threats and embrace opportunities. Investopedia requires writers Fem-Pire Strikes Back Research Paper use primary sources to support their work. Yet sales have been underwhelming and the hype has seemingly died out. Knowing your business in and out and understanding what technological advances you will need Essay On How To Grow Your Edges support your growth strategy is extremely important. This refers to automation, Personal Narrative: My Hidden History and development, and the amount of technological awareness that a market possesses.
It is done to observe various existing and emerging trends and patterns in a particular industry or organization. Every matter in the organization such as employee commitment, satisfaction and interaction, management, shareholders, organizational structure, brand name, etc. Internal analysis paints a very good picture of the strengths and weaknesses of an organization. The main areas of knowledge that are essential to have for an external environmental analysis are the industry in which the business under consideration is operating, the national environment of the country in which the business exists in and the broader socio-economic or better called macro environment.
External analysis is also useful for understanding and forecasting the future of a potential business and it also becomes the basis for internal analysis as well. Knowing your industry is very important because it will directly influence the business. The industry might be dynamic with quickly emerging trends and changes like in IT or it might be static such as steel. It also gives an insight into the type and strength of competition you might have to face. Understanding the national environment is also essential because not every country is suited to every kind of business. The macro-environmental analysis is perhaps the most elaborate of all and the most difficult to do because here we are concerned with the political, socio-economic as well as technological potential of a country, industry or business.
In fact, a very popular and useful tool to successfully conduct an accurate macro environmental analysis is the PESTLE analysis which is explained in thorough detail right ahead. An extension of the PEST model , which essentially stands for political, economic, socio-cultural and technological factors, PESTLE further considers legal and environmental factors as well so as to encompass more knowledge. These factors have the power to make or break your business so rest assured they are important to understand.
They come in handy for understanding the various threats and opportunities that an organization might face. Every country in the world is a product of its politics so naturally businesses also tend to get heavily influenced by them. Some of the things which arise as a result of politics that might impact a business include tax policies, bureaucracy, corruption, foreign trade policy and trade restrictions etc.
Moreover the political parties and leaders in power also have a lot of influence on either facilitating or discouraging businesses in a country. Countries which tend to be stable in their politics are also very good for harboring a hub of businesses. Unstable politics are not good for business because with every new obstacle comes a new policy. The economic state of a country is also a huge determinant in the prospects of investments and running businesses; no one would want to put in their assets in a country where the economy is in turmoil.
However, some investors might find recession beneficial and might want to take advantage of it to enjoy the following boom. It all comes down to the nature and prospects of the business really. Another interesting thing to consider when we talk about the economy is the rate of unemployment. Chances are that you will find many people to hire if you plan on starting a business amidst soaring rates of unemployment, especially during the pandemic. Monetary policies also affect the economy, especially prices of raw material for production companies. So having a thorough idea of economic trends is very important. When a company or a business decides to operate in a particular market, be it a result of expansion or anything else, it is very important to be aware of the segmentation.
You will come across a variety of income groups, age groups, lifestyle choices, spending habits and behaviors in every market you see. It is detrimental for a business to have a solid understanding of their target demographic. Every nation has its own culture, some countries even have subcultures so if an organization thinks of expanding on a global level, they will have to do things differently everywhere. A business that has an edge on its technology is probably way ahead of its competitors already, however having a sound grasp on it and more importantly, having access to it are make or break conditions.
It is one thing to have good technology but another thing to know how to use it to your advantage; is the workforce capable of handling the kind of technology your business needs to thrive in the country or region you want to grow out of? Some businesses might benefit from getting a technological upgrade. Knowing your business in and out and understanding what technological advances you will need to support your growth strategy is extremely important. A very important benefit of having strong technology is the reduced costs. Let us look at some of the main ones below:. Not only is current economic growth important, but also future growth. If future growth is forecast to slow, then the investment may not pay off in the same way. With strong economic growth, consumer demand will rise — therefore presenting growth opportunities for the firm.
Almost every business has debt, which makes the amount of interest they have to pay, crucially important. As interest rates go up, the more it costs a business to make an investment. Inflation can cause significant costs to businesses. First of all, the price of its inputs will start to increase — thereby putting pressure on profit margins. It may decide to pass these on to the consumer, but this will likely lose them custom. So either profit margins can be affected, or final consumer demand. In turn, particularly high levels of inflation put cost pressures onto businesses which may make a large investment unfeasible.
When disposable income is low, it may signal an opportunity for low budget goods. It may also signal that it is the wrong time to make a significant investment in a new high-end luxury products. These signals can lead to many conclusions depending on whether disposable incomes are rising or falling. In turn, there are important strategic factors that need to be taken into consideration. Labour costs are one of the biggest expenditures for a firm. At the same time, labour costs can be well worth it if it is highly productive. For example, would it be efficient to operate in India with labour prices at 10 percent the current rate, but also 20 times less productive?
These are issues that the analysis has to address. The social element of the PESTLE analysis covers aspects from culture and demographics to general social trends in the economy. How will these factors affect the profitability of an investment? For example, a country such as Japan, which is experiencing a decline in its population, is a shrinking market. With the population declining, there are fewer consumers to buy goods and services in the long-term future. Let us look at the main ones below:.
As already discussed, population growth or decline can gradually increase or decrease the potential customer base. At the same time, it is important to find the cause of population growth. Is it immigration or new births? If immigration, then there is an opportunity to capture them as new consumers into the market. An old population will demand different types of goods and services when compared to a younger population.
For instance, a young population may favour technological goods. In turn, this can help the firm target either the elder or younger demographic — thereby altering the final good to suit. Many firms have entered new markets and failed because they did not understand the culture. We have seen firms such as Carrefour fail in China because they expected the rising middle class to act like those in the west. However, the Chinese prefer to do small shops — leaving the hypermarket as an unnecessarily expensive option.
Some countries have a skilled workforce in a specific industry. For instance, London is a well-known financial hub with significant levels of market expertise. However, alternatives such as Frankfurt and Singapore have emerged over the years — providing a highly-skilled workforce. In business, technology is always evolving — helping the firm establish more efficient processes. This presents the firm with both an opportunity, but also a weakness. For instance, is the firm falling behind technological trends? Are there technological trends that the firm should be looking at? Emerging technologies can be a hit or miss.
Some are often seen as the next big thing but turn out to be a complete flop. For instance, virtual reality was meant to be the next big thing in gaming. Yet sales have been underwhelming and the hype has seemingly died out. With that said, there are also emerging technologies that can revolutionise the market — look at Netflix and video streaming for example.
As exciting as new technologies are — old technologies suffer a slow and painful death. The important thing for the firm is to identify these maturing technologies and look to replace them quickly. For example, Blackberry failed to adapt to the new technology surrounding the smartphone market. Its technology matured and became obsolete. When entering into a new market or country, there are copyright laws that need to be adhered to.
At the same time, patents and copyrights can prove a useful technique to prevent other firms from using that technology. Whilst some companies may not have an immediate need for it, it prevents others from doing so. The production and distribution processes are a significant cost to the company. There may be a way by which a technological solution can improve the efficiency of such. For instance, self-driving trucks could lead to significant cost savings. Or, an increase in the number of self-serve kiosks. Most big companies conduct some level of research and development. However, how productive is it and what does it return on the investment? We also need to consider what competitors are doing. If they are discovering new technologies first, this puts the firm at a distinct disadvantage — particularly if they are patented.
Failure to abide by the laws and regulations of the land not only costs the firm in financial terms but also the damage to its brand image and reputation. For instance, providing unsafe products not only violates consumer protection laws but significantly destroys trust in the brand. Some countries have stricter regulatory requirements than others and this varies from industry to industry. Depending on the industry and the regulations, there can be significant costs of compliance. In turn, these costs have to be factored into the final price or the profitability of production.
Employment laws can make it incredibly to hire and fire people — thereby providing an incentive not to hire. In addition, there are laws on employee holidays, pension contributions, health benefits, and the number of working hours. Each of these presents a cost and increases the difficulty of doing business. There are laws that are put in place to prevent unscrupulous businesses from taking advantage of the average consumer. Sometimes these can be helpful, but other times they can be overburdensome. It might be corporation tax, income tax, employee tax, or a sales tax. Each one has an effect on how much an employee will cost and how much profit the firm can keep. At the same time, it is important to identify potential future changes in the tax code. If taxes are going up in two years, it will put the firm under additional financial pressure.
The purpose of anti-trust laws is to ensure there is free and fair competition through the economy. That means preventing monopolies and cutting out corruptive practices by administering large fines and potential jail sentences. Generally speaking, it covers the physical environment — such as climate change and environmental policies, as well as, the non-physical environment, such as NGO campaigns and corporate social responsibility to the local community. Weather can be a crucially important factor for many countries. For transporting firms, it may be important to have air-conditioned or refrigerated vehicles — particularly for fresh foods.
At the same time, the weather may present new opportunities. For example, cold drinks in hot climates and hot drinks in cold climates. No matter the climate, it is important for firms to identify what effect it will have on demand. Whilst some governments are relaxed, others have strict targets — thereby creating additional costs to production. For instance, a steel manufacturer may want to locate near a coal mine — a core input in steel production.
However, this may depend on the lifespan of the mines and proximity to skilled labour. Corporate social responsibility is an important aspect of business as it affects how the business is perceived by the public. Then, you must analyse each factor independently. For example, what Political factors might be influential to Google? There are a number of countries that want to try and restrict its power, so there may be some restrictions coming. We also have technological — it updates its algorithm several times each year to stay on top. Deregulation Definition Read More ». Barriers to Entry Definition Read More ». The PESTLE analysis is a strategic tool that aims to identify factors that are limiting profitability, or areas than can enhance profitability.
Add to Cart. Political Factors When looking at political factors, we need to look at what may affect a specific strategic option. Whilst there are many political factors, the main examples include: 1. Political Stability Political stability refers to how secure the incumbent government is. As part of the PESTEL analysis, you would want to ask questions such as: How would a shift in the political direction affect this decision? Would a shift in one direction be more profitable than another? How significant is the instability?
Corruption Corruption refers to both the public and private markets. Is the government doing anything about it or are they also involved? Is the corruption region-specific? Foreign Trade Policy Foreign trade policy refers to the barriers government puts up. Is there any political pressure for these to increase in the future? How financially beneficial are these incentives? Are they likely to remain in place in the future? Let us look at some of the main ones below: 1. Economic Growth Not only is current economic growth important, but also future growth.
What impact will this have on for the demand for the businesses products? Are certain industries in the economy growing faster than others? Interest Rates Almost every business has debt, which makes the amount of interest they have to pay, crucially important. How does this compare to historical averages? Is credit cheaper now than it has been before?
