PESTEL analysis is an analytical tool that is used for the strategic planning of a business. It is a means through which a business is able to review the political, economical, social, environmental and legal issues that impact its operations. It should be noted that these six factors can either affect a business positively or negatively. In conducting the PESTEL analysis, managers and owners of businesses can follow certain guidelines or answer some questions in order to come up with the results.
In the PESTEL analysis, political factors are mainly external to the operations of a company. They can include elements like government regulations or even the activities of individuals that can impact the performance of the company or business. Through conducting a review of the political factors, a company can determine how increase in revenue will impact its tax liability, the barriers to its entry into new markets based on the existing laws and also the results of its violation of political regulations and laws.
Economical factors are also classified as external in the PESTEL Analysis. When looking at these factors, it is important to note that there are certain economic trends that a company cannot manipulate like consumer income, spending habits, available credit, inflation, interest rates and current money supply levels. However, a company must keep these factors in check and operate within a given boundary in order to match the prevailing economic atmosphere. For instance, taking lots of debts when the interest rates are expected to hike in the future can have very bad consequences on a business.
Social factors of this analysis are related to the cultural trends and demographics in a local economy. It should be noted that demand for goods and services changes as the population ages. Thus, it can be argued that such a population has a higher demand for healthcare compared to electronics. Besides, a constantly growing population a result of higher birth rates or immigration impacts a change in preferences.
Environmental factors highlight the physical environment where a company or business operates. It comprises of natural resources like minerals, wildlife, waterways among others. Besides, companies have to also consider their impact on the environment and the opinion of the public regarding their practices.
Technological factors are of increasing concern in the PESTEL analysis. As the technology keeps changing, it is also expected that a company should adapt to them. A good company or business should always be aware of the emerging technologies in order to take advantage of them. Failure to keep with the changes can give your competitors an upper hand.
Legal factors in PESTEL analysis refer to the future changes in the existing laws and regulations. Governments often add or amend certain laws and regulations that can impact business activities to varying extents. It is very important for every company or business to stay up to date with information on government regulations in order to know how to frame their activities for profitability. For companies or businesses that operate internationally, it is important to consider the laws of other countries as well.
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