The figure below shows a PEST Analysis example of the new energy vehicles industry.Įxpanding the analysis to PESTLE To Cater the External Factors: Furthermore, technological shifts would affect costs, quality, and lead to innovation. These can determine barriers to entry, minimum efficient production level and influence the outsourcing decisions. Technological factors include technological aspects like R&D activity, automation, technology incentives and the rate of technological change. Furthermore, companies may change various management strategies to adapt to social trends caused by this (such as recruiting older workers). For example, the aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). High trends in social factors affect the demand for a company’s products and how that company operates. Social factors include the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Exchange rates can affect the costs of exporting goods and the supply and price of imported goods in an economy. For example, interest rates affect a firm’s cost of capital and therefore to what extent a business grows and expands. These factors greatly affect how businesses operate and make decisions. Furthermore, governments have a high impact on the health, education, and infrastructure of a nation.Įconomic factors include economic growth, exchange rates, inflation rate, and interest rates. Political factors may also include goods and services which the government aims to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Specifically, political factors have areas including tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors relate to how the government intervenes in the economy. The basic PEST analysis includes four factors: It has two additional columns L and E for listing the Legal and Environmental factors. The figure below shows a PESTLE Analysis example of a pharmaceutical company.

To gain this knowledge you need to conduct Porter’s Five Forces Analysis.Įdit in Diagram PESTLE Analysis PESTLE Analysis Example You also need to have a thorough understanding of your competitors and the impact they can have on your organization. Whilst understanding the macro-environment is essential for developing your strategy it only gives you half of the picture.The PESTLE Analysis enables you to create a list of the potential issues within your macro-environment that have or could have implications for your organization.Just using one technique may leave gaps in knowledge and understanding. Using the PESTLE and five forces techniques together help to provide a detailed picture of the situation facing an organization. Thus, senior management should carry out regular monitoring of the business environment to identify any influences that may require action. The analysis of the external environment should be an ongoing process for senior management, since the factors identified may provide insights into problems for the future or opportunities for new successes. Two techniques are used to examine the business environment within which an organization is operating: PESTLE analysis and Porter’s Five Forces analysis. It is a process to identify all the external and internal elements, which can affect the organization’s performance. Such changes occur constantly, and any organization that fails to identify and respond to them runs the risk of encountering business problems or even the failure of the entire enterprise.Įnvironmental analysis is a strategic tool. Many new things develop over time and the whole scenario can alter in only a few seconds. View and play PowerPoint presentations online.

Macro environment forces