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PESTEL Analysis

As discussed above, the PESTLE model is a method for analysing the external macro-environment that a firm finds itself in. PESTEL can also be written as PEST, SLEPT, STEEPLE, EPISTEL and a variety of other acronyms. The extra “E” in STEEPLE refers to ethical aspects, and the “I” in EPISTEL refers to information aspects. However, the ultimate framework remains the same, and involves focusing on the main external factors which are generally outside the control of a single firm and are generally specific to a certain country or region, and all markets within in.

The political aspect generally refers to the degree of political stability in a country, its preferred trading partners and the influence of the government on markets. For example, France has a stable government with preferential ties to the other EU members and a desire to maintain a social labour market. In contrast, whilst Russia also has a stable government, it prefers to trade with its former Soviet allies, and will actively promote industries and companies that it perceives as being important to its strategic interests.

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Economic analysis focuses on the degree of market freedom, together with the availability and cost of labour and resources. It also focuses on the efficiency of financial markets and the general stability of the exchange rate and economy in general. Other factors include interest and inflation rates, whether the economy is developed or developing, the current stage of the business cycle and the rate of economic growth.

The key social factors tend to be the demographics and culture of the population. For example, China has a high population, growing rapidly, with a culture focused on group success, and a large number of working class people. In contrast, Ireland has a lower population which is not growing as strongly, a culture which focuses on individual achievement and a larger proportion of middle class citizens. Social characteristics also include education levels, leisure interests and attitudes to factors such as health, the environment and marketing.

The technological side tends to be concerned with the level of technological development of a country or region, and how this impacts on the general level of products in the market and the population’s attitude towards technology. This can also be driven by the current rate of technological development and technological diffusion. Finally, the impact of technology on the cost and value chain structures needs to be considered.

Legal factors are often connected to political factors, particularly if the analysis is abbreviated to PEST. However, in many economies the legal factors are influenced by regulators and bodies which are separate from the government of the time. They include the legal basis for contract enforcement and property rights; any trade or product regulations; the existence of anti-trust laws and labour laws; pricing and labelling regulations; and health and safety regulations.

Ecological, or environmental, tend to be more concerned with the natural world, and how businesses may impact on that. For example, companies must be aware of any endangered species or habitats in locations where they plan to construct facilities. Even if the social factors of the country where they are operating do not support maintaining the environment, major companies can still see a backlash from consumers in other markets if they do not consider ecological factors in their strategies.

As can be seen from the discussion above, there are a potentially limitless number of factors in the macro-environment. As such, most firms will tend to focus on the most important factors, particularly those which may affect its industry. However, firms must be careful to continue to analyse the environment to predict and react to any future changes in the critical macro-environmental factors, particularly in an uncertain and dynamic environment.

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