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Understanding your company's external environment

A PESTLE analysis helps you understand the external macro-environment that affects all firms. P.E.S.T.L.E. is short for Political, Economic, Social, Technological, Legal and Environmental factors of the external macro-environment. Such external factors usually are beyond the firm's control and sometimes present themselves as threats. However, changes in the external environment can also create new opportunities.

Political Issues

  • Political stability
  • Risk of military invasion
  • Favoured trading partners
  • Pricing regulations
  • Taxation - tax rates and incentives
  • Wage legislation - minimum wage and overtime
  • Work week
  • Mandatory employee benefits
  • Product labelling requirements

Economic Issues

  • Type of economic system in countries of operation
  • Government intervention in the free market
  • Comparative advantages of host country
  • Exchange rates & stability of host country currency
  • Efficiency of financial markets
  • Infrastructure quality
  • Skill level of workforce
  • Labour costs
  • Business cycle stage (e.g. prosperity, recession, recovery)
  • Economic growth rate
  • Discretionary income
  • Unemployment rate
  • Inflation rate
  • Interest rates

Social Issues

  • Demographics
  • Class structure
  • Education
  • Culture (gender roles, etc.)
  • Entrepreneurial spirit
  • Attitudes (health, environmental consciousness, etc.)
  • Leisure interests

Technological Issues

  • Recent technological developments
  • Technology's impact on product offering
  • Impact on cost structure
  • Impact on value chain structure
  • Rate of technological diffusion

Legal Issues

  • Import and export controls and tariffs
  • Legal framework for contract enforcement
  • Intellectual property protection
  • Anti-trust laws
  • Trade regulations & tariffs

Environmental Issues

  • Emissions and waste control
  • Packaging recycling requirements
  • Sustainable energy controls
  • Industrial safety regulations

The number of macro-environmental factors is virtually unlimited. In practice, the firm must prioritize and monitor those factors that influence its industry. Even so, it may be difficult to forecast future trends with an acceptable level of accuracy.

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