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Business analysis is an essential practice that ensures the success of a company and provides the right direction.
PESTEL analysis is a framework of macro-environmental factors that determine the success of any business. It is an external analysis and involves doing market research.
You can use PESTEL analysis as a strategic tool for understanding market growth or decline, business position, potential, and direction for operations.
The basic parts of PESTEL analysis include:
- Political factors
- Economic factors
- Social factors
- Technological factors
- Legal factors
- Environmental factors
- Demographic factors
- Regulatory factors
Political factors involve everything on how government intervene in the economy that include tax policy, labor laws, environmental laws, trade restrictions, tariffs, and political stability. These factors also include what government wants to provide and what does not.
Economic factors include economic growth, exchange rates, inflation rate, and interest rates. Also, economic factors can change how your business will operate. In fact, economic factors can lead a business to bankruptcy if you don’t anticipate them in advance.
Social factors include the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes, and emphasis on safety. Also, social factors impact the demand for products or services. Ultimately, playing a big part in revenue generation.
Technological factors include technological aspects like R&D activity, automation, technology incentives, and the rate of technological change. These can determine barriers to entry, minimum efficient production level, and influence the outsourcing decisions. Furthermore, technological shifts would affect costs, quality, and lead to innovation.
Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.
Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.
Demographic factors include gender, age, ethnicity, knowledge of languages, disabilities, mobility, homeownership, employment status, religious belief or practice, culture and tradition, living standards and income level.
Regulatory factors include acts of parliament and associated regulations, international and national standards, local government by-laws, and mechanisms to monitor and ensure compliance with these.
Use PESTEL analysis for your business. You’ll get a clear direction, and you’ll never make blunders.