Impact of external influences - PESTLE 3.1.4
PESTLE - is a method used to analyse external influences on a business, in particular Political, Economic, Social, Technological, Legal and Environmental influences.
External environment - is all of those factors outside of their control of a business that will impact on its day to day operations, decision making and strategies.
Fiscal Policy - They ways the government can adjust spending and taxation to influence the national economy
Monetary policy - The ways the government, via the Bank of England, can alter how much money is circulating in the economy and the level of interest rates to create stable prices and a set inflation target.
PESTLE can be used by a business to make the most of factors that are seen as beneficial and minimise the impact of factors that have a negative impact. The advantage of PESTLE is that like SWOT it can help identify area of opportunity and threat. A disadvantage is that time and money need to be spent gathering data to perform the analysis. Unless the business can be unbiased and critical about the environment in which it operates, the approach is likely to have limited value.
Example: Farmers are concerned over whether the government will provide subsidies to help their business after the UK leaves the EU.
Businesses also need to consider industry regulation, such as the new living wage for staff aged 25 and over, incentives offered by the government such as grants and loans, and fiscal and monetary policy.
For example, a government may impose a new tax or duty due to which entire revenue generating structures of organizations might change. Political factors include tax policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent.
For example, a rise in the inflation rate of any economy would affect the way companies’ price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns etc. It also accounts for the FDI (foreign direct investment) depending on certain specific industries who’re undergoing this analysis.
External environment - is all of those factors outside of their control of a business that will impact on its day to day operations, decision making and strategies.
Fiscal Policy - They ways the government can adjust spending and taxation to influence the national economy
Monetary policy - The ways the government, via the Bank of England, can alter how much money is circulating in the economy and the level of interest rates to create stable prices and a set inflation target.
PESTLE can be used by a business to make the most of factors that are seen as beneficial and minimise the impact of factors that have a negative impact. The advantage of PESTLE is that like SWOT it can help identify area of opportunity and threat. A disadvantage is that time and money need to be spent gathering data to perform the analysis. Unless the business can be unbiased and critical about the environment in which it operates, the approach is likely to have limited value.
Political
It looks at the political aspects as how regional, national and international laws and government policies could affect the business.Example: Farmers are concerned over whether the government will provide subsidies to help their business after the UK leaves the EU.
Businesses also need to consider industry regulation, such as the new living wage for staff aged 25 and over, incentives offered by the government such as grants and loans, and fiscal and monetary policy.
For example, a government may impose a new tax or duty due to which entire revenue generating structures of organizations might change. Political factors include tax policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent.
Economic
This looks at a variety of economic factors that may impact on business performace, such as consumer activity, economic activity, economic variables and exchange rates. A key economic indicator for a business is GDP, the toal value of output in the UK, a measure of how well the economy is doing.For example, a rise in the inflation rate of any economy would affect the way companies’ price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns etc. It also accounts for the FDI (foreign direct investment) depending on certain specific industries who’re undergoing this analysis.
Social
Looks at the demographic changes, such as the UK's increasing and ageing poplation, changing lifestyles and changes in consumer tastes and fashions, such as the need for more environmentally friendly vehicles.
An example for this can be buying trends for Western countries like the US where there is high demand during the Holiday season.Technological
Looks at such issues as new production processes, the adoption of mobile technology and disruptive technologies. Disruptive technologies are innovations with a product or service which create a new market and eventually transform an existing market.
For example, the development of driverless cars is likely to disrupt several markets, including the use of taxis. Companies such as Uber are alrady threatening the traditional market with their servces.
Legal
Looks at issues such as employment, health and safety laws and environmental legislation. These can be issues not just in the UK market but also in any international market in which the business operates. For example, in China the minimum wage is £2.17 per hour for an 18 year old worked compared to £5.30 for the UK minimum wage per hour. Both are a legal requirement but clearly businesses that can outsource their manufacturing to a country with more beneficial legal framworks can gain a competitive advantage.
Environment
Issues including sustainability, the business's impact on its environment, pollution and carbon emissions. Some businesses focus their product on attracting customers and investors for their environmental credentials. For example, the electricity generator Ecotricity sells energy that is generated purely through renewable energies such as wind. This allows the company to sell electricity at a premium price compared with other providers.
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