PESTEL Analysis for Macro-Environment

PESTEL Analysis is used for the assessment of macro-environment (environment which indirectly affects business decisions) in which the business operates. Managers have to identify changes in macro-environment that influence their business decisions. These can be identified using PESTEL analysis.

In exams, using this framework ensures that we have gathered sufficient information necessary to analyze the scenario. Other frameworks used are equally acceptable. Below discussed factors are interrelated, points discuss in one factor can be included in other.

1. POLITICAL.
   The following points to be considered when evaluating the political environment of the industry or business.
   
   1. Availability of government grants or assistance in the form of cash or other asset perhaps upon fulfillment of some conditions.
   2. Award schemes to enforce quality standards.
   3. Stable or dynamic political environment i.e. is the government changes frequently resulting in changing policies being implemented by every new government or the country are under martial law or war?
   4. Rules and regulations are polite or stringent. This indicates the venerability of the business to legal risk i.e. fines (can be discussed under legal also).
   5. Barriers to entry and exit. Example by imposing licensing requirements.
   6. Provision of training to workers.
   7. Provision of infra-structure, includes sewerage, transportation and energy.
   
    
2. ECONOMICAL
   1. Business cycle, identify the stage from which the business is suffering. The stages are depression, recession, recovery and boom.
   2. Industrial cycle, identify the stage from which the industry is suffering. The stages are introduction, growth, maturity and decline.
   3. Access to resources, finance at reasonable cost, workers at reasonable rates, material economically and easily and equipment with maintenance and spare parts.
   4. Customers & suppliers, their availability and bargain power should be assessed.
   5. Taxation policies i.e. direct or indirect taxation and rates
   6. Inflation, interest and exchange rates.
   7. National income can also influence demand for the firm's product.
   8. Level of unemployment in the country, high unemployment may suggest that employer has dominant position and can negotiate low wage rate with workers
   9. Stock market condition rising stock market index means rising demand of shares in the stock market may suggest easily availability of finance at cheaper cost.
      
       
3. SOCIAL
   1. Stakeholders demand, taste and behavior. Example customer, financers and supplier who may not support if your business conflicts their principles.
   2. Increasing or decrease population. Increasing population may suggest that higher demand for younger people products e.g. toys while decreasing population suggests opposite.
   3. Attitude to work. Are people committed to their work or they just comply with standards. Healthy workers are more productive than overstressed workers.
   4. Income distribution, how wealth for the country is scattered among individuals, even distribution may suggest that majority of the people can buy our product while uneven distribution may suggest that majority is poor and minority is rich which create demand for high volume and low priced and low volume high priced products respectively.
   5. Social footprint. Impact that business leaves on the society
   6. cultural change should be identified e.g. identifying societies leisure activities, changes in customs.
      
4. TECHNOLOGICAL
   1. Stable or robust. Stable environment may suggest longer product life cycle and low level of obsolesces while robust environment suggests otherwise.
   2. New product developments may permit doing business more efficiently, cost-effectively and effectively. Employer may move towards automation, this is turn may affect other factors of the framework
   3. Innovation leads to break-through in economy and it may affect society as well. Example facebook, youtube are the products which affecting youths behavior.
      
       
5. ENVIRONMENTAL
   1. Green house effect has affected the way business trades. There are increasing demands of environment friendly products. Example using hybrid cars and paper bags instead of plastic bags.
   2. There are increase emphasis on environmental footprints and sustainability.
   3. There are legislations being enacted related to environment. This forces the business to change its policies (the way they do business) and disposal costs to business like restoration of site.
      
       
6. LEGAL
   1. Competition law imposes restriction of mergers and acquisitions to promote efficiency gained through competition.
   2. Employment legislation protects rights of workers by setting minimum wage requirements, anti-discrimination and anti-harassment legislation.
   3. Health and safety legislation to protect workers.
   4. Imposition of high import duties to protect home industries.
   5. Licensing requirement as discussed above

Students are advised to think as many points as possible so they can quickly identify if they come in the exam scenario. Having thought its impact on business activities can save you lot of time.
PESTEL ANALSIS is frequently used framework in exams and in practice. It is worth spent some time on it.