PESTEL Analysis Lecture Notes by Lars

Introduction to PESTEL

• PESTEL (also known as PEST, STEEPLE, DESTEP, STEP) analysis is a tool to analyze the external environment of an organization.
• Useful when starting a new business or entering a foreign market or different industry.
• Focuses on macro environmental factors that have a one-way impact on the company (not task environment factors like competitors or customers that interact directly with the company).
• For understanding the task environment, use Porter's Five Forces.

Components of PESTEL Analysis

1. Political Factors

   • Government intervention in the economy/industry
   • Examples: government policies, political stability, corruption, foreign trade policies, tax policies, impact on education, infrastructure, health sector

2. Economic Factors

   • Determinants of economic performance impacting the company
   • Examples: economic growth, exchange rates, inflation rates, interest rates, disposable income, unemployment rates
   • These factors influence purchasing power of consumers and market demand

3. Social Factors

   • Demographic characteristics, norms, customs, values of the population
   • Examples: population growth rate, age distribution, income levels, attitudes towards careers, health, lifestyle, cultural barriers
   • Important for understanding the local workforce and consumer market
   • Can be divided into demographics and cultural/intercultural factors

4. Technological Factors

   • Innovations and technological regulations impacting the market/industry
   • Examples: technology incentives, level of innovation, automation, R&D activity, technological change, technological awareness
   • Influences decisions on entering industries or launching products

5. Environmental Factors

   • Ecological aspects due to raw material scarcity, pollution, and climate change
   • Examples: weather, climate stability, environmental regulations, carbon footprint targets
   • Increasing importance due to sustainability practices and corporate social responsibility

6. Legal Factors

   • Specific laws impacting operations
   • Examples: discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright laws, health and safety laws
   • Essential for legal operation, especially in global trade with varying laws across countries

Using PESTEL Analysis

• Important factors vary by country and industry (e.g., environmental factors are critical for the oil industry but less so for software industry).
• Weighted Averages Method:
  • Select most important factors for the business
  • Assign weights based on importance
  • Grade each factor per potential market/country
  • Calculate weighted averages to compare options
  • Example: European company entering South American markets using economic growth, corruption, and intellectual property protection as criteria

Data Sources

• Various factors are quantified and scored on many websites (e.g., Corruption Perception Index).
• Useful links provided in the lecture description for specific sources.

Conclusion

• PESTEL analysis provides a comprehensive overview of the general environment for strategic planning.
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