Global Business Environment: The Pestle Analysis - Coursework Example

Running Head: GLOBAL BUSINESS ENVIRONMENT GLOBAL BUSINESS ENVIRONMENT: THE PESTLE ANALYSIS By University name City, State Date Table of Contents I. The Purpose of a PESTLE Analysis…………………………………………………….3 II. The Various Elements of a PESTLE Analysis…………………………………………..3 III. A PESTLE Analysis’ Position in the Strategic Process…………………..……………….4 IV. The Pestle Analysis as a Tool for Identifying Issues in the External Macro-Environment.6 1) Political Issues…………………………………………………………………..…….7 2) Economic Issues………………………………………………………...….………….8 3) Sociological Issues…………………………………………..……………………….9 4) Technological Issues………………………………………………………..……...10 5) Environmental Issues………………………………………………………..……….11 6) Legal Issues…………………………………………………………………..…….12 V. Dangers of Using a PESTLE Analysis………………………………………………….12 VI. Conclusion……………………………………………………………………………..13 VII. References………………………………………………………………………….14 Global Business Environment: The PESTLE Analysis I. The Purpose of a PESTLE Analysis The key purpose of a PESTLE analysis is to find and examine the main contributors of change in strategic or enterprise settings. Harvard lecturer Francis Aguilar invented the PESTLE analysis as a tool for strategic assessment (Hamilton & Webster, 2012, p. 49). The main concept revolving around the PESTLE analysis is that if an organisation is better positioned than its rivals are, it can react to change more successfully. Businesses can perform a PESTLE analysis for enterprise, strategic, and promotion planning. Additionally, a PESTLE analysis can serve to develop products and design organisations externally. II. The Various Elements of a PESTLE Analysis PESTLE is an abbreviation that represents political, economic, sociological, technological, legal, and environmental factors respectively (Hill, 2012, p. 319). The political factor includes ongoing and potential forces on a business or project from political tensions or activities. The economic factor comprises of local, domestic, and international effects of economic activity and performance on a business or project. The sociological factor includes ways wherein changes in societal behaviour influence a business or project. The technological factor mirrors the impact of new and budding innovations on a business or project. The legal factor includes effects of national and international law on an organisation or project. Lastly, the environmental factor consists of local, domestic, and international environmental problems that affect a business or project. A PESTLE analysis categorises the effects of a project or business’ external environment (Hamilton & Webster, 2012, p. 61). Conducting a PESTLE analysis is advantageous to the growth of an organisation or the progress of a project. All six elements of a PESTLE analysis enable a thorough examination of the effectiveness and ineffectiveness of external factors on a business. Many organisations consider the elements of a PESTLE analysis worthy strategic techniques for preparing for imminent market collapses or growths, changes in business positioning, likely developments, and building future operational approaches. III. A PESTLE Analysis’ Position in the Strategic Process A PESTLE analysis makes up the third process in the process of strategy, which is strategy assessment (Hamilton & Webster, 2012, p. 53). Strategy assessment determines the efficiency of business or project strategy. At this phase, many organisations or project managers find it very vital to carry out a SWOT or PESTLE analysis to figure out the nature of its internal and external environments (Qasemi, 2010, p. 5). Assessment requires the organisation to embark on certain cautionary courses of action or even switch to a completely new strategy. In corporate strategy, a PESTLE analysis serves as a model wherein an organisation can assess strategic alternatives. A PESTLE analysis allows an organisation or project to assess flexibility, viability, and acceptability. PESTLE analyses largely depend on secondary data like newspapers, periodicals, and recent texts (Brooks, Weatherston, and Wilkinson, 2011, p. 28). As a result, business organisations, public agencies, industry specialists, and fiscal reviewers find it very reliable. The feature of a PESTLE analysis as a tool for strategic assessment in relation to research works is unique in the sense that it requires data collected from primary sources of data. From this position, a PESTLE analysis paints a more realistic image of a business or project than another strategic tool for assessment. Based on the findings of a PESTLE analysis, the business or project manager can exploit environmental opportunities better and avert threats. This expansion further allows the business or project to progress in future horizons. Strategic assessment calls for the adaptation to influential forces of change, risk aversion, and assumptions (Hill, 2012, p. 170). A PESTLE analysis considers these two key causal factors in its elements and strategic functionality. First, a project or enterprise that effectively applies a PESTLE analysis makes sure its operations align positively with the influential forces of change that impact its working surroundings. By exploiting change, the project or business raises its chances of success in contrast to opposing these forces. Second, using a PESTLE analysis appropriately avoid threats that may have led to failure because of externalities. Lastly, a PESTLE analysis is suitable for the launching of a new commodity by enabling the organisation or project to break away from assumptions. In the process, the business or project rapidly becomes flexible and adapts to the realities of the external environment. The six elements of the PESTLE analysis differ in significance because of the kind of business or project (Cadle, Paul, & Turner, 2010, p. 6). For instance, social elements are clearly more applicable to consumer enterprises or business-to-business dealings close to the consumer side of a supply chain than service companies are. On the other hand, political elements are clearly more applicable to a defence freelancer or aerospace company. Differing significance is good for assessing hazards a business or project faces, which is the strategic position for a PESTLE analysis. Differing levels of significance allow for effective usage of a PESTLE analysis (Qasemi, 2010, p. 4). This usage includes comprehensively scanning the external macro-environment wherein a business or project operates. Such scanning allows an organisation to assess market expansion or contraction and consequently market position and guidance. As a tool for assessing a business or project strategically, a PESTLE analysis brainstorms opportunities, risks, and move forward (Hamilton & Webster, 2012, p. 72). First, when a business notes the changes occurring in its environment, analysing every change requires brainstorming any potential opportunities. A PESTLE analysis is most suitable for this brainstorming activity. For instance, a PESTLE analysis helps a business find out whether changes in its environment can assist in building new commodities, uncovering new markets, or making business processes more proficient (Qasemi, 2010, p. 5). Second, a PESTLE analysis helps businesses consider how changes in the external environment pose as threats to its future. Knowing these risks early enough can foster the avoidance of any future issues or alleviating their effect on the business or project. Lastly, the identification of any opportunities or threats to a business requires action. Often seen as a generic tool for strategy, the PESTLE analysis evaluates given elements to determine where a business or project is in terms of the macro-environment (Peng & Nunes, 2007, p. 230). From this basis, the PESTLE analysis is a predictor of the effects of external activity on internal operations in a given organisation or product. This strategic role arguably makes the PESTLE analysis a product of the review of a project’s external influences with the aim of using this knowledge to lead strategic policymaking processes. As a result, the PESTLE analysis works on the presumption that if a business or product can review its present environment and evaluate likely changes, it is better off than its rivals in terms of reacting to changes. IV. The Pestle Analysis as a Tool for Identifying Issues in the External Macro-Environment Understanding the PESTLE analysis as a tool for realising issues in a business or project’s external macro-environment requires an expansive discussion of its elements, as well as the opportunities and threats they present. 1) Political Issues Politics affects businesses in beneficial, negative, and even neutral ways. Politics is beneficial to an organisation through the presentation of opportunities and harmful through the placement of barriers and obligations (Brooks et al., 2011, p. 301). Refusing to conform to these political elements can result in penalties like fines, negative publicity, or imprisonment. For instance, unproductive controlled codes and practices will frequently result in governments presenting laws that control the operations under codes and practices. Politics affects organisational control and customer capacity of costs significantly (Allen, 2010, p. 55). As a result, organisations ought to think of certain variables when analysing their political environment. Other political elements that affect the external macro-environments of businesses or projects differently include: i. Financing and grants programs ii. Terror attacks or fears Before the 9/11 attacks on the United States, the UK was begin to record a slight rise in economic recovery (Cederholm, 2014). Another example of the impact of terror attacks and fears is Turkey’s recent set of terror assaults by Islamic radicals, Kurdish extremists, and Turkish militants. Setting up a business or project in Turkey increases the risks of being attacked by these terrorist groups (Cederholm, 2014). The EU’s current fight against terror affects political stability in all member states. The 9/11 attacks, Turkey’s terror challenges, and the EU’s fight against terror prevent the public from exercising normal consumer behaviour (Cederholm, 2014). One example of a real-time political factor is the opening of new stores in Ukraine by large clothing maker and retailer H&M (Hennes and Mauritz). This move by the Swedish company brings Ukraine on the threshold of being a global leader of fast-fashion merchandise. Ukraine is currently undergoing major political upheavals with neighbouring country Russia, which is luring global attention because of the scale of risks and dangers involved. In spite of this political instability, H&M demonstrates the transparency of its operations by setting up shop in Ukraine. Another example of political factors is the UK’s rules on hygiene, health, and food standards. Large retailers like Walmart have to abide by these rules despite their significant differences with hygiene policies by the FDA in the United States. A third example is licensing and mandatory inspections by on restaurant chains in the UK by Food Ministry departments. Licensing and inspections are economic policies with political bases that influence businesses or projects operations. 2) Economic Issues National and international economic elements influence all businesses (Brooks et al., 2011, p. 89). Domestic and international rates of interest revolve around economic environments. The atmosphere of an economy determines how consumers, suppliers, and other interested parties of an organisation like shareholders and partners act inside a community. Financial turmoil will bring about increased rates of unemployment, reduced rates of expenditure, and low shareholder credibility. On the other hand, rises in GDP or developments in the economy will cause more job opportunities, increased consumer spending, and higher shareholder credibility. Similar to politics, economic elements affect businesses positively and negatively. Internal economic factors affect businesses positively and negatively like external macro-environment economic factors. Internal economic elements often have to do with project flexibility and internal reliability of a business or product. Britain’s economic level is an example of economic factors considered in a PESTLE analysis. The UK’s current interest rates are at a new low of 0.5%, which was retained for a month (BBC News, 2014). Such a low interest rates promotes international business through credit and trade dealings. Companies located in the UK can borrow from financial institutions and garner the least amount of interest when paying back the loan. British companies would also prefer making foreign exchange transactions using the sterling pound or euro (BBC News, 2014). Britain’s economy also recorded a major growth in the service industry. Business executives express the view that employees in the service sector frequently have a more optimistic work ethic than those in the manufacturing sectors. This relationship and difference in UK’s growth in the service sector can cause businesses to accomplish a competitive edge (BBC News, 2014). 3) Sociological Issues Drivers within a community may affect business operations or project progress (Brooks et al., 2011, p. 195). Social drivers include relatives, peers, co-workers, neighbours, and the media. Social drivers mould people’s identities, behaviours, and eventually product preference or dislike. For example, UK citizens have been adapting to the information age through food and health awareness. UK inhabitants have been growing more conscious of their states of health. This means the UK may see a rise in the population joining gyms and a vast growth in the demand for organic diets (Brown & Osborne, 2012, p. 16). Another example of sociological elements is how society concerns over the internet’s contribution to unfit behaviour amongst children. Demographic changes are sociological elements that affect businesses directly (Bensoussan & Fleisher, 2012, p. 187). Changes in the structure of a community affect the supply and demand of given products and services. Decreasing rates of birth will lead to reduced demand and stiffer competition as the consumer population decline. On the other hand, the global economy is facing a radical rise in global population and correspondingly high shortages in resources like food and clean water. These challenges are today causing demands for more investments in food production. Food scarcity is compelling developing economies like Uganda to think of accepting GMO products. Businesses have to be able to provide commodities and services that aim to match and contribute to people’s ways of life and conduct. Refusing to react to changes in economy elements will lead to loss of market shares and reduced product demand. 4) Technological Issues Technological innovations have influenced the manner in which organisations carry out their activities for over a century now (Brooks et al., 2011, p. 166). Businesses apply technology is three key ways: infrastructure improvement, infrastructure incorporation, and data relays. The internet and data exchange mechanisms like teleconferencing and video calling are examples of technology infrastructure. Various programming features make up the incorporation of technological infrastructure that assists in business management (Brown & Osborne, 2012, p. 19). Lastly, innovative hardware like smartphones, computers, photocopy machinery, and faxes document and send data throughout an organisation. Becoming flexible to these innovations rapidly creates additional tension as stakeholders expect the organisation to meet its promises within ever-reducing time spans. A good example is how the internet is affecting the advertising strategy of many organisations with 24hour shopping being an almost limitless feature for spending by customers. 5) Environmental Issues Concern for the environment and global business strategy merge where marketing affects the environment while meeting consumer demands with goods and services (Brooks et al., 2011, p. 245). Environmental elements can be economic or social. Examples of how businesses can conserve the environment internally and externally include using greener manufacturing methods and using more sustainable designs. A manufacturing business may lower the amount of waste it generates after switching to a sustainable method in an effort to be more environment friendly. An environment attitude is bound in current business strategy and may slowly be set in the strategic vision of organisations (Reddi, 2009, p. 131). This inclusion poses as an opportunity for businesses and environmental movements. Threats posed by environmental factors come about when they hinder business. Examples of such threats include unfavourable weather, natural disasters, poor ground conditions, distant water bodies, and high levels of pollution. Other environmental factors that an organisation can include in a PESTLE analysis are environmental policies, conservation issues, consumer standards, and even employee attitudes (Qasemi, 2010, p. 10). Examples of environmental factors include changes in climate and weather. These factors affect agribusinesses and farmers more directly than organisations in the manufacturing and processing sectors. However, services industries like tourism and hospitality can suffer from changes in climate and weather as tourists choose destinations that have favourable weather. Another example is the accessibility and suitability of estate. Rising shortages of land, especially in the UK lead to congestion in urban areas. HE’s Space Management Group in London says developing technologies and the adjusting student demographics also influence how land for businesses is used resourcefully. Proper land management methods are a crucial management instrument in the more and more active and varied business and education environments. 6) Legal Issues A PESTLE analysis lastly considers legal factors when strategically assessing a business or project’s external macro-environment (Brooks et al., 2011, p. 336). Laws can be a threat to businesses by imposing burdensome obligations on businesses. At the same time, laws can promote business by forming favourable market conditions and opportunities. Advertising in international economies will require a business to consider laws that these economies abide by. For instance, vehicle manufacturers will have to consider that laws in interior Europe and the United States only permit left-hand driving while laws in Japan and the United Kingdom only allow right-hand driving. Organisation leaders and project managers can access the wide statute literature that exists today with information on nearly all factors of company law (Stationery Office & Ruth Murray-Webster, 2010, p. 88). V. Dangers of Using a PESTLE Analysis Common dangers of using a PESTLE Analysis only depend on how one uses it. When used improperly, a PESTLE analysis can be very harmful in terms of understanding market and business strategy. In addition, a PESTLE Analysis is far from being an accurate and clearly defined system of analysis or strategic assessment. This is because a nearly infinite number of factors can emerge from each element. As a result, it is important for a business or project to prioritize these variables according to flexibility. VI. Conclusion A PESTLE analysis is effective for reviewing a business or project’s external macro-environment. PESTLE analysis facilitates the evaluation of the present business surrounding and potential changes. Politics, the economy, society, and technology largely reflect the influence of immediately surrounding aspects. In addition, legal and environmental elements allow the findings of a PESTLE analysis to be helpful for enjoying the benefit of opportunities and arranging for backup plans when facing any impending risks. A PESTLE analysis enables a business or project manager to maintain a long run perspective and expand its strategic human resource process well past the current span. A PESTLE analysis helps a business move forward and exploit or avert any opportunities or threats respectively. Political factors include legislation, controlled codes and practices, market protocols, trade conventions, tariffs or barriers, tax rates and tax deductions, and the form of government. Economic systems across the world affect different businesses in different ways and not just systems they operate in. Sociological drivers influence people’s attitudes, interests, and views. The same people run organisations and projects based on these influenced factors and affect their businesses or projects accordingly. Technological innovations hasten activities for exchanging information among stakeholders. Environmental campaigns and groups always pressure organisations, projects, and the public to be conscious of their impact on the environment. Different economies work under different laws and projects or products sold in these places will have to consider them accordingly. References Allen, M 2010, Analysing the Organisational Environment, Select Knowledge Limited, Marsden, MA. 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BBC News 2014, UK interest rates stay on hold again, BBC News, viewed 8 December 2014, http://www.bbc.com/news/business-30328705 BBC News 2014, UK service sector growth picked up in November, BBC News, viewed 8 December 2014, http://www.bbc.com/news/business-30309994 Cederholm, T 2014, Must-know: External factors that influence the airline industry, Market Realist, viewed 8 December 2014, http://marketrealist.com/2014/09/must-know-external- factors-influencing-airline-industry/ Read More