Pestel Analysis

                                     PESTEL Analysis

            PESTEL stands for "political, economic, social, technical, environmental, and legal" examination. It's a term used in marketing. PESTEL analysis is a technique or plan for doing situational analysis that is useful. PESTEL study aids in the detection of macro-environmental changes. It enables a company to track and react to changes in the macro environment, allowing it to outperform the competition. It assists a company in identifying the benefits and drawbacks of a business strategy. PESTEL analysis are explained as follows:

 

Political:

The term "political considerations" refers to the government's policies and interventions in the country's economy. Any country's marketing techniques must adhere to its government's laws and policies. The risk and benefits involved in the business are determined by government policies. Some of the political issues that influence the firm's strategy are as follows:

1) Tax policies and restrictions: this relates to the government's tax rate in the macroeconomic environment.

2) Tariff rates: Tariff rates for various goods and services are set at a specific rate.

3) Labour laws: Labour laws are in place to defend workers' rights.

4) Trade agreements and standards: Each country has its own set of rules and regulations. Each government establishes trade restrictions and rules.

5) Environmental law: The government has established some specific rules to safeguard the environment from things that can have a negative impact on it.

6) Economic factor: Market growth, trading, supply and demand, market trends, competitiveness, and currency depreciation are all economic factors. The underlying economic factors are included in both the micro and macro economy.

·         Economic growth rates: the predicted pace of growth in the country's economy.

·         Inflation: Inflation in the market has an impact on corporate growth.

·         exchange rates: this reflects currency fluctuation, and the exchange rate are expressed.

·         Interest rates: The interest rates set in the economy have an impact on capital growth.

·         Customer preferences: changes in customer expectations and needs have an impact on product or service sales.

·         Stock market and investment trends: Stock market and investment trends influence investment decisions.

For example, if an economy's interest rate falls, a corporation may seek to refinance its obligations. 

Social factors:

The social aspects are also considered in the PESTEL study. Cultural and demographic patterns in society are examples of social forces. This has a significant impact on the company's growth. In an economy, social and cultural aspects influence product or service sales. The social influences are influenced by the following factors:

1) Perceptions and cultural aspects

2) The rate of population growth

3) Distribution of ages

4) Professional qualities

5) Concern about one's health

For example, due of the current covid 19 pandemic, the world's population has plummeted, and health conditions have deteriorated. This has influenced the tactics of the companies.

Technological factors:

The firm's strategy and planning are influenced by technical advancement and innovation in the enterprise as well as in the economy. The automated technologies in the service industry, as well as the technical advancements present in the organisation to create a product, have an impact on the firm's business growth. The following are examples of technological factors:

·         Research and development: bring current research and development to the table.

·         Automation: Automation aids in the reduction of manufacturing or service processes.

·         Technological advancement: timely technological advancement aids in improving efficiency.

·         The rate of technological change

For instance, suppose a corporation decides to automate its data to reduce the amount of time it takes to complete the procedure. Because automation in manufacturing car parts is not practicable, production in the manufacturing industry, for instance, is reduced.

Environmental factors:

Environmental factors show the effects of the business activities on the environment. Environmental changes have an impact on the organization's business. The following are some of the environmental aspects to consider:

·         The weather situation

·         Pollution

·         Changes in the climate

·         Temperature

·         Natural calamity

Furthermore, to achieve corporate social responsibility, every corporation is moving toward a more environmentally friendly business style. Many companies, for example, are becoming increasingly plastic-friendly to eliminate plastic from the environment. Climate change has become a major concern in recent years. Business activities are also being impacted by global warming.

Legal factors:

Due to the obvious legal constraints of the country, the regulatory forces define whatever a firm may and cannot accomplish. Internal laws and regulations exist within the organisation and must be rigorously adhered to. The following are the legal considerations:

·         Industry regulations: Each economy has its own set of industry regulations that must be adhered to.

·         Licensing and permits: Different countries have different licencing and permit requirements.

·         Intellectual property rights: patents, trademarks, and industrial design rights are all examples of intellectual property rights.

·         Labour laws: For example, to protect workers' rights, a minimum wage rate is established.

For example: If an individual desires to open a restaurant in any country, he/she would require getting some license and food safety certificates defined in the concerned area.

PESTEL Analysis in business valuation: PESTEL analysis is critical in business valuation because it helps to understand the impact of PESTEL on the business. It comes in the following models:

1) The DCF valuation model the discounted cash flow valuation model is used to value a company's unlevered free cash flow that has been discounted back into the books.

2) A business valuation model assists a firm in understanding the firm's value through various methods. For instance, consider equity multiples.

Consider the following issues when developing a PESTEL analysis:

The analyst should restrict the research to understand the techniques at a larger scale when displaying PESTEL Analysis because they may diverge from company to company and nation to nation. One thing to keep in mind is that it is intended to provide an immediate answer. It assists the company in identifying the factors over which it has no influence.

 

Framework and presentations    

This topic is significant in the professional exams for both undergraduate and graduate courses, especially for  

B.B.A. 

M.B.A. 

B. Com