First, consider the relevance of each of the PESTEL factors to your context. There are three steps in the PESTEL analysis. While the restrictive regulations didn’t put Lands’ End out of business in Germany, they did inhibit its growth there until the laws were abolished. The political skirmish between Lands’ End and the German government finally ended when the regulations banning unconditional guarantees were abolished. However, this was considered illegal under Germany’s regulations governing incentive offers and price discounts. In the United States, Lands’ End had built a reputation for quality on its no-questions-asked money-back guarantee. For example, when Lands’ End, the online clothier, sought to expand its operations into Germany, it ran into local laws prohibiting it from offering unconditional guarantees on its products. The fact that a strategy is congruent with PESTEL in the home environment gives no assurance that it will also align in other countries. A solid understanding of PESTEL also helps managers avoid strategies that may be doomed to fail given the circumstances of the environment.įinally, understanding PESTEL is critical prior to entry into a new country or region. When firms exploit a change in the environment-rather than simply survive or oppose the change-they are more likely to be successful. Moreover, PESTEL analysis provides insight into the status of key market flatteners, both in terms of their present state and future trends.įirms need to understand the macroenvironment to ensure that their strategy is aligned with the powerful forces of change affecting their business landscape.
When a firm is considering entry into new markets, these factors are of considerable importance. This useful tool analyzes for market growth or decline and, therefore, the position, potential, and direction for a business. A PESTEL analysis helps managers gain a better understanding of the opportunities and threats they face consequently, the analysis aids in building a better vision of the future business landscape and how the firm might compete profitably. PESTEL is an acronym for the political, economic, sociocultural, technological, environmental, and legal contexts in which a firm operates. PESTEL analysis is an important and widely used tool that helps show the big picture of a firm’s external environment, particularly as related to foreign markets. Strategists have developed more discerning tools to examine the external environment. However, they do not usually just think in terms of SWOT. Strategists study the macro environment to learn about facts and trends that may present opportunities or threats to their firms.
That is not to say that they do not affect firms or that firm activities cannot affect macro environmental elements both can and do happen, but firms are largely unable to directly change things in the macro environment. Note that the terms contained in the blue ring are all “big-picture” items that exist independently of business activities. In the Figure 5.2, the macro environment is indicated in blue. These elements are characteristics of the world at large and are factors that all businesses must contend with, regardless of the industry they are in or type of business they are. Image © Rice University & OpenStax, CC BY 4.0Ī firm’s macro environment contains elements that can impact the firm but are generally beyond its direct control. Figure 5.2 illustrates layers and categories found in a firm’s environment. To make gathering and interpreting information about the external environment easier, strategic analysts have defined several general categories of activities and groups that managers should examine and understand. A firm must confront, adapt to, take advantage of, and defend itself against what is happening in the world around it to succeed. The world at large forms the external environment for businesses. 5.3 A Firm’s External Macro Environment: PESTEL
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