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Analysis tools: PESTLE analysis

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A PESTLE analysis can help you to outline the impact that political (P), economic (E), socio-cultural (S) technological (T), legal (L) and environmental (E) factors have on a particular industry (and thus the businesses operating within that industry). 

Political: Consider the influence/impact government policies may have on the overall economy and/or a particular industry, including tax, fiscal and trade policies. Consider whether political instability, relations between jurisdictions, pressure groups, corruption or bureaucracy could impact upon an industry’s profitability.

Economic: Consider how the local/global economy is performing and how this could impact upon firms in a particular industry. Are consumers generally spending money or saving? How do inflation rates, tax rates, interest rates and exchange rates impact upon industry profitability levels? Is the industry growing? Is there ample foreign direct investment occurring? Do these factors affect the way businesses price their products/services?

Social: Consider the social factors (including cultural aspects and consumer attitudes) that affect consumer demand and the way businesses operate. For instance, what are the typical purchasing patterns/cultural trends that consumers tend to follow? Do consumers make purchases that correlate with seasons/holidays? What are the key demographics and how easily can these be targeted? Are there ethical issues that affect the media/consumers’ perception of the industry (and firms operating within that industry)?

Technological: Consider the technological innovations on which the industry currently relies/may rely upon in the future. Do these impact favourably upon the industry? Will businesses within that industry need to constantly innovate in order to compete? How important is intellectual property? Examples of technology include automation (automated manufacturing, distribution etc.), information and communications (for instance, traders in an investment bank rely heavily on technology to ensure they can execute trades effectively) and research and development.

Legal: Consider the legislation that affects businesses within the industry. How stringent is consumer law, employment law, health and safety law, competition law etc. in a particular jurisdiction? Does relevant industry-specific legislation exist? What impact does international legislation have on the ability of businesses within that industry to sell to customers in other jurisdictions? How is the legal landscape likely to change?

Environmental: Consider how environmental factors may impact upon an industry. Could rules relating to waste disposal, climate change or subsidies (e.g. to encourage businesses to adopt strong environmental policies) affect the ability of firms within an industry to generate a profit? How dependent is a particular industry on the weather (consider wind farms, food producers etc.)?

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By Jake Schogger - City Career Series