What is PESTELE analysis?

A PESTEL analysis, or more recently named PESTELE, is a framework or tool used by marketers to analyse & monitor the macro-environmental (external marketing environment) factors, which will have an impact on the performance of an organisation. The result obtained from this analysis is used to identify threats & weaknesses, which are used further in SWOT analysis.  

PESTEL stands for political, economic, social, technological, environmental, legal, and ethical (new). 

Political factors:  

These factors are all about how and to what degree a government intervenes in the economy, which includes government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour law, environmental law, trade restrictions, and so on. Organisations need to be able to respond to the current and anticipated future legislation and adjust their marketing policy accordingly, in order to grow further. It is important for an analyst to see if any change in the political factors affects the company.  

Economic factors:  

Economic factors include economic growth, interest rates, exchange rates, inflation, disposable income of consumers & businesses, and so on. For any company, it is important that the economic factors of a county remain stable. Stable economic factors lead to the healthy growth of companies, which helps them make more profit. Investors should look to invest in those countries that have a stable economic outlook.  

Social factors:   

Also known as socio-cultural factors, these involve the shared belief & attitudes of a country’s population. These factors include population growth, age distribution, health consciousness, career attitudes, and so on. These factors are of particular interest as they have a direct effect on how marketers understand customers and what drives them. Social norms and pressures are the key factors in determining consumer behaviour.  

Technological factors:   

Technological factors are linked to innovation in the industry, as well as innovation in the overall economy. Not being up to date with the latest trends of a particular industry can be extremely harmful to a company’s operations. Investors should consider investing in companies, which are equipped with modern technologies and continuously adapt to new & upcoming technologies.   

Environmental factors:  

These factors have come to the forefront in the last fifteen years. The main reason behind this is the increasing scarcity of raw materials, pollution targets, doing business as an ethical and sustainable company, carbon footprint targets set by governments, etc. These are just some of the issues that marketers are facing within this factor. More and more consumers are demanding that the products they buy are sourced ethically, and if possible, from a sustainable source. Investors should look for companies, which follow all these norms and take initiatives to protect the environment.   

Legal factors:  

Legal factors include health & safety, equal opportunities, advertising standards, consumer rights and laws, product labelling and product safety. It is clear that companies need to know what is legal and what not in order to trade successfully in any country. If an organisation trades globally, this becomes a very tricky area to get right as each country has its own set of rules & regulations. An investor should look for companies following all the legal norms in any of the countries effectively.  

Ethical factors:  

The most recent addition to PESTEL is the extra E, making it PESTELE. This stands for ethical and includes ethical principles & moral or ethical problems that can arise in a particular business. It considers things such as fair trade, slavery acts and child labour, as well as corporate social responsibility (CSR), where a business contributes to local or societal goals such as volunteering or taking part in philanthropic, activist, or charitable activities thereby, showcasing its social responsibility.   

An investor should research a particular stock through PESTELE analysis after taking due diligence as these are important factors for sustainable growth.

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