What is PESTEL Analysis?
PESTEL Analysis is a strategic analysis framework that helps businesses understand the external factors that can impact their operations. PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors.
There are several benefits of conducting a PESTEL analysis. PESTEL analysis helps businesses better understand the external factors that can impact their operations, allowing them to make more informed decisions. By analyzing external factors, businesses can identify opportunities that they may not have been aware of otherwise. PESTEL analysis can also help businesses identify potential risks and develop strategies to mitigate those risks. In addition, it can inform strategic planning, helping businesses to align their operations with the external environment.
In this article, we’ll explore each of factor within PESTEL in greater detail, explain how they can impact a business, and provide real-world examples of how businesses have used PESTEL analysis to drive success.
Political factors refer to the influence of government and other political forces on a business. These factors can include government policies, political stability, and changes in regulations. Political factors can impact a business in a number of ways, such as changing market conditions, creating new opportunities, or introducing new risks.
Example: The tobacco industry is heavily impacted by political factors. Government regulations, taxes, and advertising restrictions have significantly impacted the industry’s profitability and growth potential.
Economic factors refer to the overall economic conditions that can impact a business. These factors can include inflation, interest rates, exchange rates, and unemployment rates. Economic factors can impact a business by influencing consumer behavior, changing the availability of credit, and affecting the cost of production.
Example: During the 2008 financial crisis, many businesses were negatively impacted by economic factors such as rising unemployment rates, decreasing consumer spending, and tightening credit markets.
Social factors refer to the impact of society and culture on a business. These factors can include demographics, lifestyle trends, and consumer behavior. Social factors can impact a business by changing the demand for its products and services, creating new opportunities, or introducing new risks.
Example: The rise of health and wellness trends has created new opportunities for businesses in the health and fitness industry, while also posing a threat to businesses in the fast food and processed food industries.
Technological factors refer to the impact of new technologies on a business. These factors can include advances in automation, the rise of e-commerce, and the emergence of new digital platforms. Technological factors can impact a business by changing the way it operates, creating new opportunities, or introducing new risks.
Example: The rise of e-commerce has significantly impacted traditional brick-and-mortar retailers, while creating new opportunities for businesses in the online retail space.
Environmental factors refer to the impact of the natural environment on a business. These factors can include climate change, natural disasters, and resource scarcity. Environmental factors can impact a business by changing the availability of resources, creating new risks, or introducing new opportunities.
Example: The renewable energy industry has experienced significant growth in recent years, driven in part by environmental factors such as concerns over climate change and the need for sustainable energy sources.
Legal factors refer to the impact of laws and regulations on a business. These factors can include employment laws, consumer protection laws, and industry-specific regulations. Legal factors can impact a business by changing market conditions, creating new risks, or introducing new opportunities.
Example: The introduction of new data privacy regulations, such as GDPR in the EU, has impacted businesses across industries, creating new compliance requirements and risks.
PESTEL Analysis Example: Tesla
Tesla is a trailblazer in the electric vehicle industry, revolutionizing the traditional automotive industry with innovative technology and business strategies. The company has leveraged PESTEL analysis to identify opportunities and risks as it expands globally.
Political: Tesla has navigated political challenges in some markets, such as restrictions on direct-to-consumer sales in certain US states. However, the company has also leveraged political factors to its advantage, such as incentives for electric vehicle purchases. In 2021, Tesla’s sales in China increased by 124%, largely due to favorable government policies that promote electric vehicle adoption.
Economic: Tesla has responded to economic factors such as changes in consumer demand and currency fluctuations. The company introduced lower-priced models and financing options, leading to record vehicle deliveries in the first quarter of 2021, with 184,800 cars delivered worldwide.
Social: Tesla has capitalized on growing concerns about climate change and increasing demand for sustainable products. The company’s Model 3 became the best-selling electric vehicle in the world in 2020, with over 365,000 units sold globally.
Technological: Tesla has embraced technological innovation, such as autonomous driving capabilities and battery technology. In 2020, the company produced over 500,000 vehicles, with battery technology being a key driver of this production. Tesla’s battery technology has helped it maintain a competitive advantage in the electric vehicle industry.
Environmental: Tesla has prioritized environmental sustainability in its operations, such as implementing solar power and energy storage solutions in its products and factories. The company has committed to reducing carbon emissions and has made significant progress towards this goal. In 2020, Tesla’s total carbon emissions were 4.6 million metric tons, a decrease of 34% from the previous year.
Legal: Tesla has navigated legal challenges such as disputes over the use of its Autopilot system and allegations of labor violations. The company has also complied with local laws and regulations in each market where it operates, including safety regulations and environmental laws.
Overall, Tesla’s use of PESTEL analysis has helped the company disrupt the traditional automotive industry by identifying opportunities and risks in each market.
PESTEL Analysis Example: Airline Industry
If you are performing a PESTEL analysis on the airline industry, you can use the below as your starting blueprint and elaborate in greater detail each of the items we identified below in your research report.
Here we go.
Political: The airline industry is heavily regulated by governments worldwide, with regulations impacting everything from safety to route permissions. Political unrest and instability in certain regions can also impact airline operations. For example, during the Russo-Ukrainian War, the United States banned Russian airlines from flying over American airspace, significantly derailing Russian airlines’ flight operations.
Economic: Economic factors such as fuel prices, exchange rates, and consumer demand significantly impact the airline industry. High fuel prices can lead to increased costs for airlines, while low consumer demand can lead to lower revenue and profits.
Social: Social factors such as changing consumer preferences and demographics can impact the airline industry. For example, the rise of low-cost carriers has led to increased competition in the industry, as consumers prioritize lower prices over other factors.
Technological: Technological advancements such as the use of digital platforms, automation, and new aircraft models are revolutionizing the airline industry. Airlines that invest in these technologies can gain a competitive edge and improve their operations.
Environmental: The environmental impact of the airline industry has become a major concern, with airlines facing pressure to reduce their carbon emissions and implement sustainable practices. This can impact the industry through the introduction of new regulations and the development of alternative fuels and aircraft.
Legal: The airline industry is subject to a range of legal factors, including regulations related to safety, security, and competition. For example, airline mergers and acquisitions may face regulatory scrutiny from antitrust authorities.
PESTEL analysis is a powerful tool for businesses looking to understand the external factors that can impact their operations. By analyzing each of the six factors, businesses can identify opportunities and threats, develop strategies to mitigate risks, and align their operations with the external environment. By leveraging PESTEL analysis, businesses can position themselves for long-term success in an ever-changing business landscape.
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