PESTLE Analysis (impact of external influence)

Question 1

What are external influences?

Answer 1

Situations and issues beyond the control of a business, but can still have an impact on them, forcing them to change the way that they operate.

Question 2

PESTLE analysis

Answer 2

This is the analysis of the external political, economic, social, technological, legal and environmental factors affecting a business.

Question 3

Political

Answer 3

Tax policy 
Environmental regulations
Stability of government 
Potential changes to legislation
Global influence
Trade restrictions and reform 
Tariffs
Political stability

Question 4

Economic

Answer 4

Interest rates- a rise in interest rates increases the cost of borrowing (cost of debt). This discourages investment and consumption

Consumer spending- in a time of recession, consumer confidence may be low so there will be little consumer spending

Economic growth- consumer spending will increase

Exchange rates- if exchange rates are lower, a company’s exports can be internationally competitive

Inflation 
Wage rates 
Employment rates (local and national)
Minimum wage
Cost of living

Question 5

Social

Answer 5

Cultural norms and expectations
Demographic influence- ie. the UK has an aging population
Population growth rate/ migration
Health consciousness 
Age distribution 
Career attitudes
Cultural barriers
Health and safety

Social changes- ie. growth of e-commerce

Urbanisation- people usually move to urban areas as there are more job opportunities

Strengthening exchange rate- would make exporting more expensive bu also make importing cheaper

Lower interest rates- would make borrowing cheaper and encourage more investments

Question 6

Technological

Answer 6

New technology are continually emerging and the rate of change is increasing
Level of innovation
Alternation
Technological awareness
Disruptive technologies- some businesses will have to adapt to new technologies

Question 7

Legal

Answer 7

Changes to legislation impacting employment, access to resources, quotas, materials, imports/exports and taxation.
Health and safety
Minimum wage- may increase business costs
Laws on protecting the environment
Laws on working conditions

Question 8

Environmental

Answer 8

Global warming and the increased need to switch to sustainable resources; ethical sourcing (both locally and nationally), including supply chain intelligence. Pandemics and other emergencies.
Weather changes
Climate changes
Environmental policies
Emissions- the business might need to focus on reducing pollution

Question 9

Impact of external influences

Answer 9

Demand- if demand for the business’ product decreases, so will their revenues and profits, and there will be weaker cash flow.
Costs- Some external influences are likely to raise costs. This will decrease profit margins or force businesses to raise their prices.
Operations- Businesses often find themselves having to change their operational methods as a result of an external influence. If a government introduces a new minimum wage, a multinational company may be forced to relocate production to a country with lower wages.