PESTEL analysis of the macro-environment
There are many factors in the macro-environment that will effect the decisions of the managers of
any organisation. Tax changes, new laws, trade barriers, demographic change and government
policy changes are all examples of macro change. To help analyse these factors managers can
categorise them using the PESTEL model. This classification distinguishes between:
. These refer to government policy such as the degree of intervention in the
economy. What goods and services does a government want to provide? To what extent
does it believe in subsidising firms? What are its priorities in terms of business support?
Political decisions can impact on many vital areas for business such as the education of the
workforce, the health of the nation and the quality of the infrastructure of the economy such
as the road and rail system.
These include interest rates, taxation changes, economic growth, inflation
and exchange rates. As you will see throughout the "Foundations of Economics" book
economic change can have a major impact on a firm's behaviour. For example:
- higher interest rates may deter investment because it costs more to borrow
- a strong currency may make exporting more difficult because it may raise the price in
terms of foreign currency
- inflation may provoke higher wage demands from employees and raise costs
- higher national income growth may boost demand for a firm's products
Changes in social trends can impact on the demand for a firm's products and
the availability and willingness of individuals to work. In the UK, for example, the population
has been ageing. This has increased the costs for firms who are committed to pension
payments for their employees because their staff are living longer. It also means some firms
such as Asda have started to recruit older employees to tap into this growing labour pool.
The ageing population also has impact on demand: for example, demand for sheltered
accommodation and medicines has increased whereas demand for toys is falling.
new technologies create new products and new processes. MP3
players, computer games, online gambling and high definition TVs are all new markets
created by technological advances. Online shopping, bar coding and computer aided design
are all improvements to the way we do business as a result of better technology.
Technology can reduce costs, improve quality and lead to innovation. These developments
can benefit consumers as well as the organisations providing the products.
environmental factors include the weather and climate change.
Changes in temperature can impact on many industries including farming, tourism and
insurance. With major climate changes occurring due to global warming and with greater
environmental awareness this external factor is becoming a significant issue for firms to
consider. The growing desire to protect the environment is having an impact on many
industries such as the travel and transportation industries (for example, more taxes being
placed on air travel and the success of hybrid cars) and the general move towards more
environmentally friendly products and processes is affecting demand patterns and creating
these are related to the legal environment in which firms operate. In recent