PESTEL Analysis of the Macro-environment

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:

Political factors

. 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?

- 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

Social factors.

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.

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:

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