PESTLE Analysis:
PESTLE Analysis stands for Political, Economic, Socio-cultural, Technological, Legal and
Environmental Analysis. Some models also extend this to include Ethics and Demographics, thus
modifying the acronym to STEEPLED. This analysis is done more from the perspective of a
business which is looking to setup unit offshore and analyzing several countries to choose from.
This model primarily analyses the external environmental factors that will act as influencers for
a business.
To do business in any country, a business must know each of the above factors very well and
how changes in any/either of these would impact business. Let us see each one of these
individually in brief here.
Political Factors: Countries can have a variety of political structures. Communist countries
would have social objectives above anything else while capitalist ones would not necessarily
have all responsibilities of a welfare state. Further, capitalists also exhibit differences amongst
themselves in terms of their approach to the social welfare schemes. Stability in legislation and
policy, minimal corruption, bureaucracy, communal tensions and violence coupled with
maximum freedom of press, ease of doing business and quick turnaround time are some of the
factors which investors would look at in a country. Healthy public finances and a consistent fiscal
policy furthering investment in infrastructure are some other important parameters for
investors.
Economic Factors: The economic parameters of a country such as GDP growth and its
contributors, inflation and interest rates, composition of imports and exports, balance of
payment and exchange rate stability, stable monetary and fiscal situation, well developed
financial markets, taxation and others, will define its attractiveness as an investment
destination. Whether a country depends upon exports or internal consumption, whether this
internal consumption is driven by imports or domestic manufacturing, whether the country has
high inflation and hence a falling currency etc. are some of the first questions which an investor
will think before investing in any country. Country’s dependence on other countries in terms of
important natural resources such as oil, monitory policies of the Central Banker, Balance of
payment positions and forex reserves etc. are very important for an investor to get a comfort
level about a country’s economic situation. India has seen the worst and the best phases of
economies in the last three decades.
Socio-Cultural Factors: The social and cultural aspects of the population of the country, such as
the demographic profile in terms of age, education and skills, health, social values, lifestyle
factors, all affect the choices that people make in what they buy and consume. Cultures affect
businesses in multiple ways. With young population in India, India offers different opportunities
and challenges in comparison to say Japan with aging population. With the change in culture,
there is a change in the economic activity as well. For example, given nuclear families and
working spouses in metro cities in India, there has been an increase in demand for day cares
facilities, packaged foods and hotel chains/restaurants. Competitive pressures at the young
generation are also resulting in life style diseases such as diabetes, sugar, hyper tension etc. This
offers opportunity set for several new businesses in the country.
Technological Factors: No dimension of life can ever be imagined today without technological
support. Technology is playing crucial role in taking businesses and society to the next level.
Development of a scientific temper amongst students leads to an ever technologically evolving
society. Countries pushing R&D activities are bound to be at the forefront of technology.
Availability of technology savvy population and institutions driving technology based initiatives
and infrastructure help a country attract investors.
Legal Factors: Legal architecture of the country and ability of legal system to support and
protect businesses is what businesses look for in a country. Consistency of legal aspects and no
arbitrary changes give comfort to the businesses and investors both. In India, recently the
Vodafone retrospective tax case and also the cancellation of telecom licenses and mining
licenses etc. have been examples of discomfort to the investing community. Transparency in the
legal environment and enforcement of laws are things which investors would favour.
Environmental Factors: Developing nations are generally bound to emit environment harming
gases in the atmosphere. A country’s awareness of environmental issues and the policies
relating to pollution control, waste disposal, mining and protection of natural flora and fauna,
rehabilitation of displaced local residents, are all thorny issues, which if not clearly spelt out
unambiguously can lead to operational and legal issues in the future and ultimately loss of time,
money and resource for a business. Investors look for clear polices of government on these
issues.
As the government pushes for India to become a manufacturing hub, environmental issues are
creeping up and these are acting as one of the deterrents for investors ready to enter India.
Not all the factors referred to above affect all companies equally. Evaluating the impact of each
factor and its criticality for the business is an important step to follow.
