PEST Analysis in Business Environment

External (Macro Environment) Analysis

• PEST Analysis (Political, Economic, Social, Technological) is used for macro-economic analysis of a company
• Seminar 1 by Hajnalka Madai
• The course is for the 2024/25 academic year.

Requirements

• Group projects with 2-3 students
• Worldwide operating company (any kind)
• Written report (25 pages) due at the end of the semester
• Presentation optional for extra credit

External Environment - Macro and Micro Level

• The diagram shows a macro and micro level analysis
• External factors surrounding the organization are categorized
• Includes elements like legal system, technological, competitors, consumers, social and cultural factors, financial corporations, regulatory agencies, economic policy, unions, environmental factors, international forces

Macro Environment Forces Affecting a Firm

• A visual representation of macro-environment factors impacting a firm, highlighting the connection between the firm and broader factors like political, legal, demographic, technological, economic, ethical, socio-cultural and environmental factors, and how they influence the industry the firm operates within.

Method to Reveal Key External Factors

• PESTEL (Political, Economic, Social, Technological, Environmental, Legal) Analysis is a technique for identifying key external factors
• Includes analysis of social, cultural, demographic and environmental factors
• Also covers technological, economic and political, governmental, and legal factors
• Competitive analysis is additionally important

PEST & PESTEL Analysis

• PEST or PESTEL analysis is a useful tool for identifying key external macro-environmental factors that may influence an organization
• This tool aims to determine ongoing and potential changes in external factors that affect the organization
• It can help in identifying both opportunities and threats that the external environment presents
• The goal is to find out present and future external factors affecting an organization and to exploit opportunities or defend against threats by utilizing strategies superior to competitors.

PEST & PESTEL Analysis - Definition

• PEST analysis examines factors like political, economic, social, and technological factors in the external environment of an organisation
• This analysis determines how these factors can impact a company's activities and performance
• PESTLE analysis extends PEST by adding Legal and Environmental factors and is more comprehensive

Using the Tool

• A thorough PESTLE analysis typically requires a collaborative effort from numerous managers
• Step 1: Collect details on political, economic, social, technological, environmental and legal trends; plus any other pertinent factors
• Step 2: Determine which of these factors represent future opportunities or threats for the organisation

Pestle Analysis Template

• A framework for categorizing and recording various external factors that can impact an organization
• Categorizes factors into political, economic, social, technological, environmental, and legal categories

Political Factors Impacting the Food Industry

• Governments worldwide have regulations affecting every aspect of food industry
• These include things like cleanliness of commercial kitchens, labeling, transportation standards, and labor rules
• These regulations benefit consumers by preventing exposure to poor quality or unsafe products but can restrict profitability

Political Factors

• Lists different types of political factors, including government stability, bureaucracy, corruption levels, tax policies, freedom of press, regulations and de-regulations, trade control, import restrictions, tariffs, and competition regulation

Economic Factors Impacting the Food Industry

• Rising disposable incomes influence food industry revenue, as people are eating out more often.
• Increasing labor costs impact business profits.
• Growing demand for employees is increasing minimum wage expectations; therefore reducing the profitability margins

Economic Factors

• Covers Growth rates, inflation rates, interest rates, exchange rates, unemployment trends, labor costs, stage of business cycle, credit availability, trade flows and patterns, disposable income level, monetary/fiscal policies, price fluctuations, stock market trends, weather, and climate change

Sociocultural Factors Impacting the Food Industry

• Consumer health consciousness has led many to seek healthier options, affecting food industry trends.
• Dietary restrictions like gluten intolerance require food businesses to adapt, or customers are seeking foods that are healthier, which impacts the food industry.

Sociocultural Factors

• Covers Health consciousness, Education level, Attitudes toward imported goods and services, Attitudes toward work, leisure, career and retirement, Attitudes toward product quality and customer service, Attitudes toward saving and investing, Emphasis on safety, Lifestyles, Buying habits, Religion and beliefs , Attitudes toward “green” or ecological products, Attitudes toward and support for renewable energy, Population growth rate, Immigration and emigration rates, Age distribution and life expectancy rates, Sex distribution, Average disposable income level, Social classes, Family size and structure, Minorities

Technological Factors Impacting the Food Industry

• Innovation in technology, like automation (robots), 3D technology, computer calculation speed and random number generation, internet connectivity, and wireless charging, are transforming the food industry, potentially reducing costs and increasing efficiency.
• GMOs and genomics may affect food production.

Technological Factors

• Covers Basic infrastructure level, Rate of technological change, Spending on research and development, Technology incentives, Legislation regarding technology, Technology level in your industry, Communication infrastructure, Access to newest technology, Internet infrastructure and penetration

Legal Factors Impacting the Food Industry

• Strict safety standards related to storage, handling, and preparation of food are present in all countries
• Penalties for infringements highlight the importance of adherence to these regulations
• Legal violations can lead to costly lawsuits.

Legal Factors

• Covers Anti-trust law, Discrimination law, Copyright, patents / intellectual property law, Consumer protection and e-commerce, Employment law, Health and safety law, and Data Protection

Environmental Factors Impacting the Food Industry

• Awareness of environmental impact of meat production is rising, and consumers are demanding more plant-based options.
• Meat production uses significant water resources and contributes greatly to deforestation.

Environmental Factors

• Covers Weather, climate change, Laws regulating environment pollution, Air and water pollution, Recycling, Waste management, Attitudes toward “green” or ecological products, Endangered species, Attitudes toward and support for renewable energy, Diseases and epidemics, Natural disasters

Possible Outcomes - Final Thoughts

• The food industry faces both positive and negative outcomes, along with uncertainties
• Consumer spending on food is increasing, robots can streamline processes and reduce expenses, but rising labor costs and strict regulations can limit margins.
• Consumers are increasingly seeking specific diets, necessitating adaptation from food businesses.

Political Factors Affecting Business

• Government policies can influence business activities
• Changes in tax policy, regulations, and government interventions (e.g., interest rates) can affect businesses
• Companies need to stay updated on, and anticipate these changes to manage risks

Economic Factors Affecting Food Businesses

• Interest rates, exchange rates, recessions, inflation, and taxes are examples
• Demand and supply forces impacts business decisions.

Sociocultural Factors Affecting Food Businesses

• Consumer preferences and trends affect business decisions
• Social trends such as health and sustainability impacts product development and trends
• Cultural aspects such as religion, nationalism, pride, and consciousness can also shape consumer choices

Technological Factors Affecting Food Businesses

• Technology adoption can give a competitive edge but is an area where older corporations are often lacking, while newer corporations are rapidly innovating
• Automation can reduce costs in operations such as food production

Global Trends

• Agriculture, Biotechnology, E-mobility, Water management, Waste management, Digitalization, Robotics and Precision, Information, Tourism and Gastronomy, financial innovation

Sources

• Various books and websites provide information on PESTLE analysis and strategic management concepts.

This quiz covers the PEST analysis framework, which is essential for understanding the macroeconomic environment of a company. It explores external factors such as political, economic, social, and technological influences that impact organizations. Ideal for students engaged in group projects for the academic year 2024/25.