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 (interference) in the economy. What goods and services does a government want to provide?

To what extent does it believe in subsidizing (grants or loans) (buying) firms? What are its priorities in terms of business support? Political decisions can affect many important 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.

Economic factors. These include interest rates, taxation changes, economic growth, inflation (price rise) and exchange rates. As you will see economic change can have a major impact on a firm's behaviour.

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For example:

• higher interest rates may stop 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 lead to higher wage demands from employees and raise costs
• higher national income growth may increase demand for a firm's products .

Social factors. Changes in social trends (fashion/lifestyle) 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 staffs 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 have increased whereas demand for toys is falling.

Technological factors: 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: 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 important 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 business opportunities.

Legal factors: these are related to the legal environment in which firms operate. In recent years in the UK there have been many significant legal changes that have affected firms' behaviour. The introduction of age discrimination (discrimination definition: where u make fun and not treat someone right because of their background, colour, how they look or age) and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organisation's actions.

Legal changes can affect a firm's costs (e. g. if new systems and procedures have to be developed) and demand (e. g. if the law affects the likelihood of customers buying the good or using the service). Different categories of law include:

1. Consumer laws; these are designed to protect customers against unfair practices such as misleading descriptions of the product.
2. Competition laws; these are aimed at protecting small firms against discrimination by larger firms and checking that customers are not exploited by firms with control and power .
3. Employment laws; these cover areas such as redundancy, dismissal, working hours and minimum wages. They aim to protect employees against the abuse of power by managers
4. Health and safety legislation; these laws are aimed at ensuring the workplace is as safe as is reasonably practical. They cover issues such as training, reporting accidents and the appropriate provision of safety equipment. http://www. scribd. com/doc/16171096/PESTEL-Framework-and-Porters-Five-Forces-Model

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