PESTEL ANALYSIS (EXTERNAL ENVIRONMENT) A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the macro-environmental

(external marketing environment) factors that have an impact on an organisation. The result of which is used to identify threats and weaknesses which is used in a SWOT analysis. PESTEL stands for:

P Political E Economic S Social T Technological E Environmental L Legal

Political Factors These are all about how and to what degree a government intervenes in the economy. This can include government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour law, environmental law, trade restrictions and so on. It is clear from the list above that political factors often have an impact on organisations and how they do business. Organisations need to be able to respond to the current and anticipated future legislation, and adjust their marketing policy accordingly. Economic Factors Economic factors have a significant impact on how an organisation does business and also how profitable they are. Factors include economic growth, interest rates, exchange rates, inflation, disposable income of consumers and businesses and so on. These factors can further be broken down into macro-economical and microeconomical factors. Macro-economical factors deal with the management of demand in any given economy. Governments use interest rate control, taxation policy and government expenditure as their main mechanisms they use for this.

Micro-economic factors are all about the way people spend their incomes. This has a large impact on B2C organisations in particular. Social Factors Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes of the population. These factors include population growth, age distribution, health consciousness, career attitudes and so on. These factors are of particular interest as they have a direct effect on how marketers understand customers and what drives them. Technological Factors We all know how fast the technological landscape changes and how this impacts the way we market our products. Technological factors affect marketing and the management thereof in three distinct ways:

New ways of producing goods and services New ways of distributing goods and services New ways of communicating with target markets

Environmental Factors These factors have only really come to the forefront in the last fifteen years or so. They have become important due to the increasing scarcity of raw materials, polution targets, doing business as an ethical and sustainable company, carbon footprint targets set by governments (this is a good example were one factor could be classes as political and environmental at the same time). These are just some of the issues marketers are facing within this factor. More and more consumers are demanding that the products they buy are sourced ethically, and if possible from a sustainable source. Legal Factors Legal factors include - health and safety, equal opportunities, advertising standards, consumer rights and laws, product labelling and product safety. It is clear that companies need to know what is and what is not legal in order to trade successfully. If an organisation trades globally this becomes a very tricky area to get right as each country has its own set of rules and regulations.

EpG Model
1. Ethnocentrism -there is no international firm today whose executives will say that ethnocentrism is absent in their organization. The word ethnocentrism derives from the Greek word "ethnos", meaning nation or people, and the English word center or centrism. In this context, ethnocentrism is the view that a particular ethnic groups system of beliefs and values is morally superior to all others.[4] Ethnocentrism is characterized by or based on the attitude that ones own group is superior to others.[5] The ethnocentric attitude is found in many companies that have many nationalities and culture groups working together. It is a natural tendency for people to act ethnocentrically because it is what they feel comfortable with.[2] It is based on past experiences and learned behaviors and norms.[2] The ethnocentric attitude is seen often when home nationals of various countries believe they are superior to, more trustworthy and more reliable than their foreign counterparts.[2]Ethnocentric attitudes are often expressed in determining the managerial process at home and overseas.[2] There is a tendency towards ethnocentrism in relations with subsidiaries in developing countries and in industrial product divisions.[2] Organizations that are designed with an ethnocentric focus will portray certain tendencies. These include an organizations headquarters thats decision-making authority is relatively high. Home standards are applied to the evaluation and control of the organization.[2] These standards are to ensure performance and product quality. Ethnocentric attitudes can be seen in the organizations communication process.[2] This is evident when there is constant advice, and counsel from the headquarters to the subsidiary.[2] This advice usually bears the message, This works at home; therefore it must work in your country".[2] Organizations that portray ethnocentrism usually identify themselves with the nationality of the owner.[2] For example, Wal-Mart is seen as an American company because its headquarters are located in America. The crucial critical concept of ethnocentrism in international organizations is the current policy that recruits from the home country are hired, and trained for key executive position in the organization.[2] The ethnocentric attitude is a centralized approach. With the centralized approach, the training originates at the

headquarters and than corporate trainers travel to the subsidiaries, and often adapt to local situations.[2]

Costs

Benefits

Ineffective Planning due to poor feedback Simple organization

Subsidiary valuable executive flight

Greater communication and control

Fewer innovations

Inability to build a high caliber local org.

Lack of flexibility and responsiveness

2.

Polycentrism- Polycentrism is one of the three legs in the EPG framework that identifies one
of the attitudes or orientations toward internationalization that is associated with successive [7] stages in the evolution of international operations

Polycentrism can be defined as a host country orientation; which reflects host countries goals and objectives with respect to different management strategies and planning procedures with regard to [7] international operations. Under a polycentric perspective, a companys management team believes that in international business practices local preferences and techniques are usually found most appropriate to deal with the local market conditions. In the most extreme views of polycentrism, it is the attitude that culture of various countries are different, that foreigners are difficult to understand and should be left [8] alone as long as their work is profitable.

Costs

Benefits

Waste due to duplication

Intense exploitation of local markets

Localization costs of universal products

Better sales due to better-informed local

management

Inefficient use of home-country experience

More initiative for local products

Excessive regard for local traditions at expense of global More host government support growth

Good local managers with high morale

[6]

3.Geocentrism
The third and last aspect of the EPG model is the geocentric portion, this notion focuses on a more worldorientated approach to multinational management. The main difference of geocentrism compared to ethno and polycentrism is that is does not show a bias to either home or host country preferences but [2] rather spotlights the significance of doing whatever it takes to better serve the organization. This is evident in the sense that upper management does not hire or delegate responsibility to an individual because they best exemplify the host or home countries opinions. Instead, management selects the [2] person best suited to foster the companies goals and solve problems world wide. The purpose of this is to build an organization in which the subsidiary is not only a good citizen of the host nation but is a leading exporter from this nation in the international community and contributes such benefits as (1) an increasing supply of hard currency, (2) new skills and, (3) a knowledge of advanced technology. The sole goal of geocentrism is to globally unite both headquarters and subsidiaries.The firms subsidiaries are thus neither satellites nor independent city states, but parts of a whole whose focus is on worldwide objectives as well as local objectives, each part making its unique contribution with its unique competence.Furthermore, geocentrism boils down to product differentiation, diversifying functions in the sense that different markets require dissimilar behavior, and lastly geographic location. Out of all aspects of a business there are two that are predominantly geocentric - research and development and [2] marketing. As stated previously this is because different markets, regions, and countries require distinctive ways of approaching them. For example, the standards in which the home country operates are going to be much different from how the host country operates. What is accepted as a permissible way of treating employees in the United States, the home country, may not be acceptable to Chinese employees, in the host country. In addition, consumer tastes vary greatly from home country to host country, and going even further these tastes will continue to change from country proving that for R&D to [2] be effective it must be world-oriented. It is the overall goal of geocentrism to form a collaborative network between headquarters and subsidiaries; this arrangement should entail a set of universal standards that can thus be used as a [2] guideline when attacking key business decisions. Such decisions include the management and start-up of new plants, ideas of how to market a product to a new consumer base, and product alterations. The

most effective way to enforce geocentrism is with a formal reward system that encourages both subsidiary and headquarters managers to work for global goals rather than just defending home country values. This ideology is a great example of how todays business must manage both global and local [2] issues in order to succeed in the end.

Costs

Benefits

High communication and travel costs

Integrated global outlook

Educational costs at all levels

More powerful total company throughout

Time spent in consensus decision-making

Better quality of products and services

International headquarters bureaucracy

Worldwide utilization of best resources

Too wide distribution of power

Improved local country management

Personnel problems, especially those of international executive reentry

Greater commitment to global objectives

Higher global profits