he political environment can impact business organizations in many ways.

It
could add a risk factor and lead to a major loss.  You should understand
that the political factors have the power to change results. It can also affect
government policies at local to federal level. Companies should be ready to
deal with the local and international outcomes of politics.
Changes in the government policy make up the political factors. The change
can be economic, legal or social. It could also be a mix of these factors.

Increase or decrease in tax could be an example of a political element. Your

government might increase taxes for some companies and lower it for others.
The decision will have a direct effect on your businesses. So, you must
always stay up-to-date with such political factors. Government interventions
like shifts in interest rate can have an effect on the demand patterns of
company.
Certain factors create Inter-linkages in many ways. Some examples are:

 Political decisions affect the economic environment.

 Political decisions influence the country’s socio-cultural environment.
 Politicians can influence the rate of emergence of new technologies.
 Politicians can influence acceptance of new technologies.
The political environment is perhaps among the least predictable
elements in the business environment. A cyclical political environment
develops, as democratic governments have to pursue re-election every few
years. This external element of business includes the effects of pressure
groups. Pressure groups tend to change government policies.
As political systems in different areas vary, the political impact differs. The
country’s population democratically elects open government system. In
totalitarian systems, government’s power derives from a select group.

Corruption is a barrier to economic development for many countries. Some

firms survive and grow by offering bribes to government officials. The
success and growth of these companies are not based on the value they offer
to consumers.

Below, is a list of political factors affecting business:

 Bureaucracy
 Corruption level
 Freedom of the press
 Tariffs
 Trade control
 Education Law
 Anti-trust law
 Employment law
 Discrimination law
 Data protection law
 Environmental Law
 Health and safety law
 Competition regulation
 Regulation and deregulation
 Tax policy (tax rates and incentives)
 Government stability and related changes
 Government involvement in trade unions and agreements
 Import restrictions on quality and quantity of product
 Intellectual property law (Copyright, patents)
 Consumer protection and e-commerce
 Laws that regulate environment pollution
There are 4 main effects of these political factors on business organizations.
They are:
 Impact on economy
 Changes in regulation
 Political stability
 Mitigation of risk
IMPACT ON ECONOMY
The political situation of a country affects its economic setting. The
economic environment affects the business performance.

For example, there are major differences in Democratic and Republican

policies in the US. This influences factors like taxes and government
spending, which ultimately affect the economy. A greater level of
government spending often stimulates the economy.

CHANGES IN REGULATION
 Governments could alter their rules and regulations. This could in turn have
an effect on a business.

After the accounting scandals of the early 21st century, the US SEC became
more attentive on corporate compliance. The government introduced the
Sarbanes-Oxley compliance regulations of 2002. This was a reaction to the
social environment. The social environment urged a change to make public
companies more liable.

POLITICAL STABILITY
Lack of political stability in a country effects business operations. This is
especially true for the companies which operate internationally.

For example, an aggressive takeover could overthrow a government. This

could lead to riots, looting and general disorder in the environment. These
disrupt business operations. Sri Lanka was in a similar state during a civil
war. Egypt and Syria faced disturbances too.

MITIGATION OF RISK
Buying political risk insurance is a way to manage political risk. Companies
that have international operations use such insurance to reduce their risk
exposure.

There are some indices that give an idea of the risk exposure in certain
countries. The index of economic freedom is a good example. It ranks
countries based on how politics impacts business decisions there.

HE IMPORTANCE OF OBSERVING THE POLITICAL ENVIRONMENT

Firms should track their political environment. Change in the political factors
can affect business strategy because of the following reasons:

 The stability of a political system can affect the appeal of a particular

local market.
 Governments view business organizations as a critical vehicle for social
reform.
 Governments pass legislation, which impacts the relationship between
the firm and its customers, suppliers, and other companies.
 The government is liable for protecting the public interest.
 Government actions influence the economic environment.
 Government is a major consumer of goods and services.
EXAMPLE: HOW POLITICAL FACTORS AFFECT NIKE
Studies show that Nike has earned high profits from the growth orientated
policies of US government. The policies maintained low-interest rates.
Currency exchange stability and internationally competitive tax arrangements
were also maintained. The company has also benefited from government
initiatives in terms of transparency in the global value chain.

One example of this is in membership of the Clinton administration’s 1997

Apparel Industry Partnership. Nike enjoyed changes in the political factors in
many ways.  However, political pressures had a negative impact on Nike’s
employment practices.

Social facors
 here is no doubt that the society is continually changing. The tastes and
fashions are a great example of this change. One of the most significant
differences is the growing popularity of social media. Social networking
sites like Facebook have become very popular among the younger people.
The young consumers have grown used to mobile phones and computers.
The younger generation prefers to use digital technology to shop online.
Older people will perhaps stick to their traditional methods. The effect of
changing society is an often discussed. You must also understand that these
changing factors have a toll on businesses too. Changes in the social factors
can impact a firm in many different ways.

Companies often focus on these changes in depth.  To do so, they

employ environmental analysis such as PEST analysis. STEP is a variation of
PEST. Extended versions include PESTLE, STEEP and STEEPLE analysis.
The “S” in all these analyses indicates social or socio-cultural factors. Other
factors you should assess are political, economic, technological,
environmental, ethical and legal.
Businesses choose an environmental analysis depending on the nature of
operations. However, all of them study the social factors.
In the social step for these analyses, you have to look carefully at the social
changes. You will also have to look into the cultural changes which take
place in your business environment. Market research is a critical part of this
step. It is vital to see the trends and patterns of the society.

To understand the impacts better, you might need to study the factors in
details. Most companies analyze the population growth and age structure.
They also show interest in consumer attitudes and lifestyle changes. Your
analysis can show if there are faults in your marketing strategy. It can also
help find new ideas.
Below is a list of social factors which impact customer needs and size of
markets:

 Lifestyles
 Buying habits
 Education level
 Emphasis on safety
 Religion and beliefs
 Health consciousness
 Sex distribution
 Average disposable income level
 Social classes
 Family size and structure
 Minorities
 Attitudes toward saving and investing
 Attitudes toward green or ecological products
 Attitudes toward for renewable energy
 Population growth rate
 Immigration and emigration rates
 Age distribution and life expectancy rates
 Attitudes toward imported products and services
 Attitudes toward work, career, leisure and retirement
 Attitudes toward customer service and product quality
The social aspect focuses on the forces within the society. Family, friends,
colleagues, neighbors and the media are social factors. These factors can
affect our attitudes, opinions and interests. So, it can impact sales of
product and revenues earned.
The social factors shape who we are as people. It affects how we behave and
what we buy. A good example is how people’s attitude towards diet and
health is changing in UK. Because of this, UK businesses are seeing some
changes. More people are joining fitness clubs. There is also a massive
growth in demand for organic food.

Products often take advantage of the social factors. The Wii Fit, for instance,
attempt to deal with the society’s concern about children’s lack of exercise.
Population changes are also directly affecting organizations. The supply and
demand of goods and services in an economy can change with the structure
of the population. Decline in birth rates mean demand will decrease. It also
indicates greater competition as the total consumers fall.

World food shortage predictions can lead to call for more investment in food
production. An increase in the world’s population can have the same effect.
African countries like Uganda are facing food shortage. They are
reconsidering rejection of genetically modified foods now.
Organizations should be able to offer products and services which aim to
benefit people’s lifestyle. The offerings should complement customers’
behavior. Not reacting to changes in the society can be a costly mistake.
They might lose market share. Demand for their products and services will
fall.
I have added some examples of how renowned companies use the analysis.
Read below to see how social changes affect Pepsi Co and Nokia.
SOCIAL FACTORS WHICH IMPACT PEPSI CO

Analysis shows that social factors impact the beverage company greatly. The
key reason behind this is perhaps that Pepsi is a non-alcoholic beverage. It
has to maintain the strict differences in cultures around the world.
It is essential that Pepsi communicates its image as a global brand to change
people’s perception. The company expects its buyers to be able to think of
their drink as something which connects the world together. The social
implications are visible in marketing campaigns most of the time.
For example, the religious festivals featured in TVC ads vary based on
cultures. Pepsi has to value all the festivals in order to relate to their market. 
Reacting to the social factor can help Pepsi cash upon the opportunity.

SOCIAL FACTORS WHICH IMPACT NOKIA

Before Microsoft acquired Nokia, it was operating mostly in the Western

market. It was important to fully understand the social factors in these
markets. The main issues were the culture of the society. Nokia had to make
efforts to keep its products updated as the buyers saw it as a fashion icon.
Recommended: SWOT analysis of Nokia
Consumers are always seeking the best looking smartphones. This is because
people tend to judge each other’s fashion sense based on choice of mobile
phone.

The rising trend in smartphones means when buyers purchase new mobile
phones, they are less inclined toward standard mobiles phones. The social
trend is to buy smartphones. Nokia’s task was to be aware of this. Upon
finding out, the company decided to channel most of its efforts in developing
new smartphones. The new phones would also compete with their rivals’
products. This is how companies keep up with the social trends of their
consumers.
Pepsi cola

here are many companies the world over, that conduct PESTLE analysis on
their brands in order to ascertain strategies for the future or else to understand
the market before launching them. It is a fundamental tool of market planning
and strategizing that must be carried out to comprehend market trends and the
systematic risks involved.
PESTLE analysis gives you an overview of the whole situation your business
might be in. Precisely, it is a bird’s eye view of the stimulus and the scenarios
that surround your trade and you business.
PESTLE, is an acronym in which each letter denotes certain factors for the
study. These factors affect the market in many ways and alter the way
strategies are thought of and made. P stands for political factors, while E
stands for economic ones. S has to do with social factors in a country whereas
T sums up all the technological aspects of the market. L denotes legalities of
the environment and E accounts for the environmental aspects and its
influence upon the nature of the trade you’re in.
Almost every major and minor organization tries to conduct this analysis, but
with regards PESTLE analysis example, I would cite an example of a real-
life case study in which PepsiCo, a beverage giant carried out the PESTLE
analysisover its brands.
Recommended: Read how to write your first PESTLE analysis from scratch.
PESTLE ANALYSIS BY PEPSICO

PepsiCo is the largest selling beverage the world over, of course after its arch
rival Coca Cola. It accounts for a 37% share of the global beverage market,
and therefore they need to understand each and every country’s market in
order to stay in line with their PESTLE situations.
Pepsi is a big brand, currently holds the 23rd place in the Interbrands report of
the World’s Leading Brands. Their advertisements feature major celebrities
and athletes like David Beckham, Robbie Williams, Britney Spears, and
Michael Jackson etc.
Their market reach is also very diverse, as they’re present in almost every
country from the US to New Zealand. Their PESTLE analysis is given below:

POLITICAL:
Pepsi is a non-alcoholic beverage and is therefore regulated by the FDA. So,
they’re supposed to maintain a firm standard of the laws set out by the FDA
with consistency. Also, many different markets across the world have
different set of regulations that are either relaxed or are either stringent. There
is competitive pricing by Pepsi’s competitors and that is one factor that Pepsi
has to keep in mind at all times. The political scenario also matters greatly as
there can be some civil unrest in certain markets or due to inflation the sales
of the product can fall. Most importantly, cross border situations are starkly
different therefore Pepsi has to stay in line with all those policies and changes
so that they can adapt to all those changes accordingly.
ECONOMIC:
As the recent economic downturn has plagued the economy, companies had
to restructure their sales and marketing campaigns greatly. Also, with
diminishing profits they had to undergo downsizing internally and re-think
upon how to penetrate the market. Economic conditions have the highest
influence on a business, regardless of what trade it is in. Though, in Pepsi’s
favor, the economic downturn that started in 2008 resulted in increased sales
of its beverages mainly as people were being laid off from jobs, they were
spending time with friends and family or at home.

SOCIAL:
Social factors greatly impact Pepsi, as it’s a non-alcoholic beverage it has to
remain in line with the strict and stark differences of cultures the world over.
Also, Pepsi has to communicate its image as a global brand so that the people
can associate it with themselves as something that connects the world
together. Usually, the social implications are seen in marketing campaigns for
example certain countries have religious festivals, so Pepsi has to keep in line
with all those festivals in order to understand the psyche of their market and
how they can cash upon the opportunity.
TECHNOLOGICAL:
With the advent of the new age in technology, companies have completely
integrated themselves with all the recent changes that have taken place. To
mention a recent trend that has greatly picked up and something that almost
every business is turning toward is Social Media. The social media explosion
has allowed for increasingly interactive engagement with the consumers with
real time results so Pepsi has to stay ahead of all the developments that take
place with keeping in view how the youth of today utilizes technology for
their benefit and how can Pepsi reach them in order to keep on increasing
brand recall and brand engagement.

LEGAL:
There can be many legal implications upon the beverage industry. I would
cite one very famous incident took place in India, where Pepsi was accused
of using contaminated water, given a lab test that was done upon the water
flowing into the Pepsi factory that was located nearby an industrial estate. A
massive recall was issued for the products from shelves and then the product
was tested costing the company many billions of dollars upon the tests as
India is a very major market.
ENVIRONMENTAL:
These factors can affect Pepsi, but not immensely alter its trade and profit
generation as these factors affect agri-businesses much more directly