NotesVilla Academic Team Notes

BUSINESS ENVIRONMENT & PESTLE ANALYSIS

BUSINESS ENVIRONMENT:

Author: Divya Patel

(Student at Brunel

University)

These Business Study

Notes explain the
PESTLE framework which is used for analysing macro
environmental factors. This is typically studied by students
completing undergraduate degrees in Business Studies. They
are my own original notes taken learned from Course Lecture &
Reading Materials.

 These study notes are designed to help students

understand about the:

 P- political
 E- economic
 S- Socio-cultural
 T- technological
 L- legal
 E- environmental

Influences on an organization or environment.

BUSINESS ENVIRONMENT:
An environment that directly or indirectly affects any business
organization is known as a business environment. The life and
existence of any business depends on it.
Business environment encompasses all those internal &
external factors that affect a company’s operations, including
customers, competitors, suppliers, distributors, industry trends,
substitutes, regulations, government activities, the economy,
demographics, social & cultural factors innovation &
technological developments.
Internal environment refers to environment within the
organization. It includes internal factors of the business which
can be controlled by business.
External environment refer to external aspects of the
surroundings of business enterprise which have influence on
the functioning of business. These factors are beyond the
control of business. External environment has two types i. Micro
environment ii. Macro environment.

PESTLE ANALYSIS:
The term PESTLE is used to describe a framework for analysis
of macro environmental factors. PESTLE analysis involves
identifying the Political, Economic, Socio-cultural,
Technological, Legal and Environmental influences on an
organization and providing a way of scanning the environmental
influences that have affected or are likely to affect an
organization or its policy.
PESTLE analysis is an increasingly used and recognized term,
replacing the traditional framework for monitoring environment
known as PEST analysis.
PESTLE is an acronym for:
 P- political
 E- economic
 S- Socio-cultural
 T- technological
 L- legal
 E- environmental
The PESTLE analysis is simple to understand and quick to
implement. The advantage of this tool is that encourages
management into proactive and structured thinking in its
decision making.
i. Political Factors:
These factors are how and to what extent the government
intervenes in the economy and the activities of business firms. It
may also influence goods and services which the government
wants to or be provided and those that the government does not
want to be provided. So basically political factors are those
driven by government actions and policies. They include:
corporate taxation, other fiscal policy initiatives, and free trade
disputes, antitrust and other anti-competition issues.

 Political Factor Example: A multinational company

closes several facilities in a higher tax jurisdiction in
order to relocate operations somewhere with lower tax
rates and/or greater state funding and grant
opportunities. The charge on plastic carrier bags affects
the retail sector and the ban on smoking in public places
affects the tobacco industry.

ii. Economic Factors:

Economic factors relate to the broader economy and tend to be
expressly financial in nature. They include: Interest rates,
Employment rates, Inflation, Exchange rates. Businesses are
affected by a range of other economic factors, including the
changing costs of raw materials, the entry of a new rival into the
market, the current availability of investment funds, the
economic performance of the domestic and world economy,
and changes in domestic and foreign economic policy.
It is normal to divide the economic environment in which the
firm operates into two levels: the microeconomic environment
which includes all the economic factors that are specific to a
particular firm operating in its own particular market. The
macroeconomic environment is the national and international
economic situation in which business as a whole operates.

 Economic Factor
Example: a rise
in the inflation
rate of any
economy would
affect the pricing
of companies’
products and
services, this
would affect the
purchasing
power of a
consumer and
change
demand/supply
models for that economy. Interest rates affect a firm’s
 cost of capital and therefore to what extent a business
grows and expands.

iii. Socio-cultural Factors:

This aspect concerns social attitudes and values. They refer to
shifts or evolutions in the ways that stakeholders approach life
and leisure, which in turn can impact commercial activity. They
include: Lifestyle trends, consumer beliefs and attitudes around
working conditions and the length of the working day, equal
opportunities for different groups of people (whether by
ethnicity, gender, and physical attributes, etc.), the nature and
purity of products, and images portrayed in advertising.
The social/cultural environment also includes social trends,
such as an increase in the average age of the population, or
changes in attitudes towards seeking paid employment while
bringing up small children.

 Socio-cultural Factor Example: Post-pandemic,

management at a technology firm has had to seriously
re-evaluate hiring, on boarding, and training practices
after an overwhelming number of employees indicated a
preference for a hybrid, work-from-home (WFH) model.

iv. Technological Factors:

Over the past 30 years there has been significant technological
change, which has had a huge impact on how firms produce,
advertise and sell their products. It has also changed how
business is organised, providing more opportunities for smaller
online retailer and changing the structure of many markets.
The use of computer controlled production has changed the
nature of work for many workers. The information-technology
revolution has enabled much more rapid communication and
has made it possible for firms across the world to work together
more effectively. The working environment has become more
flexible and efficient, with many workers able to do their job
from home, while travelling or from another country.

 Technological Factor Example: A management team

must weigh the practical and the financial implications of
transitioning from on-site physical servers to a cloud-
based data storage solution.

v. Legal Factors:
Businesses are affected
by the legal framework in
which they operate.
Examples include
industrial regulation,
licenses and permits
required to operate,
employment and
consumer protection
laws, product safety
standards, regulations
governing pricing in the
privatised industries and
laws preventing collusion between firms. These factors are
those that emerge from changes to the regulatory environment,
which may affect the broader economy, certain industries, or
even individual businesses within a specific sector.
  Legal Factors Example: A rating agency is assessing
the creditworthiness of a technology firm that has
considerable growth prospects in emerging markets.
The analyst must weigh this against the risk of IP
(Intellectual Property) theft in some jurisdictions where
legal infrastructure is weak. IP theft can severely
undermine a firm’s competitive advantage.

vi. Environmental Factors:

Environmental factors emerged as a sensible addition to the
original PEST framework as the business community began to
recognize that changes to our physical environment can present
material risks and opportunities for organizations. Examples of
environmental factors are: carbon footprint, climate change
impacts, including physical and transition risks, increased
incidences of extreme weather events, stewardship of natural
resources (like fresh water).
This has become an increasingly important issue in politics and
business, with many firms aiming, and even being forced by
government policy changes, to take greener approach to
business. Consumers are more environmentally aware and a
green image can be useful in generating finance from investors
and government.

 Environmental Factors Example: Management at a

publicly traded firm must re-evaluate internal record
keeping and reporting tools in order to track greenhouse
gas emissions after the stock exchange announced
mandatory climate and ESG (Environmental, Social,
and Governance) disclosure for all listed companies.
Combined, the above six factors can have a profound impact on
risks and opportunities for firms. Business environment is
constantly changing. Some of these changes are gradual, some
are revolutionary. To be successful, a business will need to
adapt to these changes and wherever possible, take advantage
of them.
Ultimately the better business managers understand the
environment in which they operate, the more likely they are to
be successful, either in exploiting ever-changing opportunities
or in avoiding potential disasters.

BIBLIOGRAPHY

 Sloman J; Garratt, D: Guest; and Jones E. 2019. Economics for

Business. (e.book Eighth edition. Pearson Limited. Harlow. United
Kingdom.
Want more?
Visit https://www.notesvilla.com/notes to gain access to
hundreds of study notes created by students, teachers and
professional learners.

Got notes of your own?

Create an account on https://www.notesvilla.com/ and
begin uploading your study notes for cash payments and
credit rewards.