As previously established in our blog What Is PESTLE Analysis?, PESTLE is a practical framework for strategic planning, used by organisations to identify factors outside their control that can impact on their activities.
PESTLE stands for Politics, Economy, Social, Technological, Legal, Environment – and today we are looking more closely at the first of these: Politics.
While modern technology has helped to open up new global markets, companies should ensure they keep abreast of the political situation at home and abroad, as either could have an impact on their business.
Political decisions made at local, county/state and national levels can have minor or major ramifications for an organisation.
For example: perhaps your business is considering launching a new site or a competitor is looking at opening a rival business close to yours. The introduction of new planning laws or building regulations could have a positive or negative effect for your company.
Changes in government policy can also affect your customers’ spending power. Again, this could work to your advantage or disadvantage. For example, if your business offers low-cost goods, you may see sales increase during a recession.
A policy that causes a rise or fall in the country’s currency will affect the import and export of goods. This could affect anything from a business that imports materials to make their products to a company that offers its services across the globe.
Political decisions affecting employee rights, such as maternity and paternity leave, will impact a business, as will changes to interest rates, grants and funding opportunities and tax rates – whether corporation tax, National Insurance, stamp duty, the personal allowance or fuel duty.
Recent policies that have been introduced in the UK likely to affect how a business operates include:
- Increases to the national minimum wage
- Changes to pensions and the retirement age
- Changes to the way that apprenticeships are funded
A major factor shaping UK business over the next few years will be the effect of Brexit, which has already impacted currency and will have an effect on how we trade with other countries and recruit staff moving forward.
Policies and legislation that affect business can also take place on the world stage.
- Launching a new product or service in a country that is opening up to new markets
- Being aware of new or existing tariffs imposed on imports and exports
- Travel or visa restrictions on existing employees or staff you wish to recruit
Other factors driven by political decisions that can affect a business launching or operating outside the UK include:
- Transport infrastructure: airports, road and rail links
- Reliability of energy and communication infrastructure
- Currency and inflation
- Local salaries
While companies doing business in some countries may not expect dramatic change when a new government is voted in, it can be challenging to operate in places that lack political stability, especially when this leads to demonstrations, riots or even civil war. In some countries, corruption and bribery are endemic, which can make it difficult for ethical businesses to operate.
There are several ways in which being aware of the political situation at home and abroad can benefit a business and help it gain competitive advantage. However, as politics is probably the most volatile and hardest element of PESTLE to predict, it can be a good idea to build in a certain amount of flexibility and agility to your business model, so that you can react quickly and effectively to unexpected changes.