Pestle & SWOT Analysis in Business Environment
A business environment is meant to be affected by many different forces. These forces further are divided into two categories. The categories are internal and external namely. As the names go, we understand that the internal forces usually include things that affect the business from within the organization, and on the other hand, external forces are those that exist outside the organization. To understand and classify both forces further and more precisely, tools have been found and developed. Two popularly used tools are SWOT and PESTLE. A SWOT analysis covers both internal and external factors that affect an enterprise. PESTLE analysis only focuses on the external factors of an enterprise but in detail.
SWOT Analysis
SWOT simply stands for Strength, Weakness, Opportunity, and Threats. As mentioned earlier, SWOT analysis is a popularly used tool in the business world for analyzing the market and covers both, internal and external factors. The internal factors include Strength and Weakness. The external factors include Opportunities and Threats.
Internal factors
Strength in an organization is an inherent capability that it has and can use to gain strategic advantage. For example, good brand image in the market.
Weakness is an inherent limitation of an organization that creates a strategic disadvantage to it. For example, shortage of funds.
External factors
Opportunity is nothing but a favorable condition for an organization. It helps a company to strengthen its position in the market. For example, growing demand in the market.
A threat is an unfavorable condition in the external environment of the company which can cause damage to its position. Hence, alerting the organization to take steps to recover in advance. For example, competition from multinational companies.
Pestle Analysis
Pestle is the acronym for Political, Economic, Social, Technology, Legal and Environment. Pestle analysis largely focuses on and analyses the external environment of a business organization.
Political -
these are the policies of the state that can affect the business one has. The factors can be:
- Government tax policies or regulations. The government may impose higher taxes on business or give tax relief. The former reduces production while the latter encourages the same.
- Business regulation policies. Certain kinds of businesses require proper investigation and certifications by the government. For example, setting up a cigarette factory would require the government’s involvement from time to time.
Economic -
There are several factors of economy that highly affect the business.
- Currency value – if the currency devalues, it acts as an opportunity to sell more in the foreign market while as a disadvantage if raw materials are imported from abroad.
- Public spending power – the purchasing power of the public to which the sales are being targeted is an important factor. This is because the better their economic conditions are, the more they buy and vice versa.
Social factors -
social factors affect the business environment in multiple ways.
- Changes in styles/choices – a mere change in the tastes and preferences of the consumers affect largely to the business environment. Demand may rapidly fall for any product and business may collapse.
- Population demographics – the sales turnover will highly depend on the demographic structure of a nation. Thus, the target group of customers should be kept in mind while making a business plan.
Technological factors -
use of capitalintensive techniques in production reduces costs and increases profits, and labor-intensive has a vice versa effect. Thus, technology has become an essential factor, highly controlling the changes and results of a company.
Legal -
there exist legal factors affecting the businesses.
- Laws relating to wages – if wage laws are changed, it directly affects the amount of production.
- Working policies and regulations – the policies of work ethics instructed by the government are likely to change the production pattern in the firms.
Environmental -
in modern times, environmental laws are largely to be considered by any business firm for survival. Industries have destructed the environment over centuries and that imposes a threat to the sustainability of human beings and all other organisms on the planet. Thus, an entrepreneur is to consider the environment while making production decisions.
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