PESTEL (I) : Political Environment

Macro-environment maybe analysed into 6 segments using the PESTEL framework.
1. Political
2. Economic
3. Socio-cultural
4. Technology
5. Environmental protection
6. Legal

PESTEL analysis is an approach to analysing an organisation's environment.

PESTEL is a strategic analysis tool, it can be used to identify key performance management issues.

Political Environment

(1) Government policy

* Fiscal policy (taxes, borrowing, spending)
* Monetary Policy (interest rates, exchange rates)
* Size and scope of the public sector.
* Political change complicates planning ctivities.


(2) Public Policy on competition

* Monopoly has both economic advantages and economic disadvantages:

(a) In industry where the minimum efficient scale means having to achieve a large share of the total market supply, monopoly may be tolerated because the monopoly achieves economies of scale. Normally government ownership (example: railways, telecomms and power generation).

(b) Monopoly will be detrimental to public interest if cost efficiencies are not achieved. Firms may use the market power opportunity to pursue a variety of other-than-profit objectives.

(3) Anticipating changes in the law

*The governing party’s election manifesto should be a guide to its political priorities

*The government often publishes advance information about its plans for consultation purposes.

(4) Political risk

* Risk that political factors will invalidate the strategy and perhaps severely damage the firm.

* Examples are wars, political chaos, corruption and nationalisation.


(source: BPP Learning Media)



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