BUSINESS ENVIRONMENT PART A ANSWER MATERIAL CAN IMPROVE

Critically evaluate the value of PESTLE analysis in helping us deepen our understanding of the
international business environment.
PESTLE stands for - Political, Economic, Sociological, Technological, Legal, Environmental. PESTLE
analysis is in effect an audit of an organisation's environmental influences with the purpose of
using this information to guide strategic decision-making. The assumption is that if the organisation
is able to audit its current environment and assess potential changes, it will be better placed than its
competitors to respond to changes.
To help make decisions and to plan for future events, organisations need to understand the wider
meso-economic and macro-economic environments in which they operate. (The meso-economic
environment is the one in which we operate and have limited influence or impact, the macroenvironment includes all factors that influence an organisation but are out of its direct control). An
organisation on its own cannot affect these factors, nor can these factors directly affect the
profitability of an organisation. But by understanding these environments, it is possible to take the
advantage to maximise the opportunities and minimise the threats to the organisation.
Conducting a strategic analysis entails scanning these economic environments to detect and
understand the broad, long term trends.
A PESTLE analysis is a useful tool for understanding the big picture of the environment in which an
organisation is operating. Specifically a PESTLE analysis is a useful tool for understanding risks
associated with market (the need for a product or service) growth or decline, and as such the
position, potential and direction for an individual business or organisation.
There are certain questions that one needs to ask while conducting this analysis, which give them an
idea of what things to keep in mind. They are:
What is the political situation of the country and how can it affect the industry?
What are the prevalent economic factors?
How much importance does culture has in the market and what are its determinants?
What technological innovations are likely to pop up and affect the market structure?
Are there any current legislations that regulate the industry or can there be any change in the
legislations for the industry?
What are the environmental concerns for the industry?

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A PESTLE analysis although generally use to look at organisations is also of great use in analyzing the
international business environment. I shall be conducting a PESTLE analysis on the Bhopal gas
tragedy to show how a PESTLE analysis can help give a better understanding of the international
business environment. The Bhopal disaster was a gas leak in India and is considered the worlds
worst industrial disaster. It occurred on 2-3 of December 1984 at the Union Carbide India Limited
pesticide plant in Bhopal Madya Pradesh. Over 500,000 people were exposed to methyl isocyanate
gas and other chemicals. The toxic substance made its way in and around the shanty towns located
near the plant. Several thousand died thought estimates vary on the death toll. Union Carbide India
Limited was a subsidiary of the American company Union Carbide Corporation with the Indian
government owining 44%. It is a clear example of a US transnational company setting operations
abroad. It also shows the economic power these companies have in the global business environment
as foreign governments are keen to attract foreign investment.

We shall consider each aspect of the PESTLE analysis and the implications in the Bhopal Gas Tragedy.
It is as below:
1. Political: These factors determine the extent to which a government may influence the economy
or a certain industry. [For example] a government may impose a new tax or duty due to which
entire revenue generating structures of organizations might change. Political factors include tax
policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it
may affect the business environment (economic environment) to a great extent.
Analysis of political factors in Bhopal
Political (1) Rampant corruption in the Indian bureaucracy resulted in the failure of many of the
victims to receive any compensation. (2)The decision of the Govt of India to be the plaintiff in the
action as there was a conflict in interest (they were shareholders in Union Carbide owning 44%.)
(3) Political indifference to the tragedy.
2. Economic: These factors are determinants of an economys performance that directly impacts a
company and have resonating long term effects. [For example] a rise in the inflation rate of any
economy would affect the way companies price their products and services. Adding to that, it
would affect the purchasing power of a consumer and change demand/supply models for that
economy. Economic factors include inflation rate, interest rates, foreign exchange rates,
economic growth patterns etc. It also accounts for the FDI (foreign direct investment) depending
on certain specific industries whore undergoing this analysis.
Analysis of economic factors in Bhopal
(1) Unemployment will rise be because people reluctant to work in Bhopal. Smaller labour force
due to death and illness. (2) Fall in GDP due to less foreign direct investment and lower
economic activity. (3) Fall in disposable income. (4) Deflation due to a fall in demand for
properties (5) However people unable to move due to their social and economic background and
thus have to source resources from outside Bhopal causing inflation. Double standards of
transnational companies-differing standards in developed and developing countries.
3. Social: These factors scrutinize the social environment of the market, and gauge determinants
like cultural trends, demographics, population analytics etc. An example for this can be buying
trends for Western countries like the US where there is high demand during the Holiday season.
These would include religious factors, ethical issues, education
Analysis of social factors in Bhopal
Social: The plant was placed in an area that had a mass migration of the very poor or classified as
the untouchables in the caste system. This resulted in the delay in getting aid to them when the
incident occurred and just a blatant disregard for their welfare. Because of the fact that the
majority were poor and uneducated, they remain unaware of the exposure to toxic remains at
the site. Inadequate community planning- allowing a large population to live near a hazardous
manufacturing plant.

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Analysis of technological
Technological: There was only 1 backup system in Bhopal compared to a 4 stage system in the
US. Very lax safety and equipment regulation compared to the US. Medical staff unprepared for

4. Technological: These factors pertain to innovations in technology that may affect the operations
of the industry and the market favorably or unfavorably. This refers to automation, research and
development and the amount of technological awareness that a market possesses, information
technology, communications and technology development.

the thousands of casualties and unaware of proper treatment methods. Not following safety
regulations as followed in the US.
5. Legal: These factors have both external and internal sides. There are certain laws that affect the
business environment in a certain country while there are certain policies that companies
maintain for themselves. Legal analysis takes into account both of these angles and then charts
out the strategies in light of these legislations. For example, consumer laws, safety standards,
labor laws etc.

Analysis of the legal factors in Bhopal

International issue and therefore debate as to where it should be heard. It was finally resolved
that the action should be heard in India as witnesses and sources were entirely located in India
and all the records were kept in India. The plaintiffs were represented by the Govt of India who
were also the defendants. Therefore they were willing to accept a paltry sum of 470 million
when the sum earlier raised was 3 billion. Exploiting the weak legal system in host country.
6. Environmental: These factors include all those that influence or are determined by the
surrounding environment. This aspect of the PESTLE is crucial for certain industries particularly
for example tourism, farming, agriculture etc. Factors of a business environmental analysis
include but are not limited to climate, weather, geographical location, global changes in climate,
environmental offsets etc.
Environmental: (1) The continuous contamination of groundwater, soil and breast milk long after
the tragedy. Slow cleanup efforts in the Bhopal area. (2) Reformist effects felt in the US (UCCs
Home country) America set up a toxic releases inventory and other freedom of information
measures that greatly increase public access to information. (3)The Bhopal tragedy prompted the
Indian Govt to require Environmental Impact Assessment statements for any central approval of
projects for emission or effluent studies.

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The elements of the PESTLE Analysis are interrelated and overlap with one another and cannot be
looked at in isolation. The Above analysis shows how the PESTLE analysis can be used to deepen our
understanding of the international business environment and is not just confined to analyzing a
particular organization