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External Factors Affecting Business

Degree of Competition Other factors PESTEL

PESTEL ANALYSIS
P Political E Economic S Social T Technological E Environmental L Legal

Political

how changes in government policy might affect the business e.g. a decision to subsidise building new houses in an area could be good for a local brick works. Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability.

Economic

how the economy affects a business in terms of taxation, government spending, general demand, interest rates, exchange rates and global economic factors. Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy

Social

how consumers, households and communities behave and their beliefs. For instance, changes in attitude towards health, or a greater number of pensioners in a population. Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

Technological

how the rapid pace of change in production processes and product innovation affect a business. Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions.

Environmental

Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance.
Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.

Legal

the way in which legislation in society affects the business. E.g. changes in employment laws on working hours

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

Ethical

what is regarded as morally right or wrong for a business to do. For instance should it trade with countries which have a poor record on human rights.

Social Environment and the Business

Social change is when the people in the community adjust their attitudes to way they live. Businesses will need to adjust their products to meet these changes, e.g. taking sugar out of childrens drinks, because parents feel their children are having too much sugar in their diets. A social benefit is where a business action leads to benefits above and beyond the direct benefits to the business and/or customer. For example, the building of an attractive new factory provides employment opportunities to the local community.

A social cost is where the action has the reverse effect there are costs imposed on the rest of society, for instance pollution.

Sustainable Business Practices


Sustainable business, or green business, is enterprise that has no negative impact on the global or local environment, community, society, or economya business that strives to meet the triple bottom line. Often, sustainable businesses have progressive environmental and human rights policies.

In general, business is described as green if it matches the following four criteria: It incorporates principles of sustainability into each of its business decisions. It supplies environmentally friendly products or services that replaces demand for non-green products and/or services. It is greener than traditional competition. It has made an enduring commitment to environmental principles in its business operations.

A sustainable business is any organization that participates in environmentally friendly or green activities to ensure that all processes, products, and manufacturing activities adequately address current environmental concerns while maintaining a profit

Sustainable Development is the development that "meets the needs of the present without compromising the ability of future generations to meet their own needs. WCED 1987
Brundtland report

TBL
The Brundtland Report emphasized that sustainability is a three-legged stool of people, planet, and profit The triple bottom line (abbreviated as "TBL" or "3BL", and also known as "people, planet, profit" or "the three pillars") captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: social, ecological and economic.

The Global Perspective


By 2025 we expect to have an additional three billion people living on this planet. Natural resources are consumed faster than they can be restored. According to current trends in world population growth and industrialisation, waste and pollutants are released faster than the earth can absorb them. According to preliminary assessments, reductions of over 90% on material throughput, energy use and environmental degradation will be required by the year 2040 to meet the needs of a growing population within the planets ecological means.

The Global Perspective


If sustainable development is to be achieved, production processes, products and services have to be redesigned. This requires the development of : New systems and approaches in industry Environmentally sound technologies with a focus on cleaner and safer and more efficient use of raw materials Government policies that encourage the development of these systems and technologies.

World population is increasing to unprecedented levels.

Population growth and poverty


First Millennium - 25 million Second Millennium - 6.1 billion Forecast to reach 9.3 billion by 2050! 1.2 billon people live below the poverty line on less than one dollar a day. Almost 3 billion - or nearly half the world's people survive on less than 2 dollars a day.
Country Norway Iceland Sweden Australia Netherlands Burundi Mali Burkina Faso Niger Sierra Leone Life expectancy at birth (years) 2001 78.7 79.6 79.9 79.0 78.2 40.4 48.4 45.8 45.6 34.5

Human Development Index 2003

At the same time, millions of people worldwide are struggling to meet their basic needs.

Distribution of Total World Income

1.3 billion people live in absolute poverty, with incomes less than $1/day
(World Bank)

Richest Fifth

82.7%

841 million people in developing countries suffer from basic protein-energy malnutrition (UN Food and Agriculture
Organization)

11.7%

2.3%

Nearly 1 billion people either cannot work or are employed in jobs where they cannot support their family (International Labor Organization)

1.9%
Poorest Fifth

1.4%

(UNDP, Human Development Report 1992)

Stakeholder expectations
Employee Investor

pressure

People expect more from their workplace

pressure

People and organisations are attaching more weight to ethics, values and principles when making investment decisions

Consumer

pressure

Consumers are balancing their purchase choices against their own set of values Licence to operate

Triple Bottom Line

Social acceptability Environmental performance Economic viability

SUSTAINABILITY

ENVIRONMENTAL 2002-02 10% improvement in energy efficiency 25% reduction in volatile organic air emissions 12% reduction in solid waste

SOCIAL 2002 $8,263 per U.S. employee for medical benefits $43.7 million contributed for education, social, environmental and other community needs in the U.S.

ECONOMIC 2002 $16.332 billion in net sales $1.974 billion in reported net income $966 million in taxes paid

3Ms triple bottom line performance

FORD

Total Cost Management Supply Chain Cost Management Ford Production system Lean Manufacturing Ford Environmental system ISO 14001 Ford Product Development System

When Henry Ford recycled wooden crates into running boards and leftover wood scraps into charcoal, people didnt call him a great environmentalist They called him a smart businessman.

Sustainability at what level?


It took Britain half the resources of the planet to achieve prosperity; how many planets will India require.?
Mahatma Gandhi when asked if after independence India would acquire the UK standard of living

Business & Ecosystem Positive interaction


Cleaner Production Ecoefficiency

Cleaner Production

Cleaner Production is the continual effort to prevent pollution, reduce the use of energy, water and material resources and minimise waste, all without reducing production capacity.
Water Management - by the way of storing,

recycling and other means. Waste management - need to actively handle the disposal of waste so as to lessen the impact on the environment

Water Management

Larsen & Toubro Ltd., the company has Zero Discharge Campus at Powai, and the concept is such that not a single drop of the untreated waste water is let out of the campus premises. The treated wastewater is reused for gardening, toilet flushing, etc. The rain water harvesting is also practiced in manufacturing locations at Powai and Mysore campus. Maruti Suzuki India Ltd. Water resource management provides for:
100% Recycling of treated waste water, Reuse of treated water in process or horticulture, Rain water harvesting.

Waste Management

Tata Sponge Iron Ltd.'s solid waste management practice uses the waste materials as input to other companies. Hazardous waste management practice involves selling of waste to government authorized recyclers. Nucleus Software Export Ltd., has introduced Lean Management and Kaizen initiatives at workplace to satisfy its customers and reduce waste. Company's Kaizen projects include Paper saving, Energy saving, Water saving etc.

Eco-efficiency
Delivery of competitively priced goods and services that satisfy human needs and bring quality to life while progressively reducing ecological impacts and resource intensity throughout the life cycle to a level which is in line with the earths carrying capacity

Reduce the material intensity of goods and services Reduce the energy intensity of goods and services Reduce toxic dispersion Enhance material recyclability Maximise sustainable use of renewable resources Enhance material durability, and Increase the service intensity of goods and services

Benefits of eco-efficiency

Direct savings
Water reduction Input reduction Waste savings

Increased efficiency
Fewer defectives Better work practices

Marketing advantage
Customer relations New products Green tick?

Risk minimisation
Lower impacts EPA relations Community relations

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