Social factors tend to be more difficult to quantify than economic factors. They relate to changes or developments in the way stakeholders approach life and leisure, which in turn can affect business operations. Examples of social factors include: Politically, a country`s government may try to protect jobs or certain industries. Some industries may be considered critical to national security, such as defence, telecommunications and infrastructure – for example, a government may be concerned about who owns its country`s ports. National security issues can affect both a country`s import and export, as some governments may not want advanced technological information to be sold to hostile foreign interests. Some governments use trade as retaliation when another country is politically or economically unjust. On the other hand, governments can influence trade to reward a country for its political support in global affairs. Companies should monitor their political environment. Changes in political factors can affect the company`s strategy for the following reasons: As political systems vary in different areas, the policy implications differ.
The people of the country democratically elect an open system of government. In totalitarian systems, the power of government comes from a select group. It is a question of how and to what extent a government intervenes in the economy or in a particular industry. Basically, all the influences a government has on your business could be categorized here. This can include government policy, political stability or instability, corruption, foreign trade policy, tax policy, labour law, environmental law and trade restrictions. In addition, government can have a profound impact on a country`s education system, infrastructure, and health regulations. These are all factors to take into account when assessing the attractiveness of a potential market. Many external environmental factors can impact your business. It is common for managers to accurately assess each of these factors. The goal is always to make better decisions for the progress of the company. Some common factors are political, economic, social and technological factors (known as PEST analysis).
Companies are also looking at environmental, legal, ethical and demographic factors. The framework is used by management teams and boards of directors in their strategic planning and enterprise risk management planning processes. PESTEL analysis is also a very popular tool among business consultants to help their clients develop innovative product and market initiatives, as well as in the financial analyst community, where factors can influence model assumptions and financing decisions. Political factors can affect a company by making the market environment more or less favorable for that company. Typically, governments have a lot of power over companies and often there`s not much companies can do about it. While theoretically any country can pose a risk to all of these factors, some countries offer a more stable business environment than others. Indeed, political stability is an important part of the government`s efforts to attract foreign investment to its country. Companies need to assess whether a country believes in free markets, government control, or strong intervention (often for the benefit of a few) in the industry. The country`s view of capitalism is also a factor in commercial considerations. In the broadest sense, capitalismAn economic system in which the means of production are owned and controlled by the private sector.
is an economic system in which the means of production are privately owned and controlled. In contrast, a planned economy, an economic system in which the government or state directs and controls the economy, including the means and decisions of production. is that in which the government or state directs and controls the economy, including the means and decisions for production. In the past, democratic governments have supported capitalism and authoritarian regimes have tended to adopt a state-controlled approach to managing the economy. In democracies, businesses understand that most rules survive government changes. All changes generally reflect a changing economic environment, such as the Great Depression of 2008, not a change in state actors. PEST is a framework for analyzing the macroeconomic environment of a company. Study the factors P – Political, E – Economic, S – sociocultural and T – technological in the external environment. Then evaluate these factors to identify significant changes that could impact your business. Your goal is to identify external factors that represent opportunities or threats to your business.
Social factors may seem like a small consideration compared to more tangible things like interest rates or corporate taxation. Yet they can have a shockingly large impact on entire industries as we know them. Consider how trends toward healthier, more active lifestyles have ushered in the development of connected fitness technologies, as well as many changes in the type of food we eat and how those foods are packaged and marketed. Conducting a macro-environmental analysis, a good example of how political factors have influenced a company, can be associated with Nike. Nike is a globally recognized sportswear, shoes, accessories and sports equipment.