PESTLE Analysis is an analysing strategy used in any kind of business or organisation. PESTLE analysis helps to analyse all external factors which affect businesses (organisations or projects). Some may call or write this as PESTEL analysis. Same like SWOT analysis, Word PESTLE is acronymic for below words.
PESTLE Stands for,
- P- Political
- E- Economical
- S- Social
- T- Technolgy
- L- Legal
- E- Environment
PESTLE analysis is treated as one of the most important commercial analysis tools in the construction industry. As a Quantity surveyor or construction professional, we all must aware of this tool, to analyse the condition of the industry from time to time. Before moving into real life PESTLE analysis examples, Here we have a short brief of each factor of PESTEL analysis.
Political– Political decisions, policy changes can affect any kind of business (organisation or project). Government’s monetary policy, taxation policy, Import and export policy, labour policy are the main subcategories under here. Apart from these trade agreements, industry regulations also come under the political category.
Economical– the economic situation of the market is directly affecting businesses. The fast fluctuation of exchange rates, Bank interest rates, Central bank’s Fiscal decisions are the main subcategories which we can log under the economic factor. Also, labour cost and inflation are another two external factors categories under this factor of PESTLE analysis.
Social- Mostly Social factor affect at the initial stage of a company or either they are trying to launch new products. And also some severe changes to the social life of people can affect businesses. Religious believes, Expectations, Peoples taste are the most recognised subcategories under here. There may be some external factors that affect the social life of people(like pandemic situations).
Technology– The most unpredictable factor of PESTLE analysis. Time to time, New technologies have replaced some businesses, professions and industries. Failure to adopt fast-developing technologies has thrown away multi-million companies in the last few decades. Technology is changing and developing day by day in the modern world. It creates new businesses, job opportunities. As well as replaces industries and professions.
Legal-Changes to the related laws, implementation of new laws can put businesses into risk. Labour laws, Authority regulations, health and safety regulations are the critical subcategories under this main category. When a company or organisation is planning to invest or expand in a new country, they are carefully analysing the laws and transparency of the legal system in the same country.
Environment– Environmental factors such as weather, Global warming are the most critical subcategories under environment factor. There are so many examples of businesses affected by bad weather. seasonal changes in weather conditions also a critical factor that companies should focus on when planning their businesses.
So there is the simple brief of External factors considered under PESTLE analysis. But our main intention is to show you PESTLE analysis examples or case studies based on real events. Just look below each categories PESTLE analysis examples.
PESTLE analysis examples for Political factor
“America first” is the main motto of President Tump’s trade policy. After elected as president in 2016, He has renegotiated the trade deals with Mexico, Canada and South Korea. This change in the policy has affected so many businesses all over the world. Because of the trade war between China and USA, He has banned all devices produced by Huwaei and prohibited any deal with Huwaei. And it cost a severe amount of loss for the company(Huawei). Also, The US tech giant Google has got struck back. They had to remove Huawei from Google play store after this decision. And they lost around 425 million $ worth play store revenue because of it.
Due to recent conflicts in their borders, India recently banned around 100 Chinese apps and mobile games. Among them, there are Tiktok, Baidu, We chat and popular mobile game PUBG. The Chinese developer “Tencent”, The company behind the BUBG mobile game already affected due to this issue. The share price of the company already dipped by 2% (within two days). The lost is calculated as around 40 billion dollars.
PESTLE analysis examples for Economic factor
The best example for this economic crisis is the 2008 financial crisis; Bursting the housing bubble in the US market caused the 2008 financial crisis.
So what is this housing bubble and how it burst?
It started due to lousy lending process. In early 2000 US banks followed proper practice to issue housing mortgages. They verified income and job security before issuing a housing loan. But after lending, banks often securitise these housing mortgage loans with some third parties to mitigate the risk and balance the cash flow.
The process called “mortgage back securities” and These third parties are mostly large investors. They bought bundles of individual mortgages and resold it into individual investors. And the individual investors treated this process as one of the most secured investment at that time. Because home prices are going up and if someone failed to pay their mortgage, the value of their house was more than the mortgaged amount. Everything was perfect, and everybody wanted a piece of it. So the demand for mortgage back securities raised.
Due to high demand, banks adjusted their process of verifying the borrowers. They issued housing loans without verifying income or credit history. Due to this process, most of the borrowers failed to repay their housing loans.
So these defaulters houses came to the housing market, and it unbalanced the supply and demand equation(of housing). Less demand and oversupply bought prices down. Eventually, House values become lesser than the issued mortgage value.
2008 economic crisis affected so many industries. First, it hit on the banking sector. Lehman Brothers, A bank operated in the US has collapsed. And it was acquired by Barclays capital. Lehman Brothers incident is treated as the biggest collapse in the US banking sector. Roskilde Bank ROSK.CO is another danish based bank which affected due to this situation.
Washington mutual is another lending company which went bankrupt due to economic recession. The construction industry has suffered a lot due to the 2008 economic crisis. There are many consultants firms which went to the merging & acquisition process to face financial condition. Acquisition of EC harris (the built asset consultant firm) by Arcadis is the best example.
PESTLE analysis examples for Social factor
Factors affecting PESTLE analysis may be triggered due to some other external factors. As an example, the social life of people all over the world changed due to recent COVID 19 pandemic situation. Some may think that how COVID 19 situation become a social factor in PESTEL analysis. But remember that people were forced to maintain social distance. Most countries went to lockdown and closed their borders.
This change in people’s social life affected most businesses all around the globe, especially for Airlines and the restaurant industry. Avianca, the second-largest carrier in South America was one of the first airline affected due to COVID 19 pandemic. Below statement from their CEO explains their situation,
“Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the COVID-19 pandemic. Despite the positive results yielded by our ‘Avianca 2021’ plan, we believe that, in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges.”– Anko van der Werff, Chief Executive Officer of Avianca
PESTLE analysis examples for Technolgy factor
In the late 90’s and early 2000, Nokia was the pioneer manufacturer in the phone industry. They were dominant in the market. They were one of the first manufacturers who made phones using Symbian flatform. Moving to Symbian was a game-changer for Nokia. But, In 2007 Apple came into the market with their “I OS” system.
People realize the difference between “i OS” and “Symbian” flatform. I phones was more speed and efficient against Nokia’s Symbian phones. Other companies have changed their strategy and moved to android flatform to be more competitive with Apple I phones. But Nokia has not changed their game plan until it was too late. And they lost their reputation in the market. As a result of this failure, Microsoft has acquired the company and the CEO of Nokia quoted that,
“we didn’t do anything wrong, but somehow, we lost“Nokia CEO Stephen Elop
Yes, Nokia did not do anything wrong, But technology changed. And they were too late to understand their mistake.
PESTLE analysis examples for legal factor
According to internet resources, India’s population is 1.38 billion in 2020. So many industries, companies give their attention to India’s customer base separately. India’s E-commerce industry has almost 0.5 billion customer base. E-commerce giants such as Amazon, Flipkart have particular attention to this crowd. Since 2018, India is working on their e-commerce policy and July 2020 they have issued a new draft of it. It’s more focused on customer’s privacy. And companies should allow the government to access their source code and algorithms. Government has the intention to control “digitally induced biases” in the e-commerce industry.
Amazon has already invested around $2 billion on India’s E-commerce industry. And this policy will affect on Amazon more than any other E-commerce company in India. They assume a $250 million loss in the first year once this policy got effective accordingly.
PESTLE analysis examples for Environment factor
The environment is treated as the most uncontrollable factor in PESTLE analysis. Due to the Tsunami incident in 2004, Businesses such as tourism, Property development, Harbor businesses are affected in countries such as Sri Lanka, India, Maldives, Myanmar, Thailand and Indonesia. This is a new natural disaster for most of these countries, Coastal land prices plummet after the disaster. People were afraid to invest in coastal lands, Tourist does not want to visit these countries. Most of the seaside tourist hotels were destroyed. Its estimates that this tsunami industry destroyed 60% of Sri Lanka’s fishing fleet. Around 1500 villages were destroyed in Sumatra. 80% of tourist income was lost in Phuket.
PESTLE analysis in construction industry
Among all other sectors, the construction industry is one of the most sensitive sectors in the world. All these external factors listed under PESTLE analysis affected the construction industry from time to time. Most recent and affected incident to the world’s construction industry is the 2008 economic crisis. So many construction professionals lost their employment due to the financial crisis. Some real estate companies went bankrupt as well as some contractors.
Banning asbestos in some countries also affected the construction industry. Asbestos is treated as one of the cost-effective roofing solutions. The asbestos ban has increased the building cost slightly.
Therefore PESTLE analysis is fundamental and must known analysis to engineering students and Quantity Surveying students. Professionals can use PESTLE analysis to evaluate industry condition from time to time.