Which legal factors affect companies?

Macro environmental analysis (PEST analysis)

Organizations are embedded in an industry, and industries in a macro-environment. In order to master the complexity, various models (PEST, PESTL, STEEPLE, etc.) have been developed, all of which divide the environment into clearly delimited areas and thus make analysis and evaluation much easier.

 

The macro-environment has a significant influence on the development of a company, but conversely, it can only be influenced very little or not at all. An analysis of the prevailing and future environmental conditions (global or in a specific region) thus influences the attractiveness of various strategies, it reveals opportunities and risks.

There are several models for structuring the possibly relevant environmental factors. Most are largely identical, with only minor differences in the factors involved. The PEST model includes the environmental areas Political, Economic, Social and Technological, the SLEPT model includes Legal, the STEEPLE model subdivided into Social / Demographic, Technological, Economic, Environmental, Political, Legal and Ethical, etc. In the following A structure into the five areas of political and legal, economic, technological, social and ecological environment is presented.

When using the models, care must be taken to include those factors that actually have a significant influence on the company and its strategy and not all or even the wrong factors are considered in detail for the sake of the analysis. In addition to external secondary data sources, expert interviews in particular can provide valuable information in some areas. Various statistical methods are available to analyze the collected data. In view of the complex interplay and the often very high uncertainty regarding the development of the individual factors, the scenario method is a suitable method for examining the future development of the macro-environment.

Political and legal environment

The most important factors in the political environment for companies are the organization and stability of a region's political system. These include, in particular, the stability and reliability of the political bodies and their role in shaping economic life (interventions, subsidies, competition policy, trade policy, etc.).

The legal framework is defined at the municipal, regional, national and supranational levels. On the one hand, they include the legal norms that influence companies operating in the region. This includes regulations of the corporate constitution, taxation, producer liability and labor legislation as well as investment, environmental protection and patent regulations. On the other hand, however, the handling of legal norms must also be observed, e.g. the course of approval procedures or the enforcement of patent claims.

Economic environment

The economic environment describes economic developments, depending on the case on a global and national level or, for example, in the case of location decisions, also for the immediate vicinity of the planned location. Economic environmental factors include economic growth, interest rates, inflation rates, exchange rates and unemployment. These influence the company in the form of demand development, intensity of competition, cost pressure, investment climate and investment risk (due to the uncertainty about expected returns). In order to understand the future development of economic environmental factors, drivers such as financial, economic and monetary policy, the structure of the capital markets, infrastructure, the existence of production factors, etc. must be examined.

Technological environment

Technological developments influence companies in a variety of ways. Information and communication technology has revolutionized work processes in companies and brought about enormous increases in efficiency. On the one hand, e-business has changed the processing of transactions, but on the other hand it has also enabled new business models (e.g. Ebay). There is also a strong trend towards convergence of technologies that were previously viewed as separate. This not only means that a company has to master additional technologies that previously seemed unimportant, but also that companies from completely different fields of technology suddenly become competitors.

In terms of location factors, the research and development expenditures of the public and private sector can be considered, the strong presence of certain technologies in a region or the presence of technology clusters (e.g. in Silicon Valley). When examining the individual technologies, they can be differentiated according to their stage of development:

  • Future or pacemaker technologies are innovative technologies that are still in an early stage of development, but have great potential to significantly change the competitive situation in an industry. You can develop into a key technology. Reasons for their possible future viability:
    • The technology is still in its infancy, but it promises great benefits.
    • Conventional technology is reaching its limits and should be replaced by another.
    • New methods or processes with which previously unimaginable application scenarios for already known technologies can be developed through miniaturization or integration
  • Key technologies (also known as basic innovations) are technologies that enable new areas of technology to be developed and have already achieved a certain level of awareness. These technologies are growing and are therefore critical to the economy of the future

Basic technologies are generally tested, recognized and standardized technologies. They form the basis of most production and service processes and are formative for an era or culture. Basic technologies usually have little development potential because they are often fully developed. That is why they play a minor role in economic growth, but play a major role in the economy itself.

Social environment

To describe the social environment, structural features (population structure, education system) and associated trends (e.g. demographic change) can be assumed on the one hand. On the other hand, values, attitudes and behaviors of people can be considered who are related to the company as employees, customers, suppliers or other stakeholders. Here, too, change is taking place, which can affect the design of work and production methods as well as demands on products and services or on companies themselves (examples: increasing environmental and health awareness, individualization).

Ecological environment

With regard to the issue of emissions, the ecological environment is closely related to the social and political-legal environment. While the framework conditions restrict the company's options for action (permitted production processes, environmental protection requirements), there are also numerous opportunities to achieve competitive advantages through environmentally friendly products and manufacturing processes.

The natural environment also includes the availability of raw materials and economic access to them. Logistical aspects can also become relevant in the context of a location decision, such as the connection of a production facility to the world market due to its proximity to shipping lanes.

PPT download influencing factors in macro-environmental analysis

Macro environmental analysis templates

The tool offers you PowerPoint slide templates for your macro-environmental analysis application.

 

PEST Analysis of the Music Industry

Although the publication is somewhat confusing, it offers a good example of how macro-environmental analysis can be used.

Author: Achim Sztuka

Heimel, M. 2009. PEST Analysis of the Music Industry.

 

Picture above Gerd Altmann / PIXELIO