External Environment Analysis
External Environment Analysis – Guide
1. PESTLE (same as PESTEL) Analysis: Consider the Macro Environment that the company operates in. What factors influence the industry? Analyze the external environment, and carry forward any findings to your SWOT analysis (Opportunities & Threats).
| Environmental factor | Comments |
| Political | What is the political situation of the country (or internationally) and how can it affect the industry? |
| How does the government approach corporate policy, corporate social responsibility, and environmental issues? What impact would this have on the industry, and is it likely to change in the future? Are there future elections that could affect the industry? | |
| Consider: tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability, level of corruption and bureaucracy, freedom of press. Consider political impact on health, education, and infrastructure. | |
| Economic | How the economy influences the industry’s performance. |
| How stable is the economy? Are customers’ levels of disposable income increasing or decreasing? | |
| Consider: economic growth potential, interest rates, exchange rates, inflation rates, unemployment rates, disposable income levels, labour costs, price fluctuations, stock market trends, level of globalization in the industry and how these factors impacts companies in the industry. | |
| Socio-cultural | The attitudes, values, norms, beliefs, behaviours and associated demographic trends characteristic of a given geographic area |
| How does a society’s views and beliefs influence an industry? How likely is there to be a shift in views/values? What impact will these expected changes have on an industry? | |
| Consider: demographics, generational shifts, society’s levels of health/education/social mobility, social classes, family size and structure, minorities and expatriates, customer buying habits, immigration and emigration rates, gender distribution, employment patterns, job market trends, attitudes towards work, attitudes toward imported goods and services, attitudes towards work, leisure, career and retirement, and saving and investing, social attitudes and social taboos, religion and lifestyle choices and how these factors could influence an industry. | |
| Technology | Are there any new technology changes that will affect the industry? |
| Consider: new technologies, new technologies available to competitors that are out of reach for your company, rate of technological change, spending on R&D, communication infrastructure, government restrictions (dial-up vs. fiber), infrastructure restrictions (remote working). | |
| Legal | Legal restrictions in place (or may be in place in the future) that can affect the industry. |
| What is the likely timeline for proposed legislative changes? | |
| Consider: human rights, consumer law, antitrust law, commercial law, copyright/patents/intellectual law, data protection, employment law, health and safety law, and international law. | |
| Ecological
(Environmental) |
Ecological and environmental factors such as weather, climate, climate change, and how the weather may affect an industry. |
| Consider: weather, climate change, laws regulating environment pollution, air and water pollution, recycling, waste management, “green” products, endangered species, renewable energy, industries such as tourism, farming, and insurance are impacted by the environment. Consumer attitudes also can influence an industry. |
2. Industry Environment – Porters Five Forces
- Industry Rivalry – How competitive and profitable is the industry?
| Industry Rivalry | ||
| Industry growth rates | Informational complexity | Product differences |
| High fixed costs | Concentration & balance | Brand identity |
| Intermittent over capacity | Diversity of competitors | Switching costs |
| Exit barriers | Corporate stakes | |
- The Bargaining power of customers/buyers – How much power do buyers have to demand lower prices or higher quality from the industry?
| The bargaining power of customers (buyers) | ||
| Differentiation of outputs | Buyer information about supplier products | Importance of volume to buyers |
| Switching costs | Buyer profitability | Cost relative to total buyer purchases |
| Presence of substitutes | Decision makers incentives | Impact of outputs on the cost of differentiation |
| Industry concentration relative to buyer concentration | Threat of backward integration | |
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- The bargaining power of suppliers – How much power do suppliers have to charge high prices or offer lower quality materials to their buyers?
| The bargaining power of suppliers | ||
| Differentiation of inputs | Information about suppliers products | Importance of volume to suppliers |
| Switching costs | Supplier profitability | Cost relative to total purchases in the industry |
| Presence of substitute products | Decision makers incentives | Impact of inputs on cost or differentiation |
| Supplier concentration relative to industry concentration | Threat of forward integration | |
- Threat of new entrants – How easy or difficult is it for new companies to enter a market?
| The threat of new entrants | ||
| Economies of scale | Absolute cost advantage | Switching costs |
| Proprietary product differences | Government policy | Capital requirements |
| Brand identity | Expected retaliation | Access to distribution |
- Threat of substitute products or services – How easy is it for buyers to find substitutes with better prices or quality?
| Threat of substitute products or services | ||
| Relative price performance of substitutes | Buyer propensity to substitute | Switching costs |
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