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Political Factors in a PESTEL Analysis.

Explore political factors in a PESTEL analysis.

In a business context, political factors usually relate to laws and regulations created and enforced by national governments and international bodies (such as the United Nations or the European Union).

These laws and regulations may constrain or expand the organization’s activities.

International Sanctions

From an international perspective, there have been times when countries have individually and collectively imposed trade, financial and immigration sanctions on other countries. For example, since 1962, America’s trade embargo against Cuba has closed business opportunities in virtually all industries from food to medicine, hospitality to energy. For reasons ranging from nuclear arms proliferation to the abuse of human rights, similar sanctions exist against Iran, North Korea, Syria, Zimbabwe and others. Therefore, transacting with partners and consumers in ‘blacklisted’ countries, such as the ones mentioned above, may not only cause reputational damage, but it may also be a criminal offence.

Internal Political Factors

Political factors can also have an effect on the cost to businesses of continuing to operate. For example, in the UK, the government’s raising of the national living wage from £7.70 to £8.21 in April 2019, was expected to have both an immediate and cumulative negative impact on organisations’ performance and profitability. In addition, wars, revolutions and changes of government disrupt markets and the businesses that serve them.

Protectionism

There is also the potential for the protectionist agenda of political agents, such as Donald Trump in the US and Marine Le Pen in France, imposing tariffs and import restrictions that limit access to markets. Their approach is encapsulated in their respective campaign slogans of ‘Make America Great Again’ and ‘Vive la France’. As a case in point, the technology equipment company, Huawei, has found itself in the political crossfire between Washington and Beijing. Similarly, the aircraft manufacturer, Boeing, is often used as a bargaining chip in EU–US trade negotiations.

Regulation and Deregulation

Deregulation of an industry is also led by politics and, depending on the circumstances, may open or close a market to competition. In the automotive industry, for example, at least 13 governments around the world have announced bans to phase out petrol and diesel vehicles over the next few decades. Costa Rica is expected to enforce this in 2021, Norway in 2025, India in 2030, Scotland in 2032 and several other countries by 2040.

The Importance of Politics in the PESTLE Analysis

As a factor, politics has a very high weighting in the PESTLE analysis. This is because the laws and regulations set by governments and international bodies can positively and negatively shape the economy, society, technology, environment, and legal systems.

The key questions here are:

  • What government policies or political groups will enable or undermine the success of an organisation?
  • Is the political environment stable or likely to change?
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