Strategic Frameworks for Business: PESTLE Analysis, Value Creation, and Global Location Strategy
PESTLE analysis identifies and evaluates how Political, Economic, Social, Technological, Legal, and Environmental factors impact business operations. This strategic planning framework helps business and project managers in the decision-making process by examining how external factors affect a business or an organization. It gives a bird's-eye view of the whole environment that business managers need to consider while contemplating a certain business idea or plan, based on the 6 elements of PESTLE analysis.
The 6 PESTLE Macroenvironmental Factors
PESTLE analysis factors are Political, Economic, Social, Technological, Legal and Environmental. They are all external factors, meaning the organization or business has no control over them. Note that each of the factors may have a different effect, depending on the business type.
| Factor | Key Components and Examples |
|---|---|
| Political | Government, trade and tax policies, general political issues, changes in leadership, and regulation trends. |
| Economic | Inflation, interest rates, exchange rates, economic growth, and unemployment levels. |
| Social | Lifestyle trends, education level, age distribution, consumer behavior, and health consciousness. |
| Technological | E-commerce, cybersecurity threats, emerging technologies, AI, machine learning, and automation. |
| Legal | Labor laws, consumer laws, market regulation, health and safety laws, and anti-competitive practices. |
| Environmental | Sustainability, climate change, waste management, and consumer environmental awareness. |
Impact of External Factors on Business
Specifically, the rise of e-commerce, a Technological factor, has a positive impact on online shopping marketplaces, such as Amazon, eBay and Shopify. Conversely, political support for renewable energy policies is an ally for companies that manufacture and sell electric vehicles, such as Tesla, but a challenging factor for businesses operating in the fossil fuel industry.
Strategy and Value Creation in International Business
In the context of global operations, strategy refers to the actions that managers take to attain the goals of the firm. Strategy and the firm involve increasing enterprise value through value creation. Value created by a firm is measured by the difference between V (the price that the firm can charge for that product) and C (the costs of producing that product). The higher the value customers place on a firm’s products, the higher the price the firm can charge, and the greater the profitability of the firm.
According to Michael Porter, superior profitability goes to firms that create superior value by lowering the cost structure of the business and/or differentiating the product so that a premium price can be charged. Firms need to choose either differentiation or low cost, and then configure internal operations to support the choice. To maximize long run return on invested capital, firms must pick a viable position on the efficiency frontier and have the right organization structure in place to execute the strategy.
The Value Chain
A firm’s operations can be thought of a value chain composed of a series of distinct value creation activities, categorized as:
- Primary activities: R&D, production, marketing and sales, customer service.
- Support activities: Information systems, logistics, human resources, and firm infrastructure.
Building a Comprehensive Location Strategy
Building a comprehensive corporate location strategy is a crucial aspect of modern business planning. A location strategy is a detailed action plan used in business to determine where an organization should hire its workers and establish offices, stores, or warehouses. A well-crafted strategy can become a powerful tool in optimizing the placement of employees and facilities, whether a company's plan is an offshore location strategy or an onshore location strategy.
To succeed in location planning, companies need to perform meticulous market research and analyze their competitors' moves. A well-executed location strategy can enhance the company's operational efficiency and pave the way for future growth opportunities by helping a company become more visible to customers, reducing operating costs, and gaining access to global engineering talent.
Steps to a Successful New Location Strategy
- Define business goals: Determine what success looks like and set measurable goals for all locations influenced by your new strategy.
- Research prospective locations: Perform thorough location analysis and asset evaluation by analyzing local business ecosystems, workforce, and market trends.
- Develop and implement: Compare data from your location research with the goals and requirements you defined to facilitate the decision process.
By following these steps, making informed decisions on where to locate a new office is practically always worth it, as the benefits of operating at an optimal location greatly outweigh the costs of finding it.
