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So how much corporation tax is due and what other taxes may be applicable? A higher corporation tax might be enough to put many businesses off – even if labour costs are lower. Tax policies refer to the existing tax regime in place. Will trade barriers increase? (as they have between the US and China) 4.What are the main restrictions on trade I.e.Yet if there are high tariffs on these goods, it can make it more expensive than originally anticipated. Many of these will need to be imported in. If we look at car manufacturers in India – they require many goods such as tires, glass, metal, and electronical components. These restrictions can make it more expensive – particularly for businesses that rely on the international supply chain. For instance, it may impose restrictions on goods coming in and out – as well as tariffs on inputs coming in. Foreign Trade Policyįoreign trade policy refers to the barriers government puts up. Is the government doing anything about it or are they also involved?.Bribes are still commonplace, with businesses forced to pay in order to be able to distribute and sell their goods. If we look at China, for example, there are still high levels of corruption present – even though there has been a nationwide crackdown. For instance, does it take $50 as a bribe to get through customs? Do political leaders expect pay-offs in return for favours? These factors not only affect the profitability, but also the integrity of the company. CorruptionĬorruption refers to both the public and private markets. How significant is the instability? 2.Would a shift in one direction be more profitable than another?.
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How would a shift in the political direction affect this decision?.For example, significant levels of uncertainty occurred in the aftermath of the United Kingdom’s Brexit vote – particularly due to the weak government that caused great levels of political uncertainty at the time.Īs part of the PESTEL analysis, you would want to ask questions such as: Whatever the shift is, it is the uncertainty that can create an issue. There may be a large shift towards more socialist policies, or, they may be a shift towards more conservative policies. For instance, is there likely to be a change and subsequent shift in political direction? This is particularly an issue when the shifts are significant. Political stability refers to how secure the incumbent government is. Whilst there are many political factors, the main examples include: For instance, when looking to expand abroad, it is important to recognize political issues that may add cost, time, and effort to the project. When looking at political factors, we need to look at what may affect a specific strategic option. However, over the years this has been expanded to also cover two other factors in Legal and Environment to become more encompassing of all the variables at play in the macro-economic environment. There were only originally four factors that formed ‘PEST’ – Political, Economic, Social, and Technological. The PESTLE Analysis template covers the six factors – Political, Economic, Social, Technological, Legal, and Environmental. For instance, is there corruption? What are the tax laws like? Are there significant regulatory hurdles? Management needs to consider all such factors – and that is what the PESTLE Analysis template does. When management looks to expand into a new country, political factors are crucial. The PESTLE analysis helps with this decision by looking at the four key factors and identifying advantages and disadvantages for each. For example, management may consider developing a new product, or, expanding into a new country. The PESTLE analysis is a useful tool to help management decide between two strategic options. Together, they form the basis for identifying key issues that may impact the strategic direction of the company. The word ‘PESTLE’ stands for the six factors – Political, Economic, Social, Technological, Legal, and Environmental. PESTLE analysis is a strategic management tool that businesses use to identify macro-economic factors that it needs to consider.
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WRITTEN BY PAUL BOYCE | Updated 18 February 2021 What is PESTLE Analysis