A government’s rules and regulations—its laws—will always have a macroeconomic impact on the success of any business. And, for companies that operate within the jurisdiction of multiple governments, business leaders must pay attention to the legal factors within each location.
As used in this post, the term “government” may refer to a national, state, municipal, provincial, or any other authority that has the ability to make laws, rules, and regulations. If your business operates out of one or more locations and sells its products to buyers in other locations, your business will be subject to the laws of more than one government. And that is why legal factors must play a significant role in the preparation of your PESTEL Analysis.
In this series on the importance of preparing a PESTEL Analysis, we have mentioned several times that the political, economic, social, technological, environmental, and legal factors will often overlap. The overlap is good because it helps ensure that business leaders do not miss anything as they consider critical strategic decisions. Most notable is the overlap between legal factors and the political factors that we reviewed earlier.
Political factors are usually bigger picture topics such as tax policy, trade policy, or foreign trade policy, whereas legal factors tend to be more specific and relate to topics such as discrimination laws, antitrust laws, or intellectual property laws. However, they do overlap. Take, for example, labor laws which we consider a political factor and workplace health and safety laws, which we consider a legal factor.
As we write this post, the United States and China are negotiating a new trade agreement. One of the key factors of the agreement relates to the violation of U.S. intellectual property laws by the Chinese who do not recognize U.S. patent laws. This significant disagreement touches both political factors (trade policy) and legal factors (copyright and patent laws).
It doesn’t matter whether you consider the factor to be legal or political. What matters is that you consider these factors in your PESTEL Analyses and that, when necessary and appropriate, you consult a legal professional. It is also important to remember that these legal factors (and political factors) will vary from country to country, state to state, and even city to city.
The table below lists just some of the laws that might be considered when analyzing legal factors:
As one example, we recently prepared an informational presentation for a successful restaurant client for whom we have completed several assignments over the past few years.
This time, the client asked us to prepare a presentation that he would share with potential landlords so that he could secure locations for a new concept. We completed the first draft and sent it to the client for his feedback.
Upon receipt of the draft, he told us that in addition to sharing the presentation with landlords, he also intended to share it with potential franchisees.
We were immediately concerned because, in the U.S., there are very well defined laws regarding the sale of franchises as provided by the Federal Trade Commission, an agency of the U.S. government. A franchisor may not under any circumstances offer to sell a franchise without first following The Federal Franchise Rule which, among other things, says that the franchisor must publish a Franchise Disclosure Document (FDD).
Our client had not done his homework. If he had prepared a PESTEL Analysis, he would have known about franchising laws and the requirements he must meet before offering a franchise to anyone. Luckily, we were able to intervene, and we sent him along to his attorney for assistance.
In considering the legal factors in your PESTEL Analysis, it is important to remember that laws are usually not meant to limit your business. Instead, they are there to help. According to Businesslawbasics.com, the purpose of laws is to establish standards, maintain order, resolve disputes, and protect liberties and rights. As a business leader, you do not have to like every law. However, it is imperative that you are aware of the laws that relate to your business and how they affect it today and tomorrow.
This is Part 7, the conclusion of our series on PESTEL analyses. We hope you have found it to be a valuable resource, and we look forward to your comments. Go to Part 6 here.