Part 7 of 7
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 locale.
As used in this post, the term “government” may refer to a national, state, municipal, provincial, or any other authority that can make laws, rules, or regulations. If your business operates out of one or more locations and sells its products to buyers in other areas, it 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.
Political vs. Legal Factors
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 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, trade, or foreign trade policies. In contrast, legal factors tend to be more specific and relate to issues such as discrimination, antitrust, or intellectual property laws. However, they do overlap. For example, labor laws, which we consider a political factor, and workplace health and safety laws, which we consider a legal factor.
U.S. trade with China is an excellent example of when politics and laws overlap. China does not recognize U.S. Patent laws and as a result, openly violates American intellectual property laws, especially in the areas of technology and defense. In a related case, the Biden administration has introduced a package of restrictions that limit the sale of semiconductor technology to China and, according to The New York Times, “is aimed at crippling Beijing’s access to critical technologies that are needed for everything from supercomputing to guiding weapons.” These restrictions may be inspired by political considerations but for chip manufacturers that defy these restrictions, they act in violation of the law.
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.
Examples of Legal Factors in Your PESTEL Analysis
The table below lists just some of the laws that might be considered when analyzing legal factors:
Franchise Laws in the U.S.
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.
Licensing Requirements are laws that regulate how many businesses must do business. Take for example our Minnesota based client that intends to purchase drugs and medicines in bulk from manufacturers in North America and, after re-packaging the products into individual dosages, exporting the products to 4 countries in Africa where there is a great need. The Minnesota Board of Pharmacy has the responsibility of administering the State’s statutes regarding licensing of companies that are involved in the manufacture, packaging and distribution of drugs. In addition to the state’s laws, the Federal Drug Administration (FDA) has its own Current Good Manufacturing Practice (CGMP) regulations.
And finally, the company must be licensed in Africa before it is able to distribute the drugs and medicines. The company has been licensed by the East African Community, a regional intergovernmental organization of 7 partner states including the countries in which our client will distribute its products.
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.
Other Articles in the PESTEL Analysis Series
- Put Your PESTEL to the Mettle (Part 1 of 7)
- Political Factors in your PESTEL Analysis (Part 2 of 7)
- Economic Factors in your PESTEL Analysis (Part 3 of 7)
- Social Factors in your PESTEL Analysis (Part 4 of 7)
- Technological Factors in your PESTEL Analysis (Part 5 of 7)
- Environmental Factors in Your PESTEL Analysis (Part 6 of 7)
- Legal Factors in Your PESTEL Analysis (Part 7 of 7)