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Political Factors in your PESTEL Analysis (Part 2 of 7)

If you read this post several years from now, you will likely know the outcome of Brexit and the impact it made on the country and the businesses in the country. Did the British government ultimately decide to leave the EU, or did they remain? If they left, was it a hard Brexit or a soft landing?

Political Factors in your PESTEL Analysis

Today, in May of 2019, we do not know, and it may be many months before we do. So, if we are running a business, how do we plan? Is it wise to expand now, or should we think about moving our operations to another country? If we are considering a loan or investment in a business in the U.K., how does the impact of Brexit make the loan or investment better or worse? As this post is being published, we do not know.

This is a perfect example of the types of influences that you must consider when assessing the political factors in a PESTEL analysis. You will recall that a PESTEL analysis considers external factors that may impact a business. As a reminder, the six factors include Political, Economic, Social, Technological, Environmental, and Legal. This post takes a closer look at the political factors considered in a PESTEL and provides some interesting, real-life examples, including, of course, the one mentioned above.

According to Business-to-You, political factors:

…are all about how and to what degree a government intervenes in the economy or a certain industry. Basically, all the influences that a government has on your business could be classified here. This can include government policy, political stability or instability, corruption, foreign trade policy, tax policy, labor law, environmental law, and trade restrictions. Furthermore, the government may have a profound impact on a nation’s education system, infrastructure, and health regulations. These are all factors that need to be taken into account when assessing the attractiveness of a potential market.

The following table lists some of the topics that might be analyzed when considering political factors:

  • Political stability/instability
  • Health of government
  • Level of corruption
  • Legality of Lobbying
  • Fiscal (tax) policies
  • Trade policy (duties/tariffs, etc.)
  • Freedom of the press
  • Regulation/deregulation
  • Anti-trust regulations
  • Defense budget
  • Headline risk
  • Voter participation
  • Bilateral relationships
  • War & peace
  • Trade agreements
  • Military involvement in government policy
  • Government sanctions
  • Transparency & communications

Here are two actual examples of political influences we evaluated in the course of our work for our clients:

  • Several years ago, a successful Moscow-based public relations firm asked us to write a business plan for a visa so that the Russian firm could open a New York office where it would represent (lobby) for Russian clients wishing to have better relationships with the U.S. government and U.S. companies. The reason for the New York office is that lobbying in Russia can be extremely challenging and, for the most part, ineffective because of the way the Russian government operates. Their initial concerns were, of course, of a political nature. However, in completing their PESTEL Analysis, they were able to determine that there were no other obstacles to opening a New York office, including legal issues.
  • A Brazilian consumer products company imported products from a European country and then distributed the products to customers in Brazil and other Latin American markets. The Brazilian taxes were so high that the company’s operating profits were all going to the government. After doing a PESTEL analysis, the company decided to move the business to Orlando, Florida, and in doing so not only saved a great deal of Brazilian taxes but began to sell to customers in the United States as well. Importantly, while the PESTEL analysis revealed that the company could mitigate its tax issues with a move to the U.S., it also highlighted the fact that there were both political and legal matters to attend to as a result of the visa requirement necessary for the company’s CEO to relocate to Orlando.

Political and government factors affect every company in every country. All businesses must be flexible enough to respond to changing rules and policies. Companies are often not able to control changes to rules and policies that happen in the future. However, for companies considering moving to or expanding to a new country, they are well advised to complete a PESTEL analysis and give careful attention to the new country’s political issues.

This is Part 2 of our series on PESTEL analyses. Go to Part 1 here. Our next post in this series will be on the Economic matters to be considered in a PESTEL analysis.

Jimmy Lewin

Jimmy's background includes over 40 years in international, commercial, and investment banking, and nearly a decade as the principal shareholder and CEO of a rapidly growing manufacturing and distribution business in California. Today, Jimmy spends his time advising and consulting with entrepreneurs on matters related to business planning, as well as capital markets and funding strategies. Jimmy works with clients throughout the world in industries that include financial services, real estate, manufacturing and hospitality. View details.

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