PESTEL Framework

Political
Role of government

Economics
Refers to macroeconomic factors such

as: Exchange rates

Business cycles

Social
Changing cultures and demographics

 Technological
Innovation such as internet or

nanotechnology.
Environmental
Green issues such as pollution and waste

Legal
Include legislative constraints
E.g. restrictions on company mergers

and acquisitions.

Competitive forces

1. Threat of new
entrants
Threat of entry depends on the extent and
height of barriers to entry.
Barriers to entry are factors that need to
be overcome by new entrants if they are
to compete successfully.
Typical barriers are:
1. Scale and experience
2. Access to supply
3. Expected retaliation
4. Legislation action
5. Differentiation

2. Threat of substitute
Substitute can reduce demand for a
particular class of products as customers
switch to the alternatives.
E.g. buses are substitute of trains.
Two important points must kept in mind:
The price/performance ratio
Extra-industry effects

3. Power of buyers
Buyer

power is high under following

conditions:
Concentrated buyers
Low switching costs
Buyer competition threat

4. Power of suppliers

Supplier power is high when there are: Concentrated suppliers

High switching cost
Supplier competition threat

5. Competitive rivalry

Organizations with similar products and

services aimed at the same customer
group.

 Factors

affecting the degree of

competitive rivalry: Competitors balance
Industry growth rate
High fixed cost
High exist barrier
Low differentiation

Implications of five
forces model

Which industry to enter (or leave)?

Should invest in market where five
forces work in favor.
Disinvest from market where they are
strongly against.

What influence can be exerted?

Industrial structure can be influenced by
deliberate managerial strategies.

How are competitors differently

affected?
Not all competitors will be affected
equally by changes in industry structure.
If barrier rising because of increased
R&D, smaller players may not be able to
keep up with the larger players.

Issues in using five forces

framework

Defining the right industry

Most industries can analyzed at different levels.
E.g. airline industry has different segments such as:
Domestic and long haul.

Competitive forces are different for each segments.

Converging industries
Convergence is where previously separate
industries begin to overlap in terms of activities,
technologies, products and customers.

 E.g.

convergence between
and photographic industries

Complementary

telephone

products

Products or services for which customers

are prepared to pay more if together

than if they stand alone.
E.g.
Dell
and
Microsoft
are
complementary in so far as computers
and
software
are
complementary
product for buyers.

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