Are you a person who likes to shop from the online stores? Or are you looking to open an online store to earn money?
Either way, you’ll find this article very interesting and informative since today we’ll conduct a PESTLE Analysis of The eCommerce Industry.
If the term PESTLE analysis is new to you and you are just confused about this article, relax and keep reading since this is the best article about eCommerce that you will find online.
This article will explore the eCommerce industry’s history and analyze how it evolved over the years. Then we will conduct a PEST Analysis of the e-commerce industry to highlight different external factors that impact the eCommerce industry, which will go along with our SWOT analysis of eCommerce.
This article will provide you with complete insight into the eCommerce industry. All you have to do is to read this article till the end. So let’s begin by explaining what is eCommerce and where did it all start?
eCommerce is the term used to describe buying and selling of goods online. Currently, more than 2.14 billion people buy and sell goods online. However, the size of the eCommerce industry wasn’t this huge a couple of decades back.
eCommerce originated in 1980 when eCommerce was first used in a business-to-business deal. However, at that time, no one was sure if eCommerce could be used as a medium to facilitate transactions between businesses and consumers.
In 1994, a huge milestone was achieved when two friends transacted a music CD online. This single transaction paved the way for online transactions and made the eCommerce industry what it is today.
Internet reach spread in the coming years, and eCommerce became common. In the late 1990s, the dot-com bubble emerged. As a result, many eCommerce start-ups were established, due to which eCommerce was promoted.
However, as the bubble burst, the eCommerce industry experienced losses. This loss didn’t sustain for long. People had realized the potential in the eCommerce industry, so they began to reinvest.
Soon big companies like Amazon, Alibaba, and eBay started dominating the e-commerce industry. People began to buy and sell products on these platforms. On the other hand, mobile phones experienced innovation.
In the 2000s, smartphones entered the market. People started using the internet on mobile phones, and that’s when mobile commerce gained popularity. eCommerce penetrated smartphones, and people started buying and selling products online through phones.
Today, eCommerce is one of the biggest industries in size and worth. In 2022, the global eCommerce industry was worth $5.2 trillion. In the coming years, it is further expected to grow. The eCommerce industry also provides employment to millions of people across the globe.
After discussing the history of eCommerce, let’s proceed further and explain what PESTLE analysis is. PESTLE analysis is a technique businesses use to analyze how different external factors impact the operations of different businesses and industries.
Since you are now aware of PESTLE analysis, let’s apply PESTLE analysis to see what external factors impact the eCommerce industry.
Political Factors Affecting The eCommerce Industry
Political factors in a PESTLE analysis highlights the impact that government and political scenario cause on businesses and different industries. Let’s examine the political factors that affect the eCommerce industry.
Trade policies set by the government significantly affect the eCommerce industry. For example, governments may impose heavy taxes on the import of certain products while encouraging the exports of certain products.
Moreover, it may impose tariffs to discourage the import of a particular product or ban a product considered prohibited in a country. All these actions would impact the eCommerce industry and its players.
Besides that, government support is really important for the growth of the eCommerce industry. For example, forming technical institutes where skills are taught useful in the eCommerce industry can help the industry grow.
Moreover, tax incentives to eCommerce companies and sole traders can encourage people to work in the eCommerce industry. Furthermore, political stability can lead to domestic and foreign investment in the eCommerce industry. As a result, the eCommerce industry would grow.
Other than that, government policies regarding the ease of doing business in the eCommerce industry significantly impact the eCommerce industry.
For example, many companies would back off if a country makes complicated paperwork mandatory for companies wanting to enter the eCommerce industry. As a result, they won’t be willing to work in the industry.
Economic Factors Affecting The eCommerce Industry
Economic factors refer to economic conditions’ influence on businesses and industries. This section will look at the economic factors impacting the operations of the eCommerce industry.
High inflation plays a significant role in the growth of the eCommerce industry since countries with high inflation suffer from a lack of consumer demand. The reason for this is less disposable income in the pockets of consumers.
Hence, higher inflation shrinks the demand for goods. As a result, high inflation is bad for the eCommerce industry since it decreases the purchasing power of consumers.
Other than that, interest rates also affect the eCommerce industry. For example, if the central bank increases the interest rate, anyone with spare money would deposit it to get a higher return.
On the other hand, lower interest rates discourage people from depositing money in banks and encourage them to invest in industries such as eCommerce.
Moreover, lower interest rates will also encourage entrepreneurs to take loans from banks to invest in the eCommerce industry since it is experiencing a boom. This will result in the growth of the eCommerce industry.
Besides that, economic growth is also essential for the growth of the eCommerce industry. A country with a high GDP per capita tends to buy more products because people in that country have a higher living standard than those who live in a country with low economic growth.
Social Factors Affecting The eCommerce Industry
Social factors analyze how different social and cultural elements affect businesses. This section will discuss how social factors affect the eCommerce industry.
One thing that is essential for the eCommerce industry to operate is an internet connection. Therefore, the growth of the eCommerce industry is directly related to internet penetration. Any country with high internet penetration will experience growth in the eCommerce industry.
Besides the internet, some basic information in the field of IT is very important. For example, suppose there is a country where people don’t know how to use the internet and computers for online shopping; the eCommerce industry in that country won’t thrive.
Other than that, customer preference is vital in making eCommerce successful. For example, some people find online shopping convenient since they can order products while lying in their beds.
However, some people don’t find online shopping satisfying. Their definition of shopping is going out to markets and physically buying the product. Hence, if people find online shopping convenient and satisfying, it is good for the eCommerce industry.
Furthermore, the level of trust of buyers in sellers impacts the eCommerce industry. There are societies where buyers do trust the seller. In such societies, the eCommerce industry would prosper.
On the contrary, buyers prefer to shop physically rather than online if they don’t trust the seller.
Technological Factors Affecting The eCommerce Industry
Technology is essential for businesses to succeed. This section will look at the technological factors that impact the eCommerce industry.
The eCommerce industry is the product of technology and innovation. Hence, technological advancements affect the eCommerce industry. Initially, eCommerce required computers.
However, as smartphones arrived, the world witnessed the launch of mobile commerce.
Mobile-friendly websites and eCommerce platforms like Etsy and Pinterest have now increased customer reach and helped the eCommerce industry grow.
Moreover, innovation in the financial systems made the eCommerce industry functional. For example, online payment systems allow people to do transactions online. Such technological advancements have helped the eCommerce industry to grow.
Besides that, as artificial intelligence is becoming common, AI is being used to improve the user experience. Moreover, it is also being used to enhance product recommendations.
Furthermore, data science can play a significant role in improving the operations of businesses in the eCommerce industry.
For example, eCommerce platforms and companies can use data analytics to identify consumers’ buying patterns and use them to increase their sales.
Legal Factors Affecting The eCommerce Industry
Legal factors refer to the legal framework and laws that can impact businesses and industries. In this section, we will analyze how legal factors can impact the eCommerce industry.
Recent data breaches have caused mistrust among the general public, and they have caused law enforcement agencies to be vigilant. In such an environment, it is essential for businesses operating in the eCommerce industry to prevent customer data from leaking.
Otherwise, this would damage the overall reputation of the eCommerce industry and make businesses suffer financially due to heavy penalties imposed by law enforcement.
Besides that, intellectual property laws can impact businesses in the eCommerce industry significantly. This is because intellectual property laws prevent intellectual theft.
Businesses in the eCommerce industry must be careful while selling products because selling counterfeit products could result in companies being blacklisted.
Moreover, eCommerce companies have to abide by taxation laws and customs laws. They must declare their income and offshore accounts; otherwise, they can be charged for money laundering and concealment of assets.
Furthermore, eCommerce involves imports and exports of products. However, a government may impose barriers on imports of specific products to protect domestic retailers. This would negatively impact the eCommerce industry.
Environmental Factors Affecting The eCommerce Industry
Environmental factors in the PESTLE analysis call attention to the environmental and ecological factors that affect businesses and industries. Let’s take a look at some of the environmental factors that impact the eCommerce industry.
Climate change is a reality that has made people and governments adopt eco-friendly practices.
Since people are now aware that environmental changes are occurring due to carbon emissions and waste mismanagement, the eCommerce industry has to adopt sustainable practices to avoid defamation campaigns and legal actions.
Moreover, the eCommerce industry is heavily dependent on transportation, and one of the biggest sources of carbon emissions is fossil fuel engines. Therefore, eCommerce businesses can optimize their delivery routes and use electric vehicles for transportation.
This will create a good image of the eCommerce industry and encourage people to shift to eCommerce. Besides that, as climate change is occurring, natural disasters have increased.
Natural disasters can cause road blockages which can disrupt transportation.
Disruption in transportation would negatively impact eCommerce. Moreover, storms and tornados can disrupt internet service. This would have a bad impact on the eCommerce industry.
Hence, the eCommerce industry must adopt an environmentally friendly approach. This would not only improve its reputation among customers, but it would also save the industry from suffering financial losses.
PESTLE Analysis of The eCommerce Industry: Final Word
The eCommerce industry is one of the biggest industries. Wherever people have the internet, they are a part of the eCommerce industry. Currently, its global worth is $5.2 trillion. However, in the coming years, it is expected to increase further.
The roots of the eCommerce industry can be traced back to the 1980s. However, at that time, it was only used for business-to-business transactions. Later in the 1990s, the first business-to-consumer transaction took place.
From there onwards, the industry kept on growing. Currently, eCommerce platforms like Amazon and Alibaba dominate the eCommerce industry.
Although the eCommerce industry seems quite stable, some external factors still impact its operations. In today’s article, we conducted a PESTLE analysis of the eCommerce industry to highlight what external factors impact businesses in the eCommerce industry.
The PESTLE analysis framework did highlight some political, environmental, social, legal, economic, and technological factors that impact the eCommerce industry.
We hope this article has contributed to your knowledge of the eCommerce industry. If you are interested in reading similar articles, you should look at more PESTLE analysis examples.