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Political Factors Affecting Businesses in PESTLE Analysis

Jim Makos
Jim Makos
Political Factors Affecting Businesses in PESTLE Analysis
Table of Contents
Table of Contents

Dive into the world of PESTLE analysis by understanding political factors. Learn how they influence businesses and strategies to navigate the complex political landscape.

What are political factors in PESTLE analysis, how can they affect a business, and what’s a thorough list of political factors, explaining each one with examples? That’s what I’m discussing here today at PESTLEanalysis, since political factors are a key component in quite a few types of analysis in business other than PESTLE analysis. In the next 10 minutes, you’ll know everything you need to know about political factors. Let’s begin.

What are the Political Factors in Business?

Political factors are government, trade and tax policies, general political issues, changes in leadership, regulation, and political trends. Think of government trade and taxation policies, regulation trends, elections and incentives. We’ll examine these factors more thoroughly with examples below, with the definition of political factors out of the way. The question now is: Why are political factors important? To answer that, we have to introduce an analysis called PESTLE.

What is a PESTLE Analysis?

apple-pestle-analysis

PESTLE analysis is a business planning framework used by strategic and project managers. It identifies the Political, Economic, Social, Technological, Legal, and Environmental factors that affect a company or an industry. It’s better explained with examples like we did here.

That is a sample of a PESTLE analysis we did on Apple. Notice that political factors are first on the PESTLE template.

Political factors are present in other types of analysis, such as:

Importance of Political Factors in the PESTLE Analysis

We now know what both political factors and PESTLE analysis are. It should already be clear why political factors are important in an analysis such as PESTLE and why they are actually responsible for a major advantage of PESTLE analysis.

PESTLE analysis is very important for all businesses. It shows 6 key external factors that affect the business. Knowing how a company is affected by all those factors helps its management team make better decisions. In effect, the business can predict how the external environment will influence its profitability and success.

As a result, political factors are very important as they influence the business' operations, like every other factor of PESTLE analysis. They carry the same weight of importance as the other five PESTLE factors.

But political factors have a unique characteristic: they can actually influence the rest of the PESTLE factors! The reason is simple.

Governments and international bodies set laws and regulations. These can significantly impact the world's economy, society, technological advancements, environmental regulations, and legal systems.

To better illustrate my point, let's take a quick look at some examples of political factors affecting businesses. We'll follow the same order we used in the definition at the beginning. I also included questions to ask about each political factor, which have helped me whenever I do a PESTLE analysis.

political-factors-risk
Photo by Markus Spiske

Political Factors Examples

  1. Government Policies:
    • Questions I Ask: What specific government policy will positively affect the organization? Which government policies will make the business suffer? What newly introduced government policy will impact the business's operation? How exactly will this policy force the organization to change its course and perhaps business plan?
      • Example: The European Union introduced a new policy called GDPR (General Data Protection Regulation). This new European policy drastically changed how businesses collect, store, and process personal data. Companies that operate in the EU and do business with European entities or have European customers have had to overhaul their data-handling practices. This had an immediate impact on their IT investments and customer relationship management strategies. You can see now that this new policy had consequences for social and technological factors. GDPR made people more privacy-aware (social factor). It also led the organization's operation to be affected by new technologies, such as server management.
  2. Trade Policies:
    • Questions I Ask: Did the government impose new tariffs or quotas on imported goods and services? Are there any trade embargoes? Is there a free trade agreement in place?
      • Example: The most well-known trade policy that has affected the business world has been the US-China trade war. The new tariffs initiated and imposed under the Trump administration affected billions of dollars worth of goods. This political factor forced organizations to rethink their supply chain strategies and what markets they should focus on. So, if I'm conducting a PESTLE analysis on a company doing business between these countries, I'll have to include this political factor.
  3. Taxation Policies:
    • Questions I Ask: Did the government change the corporate income tax? Any changes in VAT? These will severely affect the organization's profitability. Did payroll taxes increase to fund social insurance programs? Did regulators introduce new environmental laws? These will directly influence environmental and legal factors in a PESTLE analysis as well. That's because they will force organizations to become more environmentally friendly and follow the new laws.
      • Example: Ireland stands out in Europe with its corporate tax policy. The rate is significantly lower than the European average. This political factor has led corporations like Google, Apple and Facebook to establish their European headquarters in Ireland. Thus, if I'm doing a PESTLE analysis on those companies, I'll make sure to include Ireland's tax policies in the political factors of the analysis.
  4. General Political Issues:
    • Questions I Ask: How does labor and employment look like in the country the organization operates in? Is there any specific policy standing out for civil rights or liberties? Is there any concern regarding national security? Any key developments in healthcare and education policies? Here I include any policy that doesn't fall under the rest of the list.
      • Example: TThe Affordable Care Act (ACA) in 2010, aimed to improve healthcare quality and affordability. The healthcare legislation was known also as 'Obamacare'. IT required businesses with 50 or more full-time employees to offer health insurance or face penalties. If I was doing a PESTLE analysis of a US organization back then, I would surely include the ACA as a political factor.
  5. Changes in Leadership:
    • Questions I Ask: Who are the current political leaders? Any recent elections or are there any coming? How stable is the current political system? The organization I'm analyzing operates in a specific industry. Does the leadership support or challenge that industry?
      • Example: Say I'm doing a PESTLE analysis of an organization operating in Argentina or influenced by Argentinian politics. In that case I'm including the new leadership under President Javier Milei as a political factor. The new administration already initiated devaluation of the Peso against the U.S. dollar. Milei is also expected to change the country's foreign policy. These changes will significantly affect the organization I am analyzing.
  6. Regulation Trends:
    • Questions I Ask: What regulation trends are emerging in industries worldwide? How are governments adapt to new shifts in society? What kind of regulation has been introduced following a technological shift?
      • Example: I'm doing a PESTLE analysis of an organization that relies heavily on Artificial Intelligence. Governments are introducing new regulations to ensure that AI development protects individuals' rights. I'll include this new regulation trend in my upcoming PESTLE analysis as a key political factor.
  7. Political Trends:
    • Questions I Ask: How is the political environment changing? Do people's views tend to shift lately? How will this affect the business I am doing PESTLE Analysis of?
      • Example: The rise of populism is notable in several countries. This affects globalization and the free trade of businesses. Imagine I'm doing an analysis of an organization operating globally. Or operating in countries where the political environment is shifting towards populism. I will include this recent political trend in my analysis.

Political Factors Examples in Business

In our PESTLE Analysis of Nike, we mentioned this political factor:

  • International Relations: The relationship between countries can affect Nike’s operations. For example, geopolitical tensions can disrupt supply chains or alter market access. Positive diplomatic relations, on the other hand, might open up new opportunities. An example here was Nike CEO saying that Nike is a brand of China for China during the U.S.-China trade war.

In the PESTLE analysis of the food industry, we said:

  • Government Policies: Governments across the world have expansive regulatory frameworks for every aspect of the food industry. This includes the cleanliness of commercial kitchens, the standards for storing and transporting produce, and even the requirements for laborers in the food business. Without a doubt, this makes the food industry one of the most tightly regulated industries of all. On the plus side, this ensures that consumers aren’t exposed to poor-quality nutrition, but the complexities of regulation certainly take away from the margins of the food business.

And finally, we went more specific when we analyzed TESLA based on the PESTLE framework:

  • U.S. Electric Vehicle Tax Credits: The U.S. government has played a significant role in Tesla’s acceleration with various tax credits for electric vehicles. The extension of EV tax credits, as part of broader climate policy initiatives, has been a green light for many potential Tesla buyers, encouraging them to switch to electric. This policy not only revs up consumer interest but also boosts Tesla’s sales in the U.S. market.

Of course, here at PESTLEanalysis.com we have an abundance of this kind of analysis for many businesses, countries and industries. Start from these examples and you'll be an expert in PESTLE analysis in no time!

Other external factors affecting business

Political factors make up the first part of every PESTLE Analysis. Find out more about the remaining factors included in that analysis:



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