The document provides an overview of the PESTEL framework for analyzing a business's external environment. It discusses the various factors under each letter of PESTEL - Political (government and politics), Economic, Socio-cultural (demographics, social issues, culture), Technological, Ecological (natural environment), and Legal. For each factor, it outlines key concepts and provides examples to illustrate how that external factor can influence business operations and decision-making.
1. PGDBA 101 Strategic Leadership and Management Skills
THE EXTERNAL ENVIRONMENT -
PESTEL
DR DOUGLAS NISBET
2. Learning Objectives
To be able to understand and analyse the
External Environment of Business using PESTEL
Analysis:
P = Political
E = Economic
S = Socio-cultural
T = Technological
E = Ecological (Natural Environment)
L = Legal
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3. P = Political
Politics:
– “...is concerned with those processes which help to determine how
conflicts are contained, modified, postponed or settled, and as such
can be seen as a universal social activity” (Worthington and Britton 2009 p.60).
Government:
• A process of exercising power to make decisions;
• The institutions through which this power is exercised.
3
5. Government in Democratic States
Uganda Electoral
Commission
:Http://www.ec.or.ug
Source: Worthington and Britton 2009 p.74.
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6. Three Branches of Government
The process of governing involves three major activities:
The Legislature • Making decisions
The Executive • Putting them into effect
• Adjudicating over them in the event of dispute or non-
The Judiciary compliance
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7. Subnational Government:
The Local Government System
Figure 3. The local government system
Source: Worthington and Britton 2009 p. 84.
For information on Local Government in Uganda
consult the Republic of Uganda Ministry of Local 7
Government:
8. Examples of Supranational Government
EUROPEAN UNION EAST AFRICAN COMMUNITY
• Currently 27 member states; • Currently 6 member states
• European Parliament - currently 785 MEPs; • East African Legislation Assembly
(equivalent of Parliament)
• The council of the European Union – the Council
of Ministers (27); • Council of Ministers
• The European Council – the Heads of State, • Summit – Heads of Member States
Foreign Ministers, and the President of the
Commission;
• Customs Union – not fully implemented
• The European Commission - 27 Commissioners
and 23,000 civil Servants; • Inter-Universities Council for East Africa
• Currency Euro (only 7 members) • East African Development Ban
• European Central Bank • East African Passport – only valid with
members
• European Union Passport Format (but with
individual states nationality)
• Common Agricultural Policy • Lake Victoria Fishers Association
• The European Court of Justice - 27 judges. • East African Court of Justice
9. EU/ EA Comparisons
• EU • EA
• 10,180,000 sq km • 1,817,945 sq km
• Population: 500 million • Population: 125 million
• GDP: $ 104 million • GDP: $ 17.6 trillion
• GDP per capita: $1,000 • GDP per capita: $34,000
10. The Political Environment and Business
Political, social and economic checks and balances
act as constraints on the government actions
through:
• Separation of power between three branches of government;
• Pressure groups’ activities;
• Business organisations, and their representing organisations as
key pressure groups;
• Economic decisions by businesses.
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11. E = Economic
Two main branches:
• Microeconomics - studies the small parts of the
economy, e.g. housing market, firms.
• Macroeconomics - studies the economy as a
whole, e.g. national income and output, inflation,
unemployment, growth.
World Bank Statistics;
http://data.worldbank.org
12. What, How and For Whom
The key choice in economics relate how society decides
• What to produce
• How to produce
• For Whom to produce.
• There are differing ways of anwsering these questions at one
extreme we could let the market decide. The the other end of
the spectrum we could let the government decide.
13. For Whom to produce
• Spending is related to consumption. Thus those
with the highest incomes are able to the
consume the most should they choose. In an
ideal world the most productive/useful would
receive the highest income
• Certain groups dominate spending in the UK.
• Spending is dependant on income in the long
run. Income in turn depends on those who own
the most; income earning assets or those who
have highly valued skills.
• The government can direct production to certain
groups by directing its spending at key target
groups.
GROSS NATIONAL INCOME COMPARISONS:
$39,038 (UK); $8,070 (South Africa): $487 (Uganda)
(SOURCE: World Bank, 2011)
15. Economic Systems
• The various ways of answering the economic problem vary with differing
countries.
North Korea Cuba Uganda UK USA Taiwan
• The countries on the left are communist or command
economies. Where, who, what and for whom is governed by the
state.
• On the right is a free market of capitalist economy.
• Most economies are mixed. i.e. some state involvement
16. S = Socio-cultural
• Demography
Social influences on
• Social issues
business:
• Cultural aspects
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17. Changing Context of Business –
Demography
Demography, as the study of population:
– The size of population;
– The ageing population;
– The birth rate;
– The death rate;
– Net migration
– Changes in the population’s size and/or structure.
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18. Changing Context of Business –
Social Context
• Social classes
The social context of • Social mobility
business: • Lifestyle.
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19. Changing Context of Business –
Cultural Context
• Culture
The cultural context of
• Cultural differences
business:
• Cultural diversity.
19
20. Changing Context of Business –
Table 1. Methods of segmentingMarket Segmentation
consumer markets
Source: Worthington and Britton 2009 p.152
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21. T = Technological
Resources:
– People - “labour”
– Technology – “capital”
– Natural resources – “land”.
Renewable resources: labour, water, fishing stocks, wool, air, and solar
power, although the time it takes for some of these to renew differs;
and
Non-renewable resources: most minerals, oil, iron ore, coal, and agricultural
land, although some non-renewable resources may become renewable with
technological advances.
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22. Resources – People
People as resources – “labour”:
• Quantity and quality of the workforce
• Participation rate
• Working week
• Wages
• Trade Unions
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23. Resources – People
People as resources:
• Geographical Immobility
• Occupational Immobility
• Educated workforce
• Occupational structure.
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24. Resources – Technology
Technology - ‘the total knowledge and skills
available to any human society for industry, art,
science, etc.’ (Wilkes and Krebs 2001 p. 1583).
Technology as resources – “capital”:
1. Information technology
2. Technology and investment:
– Capital: working, fixed, social capital;
– Stock.
3. Infrastructure
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25. Resources – Technology
Technological change:
• Product innovation
• Process innovation
• Research and Development (R&D)
• Technological unemployment
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26. Resources – Natural Resources
Natural resources – “land”:
• A fixed / non-fixed factor of production
• Uneven distribution of natural resources
• Protection of the environment
• Environmental control
• Energy
• Negademand.
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27. E = Ecological (Natural Environment)
• Corporate Social Responsibility (CSR): business organisations have responsibilities beyond
mere profit making, and encompass voluntary activities and actions that affect people,
their communities and the natural environment.
• Friedman’s (1970) view is that businesses’ obligation is to make profit for their
shareholders.
• Freeman’s (1984) view is that company’s responsibilities are to their internal and external
stakeholders.
• Strategic advantages on the demand and supply side (McWilliams et.al. 2006);
• Competitive advantage by investing in CSR (Porter and Cramer 2002);
• Resource-based view (RBV), highlighting organisational resource capability that can lead to
sustained competitive advantage (Hart 1995).
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28. Environmental management: an issue of corporate responsibility
Environmental management – as reconciliation between businesses’ need
for economic growth with the demand for greater environmental
protection and reduced levels of ecological degradation.
Sustainable development lies in finding an appropriate balance between
economic development and environmental protection (e.g. oil production
but generating energy from other renewable resources such as wind,
waves, or solar)
Top-down approaches from the government or corporate level, can only be
part of the overall solution, depending on the actions to accept
responsibility for firms’ and individuals’ own behaviour and its
consequences.
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29. Business Responses to CSR
• A reactive and/or defensive approach, with minimal and compliance-driven actions;
Or
• A socially responsible approach as a result of the possible advantages it might bring to
the organisation;
Or
• Instigating firms’ own environmental policies and/or regulations, and therefore
improving their company’s image while reducing external checks upon corporate
practices and processes.
• Organisations may not pursue a proactive role in the development of environmentally
responsible policies, where initial short-run costs are prohibitive when the payback is to
be over the long term.
29
30. Encouraging Environmental Concerns within
Business
Methods for encouraging environmental concerns within business:
• Government intervention – through a regulatory system as a means of control.
• Market mechanisms - through the increased ethical and environmental
awareness of businesses’ stakeholders, such as customers, suppliers,
employees and investors.
• External pressure – through the activities of various organisations, from local
communities’ meetings with businesses, to the global actions orchestrated by
e.g. Friends of the Earth or Greenpeace.
• Self-regulation – where industries and businesses would impose self-
regulation as an attempt to offset on-coming regulation.
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31. Environmental Policies and Benefits to Business
Direct and indirect benefits of environmental policies for businesses:
• Efficiency of factor inputs – as a sign of more efficient use of materials and energy, that
will ultimately reduce costs.
• Improved market image – carefully built and maintained company image can be easily
damaged by some careless action (e.g. BP’s oil spill in the Gulf of Mexico).
• New market niches – the consumers are prepared to pay extra for a product that is less
harmful to the environment; or other market opportunities such as products, services,
and technologies for pollution reduction, energy saving and waste control, and
environmentally friendly products.
• Proactive legislative compliance – there is a growing economical and social pressure for
organisations, which are proactive in developing greater corporate responsibility, and
which are committed to the concept of sustainable development.
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32. Implications of the Ethical and Ecological Environments
to Business
• Businesses have to take into account their stakeholders’ views, particularly
regarding the natural environment.
• Businesses’ actions differ, from reactive to proactive ethical and environmental
approaches, which go beyond compliances with regulatory demands.
• The key ‘drivers’ of corporate environmental responsiveness include
governmental intervention, market forces, external pressures, and self-
regulation by organisations.
• Firms, which implement environmental policies, can benefit from improved
resource efficiency, enhanced market image, new market opportunities, and
increased competitive advantage.
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33. L = Legal
Classification of law:
• Public law - concerns the state and individual;
• Private law – governs relationships between individuals;
• Criminal law – relates to legal wrongdoings;
• Tort – covers specific civil wrongdoings;
• Trust – imposes a duty of dealing with various types of property.
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34. Business Organisations and the Law
Table 1. Business organisations and the law
Source: Worthington and Britton 2009 p. 194.
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35. Contract Law: the essentials
Contracts - agreements (oral or written) between two or more
persons, which are legally enforceable, provided they comprise
a number of essential elements:
– Offer;
– Acceptance;
– Consideration;
– Intention to create legal relations; and
– Capacity.
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36. Law and the Consumer
• In some cases, under the effect of various factors, the
consumer’s sovereignty can be impinged.
• Hence consumer law provides inherent protection in the
marketplace from powerful, and in some cases,
unscrupulous, suppliers.
• Law and the consumer:
Consumer Law is at a developing stage in Uganda and is yet incomplete. The
main relevant Acts are:
Weights and Measures Act
Sale of Goods Act
SEE Uganda Law Reform Report on Consumer Law (2004)
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Editor's Notes
CIVIL SERVICE: Uganda's civil service has been completely Africanized and is under the control of the Public Service Commission. There are three grades of civil servants: clerical or technical, executive and adminstrative. The third class includes permanent secretaries who head the ministerial staffs, under-secretaries, commissioners, and other departmental heads.
The Ugandan Parliament comprises 215 Constituency Representatives, 79 District Woman Representatives, 10 Uganda People's Defence Forces Representatives, 5 Representatives of the Youth, 5 Representatives of Persons with Disabilities, 5 Representatives of Workers, and 13 Ex-officio Members.Uganda Electoral Commission http://www.ec.or.ugTotal registered votes in the 2011 Ugandan Election was 13,954,129 (Source, Ugandan Electoral Report on 2011 Election).
LEGAL SYSTEM: Uganda's legal system is based on English Common Law and African customary law. However, customary law is in effect only when it does not conflict with statutory law. The highest court is the Supreme Court of Uganda, supported by lower-level appeals courts. Civil disputes are generally handled by local committees. Law enforcement policy is decided by the Police Council.
The system of Local Government in Uganda is based on the District as a Unit under which there are lower Local Governments and Administrative Unit Councils. Elected Local Government Councils which are accountable to the people are made up of persons directly elected to represent electoral areas, persons with disabilities, the youth and women councillors forming one third of the council. The Local Government Council is the highest political authority in its area of jurisdiction. The councils are corporate bodies having both legislative and executive powers. They have powers to make local laws and enforce implementation. On the other hand Administrative Unit Councils serve as political units to advise on planning and implementation of services. They assist in the resolution of disputes, monitor the delivery of services and assist in the maintenance of law, order and security.The Local Governments in a District rural area are:The DistrictThe Sub-countyThe Local Governments in a city are:The City CouncilThe City Division CouncilThe Local Governments in a Municipality are:The Municipal CouncilThe Municipal Division CouncilThe Town Council is also Local GovernmentSOURCE: Republic of Uganda Ministry of Local Governmentwww.molg.go.ug
The East African Community (EAC) is an intergovernmental organisation comprising five countries in East Africa: Burundi, Kenya, Rwanda, Tanzania and Uganda. YoweriMuseveni, the President ofUgnada, is the EAC's current Chairman. The organisation was originally founded in 1967, collapsed in 1977, and was officially revived on July 7, 2000. In 2008, after negotiations with the Southern Africa Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA), the EAC agreed to an expanded free trade area including the member states of all three. The EAC is an integral part of the African Economic Community.The East African Community is a potential precursor to the establishment of the East African Federation, a proposed federation of its five members into a single state. In 2010, the EAC launched its own common market for goods, labour and capital within the region, with the goal of a common currency by 2012 and full political federation in 2015. The geographical region encompassed by the EAC covers an area of 1.8 million square kilometres, with a combined population of about 132 million (July 2009 est.)
According to the 2002/03 Uganda NationalHousehold survey: Uganda labourforce is estimated to be 9.8 million for person aged14-64 years, of which 53 per cent are female. About 85 per cent of the labour isin rural areas. 30% of the labour force is illiterate andcose to 77 per cent of the labourforce had either no education or hadattained only primary education. In addition, about 75 per cent of the labourforceisbelow 40 years. The labourforce participation rate is 80 per cent. Participation levels byselected background characteristics show rural women had higher participationrates than their urban counterparts. The findings show that illiterate personswere more likely to be available for work than the literate ones. The findingsfurther show that persons without education had higher participation levels thanthose with primary education, while those who had attained secondaryeducational had the lowest levels of participation in economic activities (69 percent). The participation of female for lower ages are higher than that of maleswhich shows that female enters the labour market at young ages that that of males.About 36 percent of the households in Uganda own non-crop enterprises. Themajor enterprises being in the manufacturing and trade and services broadregionsThe current labourforce participation rate is 80 per cent. Participation levels byselected background characteristics show rural women had higher participationrates than their urban counterparts. The findings show that illiterate personswere more likely to be available for work than the literate ones. The findingsfurther show that persons without education had higher participation levels thanthose with primary education, while those who had attained secondaryeducational had the lowest levels of participation in economic activities ( 69 percent). The participation of female for lower ages are higher than that of maleswhich shows that female enters the labour market at young ages that that ofmales.About 36 percent of the households in Uganda own non-crop enterprises. The major enterprises being in the manufacturing and trade and services broadindustries. These two categories employ 1.8 million persons while livestock,poultry, bee-keeping, and fishing industry employs another 0.5 million persons.Most household based enterprises are sole proprietorship, and similarly thereare mainly started by owners.Over all 36 per cent of the Ugandan labourforce are working poor (3.5 millionpersons). Persons in rural areas who are working are more likely to be poor (40percent) compared to their counterparts in urban areas (11 percent). Also, theincidence of being a working poor is highest among those in primary sectorfollowed by those in the manufacturing sector. Forty-four percent of the personsemployed in agriculture were working poorThe overall unemployment in Uganda is 3.5. The unemployment rate inUganda is an urban issue with ds to develop policies and ensurethat children are kept in schools. The national underemployment rate stood at 17 percent. The survey resultsshow that the underemployment rate is highest among the rural folk.
ECONOMY: Uganda's economy is predominantly based on agriculture, which accounts for about 44% of its GDP. Most Ugandans gained their livelihood in the difficult years of the 1970s and 1980s by working in the informal agricultural sector. Food crop production is the most important economic activity, accounting for over one quarter of the nation's GDP, compared with only 5% for cash crops. Manufacturing output contributes a further 9%. Most agricultural production is concentrated in the southern regions, where climatic conditions support the densest rural populations in the nation. The economic situation in the northern regions is much less secure, partly due to the devastating effects of civil war and to unstable border conditions. Unusually severe rain storms at the end of 1997 and the beginning of 1998 further impeded agricultural production. TRADE: Uganda's major exports are coffee, cotton and tea. Its major imports are petroleum products, machinery, cotton piece goods, metals, transportation equipment, and food. The main buyers of Uganda's export products are the US, the UK, France and Spain; the major sellers of Uganda's imports are Kenya, the UK and Japan. ENERGY: More than 90% of the country's total energy comes from indigenous sources of fuel, including charcoal and firewood. Oil, electricity and commercial energy account for the remainder. MINING: Uganda's principal mineral resource is copper. The only known deposit at Kilembe is, however, rapidly being exhausted. There are two phosphate deposits near Tororo, with proven reserves of more than 180 million tons. Gold was discovered in at least eight districts by 1988. TRANSPORT: Uganda has nearly 27,000 km of roads. Its railroads total about 1,240 km and provide the country's chief transport link with the Indian Ocean. The railroads are, however, in a state of severe disrepair. Uganda has five airports with paved runways. Because Uganda is a landlocked country, it depends on Kenya and Tanzania for access to the sea. Two inland ports, Jinja and Port Bell, serve the areas around Lake Victoria. COMMUNICATIONS: Underground electric cables were completed in Kampala, Entebbe, and Jinja in 1992. The Uganda Posts and Telecommunications Corporation (UPTC) was at work in 1991 installing digital radio equipment linking Uganda with Tanzania, Rwanda and Burundi. Radio Uganda broadcasts in English, French and Kiswahili and reaches most areas of the country. Six daily newspapers are published in Kampala. The national news agency, run by the Ministry of Information, is the Uganda News Agency. Novosti and Tass have bureaus in Kamplala; Reuters and the AP are also represented there. SOURCE:African Studies Center, University of Pennsylvaniahttp://www.africa.upenn.edu/NEH/uhome.htm
About 36 percent of the households in Uganda own non-crop enterprises. Themajor enterprises being in the manufacturing and trade and services broadregionsThe current labourforce participation rate is 80 per cent. Participation levels byselected background characteristics show rural women had higher participationrates than their urban counterparts. The findings show that illiterate personswere more likely to be available for work than the literate ones. The findingsfurther show that persons without education had higher participation levels thanthose with primary education, while those who had attained secondaryeducational had the lowest levels of participation in economic activities ( 69 percent). The participation of female for lower ages are higher than that of maleswhich shows that female enters the labour market at young ages that that ofmales.
The major enterprises being in the manufacturing and trade and services broadindustries. These two categories employ 1.8 million persons while livestock,poultry, bee-keeping, and fishing industry employs another 0.5 million persons.Most household based enterprises are sole proprietorship, and similarly thereare mainly started by owners.Over all 36 per cent of the Ugandan labourforce are working poor (3.5 millionpersons). Persons in rural areas who are working are more likely to be poor (40percent) compared to their counterparts in urban areas (11 percent). Also, theincidence of being a working poor is highest among those in primary sectorfollowed by those in the manufacturing sector. Forty-four percent of the personsemployed in agriculture were working poorThe overall unemployment in Uganda is 3.5. The unemployment rate inUganda is an urban issue with ds to develop policies and ensurethat children are kept in schools. The national underemployment rate stood at 17 percent. The survey resultsshow that the underemployment rate is highest among the rural folk.
