What is the Pestel model? Roles and components in Pestel

The PESTEL model is an important strategic analysis tool that helps businesses understand their business environment. In today's volatile market context, understanding the role and components of the PESTEL model is more important than ever. Let's find out more information about this model with 1C Vietnam through the article below!

1. What is the PESTEL model?

The PESTEL model is a strategic analysis method widely used in the business field. The name PESTEL stands for six main factors that need to be considered: Political, Economic, Social, Technological, Environmental, and Legal. physical).

2. The role of the PESTEL model in business

The PESTEL model plays an important role in helping businesses better understand the business environment and make smart strategic decisions. This model brings a number of benefits to businesses such as:

• Business planning: The model provides a comprehensive view of the market, helping businesses assess risks, such as pandemics or war, to determine and build long-term and sustainable business plans. Short-term.
• Product/service development: The PESTEL model provides information about social and technological trends, which is the basis for businesses to develop new products and services, satisfying the needs and desires of consumers. .
• Ability to adapt quickly: Businesses through the PESTEL model can maintain flexibility and be able to adapt to market changes.
• Application in marketing strategy: By analyzing social factors in the PESTEL model , businesses will better understand consumers' needs, preferences, and shopping trends. From there, managers can create marketing plans for products and services that accurately meet the desires of target customers.

3. Advantages and disadvantages of the Pestel model

In order for businesses to effectively apply the PESTEL model to their business operations, it is extremely important to clearly understand the advantages and disadvantages of this model.

3.1 About advantages

• Easy to apply: This model does not require in-depth knowledge of economics, law or technology, so it is very easy to use.
• Wide scope of analysis: The PESTEL model covers many different aspects of the business environment through 6 main factors, providing an overall and comprehensive view.
• Supports making more accurate decisions: The model provides the necessary information for businesses to make strategic decisions appropriate to current and future market situations.
• Increase competitiveness: Deep understanding of the market, customers and competitors will help businesses seize development opportunities, thereby enhancing their position compared to competitors.

3.2 About disadvantages

• Does not provide specific solutions: The PESTEL model only provides information and assessment of the external environment without suggesting specific solutions to solve problems.
• Does not distinguish the level of influence of factors: The model does not evaluate the level of influence of each factor, cannot distinguish which factor is most important and needs the most priority at the present time.

4. Basic components in the Pestel business model

The PESTEL model includes six basic components, each representing a group of external factors that can affect the business situation of the enterprise.

4.1 Economic factors

This model focuses on economic factors such as economic growth, inflation, exchange rates, monetary policy, and consumer income.

For example:

• Inflation rate: How does inflation affect raw material prices? Does inflation have any effect on customers and their spending ability? Does this affect the costs and revenue of the business?
• Market value: How might recent or future market trends impact the industry and business?
• Fiscal policy: How can tax changes affect business budgets and profits?

4.2 Political factors

Political factors include factors such as the political system, tax policy, international relations and other politically related issues.

For example:

• Changes in Government/legislation: Could changes in elections, Government meetings, etc. affect industry regulations? Are there any new laws or proposals passed that will impact your business?
• Wars and armed conflicts: Have recent wars and conflicts between countries around the world affected the trade process?

4.3 Legal factors

Legal factors include factors related to laws and regulations, such as labor laws, safety regulations, and other legal issues.

For example:

• Patents and intellectual property rights: Have the business's logo, products/services, etc. been registered as intellectual property rights?
• Consumer protection law/Food safety law: Is the business complying with consumer protection law and food safety law?
• Labor safety laws: What labor safety laws do businesses need to know to protect their business and employees?

4.4 Social factors

Involves social factors such as cultural changes, population dynamics, education, gender, social class and social values.

For example:

• Changing demographics: What is the age, gender, interests, religion, culture, etc. of target customers? Are these demographics changing?
• Consumer opinion: What are customers' views on the company's products?
• Consumer trends: Consider whether the economic situation, epidemics, war or other factors have an impact on changing customer consumption habits?

4.5 Technological factors

This factor includes technological advancement, research and development, technological innovation, and the impact of technology on industry and business.

For example:

• Frequency of appearance of AI technology: Does AI development bring any new capabilities or opportunities to businesses?
• Cloud computing: Does storing information on cloud computing help businesses? Or does it pose any security threats that businesses need to pay attention to?

4.6 Environmental factors

In times of ecological crisis and climate change, paying attention to environmental issues is more important than ever. Businesses today need to pay special attention to environmental challenges, including extreme weather, climate change, disease, global warming and the greenhouse effect.

For example:

• Climate change: How could the short- and long-term impacts of climate change impact businesses and customers?
• Energy resources: What necessary resources may be limited or depleted in the future and will this affect the business and production activities of the enterprise?
• Natural disasters: What natural disasters can occur in the business area or where many of the business's target customers are concentrated?

5. Instructions for effective PESTEL model analysis

Below is a detailed guide on the steps to perform an effective PESTEL analysis:

5.1 Step 1: Analyze the 6 factors in the PESTEL model

• Political factors

Relating to policies and regulations set by Governments and international organizations. These factors include tax policy, legal regulations, political stability, international relations and other management policies.

For example: A gas production business needs to clearly understand the Government's regulations on resource management and environmental protection.

• Economical factors

Related to the overall economic situation of the country or region, directly affecting the business operations of the enterprise. These factors include economic growth, exchange rates, inflation, fiscal policy and real estate markets.

For example: A phone manufacturing business needs to face industry fluctuations and fierce competition in each market segment.

• Social factors

The social situation of a country or region has a clear influence on businesses. These factors include cultural diversity, religion, education, consumption habits and other social issues.

For example: A fashion business has to deal with fashion trends and customer preferences that constantly change over time.

• Technological factors

Advancement in the field of technology also affects a business's products and services. This factor is also related to product and service innovation strategies, online sales channel development, as well as data management and information security.

For example: A computer manufacturing business needs to face changes in computer technology and competition in the industry.

• Environmental factors

Relates to the environmental impact of the business and its products, including climate change, resource depletion and pollution issues.

For example: A business manufacturing children's toys must comply with Government regulations to ensure safety for users and the environment.

• Legal factors

Regulations and laws in business activities such as intellectual property rights, human resource management, environmental protection, safety and health of workers.

For example: A retail business must comply with Government regulations on consumer protection and meet relevant legal regulations.

5.2 Step 2: Research and collect information

Collecting information from a variety of sources is an indispensable step to help businesses have a comprehensive and accurate view of the business environment. To ensure complete and reliable information, businesses need to collect from many different sources such as newspapers, books, research reports, statistics, and also interact directly with relevant parties such as customers, partners, competitors,...

In addition to Internet search engines, there are two other important options for finding the necessary information:

• Reports from non-governmental organizations, non-profit organizations or other government organizations: This is a reliable source of data, providing insight and detail into the issue that the researcher is interested in. .
• Reports from specialist (third-party) research and consulting firms: Although often at a cost, these reports provide specific information that is difficult to find in any other source other.

5.3 Step 3: Evaluate and prioritize

Businesses need to focus on analyzing the most important factors for business operations. This focus will avoid wasting business time and resources. At the same time, when performing PESTEL analysis, forecasting and evaluating future factors will partly help businesses build plans and strategies suitable for the long-term business environment.

5.4 Step 4: Report the results of PESTEL model analysis

In this final step, businesses need to draw conclusions about the impact of PESTEL factors and propose future strategies and activities. PESTEL analysis can be combined with SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) to have a more comprehensive view of business activities. This combination helps businesses have the most comprehensive view, thereby making the right plans and strategies to take advantage of opportunities and limit challenges.

6. Example of the PESTEL model in an enterprise's business activities

6.1 PESTEL model in Vinamilk

Vinamilk is one of the leading companies in the field of manufacturing and trading dairy products in Vietnam. To achieve today's success, Vinamilk has intelligently applied the PESTEL model . Vinamilk's Board of Directors has analyzed 6 factors in this model, specifically:

• Political Factors (Political)

The stable political situation in Vietnam plays an important role in Vinamilk's development. Laws, tax policies, and government regulations all have a significant impact on this company's business and export activities. In particular, the Government supports the dairy industry by applying a tax rate of 8%, creating favorable conditions for Vinamilk to expand its market.

• Economic Factors (Economic)

According to information from NCIF, the GDP growth rate in the period 2021 - 2025 is expected to reach about 7%, inflation is expected to stabilize at 3.5 - 4.5%/year. This not only creates opportunities for Vinamilk but also puts competitive pressure on the business itself in difficult economic times like today.

• Social Factors (Social)

People's living standards have improved, leading to an increase in demand for supplementary foods such as milk. However, challenges remain as many people in rural areas do not have the habit of using milk and the rate of malnourished children is still high.

• Technological Factors (Technological)

Vinamilk has invested in advanced technology, from synchronous production lines to using smart dairy farming systems. Sensor systems and product quality management technology according to ISO standards help increase production efficiency and ensure product quality.

• Environmental Factors (Environmental)

Climate and natural disasters in Vietnam may affect Vinamilk's milk production process. Therefore, the company needs to manage the environment to ensure a stable milk supply. Milk preservation and transportation stages also need to comply with food safety and environmental regulations.

• Legal Factors (Legal)

Vinamilk uses modern technology and production lines that meet international certificates. However, the challenge can come from small distributors who do not have enough equipment and good storage capabilities, which can affect product quality and the company's reputation.

Based on information from the PESTEL model , Vinamilk has adjusted its business strategy, made flexible decisions and adapted well to the changing business environment. Typically, the activity of changing the brand identity to blue helps refresh the brand, creating newness and attracting consumers.

6.2 PESTEL model in CocaCola

Coca-Cola, one of the most famous and influential global soft drink brands, has been a cultural symbol and beverage enjoyment for more than a century. The PESTEL model has been applied by CocaCola as follows:

• Political Factors: Fluctuations in tax rates, changes in the carbonated beverage industry, competition from new competitors and pricing policies in many countries are all having a significant influence on strategy. Coca Cola's business strategy.
• Economic Factor: The advancement of science and technology can bring maximum benefits in terms of production time and costs, as well as reduce product research costs. However, this also brings challenges from increasing raw material costs, especially when Coca Cola uses basic ingredients and these costs continue to increase.
• Social Factors (Social): At headquarters in the United States, Coca Cola is facing pressure from consumers as they gradually shift towards a healthy lifestyle, reducing the use of carbonated drinks. However, in Vietnam, the brand is still enjoying popularity in the market for traditional carbonated drinks and sugar-free products.
• Technological Factor: Coca Cola has cleverly taken advantage of the development of the Internet and social media channels to promote products effectively. Technology also contributes to improving production processes and packaging design, while supporting supply chain management and predicting market trends, all contributing to the success of the Coca Cola brand.
• Environmental Factors: As the unit with the largest beverage consumption in the world, this brand is facing strong pressure and opposition from environmental organizations in many countries.
• Legal Factors: Coca Cola faces many challenges related to compliance with local laws, including sugar consumption standards and caffeine content that vary across countries.

Analyzing the PESTEL model helps Coca-Cola better understand the influence of external environmental factors on its business. Typically, through assessing political factors, they can anticipate and respond to changes in food and beverage policies and regulations. On the other hand, understanding social factors can help them adapt to changing lifestyle trends and consumer preferences.

Through the above article, it can be seen that the PESTEL model is an important tool in analyzing the business environment, helping businesses evaluate the overall market landscape and have the right development strategies. In the context of a volatile environment, in addition to popular models such as PESTEL, businesses also need to pay attention to using smart management software such as 1C:Company Management. This is a solution that helps businesses synchronously manage departments, increase business productivity, and save time and resources. Get more information about this superior software by contacting 1C Vietnam via Hotline: (+84)247 108 8887.