PESTEL Forces

This case analysis delves into the firm's external environment (Learning Objective 3-1). Before attempting this activity, familiarize yourself with the text material in section 3.1.The PESTEL model can help managers mitigate threats. It is a method of grouping external forces in a firm's general environment. The model, which comprises six components, provides a process to scan, monitor, and evaluate outside factors that may have an impact on the firm.

Read the following minicase about the electric car industry and then answer the questions that follow.

Minicase

A PESTEL framework groups forces in a firm's general environment in one of six factors. These factors are typically ones that a firm's managers have very little control over. That however doesn't mean they are unimportant. Indeed macroenvironmental factors can be either a death knell or a key provider of leverage points for a firm.

The ChapterCase opener on Tesla Motors and the U. S. automobile industry provides enough information for us to make some general conclusions about the role of PESTEL forces in this industry. One of the main forces in favor of a startup such as Tesla Motors is the technological factor. Tesla Motors develops all-electric powertrains and cars. Unlike complex gasoline engines, electric cars are powered by relatively simple motors and gearboxes that have few parts. As a startup, Tesla has focused on purely electric automobiles so they have developed a deep competency in this field relative to their larger and more broad-based competitors. Moreover, technological innovations have allowed startups like Tesla Motors to enter the electric car segment, effectively circumventing high-entry barriers into the broader automotive market.

Another factor weighing in favor of Tesla and the electric vehicle segment is the legal factor. The legal environment captures the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions. For example, to induce consumers to buy zero-emission vehicles, the U. S. government offers a $7,500 federal tax credit with the purchase of a new electric vehicle such as the Tesla Model S.

A third factor looming large in the entire electric vehicle market is the ecological factor. Ecological factors concern broad environmental issues such as the natural environment, global warming, and sustainable economic growth. Ecological factors can also provide business opportunities. Tesla Motors, for example, is partially addressing environmental concerns regarding the carbon emissions of gasoline-powered cars by building zero-emission battery-powered vehicles.

The other three factors; political, economic, and sociocultural will also impact the electric vehicle industry but perhaps in a less direct manner than the examples above. How the overall macro environmental forces will impact the long-term health of electric vehicle sales and profits is yet to be determined. Both large firms like General Motors and startups like Tesla Motors need to be cognizant of these impacts and flexible when conditions change in the months and years to come.

1. In the case discussing the electric car industry, which PESTEL factor is highlighted as the most important factor favoring a startup firm such as Tesla Motors?

ecological factors

supplier factors

technological factors

economic factors

social factors

2. Non-market strategies employed by a firm may be used to exert some level of influence by the firm on the general environment. These may best fit in the political or legal factor categories of the PESTEL framework. Which of the following is an example of a non-market strategy?

investing in Six Sigma technology

conserving cash in the event of a new recession

lobbying to extend electric car tax credits

targeting the millenial generation of consumers

hedging EU currency for more stable earnings

3. Innovations in process efficiencies such as Six Sigma quality, and service innovations such as social media are primarily elements of which macro environmental force?

economic factors

political factors

ecological factors

technological factors

sociocultural factors

4. The textbook discusses demographic trends as a component of sociocultural factors. Which of the following is specifically highlighted as a demographic trend that can be an opportunity for business growth in the coming years?

The U. S. Hispanic population is younger with quickly-growing incomes.

Wider income disparity may lead to a growing luxury goods market.

Financial institutions are good investments in the wake of the recent crisis.

Rising interest rates will encourage more savings.

Aging baby boomers have increasing disposable income.