Question

In 500-600 words, evaluate the limitations of an exclusive focus on the PESTEL analysis for companies considering expanding into international markets, and in your answer highlight what other elements companies may want to consider in addition to the PESTEL to support international expansion. Provide evidence and examples.

Answer 1

PESTLE analysis is a strategic tool which is used by companies to assess the potential of external environment factors on the business. The business strategy of the company is largely based on the PESTLE analysis. Moreover companies consider the decisions of entering a new market or industry, based on the comprehensive study of the PESTLE analysis. Hence PESTLE analysis is an important strategic tool used by companies.

However as we know that every coin has 2 sides, there are certain limitations or disadvantages of the over-dependence of the companies on PESTLE analysis. There is high inclination or focus of the PESTLE analysis on external factors affecting business. The internal perspectives or the internal factors are not taken into consideration in this study. Hence basing strategy of company on the partial analysis becomes ineffective in long run. There are various assumptions in the PESTLE analysis. Hence the accuracy of the study becomes questionable. If an entire business report is based, just on PESTLE analysis, its credibility can be doubted quite easily. Moreover the fundamental 6 factors, based on which PESTLE analysis is conducted, are quite dynamic in nature. There is high probability that there may be a change in the dimension of the factor, while the research study is still in progress. Hence businesses cannot entirely be dependent on PESTLE analysis.

Various reports of PESTLE analysis are in bulleted form. This crispness or brevity of content often can miss out on important perspectives, which can be quite crucial for business. There may be individuals who may make their own assumptions to understand the crispness of this study. Hence simplicity of PESTLE analysis can be quite misleading. Moreover the source of the content and facts stated in PESTLE analysis report is often not provided. Hence the origin of facts and data cannot be traced easily. Overall, we can say that taking crucial business decisions, just based on PESTLE analysis can be quite ineffective and adverse for the company in the long run.

When a company is considering international expansion, it needs to consider several other perspectives as well, apart from PESTLE analysis. Some of such techniques and study are as follows:

· SWOT analysis: The decision of global expansion is quite crucial and involves quite high stakes. The management needs to conduct a SWOT analysis to check if the business is ready and prepared for such a big decision. The strengths and weaknesses of the company get highlighted using SWOT analysis.

· Competition analysis: As the company is planning to enter a new market, it needs to conduct competition analysis so as to have a clear picture about the competition density in that market. Accordingly various business decisions of the company will be decided upon.

· BCG study: BCG matrix analysis can be used to evaluate the performance and potential of the company’s offerings. The company can identify the products which are Stars and Cash Cows. The company can plan for its international expansion, based on these products. The company must avoid planning its business expansion in global markets based on products which are Question Mark. Hence BCG study is quite crucial for the company when it is planning about international expansion.

**Do rate the solution. Thank You.