What Is Legal and Political Factors
This is a non-market factor, but it can still have a strong impact on a business. The political-legal environment is a combination of many factors such as the current political party, the degree of politicization of trade and industry, the effectiveness of the current government, government policy, the current legal framework, the attitude of the public towards the economy, etc. The distinction between the legal and policy components of the PESTEL framework is often difficult to make – policy decisions are often translated into law, so there are clear links between the two parties. However, there are distinctions between political factors (related to a government) and legal parties (associated with courts and regulators). The legal environment includes the courts as well as the government agencies responsible for issuing regulations. The following table lists some of the laws that can be considered when analyzing legal factors: While theoretically any country can pose a risk to all of these factors, some countries offer a more stable business environment than others. Indeed, political stability is an important part of the government`s efforts to attract foreign investment to its country. Companies need to assess whether a country believes in free markets, government control, or strong intervention (often for the benefit of a few) in the industry. The country`s view of capitalism is also a factor in commercial considerations.
In the broadest sense, capitalismAn economic system in which the means of production are owned and controlled by the private sector. is an economic system in which the means of production are privately owned and controlled. In contrast, a planned economy, an economic system in which the government or state directs and controls the economy, including the means and decisions of production. is that in which the government or state directs and controls the economy, including the means and decisions for production. In the past, democratic governments have supported capitalism and authoritarian regimes have tended to adopt a state-controlled approach to managing the economy. Economic factors are related to the overall economy and are usually explicitly financial in nature. These include: The framework is used by management teams and boards of directors in their strategic planning and enterprise risk management planning processes. PESTEL analysis is also a very popular tool among business consultants to help their clients develop innovative product and market initiatives, as well as in the financial analyst community, where factors can influence model assumptions and financing decisions.
Before we can assess the impact on the economy, let`s first look at the different political and legal systems. Cultural and social factors can also influence a government`s involvement in trade. For example, governments in some countries have attempted to limit the influence of American culture in local markets by restricting or denying entry to U.S. companies operating in the media, food, and music industries. Legal factors are those that result from changes in the regulatory environment and can affect the overall economy, certain industries or even individual businesses in a particular sector. These include, but are not limited to: When considering legal factors in your PESTEL analysis, it`s important to remember that laws are generally not meant to restrict your business. Instead, they are there to help. According to Businesslawbasics.com, the purpose of laws is to set standards, maintain order, resolve disputes, and protect freedoms and rights. As a business owner, you don`t have to like all laws. However, it is imperative that you are aware of the laws that apply to your business and how they affect it today and tomorrow. The most direct effects on the economy can be seen in Islamic law – which is a moral rather than a commercial legal system.
Sharia law has clear guidelines for aspects of life. For example, in Islamic law, business is directly influenced by the concept of interest. According to Islamic law, banks cannot charge interest or profit from it. This provision has spawned a range of financial products and strategies to simulate an interest – or profit – for an Islamic bank, when they are not technically classified as interest. Some banks charge high upfront fees. Many are allowed to buy back or lease an asset.
