PESTEL analysis is an important and widely used tool that helps show the big picture of a firms external environment, particularly as related to foreign markets. PESTEL is an acronym for the political, economic, sociocultural, technological, environmental, and legal contexts in which a firm operates. A PESTEL analysis helps managers gain a better understanding of the opportunities and threats they face; consequently, the analysis aids in building a better vision of the future business landscape and how the firm might compete profitably. This useful tool analyzes for market growth or decline and, therefore, the position, potential, and direction for a business. When a firm is considering entry into new markets, these factors are of considerable importance. Moreover, PESTEL analysis provides insight into the status of key marketflatteners, both in terms of their present state and future trends.

Firms need to understand the macro-environment to ensure that their strategy is aligned with the powerful forces of change affecting their business landscape. When firms exploit a change in the environmentrather than simply survive or oppose the change they are more likely to be successful. A solid understanding of PESTEL also helps managers avoid strategies that may be doomed to fail given the circumstances of the environment. JCPenneys failed entry into Chile is a case in point.

There are three steps in the PESTEL analysis. First, consider the relevance of each of the PESTEL factors to your context. Next, identify and categorize the information that applies to these factors. Finally, analyze the data and draw conclusions. Common mistakes in this analysis include stopping at the second step or assuming that the initial analysis and conclusions are correct without testing the assumptions and investigating alternative scenarios.

The framework for PESTEL analysis is presented below. Its composed of six sections one for each of the PESTEL headings. [1] The framework includes sample questions or prompts, the answers to which can help determine the nature of opportunities and threats in the macro-environment.

Economic - What are the current and forecast interest rates?

- What is the current level of inflation in the prospective country? What is it forecast to be? How does this affect the possible growth of your market?

- What are local employment levels per capita, and how are they changing?

- What are the long-term prospects for the countries economy, gross domestic product (GDP) per capita, and other economic factors?

- What are the current exchange rates between critical markets, and how will they affect production and distribution of your goods?