Importance of PESTLE, SWOT and Porter’s Five Forces Analysis in Competitive Strategy

This essay discusses the importance of PESTLE, SWOT and Porter’s Five Forces Analysis in competitive strategy. It explains how PESTLE analysis helps in analyzing the political, economic, social, technological, legal and environmental factors of a target market. It also explains how Porter’s Five Forces Analysis helps in analyzing the power of existing competitors, suppliers, buyers, substitutes and new entrants. Finally, it explains how SWOT analysis helps in understanding the strengths, weaknesses, opportunities and threats of an organization.

Running Head: COMPETITIVE STRATEGY
Competitive Strategy
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Table of Contents
Introduction......................................................................................................................................3
Importance of PESTLE Analysis.....................................................................................................3
Political Factor.............................................................................................................................4
Economic Factor..........................................................................................................................4
Social Factor................................................................................................................................5
Technological Factor...................................................................................................................5
Legal Factor.................................................................................................................................5
Environmental Factor..................................................................................................................5
Porter’s five forces Analysis............................................................................................................5
Power of the Existing Competitors..............................................................................................6
Power of the Suppliers.................................................................................................................6
Power of the Buyers.....................................................................................................................6
The threat of the Substitutes........................................................................................................7
The threat of new entrants in the market.....................................................................................7
SWOT Analysis...............................................................................................................................7
Strengths:.....................................................................................................................................7
Weaknesses:.................................................................................................................................8
Opportunities:..............................................................................................................................8
Threats:........................................................................................................................................8

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Conclusion.......................................................................................................................................8
Reference List..................................................................................................................................9

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Introduction
Market analysis may be defined as a study of the attractiveness as well as the
dynamic of a specific market. Market analysis is considered to be a part of the industry analysis
and is also termed as environmental analysis. With the help of environmental analysis, the
managers of an organization are able to understand the internal as well as the external
environment of the market (Pulver 2012). While internal analysis of market helps the managers
to understand the strength, weaknesses, opportunities as well as threats of the organization with
respect to the international market, external analysis assist the managers to understand the
political, economic, social, technological, legal and environmental factors of the specific market
in which the organization has been or is going to be established. In this essay, a brief discussion
on the importance of three of the crucial market environment analyzing tools, namely, PESTLE,
SWOT and Porter’s five forces model has been performed

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Importance of PESTLE Analysis
Figure 1: PESTLE Analysis
Source (Gupta 2013)
PESTLE Analysis can be defined as an external business environment analyzing tool.
This tool is used b the management of an organization to track the environment of the country
they are operating in or are planning to launch their business. The term ‘PESTLE’ stands for
Political, Economical, Social, Legal and Environmental. With the help of these tools, the above-
mentioned factors of the target market are analyzed. The in-depth analyses of each of the
mentioned factors have been discussed below:
Political Factor
This factor analyzes the extent to which the government of the target country
influences the economy of the country. For instance, the government of a country may impose

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the tax on the product of an organization which may lead to enhancement of the overall
production costs of an organization (Babatunde and Adebisi 2012). The political factor chiefly
measures the fiscal and tax policies, trade traffics and other rules and regulations implemented
by the government that may impose an impact on the organization.
Economic Factor
This factor analyzes the financial standpoint as well as the economic performance of
a target market. Economic factor chiefly includes interest rates, inflation rate, economic growth
pattern and the foreign exchange rate of the market. For instance, in case the country is
experiencing inflation, it will impose a negative impact on the price and service o the company
as well as on the purchasing power of the consumers.
Social Factor
This factor analyzes the social environment of the country (Johnson 2016). The chief
determinants include demographics, population analytics and cultural trend of the market. For
instance, since the citizens of US are highly health conscious, the McDonald Company, being a
fast food chain is suffering from immense loss in the market.
Technological Factor
This factor analyzes how advanced the market is on the basis of technological
advances. More advanced a country is technological, more favorable is it for the organization.
For instance, companies like Quantas always target countries which can provide them with high
tech tools and facilities.

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Legal Factor
Unlike the other factors, this factor includes both the external as well as the internal
sides. Certain laws are there which are implemented by the target country on the organizations
while there are policies which are implemented by the organization to maintain the revenue.
Some of the examples of laws that fall under legal analysis include labour laws, consumer laws
and safety laws (Gupta 2013).
Environmental Factor
This factor includes laws and regulations related to the environment, imposed by
government of the target market on the organizations. The rules are generally imposed to prevent
air and water pollution. This factor is crucial for industries like farming, agriculture and tourism.
A few years ago legal action was taken against KFC for using Polystyrene packaging for it fast
food items.
Porter’s five forces Analysis
Like the PESTLE analysis tool, Porter's five forces analysis tool is used as an external
environment analysis tool. It chiefly identifies and analyzes the major five competitive forces
namely that shapes the business and helps the organization to assess its strengths as well as
weaknesses. The Porter’s five forces model is comprised of five factors that include the power of
the buyers, the power of the Suppliers, the threat of substitute products, the power of existing
competitors and finally potentiality of the new entrants.
Power of the Existing Competitors
This force analyzes how popular are the competitors of the organization in the target
market. The larger is the number of competitors and equivalent products, lesser is the power of

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the organization (Dobbs 2014). For instance, considering the fact that in US, several globally
well-known fast food chains like KFC and McDonald are present, the Burger King Company is
facing issues to gain competitive advantage in the fast food market of US.
Power of the Suppliers
This force analyzes how easily the suppliers can enhance the prices of their service as
well as the products supplied to the organization. Less is the number of suppliers in the market,
more will be their demand (Gupta 2013). Along with this, the power of the suppliers in a specific
market depends on their quality of products and services, unique aspects and the switching cost
of the company from one supplier to other.
Power of the Buyers
This force measures the ability of the consumers to lower the price of the products o
services offered by the organization. The chief determinants of this force include the switching
cost required to switch from one organization to another. More is the switching cost, less is the
power of the consumers. For instance, since McDonalds ha numerous numbers of competitors in
US, the power of the consumers is high.
The threat of the Substitutes
This force analyses the strength and popularity of the substitute products in the target
market. Substitute products or service are products or services that consumers can use in the
place of the organization’s products or services (Dobbs 2014). If consumers find out that the
products or services offered by any other organizations are better than the company on the basis
of costs or unique features, then consumers will definitely switch. This, in turn, will affect the
company negatively.

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The threat of new entrants in the market
This force measures the chances of a new entry in the market. The less money and
time is needed for the new entries to enter the market, more is the power of the new entrance.
This, in turn, weakens the position of the company to a great extent (Wright, Paroutis and
Blettner 2013). For instance, the treat of new entrance for the Nintendo Company is low due to
high entry barriers in the US market.
SWOT Analysis
This tool measures the internal environment of the company. SWOT analysis can be
considered as one of the unique techniques for understanding the strength, weaknesses,
opportunities and threats of the organization.
Strengths:
Strengths can be determined by the characteristics of the organization that has the
potential to provide competitive advantages to that organization. Generally, for a business
organization, strengths include its brand equity, Consumer loyalty and others. For instance, the
Strength of the CocaCola Company is its brand equity and huge consumer loyalty
(Evangelopoulos, Zhang and Prybutok 2012).
Weaknesses:
Weaknesses of an organization refer to the factors that add disadvantages to the business.
For instance, lesser amount technologies and consumer loyalty can be considered for two major
weaknesses of business organizations (Agarwal, Grassl and Pahl 2012). More are the
weaknesses, less is the competitive advantage of the company.

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Opportunities:
This force determines the fields as well as the elements that the organization can use to
enhance its competitive advantages. A company can enhance its competitive advantages by
expanding its business in other markets.
Threats:
Threats can be defined as the elements that cause trouble in the way of gaining
competitive advantages in the business of an organization (Kew and Stredwick 2017). One of the
chief examples of threat includes the strength of the competitors and substitutes of the product or
services offered by the organization.
Conclusion
From the above discussion, it can be concluded that the above-mentioned tools are highly
crucial to understand the external as well as the internal condition of the organization. While
PESTLE analysis helps the organization to have an in-depth picture of its target market, the
porters five forces model helps the company to understand the potentiality of its competitors,
suppliers and substitute products. The SWOT analysis, on the other hand, helps the company to
understand its potentials, weakness, threats as well as opportunities. With the help of these three
analysis tools, the company is able to understand and eradicate its loopholes and thus develops
potential to expand its market.

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Reference List
Agarwal, R., Grassl, W. and Pahl, J., 2012. Meta-SWOT: introducing a new strategic planning
tool. Journal of Business Strategy, 33(2), pp.12-21.
Babatunde, B.O. and Adebisi, A.O., 2012. Strategic Environmental Scanning and Organization
Performance in a Competitive Business Environment. Economic Insights-Trends & Challenges,
64(1), pp. 23-28.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), pp.32-45.
Evangelopoulos, N., Zhang, X. and Prybutok, V.R., 2012. Latent semantic analysis: five
methodological recommendations. European Journal of Information Systems, 21(1), pp.70-86.
Gupta, A., 2013. Environmental and pest analysis: An approach to external business
environment. Merit Research Journal of Art, Social Science and Humanities, 1(2), pp.13-17.
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education, pp. 45-49.
Kew, J. and Stredwick, J., 2017. Business environment: managing in a strategic context. Kogan
Page Publishers, pp. 12-16.
Wright, R.P., Paroutis, S.E. and Blettner, D.P., 2013. How useful are the strategic tools we teach
in business schools?. Journal of Management Studies, 50(1), pp.92-125.