Strategy Development: PESTEL and Porter's Five Forces Analysis Essay

This essay delves into the realm of competitive strategy, focusing on two essential frameworks: PESTEL analysis and Porter's Five Forces. The essay begins by defining competitive strategy and its importance in today's business landscape. It then provides a detailed explanation of PESTEL analysis, which examines the political, economic, social, technological, environmental, and legal factors affecting a business. The essay illustrates this with an analysis of Amazon, highlighting how the company navigates these external factors. Following this, the essay examines Porter's Five Forces framework, outlining how it helps companies assess industry attractiveness and competitive intensity. The essay then applies this framework to Nestle, analyzing its competitive position. The essay concludes by emphasizing the significance of these strategic tools for achieving a competitive advantage and ensuring sustainable growth. The essay uses real-world examples to illustrate the practical application of these concepts, making it a valuable resource for students and professionals alike.

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In the modern era, the intensity of competition has increased significantly in industries. The
corporations operating in these industries have to ensure that they adopt strategic policies to
generate a competitive advantage over their competitors to sustain their growth in the market.
The management uses strategy development tools while forming business strategies in order
to evaluate the business environment factors which affect their operations (O’Brien and
Meadows, 2013). This essay will evaluate PESTEL analysis and Porter’s five forces
framework which are two of the most common strategy development tools used by
corporations across the globe. Both of these theories will be evaluated to determine how they
work and examples of Amazon and Nestle will be taken to understand how they assist the
management in forming strategic policies.
PESTEL Analysis
The PESTEL analysis is a common strategy development tool which assists marketers in
evaluating the key factors which influence their business. The PESTEL is an acronym for six
factors which affect businesses and their operations in their respective industry. These factors
include the political landscape of the market, economic outlook, socio-cultural adaptations,
technology space and advancements, environmental and sustainability policies and legal and
ethical domain (Yuksel, 2012). Through this model, the marketers are able to track the
environment of the industry in which they operate if they plan to diversify their product
offerings or services. This tool works as a bird-eye view of the industry through which
different factors can be evaluated by the company. Political factors are influenced through
political parties which affect the spending and confidence of customers. Economic factors
include employment rate, rate of inflation, GDP and change rate. Social factors are linked
with ideas, values, opinions and culture of market participants (Dockalikova and Kashi,
2014). Technological factors comprise opportunities and threats relating to technological
advancements. Environmental factors include imposition of ecological responsibilities on
parties to reduce environmental damage. Legal factors include regulations and ethical
operations of businesses.
A PESTEL analysis of Amazon can assist in understanding how the management of the
company uses this tool to form business strategies to achieve effectiveness. Evaluation of
changes made in the political environment is important so that the corporation is ready to face
key challenges. For example, Trump Administration has imposed a ban on free trade which
affects the business of Amazon in other countries (Mac, 2017). The government has also

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decided to conduct the audit of postal services also affects the business of Amazon. In major
markets of Amazon such as the United States, Australia and the United Kingdom, the
economic stability assists the company in managing its operations and expands them in the
market which increases the customer base of the enterprise. Amazon has a positive social
image in the e-commerce industry. The perspective of customers towards the e-commerce
market is changed as well, especially in developing countries such as India which assist
Amazon in reaching new customers in order to increase its market share (Sen, 2018). The
corporation uses modern technologies while managing its operations to ensure that it is able
to increase the efficiency of processes and accuracy in management. For example, the
warehouses of Amazon contain billions of products which are effectively managed through
robots, barcode scanners, order processing and others (Caudell, 2017). The supply chain of
the corporation is continually working to optimise shipping practices by leveraging
technological advancements which provide it a competitive advantage in the industry. The
corporation complies with environmental policies while managing its operations, for
example, use of renewable energy and 40 thousand plants in the new rainforest office of the
company which is situated in Seattle (Business Wire, 2018). Effective compliance with legal
requirements such as labour laws, taxation laws, consumer protection policies, employment
regulations and others assist the management in ensuring that they conduct their business in
ethically manner. Evaluation of these factors assists the corporation in generating and
maintaining a competitive advantage in the industry.
Porter’s Five Forces Framework
Understanding of the industry in which a company operates is significant to ensure that it
develops its policies based on the factors which affect their operations. These factors also
include the business of corporations when they decide to diversify their offerings into new
markets (Dobbs, 2014). Michael Porter developed a tool which assists corporations in
determining the five key forces of an industry which affects their business. This model
enables enterprises in analysing the attractiveness and competitive intensity in the industry
which influences their profitability in the market. The five forces include competitive rivalry,
threat of new entrants, threat of substitutes, bargaining power of customers and bargaining
power of suppliers. The competitive rivalry is referred to the intensity of competition in a
particular industry. The threat of new entrants is referred to the ability of new competitors to
enter into the industry and the entry barriers. The bargaining power of customers is referred

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to the the ability of consumers to drive the prices of products and services of the enterprise
(Mathooko and Ogutu, 2015). The bargaining power of suppliers is their ability to influence
the prices of the products and services offered by a company to its customers. These factors
are influenced by factors such as switching costs, availability of parties, the rarity of materials
and others.
The top-level managerial personnel use this tool to form strategic policies in order to address
key issues relating to management while operating their business in an industry. For
example, the management of Nestle uses this framework while developing business
strategies. The company operates in the food processing industry, and it offers its products
globally. The competitive rivalry in this industry is low because Nestle is an established
brand which has a strong presence in the global market. The competitors of Nestle find it
difficult to match with its success which provides a strong competitive position to the
corporation (Sojamo and Larson, 2012). The threat of new entrants is low in the industry
because companies have to make significant capital investment in the beginning which
creates entry barriers for them. The threat of substitution is high in this industry because
substitute products are offered by both local and international companies which provide
various options to enterprises. The supplier bargaining power of customers is high in the
industry because there are no switching costs for customers. The availability of alternative
products is also high in the market which makes the process easier for customers. The
bargaining power of suppliers is high as well (Igumbor et al., 2012). Nestle depends on its
suppliers to provide quality raw materials within a reasonable time to ensure that it is able to
meet its production requirements. These factors affect the profitability of Nestle in the market
and result in increasing or decreasing its revenue, therefore, evaluation of these factors are
necessary to sustain its growth.
In conclusion, the use of strategy development tools is significant for corporations to ensure
that they are able to determine the key factors which affect their operations and implement
policies which are targeted towards achieving effectiveness in the market. The use of
PESTEL analysis and Porter’s five forces framework is common for companies while they
develop their strategic policies. The PESTEL analysis is used by companies to evaluate their
business environment and develop strategy while evaluating external environmental factors.
Porter’s five forces framework assists companies in evaluating the attractiveness of an
industry which influences their profitability. The corporations can use these tools to develop
competitive advantage and sustain their future growth in the market.

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References
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