How are PESTEL Factors Related to Globalisation?

1.0 Introduction

There is continued integration and internationalisation of production processes and capital markets, and flow of resources, cultures, goods and services among different nations: several things are getting globalised. Such globalisation has Political, Economic, Socio-cultural, Technological, Environmental, and Legal (PESTEL) factors that influence it and result from it.

This article discusses how PESTEL factors are related to globalisation. This is done in section 2.0. Section 3.0 draws conclusion from the discussion. Then references are provided at the end of the article.

2.0 Relationship between PESTEL Factors and Globalisation

2.1 Concept and Theory of Globalisation

Globalisation can be described as the integration and internationalisation of production processes and capital markets, and flow of resources, cultures, goods and services among different nations due to removal of barriers to trade across national borders. This has made the world porous and compressed, and the influence of some national governments diminished though countries are now interdependent and interconnected in complex ways. Geographical boundaries are no longer an insurmountable obstacle to flow of resources, goods and services. Similarly, globalisation has made time and space no longer a barrier. This implies that such a phenomenon has PESTEL factors that influence it and result from it. These are discussed in the next subsection.

2.2 PESTEL Factors in a Globalised World

PESTEL factors have been used widely as a strategic tool to understand external environment in which an organisation operates. The factors are sources of opportunities and threats to a given organisation. Each component is discussed next.

Political factors

Brexit has been a global issue for years since 2016. Firms, large and small, and all countries have been facing uncertainty about the future of the political environment in the UK in particular and Europe in general. Firms that would want to trade with other firms in those countries still wonder how the future will be. For example, key questions can be: “Will the future relationship between UK and EU27 be worse or better than it was before Brexit?”; “What will be the impact of such relationship on exchange rates?” “Will some firms from some countries be banned from trading in Europe due to the future relationship?” Such questions influence strategic direction of firms since events in any corner of the world can adversely or positively affect performance of firms in another corner. Indeed the world has been compressed by globalisation.

Another political issue is taxation. There has been trade war between China and the US. The Trump administration has been trying to regulate the influence of China in the world by levying ‘extra’ taxes on goods and services from China. Such political moves make a firm’s strategic planning difficult since the future of cooperation between the US and China is uncertain. One may wonder whether things will change after the current administration loses or again wins in the upcoming elections. For example, President Trump rejected NFTA deal and pushed for a new Trump’s NAFTA deal. It is uncertain whether the old NAFTA deal will be reinstated or the new deal will continue in case a new administration takes charge.

Economic factors

Political issues discussed above have implications for economic behaviour of countries. When the political environment is unstable, exchange rates can rapidly fluctuate. This makes loses to firms if the direction of exchange rate is not in their favour. For example, it is not clear whether the British Pound will strengthen or weaken against the US dollar after Brexit. Such uncertainty affects all countries and firms since the US dollar is the main foreign exchange currency in several countries.

Another economic issue is inflation. It is still remembered how very high inflation in Zimbabwe during President Mugabe’s regime almost led to the collapse of the country’s economy. As the economy suffered from global sanctions on the regime, all foreign firms that had business in the country incurred losses. Therefore, no matter where a firm is located, inflation in a certain country can affect its performance provided there is a relationship between the firm and the country. This shows that economic factors have become global.

Locating operations in countries with low wage rates or outsourcing labour from such countries. This has made people get chances of being employed across borders: we can talk about ‘global employees’ as firms seek to overcome economic pressures.

Similarly, when a country’s gross domestic product (GDP)is expected to increase, firms start making strategic moves aiming at exploiting growth in the country’s economy. This is the case for firms investing in BRICS countries to exploit opportunities in Brazil, Russia, India, China, and South Africa. Therefore, there is increased movement of goods, services and resources across national borders.

Socio-cultural factors

With the popularity of social media in most countries, there is convergence of lifestyles. This is because people of all ages in many countries can access pictures, videos, etc. globally within seconds. Firms which would target for a lifestyle, for example, in Canada now find Canadians having lifestyles that resemble those of the British. This makes targeting customers difficult as lifestyles converge.

There is a trend of some countries having an aging population, for example, Japan. This implies that all firms targeting customers in such countries must offer goods and services valued by the aged groups. Therefore, demographic trends globally influence what firms produce and sell.

Due to social media like Facebook and Twitter, there is convergence of religious beliefs. For example, some countries which were predominantly Muslim are having their attitudes and opinions influenced by other religions such as Christianity. This implies that firms now have to provide product and service features that appeal to several religions. This is only when the offering can be consumed by several people across religious boundaries.

Technological factors

With the current wave of technological advancement, several governments are funding research and innovation initiatives. For example, some countries have uplifted technology to a level of ministerial position. Ministries such as Science Technology and Innovation are now common. Such focus on technology has intensified competition among firms across borders. This is because, technology has shortened product life cycles and what seems to be a great product today can become a commodity tomorrow. This has made firms invest heavily in research and development as they are faced with intense global competition. Disruptive technologies can make a firm’s products obsolete overnight.

Environmental factors

People all over the world are becoming environmentally aware. Effect of a firm’s operations on the environment is now widely viewed as key in determining whether to purchase the firm’s products and services. For example, firms whose operations are seen as polluting the environment, for example, through carbon emissions can be boycotted. This can adversely affect the firm’s performance since a boycott campaign message can flow through social media and reach a global audience within seconds. The fear of such a global boycott has seen firms increasing their involvement in corporate social responsibility initiatives and reporting them in their annual reports. Such involvement and reporting is greatly influenced by environmental activists such as Greenpeace and Earth First!. The influence of such activists has made environmental protection a key issue in firms’ strategies even if they are operating in countries with weak environmental protection laws, for example, laws about waste disposal.

Legal factors

All the factors above have legal implications. For example, firms that are accused of polluting the environment can face legal action from environmental activists. Even countries that have weak consumer protection laws can be held accountable by people’s outcry on social media. For example, when some people in a developing country post on social media that company X is offering products that are harmful to human health, international agencies like World Health Organisation can have their attention captured. Thus international agencies have ability to pressure countries to act and force such firms to stop threatening human health.

Similarly, there are countries that have weak or no intellectual property laws. This make innovative firms face unfair competition as their innovative products are pirated. Their genuine products end up competing with counterfeit products. This can damage the firm’s reputation globally when counterfeit products are communicated about on social media.

3.0 Conclusion

Globalisation has Political, Economic, Socio-cultural, Technological, Environmental, and Legal (PESTEL) factors that influence it and result from it. These affect performance of firms and therefore influence strategic directions of firms. In effect, the factors increase the rate of globalisation as firms position themselves to remain competitive in the global market.


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