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PESTEL analysis is a strategic tool that companies use to identify and evaluate Political, Economic, Social, Technological, Environmental and Legal factors in their external environment. It is especially useful for understanding and anticipating external conditions that could affect an organization’s performance and assist in strategic decision making.

Suppose an international manufacturing company is considering establishing a plant in a new country. In conducting a PESTEL analysis, it might consider political issues such as local government stability, economic factors such as growth trends and inflation, social factors such as demographics and local culture, technological factors such as access to the latest manufacturing technology, environmental factors such as sustainability regulations, and legal factors such as labor laws and trade regulations. By evaluating all of these factors, the company can make an informed decision on whether it is viable and profitable to establish an operation in that country.