The Home Depot, Inc. PESTEL & Environment Analysis

Strategic Management Essays, Term Papers & Presentations

The Home Depot, Inc. PESTEL analysis is a strategic tool to analyze the macro environment of the organization. PESTEL stands for - Political, Economic, Social, Technological, Environmental & Legal factors that impact the macro environment of The Home Depot, Inc..

Changes in the macro-environment factors can have a direct impact on not only the The Home Depot, Inc. but also can impact other players in the Home Improvement Stores. The macro-environment factors can impact the Porter Five Forces that shape strategy and competitive landscape. They can impact individual firm’s competitive advantage or overall profitability levels of the Services industry.

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PESTEL analysis provides great detail about operating challenges The Home Depot, Inc. will face in prevalent macro environment other than competitive forces. For example an Industry may be highly profitable with a strong growth trajectory but it won't be any good for The Home Depot, Inc. if it is situated in unstable political environment.

Spanish oil giant Repsol had to face a similar instance. It started an above average profitability operations in Argentina and made strong returns in 5-7 years. But the business was later expropriated by the Left Wing government. So the decade long profits didn’t materialize in the end.

Political Factors that Impact The Home Depot, Inc.

Political factors play a significant role in determining the factors that can impact The Home Depot, Inc.'s long term profitability in a certain country or market. The Home Depot, Inc. is operating in Home Improvement Stores in more than dozen countries and expose itself to different types of political environment and political system risks. The achieve success in such a dynamic Home Improvement Stores industry across various countries is to diversify the systematic risks of political environment. The Home Depot, Inc. can closely analyze the following factors before entering or investing in a certain market-

• Political stability and importance of Home Improvement Stores sector in the country's economy.
• Risk of military invasion
• Level of corruption - especially levels of regulation in Services sector.
• Bureaucracy and interference in Home Improvement Stores industry by government.
• Legal framework for contract enforcement
• Intellectual property protection
• Trade regulations & tariffs related to Services
• Favored trading partners
• Anti-trust laws related to Home Improvement Stores
• Pricing regulations – Are there any pricing regulatory mechanism for Services
• Taxation - tax rates and incentives
• Wage legislation - minimum wage and overtime
• Work week regulations in Home Improvement Stores
• Mandatory employee benefits
• Industrial safety regulations in the Services sector.
• Product labeling and other requirements in Home Improvement Stores

Economic Factors that Impact The Home Depot, Inc.

The Macro environment factors such as – inflation rate, savings rate, interest rate, foreign exchange rate and economic cycle determine the aggregate demand and aggregate investment in an economy. While micro environment factors such as competition norms impact the competitive advantage of the firm. The Home Depot, Inc. can use country’s economic factor such as growth rate, inflation & industry’s economic indicators such as Home Improvement Stores industry growth rate, consumer spending etc to forecast the growth trajectory of not only --sectoryname-- sector but also that of the organization. Economic factors that The Home Depot, Inc. should consider while conducting PESTEL analysis are -

• Type of economic system in countries of operation – what type of economic system there is and how stable it is.
• Government intervention in the free market and related Services
• Exchange rates & stability of host country currency.
• Efficiency of financial markets – Does The Home Depot, Inc. needs to raise capital in local market?
• Infrastructure quality in Home Improvement Stores industry
• Comparative advantages of host country and Services sector in the particular country.  
• Skill level of workforce in Home Improvement Stores industry.
• Education level in the economy
• Labor costs and productivity in the economy
• Business cycle stage (e.g. prosperity, recession, recovery)
• Economic growth rate
• Discretionary income
• Unemployment rate
• Inflation rate
• Interest rates

Social Factors that Impact The Home Depot, Inc.

Society’s culture and way of doing things impact the culture of an organization in an environment. Shared beliefs and attitudes of the population play a great role in how marketers at The Home Depot, Inc. will understand the customers of a given market and how they design the marketing message for Home Improvement Stores industry consumers. Social factors that leadership of The Home Depot, Inc. should analyze for PESTEL analysis are -  

• Demographics and skill level of the population
• Class structure, hierarchy and power structure in the society.
• Education level as well as education standard in the The Home Depot, Inc. ’s industry
• Culture (gender roles, social conventions etc.)
• Entrepreneurial spirit and broader nature of the society. Some societies encourage entrepreneurship while some don’t.
• Attitudes (health, environmental consciousness, etc.)
• Leisure interests

Technological Factors that Impact The Home Depot, Inc.

Technology is fast disrupting various industries across the board. Transportation industry is a good case to illustrate this point. Over the last 5 years the industry has been transforming really fast, not even giving chance to the established players to cope with the changes. Taxi industry is now dominated by players like Uber and Lyft. Car industry is fast moving toward automation led by technology firm such as Google & manufacturing is disrupted by Tesla, which has stated an electronic car revolution.

A firm should not only do technological analysis of the industry but also the speed at which technology disrupts that industry. Slow speed will give more time while fast speed of technological disruption may give a firm little time to cope and be profitable. Technology analysis involves understanding the following impacts -

• Recent technological developments by The Home Depot, Inc. competitors
• Technology's impact on product offering
• Impact on cost structure in Home Improvement Stores industry
• Impact on value chain structure in Services sector
• Rate of technological diffusion

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Environmental Factors that Impact The Home Depot, Inc.

Different markets have different norms or environmental standards which can impact the profitability of an organization in those markets. Even within a country often states can have different environmental laws and liability laws. For example in United States – Texas and Florida have different liability clauses in case of mishaps or environmental disaster. Similarly a lot of European countries give healthy tax breaks to companies that operate in the renewable sector.

Before entering new markets or starting a new business in existing market the firm should carefully evaluate the environmental standards that are required to operate in those markets. Some of the environmental factors that a firm should consider beforehand are -

• Weather
• Climate change
• Laws regulating environment pollution
• Air and water pollution regulations in Home Improvement Stores industry
• Recycling
• Waste management in Services sector
• Attitudes toward “green” or ecological products
• Endangered species
• Attitudes toward and support for renewable energy

Legal Factors that Impact The Home Depot, Inc.

In number of countries, the legal framework and institutions are not robust enough to protect the intellectual property rights of an organization. A firm should carefully evaluate before entering such markets as it can lead to theft of organization’s secret sauce thus the overall competitive edge. Some of the legal factors that The Home Depot, Inc. leadership should consider while entering a new market are -

• Anti-trust law in Home Improvement Stores industry and overall in the country.
• Discrimination law
• Copyright, patents / Intellectual property law
• Consumer protection and e-commerce
• Employment law
• Health and safety law
• Data Protection

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