PESTEL model - a framework that categorizes and analyses an important set of external forces

(political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a
firm. These forces are embedded in the global environment and can create both opportunities and
threats for the firm.

PESTEL is the acronym for Political, Economic, Social, Technological, Environmental and Legal
factors- the external remote factors affecting a company. It works similar to the SWOT analysis that
evaluates the internal factors to determine the growth opportunities of an organization.

The political environment describes the processes and actions of government bodies that can
influence the decisions and behavior of firms.

Economic factors in a firm’s external environment are largely macroeconomic, affecting economy-
wide phenomena. Managers need to consider how the following five macroeconomic factors can
affect firm strategy: Growth rates, Interest rates, Levels of employment, Price stability (inflation and
deflation), Currency exchange rates.

Sociocultural factors capture a society’s cultures, norms, and values. Demographic trends are also
important sociocultural forces.

Technological factors capture the application of knowledge to create new processes and products.

Ecological factors concern broad environmental issues such as the natural environment, global
warming, and sustainable economic growth. Organizations and the natural environment coexist in
an interdependent relationship.

Netflix’s PESTEL analysis

Netflix is the world’s largest online streaming entertainment service provider. Netflix PESTEL analysis
enables big brands such as Netflix to maintain stability in the face of rising challenges. Moreover, the
company can use the analysis to understand its strengths and weaknesses. It can help them to
ensure a better consumer experience and can generate better revenue for the company.

Political Factors:

The political factors refer to the influence that the government and its policies have on the company.
It includes various factors, including tax, foreign trade policies, and fiscal policies. Apart from this,
other things having a direct impact on the organization are also a part. The political factors
influencing Netflix’s decisions are the following:

LIMITED ACCESS IN SOME COUNTRIES

As we know that Netflix is operating its business globally in approximately 200 countries across the
world. But its service isn’t available in countries like Crimea, North Korea, China, and Syria. It’s
because those countries have a serious conflict with the US government. All the major US companies
can’t operate their business in those countries. Even if the brand wants to; it couldn’t because of the
political conflicts and legal issues.
PERMISSION & CENSORSHIP

The US restrictions aren’t the only hurdle of not operating a business in one of the world’s biggest
economies. It’s the censorship policies of the Chinese government. It requires Netflix to censor its
content according to the wishes of the Chinese officials. It could be the whole movie, a major part of
an episode, or the complete episode.

If Netflix wants to run its content business in China, then the brand needs to get permission from the
Chinese officials. If they give the brand to run its business, the company has to run the content
according to their requirement. Probably, the company won’t be able to run its content. The
company has to reproduce the content for the Chinese market.

RESTRICTED ACCESS

Not every country has tough censorship policies. Some countries only allow limited content in their
countries. Netflix only runs the content what the government allows. Now, the company is looking
for a solution that the brand would be able to show a complete library of its content everywhere

Economic Factors:

Economic factors assess the supply-demand graph of companies. Economic growth, exchange and
interest rate, inflation rate, and others have a leave a long-lasting impact on the company's financial
condition. For example, the purchasing power of the consumer can determine revenue growth.
Following are the economic factors that influence Netflix’s business decision.

WEAK US DOLLAR & EXCHANGE RATE

As we’re aware of it that Netflix is running its business globally and the company has to deal with
different exchange rates worldwide. If the currency of other countries is weak, then the customers
would have to pay a higher price. It means that Netflix is a luxury brand for many customers in some
countries.

PANDEMIC OF COVID-19

The pandemic of covid-19 turned out to be a great blessing for the video streaming company. The
annual revenue and net income of Netflix during the pandemic year of 2020 has increased by 26.19%
and 98.48% respectively.

MONTHLY SUBSCRIPTIONS

Netflix follows the policy of producing content of fans’ favorite shows. That’s how the company has
established a portfolio library. It has helped the company to increase its monthly subscription rate.
But it has reduced the number of total quality shows, and it has annoyed many customers. Netflix
has to produce content like “Stranger Things” to retain their customers and earnings.
PIRACY OF CONTENT & TORRENTING

There are many torrent web platforms where they offer pirated content for free. Companies like
Netflix spent billions of dollars to produce the content and they charge a price to offer their content.
The torrent platforms steal the content and offer it for free. It hurts the earning and profitability of
the company.

COMPETITORS LIKE DISNEY+

Netflix has increased its prices and they’re much higher than Apple and Disney. It’s made many
customers annoyed. If the company doesn’t lower its prices competitive to the market, then many
customers would go to the other platforms.

Social Factors:

The socio-cultural background of a potential market is determined by the social factors of the PESTEL
analysis. It indicates the preferences of the consumer and their need based on a careful study of
cultural trends, demographics, societal norms, customs, population analytics, and more. Netflix
should consider these below social factors for future growth and development:

PROFESSIONAL & FRIENDLY WORK ENVIRONMENT

The work environment of Netflix is very friendly. The employees of the company love working for the
company, that’s they’re able to produce quality content every year. There are no dressing codes
there; employees have permission to wear the casual dress at the workplace. They also get vacations
and tours annually.

SCHOLARSHIPS

It doesn’t mean that Netflix is only good to its employees. The company also provides scholarships to
students who are doing PhDs. Along with scholarships, the brand also provides financial aids to
students from low-income families.

COMPASSIONATE CEO

Reed Hastings is one of the co-founders, chairman, and CEO of the company. He has a very
compassionate nature. He even donates money to charities from his personal-income. It’s his
objective that the good deed starts from the head of the organization and moves down to the
bottom.

SUPPORT OF THE BLACK COMMUNITY

Netflix has also allocated 2% of its annual income worth 100 million dollars for the support of the
black community. It’s one of these great things that people love about Netflix and pay higher for it.
Technological Factors:

Innovation in technology shapes a healthy business. Technological advancement, automation,

technical awareness plays an essential role in the operation of the industry and its popularity.
Following are the technical factors influencing Netflix business:

4K INTERFERING WITH DEFENSE SYSTEM

In March 2020, the commissioner of the EU has taken notice that high definition video streaming
interferes with the military defense system. It also makes noise, distortion, and interference in the
systems of hospitals. As many of you are aware of it that 2020 is the year of pandemic, and hospitals
are filled with covid-19 patients. Therefore, the EU commissioner requested the Netflix users to
watch ordinary definition video instead of HD. Now, the company should work on this issue and try
to resolve it.

AUTOMATIC TRANSLATIONS

The researchers of Netflix have recently developed software by the name of “Hermes.” It can
automatically translate the content into other languages. This is a great invention and it would help
the company to increase its market reach.

HIGH-QUALITY VIDEOS

Netflix has special high tech converters. They reduce the size of the video without affecting its
quality. It helps those users who watch Netflix by using mobile data on their mobile devices. It
means that Netflix does not only provide quality content, but it provides a quality size of data as
well.

UNPOPULAR VOTING

The voting and rating of different social media platforms like Google, Facebook, Twitter, and etc
follow the star system. But the new algorithm of Netflix has changed the voting system; it gives the
thumbs up or thumbs down option. If you like or dislike the content, then you can vote for it.But
many users don’t like the new voting system, because it doesn’t show their exact interest. For
instance, if you love watching horror movies and it would suggest a comedy series. That’s how it
doesn’t align with customers’ interests.

Environmental Factors:

Environmental concerns like low carbon emission, environment-friendly service, reusable resources,
and focus on sustainability are the basics of ecological awareness. Businesses must consider the
ecological aspects while planning their operations. Following environmental factors influence Netflix
business a lot:
CLEAN ENERGY

Netflix has got approximately 200 million users across the world. According to an estimate, video
streaming companies leave a 1% carbon footprint of the total global carbon emission. Netflix has
recently joined hands with EPA(Environmental Protection Agency) to use clean energy. It would
require the company to show its annual investment in renewable energy.

Legal Factors:

Legal factors refer to the laws of a country or state that the company must abide by if they are
operating there. Some aspects are consumer law, health and safety, labor laws, discrimination laws,
copyright, and more. The legal factors affecting Netflix business are the following:

CLASS- ACTION LAWSUIT

Netflix suddenly increased its prices in 2016 and it made many customers unhappy. Some of the
angry customers filed a class-action against the company. It attracted a lot of criticism from the
company in the media because it violated customers’ contracts.

COPYRIGHTS ISSUES

The demand to access copyright content has increased by studios and TVs. Netflix has found the
solution of blocking users from other countries. The thing to remember here is that it’s the
requirement of content providers. Netflix has no choice but to meet their standards and block users
from other countries. As a result, it impacts a small segment of the customers.
The company operating in over 190 countries with a whopping 195 million customers is not free
from market risks. The remote macro-environment factors leave an impact on this company in more
than one way. Netflix PESTEL analysis helps the company determine the risks, addressing the
concerns, assess the scope of growth in the potential market, and focus on productivity.