PESTEL analysis of the ecommerce industry
This article offers a comprehensive PESTEL analysis of the ecommerce industry. The term ecommerce is the short form of electronic commerce which refers to the practice of purchasing and selling goods and services over the Internet. It has seen an enormous growth globally in the last several years. Indeed, all countries now benefit from it, though with varying degrees.
Political factors affecting the ecommerce industry
China is the largest ecommerce market in the world followed by USA, UK, Japan, and South Korea. It was inaccessible to independent businesses due to regulatory and logistical barriers; however, things have changed in the last several years. It was dominated by two big giants Alibaba and JD.com; however, a recent partnership agreement between Shopify and JD.com has made it easier for the US merchants to reach out to the consumers in China (Shopify, 2022).
Though the US ecommerce market is the 2nd in the world, many analysts argue that it is a mature one and may slow down a bit in the coming years. On the other hand, the Philippines, India, Brazil, Indonesia, Vietnam, Thailand, Malaysia, and Argentina are some of the fastest growing ecommerce industries in the world (Coppola, 2022).
The political map of the world affects the ecommerce industry due to its influence on trade. For instance, Brexit, retaliatory trade activities, new regulations, and sanctions by USA, Russia, EU, and some other countries may increase the trading costs and impact on the operations of individual ecommerce companies.
Economic factors affecting the ecommerce industry
Economic environment is a key topic of discussion in this PESTEL analysis of the ecommerce industry. The industry is expected to be worth around $11 trillion by 2025 (Shopify, 2022). Certainly, it is a huge industry; however, it comes up with certain challenges as well.
It is estimated that there are currently around 24 million ecommerce sites of different sizes globally. In addition, new ones are coming to the market every day. This is making the industry even more competitive. While it is great for consumers as they have more options, it is difficult for companies as the digital advertising costs are expensive and some digital campaigns may not be effective like before.
Another economic factor that affects ecommerce is income growth. If people earn more money, then they will have the funds to spend on more products and services. On the other hand, economic uncertainties may limit their purchasing preferences.
Social factors affecting the ecommerce industry
People’s standard of living affects their online spending habits. If they live under financial stress, they might not be able to buy all the things they want causing sales decline for retailers.
Another essential factor in ecommerce is the population growth rate. Countries with larger populations, such as China and India, can generate more online spending as more people are likely to buy more products and services. Similarly, retired people can also increase the demand for certain products and services.
Social media can also affect the online spending habits in many ways. First, people might use them to learn about new products and services. Second, buyers might use them to compare products and get information and reviews before making a purchase. Third, sellers might use them to get feedback about their products and track their sales and popularity.
The ecommerce industry has enabled millions of people around the globe to be financially solvent. However, it is also true that due to online shopping, many people do not go out to the high streets for shopping which is badly affecting the brick-and-mortar retailers and causing many health issues as well since walking down to store is a form physical exercise.
Technological factors affecting the ecommerce industry
Technological environment is an important area of discussion in this PESTEL analysis of the ecommerce industry. Technological developments can affect the demand for various products and services. For example, the internet and smartphones have made buying goods and services easier and more convenient than ever before.
Innovations can also affect demand by changing the way people buy goods and services. For example, online shopping is on the rise, and the rise of ecommerce can be attributed to the availability of internet connections. Many people nowadays order food and grocery via companies such as Just Eat, Uber Eats, Hungry House, Deliveroo, Getir, Ocado, Gorillas, Weezy, and Beelivery. However, breach of security is a constant challenge as hackers and fraudsters often threaten to attack the ecommerce sites to steal confidential data and disable the systems.
Environmental factors affecting the ecommerce industry
Though e-businesses are generally good for the environment for a number of reasons, the delivery and other vehicles can still discharge large amounts of harmful pollutants. Similarly, excessive use of packaging materials is also harmful to the environment. Therefore, e-businesses need to be in continuing pursuits to create innovative packaging solutions (Collins, 2021).
Legal factors affecting the ecommerce industry
The last component of this PESTEL analysis of the ecommerce industry is the legal environment. Different laws may affect the operations of an ecommerce company. For instance, any company targeting U.S children must abide by the Children’s Online Privacy Protection Act (COPPA) which aims to protect the privacy of under-13 children by requesting parental consent for the gathering or use of any personal information of the users (EPIC, 2022).
The intellectual property rights affecting the ecommerce industry can also be important. For example, a patent is designed to give the inventor legal protection for 20 years, preventing competitors from making similar products and preventing imitation of the product/service by others.
Summary of PESTEL analysis of the ecommerce industry
Ecommerce is a rapidly growing market; however, it is also very susceptible to political, economic, social, technological, environmental, and legal challenges. This article has identified most of the important factors and components affecting it. Anyone wishing to get into this industry should study both opportunities and challenges before making a final decision.
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Last update: 19 July 2022
Collins, C. (2021) Is e‑commerce really sustainable? Understanding its impact on the environment, available at: https://www.sana-commerce.com/blog/impact-of-ecommerce-on-the-environment/ (accessed 16 July 2022)
Coppola, D. (2022) Leading countries based on retail e-commerce sales growth in 2022, available at: https://www.statista.com/statistics/266064/revenue-growth-in-e-commerce-for-selected-countries/ (accessed 19 July 2022)
EPIC (2022) Children’s privacy, available at: https://epic.org/issues/data-protection/childrens-privacy/ (accessed 19 July 2022)
Shopify (2022) Shopify and JD.com unlock world’s largest ecommerce market for merchants, available at: https://news.shopify.com/shopify-and-jdcom-unlock-worlds-largest-e-commerce-market-for-merchants (accessed 18 July 2022)
Author: M Rahman
M Rahman writes extensively online with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.