PESTEL analysis is an important tool that leaders can rely on to organize factors in the general environment and identify how these factors affect the industries and companies they contain. PESTEL is an anagram, which means it is a word created using parts of other words. In particular, PESTEL reflects the names of the six segments of the general environment: (1) political, (2) economic, (3) social, (4) technological, (5) ecological and (6) legal. Smart leaders carefully examine each of these six segments to identify key opportunities and risks, and then adjust their company`s strategies accordingly (Figure 3.3 “PESTEL”). A generation ago, ketchup was an essential part of any American pantry and salsa was a relatively unknown product. Today, however, food manufacturers in the United States sell more salsa than ketchup. This change reflects the social segment of the general environment. Social factors include demographic trends such as population size, age and ethnic composition, as well as cultural trends such as attitudes towards obesity and consumer activism (Figure 3.6 “Social Factors”). The explosion in salsa popularity reflects the growing number of Latinos in the United States over time, as well as the growing acceptance of Latino food by other ethnic groups. While the influence of the tech segment on tech companies such as Panasonic and Apple is becoming clear, tech trends and events are also helping to shape low-tech companies. In 2009, Subway launched a service called Subway Now. This service allows customers to place their orders in advance with text messages and avoid queuing at the store.

With this service, Subway also responds to a trend in the social segment of the general environment: the need to save time in today`s rapidly changing society. First, two sub-indices of the “China Marketization Index” are less_protect and legal_protect used as surrogate indices for “demonstration effect” and “protective effect”. The “reduction in protection of local commodities” is measured by the ratio of trade defense to GDP faced by a sample of companies selling goods across the country. The lower the rate, the lower the local protectionism. In regions where regional protectionism is severe, companies may receive “special attention” from the government, which reduces enthusiasm for R&D and market sensitivity, and the “demonstration effect” created by technology exchange is weak. In the sample of this article, the correlation coefficient between the index of “reduction of protection of local property” and the turnover of the technology market is 0.29, which is significant at the level of 1%. Productivity gains generated by innovation are the main cause of long-term economic growth. Schumpeter first looked at the factors that influence companies` innovation activities. He believes that innovation and R&D require capital and that only large companies can absorb the costs and losses of R&D. Subsequent research focuses mainly on market monopoly power and firm size and analyses the conditions and incentives for innovation activities. In the “endogenous growth theory” of modern macroeconomics (Romer and Romer, 1989), the market power of innovators and the size of the market they face play a central role in promoting innovation activities (Cheng and Dinopoulos, 1992).

With regard to technological innovation and foreign direct investment, there are many academic studies on the knowledge and technological spillovers of foreign direct investment in order to improve the technological progress and innovation capacity of host countries. Mundell (1957) explained the substitution relationship between trade and investment from a relatively static perspective, i.e., in the case of trade barriers that impede trade, foreign direct investment will take place as a kind of market entry into international trade. Development economists, represented by Solow, have also studied this in the past. However, because of the importance they attach to the role of capital accumulation in economic growth, countries did not achieve significant results in practice after the Second World War. In the 1960s, the ripple effect of technology was first analyzed as an important phenomenon of foreign direct investment (Mcdougall, 1960). However, the new growth theory of the 1980s asserts that the technological contagion effect of economic openness, international capital flows and international trade accelerates the transfer of advanced science and technology, knowledge and human capital around the world. The new growth theory takes technological factors as the main variable and examines the impact of foreign direct investment on technological innovation and economic growth in the host country from the perspective of technological progress and technological spillovers. This idea triggered empirical testing by many scientists on the technological spillovers hypothesis of FDI, who use cross-sectional data from Australian industry in 1969 to conduct a quantitative analysis of the influence of foreign capital on local labour productivity, and find that foreign direct investment has a positive impact on the labour productivity of relevant industries in Australia (Caves, 1974). examined the impact of Japanese investments in the United States and noted. The influx of Japanese capital not only promotes the improvement of the production efficiency of local firms in the United States, but also improves the level of technological innovation of Japanese firms in the United States (Lee and Barro, 2000). However, the situation in developing countries and regions was more complicated and relevant empirical studies on foreign direct investment lacked coherent conclusions. As Kokko (1996) found a significant positive ripple effect of FDI technology in Mexico, Indonesia (Blomstrom and Sjoholm, 1999; Blalock and Gertler, 2003).