PESTEL is a strategic analytical tool. The acronym stands for political, economic, social, technological, environmental and legal factors. Square PESTEL analysis refers to the analysis of potential impact of these external factors on the performance of the financial services and digital payments company.
There are many political factors that can affect the bottom line for Square directly or indirectly. These include government stability, the level of bureaucracy, corruption, freedom of press and others. Moreover, activities of trade unions, government trade controls and tax policies, as well as, home market lobbying activities also belong to the list of political factors that can affect the business.
Square works with manufacturers from China to develop its hardware products. In September 2018, the United States imposed tariffs on certain imports from China, including on some Square hardware devices manufactured in China. The tariffs on these products were initially set at 10%, but were increased to 25% in May 2019.
On September 1, 2019, the United States imposed new tariffs at 15% on additional imports from China, including Square’s remaining hardware products manufactured there, but rolled back these new tariffs to 7.5% effective February 14, 2020. The tariffs negatively affect the gross margin on the impacted products, which only partially has been offset by adjustments to the prices of some of the affected products.
Bureaucracy is one of the main political factors for Square. International market expansion for the financial services and digital payments company requires registering the business with local authorities in due manners. Business registration processes, as well as, the practice of conducting business can be highly bureaucratic, especially in developing countries and such a situation can have adverse effects on Square operations in respective markets. Particularly, bureaucracy can slow down decision making and getting things done with negative implications on the growth prospects.
Square engages in political lobbying in its attempts to create political environment friendly to its businesses. However, the amount of lobbying spending by the financial unicorn is not significant, considering the size of the business. Specifically, as illustrated in figure below, the record yearly lobbying by the company was in year 2020 and it amounted to USD 900.000,00 only.
Annual Lobbying by Square Inc.
A range of external economic factors can also affect Square in local and international markets. These include currency exchange rates, macroeconomic climate in the market, cost of labour and credit, unemployment rate etc. Moreover, for Square in particular the level of development and quality of banking infrastructure is an important economic factor that can affect the business.
Changes in currency exchange rates
Changes in currency exchange rates is the most notable economic factor that can affect international businesses. However the impact of exchange range for Square in particular is minimal at the moment due to the fact that most of its revenues are earned in the US dollars. Specifically, a 10% increase or decrease in current exchange rates would not have a material impact on Square’s financial results.
Nevertheless, the satiation may change and exposure of the company to exchange rate fluctuations may increase in the future as the financial services and digital payments company further pursues growth through international market expansion strategy.
The quality of banking and economic infrastructure
The quality of banking and economic infrastructure and changes in such an infrastructure is an important factor for Square business. The company offers financial types of products and services for small businesses, as well as, individual consumers. The extent of consumption of Square products and services by both types of customers are positively correlated with the level of development and quality of banking and economic infrastructure in any given market.
Macroeconomic climate in the country
Macroeconomic climate in the market is one of the critical external factors directly affecting the bottom line for Square. As discussed above, the target customer segment for the company represents small businesses and individual consumers. The numbers of small businesses depend on macroeconomic climate in a way that favourable macroeconomic environment promotes opening of new small businesses with potentially positive implications for Square revenues.
Alternatively, when the macroeconomic climate is challenging small businesses are among the first to feel the heat and this will have adverse implications on the level of their revenues and accordingly, the amount of their business with Square.
Square Inc. Report contains a full version of Square PESTEL analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Square. Moreover, the report contains analyses of Square business strategy, leadership, organizational structure and organizational culture. The report also comprises discussions of Square marketing strategy, ecosystem and addresses issues of corporate social responsibility.