PEST Analysis



A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment.

Such external factors usually are beyond the firm's control and sometimes present themselves as threats. Some business have derived advantages from these analysis. It is very important to always carry out PEST analysis for your business.

Political Analysis

The political environment has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. Example of this can be seen in places like the United Kingdom where one party favour strong budget cut and the other do not. You must consider issues such as:

• Stability of the political environment.

• The relationship between government policy and tax regulation and business tax.

• Government economic policies.

• government involved in trading agreements such as EU.

• Legal framework

• Trade regulations and tariffs

• Pricing regulations

• Taxation

• Wage legislation - minimum wage and overtime

Economic Analysis

The economic analysis looks and analyses the economic environment in a country. It analyse at each of the following factor to see its impact on the business.

• Interest rates.

• The level of inflation

• Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.

• Type of economic system in countries of operation

• Government intervention in the free market

• Comparative advantages of host country

• Exchange rates and stability of currency

• Efficiency of financial markets

• Infrastructure quality

• Skill level of workforce

• Labor costs

• Business cycle stage (e.g. prosperity, recession, recovery)

• Economic growth rate

• Discretionary income

• Unemployment rate

• Inflation rate

• Interest rates

Social Cultural Analysis

The social and cultural influences on business vary from country to country. It is very important to consider a business social and cultural system. In a multi religious community sometimes some products are prohibited i.e. MacDonald cannot produce a ham bugger in an Islamic community.

• What is the dominant religion?

• What are attitudes to foreign products and services?

• Does language impact upon the diffusion of products onto markets?

• How much time do consumers have for leisure?

• What are the roles of men and women within society?

• How long are the population living? Are the older generations wealthy?

• Do the population have a strong/weak opinion on green issues?

• Demographics

• Class structure

• Education

• Culture

• Entrepreneurial spirit

• Attitudes (health, environmental consciousness, etc.)

• Leisure interests

Technological Analysis

The technological advancement of a business community is very important to consider. You don’t want to set up a business in a country using equipment that is no longer in use due to technological advancement. Technological analysis look at the following;

• Recent technological developments

• Technology's impact on product offering

• Impact on cost structure

• Impact on value chain structure
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