When an organization analyses its external environment in terms of political, economic, social and technological factors, it is called “PEST Analysis”
Political Factors: The government`s regulatory conditions and rules and legal issues, both formal and informal, within which a company has to operate fall under political factors. A few examples are:-
Economic Factors: The economy of a place of operation affects the customers purchasing power, and a company`s cost of capital. Some examples are:-
Social Factors: Customer needs and the market size are affected by demographic and cultural aspects of external macro conditions. Examples are:-
Technology factors: Technology lowers barriers to entry, reduces minimum efficient production levels, and influences outsourcing decisions. A few examples are –
Some analysts have recently added `legal` factors as well as `environmental` too, making it PESTEL or PESTLE. Pestle is widely used in the United Kingdom.
In recent years `education` and `demographic` factors are also added to make `STEEPLED`.
Thus, PEST and other additional factors have become an useful strategy tool for understanding market growth, or its decline, business position, potential or direction for operations.
The PEST factors, in combination with external macro environmental factors and internal factors, can be classified as “opportunities and threats” of the SWOT Analysis.