PEST Analysis

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:-

•  taxation policy,
• laws relating to employment,
• regulations covering the environment,
• trade restrictions and tariff
• political stability.

Economic Factors: The economy of a place of operation affects the customers purchasing power, and a company`s cost of capital.  Some examples are:-

• growth of economy,
•  rates of interest,
• exchange rates
• inflation rate

Social Factors: Customer needs and the market size are affected by demographic and cultural aspects of external macro conditions.  Examples are:-

• health awareness,
• population growth,
• age distribution,
• attitudes to career plans,
• safety consciousness.

Technology factors: Technology lowers barriers to entry, reduces minimum efficient production levels, and influences outsourcing decisions.  A few examples are –

• research and development,
• automation,
• technology incentives,
• rate of technological change.

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.

Questions:

• Explain PEST Analysis briefly.
• What are the points involved in political and technology factors?