What is 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 macroenvironment. Such external factors usually are beyond the firm's control and sometimes present themselves as threats. or this reason, some say that !pest! is an appropriate term for these factors. "o#ever, changes in the external environment also create ne# opportunities and the letters sometimes are rearranged to construct the more optimistic term of STEP analysis. $any macro-environmental factors are country-specific and a PEST analysis #ill need to be performed for all countries of interest. The follo#ing are examples of some of the factors that might be considered in a PEST analysis. %t is very important that an organi&ation considers its environment before beginning the mar'eting process. %n fact, environmental analysis should be continuous and feed all aspects of planning. The organi&ation's mar'eting environment is made up from( ). The internal environment e.g. staff *or internal customers+, office technology, #ages and finance, etc. ,. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc. -. The macro-environment e.g. Political *and legal+ forces, Economic forces, Sociocultural forces, and Technological forces. These are 'no#n as PEST factors. Political Factors The political arena has a huge influence upon the regulation of businesses, and the spending po#er of consumers and other businesses. .ou must consider issues such as( )."o# stable is the political environment/ ,.0ill government policy influence la#s that regulate or tax your business/ -.0hat is the government's position on mar'eting ethics/ 1. 0hat is the government's policy on the economy/ 2. 3oes the government have a vie# on culture and religion/ 4. %s the government involved in trading agreements such as E5, 6A TA, ASEA6, or others/ Economic Factors $ar'eters need to consider the state of a trading economy in the short and long-terms. This is especially true #hen planning for international mar'eting. .ou need to loo' at( ). %nterest rates ,. The level of inflation Employment level per capita -. 7ong-term prospects for the economy 8ross 3omestic Product *83P+ per capita, and so on Sociocultural Factors The social and cultural influences on business vary from country to country. %t is very important that such factors are considered. actors include( ).0hat is the dominant religion/ ,.0hat are attitudes to foreign products and services/ -.3oes language impact upon the diffusion of products onto mar'ets/ 1."o# much time do consumers have for leisure/ 2.0hat are the roles of men and #omen #ithin society/ 4."o# long are the population living/ Are the older generations #ealthy/ 9.3o the population have a strong:#ea' opinion on green issues/

Technological Factors Technology is vital for competitive advantage, and is a ma;or driver of globali&ation. <onsider the follo#ing points( ). 3oes technology allo# for products and services to be made more cheaply and to a better standard of =uality/ ,.3o the technologies offer consumers and businesses more innovative products and services such as %nternet ban'ing, ne# generation mobile telephones, etc/ -."o# is distribution changed by ne# technologies e.g. boo's via the %nternet, flight tic'ets, auctions, etc/ 1.3oes technology offer companies a ne# #ay to communicate #ith consumers e.g. banners, <ustomer >elationship $anagement *<>$+, etc/ PEST Analysis A scan of the external macro-environment in #hich the firm operates can be expressed in terms of the follo#ing factors( Political Economic Social Technological The acronym PEST *or sometimes rearranged as !STEP!+ is used to describe a frame#or' for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as sho#n in the follo#ing diagram(

Environmental Scan / External Analysis / \ Microenvironment \ Internal Analysis

Macroenvironment | PEST

Political Factors Political factors include government regulations and legal issues and define both formal and informal rules under #hich the firm must operate. Some examples include( tax policy employment la#s environmental regulations trade restrictions and tariffs political stability Economic Factors

Economic factors affect the purchasing po#er of potential customers and the firm's cost of capital. The follo#ing are examples of factors in the macroeconomy( economic gro#th interest rates exchange rates inflation rate Social Factors Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the si&e of potential mar'ets. Some social factors include( health consciousness population gro#th rate age distribution career attitudes emphasis on safety Technological Factors Technological factors can lo#er barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include( >?3 activity automation technology incentives rate of technological change External !""ortunities an# Threats The PEST factors combined #ith external microenvironmental factors can be classified as opportunities and threats in a S0@T analysis. $ecommen#e# $ea#ing Aohn $iddleton, The Ultimate Strategy Library : The 50 Most Influential Strategic Ideas of All Time Political Analysis

Political stability >is' of military invasion 7egal frame#or' for contract enforcement %ntellectual property protection Trade regulations ? tariffs avored trading partners Anti-trust la#s Pricing regulations Taxation - tax rates and incentives 0age legislation - minimum #age and overtime 0or' #ee' $andatory employee benefits %ndustrial safety regulations Product labeling re=uirements

Economic Analysis

Type of economic system in countries of operation 8overnment intervention in the free mar'et <omparative advantages of host country Exchange rates ? stability of host country currency Efficiency of financial mar'ets %nfrastructure =uality S'ill level of #or'force 7abor costs Business cycle stage *e.g. prosperity, recession, recovery+ Economic gro#th rate 3iscretionary income 5nemployment rate %nflation rate %nterest rates

Social Analysis

3emographics <lass structure Education <ulture *gender roles, etc.+ Entrepreneurial spirit Attitudes *health, environmental consciousness, etc.+ 7eisure interests

Technological Analysis

>ecent technological developments Technology's impact on product offering %mpact on cost structure %mpact on value chain structure >ate of technological diffusion

The number of macro-environmental factors is virtually unlimited. %n practice, the firm must prioriti&e and monitor those factors that influence its industry. Even so, it may be difficult to forecast future trends #ith an acceptable level of accuracy. %n this regard, the firm may turn to scenario planning techni=ues to deal #ith high levels of uncertainty in important macroenvironmental variables.