PEST Analysis

A PEST analysis is an analysis of the external macro-environment that affects an

organisation. PEST stands for Political, Economic, Social and Technological. These 4
factors are typically beyond the control of an organisation and changes in these
factors can cause opportunities and threats to an organization , changes in these
factors can also create opportunities for an organization.

It is appropriate to note at this point that PEST factors are typically country
specific, and so a PEST analysis must be carried out in all countries of interest.

“The following are examples of some of the factors that might be considered in a
PEST analysis.” [1]
4.1.5.1 Political
• Political stability
• Risk of military invasion
• Legal framework for contract enforcement
• Intellectual property protection
• Trade regulations & tariffs
• Favoured trading partners
• Anti - trust laws
• Pricing regulations
• Taxation
• Wage legislation
• Work week
• Mandatory employee benefits
• Industrial safety regulations
• Product labelling requirements
[1]
4.1.5.2 Economical
• Type of economic system
• Government intervention in the free market
• Exchange rates & stability of host country currency
• Efficiency of financial markets
• Infrastructure quality
• Skill level of workforce
• Labour costs
• Business cycle stage
• Economic growth
• Discretionary income
• Unemployment rate
• Inflation rate
• Interest rate
[1]
4.1.5.3 Social
• Demographics
• Class structure
• Education
• Culture
• Attitudes
• Leisure interests
[1]
4.1.5.4 Technological
• Recent technological developments
• Technology's impact on product offering
• Impact on cost structure
• Impact on value chain structure
• Rate of technological diffusion
[1]

The number of environmental factors is endless and thus an organisation must

choose to monitor only those factors which influence its industry. [1]

4.1.6 SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. “Because it
concentrates on the issues that potentially have the most impact, the SWOT
analysis is useful when a very limited amount of time is available to address a
complex strategic situation.” [1]

The following diagram shows how a SWOT analysis fits into a strategic situation
analysis.

Situation Analysis

Internal Analysis External Analysis

Strengths Weaknesses Opportunities Threats

S W O T
SWOT Profile

A situation analysis can yield a large amount of information about the

organisations internal and external environment. In order to filter out the relevant
information, a SWOT analysis can be used to reduce the information to a
manageable quantity of issues. The SWOT analysis classifies the internal
environment in terms of Strengths and Weaknesses, and the external environment
in terms of Opportunities and Threats. By performing a SWOT analysis an
organisation can leverage its strengths, correct its weaknesses, capitalise on
opportunities and avoid threats.
4.1.6.1 Internal Analysis
Factors that should be considered within the internal analysis should include:
• Company culture
• Company image
• Organizational structure
• Key staff
• Access to natural resources
• Position on the experience curve
• Operational efficiency
• Operational capacity
• Brand awareness
• Market share
• Financial resources
• Exclusive contracts
• Patents and trade secret
[1]
4.1.6.2 External Analysis
An opportunity is a chance for an organisation to create a new product/service
which better meets the needs of the consumer. Opportunities arise when the
external environment changes, but these changes can also lead to threats to the
market of existing products and services. Changes in the external environment
may be related to:
• Customers
• Competitors
• Market trends
• Suppliers
• Partners
• Social changes
• New technology
• Economic environment
[1]
4.1.6.3 SWOT Profile
Once the internal and external analysis has been completed, a list of strengths,
weaknesses, opportunities and threats will be generated, this list provides the
basis for setting marketing goals. A SWOT profile can be arranged as follows: [1]

Strengths Weaknesses
1. 1.
2. 2.
n. n.
Opportunities Threats
1. 1.
2. 2.
n. n.
[1]

“Strengths can be leveraged to pursue opportunities and to avoid threats, and

managers can be alerted to weaknesses that might need to be overcome in order
to successfully pursue opportunities. “ [1]