The Concept of Pest Analysis

PEST analysis describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. It is a strategic tool for understanding market growth or decline, business position, potential and direction for operations. PEST is an acronym for “political, economic, social, technological. In other words PEST basically stands for Political, Economic, Social and Technological. PEST analysis is used to assess the above four external factors in relation to your business situation. It is beneficial for your business as they help in understanding how these 4 factors will affect your business in the long term. The purpose of a PEST analysis is to identify all of the various external political, economic, social, technological, factors that might affect a business. Managers then assess the risks that the identified factors pose and use that knowledge to inform decisions.

Are you Looking For A Custom Essay about “The Concept Of PEST Analysis” NOW? You Found It!

Professional Writers that Guarantee an On-time Delivery

experts online

Get custom essays

Political factors are basically how the government intervenes in the economy. Specifically, political factors have areas including tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government aims to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have a high impact on the health, education, and infrastructure of a nation. Economic factors include economic growth, interest rates, exchange rates, inflation rate. These factors greatly affect how businesses operate and make decisions. For example, interest rates affect a firm’s cost of capital and therefore to what extent a business grows and expands. Exchange rates can affect the costs of exporting goods and the supply and price of imported goods in an economy.

Social factors include the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. High trends in social factors affect the demand for a company’s products and how that company operates. For example, the aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to social trends caused by this (such as recruiting older workers). Technological factors include technological aspects like R&D activity, automation, technology incentives and the rate of technological change. These can determine barriers to entry, minimum efficient production level and influence the outsourcing decisions. Furthermore, technological shifts would affect costs, quality, and lead to innovation.

Get a Personal "The Concept Of PEST Analysis" Tailored Essay For You in 3 Hours!

100% Customized to Your Need with Expert Writers Get custom essays

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products. Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.