PEST analysis includes:
- Political Factors
- Economic Factors
- Social Factors
- Technological Factors
Image Credits: hotelmule.com
It describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. In some cases two more additional factors are included ie. Environmental & Legal factors. Then it becomes PESTLE Analysis.
What is the impact of each factors?
Political Factors
The changing political rules or policies will have a big impact on the profitability and sustainability of the business. For example, a strict health and safety policy would require a restaurant chain to invest more in systems to ensure hygiene.Here are some other points to ponder:
- What is the currently ruling parties ideology?
– What is the government’s approach to trade and labour laws?
- What is the government’s approach towards development?
– What is the level of political stability?
- Change in foreign trade policies.
– What is the level of corruption?
– Is the government socialist-leaning, or does it favour a completely free market economy?
– Will the government’s policies influence laws, regulation, or taxes?
Economic factors
The major economic factors include the rate of inflation, rate of economic growth, economic stability, and employment policy. These factors helps to determine the changes required in the business strategies and policies.For example, the rate of inflation would be a major factor in fixing employee wages, and the higher the inflation, the higher the wages and the higher the business expenditure.
Social factors
Social Factors
Social factors include the social, religious, and culture mores of the society where a business is operating and serving its customers.For example, manufacturers of premium products will not expect a high growth in sales in rural areas.
Technological Factors
A study of the technological factors in an external environment would focus on the leverage the use of technology would give a business.Among questions to ponder are these:
- Is there IT resources available
– What level of automation is available?
– What is the scope for research and innovation?
– Is there facility for online business?
For example, a garment retailer will be able to reduce costs by adopting online sales and reducing dependence on brick-and-mortar showrooms.
The PEST factors may affect companies differently. For example, a home appliance company would be more affected by social factors such as lifestyle than a defence equipment manufacturer.
Expanding the analysis to PESTLE or PESTEL adds:
