What is PEST Analysis?
A PEST analysis is used to identify the external forces affecting an organization .This is a simple analysis of an organization’s Political, Economical, Social and Technological environment. A PEST analysis incorporating legal and environmental factors is called a PESTLE analysis.
It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up of: 1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc. 2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc. 3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as PEST factors.
2 PESTEL analysis of the macro-environment
There are many factors in the macro-environment that will effect the decisions of the managers of any organisation. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change.
To help analyse these factors managers can categorise them using the PESTEL model. This classification distinguishes between:
The first element of a PEST analysis is a study of political factors. Political factors influence organisations in many ways. Political factors can create advantages and opportunities for organisations. Conversely they can place obligations and duties on organisations. Political factors include the following types of instrument: ❖ Legislation such as the minimum wage or anti discrimination laws. ❖ Voluntary codes and practices
❖ Market regulations
❖ Trade agreements, tariffs or restrictions
❖ Tax levies and tax breaks
❖ Type of government regime eg communist, democratic, dictatorship
Non conformance with legislative obligations can lead to sanctions such asfines,adverse publicity and imprisonment. Ineffective voluntary codes and practices will often lead to governments introducing legislation to regulate the activities covered by the codes and practices. The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. These refer to government policy such as the degree of intervention in the economy:-
➢ What goods and services does a government want to provide? ➢ Will government policy influence laws that regulate or tax your business? Is the government involved in trading agreements such as EU, NAFTA, ASEAN,or others? ➢ Does the government have a view on culture and religion? ➢ To what extent does it believe in subsidizing firms? ➢ What are its priorities in terms of business support? ➢ Will government policy influence laws that regulate or tax your business?
Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system.
TYPICAL PESTEL FACTORS TO CONSIDER INCLUDE:
|Factor |Could include: | |Political |e.g. EU enlargement, the euro, international trade, taxation policy | |Economic |e.g. interest rates, exchange rates, national income, inflation, unemployment, Stock Market | |Social |e.g. ageing population, attitudes to work, income distribution | |Technological |e.g. innovation, new product development, rate of technological obsolescence...