PEST Analysis (Political, Economical, Social, Technological)
PEST Analysis is a simple and widely used tool that helps analyze the Political, Economic, Social and Technological changes in the business environment. This tool gives a quick overview of the various forces that can impact a business and is used as a strategic planning tool to identify risks and opportunities in company performance. Political, economic, social and technological components are the main elements of a PEST analysis.
The Political environment affects businesses and industries greatly. Political forces can be volatile and ever-changing, and can result in unpredictable legislation or regulations, changes to trading blocs or taxation. Businesses should always be aware of political events and be prepared for geopolitical changes.
The Economic environment can affect businesses whether local or international in scope. Interest rates, inflation rate, economic stability, government policies, trading regulations, taxation and key economic indicators such as Gross Domestic Product (GDP), all play a role in the economic environment.
The Social environment involves an understanding of the cultural values, beliefs, opinions, and behaviors of the people in the local and global markets. Population growth rate, employment rate, mobility and education levels are some of the factors that are taken into consideration when looking at the social environment. It is important to understand the buying habits, trends, and preferences of the target market in order to ensure success.
The Technological environment is constantly changing. Technological advancements have an impact on the way businesses operate and need to be monitored closely. It is important to consider the level at which technology is accepted by customers or clients, the cost of implementing new technologies and the capacity for adaptation of new technologies within the market.
The PEST analysis is an important tool for understanding the market, customer attitudes and the competitive landscape. In order to make informed decisions for strategy and planning, businesses must look beyond the traditional market boundaries and understand the macro environment in which they are operating. It is of particular importance when considering the effects of changing legislation or economic events on the business, allowing for timely planning and strategic decision making.
