UWE Student Number:22085126

“PEST is an acronym for four sources of change: political, economic, social, and technological.
PEST analysis is a powerful and widely used tool for understanding strategic risk” (Galea,
2014). PEST analysis helps the business organization to understand these external factors that
may affect their performance in the present day or the near future. Each of the external factors
stated above impacts the organization in some or the other way. Political factors are those driven
by the government’s plans and policies. It includes fiscal policy, tax policy, and licensing
Economical factors are the determinants of a country’s economic factors which include
economic growth, interest rates, exchange rates, inflation rates, and employment rates. Social
Factors include those factors that affect the choice and spending of the customers these include
lifestyle, taste/preference, beliefs of customers, and consumer purchasing power. Lastly,
technological factor includes breakthrough and innovation, innovation in product, price, and
distribution, and technical trends.

Example for Manufacturing Base: Asian Paints Company

Asian Paints is a multinational company that manufactures paints, textures, and wallpapers for
home décor purposes. The headquarters of this company is located in Mumbai, India. The United
Kingdom Paints & Coatings Market is expected to grow at a CAGR of 4.60% and reach USD
3,941.08 million by 2027 and reach 882.51 million liters at a CAGR of 4.36% by 2027 by value
and by volume respectively. (Anon., 2022)

Political Factor- Corporation Tax

In the UK the corporate tax rate has fallen from 28% in 2010 to 19%. The government planned
to reduce it to 17% but this got canceled at the end of 2019. This is because the government had
to cover the cost of the COVID-19 Pandemic. The UK government introduced a 19%
Corporation tax rate for the financial year beginning 1 st April 2021 till 1st April 2022. The UK
government has decided to increase this tax rate to 25% by April 2023. The 19% tax rate will
remain fixed for those companies that generate less than £50,000.
 Year Corporate Tax Rate
2010 28%
2011 26%
2012 24%
2013 23%
2014 21%
2015 20%
2016 20%
2017 19%
2018 19%
2019 19%
2020 19%
2021 19%
2022 19%
2023 25%
2024 25%
2025 25%
2026 26%

Corporate Tax Rate

30%
28%

26% 26%
25% 25% 25%
25% 24%
23%

21%
20% 20%
20% 19% 19% 19% 19% 19% 19%

15%

10%

5%

0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Economic Factor- Interest Rates
On November 2022, the UK's interest rate (bank rate) went up by 0.75%, pushing the rate to its
highest level in 14 years. The current interest rate stands at 3%. The reason for increasing interest
rates is because of the current inflation going on. Raising interest rates helps control inflation by
making it more expensive to borrow money, encouraging people to spend less and save more.
Year Interest Rate
2010 0.50%
2011 0.50%
2012 0.50%
2013 0.50%
2014 0.50%
2015 0.50%
2016 0.25%
2017 0.25%
2018 0.50%
2019 0.75%
2020 0.10%
2021 0.10%
2022 3%
2023 5%
2024 4%
2025 4%
2026 3%

Interest Rate
6.00%

5.00%
5.00%

4.00% 4.00%
4.00%

3.00% 3.00%
3.00%

2.00%

1.00% 0.75%
0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
0.25% 0.25%
0.10% 0.10%
0.00%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Social Factor- Per Capita Income
Per Capita Income(PCI) measures the average amount of income earned by a person in a
geographic area. Per Capita Income represents people’s standard of living. The GDP per capita
for 2021 was $47,334 followed by $41,098 for 2020. This means that people are earning more
and the standard of living has improved over the past year.
Year GDP per Capita
2010 $39,689
2011 $42,285
2012 $42,687
2013 $43,714
2014 $47,787
2015 $45,405
2016 $41,500
2017 $40,858
2018 $43,647
2019 $43,070
2020 $41,098
2021 $47,334
2022 $47,318
2023 $49,000
2024 $50,000
2025 $52,000
2026 $54,000

GDP per Capita

$60,000

$54,000
$52,000
$50,000
$50,000 $49,000
$47,787 $47,334 $47,318
$45,405
$43,714 $43,647 $43,070
$42,285 $42,687 $41,500 $40,858 $41,098
$39,689
$40,000

$30,000

$20,000

$10,000

$0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Technological Factor- The number of social media users in the UK is increasing every year. In
the UK we have 53 million active social media users which comprise 77.9% of the total
population. According to the study, on average, a person in the UK spends 110 minutes i.e
almost 2 hours a day on social media.

Year Social Media advertising spending

2011 0.27 billion pounds
2012 0.33 billion pounds
2013 0.59 billion pounds
2014 0.92 billion pounds
2015 1.25 billion pounds
2016 1.73 billion pounds
2017 2.39 billion pounds
2018 3.04 billion pounds
2019 3.59 billion pounds
2020 2.60 billion pounds
2021 9 billion pounds
2022 11.31 billion pounds
2023 13 billion pounds
2024 14 billion pounds
2025 15 billion pounds
2026 18 billion pounds

Social Media advertising spending in the United Kingdom (Billion Pounds)

20

18
18

16
15
14
14
13

12 11.31

10
9

4 3.59
3.04
2.39 2.6

2 1.73
1.25
0.92
0.59
0.27 0.33
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
From the above time series forecast trend for the chosen elements of each external factor, we will
discuss the risk, benefits, and costs of setting up a manufacturing company in the United
Kingdom. As globalization has gathered pace, the characteristics of UK manufacturing have
changed significantly. Manufacturing is the third largest sector in the UK economy, after
business services and the retail sector in terms of share of the UK Gross Domestic Product
(GDP) (Anon., 2010)
Setting up a manufacturing base requires huge capital and fund. This is the reason why
manufacturing bases opt for loans from financial institutions, to get off the ground and grow their
business. There are various reasons why these units seek loans, some of the common reasons
include generating working capital for daily operations, purchasing inventories, upgrading, or
replacing machinery, and expanding operations. For this requirement, banks provide loans to
these business units by charging some percentage of interest, which acts as the primary source of
revenue for the banks. The current interest rate is 3%, causing the rate to reach its highest since
November 2008. From 2010 to 2021 the interest rates in the UK were found to be below 1.00%.
An increase in interest rates means that borrowing will be difficult and costlier for manufacturing
firms. This mechanism can be explained with help of an example. For instance, our
manufacturing unit borrowed a loan of 5,00,000 pounds from the bank which has to be paid off
over 10 years. The current interest rate is at 3% which means the monthly installment would be
4,828 pounds. Analysts suggest rates could reach 4.75% next year (Peachey, 2022). This will
increase the value of monthly installments. An increase in interest rate will always impact the
borrowings party as the loan becomes expensive and the cost of performing business rises. With
higher interest rates the cost of borrowing also increases which will refrain companies and
individuals from borrowing. This situation will leave people with less money for consumption
purposes. This reduces business output due to less demand from the people for consumption.
Less output means businesses will generate less revenue. A sudden rise and fluctuation in
interest rates involve high risk and cost for the business, as the companies are liable to pay back
the borrowed amount including the interest amount added on. In some cases, the risk is so high
that businesses/ firms go bankrupt as they become insolvent to pay off their debts.
UK-limited companies pay corporate tax which is based on the profits these companies generate
annually. The rate of corporate tax is set at 19% in the UK. In the Budget 2021, The government
on 14 October announced that the rates of Corporate tax will increase to 25% from April 2023.
The rates of corporate tax have always been falling since 2010, and the rate was fixed at 19% for
almost 6 years. The risk and cost of setting up a manufacturing base unit in the UK will be high
from 2023 onwards, this is because of the significant rise in corporate tax from 19% to 25%. The
6% increase in tax from 2023 will result in many companies incurring more risk and cost. For
instance, we suppose that our newly set Asian Paints manufacturing unit has a turnover of 2
million pounds a year. The annual corporate tax for the year 2022 taking the tax rate at 19%
would be 3,80,000 pounds. Assuming the same amount of turnover for the year 2023, and
keeping the 25% tax rate in mind. The corporate tax would significantly rise from 3,80,000
pounds to 5,00,000 pounds. It would increase the cost of our manufacturing base unit and cause a
reduction in profitability.
GDP per capita is nothing but GDP per person; the country’s GDP is divided by the total
population (Venkatraghvan, 2012). The government utilizes per capita Gross domestic product to
comprehend how the economy is developing with its population. When GDP is divided by the
total population we get GDP per capita. From the above table, it is noticeable that UK’s GDP is
increasing GDP per person. The figures suggest that GDP per capita is considerably increasing
every year after the COVID-19 Pandemic. In the UK where people have high GDP per capita
means it is beneficial for manufacturing bases to come up and run the business. Increasing GDP
per capita is an indicator that a country is achieving prosperity. Higher per capita income means
households and families will have more money to spend on the goods and services which they
value for. People will demand more goods and services which will improve their standard of
living. Higher demand for goods and services means the manufacturing firms will produce more
of them, which will help these firms to generate revenues.
“Social media adaption by firms creates a great network among businesses, customers, and
suppliers” (Nikoletta-TheofaniaSiamagka, 2015). Based on the network approach, firms are
taking advantage of networking activities which leads to superior performance (Peter Naudè,
2014). Every type of business, from sole proprietorships to multinational corporations, can
benefit from social media marketing. Companies are able to save a significant amount of money
annually on their advertising costs by switching from traditional advertising to social media
marketing. Social media have altered the ways in which producers and consumers interact with
one another, which has resulted in increased sales for the business. Every year, the UK sees an
increase in the number of people using social media. When a country spends heavily on social
media advertisement this acts as an opportunity for business firms.
References
Anon., 2010. Manufacturing in the UK: An economic analysis of the sector. Department for Business
Innovation and Skills.

Anon., 2022. TechSci Research. [Online]

Available at: https://www.techsciresearch.com/report/uk-paints-coatings-market/4820.html
[Accessed 23 November 2022].

Galea, T. S.-B. a. D., 2014. PEST Analysis, s.l.: s.n.

Nikoletta-TheofaniaSiamagka, G. N. M. A. V., 2015. Determinants of social media adoption by B2B

organizations. Industrial Marketing Management, Volume 51, pp. 89-99.

Peachey, B. K., 2022. UK interest rates: How will the rise affect you and how high could it go?. [Online]
Available at: https://www.bbc.com/news/business-57764601
[Accessed 21 November 2022].

Peter Naudè, G. Z. Z. N. T. S. N. R. Z., 2014. The influence of network effects on SME performance.
Industrial Marketing Management, 43(4), pp. 630-641.

Venkatraghvan, D., 2012. Economics 101: GDP growth, per capita income rise and how it affects us.
[Online]
Available at: https://economictimes.indiatimes.com/blogs/moneyhappyreturns/economics-101-gdp-
growth-per-capita-income-rise-and-the-effect-on-us/
[Accessed 21 November 2022].