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PEST Analysis

PEST analysis is a strategic tool used in business analysis to evaluate macro-environmental factors including political, economic, socio-cultural, and technological influences on a company's strategy and market position. Developed by Aguilar in 1967, it aids in understanding market dynamics and guiding future business operations. The analysis highlights how government policies, economic conditions, social trends, and technological advancements impact business performance.

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24 views1 page

PEST Analysis

PEST analysis is a strategic tool used in business analysis to evaluate macro-environmental factors including political, economic, socio-cultural, and technological influences on a company's strategy and market position. Developed by Aguilar in 1967, it aids in understanding market dynamics and guiding future business operations. The analysis highlights how government policies, economic conditions, social trends, and technological advancements impact business performance.

Uploaded by

Komal Randhawa
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PEST ANALYSIS

In business analysis, PEST analysis ("political, economic, socio-cultural and technological")


describes a framework of macro-environmental factors used in the environmental
scanning component of strategic management. It is part of an external environment analysis
when conducting a strategic analysis or doing market research, and gives an overview of the
different macro-environmental factors to be taken into consideration. It is a strategic tool for
understanding market growth or decline, business position, potential and direction for
operations.
PEST analysis was developed in 1967 by Aguilar as an environmental
[1]
scanning framework. Aguilar argued that firms must scan the economic, technical, political
and social categories (ETPS) that may affect strategy, defining environmental scanning as
follows, “scanning for information about events and relationships in a company’s outside
environment, the knowledge of which would assist top management in its task of charting the
company’s future course of action.
The basic PEST analysis includes four factors:

• Political factors relate to how the government intervenes in the economy.


Specifically, political factors have areas including tax policy, labour
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, exchange rates, inflation rate,
and interest rates. These factors can drastically affect how a business operates. For
example, interest rates affect a firm's cost of capital and therefore to what extent a
business grows and expands.
• 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 ageing population may imply a smaller and less-willing
workforce (thus increasing the cost of labour). Furthermore, companies may change
various management strategies to adapt to social trends caused from 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

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