This is an environmental audit tool that analyzes the external environment of a business. The term, PEST (sometimes rearranged as STEP) is an acronym for Political, Economic, Social and Technological business environment. It forms part of the external macro-environment analysis when a company is conducting market research.
Political factors entail government policies, regulations and legal issues in the country of operation. These factors define formal and informal rules which the company must adhere to. Examples include:
• Employment laws
• Taxation policy
• Monopolies legislation
• Environmental regulations
• Government stability
• Trade restrictions and tariffs
Economic factors influence the state of the trading economy in the country. They greatly affect the purchasing power of potential customers and the cost of capital of the company. Examples of factors to consider include:
• Interest rates
• Inflation rate
• Income levels
• Exchange rates
• Long-term growth prospects of a country
• Economic growth
• Unemployment
• Business cycles
• GNP trends
• Energy availability and cost
Social-cultural factors encompass beliefs, attitudes, language, gender roles and religion. These factors influence customer needs and the size of the potential market. Examples social-cultural factors include:
• Income distribution
• Population demographics
• Social mobility
• Age distribution
• Health consciousness
• Career attitudes
• Consumerism
• Levels of education
Technological factors consider the advancement in technology and the potential within the market. These factors have the potential to lower barriers to market entry, reduce efficient production levels, and influence outsourcing decisions. Examples of technological factors include:
• Government spending on research
• New discoveries and developments
• Government and industry focus on technological endeavor
• Automation
• Technology incentives
• Rate of technological change
Additional Resources
PEST Analysis - Financial Services Sector in United Kingdom
PEST ANALYSIS - Nuclear Power Sector in China
Recruitment Industry in Canada - PEST Framework Analysis
Media & Entertainment Industry in India - PEST Framework Analysis
