PEST analysis is a simple and convenient method for analyzing the macro environment of an enterprise. The PEST analysis technique is often used to assess key market trends in the industry, and the results of PEST analysis can be used to determine the list of threats and opportunities when compiling a company SWOT analysis.
PEST analysis is a tool for long-term strategic planning and is compiled 3-5 years in advance, with annual data updates.
Key factors of PEST analysis
PEST analysis is an abbreviation of the following industry indicators: political (P), economic (E), sociocultural (S) and technological (T).
P (Political) – factors of the political and legal environment of the company. When analyzing the political and legal environment of an industry, market or country, it is recommended to answer questions regarding key changes in the field of political stability and legal regulation.
First, whether the legislative framework of the country, market, the industry in which the company operates will change in the near future. Will changes in the legal framework affect the company’s activities.
Secondly, it is necessary to pay attention to the level of state intervention in the company’s business. Is it significant? Will it change in the near future?
Thirdly, the level of corruption of the industry and its impact on the activities of the company are also important.
And, fourthly, the country’s relationship with other countries or international organizations.
E (Economical) – factors of the economic state of the market. In the analysis of this group of factors, it is necessary to determine the key parameters that characterize the state of the economy of the country or market in which the company operates.
- The dynamics of economic development – recession, growth, stagnation
- Change in exchange rates, cost of capital, in the unemployment rate, in inflation, in disposable income per capita
- Banking trends
S (Sociocultural) – factors of the social and cultural state of the market. During the analysis of this group of factors, it is necessary to describe the following key parameters:
- Change in demographic status
- The level of education of the population, including the level of qualification of personnel
- Features of mentality, important cultural values
- Change in social strata of the population
- Changing tastes and preferences of the audience, established myths and prejudices
T (Technological) – factors characterizing technological progress in the industry. This group of factors requires a detailed analysis since in the era of the technological process it is a change in technology that can dramatically change the established state of the market. In the analysis of technological factors, it is necessary to pay attention to the following parameters:
- Possible changes in key technologies used in the market
- The impact of mobile technology on market development
- Innovations in information technology, allowing to compete more effectively in the market
Other PEST Analysis Options
PEST analysis is just a tool with which a company can evaluate the impact of external factors and risks to the business. And like any tool, it is easy to change and takes on new variations.
The most common variation of PEST analysis is PESTEL analysis. PESTEL analysis includes two more indicators: legal factors (L – Legal) and environmental factors (E – Environmental or Ecological).
Legal factors represent the legal environment for the functioning of the business and consider in more detail the possible changes in legal acts that may affect the profitability of the industry. Environmental factors determine the degree of influence of the company on the environmental situation in the region; as well as environmental factors that may affect the company’s business performance.
Other options for PEST analysis:
STEEP = PEST + Ethical (PEST + ethical factors)
PESTELI = PESTEL + Industry analysis (PESTEL analysis supplemented by industry market analysis)
LONGPEST = PEST + Local + National + Global factors (PEST analysis with an assessment of factors at the local, national and global level)
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