What is PEST Analysis & Why Do It
The environment of corporate world is ever changing. No business operates in a vacuum environment. The corporate environment is something real complex and dynamic. There are several external factors surrounding a business and influencing it strategy and activities. The external environment of a company is called macro-environment. So every successful company need to deeply analyze and understand all macro-environmental forces in order to achieve the defined goals and objective as well as for the smooth running of a business. For this purpose company did PEST analysis.
Definition of PEST
PEST Analysis is abbreviation of “Political, Economic, Social, & Technological analysis" and it allows companies to make a framework of macro-environmental factors for the purpose of designing effective environmental strategies.
4 Factors of PEST Analysis with Examples
The forces or factors of PEST analysis with examples
The political factors which influence the external company environment includes consumer protection laws, employment laws & regulations, competition regulations, environmental regulations and government taxes etc. so every business needs to operate around these forces.
Example: Reduction in import duty of floor tiles for ceramic industry can have two types of impacts. It will be positive to the local ceramic manufacturer as imported tiles are more costly. However, it will leave negative impact to importers.
Some major examples of political factors are:
- Taxation policy
- Employment laws
- Tariffs & Trade restriction
- Political stability or instability in operating country and
- Environmental laws
Economic factors also influence the external environment of a particular company. It affects the purchasing power of potential customer as well as company’s cost of capital.