PEST Analysis Overview

A PEST (Political, Economic, Social and Technological) analysis is a major part of the environmental scanning section of strategic management and it is used by companies during market research and strategic analysis.

Using a PEST analysis helps a business to understand various macroenvironmental factors that they need to take into consideration when determining the decline or growth of a particular market.

It is also a crucial tool for ascertaining business position, the potential of a business and the direction of business should be moving in to thrive in the marketplace.

All large businesses should be undertaking this kind of analysis in order to understand the needs and wants of their customers.

What does PEST stand for?

Political – this refers to the ways in which the government can intervene in an economy in terms of environmental and labour laws, tarrifs, trade restrictions and tax policies. It also shows how a government can influence education and health and how it will affect the infrastructure of a country.

Economic – this refers to how exchange rates, inflation rates, interest rates and economic growth will impact on a business and how it can grow, develop and make various decisions. For example if a business exports goods these operations can be greatly affected by exchange rates and these are factors that need to be included in a business’s strategic management plan if they are to succeed.

Social – these factors refer to how a society behaviours culturally, how the population rate will grow, how health-conscious people in a country are, how its range is distributed in a country and the various attitudes that people have towards their careers. When social trends change it can greatly affect the need for a business’s products or services. Similarly if a society has an older population the cost of labour will increase and a business will need to change their management strategies in order to cope with these changes.

Technological – this refers to how technology can change and looks at automation, R&D activity and technological incentives that are available. Technology can also have a great impact on efficient production levels and influence decisions on outsourcing. In addition to this there are some changes in technology that can affect the costs that a business needs to meet and can improve the quality of a product or service that a business offers.