PEST Analysis

PEST analysis is the acronym for "Political, Economic, Social, and Technological analysis" and illustrates a framework of macro-environmental aspects used in environmental sensing. Economic surroundings affect how easy or how difficult it is to be successful and profitable at a certain time because they influence both capital availability and cost, and demand.

Identifying PEST influences is a helpful method of summarizing the external environment in which a business operates. Nevertheless, it has to be followed up by consideration of how a business should act in response to these influences.

 PEST analysis is an element of the external analysis when performing market research and gives an overview of the different macro-environmental aspects that the company has to take into consideration. Political factors include parts such as employment laws, environmental regulations, tax policy, trade restrictions and tariffs and political constancy. The economic aspects are e.g. the economic growth, interest rates, exchange rates and inflation rate. Social aspects which might be considered could be the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. The technological aspects also comprise ecological and environmental aspects and can give hints on the barriers to entry, minimum efficient production level and influence outsourcing decisions. It considers elements like Research and Development activity, automation, technology incentives and the rate of technological change.

Other acronyms used in this context are STEP, STEEP or PESTLE analysis (Political, Economic, Socio-cultural, Technological, Legal, Environmental). Lately it was even further extended to STEEPLED, including ethics and demographics.


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