Political, Economic, Socio-cultural and Technological, PEST is a management methodology used by organizations to assess external factors that could affect their market competitiveness. You can use this as a tool to help you analyze any changes in Political, Economic, Socio-Cultural, and Technological landscapes in your business environment. This simple and widely used tool is an excellent option for brainstorming opportunities and identifying threats in the broader business environment that might impact you. You will better understand the “big picture” forces of change and can take advantage of the opportunities they present.
Political
The first external factor assessed by this analysis is political issues, which include government regulations and legal factors. They are evaluated regarding their ability to affect the business environment and trade markets. Some significant issues addressed in this section are political stability, trade regulations, safety regulations, tax guidelines, and employment laws. Here are some political factors you might need to consider:
- When is the election date, and how might this change government or local policy?
- Who are the most prominent candidates for power? What are their views on trade policy and other policies that affect your organization?
- Relative to the country, how widespread are corruption and organized crime? How well is the rule of law and property rights developed? How likely are these situations to change, and how will it affect you?
Economic
Through this factor, the business analyzes the economic problems that will probably impact the company in reality. This will include factors such as inflation, interest rates, economic growth, unemployment rates, policies, and the country’s business processes. Some economic factors to consider are:
- How stable is the economy today? Is it growing, stagnant, or regressing?
- Is the primary exchange rate steady or fluctuating?
- Is the level of consumer income increasing or decreasing? In the next few years, how might this change?
- How about the unemployment rate? Is it expensive to hire skilled workers, or is it hard to build a skilled workforce?
Social
A business with a social factor can analyze the socio-economic environment of its market through elements such as customer demographics, cultural boundaries, lifestyle, and education. This allows the company to understand how consumer needs are formed and what brings them to the market to buy. Some social factors to consider are:
- What is the current population growth rate? How can this change?
- Do changes in behaviour between generations affect what you do?
- What are the health, education, and social mobility levels in your communities? How will this change come about, and what impact will it have?
- What employment patterns, labour market trends, and working conditions can you observe? Is it different for different age groups?
- What social conditions and social restrictions can interfere with your work? Have there been recent cultural or social changes that might affect this?
Technological
This factor evaluates how technology can positively or negatively impact the introduction of products or services in the market studied here. These factors include the development of technology, the life cycle of technology, the role of the internet, and public spending on technology research. These are some factors to consider:
- Is there a new technology that works?
- What new technologies are on the horizon that could affect your work or industry?
- Is it possible for your competitors to access new technologies that could redefine their products?
- What areas are government and educational institutions focusing on, and is there anything you can do to take advantage of this?
- How have infrastructure changes affected work patterns (e.g., levels of home working)?
Making informed decisions when investing is key to maintaining security and expectation with your investment. Taking the measures needed using a methodology like PEST will help you grow into a more informed investor.