1.5 External Environment

PEST Analysis

PEST ANALYSISPEST ANALYSIS

This form of business analysis examines the externalThis form of business analysis examines the externalenvironment and the global factors that may affect a environment and the global factors that may affect a business. It can provide a quick and visual representation ofbusiness. It can provide a quick and visual representation of the external pressures facing a business, and their possible the external pressures facing a business, and their possible

constraints on strategy.constraints on strategy.

It is usually divided into It is usually divided into four external influencesfour external influenceson a businesson a business P – PoliticalP – Political

E – EconomicE – Economic

S – SocialS – Social

T – Technological T – Technological

PEST ANALYSISPEST ANALYSIS

POLITICALPOLITICAL:: This is concerned with how political This is concerned with how political developments, regionally, nationally and developments, regionally, nationally and internationally might affect a business’s strategy. internationally might affect a business’s strategy.

Employee protection-Employee protection-health/safety, redundancy pay, discrimination, health/safety, redundancy pay, discrimination, minimum wageminimum wage

Consumer protection-Consumer protection-truth in advertising, high-pressure sales tactics, truth in advertising, high-pressure sales tactics, sales agreementssales agreements

Competition protection-Competition protection-unfair trade practices, monoply, mergers & unfair trade practices, monoply, mergers & takeoverstakeovers

PEST ANALYSISPEST ANALYSIS

ECONOMICECONOMIC:: This involves the analysis of a This involves the analysis of a wide variety of economic factors and their wide variety of economic factors and their effects on a business. They include:effects on a business. They include:

Economic growth and rising living Economic growth and rising living standardsstandards

Low/high levels of inflationLow/high levels of inflation Low/high levels of unemploymentLow/high levels of unemployment Balance of payments Balance of payments

(value of imports vs exports)(value of imports vs exports)

PEST ANALYSISPEST ANALYSIS

SOCIALSOCIAL - - What competitive advantage might a business gain What competitive advantage might a business gain by social changes taking place outside of the business?by social changes taking place outside of the business?

Aging population, reduced birth rates, longer life expectancyAging population, reduced birth rates, longer life expectancy Changing role of women in the workplaceChanging role of women in the workplace Improved Education – better skilled workersImproved Education – better skilled workers Early retirement, more leisure timeEarly retirement, more leisure time Rising divorce rates, more “single” householdsRising divorce rates, more “single” households Job securityJob security Immigration creating a wider range of consumer tastesImmigration creating a wider range of consumer tastes

PEST ANALYSISPEST ANALYSIS

TECHNOLOGICALTECHNOLOGICAL – – The impact of technological advancement The impact of technological advancement on business strategy. on business strategy.

Business Software applications (word processing, Business Software applications (word processing, spreadsheets, database, accounting systems, spreadsheets, database, accounting systems, inventory systems)inventory systems)

Computer-aided designComputer-aided design

Computer-aided manufacturingComputer-aided manufacturing

Internet/IntranetInternet/Intranet