PESTEL Analysis

The PESTEL analysis aims to generate a list of generic factors that may cause any type of impacts on the company. Each
letter of this models name represents a specific area one should take into account for this analysis, which are:

P- Political Factors (government policies, community policies etc.)

E- Economic Factors (economic situation, interest rate, discount rate, unemployment level, level of demand/supply etc.)
S- Social Factors (culture, values, lifestyle, demographics etc.)
T- Technological Factors (new production techniques, innovations, disruptive advances etc.)
E- Ecological/Environmental Forces (environment, solid waste, air pollution levels etc.)
L- Legal Factors (specific laws taking place, be aware of collateral damages etc.)
Many analysts come to the conclusion that a PEST analysis (without considering ecological and legal factors) is enough
to characterize the generic environment. There is no doubt that the first 4 factors are essential to have a good idea of the
Macro Environment, however we must always take into account even if only in thought the other 2 factors.

Example:
http://www.thebusinesszoom.com/pestel-analysis1.html

Next, we leave
you with a
simple example
of a PESTEL
analysis for you
to understand in
a practical way
how it should
be directed.

Definition of PEST Analysis

PEST Analysis can be defined as,
A framework which describes the arrayed inter-dependence of macro-environmental factors used in the environmental
scanning component of strategic management.

The PEST Model

PEST is the acronym for Political, Economic, Social and Technological factors. The environment in which an entity, lets say an
organization operates is made up of external and internal environment. The internal environment is composed of the internal customers,
which are the employees of the organization, the internal policies, mission and vision.
However, the external environment is a broad category which has been divided into micro environment andmacro environment. The
micro environment is made of factors such as the customers, suppliers, distributors, competitors etc whereas; factors making up the macro
environment include political, economic, social and technological forces.

Significance of PEST Analysis on Marketing and Management Environment

When an organization is in the process of formulating or revising its strategies, conducting a market research or devising a business plan, it
has to carry out a complete environmental analysis so that it takes into account those factors of external environment which can have a
positive or negative impact on it.
Recently, experts have argued that there are two other forces which make an important part of the macro environment
namely Environmental and Legal factors. Therefore, the PEST analysis has now been renamed as PESTEL analysis.
Let us have a look at each of the six factors and learn their importance in strategic management.

Political Factors

Political factors refer to the degree of intervention of government in the economy. There are certain formal and informal rules laid down by
the government which every organization has to abide by in order to sustain its operations in a particular country. Important political factors
include:

Political stability

Taxation laws

Entry mode regulations

Trade regulations such as NAFTA

Pricing regulations

Intellectual property rights

Anti trust laws

Entry requirements

Tariffs

Employee wages and benefits

Political decisions have a strong influence on many vital areas for business such as the education of the workforce, health of the nation and
quality of the infrastructure of the economy such as the road and rail system.

Economic Factors
Economic factors are those which have a direct impact on the capital loss of organizations and purchasing power of customers. These
include:

Inflation

Exchange Rates

Rate of unemployment

Literacy Rate

Effectiveness of financial institutions

Efficiency of free market

Quality of infrastructure

Interest Rates

Business Cycle

Stability of currency

Skill level of employees

Economic Growth

Income distribution

Below is an example of economic factors and its impact on an organization, as mentioned in a book calledFoundations of Economics.

Higher interest rates may deter investment because it costs more to borrow

A strong currency may make exporting more difficult because it may raise the price in terms of foreign currency

Inflation may provoke higher wage demands from employees and raise costs

Higher national income growth may boost demand for a firms products

Social Factors
Social factors are cultural aspects and demographic variables which are closely linked to the market potential and customers needs. These
include:

Age distribution

Attitude towards health and environment

Education

Leisure activities

Attitude towards career

Changing lifestyle

Gender Role

In developed countries such as UK and USA, the labour pool is growing. This means the costs for firms, who are paying pension to their
employees have increased because the staff are living longer.

Technological Factors
Technology is what drives the phenomena of globalization. It provides competitive advantage to firms. Major technological factors include:

Rate of technological innovation

Rate of obsolesce of technology

Technological development

New technological platforms

Diffusion of technology

Technology reduces costs, improves quality and leads to innovation. It can benefit consumers as well as the organizations providing the
products.

Environmental Factors
Industries such as tourism, insurance and farming are being affected by environmental and ecological aspects. Environmental factors
include:

Environmental protection laws

Waste disposal laws

Energy consumption regulation

Global warming

Due to the growing awareness of climate change, organizations are moving towards making products and processes which are
environment friendly thus, creating new business opportunities.

Legal Factors
These are related to the legal environment of an organization and impact its demand and cost. Major legal factors include:

Health and safety law

Consumer law

Competition law

Employment law

Discrimination law

Examples of PEST Analysis

During research reports and market analysis, PEST is normally run for the following companies and areas:
1.

Pest Analysis of Nike

2.

Pest Analysis of Coca Cola

3.

Pest Analysis for UK

4.

Pest Analysis for Tesco

5.

Pest Analysis for Wal-Mart

6.

Pest Analysis for Nestle

7.

Supermarket PEST Analysis