Why Use PEST Analysis For Your Business?

Apart from your company’s internal resources and current industry factors, there are many other macro-economic elements that can have a strong impact on your company. Just before you step into a new business venture or prior to launching a new product, you will need to evaluate these factors in order to find out how they can have an impact on your success. One such tool used to analyze and assess external macro economic factors that are closely related to a specific situation is known as PEST analysis.

PEST stands for Political, Economic, Social and Technological analysis and is primarily used to assess the Political, Economic, Social and Technological factors in relation to your current business situation. By conducting a PEST analysis, you can find out how such factors will affect the activities and performance of your business in the long run. Many times, PEST analysis is used along with analysis tools like Porter’s five forces and SWOT analysis to gain a better understanding about external/internal factors.

The factors involved in PEST analysis

  • Political: Legal factors and government regulations are evaluated in terms of their ability to affect your trade markets or business environments. Issues such as, tax guidelines, employment laws, political stability, safety regulations and trade regulations are addressed.
  • Economic: By analyzing this factor, your business can find out the economic issues that may impact your company. Commonly evaluated economic factors include interest rates, economic growth, inflation, business cycle and unemployment policies.
  • Social: By taking into account social factors, a business can evaluate its market by understanding more about the lifestyle attitude, level of education, cultural limitations and customer demographics. Your business can determine how to shape consumer needs and how to bring these needs to the market.
  • Technological: This analysis can help your company get to know how negatively or positively a product/service can be impacted by technology. The role of the internet, lifecycle of technologies, advancements and the spending on technology research are some of the popularly assessed technological factors.

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