The economic part of the analysis focuses on the key factors interest rates and exchange rates, economic growth, supply and demand, inflation and recession. In the legal field, it is about how the courts influence commercial activities. Examples of important legal factors include labour laws, health and safety regulations, discrimination laws, and antitrust laws (Figure 3.11 “Legal Factors”). Meanwhile, farmers argue that tightening immigration policies would be harmful, as farmers rely heavily on cheap labor provided by illegal immigrants. In particular, if farmers were forced to employ only legal labour, this would significantly increase the cost of vegetables. Restaurant chains like Subway would then pay higher prices for lettuce, tomatoes and other perishables. Subway would then have to decide whether to cover these costs or pass them on to customers by charging submarines more. Overall, any change in immigration policy will impact hospitals, farmers, restaurants, and many other organizations. Social factors that can be included in a PEST analysis are demographics and age distribution, cultural attitudes, and workplace and lifestyle trends. The focus is on the social environment and the recognition of emerging trends. This helps a marketer better understand the needs and wants of consumers in a social context. Factors include family demographics, education levels, cultural trends, attitudinal changes and lifestyle changes.
The economic segment focuses on the economic conditions in which organizations operate. It includes items such as interest rates, inflation rates, gross domestic product, unemployment rates, disposable income, and overall economic growth or decline (Chart 3.5 “Economic Factors”). The economic crisis of the late 2000s had a huge negative impact on various organizations. Rising unemployment has discouraged consumers from buying expensive and non-essential goods such as cars and televisions. Bank failures during the economic crisis led to a dramatic tightening of credit markets. This was a blow to builders, for example, because demand for new homes dropped because mortgages were extremely difficult to obtain. These factors relate to technological innovations that may have a favourable or negative effect on the functioning of the industry and the market. It is about automation, research and development, and technological awareness of a market.
The Technology segment focuses on improving the products and services provided by science. Relevant factors include changes in the rate of new product development, increasing automation, and advances in the service sector (Chart 3.8 “Technology Factors”). An essential feature of modernity is the ever-increasing pace of technological innovation. In 1965, Intel co-founder Gordon E. Moore proposed an idea known as Moore`s Law. Moore`s Law states that the performance of microcircuit technology doubles approximately every two years. This law has been very specific in the decades since its offering. PEST analysis can also be applied to the assessment of an organization`s internal structure to identify strengths and weaknesses in national policy, economic prospects, social climate and technological base.
The results of this analysis may facilitate changes or improvements in areas identified as below average. PEST (Political, Economic, Social and Technological) analysis is a management method that allows an organization to assess the main external factors affecting its operations in order to become more competitive in the market. As the acronym describes, these four areas are at the heart of this model. These factors examine the social environment of the market and measure determinants such as cultural trends, demographics, demographic analysis, etc. An example of this can be the buying trends for Western countries such as the United States, where there is high demand during the holiday season. ENVIRONMENT: Does your company have a direct impact on the environment? Political sanctions now regulate carbon emissions and the transition to sustainable resources such as wind turbines and recycling. This area also includes CSR, corporate social responsibility, and ethical sourcing of goods and services, which in turn directly affect your company`s purchasing and supply chain management. Overall, political factors are those that are driven by government actions and policies. These include considerations such as: POLITICS: When looking at political factors, you need to consider government policies and the political stability of your country. Other factors include tax implications, industry regulations, and global trade agreements and restrictions. The speed and scale of technological disruption in today`s business environment is unprecedented and has had a devastating impact on many traditional businesses and industries – think Uber, which is disrupting the transportation industry, or the advent of e-commerce, which is revolutionizing retail as we know it.
These factors are determinants of an economy`s performance that directly affect a business and have long-term effects. For example, an increase in an economy`s inflation rate would affect how firms value their products and services. In addition, it would affect a consumer`s purchasing power and change supply and demand patterns for that economy. Economic factors include inflation rate, interest rates, exchange rates, economic growth patterns, etc. It also takes into account FDI (foreign direct investment), depending on some specific industries that go through this analysis. The environmental factors in a PESTEL analysis overlap significantly with those typically identified in an environmental, social and governance (ESG) analysis. In fact, it is widely accepted that the addition of environmental factors to the PESTEL framework has evolved from the growing popularity of movements such as CSR (Corporate Social Responsibility) and ESG. PEST analysis is believed to have first been introduced as ETPS by Harvard professor Francis J. Aguilar. In the 1967 publication “Scanning the Business Environment,” Aguilar presented economic, technical, political, and social factors as the main influences on the business environment.