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PEST Analysis

Author: Jim Riley  Last updated: Sunday 23 September, 2012

PEST analysis is concerned with the key external environmental influences on a business.

The acronym stands for the Political, Economic, Social and Technological issues that could affect the strategic development of a business.

Identifying PEST influences is a useful way of summarising the external environment in which a business operates. However, it must be followed up by consideration of how a business should respond to these influences.

The table below lists some possible factors that could indicate important environmental influences for a business under the PEST headings:

Political / Legal
Environmental regulation and protection
Economic growth (overall; by industry sector)
Income distribution (change in distribution of disposable income;
Government spending on research
Taxation (corporate; consumer)
Monetary policy (interest rates)
Demographics (age structure of the population; gender; family size and composition; changing nature of occupations)
Government and industry focus on technological effort
International trade regulation
Government spending (overall level; specific spending priorities)
Labour / social mobility
New discoveries and development
Consumer protection
Policy towards unemployment (minimum wage, unemployment benefits, grants)
Lifestyle changes (e.g. Home working, single households)
Speed of technology transfer
Employment law
Taxation (impact on consumer disposable income, incentives to invest in capital equipment, corporation tax rates)
Attitudes to work and leisure
Rates of technological obsolescence
Government organisation / attitude
Exchange rates (effects on demand by overseas customers; effect on cost of imported components)
Energy use and costs
Competition regulation
Inflation (effect on costs and selling prices)
Fashions and fads
Changes in material sciences
Stage of the business cycle (effect on short-term business performance)
Health & welfare
Impact of changes in Information technology
Economic "mood" - consumer confidence
Living conditions (housing, amenities, pollution)

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