PEST Analysis: How Political, Economic, Social, and Technological Factors Impact Your Business

As a business owner or manager, it is significant to be aware of the various factors that can impact your operations.

PEST stands for Political, Economic, Social, and Technology factors. PEST is a helpful analysis tool that helps businesses identify external environmental factors (usually macro-environmental) and understand the "big picture" of the business environment in which they operate, thereby identifying potential opportunities and threats.

PEST analysis helps enterprises understand the business environment. From there, they can map out a clear and appropriate plan for each specific region, make the most of the opportunities that come their way, minimize the threats and easily face the challenges.

Political Factors affect all business industries in a territory, and institutional and legal matters can affect the viability and development of any industry.

For example:

• Changes in taxation policies or trade agreements can impact your business's profitability.
• The stability of the government and the level of corruption in the country can also affect your business's success.

Enterprises often analyze the following aspects of the political and legal environment:

• Political stability
• National socio-economic development strategies/ policies and sectors/ fields/ regions/ localities
• Perspectives and policies on economic integration, open-door policy, international trade policy, etc
• Policy of tax
• Laws related to business
• Level of law enforcement
• Bureaucracy and corruption
• Quality of public service

Economic Factors refer to the state of the economy, including inflation rates, exchange rates, and overall economic growth. A strong economy can provide opportunities for business growth, while a weak economy can make it challenging to maintain profitability. Understanding the economic factors that affect your business can help you plan for the future and make informed decisions. Businesses need attention to both short-term and long-term economic factors and government intervention.

Commonly, enterprises will rely on the analysis of the following economic factors to decide to invest in industries and regions:

• The state of the economy, the current stage of the business cycle
• Factors affecting the economy like interest rates, inflation, etc
• Economic Policies of the Government
• Status of economic prospects in the future
• Labor supply, labor costs, unemployment, etc

Social Factors relate to changes in social attitudes and behaviors. Each country and territory has its unique cultural values ​​and social factors, which are the characteristics of consumers in those regions. Demographic, geographic, cultural, and social changes affect nearly all products, services, markets, and consumers.

For example, changing trends in consumer behavior could impact demand for your product or service. It is vital to accommodate these changes and adjust your strategy accordingly.

Technological Factors include advanced technology that can impact products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, positioning, automation, data analytics, and artificial intelligence. 

Adopting new technologies can provide opportunities for growth and efficiency while failing to keep up with technological changes can leave you at a disadvantage.

Technology factors are analyzed based on the following criteria:

• Government and business investment in research and development
• Speed, the cycle of technology, the rate of outdated technology
• The impact of information technology, internet on business operations, reducing communication costs and increasing the rate of working remotely
• The influence of emerging technology
• The impact of technology transfer, etc