Credit availability, unemployment levels, and the overall health of the economy may not always seem directly relevant to a particular business, but they shape the climate in which all businesses operate. While a SWOT may examine microeconomics questions like elasticity or efficiency, the role of PEST is to take a wider view of the economic environment. For many analyses, “political” also covers a foreign country’s approach to rule of law, property rights, and corruption.Įconomic considerations are primarily oriented to macroeconomics. Existing and forthcoming legislation, especially regarding taxation, wages, or intellectual property, can have a significant impact on business practices. This includes everything from labeling requirements to the risk of military invasion. Political doesn’t refer to just elections, but the broader influence of government on the business environment. Just like the Five Forces, PEST corresponds to the Opportunities and Threats in SWOT. However, unlike the Five Forces, which concentrate on the industry which surrounds a company, a PEST analysis looks at the large-scale (macro) environment outside of the industry. ![]() Like Porter’s Five Forces, a PEST analysis looks outside the organization to the surrounding environment. PEST analysis is a cornerstone of environmental scanning. Strategic planning that examines external factors is called environmental scanning. This process looks at factors both inside and outside the company, and frequently employs a SWOT analysis, or similar framework, to organize the information generated. ![]() When preparing for the future, companies engage in strategic planning. It is especially important to consider long term trends in a PEST analysis, as they may be more apparent in the world at large before their effects are felt on particular industries. These four categories describe the big picture of where the business is situated, usually on a national or regional level. Like a SWOT analysis, PEST contains four components: Political, Economic, Social/Cultural, and Technological.
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