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Inbusiness analysis,PEST analysis (political, economic, social and technological) is a framework of externalmacro-environmental factors used instrategic management andmarket research.
PEST analysis was developed in 1967 byFrancis Aguilar as anenvironmental scanning framework for businesses to understand the external conditions and relations of a business in order to assist managers in strategic planning.[1] It has also been termedETPS analysis.[1]
PEST analyses give an overview of the different macro-environmental factors to be considered by a business, indicatingmarket growth or decline, business position, as well as the potential of and direction for operations.
The basic PEST analysis includes four factors: political, economic, social, and technological.
Political factors relate to how thegovernments intervene in economies.
Specifically, political factors comprise areas includingtax policy,labour law,environmental law,trade restrictions,tariffs, and political stability. Other factors include what are consideredmerit goods anddemerit goods by a government, and the impact of governments onhealth,education, andinfrastructure of a nation.[2]
Economic factors includeeconomic growth,exchange rates,inflation rate, andinterest rates.[3]
Social factors includecultural aspects and health consciousness,population growth rate, age distribution, career attitudes and safety emphasis. Trends in social factors affect the demand for a company's products and how that company operates. Through analysis of social factors, companies may adopt various management strategies to adapt to social trends.[citation needed]
Technological factors includeR&D activity,automation, technology incentives and the rate oftechnological change. These can determinebarriers to entry, minimum efficient production level and influence theoutsourcing decisions. Technological shifts would also affect costs, quality, andinnovation.[4]
Many similar frameworks have been constructed, with the addition of other components such as environment and law. These include PESTLE,[5] PMESII-PT,[6] STEPE,[7] STEEP,[8] STEEPLE,[9] STEER,[10] and TELOS.
Legal factors includediscrimination law,consumer law,antitrust law,employment law, andhealth and safety law, which can affect how a company operates, its costs, and the demand for its products.[5] Regulatory factors have also been analysed as its own pillar.[10]
Environmental factors include ecological and environmental aspects such as weather, climate, andclimate change, which may especially affect industries such as tourism, farming, and insurance.[5] Environmental analyses often use the PESTLE framework, which allow for the evaluation of factors affecting management decisions for coastal zone and freshwater resources,[11] development of sustainable buildings,[12][13]sustainable energy solutions,[14][15] and transportation.[16]
Demographic factors have been considered in frameworks such as STEEPLED.[9] Factors include gender, age, ethnicity, knowledge of languages, disabilities, mobility, home ownership, employment status, religious belief or practice, culture and tradition, living standards and income level.
Military analyses have used the PMESII-PT framework, which considers political, military, economic, social, information, infrastructure, physical environment and time aspects in a military context.[6]
The TELOS framework explores technical, economic, legal, operational, and scheduling factors.[17]
PEST analysis can be helpful to explain market changes in the past, but it is not always suitable to predict or foresee upcoming market changes. The macro-environment is highly fluid, and factors can shift unpredictably.[18]
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