PEST analysis

The acronym PEST stands for Political, Economic, Social and Technological. It is a framework used in the early phases of strategy development to describe the landscape and environment, in which a firm operates. It’s particularly useful for situations where firms consider entering a new geography, e.g. an emerging market, and would like to get an exhaustive overview of the various factors that will affect its operations there (maybe even comparing multiple options).

• Political factors evaluate how to and to what degree the government intervenes in the economy, through tax, labor, environmental, trade and other laws, or to some extent through the direct provision of goods and services and direct control over sectors of the economy (e.g. infrastructure).
• Economic factors include elements such as growth, interest rates, inflation, exchange rates and other macroeconomic elements that affect a company’s business operations, cost of capital and ability to import/exports goods and services.
• Social factors include issues such as population growth, demographics, health consciousness, entrepreneurial attitude, etc. Many of them will affect demand for a company’s products and services, as well as its ability to find a qualified labor force.
• Technological factors include R&D activities, technology incentives and the rate of adoption and change of important technological elements. They may determine barriers to entry, as well as the cost and quality of operations in a given country.

Note that there are a number of variations on the PEST analysis, and on the grouping of the various factors. Some people separate Environmental, Legal and even Demographic factors from the four groups above. Depending on how you look at things, your PEST analysis will then turn into SLEPT, PESTEL, PESTLE, STEEPLE or even STEEPLED.