Political AnalysisEconomic Analysis • Political stability • Risk of military invasion • Legal framework for contract enforcement • Intellectual property protection • Trade regulations & tariffs • Favored trading partners • Anti-trust laws • Pricing regulations • Taxation – tax rates and incentives • Wage legislation – minimum wage and overtime • Work week • Mandatory employee benefits • Industrial safety regulations • Product labeling requirements• Type of economic system in countries of operation • Government intervention in the free market Comparative advantages of host country • Exchange rates & stability of host country currency • Efficiency of financial markets • Infrastructure quality • Skill level of workforce • Labor costs • Business cycle stage (e. g. prosperity, recession, recovery) • Economic growth rate • Discretionary income • Unemployment rate • Inflation rate • Interest rates Social AnalysisTechnological Analysis • Demographics • Class structure • Education • Culture (gender roles, etc. ) • Entrepreneurial spirit Attitudes (health, environmental consciousness, etc. ) • Leisure interests• Recent technological developments • Technology’s impact on product offering • Impact on cost structure • Impact on value chain structure • Rate of technological diffusion A PEST analysis is an analysis of the external macro-environment that affects all firms. P. E. S. T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm’s control and sometimes present themselves as threats.
For this reason, some say that “pest” is an appropriate term for these factors. However, changes in the external environment also create new opportunities and the letters sometimes are rearranged to construct the more optimistic term of STEP analysis. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro environmental factors that the country has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.