What is PEST Analysis?
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.
Many macro-environmental factors are country-specific and a PEST analysis will need to be performed for all countries of interest. The following are examples of some of the factors that might be considered in a PEST analysis.

It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up from:

1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as PEST factors.

Political Factors
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your business?
3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

Economic Factors
Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at:
1. Interest rates
2. The level of inflation Employment level per capita
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on

Sociocultural Factors
The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?

Technological Factors
Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:
1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?
2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?

PEST Analysis

A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors: Political Economic Social Technological
The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:

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Political Factors
Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include: • tax policy • employment laws • environmental regulations • trade restrictions and tariffs • political stability

Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macroeconomy: • economic growth • interest rates • exchange rates • inflation rate

Social Factors
Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include: • health consciousness • population growth rate • age distribution • career attitudes • emphasis on safety

Technological Factors
Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include: • R&D activity • automation • technology incentives • rate of technological change

External Opportunities and Threats
The PEST factors combined with external microenvironmental factors can be classified as opportunities and threats in a SWOT analysis.

Recommended Reading
John Middleton, The Ultimate Strategy Library : The 50 Most Influential Strategic Ideas of All Time

Political 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

Economic Analysis

• 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 Analysis

• Demographics • Class structure • Education • Culture (gender roles, etc.) • Entrepreneurial spirit • Attitudes (health, environmental consciousness, etc.) • Leisure interests

Technological Analysis

• Recent technological developments • Technology's impact on product offering • Impact on cost structure • Impact on value chain structure • Rate of technological diffusion
The number of macro-environmental factors is virtually unlimited. In practice, the firm must prioritize and monitor those factors that influence its industry. Even so, it may be difficult to forecast future trends with an acceptable level of accuracy. In this regard, the firm may turn to scenario planning techniques to deal with high levels of uncertainty in important macro-environmental variables.

What is PESTLE Analysis?

PESTLE analysis, which is sometimes referred as PEST analysis is a concept in marketing principles. Moreover, this concept is used as a tool by companies the world over to track the environment they’re operating in or are planning to launch a new project/product/service etc.
PESTLE is a mnemonic which in its expanded form denotes P for Political, E for Economic, S for Social, T for Technological, L for Legal and E for Environmental. It gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep a track of while contemplating on a certain idea/plan.
The framework has undergone certain alterations, as gurus of Marketing have added certain things like an E for Ethics to instill the element of demographics while utilizing the framework while researching the market.

There are certain questions that one needs to ask while conducting thisanalysis, which give them an idea of what things to keep in mind. They are: • What is the political situation of the country and how can it affect the industry? • What are the prevalent economic factors? • How much importance does culture has in the market and what are its determinants? • What technological innovations are likely to pop up and affect the market structure? • Are there any current legislations that regulate the industry or can there be any change in the legislations for the industry? • What are the environmental concerns for the industry?
All the aspects of this technique are crucial for any industry a business might be in. More than just understanding the market, this framework represents one of the vertebras of the backbone of strategic management that not only defines what a company should do, but also accounts for an organization’s goals and the strategies stringed to them.

It may be so, that the importance of each of the factors may be different to different kinds of industries, but it is imperative to any strategy a company wants to develop that they conduct the PESTLE analysis as it forms a much more comprehensive version of the SWOT analysis.
It is very critical for one to understand the complete depth of each of the letters of the PESTLE. It is as below: 1. Political: These factors determine the extent to which a government may influence the economy or a certain industry. [For example] a government may impose a new tax or duty due to which entire revenue generating structures of organizations might change. Political factors include tax policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent. 2. Economic: These factors are determinants of an economy’s performance that directly impacts a company and have resonating long term effects. [For example] a rise in the inflation rate of any economy would affect the way companies’ price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns etc. It also accounts for the FDI (foreign direct investment) depending on certain specific industries who’re undergoing this analysis. 3. Social: These factors scrutinize the social environment of the market, and gauge determinants like cultural trends, demographics, population analytics etc. An example for this can be buying trends for Western countries like the US where there is high demand during the Holiday season. 4. Technological: These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to automation, research and development and the amount of technological awareness that a market possesses. 5. Legal: These factors have both external and internal sides. There are certain laws that affect the business environment in a certain country while there are certain policies that companies maintain for themselves. Legal analysis takes into account both of these angles and then charts out the strategies in light of these legislations. For example, consumer laws, safety standards, labor laws etc. 6. Environmental: These factors include all those that influence or are determined by the surrounding environment. This aspect of the PESTLE is crucial for certain industries particularly for example tourism, farming, agriculture etc. Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets etc.
There are many templates available for companies to conduct PESTLE analysis. Many organizations have provided information regarding their PESTLE analysis as case studies available on the Internet.