What is 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 of: 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:
y

Political

y y y

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:

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:
y y y y y

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:
y y y y

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:
y y y y y

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:
y y y y

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.

What is International Business We call those International that are not restricted by geographical or political boundaries. Hence business operations without geographical boundaries, i.e., global commerce and the Internet have made the world smaller, but far more competitive. So one deals with terms like international business, multinational, transnational, globalization, multi domestic and the global marketplace very often. This arena along with the traditional export and import industry provides pathway to a multitude of careers. It can be well imagined that international business success requires more business acumen than managing a domestic enterprise. The traditional business functions and values are there to be managed, but one also must understand and work from a global perspective that adds politics, culture, monetary variables, time, and distance to the international business management equation. There is also international marketing which is simply the application of marketing principles to more than one country. Why International business

An MBA in International Business grooms working managers and executives for careers of increased responsibility with focus on diversity and multicultural concerns, International relations and business strategies sensitive to international issues. In todays global economy, many businesses are looking to expand into an international market, therefore, careers in international business are expected to grow at a faster than normal rate. From banks to manufacturing firms to government agencies, almost all industries have a need for people with a background in international business. There is such a wide range or opportunities available that someone with strong business skills and an international mindset should be able to easily find a job in a field that interests them.

1. The exchange of goods and services among individuals and businesses in multiple countries. 2. A specific entity, such as a multinational corporation or international business company that engages in business among multiple countries.

Ads by Google International Business Environment -Economic -Political -Legal -Financial -Technological -Socio-Cultural -Demographic -Natural

Prospects of a business depend not only on the resources but also on the environment.Hence an analysis of the environment is required for policy formulation and strategy formulation.

Every business enterprise consists of a set of internal factors and ios confronted with a set of external

factors.The internal factors are generally regarded as controllable,while the external factors are by and large beyond the control of the business.As environmental/external factors are beyond the control of a firm,its success depends to a large extent on the adaptability to the environment.( i.e its ability to design and adjust the internal controllable variables to take advantage of the opportunities and combat the threats in the environment.) Thus the business environment comprises of both a micro and a macro environment.The former consists of actors in the immediate environment that affect the performance of the firm, such as suppliers,competitors, marketing intermediaries,customers etc. The macro environment consists of larger societal forces that affect the actors in the company's micro environment, such as demographic, economic, natural, legal, technical, political and cultural forces. (for detailed understanding look up Francis Cherunilam/Aswathappa- International Business Environment)

Analysing aspects of international business environment Environmental analysis is defined as "the process by which strategists monitor the economic, governmental, legal, market,competitive, supplier, technological,geographical and social settings to determine opportunities and threats to the firm." TOOLS: PEST PEST analysis stands for Political, Economic, Social, and Technological analysis and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT;inserting

Environmental factors expanded it to PESTEL or PESTLE, which is popular in the UK.The model has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

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?

SWOT SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.

The SWOT analysis provides information that is helpful in matching the firm s resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm s strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

SWOT Analysis Framework

Environmental Scan / \

Internal Analysis

External Analysis

/\

/\

Strengths Weaknesses

Opportunities Threats

SWOT Matrix

Strengths:

A firm s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include: patents,strong brand names ,good reputation among customers ,cost advantages from proprietary know-how ,exclusive access to high grade natural resources,favorable access to distribution networks.

Weaknesses:

The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:lack of patent protection , a weak brand name ,poor reputation among customers ,high cost structure , lack of access to the best natural resources ,lack of access to key distribution channels .

In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.

Opportunities:

The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:an unfulfilled customer need ,arrival of new technologies ,loosening of regulations ,removal of international trade barriers

Threats:

Changes in the external environmental also may present threats to the firm. Some examples of such threats include:shifts in consumer tastes away from the firm s products ,emergence of substitute products ,new regulations ,increased trade barriers

SWOT / TOWS Matrix

Strengths

Weaknesses

Opportunities

S-O strategies

W-O strategies

Threats

S-T strategies

W-T strategies

S-O strategies pursue opportunities that are a good fit to the company s strengths.

W-O strategies overcome weaknesses to pursue opportunities.

S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.

W-T strategies establish a defensive plan to prevent the firm s weaknesses from making it highly susceptible to external threats.

International business is all business transactions-private and governmental-that involve two or more countries. Why should one be interested in studying international business? The simplest answer is that international business comprises a large and growing portion of the world's total business. Today, almost all companies, large or small, are affected by global events and competition because most sell output to and/or secure suppliers from foreign countries and/or compete against products and services that come from abroad. More companies that engage in some form of international business are involved in exporting and importing than in any other type of business transaction. Many of the international business experts argue that exporting is a logical process with a natural structure, which can be viewed primarily as a method of understanding the target country's environment, using the appropriate

marketing mix, developing a marketing plan based upon the use of the mix, implementing a plan through a strategy and finally, using a control method to ensure the strategy is adhered to. This exporting process is reviewed and evaluated regularly and modifications are made to the use of the mix, to take account of market changes impacting upon competitiveness. This view seems to suggest that much of the international business theory related to enterprises, which are internationally based and have global ambitions, does often change depending on the special requirements of each country. Another core issue is the company's growth and the importance of networking and interaction. This view looks at the way in which companies and organisations interact and consequently network with each other to gain commercial advantage in world markets. The network can be using similar subcontractors or components, sharing research and development costs or operating within the same governmental framework. Clearly, when businesses formulate a trading block with no internal barriers they are actually creating their own networks. Collaborations in aerospace, vehicle manufactures and engineering have all sponsored the development of a country's or a group of countries' outlook based on their own internal market network. This network and interaction approach to internationalisation shows the substance of being able to influence decisions when knowing how the global network players work or interact. For example, a crucial market network is that of the Middle East. Middle East countries are rich, diverse markets, with a vibrant and varied cultural heritage. This means that although there has been a harmonisation process during the past few years, differences still exist. Rather than business being simpler as a result, it should be recognised that because of regulations and the need those countries have to restructure as they enter the global market, performing any kind of business can be highly complex. It should be remembered though that the Middle-Eastern countries have a low-income average and like to have their cultural differences recognised. Those firms that will or have recognised these facts have a good chance of developing a successful marketing strategy to meet their needs. Fortunately some firms have realised these important differences and reacted adequately when strategic decisions had to be made regarding their penetration to this kind of markets.