Why Every Business Should Conduct a PEST Analysis

Are you establishing a new business or launching a new product? You probably made that decision because you believe the public needs what you want to offer them. But did you conduct a PEST analysis to confirm that you are on the right track?

PEST analysis is a crucial business tool that can help you to understand the market and external factors that affect your business results. The abbreviation PEST stands for political, economic, social, and technological factors. As you can see, it is a thorough analysis that focuses on multiple factors that have the power to influence potential business success.

The first PEST analysis was conducted by professor Francis Aguilar in 1967. Today, it is an important part of most business plans. Companies use it to assess risk and come up with the right strategy for the future.

In this article, we are focusing on why this analysis is important for companies throughout the world. We will discuss factors covered in PEST reports and pinpoint why analyzing them is crucial for business success.

Political Factors (P)

Politics affects all areas of our lives, and business is no exception. That is why you can’t afford to ignore its influences on your company, especially if you are doing business on an international scale. Any trade deal made between the countries or imposed tariffs might affect your results. More often than not, these trades are economical, but the reason why they were made is political.

Furthermore, you need to consider regulations and the political situation within your country. Is the political situation unstable for any reason? That might repel any investors you are looking for abroad. It would help if you also considered laws and regulations related to safety, employment, environment, etc.

To increase your knowledge about the business framework and strategies to deal with political uncertainties, consider a global business strategy and politics program.


Economic Factors (E)

The next letter in the PEST acronym is “E,” and it stands for “Economics.” According to experts, these are not the financial capabilities of your company. Instead, the analysis focuses on external factors that affect your business.

For example, a high unemployment rate means many people are looking for employment. That means you could attract talents even if you don’t offer a huge salary. But if the inflation rate has been high over the last couple of years, your workers might become unsatisfied. This is why you should offer an increase in salary to even out the effects of inflation.

Other economic factors that might affect your company are credit availability, interest rates, the GDP of your country, etc.

Social Factors (S)

If you want to sell a product, you need to find a buyer. Analyzing socio-economic factors can help you to achieve that goal. The idea is to learn more about how consumers think, and how to use their needs to your advantage.

For example, your city might be facing many young people leaving in search of a better life. That means people over 40 years of age are the majority, which is why you have more chances of succeeding by focusing on products that meet their needs.

You also need to monitor the current social trends. For example, did you notice everyone has gone crazy about diets over the last several years? That is where you might find a window for your product or service to be successful. Other trends might include eco-friendly products, the need for bigger cars and houses after starting a family, etc.

Technologic Factors (T)

Technology is making huge leaps every day, and no one can stop it anymore. The only thing to ensure is that it affects our businesses positively. The analysis of external technological factors is essential when preparing to launch a new product or service.

Technology is one of the factors that can give competitive advantages across various fields like R&D, automation, procurement, etc. Moreover, many companies like Amazon, Samsung are eyeing artificial intelligence to predict future consumer purchase decisions.It would help these companies gain immense customer delight.

Additional external factors to consider are the current technology’s life cycle, constant innovation in the field of Fintech & Artificial Intelligence that might affect the functioning of global industries.

Why You Need to Conduct a PEST Analysis

As you can see, a PEST analysis comes down to gathering information and as you probably already know,  information is power. This means that learning as much as possible is crucial for success.

The first thing that PEST will make possible is to improve how well you understand your business. You will learn about your products and services and their position in the world. By analyzing the external factors, you will also identify potential risks. If you know what threatens company growth, it will be easy to prepare a strategy to counteract that threat.

On the other hand, being an expert on external factors also allows you to identify new business opportunities. While analyzing the current political or economic situation, you might have an idea for a revolutionary product that will launch your company among industry leaders.

PEST analysis can also help with long-term plans for your company. Although all the factors analyzed are dynamic and subject to change, they can still help in the long run. If you have the resources, it might be wise to conduct occasional PEST analysis. That way, you can compare results with previous reports and adjust your strategy based on newly-received information.

If you want to take things one step further, you can also conduct a PESTLE analysis. It uses a similar approach and adds Legal and Environmental factors. The legal area focuses on any laws on the national or global level that might affect your company. As for environmental factors, they involve a detailed analysis of how ecological restrictions and regulations could influence your business. Learning more about these factors might also help if you aim to design eco-friendly products.


Author bio
Emma is a passionate writer & guest blogger. Writing helps her to improve her knowledge, skills & understanding about the specific industry. She loves writing & sharing her knowledge mostly in the career & education niche. She is passionate about spreading her knowledge, experience & tips across the world. She is currently working with Getsmarter who are known for there global business strategy and politics program. Apart from writing, she loves traveling, styling & cooking.

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This is a post from a CBNation writer. CBNation is a Business to Business (B2B) Brand focusing on increasing the visibility of and providing resources for CEOs, entrepreneurs and business owners. CBNation consists of blogs(, podcasts ( and videos ( CBNation is proudly powered by Blue 16 Media.

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