The external environment is composed of political, economic, social, and technological factors that companies have little control over. It is important for companies to analyze the external environment because these factors can present opportunities or threats. Companies use PEST analysis to systematically examine these macroenvironmental influences in order to understand the landscape and make effective business decisions.

1. External Environment
Analysis
Unit 1.5

2. External Environment
 What is the external environment composed of?
 Why is the external environment important?
 Why do companies find it necessary to analysis the
external environment?

3. PEST Analysis
 Political
 Economical
 Social
 Technological
 This tool is used to identify opportunities or threats the company
the company has little or no control over in the external
environment
 Exam hint: If you are asked about a particular market (German
market) or the external environment, use this tool to answer!

4. Political
 Things to consider
 Government Legislation
 Examples (not limited to):
 Employment law
 Consumer protection rights
 Health and Safety factors
 Taxation
 Government incentives/grants/spending
 Policies implemented (ones that affect the business)
 Government structure or stability in the country

5. Economic
 Consider the economy:
 Inflation
 Unemployment Rates
 Economic Growth (GDP)
 International Trade
 Exports and imports
 Market trends
 Increased spending of consumers
 Actions of competition

6. Social
 Cultural beliefs
 Multiculturalism
 Demographic changes
 Population numbers
 Number of children vs over 60 year olds
 Women and men
 Single parent homes
 Educated population
 Values and morals of population (ethical beliefs)
 Perceptions/Attitudes of population

7. Technological
 Development of technology in general
 Examples:
 Product developments (innovation)
 Internet
 Process developments