the external enviroment analysis of the firm pEST AND PESTEL ANALYSIS Political,enviromental, social, tehnlogical,tehchnological, legal

1. PEST AND PESTEL ANALYSIS
Pest analysis is used to identify the external forces that affect the organization. It is
a way of identifying what is happening on the external environment that a business
operates, so that appropriate action can be taken.
It is essential for an organization before it begins its main activities such as
marketing.
A PEST ANALYSIS INCORPORATING LEGAL AND ENVIROMENTAL
FACTORS IS CALLED PESTLE ANALYSIS.
The acronym pestle indentifies a list of factors that affect the firm externally and
each letter on the acronym stand as follows
P: political
E: Economical
S: Social
T: technological
L: legal
E: Environmental

2. POLITICAL FACTORS
Political factors are the rules, regulations, constraints and conditions made by the
government. They relate to policies and nature of the government.
Any organization doing business in any country must agree upon the terms and
conditions enforced by the government.
Political factors include the following
I. Political stability
II. Rule of law
III. Interest groups
IV. Transfer of power
V. Pressure groups
VI. Government policies such as employment laws, trade rules, advertising
standards.
Example if the country is politically unstable, it will possessa greater risk to the
business
ECONOMICALFACTORS
These are factors that normally shape the broad economic environment within
which an organization operates.
They relate to general economic conditions of the economy within which a
business operates.
Economic environment is dynamic in nature that keeps on change with the change
in policies or political situations within a country.
They have three conditions which are
 Economic conditions of the public
 Economic policies of the country
 Economic system

3. Economic factors include the following
I. G.D.P
II. Exchange rates
III. Interest rates
IV. Purchasing power parity
V. Taxation policy
VI. Inflation rates
VII. Growth rates
VIII. Level of disposable income
IX. Availability of economic resources within a country
X. Unemployment level( it has direct link with purchasing power parity)
XI. Trade factors and tariffs
The economic factors/environment determines the economic strengths and
weakness in the market.
For example.
Purchasing power of an individual depends upon the economic factors like current
income, price, savings, and circulation of money, debt and credit availability.
An increase in interest rates would increase the borrowing costs for consumers and
the firm
SOCIAL-CULTURAL FACTORS
Social cultural factors relate to set of customs, beliefs, behaviors and practices that
exist within a population or society that an organization operates.
They include the overall social trends, taste and demand of external environment.
Companies must examine the social cultural environment before entering the
market, ignoring customs, traditions, tastes, preferences and education can affect
the business.

4. Social cultural factors are as follows
i. Beliefs
ii. Demographic changes( change in overall customer taste , preferences and
overall social trends)
iii. Altitude of the people
iv. Income and lifestyle
v. Education level
vi. Social responsibilities ( role of business to the society such as preventing
environment pollution and corruption)
vii. Age and health
Examples
If marketers do not know the social values of women in a society and start
advertising campaign of woman undergarments, offering products foryoung
people at a place where the majority of people are above 40 years can lead to
business failure.
TECHNOLOGICALFACTORS
Technology is about application of tools, methods and techniques used in
production process.
Technology is life for the growth and competitiveness of business as it drives the
business, improves quality and reduces time to market the productor service.
Technological factors sometimes cause serious problems for a firm that unable to
copewith technological changes.
Technological factors include the following
I. Level of technology
II. Costof technology
III. Rate of technological transfer
IV. Rate of technology change
V. Research and development activities
VI. Supportand training available

5. Technology helps the business for formulation of strategy, implementation and
control of company performance; therefore it is important for a company to
consider the costof technology, alternative technology, competitor, design
structure of technology before implementing it.
LEGAL FACTORS
This refers to the set of laws and regulations which influence the business
organization. They represent legislative framework within a country, various law
affect the organization performance.
Legal factors include the following
I. Employment law
II. Law related to health and safety
III. Environmental law
IV. Company law
V. Advertising regulations
VI. International trade barriers
ENVIROMENTALFACTORS/ECOLOGYFACTORS
This relates to how people’s perception and reaction to environmental issues that
can affect a business
Environmental issues include the following
I. Waste disposal
II. Energy consumption
III. Pollution monitoring
IV. Geographic and climate