Introduction
In business and economics, PEST Analysis is an acronym that identifies the different aspects of the economy. These aspects are economic political, technological and social factors that affect the external environment of a firm. It involves a process of environmental scanning of factors comprised in the macro-environment of an economy.
The significance of this analysis to an organisation is that it forms a foundation for marketing and advertising process (Quin, 2009). Successful PEST analysis helps the organisation to develop the mission and visions for its business operation. It also helps the firm to formulate plans and strategies of the firm.
Statement of Hypothesis
Does macro environment have long-term effects to organisations?
Literature Review
The external environment of an organisation plays a major role in determining the value of a firm. This is because it dictates the outcomes the firm is able to achieve through its business operation. It is therefore important for the organisation to carry out PEST market analysis before developing its plans and strategies (Allen, 2009).
The firm should asses the market as well as the competitors existing in the economic environment through environmental scanning. In identifying political factors, the firm should analyse the political stability of an economy. It also identifies the legal factors that govern a specified business operation. The organisation should identify the pressure exerted on pricing due to these factors. It should also understand the scope of services allowed in the economy (Bangs, 2002).
In economic factors, the firm should identify factors such as the economic growth within the macro-environment. The company should also know the variable rates existing in the market. These rates include interest rates, inflation rates, exchange rates, etc. Economic factors affect the operation of businesses in a firm since it determines issues such as cost of capitals, revenue generated. It also determines the rate at which the firm will grow (Allen, 2009).
Social factors identify the composition of population in terms of gender, level of income, age, beliefs and culture, etc. It affects the supply and demand of product/services for a firm. Similarly, technological factors, determines the level of innovation for products and services. It also determines the efficiency in level of production. These factors are defined by aspects such as R&D activity, rate of technological change in an economy etc (Allen, 2009).
Significance of the Study
There is much significance for the study; one of the benefits involved is that it equips the firm with necessary information for developing missions and vision for the firm. This improves the effectiveness of strategies in its business operation. Similarly, the study helps the firm to detect new opportunities in the market. This enables firms to maximise their income and subsequently increasing its value.
Limitation
One of the limitations for the study is that there are many variables of PEST analysis. This has caused analysis to be difficult since its scope is wide. Additionally, the economic environment of a firm differs from country to country. This has therefore made such analysis to be relatively expensive.
Methodology
Participants of this analysis involve all stakeholders of a business environment i.e. the customers, suppliers, employers, government, competitors, managers, etc. Data collection methods involved in this analysis involves use of questionnaires and interviews. This forms a vital source for primary data. It also involves the use of secondary data such as reports, records of past trends etc.
Data Collection
The criterion used to analyse data in this research are variable. In political environment, it includes analysing the current and future legislation, policies of trading, regulatory bodies and process, etc. In economical factors, it entails studies of economic trends in domestic country and overseas, taxation of specific products and services, market cycles, inflation and interest rates, etc (Henry, 2008).
Data Analysis
Data analysis for social factors involves analysing lifestyle trends, law changes affecting social factors, ethical issues, consumer buying patterns, etc. Similarly, in technological environment it involves analysis of intellectual property issues, competing technology development, innovation potential, research and development activity etc (Henry, 2008).
Time Scheduled
PEST Market Analysis should be a process that organisation perform continuously at regular intervals. It should be utilized in order to review the strategies of a firm in relation to its core objective. This is because the factors determine the amount of revenue the firm is generates in both short term and long-term basis. Moreover, the market analysis determines the standards of living for the population surrounding the business firm.
Conclusion
Over the years, PEST market analysis has played a significant role in improving the marketing process of organisations especially the multinational corporations that venture into different economic environments. This analysis involves analysing the political stability of a particular country as well the potential growth of an economy. It also analyses different aspects of the market such as income distribution and demographic structure of the population.
This has helped improve international marketing strategies through making market penetration better. It has also allowed companies to stratify the population of a given economy to easily their market target identify. Through PEST analysis, companies have identified their strongholds, which they maximise on to reach their objectives.
References
Allen, K.R. (2009). Launching New Ventures 5th Edition. NW. Cengage Learning, Inc.
Bangs,D.H. (2002). The Market Planning Guide sixth Edition. NW. Dearborn Financial Publishing, Inc.
Henry, A. (2008). Understanding Strategic Management. Oxford: Oxford University Press.
Quin, Z. (2009). Introduction to E-commerce. Beijing: Tsingua University Press & Springer-Verlag.