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?

Political-Legal Environment
Political Considerations Perhaps the most important considerations for global business firms are the political and legal forces operative in the countries in which they plan to conduct business. Some foreign governments are unstable, that is, there maybe frequent, dramatic and unpredictable regime changes and/or political unrest. When this occurs industries may be nationalized; private property may be seized or destroyed; normal business operations may be suspended, the workforce may go on strike. For example, during the recent unrest in Venezuela banks were shut down for months, workers were on strike, rioting broke out, food stuffs were seized from private companies. Even within relatively stable governments, as different administrations come to power different business regulations and attitudes may be adopted. Among the available resources, the United States government provides several comprehensive sources of information on the political structures of the world's nations. Legal Considerations - Local Firms involved in global business must be familiar with and obey the laws of their home country, the local laws of each country in which they do business, and international laws.. For example, countries may well have different laws covering employees such as minimum wages, overtime, insurances, maximum work weeks, and so on. There are also often differing rules regarding product testing and safety. Business practices which are common in one country may be illegal in another, for example, the bribing of public officials. Some specific examples of differing local laws which can have a major impact on international business are as follows.

Local content: It is not unusual to face with local laws that stipulate that a certain amount of a good or service is supposed to be supplied by local producers, this is referred to as local content requirement. Under such laws, companies are required to use locally available raw materials, local labor resources, or purchase parts from local suppliers. The purpose of such a measure is to foster greater local economic activities that spur more jobs for the citizens of the host country. However, among many complexities that may arise, multinational firms need to watch for two potential problems in adhering to local content rule. o The quality of local raw materials: A lot of companies rely on the quality of their products in order to retain the loyalty of their customer base or maintain or increase market share. With that said, it is imperative to obtain quality parts and quality raw materials to use in assembling a final product to satisfy customers. Consider, for instance, the dififculty a company such as Toyota could face. Customers purchase Toyota models because of their renowned quality. If they start to experience a denigration in quality with a model due to some required local low-quality parts, they may stay away from that model. Hence,if the requirements of local content laws mean purchasing lower quality, local raw materials or parts this may affect the quality of the final product and that will, in turn, diminish market share. o The low-skilled labor force: By the same token, when multinational corporations are forced to use the local labor force, they may face a problem if that workforce is lowskilled. The low-skilled labor force may cost less, but it may also translate into a lowquality product or defective product. In the case of low-quality product, market share can be lost to competitors with better products. As for defective products, the company and its

officials can be held liable for damages resulting from product use. The other option may be to train the local employees to bring them to a productive level. However, the training can be costly, the learning curve may be steep, and once the employees are well trained, there is no guarantee that they will stay as your employees. Consequently, this requirement may hamper efficiency, as well as the quality of the product, resulting in loss of revenue for the company involved. Product safety: Product liability allows consumers to hold manufacturers, sellers, even some company officials liable for death, personal damage or injury caused by defective products. Countries usually enact product safety laws to protect their citizens and set up the standards to manufacture the products. In order to avoid retaliation and lawsuits, it is of crucial importance to familiarize the enforcement of local product liability laws. Taxation: Countries always have some sort of system for tax collection purposes. Governments levy taxes for various reasons. For instance, a tax can be levied on imported products to make the products more expensive than similar products manufactured locally, this is referred to as an import tax. Taxes are also a great source of revenue for governments to pay their employees and to finance and maintain specific projects. In addition, many governments collect a value added tax (VAT). The VAT system works by charging a tax at each stage a value is added to a product.

Legal Considerations - International Businesses must also follow those international laws which govern international trade. For example, dumping which is a practice of selling exported products at a very low price, in some instance, lower than the cost of production with the ultimate intention to drive local competitors out of the market. Under the pressure of local companies, governments may find it necessary to intervene to prevent such practice by adopting antidumping laws and regulations

Political environment The political environment of a country is influenced by the political organisations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. political stability in the country, foreign policy, Defence and military policy, image of the country and its leaders in and outside the country. The political environment of the country influences the business to a great extent. For instance, the Government of India, bottling and sale of cocoa-cola was discontinued in India in the late seventies following policy of restricting the growth of multinationals in Indian markets. But, its entry was allowed under the New Industrial policy of 1991. Under this new policy, government allowed liberalized licensing, imports and exports, inflow of foreign capital and technology on more liberal terms. The trend towards globalization and signing of GATT in 1993 have posed new challenges before Indian business. Legal regulatory environment Legal environment includes flexibility and adaptability of law and other legal rules governing the business. It may include the exact rulings and decision of the courts. These affect the business and its managers to a great extent. For instance, in 1992, the Supreme Court ordered the closure of a number of tanneries in Kanpur as they were polluting Holi Ganga. In August 1993 several foundries around the famous Taj Mahal were ordered to be closed down because of air-pollution caused by them had adverse impact on the whiteness of Taj Mahal.