1.

UNDERTAKING PEST ANALYSIS

Political
Local, national and international political changes can affect both costs and demand. Issues to
consider are:
 Direct and indirect taxes, such as income tax and VAT, influence consumer spending
and market demand.
 Corporate taxation has an impact on the profitability of a business.
 Public spending by central and local government has a direct impact on the level of
demand
 within the economy.
 Regional and industrial policy can affect businesses at a micro level and the availability
of regional grants or other forms of assistance will boost local economies.
 Monetary policy and the level of interest rates will affect demand and a business’s
ability to
 service its debts.
 Exchange rate policy can have a critical effect on importers and exporters.
 Changes in international trade can create new markets.
 Competition law lays down rules on what a business can and cannot do and may be a
crucial factor in the case of a merger or acquisition.
 Regulation and deregulation can have a dramatic impact on the business environment
and individual business sectors.
 Education and training have a long-term impact on a business’s ability to recruit
suitably qualified staff and to compete in international markets.

Economic
Local, national and international economic factors to consider are:
 Business cycle: Developed economies often follow a pattern known as the business
cycle where periods of faster growth are followed by years of slower growth or even
recession. Some sectors, such as construction, advertising, leisure and restaurants are
more susceptible to the impact of the business cycle than others, such as the
manufacturers of food stuffs, where demand is less critical and tends to be more
constant.
 Employment levels: These are closely related to the economy’s position within the
business cycle but also the state of the local economy. High levels of unemployment in
a region will reduce demand but will also mean that labour is easier and cheaper to hire.
 Inflation: This can affect a business in many ways. For example, if the rate of increase
in the price of raw materials is greater than the rate of inflation for the business’s
products, then the business will experience a fall in profitability in time. Interest rates
and exchange rates, as mentioned under political factors, can critically affect a
business’s profitability.
 Exchange rates can make goods more or less expensive to oversees customers.
 House prices and stock market prices: The growth or fall of house prices and the
movement in stock market levels affect consumer confidence and hence consumer
spending.

Social
Shifts in a country’s demography and social cultural values usually occur over many years.
However, with improvements in communication and increased employee mobility between
countries, the speed of social and demographic change can be expected to increase.
  Population growth: The rate of growth of the population will have a direct impact on
the size of the potential addressable market for a product or service. Population growth
is typically higher in developing countries.
 Age structure: In the developed western world economies are experiencing a
significant increase in the average age of their populations. Differences in age structure
of the population have implications for the overall level of saving compared with
consumer spending and the relative sizes of the working and dependent sections of the
population.
 Social and cultural shifts.

Technological
Changes in technology can have a rapid and dramatic impact on the economy. Issues to
consider
include:
 Level of research and development by competitors: This will provide an indication of
whether any changes in technology-driven production processes or new products
should be anticipated.
 New markets: Does the introduction of new technology create a new market for a
particular technology-based product or service?
 Rate of adoption of new technology: It is often a considerable time before new
technology gains mass-market appeal. The business plan must examine how long it will
take the new product to penetrate the market.
 Production methods: How might technology be utilised to improve production methods
within the business, and how might competitors utilise technology to gain competitive
advantage?

Later versions of PEST include both legal issues (making SLEPT), environmental issues
(making PEEST), or legal and environmental issues (making SLEEPT). A possible definition
for legal and environmental factors is as follows:
 Legal factors: Changes in the law that might affect a firm (usually included in P
(Political)).
 Environmental factors: Green factors are becoming increasingly important to
businesses; a business’s environmental credentials will be linked to its reputation and
corporate image.

2. UNDERTAKING SWOT ANALYSIS

3.
There are 17 commonly recognised steps in the implementation of a SWOT analysis as listed
below. The term “factor” used below is a descriptive label to describe an issue, subject area or
influence that will determine a business’s ability to compete in the market place.
Step 1: Establish the individuals that should be involved in the process. It should include
employees from all key areas of the business.
Step 2: Consider involving (if appropriate) key customers, suppliers or other sympathetic
outsiders who know the market within which the business operates and can provide an
objective independent view.
Step 3: Arrange a workshop (date, time and venue) to identify the business’s strengths and
weaknesses and the opportunities and threats facing it.
Step 4: Ask participants to collect and review information on internal management and external
factors affecting the market within which the business operates, prior to the workshop.
Step 5: Decide whether there is a suitable individual in house who would have the skills and
objectivity to manage the workshop, or if required appoint an external facilitator.
Step 6: Prepare and issue a briefing pack to the participants including some basic details about
the structure of the market and the business’s performance within that market, so that
discussion within the workshop is less subjective.
Step 7: Decide on how the factors will be measured/quantified.
Step 8: Hold the workshop. Brainstorm the factors.
Step 9: List the strengths, weaknesses, opportunities and threats. Only important factors should
be included, but some factors will invariably be more important than others. Each factor should
be a short bullet point so that the SWOT analysis fits on one page.
Step 10: Strive to make factor descriptions as specific as possible.
Step 11: Where possible quantify the factors.
Step 12: Quantify in a readily comprehendible way – an amplification of a statement made
about “broad distribution” may be “our products are distributed through 800 outlets compared
with our nearest rival’s 300 outlets”.
Step 13: When there are no further suggestions, score each factor and list the factors in order
of importance.
Step 14: Provide some explanation of the factors in the form of supporting paragraphs on a
separate sheet.
Step 15: Assess the significance of the SWOT analysis completed.
 3.Ratio Analysis
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