Assignment on PEST analysis

                                                                PEST Analysis

Introduction:

            Marketing is one of the major fundamental parts of a business. Before initiating a marketing process an organization must consider environment. Considering environment facts, organization will make its plans. An organization’s marketing environment is divided in three parts like internal environment which includes staffs and internal customers, wages, office technology and finance, etc, the micro environment which consists of external customers, distributors and agents, competitors and suppliers and last one is macro- environment which describe political, economic, socio-cultural and technological forces and those are called PEST factors.
PEST analysis is very useful, simple and widely used tools that help the business organization to know its political, economic, socio-cultural and technological environment and those factors help them to make a vision and plan. PEST analysis is very important because it helps to know what the present outside condition of an organization is and what needs to change, it helps to avoid failure and it is very useful when any organization start its journey in a new place or a country. I will discuss all the factors and what will a business organization response on those factors.

PEST factors:

            Now I will point out all the factors which have important environmental influence in a business organization.

[1]                                       

Political factors:

·         Environmental directive and fortification

·         Taxation (customer, corporate)

·         International trade directive

·         Consumer fortification

·         Employment Law

·         Government institute/ approach

·         Competition directive

Economic Factors:

·         Economic growth (overall; by industry division)

·         Monetary strategy (interest rates)

·         Government expenses (overall level; precise expenses priorities)

·         Policy towards unemployment (smallest amount wage, joblessness benefits, grants)

·         Taxation (impact on client throwaway income, incentives to devote in capital tools, business tax rates)

·         Exchange tariffs (Effects education on demand by abroad clients; effect on cost of trade in components)

·         Inflation (outcome on costs and selling prices)

·         Stage of the business sequence (outcome on short-term business act)

·         Economic “mood” –customer assurance

Social factors:

·         Income allocation (change in allocation of disposable income)

·         Demographics (age structure of the population; family size, gender, composition; changing nature of occupations)

·         Labour/ Social mobility

·         Lifestyle changes (e.g. single households, home working)

·         Attitude towards job and vacation

·         Education

·         Fashions and fads

·         Health and welfare

·         Living conditions (pollution ,housing, amenities)

Technological factors:

·         Government expenses on research

·         Government and industry spotlight on technological effort

·         New discoveries and expansion

·         Speed of technology convey

·         Rates of technological obsolescence

·         Energy utilization and costs

·         Changes in substance science

·         Impact of changes in information technology

·         Internet

Factors and organizational response:

Environmental factors:

Environmental regulation and protections: environmental regulation and protection become very important issues for last couple of decades. All business, from shop and offices to businesses in sectors like chemicals and agriculture, has lawful obligations that they have to fulfil.  Risk assessment need to be done. Local authorities will monitor small businesses but for big ones Environmental agency will take part this thing. First of all, organizations must manage their waste in a proper way; they have to follow the environmental standards. Factories must store and dispose waste appropriately. A disposal unit will responsible for disposing and wasting goods and materials. They need to take extra care on hazardous materials and chemicals otherwise those will pollute local environment. Pollution and contamination must be in control. Emission rate will reduce and extra care should be taken to noise, dust and smells. Every big company must have water treatment plant otherwise surface water or ground water will be contaminated. A regulatory committee will monitor every environmental regulations and protection at regular basis. [2]

  

Taxation (Corporate, customer): there are five kinds of business taxes

1. Corporate finance tax

2. Excise tax

3. Employment (withholding) tax 

4. Gross-receipts tax

5. Value added tax

Some business organizations have to pay more taxes like insurance, petroleum extraction, and mining companies. All the business taxes have an impact on people taxes because if they government impose new tax, companies will increase the price of products and services and people have to pay extra money. All the consumers have to pay value added tax (VAT) for the products and services. All the end users have to pay this tax. If government increase the VAT, sometimes it hampers business as people leave the services or products  

International trade regulation: Normally international trade regulation is done by two bilateral treaties between two countries. Most of the countries have high tariffs and restrictions on international trade. Now most of the rich countries beliefs on free trade agreement as they are economically dominant. Companies doing business crossing international border face a lot of risks which have a great impact on domestic transactions. As like

·         Buyer insolvency

·         Credit risk

·         Non-acceptance

·         Intervention

·         Regulatory risk

·         War and other out of control incidents

·         Political risk [3]

All the companies should follow the rules and regulation of international trading regulations.

  Consumer protection: it is designed to ensure fair trade competition and provide actual information in the marketplace. Consumer protection law is a private law which relates individual clients and the businesses that sells services and goods. Consumer protection cover a lot of topics like privacy, product liability, fraud, unfair business practices, misrepresentation and other business/consumer interaction. This law deal with product safety, credit repair, service and sales contracts, debt repair, bill collector regulation, utility turnoffs, pricing, consolidation and personal loans. [4]

Employment law: Employees have the entitlement and right how they are dismissed and disciplined, how their complaints are handled, their absence, wages, sickness, work breaks and bonus, holidays, maternity, paternity, parental leave, flexible working hours and redundancy. All the employees have right against gander discrimination, race, disabilities, age, belief and religion. All the employers need to know how to deal with promotion, recruiting, dismissals, disciplinary action, staff management and so on. Every workers and employers must respect the employment laws.

Government organization/attitudes: Sometimes government control local market and international market through good collaboration with international and local businessman. Sometimes government negative attitude can destroy a company or its operation completely. If businessman has good relation with political parties sometimes they are benefited.

Competition regulation: It has main three elements:

1.       Prohibiting practices or agreements that restrict competition or free trading between businesses.

2.        Banning offensive behaviour by a firm controlling the market or anti-competitive exercises that lean to guide to such a leading place. Predatory pricing, price gouging, tying, refusal to deal and many others are controlled by the law. 

3.       Supervising the acquisition and mergers of large corporation as some large joint ventures. [5]

Economic Factors:

            Some economic factors affect the working of business organization through internally, operationally and externally. Those factors are describing below:

Economic Growth and Development: Economic growth means the amount of money or finance that the country is earning and development means the amount of money is being devoted in long term up-gradation. Development is the most influencing economic factors which is responsible to build dynamic society. [6]

Demand and supply: Demand and supply are two main factors of business. Demand is the purchasing power of customer and supply means the ability to provide for the demand or clients. Those two things are inter-connected. [6]

Monetary policy: banking facilities monetary and economic policy has a great impact on customer and business. If the interest rate is too high customer are unwilling to borrow money from bank, which has negative impact on business.  

Government spending: If government has a good affiliation with businessman customers will be benefited as government can lessen the tax for importing goods. If government give incentives to small businesses then customer can buy product in a fair price and government need to monitor the market at regular basis otherwise some businessman stock the product to increase the price in market.

Policy towards unemployment: Government must fix the scale of employee’s income otherwise there will be discrimination. Government must give some benefits to unemployment people by providing allowance, special training and recruiting. Everyone must work together to minimize unemployment rate.    

Taxation: if taxation increases for customer or business organization demand will decrease. Different interest rate must be determined for different businesses from the government. Government earn a good amount of revenue from customer and businesses taxes.

Exchange rate: Exchange rate has a direct impact on importing goods. If the exchange rate suddenly goes high, importing goods will decrease in a big amount which causes a price increasing in local markets. All times banks must have liquid money to provide to businessman to run their business smoothly.

Inflation: If inflation rate is high, customer’s purchasing power will go down which cause great demand reduction. Government must control inflation rate otherwise it can hamper the economy in diverse ways. First world countries have low inflation rate, on the other hand third world countries has high inflation rate.

Stage of business cycle: Business cycles are the variable costs of products and commodities in an economy. Stability, rise, fall and continuity are some of the major cycles that affect the price of all products such as credit, raw material, final goods, etc. Business cycle affects the general price level very eloquently. [6]

    

Social Factors:

Income Distribution: income distribution has a great impact on business. Income must be relevant with skills and experiences focus on chronological distribution. If income is not distributed properly, purchasing power will be reduced and business will face great loss. Mass people will be enrolled in incoming activities.

Demographics: Demographics have a great impact on business environment. Buying and selling are varied with age of the population, family size, gender and consumption. Changing occupation also has some influence, if the salary goes high purchasing power increase and if salary goes down purchasing power decrease.

Labour/ social mobility: Social mobility has a great impact on business environment. Social mobility relates to the economic condition of people. If people economic condition going lower class to middle class or middle class to higher class, businesses get profits. On the other hand, for downstream of economy businesses will face loss.

Lifestyle change: Now a day’s people become modern and they are changing their demands with time and economic condition. If people become rich their demand will be high and they will use quality goods. On contrary, if people become poor their demand will be low and they will use inferior products.

Attitudes to work and leisure: If people are too much busy in work and have less time to relax, sometime have an effect on business. There must be balance between work and leisure. Working societies have better buying power than less working society.

Education: Educated people always try to understand the market place. They will judge the market condition before buying. Most of the rich countries are well educated that means if you become educated, education will show you how to change your economic condition, life style, attitudes which have a great impact on business environment.

Fashion and fads: fashion and fads will change with time, so all business organizations are very careful about this factors. When fashion changes people demands for certain product will change. Young generation change their fashion frequently rather than old generation.

Health and welfare: Health and wealth are inter-related. Sound body and mind have the willing power to change life and go for extra miles. Healthy people can do more work and earn more money, the ultimate result of increment of purchasing capabilities.

Technological Factors:    

Government spending on research: Technologically sound countries have great efficiency in work and activities. So government must allocate more money on research activities to improve the efficiency and effectiveness.

Technological effort: Government and business will give more emphasis on technology. Business organization will adapt with technology otherwise their efficiency will decrease. Technologically solvent countries or business organizations have more purchasing capability then other countries and organization.

New discoveries and development: Everyday technology is improving. If any company launch a new technology or a new product with new technology, people are attracted by those and companies do a huge profit. New idea has a great power in business environment.

Speed of technology transfer: when a new technology come to market people are rushing to accept new technology. Business organization will change their operation and marketing with technology otherwise they will fall apart from the competition.

Rate of technological obsolescence: if the rate of technological obsolescence is high people have great economic condition and buying capability.

Energy use and cost: Energy use and cost have great impact on business. If the cost of energy goes high businesses have to pay extra money which will cause increase in price and customer have to pay more money than usual.          

 Impact of change in information technology: information technology has a great effect on business. Previously most of the communication was done by direct contact but now visual communication like phone conversation, email, fax are intensifying the contact which cause rapid business.

Conclusion:

             All business organizations have strategic plans. For deciding and determining those plans they need to do market research. They can do market and environment research by using SWOT and PEST analysis. SWOT analysis will provide information regarding strength, weakness, opportunities and threats to an organization. By PEST analysis organizations come to know about internal and external market condition. Before implementation of strategic plans, those two research are mandatory. Without proper research business will face great loss. Government must cooperate with business organization to provide better services and goods to general people. If government, businessman and mass population work together to change the economy to upper grade and it is possible. So we will work together for our better future.    

 

    

References:

1.       Strategy: PEST analysis, Accessed on: 31-05-11, Available on: http://beckmann-bio.com/files/dictionnaire/pest_analysis.html

2.       Environmental Regulation, Accessed on: 31-05-11, Available on: http://www.lawdonut.co.uk/law/health-and-safety/environmental-regulations

3.       International Trade, Last modified on: 20-05-11, Accessed on: 31-05-11, Available on: http://en.wikipedia.org/wiki/International_trade

4.       Consumer Protection, Last modified on: 30-05-11, Accessed on: 31-05-11, Available on: http://en.wikipedia.org/wiki/Consumer_protection

5.       Competition Law, Last modified on: 1-06-11, Accessed on: 31-05-11, Available on: http://en.wikipedia.org/wiki/Competition_law

6.       Economic factors affecting business, by Scholasticus K, Last modified on: 15-03-10, Accessed on: 31-05-11, Available on: http://www.buzzle.com/articles/economic-factors-affecting-business.html