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Pest analysis is a scan of the external macro environment in which the firm operates. It includes the political, economic, social and technological factors that impact the firm’s growth and advancement.

Political Factors:
These include the ones that related to governmental regulations, rules and legal issues. Some examples include tax policy, tariffs, trade restrictions and political stability etc.

Economic Factors:
Factors such as interest rates, economic growth, exchange rates and inflation etc. are a part of this. These are the factors that influence the purchasing power of customers and the firms cost of capital.

Social Factors:
These include the demographic and cultural aspects of the environment the company operates in. These affect customer needs and preferences and size of potential markets. Social factors include health consciousness, population growth, age distribution, trends, customs etc.

Technological Factors:
These include research and development activities, automation, technology incentives etc. These factors can lower barriers to entry, reduce minimum efficient production levels etc. (Worthington, pg 527)

REFERENCES

Ian Worthington, (2006), The Business Environment, Financial Times/Prentice Hall, page 500-527.