A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:
The acronym PEST (or sometimes rearranged as “STEP”) is used to describe a framework for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:
Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include:
Economic factors affect the purchasing power of potential customers and the firm’s cost of capital. The following are examples of factors in the macroeconomy:
Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include:
Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include:
External Opportunities and Threats
The PEST factors combined with external microenvironmental factors can be classified as opportunities and threats in a SWOT analysis.