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PEST is a tool used to analyze the market environment, looking at political, economic, sociocultural, and technological factors. Political factors include regulations and codes, while economic factors include global business cycles and fiscal policies. Sociocultural factors include the culture of a market, and technological factors include the need to keep up with new advances.
A market environment analysis is an analysis of both external and internal environments relating to an organization. An economic tool for conducting an analysis of the market environment is the Political, Economic, Sociocultural and Technological (PEST) tool. This metric for measuring a market environment looks at the various factors listed in a selected market in order to find out how they relate to the business.
The first step in applying PEST to an analysis of the market environment is to conduct a study of the political factors that can have a positive or negative effect on the company. An example are the various codes and regulations imposed on different industrial sectors. This can be seen in the construction industry sector where mandatory administrative rules specify the means of intervention. For example, in the United States, the Occupational Safety and Health Administration (OSHA) sets rules regarding the way various occupational sectors operate.
They set rules regarding worker safety, required training, safety equipment, safety procedures, and even the number of hours in shifts. The Environmental Protection Agency (EPA) sets rules that primarily restrict the practices and activities of those in the industrial, manufacturing, construction, medical, and agricultural sectors. Such rules may prove too restrictive or costly for producers and other market participants. Other environmental political factors include taxes, market regulations and political stability in the country.
Economic factors in market environmental analysis consist of an assessment of international and national economic policies that may affect the market. Such economic considerations include national and global business cycles, recessions, and fiscal policies. Sociocultural considerations include the culture at work in a market and its effects on the market. For example, markets with highly restrictive cultures can negatively impact a company, while more open cultures can offer greater benefits.
Examples of ways cultures can influence markets are numerous. For example, in Western cultures that encourage people to maintain a lean physique, the market for health products, fitness equipment, and fitness services can thrive. On the other hand, such a market might not be very successful in a place where people aren’t that passionate about losing weight. Technology is another environmental factor that can be taken into consideration when carrying out an analysis of the market environment. The growth of technology has made it imperative for organizations to keep up with new advances as they emerge in order to stay relevant in a competitive marketplace.
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