Business Plan Market Analysis

Business Plan PEST Analysis

Written by Samuel Muriithi for Gaebler Ventures

PEST analysis is that technique which is used to draw a clear picture of what the external macro-environment that a proposed business or actual business will operate in looks like. What is involved in using this analysis technique for business plan development?

The external macro-environment that a business operates in can be analyzed by considering the four aspects of which it is composed.

These four are the political, economic, social and technological factors. As a business owner you must be fully aware of what these factors portend for the continued wellbeing of your operations. An individual business can do virtually nothing to influence these factors to its advantage and the only realistic course of action is to ensure that it aligns itself in such a manner as to be able to take full advantage of the same.

In using PEST analysis you start by analyzing the political factors that play out in your macro-environment. These factors have a great bearing on the regulations and stipulations that are required of businesses. Political factors also impact and influence the spending power of both businesses and customers with respect to the individual business being analyzed. Some of the issues that arise under political factors analysis include the tax policy, environmental rules and regulations, political stability, employment laws and regulations, and trade policies, tariffs, restrictions and agreements.

Next, your PEST analysis should look at the economic factors. These factors also have a bearing on the spending/purchasing power of potential clients. They also affect the business' cost of capital. The major issues that commonly arise out of economic factors' analysis include inflation rates, currency exchange rates, interest rates, the rate and direction of economic growth, and the GDP per capita.

Using PEST analysis should give you a better picture of the social factors that are present in the external macro-environment. These mostly have to do with the demographic patterns and qualities and also the cultural forces that govern various aspects of peoples' lives. Social factors inform the needs of different customers and they also have an impact on potential market sizes. Here you should be able to identify factors like the rate of population growth, language, religion, ages, roles designated to men and women, wealth distribution based on age, health consciousness, etc.

Lastly, PEST analysis should give you useful information about the technological factors you will contend with. These have the potential to raise or lower barriers to market entry. They can also influence production efficiencies as well as necessitating outsourcing where applicable. The factors commonly identified have to do with technology influence on new product/service innovation, the influence of technology in attaining better quality and more efficient production, how technology is influencing research and development, possible creation of new and better channels of distribution, novel methods for communicating with customers, suppliers and other businesses, and the level of automation.

Samuel Muriithi is a business owner in Nairobi, Kenya. He has extensive international business experience in the United States and India.

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