PEST Analysis

PEST model is an extremely useful tool in strategic management of businesses, PEST analysis helps businesses understand the overall picture of the business environment in which businesses operate as growth or market downturn, business position, opportunities and direction for business activities.

PEST model first appeared in the book "Scanning the Business Environment"

in 1967 by author Francis J. Aguilar - Professor of Management at Harvard University. Initially, the model was named ETPS, later revised to PEST and commonly used. Factors in the PEST model include: Politics, Economy, Society and Technology. These factors belong to the macro environment (outside the enterprise) but have a direct impact on the existence and development of enterprises.

 Political Factors

This is a factor that affects all businesses in a territory, institutional and legal factors that can affect the viability and development of any industry. When doing business on an administrative unit, businesses will be required to adhere to the institutional and legal factors in that area.

This factor often analyzes the following aspects:

Stabilization: This method will analyze stability in the elements of political and diplomatic conflicts of legal institutions. Institutions with high stability will be able to create good conditions for doing business. In contrast, unstable, conflicting institutions will adversely affect business activities in its territory.

22 Tax policies: Export and import tax policies, consumption taxes, income taxes ... will affect the turnover and profit of the enterprise.

Relevant laws: Investment law, enterprise law, labor law, antitrust law, anti-dumping law...

Policies: The State's policies will affect businesses. They can create profits or challenges with the business. These include trade policies, industry development policies, economic development, taxes, policies regulating competition, protecting consumers...

Political factors revolve around questions, when we want to study the establishment or expansion of a company in a given administrative region:

 When is the next local or national election? How can this affect regional policy and governance?

 Who is fighting for power? What are their views on business policies and other issues that affect your company?

 Depending on the country how is the development of ownership and the rule of law, and how common is the level of corruption and organized crime? How can these situations change and affect you?

 Is there a law that hasn't been passed or are any tax changes affecting your business, positive or negative?

 Does your business charter, along with any plans for changes, affect your business? What regulations are coming or removed?

 How does government approach corporate policy, corporate social responsibility, environmental issues and customer protection laws? How is this impact and is it likely to change?

 What is the probable length of time for proposed legislative changes?

 Are there any other political factors that could change?

 Economics Factors

Businesses need to pay attention to economic factors both in the short term, long term and the government's intervention in the economy.

23 Usually businesses will rely on the analysis of the following economic factors to decide on investment in industries and regions.

 Status of the economy: Any economy has its own cycle, in each period of the economic cycle; the enterprise will make appropriate decisions for itself.

 Factors affecting the economy. For example: Interest rates, inflation, exchange rate ... interest rates can affect the cost of capital of the business and thus will affect the strategy of developing and expanding a company. The exchange rate will affect the cost of exported goods, supplies and prices of imported goods.

 Economic policies of the Government. For example: provisions on basic salaries, economic development strategies of the Government, preferential policies for industries: Tax reduction, allowances….

 Future economic prospects. For example: Growth rate, GDP increase, GDP ratio on investment capital ...

Economic factors include the level of growth, interest rates and the inflation rate of an economy. These factors have a great influence on how businesses operate and make decisions.

Economic factors revolve around questions, when we want to study the establishment or expansion of a company in a given administrative region:

 Is the current economy stable? Is it growing, stagnant, or recession?

 Is the exchange rate stable or does it change significantly?

 Customer income level increase or decrease? How will this change in the next few years?

 What is the unemployment rate? Is building a skilled workforce feasible or will it be expensive to hire skilled workers?

 Do consumers and businesses have easy access to credit? If not, how will this affect your organization?

 How does the global world affect the economic environment?

 Are there any other economic factors you should consider?

24

 Social Factors

Each country or territory has its own cultural values and social factors, and these are the characteristics of consumers in those areas.

Cultural values are the values that make up a society and can nurture that society in existence and development. Therefore, the common cultural factors are extremely well protected and large scale, especially the spiritual culture. Obviously, we cannot trade pork sausages in Muslim countries. However, we cannot deny the cross-cultural intercourse of cultures in many countries. This interference will change consumer psychology, lifestyle and create development prospects for industries.

Even in Vietnam, we can immediately recognize the cross-cultural intercourse through the recent Korean cultural trend. On the road, we can easily see girls with Korean hairstyles, Korean makeup, Korean clothes ... All from Korean music and movies.

In addition to culture, social characteristics also make businesses interested in market research; social factors will divide the community into customer groups, each with characteristics, psychology, and revenue. Enter ... different, including:

 Average life expectancy, health status, diet, and eating

 Average income, income distribution

 Lifestyle, education, aesthetic and lifestyle perspectives

 Living condition

In Japan, Germany or some developed Western countries; there are many people with high incomes, good living conditions, ability to education and work in stable positions in society. However, they prefer to be single, do not want to have to take responsibility for the family, the work of giving birth to children ... These factors have caused German businesses to give birth to services, clubs, goods chemistry for singles.

Socio-cultural factors are revolved around questions, when we want to study the establishment or expansion of a company in a given administrative area:

 What is the rate of growth and age of the population? How can this level

25 change?

 Can changes in attitude over generations affect what you are doing?

 What employment patterns, labor market trends, and attitudes toward work can you observe?

 Are these points different for different age groups?

 How can attitudes and taboos in society affect your business? Are there any recent social and cultural changes that may affect these?

 How does religion and lifestyle affect the population?

 Are there any other socio-cultural factors that are likely to drive change in your business?

 Technological Factors

The whole world is still in the industrial revolution 4.0 (revolution of technology), a series of new technologies are born and integrated into products and services. 30 years ago, computers were just a tool to calculate, but today they have the function to replace a completely independent working person. Previously, we used film cameras; there are not many film manufacturers for cameras. Especially in the field of information technology, modern communication technology has helped to link geographical distances and means of transmission.

This factor can be analyzed based on the following factors:

 Investment of the Government and enterprises in research and development (R&D). In the 60-70s of the last century, Japan has made the countries in the world admired with a great leap in economy, mainly human factors and new technologies. Currently, Japan is still the country with the largest investment in research on GDP in the world. The combination of businesses and the Government to research and introduce new technologies, new materials ... will have a positive effect on the economy. Today, we see the miraculous development of the nation of Israel due to the concentration and investment in its development research.

 Speed, cycles of technology, rate of outdated technology: if previously it took manufacturers a lot of time to speed up the processor speed, this

26 speed now takes only about 2-4 years. A brand-new computer or smartphone set after half a year has become obsolete with technology and software applications.

 Influence of information technology, Internet on business activities, reducing communication costs and increasing distance working rate.

 Technological factors revolve around questions, when we want to study the establishment or expansion of a company in a given administrative region:

 Are there any new technologies you might be using?

 Is there any new technology coming out that could have a huge impact on your industry?

 Can any of your competitors using new technologies completely renovate their products?

 What areas are governments and educational institutions focused on?

What can you do to take advantage of this?

 How does infrastructure change affect work processes (eg distance work level)?

 Can you work or study an existing technology center?

 Are there any other technological factors you should consider?

APPLICATION

PEST is a useful analysis tool to help you get a "big picture" of the environment in which your company is operating, thereby identifying potential opportunities and threats in it. The PEST analysis helps businesses understand the business environment. From there, they can map out a clear and appropriate plan for each specific area, make the most of the opportunities that come to them and minimize threats and easily face challenges.

The importance of the PEST model factors for each company will vary depending on the industry environment and the products and services it provides.

For example, social factors will greatly affect B2B consumers and businesses, while government service providers will be more affected by political factors.

27 Factors that are volatile in the future or closely related to the organization will have a greater influence. For example, an organization that has to borrow from outside will find that economic factors (especially interest rates) are more important than political or social factors.

The PEST model helps you understand how Political, Economic, Social and Technology changes will shape your business environment. You can use these steps to think about the salient features of a business environment (this could be a new or existing country, region or market) and draw conclusions from it. about the force of considerable change operating within its scope. This provides a specific context for detailed planning in which you will be able to minimize risks and make the most of current opportunities.

Look for opportunities: Once you have identified what is changing, it is time to look at each change and think about opportunities that may open up. For example, can it help you develop new products, open new markets, or help you make processes more efficient?

Look for threats: You also need to think about how these changes could undermine your business. If you understand this early, you can avoid or minimize their impact.

For example, if the population of your main market is declining, can you expand to other regions? Or if new technology is threatening a key product of the company, can you master that technology and improve the product? (Risk analysis can help you assess these threats and devise strategies to manage them.)

Action: Once you have identified great opportunities, describe the actions you will take to exploit them in your Business Plan. Once you have identified significant risks, take appropriate action to manage or eliminate them.

28

CHAPTER THREE: RESEARCH METHOD