PEST(EL) ~ A Macroeconomic Analysis

21 Aug
PESTEL

One of the more useful business models popular today remains the PEST(EL) model. PEST(EL) is a macroeconomic analysis model often used by businesses to assess the general market conditions of a new or changing environment. The model lays out a set of normally 4-6 market factors relevant to the business and assesses strengths, weaknesses, and changes therein.

First introduced by Francis Aguilar in 1967, the model has undergone several transformations through the years. Therein lies one its greatest strengths – the model is flexible and is easily adapted or modified to suit the particular market needs or situation.

The most basic and standard format is known as PEST representing political, economic, social, and technological factors.

The model lays out an assessment of key issues or opportunities offered by the national economy and industry. Management can review the factors and quickly assess general potential within the industry or quickly discard economies that are not feasible.

The model itself is not in-depth and must be combined with other models (e.g. SWOT, Ansoff, or Five Forces) should the company wish to continue its analysis. It can also be combined with other macroeconomic models for a more reliable assessment. Detailed information regarding market competition, competitive advantages, supply chain improvement potential, etc. is not covered within this model.

Still, it does provide management with a relatively quick overview of the market itself. Markets not even relatively viable are quickly identifiable, saving management both time and money within the research and strategy stages. At the end of the PEST analysis, the management and decision makers should also have a general understanding of the economy and industry — trends, emerging patterns, major issues, potential opportunities. Management can then more easily identify where to focus its attention and research going forward.

As mentioned above, the model can also be adapted to include factors other than the traditional four. Some variations include:

  • PEST(EL) → Political, Economic, Social, Technological, Environmental, Legal
  • PESTLED → Political, Economic, Social, Technological, Ethics, Demographics

Generally the factors are up to you. Carefully assess your company and focus on the key macro factors specifically affecting you and your planned strategy.

Below is a modified PEST analysis based on the Chinese company Misway and their translator SMARK.

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