What are the 3 general steps needed to carry out a PEST analysis?
What is the purpose of a PEST Analysis?
-It is to use at a start of a strategy review process, such as assessing the feasibility of an overseas investment project.
What does PEST stands for?
What are the last two E's and L's stands for of STEEPLE?
-Political, economic, social, and technological
-Environmental, Legal, and ethical
What are the elements of Political?
-government legislation (such as employment law, consumer protection rights, copyright and trademark regulations)
-government intervention (such as taxation and interest rate policies)
What are the elements of economic?
-inflation, unemployment, economic growth and international trade (export earnings less import expenditure of a country)
What are the elements of social?
-social, cultural and demographic changes; with a more liberal and modern attitude towards women in society, firms have benefits from having a more flexible labour force
What are the elements of technological?
-advance in technology and work processes (such as the microchip revolution or the introduction of just-in-time stock control system) have improved the efficiency of businesses
What are the elements of environmental?
-Citizens, organizations and governments who are aware and concerned about the negative impacts of business activity on the global environment
Ex: passive smoking, air pollution, and global warming
What are the elements of legal?
-Consumer protection legislation, Employee protection legislation, Competition legislation, and Social and environmental protection legislation
What are the elements of ethical?
-Moral principles that are considered in business decision-making, i.e. what is good or bad.
What are the 4 key economic objectives of most governments?
-Controlled inflation, economic growth, reduced unemployment and an acceptable international trade balance.
Draw the business cycle.
Explains what happens during each phase.
-Peak: People are likely to be receiving pay rises as businesses make higher levels of profit. Businesses will tend to have a very good cash flow during this period.
-Recession: A dip in the level of economic activity for two consecutive quarters. Decline of aggregating demand, lower investment expenditure, falling export sales and rising unemployment.
-Slump: The bottom of a recession. A high level of unemployment, very low levels of consumer spending, investment and export earnings.
-Recovery: National income begins to increase again, so consumption, investment, exports and employment will all gradually rise.
What is gross doemstic product?
-The total value of a nation’s annual output. It is used as an indicator of the level of economic activity in a country.
How do different factors affect businesses, such as
a. How diversified a business is
b. Management capabilities
c. Size of the business
d. Level of Gearing (extent to which firm relies on external borrowing)
f. Price Elasticity of demand (measure the degree of responsiveness of changes) in demand due to a small change in the product’s own price
a. It leads to many business opportunities such as growth in sales and a boom in the trade of cultural exports.
b. If an owner can’t manage well, then it may lead to a decline or slowing down their business thus having it being shut down. If an owner does manage well, then their business will continue being successful in the long run.
c. If it’s too big, then there might be more conflicts as there are more internal stakeholders which may cause problems in the business. If it’s too small, it might be a harder time for the internal stakeholders to pay taxes, rents, or other necessities for their business.
d. The business may fail if they can’t manage to pay back in return for their borrowing.
f. If the price is too low then the business may be in debt if they can’t afford to pay for any more materials to use to make their products. If the price is too high then some people may not likely buy the product.
What is demand pull inflation? How is it caused?
-An aggregate demand which is the sum of all demand in an economy.
-Is caused by an increase in money supply, government purchases, price level in the rest of the world.
What is cost push inflation? How is it caused?
-An aggregate supply which is the total value of the goods and services produced in a country, plus the value of imported goods less than the value of exports.
-Is caused by higher costs of production leading to a rise in prices so that firms can maintain their profit margins.
How does inflation affects businesses?
- It can make business planning and decision-making more complicated.
-It also has an effect on the international competitiveness of a country.
-A nation that has a higher inflation rate than its rivals will tend to be less price-competitive when trading overseas.
-It can lead to a fall in export earnings, lower national output and perhaps higher unemployment.
How does exchange rates affect businesses?
-A higher exchange rate can make export prices higher which then reduces the exporter’s price competitiveness.
-A lower exchange rate can also mean that domestic firms that imports raw materials will suffer from having to pay higher prices, which then raises their production costs.
What is the difference between internal and external factors of a business?
-Internal factors are the constraints and opportunities (facing a business in the attempt to achieve its aims and objectives) within a firm’s own control.
-External factors are those issues which either restrict or aid the performance of a business but are beyond its control.