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Assignment Question 2/2 (page 1-16):

PEST analysis is used by businesses around the world to devise a


strategic approach to their activities. Discuss this statement describing
in detail the components of the said analysis. (25 marks)

[Total: 1921 words]

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Table of Contents

Table of Contents 2
Introduction 3
PEST analysis and Business Strategy 5
When to use PEST Analysis 5
4-Step process 6
Step 1: Brainstorm Factors 6
Step 2: Brainstorm Opportunities 9
Step 3: Brainstorm Threats 9
Step 4: Take Action 9
Case Study - Air Mauritius 10
Conclusion 12
References 13
Bibliography 15

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Introduction

A PEST analysis is an important part of a business's planning process to evaluate and


analyse the impact that political, economic, social, and technological factors might
have on a business.

PEST is an acronym for the following factors:

Political factors

Economic factors

Social factors

Technological factors

Harvard professor Francis Aguilar is believed to be the creator of PEST Analysis. He


included a scanning tool called ETPS in his 1967 book, "Scanning the Business
Environment." The name was later tweaked to become PEST (Aguilar, 1967).

Political factors determine the extent to which a government may influence the
economy or a certain industry. For example the government of Mauritius may impose a
new form of tax which would aect both the organisation and employees.
Examples of other factors: Ecological/ environmental issues, Regulatory bodies and
processes, Government policies.

Economic factors are determinants of an economys performance that directly impacts


a company and have resonating long term eects. For example a rise in the inflation
rate of any economy would aect the way companies price their products and
services.
Examples of other factors: General taxation issues, Taxation specific to product/
Services, Seasonality/weather issues, International trade.

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Social factors often look at the lifestyle trends of people, scrutinising the social
environment of the market and gauging determinants like cultural trends,
demographics, population analytics etc. An example can be buying trends in Mauritius
where there is high demand during the end of year season.

Examples of other factors: demographics, Consumer attitudes and opinions, Brand,


Company, Advertising and publicity.

Technological factors pertain to innovations in technology that may aect the


operations of the industry and the market favourably or unfavourably, a good example
would be the switching from tape cassettes to CDs & DVDs.
Examples of other factors: Associated/dependant technologies, Technology
legislations, licensing, patents, Intellectual property issues.

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PEST analysis and Business Strategy
No business strategy can begin without first determining the business goals. These
are the long-term objectives of the organisation, i.e. where it wants to see itself in, lets
say, the next five years. Of course, there will be business goals for each marketing plan
as well.

Lets take Steve Jobs as an example.Would Apple Inc. have been so successful if it
mass produced generic smartphones and tablets and hired the most prestigious ad
agency in America to promote them?
Maybe, but if it were that easy, there would have been many Apple Incs on the market
instead of just one. But what made this company stand out is its ability to identify a
niche, developing products that niche would happily buy and then using relevant
promotion, packaging, pricing, and distribution to close the sale.
The case in point is what we call PEST analysis.

While PEST only takes external factors into account, it oers crucial contributions to a
companys marketing (strategic) eorts.

When to use PEST Analysis

Source : free-management-ebooks.com

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Four reasons how PEST analysis can help companies enforce a business strategies:

1/ It helps to spot business opportunities and anticipate threats.

2/ It reveals the direction of change within the business environment. This helps shape
what the business is doing, so that management and employees work with change,
rather than against it.

3/ It helps to avoid starting projects that are likely to fail, for reasons beyond control.

4/ It can help break unconscious assumptions when trying a new country or market
penetration; because it helps develop an objective view of this new environment.

4-Step process
1. Use PEST to brainstorm the changes happening around you. Use the prompts
below to guide your questioning, and tailor the questions to suit the specific needs
of your business.

2. Brainstorm opportunities arising from each of these changes.

3. Brainstorm threats or issues that could be caused by them.

4. Take appropriate action.

Step 1: Brainstorm Factors

Political Factors to Consider

When is the country's next local, district, or national election? How could this
change government or regional policy?

Who are the most likely contenders for power? What are their views on business
policy, and on other policies that aect your organisation?

Depending on the country, how well developed are property rights and the rule of
law, and how widespread are corruption and organised crime? How are these
situations likely to change, and how is this likely to aect you?

Could any pending legislation or taxation changes aect your business, either
positively or negatively?

How will business regulation, along with any planned changes to it, aect your
business? And is there a trend towards regulation or deregulation?

How does government approach corporate policy, corporate social responsibility,


environmental issues, and customer protection legislation? What impact does this
have, and is it likely to change?

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What is the likely timescale of proposed legislative changes?

Are there any other political factors that are likely to change?

Economic Factors

How stable is the current economy? Is it growing, stagnating, or declining?

Are key exchange rates stable, or do they tend to vary significantly?

Are customers' levels of disposable income rising or falling? How is this likely to
change in the next few years?

What is the unemployment rate? Will it be easy to build a skilled workforce? Or will it
be expensive to hire skilled labor?

Do consumers and businesses have easy access to credit? If not, how will this aect
your organisation?

How is globalisation aecting the economic environment?

Are there any other economic factors that you should consider?

Socio-Cultural Factors

What is the population's growth rate and age profile? How is this likely to change?

Are generational shifts in attitude likely to aect what you're doing?

What are your society's levels of health, education, and social mobility? How are
these changing, and what impact does this have?

What employment patterns, job market trends, and attitudes toward work can you
observe? Are these dierent for dierent age groups?

What social attitudes and social taboos could aect your business? Have there been
recent socio-cultural changes that might aect this?

How do religious beliefs and lifestyle choices aect the population?

Are any other socio-cultural factors likely to drive change for your business?

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Technological Factors

Are there any new technologies that you could be using?

Are there any new technologies on the horizon that could radically aect your work
or your industry?

Do any of your competitors have access to new technologies that could redefine
their products?

In which areas do governments and educational institutions focus their research? Is


there anything you can do to take advantage of this?

How have infrastructure changes aected work patterns (for example, levels of
remote working)?

Are there existing technological hubs that you could work with or learn from?

Are there any other technological factors that you should consider?

Figure above showing a generic PEST Analysis.

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Step 2: Brainstorm Opportunities

Once you've identified the changes that are taking place in your business environment,
it's time to look at each change, and brainstorm the opportunities that this could open
up for you. For example, could it help you develop new products, open up new
markets, or help you make processes more ecient?

Step 3: Brainstorm Threats

It's also important to think about how these changes could undermine your business. If
you understand this early enough, you may be able to avoid these problems, or
minimize their impact.

For example, if a core part of your market is in demographic decline, could you open
up other areas of the market? Or if technology is threatening a key product, can you
master that technology and improve the product? (Risk Analysis can help you to
assess these threats and devise strategies to manage them.)

Step 4: Take Action

Where you have identified significant opportunities, build the actions you'll take to
exploit them into your Business Plan. Where you've identified significant risks, take
appropriate action to manage or eliminate them.

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Case Study - Air Mauritius
The first thought coming to the mind when thinking about airplanes would probably be
luxury and comfort. However, there is much more to the airline industry than just that.
Air Mauritius, like most of the airlines worldwide are facing a cycle of rising operating
costs and declining profits and margins. After extensive research it is quite apparent
the global airline industry is in disarray.

So, what factors are aecting the industry? And more importantly, how is the industry
coping with them? Below is a PEST analysis for airline industry to give you a better
idea.

Political

Air Mauritius operates in a highly regulated political environment. This is due to the fact
that passenger safety is paramount and the political establishment have been made
weary of the airlines and resorted towards strict regulations for their operations, due to
their earlier inclinations towards monopolistic behaviour. Furthermore, the Government
Cabinet decided to liberalise our espace aerien in view to make Mauritius become a
central transit airport for sub saharian region, like Dubai for the Middle East.

Economic

The global terrorism fear, bad economic decision like the famous Hedging contract
without exit clause, an imminent global slowdown, petrol/oil prices maintained at high
prices, competition from low-cost airliners are the main reasons aecting the growth of
the airline industry. Air Mauritius has to cope with declining passengers, labor demands
and soaring operating and maintenance costs. In addition, events such as the recent
Malaysian airline disappearance, is also adversely aecting the global airline industry.

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Social

Over the years, the millennial generations emergence into the consumer class has
resulted in major social changes, more importantly in terms of service, where
consumers have become much more demanding. Therefore, to meet the increasing
demands of this segment, Air Mauritius had to stabilise its costs. Additionally, the
passenger profile has changed as well with there being more economically minded
passengers. When it comes to business class passengers, improved communication
facilities have reduced the need to fly down for meetings.

Technological

With intense competition in the airline industry, latest technology must be adapted by
Air Mauritius in order to survive in the already tough environment. Additionally, the use
of latest technology in its aircrafts would not only lower fuel consumption, but also the
cost of operations as well as improve eciency.

Conclusion

So, there are five important factors that are aecting Air Mauritius external macro
environment. Therefore, the increased costs of doing business, strict rules and
regulations imposed by regulators, fuel hedging costs, competition from low-cost
airliners, changes in passenger profile, in addition to the recent airline related deaths,
all have aected the viability and profitability of this airline industry badly. It will require
a lot of patience and hard work for Air Mauritius to find its way back to the right track.

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Conclusion
It is a fact that the PEST framework has undergone certain alterations, with gurus of
Marketing having added an E for Environment, L for Legal and another E for Ethics.

A generic Steeple analysis shown above.

Moreover, while the STEEPLE analysis looks at only external factors and is primarily
used for market research, when used along with the SWOT Analysis, it can help
identify the major threats and opportunities that a business decision will face.

To conclude, there are many business concepts & marketing tools that are as relevant
to business strategies of an organisation.

It is important to consider each of these tools according to its purpose. For example, it
is better recommended in the case study of Air Mauritius to review fully its Vision &
Mission Statement, Porters Five forces, Benchmarking, Steeple and Swot Analysis for
example in order to be able to devise an ecient business strategy.

[1922 words]

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References
1. Tesco reinvents the 7-Eleven by Matthew Boyle and Michael V. Copeland. Fortune.
November 2007.
2. 'Big-Headed' Tesco May Start A Retail Revolution by Sarah Mahoney. Marketing
Daily. October 2007.
3. Tesco plc by David E. Bell. Harvard Business School Case 9-503-036. 2006.

4. Tesco enters retail with cash and carry. Financial Express. August 2008.

5. Tesco's American Gamble by James Hall. The Telegraph. June 2010.

6. Why is Tesco struggling in the US? by Tom Geoghegan. BBC News. May 2011.

7. Tesco The brand experience is everything. Branding Asia. Excerpt from Hi-Tech
Hi-Touch Branding by Paul Temporal and K.C. Lee. John Wiley & Sons. January 2001.
8. Tesco. SupplyChainAnalysis. Notes on various aspects of Tesco systems.
9. SWOT, PESTEL, Porter's Five Forces and Value Chain Analysis of Tesco. Ivory
Research. Detailed study with references.

Websites:

- Katherine Arline, Business News Daily Contributor, http://


www.businessnewsdaily.com

- https://www.mindtools.com/pages/article/newTMC_09.htm

- http://pestleanalysis.com/pest-analysis-for-airline-industry/

- https://www.strategicmanagementinsight.com/tools.html

Business strategy tools :

Vision Statement - identifying the future position of the business

Mission Statement - Conveying the business purpose to its stakeholders

Porters Five Forces - Evaluating industrys level of competition and its profitability

IFE & EFE Matrices - Weighing and rating the key internal / external factors

Benchmarking - Identifying the best practices in the industry

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Competitive Profile Matrix - Revealing the strengths and weaknesses of your
competitors

Boston Consulting Group (BCG) Matrix - Assessing and managing your business
portfolio

GE McKinsey Matrix - Evaluating your business portfolio comprehensively

Value Chain Analysis - Improving business value chain to strengthen its


competitive advantage

VRIO Analysis - Evaluating your internal resources

Mc Kinsey 7s Framework - Aligning dierent parts of your organisation for


maximum performance.

Porters Diamond - Aligning your strategy with your countrys business conditions

4S Marketing Mix - Understanding how to position your market oering

Product Life Cycle - Managing your product to maximise success

Product Diusion Curve - Targeting dierent clients at dierent stages of a


products life

Anso Matrix - Understanding the risks of dierent options

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Bibliography
Francis Aguilar, Scanning the Business Environment, 1967.

Aguilar F.J. (1967), Scanning the Business Environment, Macmillan.

Cadle, J., Paul, D. and Turner, P. (2010), Business Analysis Techniques, 72


Essential Tools for Success, BCS The Chartered Institute for IT.

Johnson, G., Whittington, R. and Scholes, K. (2009), Exploring Corporate Strategy with
MyStrategyLab, Financial Times/Prentice Hall.

Kotler, P., Keller, K.L., Brady, M., Goodman, M., and Hansen, T. (2009), Marketing
Management, Pearson Education.

McDonald, M. and Wilson, H. (2011), Marketing Plans: How to Prepare Them, How to
Use Them, 7th Edition, John Wiley.

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