PEST & SWOT analysis are techniques used for structured analysis of a business, project or an organization. PEST stands for Political, Economic, Social and Technological factors affecting the business externally while SWOT stands for the Strength, Weaknesses, Opportunities and Threats faced by a business.
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The political aspect involves factors such as government stability, its policies, laws, and international relations affecting the sector or the organization, like the taxation and employment laws. The economic aspect deals with the growth in economy, exchange rate fluctuations, inflation and recession, demand and supply. The social component includes demographic data cultural attitudes, lifestyle trends, age composition among others of a region that may affect the business. The technological factors include the extent of automation, better machinery, advanced services and efficient technological services such as online fast payment services among others (Bouazizi, 2010).
SWOT is a study of internal factors namely strengths and weaknesses and external factors, opportunities and threats of an organization that can affect its progress. PEST & SWOT analysis are utilised by businesses to assess the environment of and its influence on an organization and to develop strategies utilizing the results(Bonnici, 2015).
Usually PEST analysis is conducted first and the results are correlated with SWOT data to identify external factors or opportunities that combined with the company strengths can boost business, known as competitive advantage or timely detection of threats and weaknesses which can be converted into positives by conversion strategy or their effect can be reduced by adopting appropriate actions. These tools help an organization in clearly defining the company objective, strategies, resources, and plans for implementation.
Political Factors: An important example of political factors is the deregulation of industries in the UK that began in the 80's of sectors like energy including electricity and gas leading to privatization of sectors, increased competition and creation of more jobs.
An example of international relations influencing the economies is the Free Trade Agreement (FTA) negotiated by European Union on behalf of member states with other nations allowing ease of business among the signees allowing for European businesses to expand as well as open their markets for foreign trade(Birnleitner, 2013).
Economic Factors: A major factor changing the economic condition globally was the great recession of 2008, triggered by a number of events including the subprime mortgage crisis in the U.S. This led to reduced/negative growth in developed economies like U.S. & U.K. leading governments to adopt extreme measures to reduce government budget deficits, while thousands lost their jobs(Visnja, 2016 ).
A major economic factor affecting businesses universally is the COVID-19 pandemic. In efforts to control the spread of the highly infectious viral disease governments worldwide have had to impose varying degrees of lockdown leading to an economic crisis. As per the Office for Budget Responsibility, the U.K. GDP is expected to reduce by 9-10%, with a temporary closure of 23% businesses and 60% of remaining businesses to incur reduced earnings (ILO, 2020).
Brexit is another vital political issue affecting not only the European Region, but also the economies in trade relations with them. As per studies, economists claim Brexit will negatively impact its GDP & real per capita income, with British corporations relocating to the EU while European businesses minimizing new investments in the UK. Trade deals and Open Skies Agreement will also need to be renegotiated affecting the trade and aviation sectors (Moschieri, 2019).
Another crucial issue causing major concern worldwide currently is climate change triggered by excessive carbon emissions. To slow down the processes nations worldwide have passed laws with strict guidances to companies to reduce the emissions. These restrictions have increased costs of operations for corporations in adherence to the guidelines, with a shift towards the use of renewable cleaner resources of energy.
The falling oil prices is another issue affecting industries today. With the increase in oil productions in US and the price wars caused by disagreements between Saudi Arabia and Russia and reduced demand, the stability of the oil sector is threatened, with all major oil producing nations losing revenue. Countries importing oil and consumers in general will benefit.
The trade wars against China launched by US is also an important element affecting the business sectors globally. With additional tariffs and other trade barriers being launched by US against China, both the economies have been negatively impacted with manufacturing activity in China reduced to its lowest. Although supporting the issues mentioned by US, EU members and other countries recommend a trade deal between the two super powers to prevent another global recession (Okereke, 2012).
As examined with the above examples, the environment of a business affects its operations and growth greatly. The current political tensions and grave economic situation globally need to be analysed and researched to work out alternatives to aid the progress of a company utilizing techniques like PEST & SWOT analysis
Birnleitner, H. (2013). INFLUENCE OF MACRO-ENVIRONMENTAL FACTORS TO THE PROCESS OF INTEGRATING A FOREIGN BUSINESS ENTITY. Austria: University of Applied Sciences Kufstein.
Bonnici, T. S. (2015). SWOT Analysis. John Wiley & Sons, Ltd.
Bouazizi, M. (2010). CHAPTER 17. GOVERNMENT AND POLITICS. Retrieved June 2, 2020, from opentextbc.ca: https://opentextbc.ca/introductiontosociology/chapter/chapter17-government-and-politics/
ILO. (2020). COVID-19 and the world of work: Impact and policy responses. ILO Monitor 1st Edition.
Moschieri, C. (2019). The organizational implications of Brexit. Journal of Organization Design volume 8, Article number: 6.
Okereke, C. (2012). Climate Change: Challenging Business, Transforming Politics. University of Reading.
Visnja, I. (2016 ). Economic Factors Affecting Business Decision Making. International conference on Applied Internet and Information Technologies.
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