What is a PEST Analysis?
The PEST Analysis is a Tool that Helps Companies analyze External Factors and How they can Impact their Business.
To do this, it Proposes that the Markets are affected mainly by 4 important Agents.
- And that Companies must take them into account to be Successful.
- Adapting their Business to Different Markets.
Its name is an acronym for the 4 Agents Proposed:
- Political.
- Economic.
- Social.
- Technological.
The Four Components of a PEST Analysis
1. Political: What are the Main Political Concerns in a certain Market.
- Environmental Policies, Unions, National sentiment… Can shape Markets.
2. Economic: How is the Economy and Wealth Distribution in a Market.
- Purchasing Power, Middle Class size, Percentage of Poor People, etc.
3. Social: What are the Traditions and Sociocultural Values in a Market.
- Family Structure, Beliefs, Average Behavior, Social Cohesion, etc.
4. Technological: Everything related to Technology in that Market.
- Improvements, Availability, Future Trends, Access to Internet, etc.

PEST Analysis Template
Some People Add 2 more Factors to this Analysis:
- Environment.
- Legal.
What is Called a PESTEL Analysis.
However, you can analyze these Agents as PEST’s Political Factors.
* We have a Brief Publication talking about it.
- Check our “PESTEL Analysis” Page if you are interested about it.
Now, let’s see the first example so that you understand Why this Tool is Useful:
PEST Analysis example - Small Business
Let’s imagine that you are Starting you Own Business.
- A Small Business, of course.
You may think that you don’t need a PEST Analysis but…
- You would definitely need it.
Why?
Let’s imagine that you Started a Wine e-commerce.
Political
When selling a Food Consumption Product, you would be affected by several Policies:
- Some countries may have Bans on foreign Wine.
- The label you use (Organic, Gluten-Free, etc) should adapt to each Country.
- You should be aware of legal issues like “Taxes on Alcohol”.
Economic
The type of Wine you could Sell would vary according to each Country:
- You would find it difficult to sell $ 300 wines in Poor Countries.
- In Rich countries, you would have many more Competitors.
- Some Countries experience a large fluctuation in their National Currency.
Social
Some Countries don’t like wine. In others, their Culture don’t allow to drink it:
- You would have a great acceptance in Spain or France but none in Iran.
- Some Countries prefer Beer and are unwilling to Spend money on Wine.
- Wine Consumption depends enormously on the Country.
Technological
Even if this is a Traditional Product, there are Improvements you should be aware of:
- New Wine making Procedures: Wine matured in Clay barrels, etc.
- New Ways of blending different Strains.
- New Conservation Techniques that allow to develop Organic Wines.
As you can see, there is much more to consider besides the Price of the Bottle.
- If you wanted a Successful Business, you would have to Take all of this into account.
Now, before we see more examples, we want to Clarify one thing that tends to Confuse People:
- The Difference between a SWOT and a PEST Analysis.
Let’s see How these 2 Analysis methods differ:
Difference between PEST and SWOT Analysis
The PEST Analysis focuses exclusively on External Factors.
- Factors that don’t depend on the Company.
The SWOT Analysis focuses on External and Internal Factors.
- Internal Factors: Strengths and Weaknesses.
The PEST Analysis is a pure Descriptive Analysis.
- It doesn’t say whether an External Agent is good or bad.
The SWOT Analysis Judges External Events from the Perspective of the Company.
- Opportunities and Threats are Judgments.
A PEST Analysis is Common for all Companies in a Market.
- External Facts are common (or should be) to everybody.
The SWOT Analysis is particular for each Company.
- All its Factors depend on the Company analyzed.
* If you are Interested about SWOT Analysis, check our Page:
The best way to understand the PEST Analysis and How you can use it is by sharing some examples with you:
PEST Analysis examples
We have chosen 3 examples of Industries in which a PEST Analysis is essential.
- Since these industries can be greatly affected by External Agents.
Let’s see what we can learn:
Food Industry - PEST Analysis example
Imagine that you work in the Food Industry.
- And your Company is thinking about expanding its Operations.
Therefore, you decide to develop a PEST Analysis.
What Factors (among many) should you consider?
Political
You should consider the following Political Issues:
- Legislation regarding Intensive Farming.
- Trends in aid to the agricultural Sector.
- Taxes and Import Prohibitions on food Products.
Economic
You should consider the following Economic Factors:
- The Wealth of the Population (not everybody can afford a $100 Steak).
- Economic Trend; Will people have more Purchasing Power in the near future?
- How Big is the Food Industry in that Market and main Competitors.
Social
You should consider the following Social Factors:
- What Traditional Foods are consumed in that Country / Market.
- How People perceive Food; As something Luxurious, as something Utilitarian, etc.
- How food is consumed; Most typical cuts of meat, if Meat is consumed minced, etc.
Technological
You should consider the following Technological Variables:
- How is the Preservation Technology in that Country.
- What is Supply Chain Technology like in your target market
- What Access does this Market have to the Technology you would need.
Clothing Industry - PEST Analysis example
Now, we’ll imagine that you work in the Clothing Industry.
- And your Company is also thinking about expanding its Operations.
Again, you decide to develop a PEST Analysis.
What Factors should you consider?
Political
You should consider the following Political Issues:
- Labor Contracts (minimum wage, flexibility, etc); if you want to produce there.
- Taxes and Bans to foreign Products.
- If there is any Law that obliges to Demonstrate where Products were developed.
Economic
You should consider:
- The Purchasing power of the Population and its distribution.
- If there is any Crisis that may come soon; Fashion is the first Sector affected.
- How Big is the Clothing Sector in that Market and Its Competitors.
Social
You should consider the following Social Issues:
- Traditional Clothes people use.
- How people regard Clothes; Is it something they Value, or not?
- How flexible are People to adopt new Fashion Trends.
Technological
You should consider:
- How Fast is the Supply Chain in that Market; Important for New Trends.
- How advanced is the Manufacturing Technology; If you produce there.
- How Implemented are Social Networks; They are the best fashion showcase.
Hotel - PEST Analysis example
Finally, we’ll imagine that you work for a Hotel Chain.
- And the Company is thinking about expanding its Operations.
Again, you decide to develop a PEST Analysis.
What Factors should you consider?
Political
You should Consider:
- Political “feeling” towards Hotels; In Touristic cities, people don’t want more Hotels.
- How is the Legislation regarding Hotel Density in the Target Market.
- Efficiency of the Bureaucracy: How long does it take to obtain building permits.
Economic
You should consider the following Economic Factors:
- Average Price per Night in your Target Market.
- How Big are the Luxurious, Mid-Priced and Cheap Hotel Segments.
- Is there any Economic Event that may alter the Market?
Social
You should consider:
- What is the Aspect of a Traditional Home in that Market?
- What People Value; For example: In Japan, people love “smart” toilets.
- Cultural aspects to consider: What food do people Eat in that country?
Technological
Technological Factors to consider:
- What do people expect from Technology in their Room? Wifi, TV, AC, etc.
- How advanced is the Construction Technology in that country?
- Is people used to use Management Software? To control Spending and Income.
Summarizing
The PEST Analysis is a Tool that Helps Companies analyze External Factors and How they can Impact their Business.
It Proposes that the Markets are affected mainly by 4 important Agents.
- Political: What are the Main Political Concerns in a certain Market.
- Economic: How is the Economy and Wealth Distribution in a Market.
- Social: What are the Traditions and Sociocultural Values in a Market.
- Technological: Everything related to Technology in that Market.
Difference between PEST and SWOT Analysis:
- The PEST Analysis focuses exclusively on External Factors.
- The SWOT Analysis focuses on External and Internal Factors.
- The PEST Analysis is a pure Descriptive Analysis.
- The SWOT Analysis Judges External Events from the Perspective of the Company.
- A PEST Analysis is Common for all Companies in a Market.
- The SWOT Analysis is particular for each Company.