PESTEC Analysis

Businesses do not operate in a vacuum. The business world is dynamic and rapidly
changing. Organisations can face problems from external factors which can affect
products, policies, people and profits. To understand and evaluate external factors,
companies undertake what is called a PESTEC Analysis.
 Political factors that affect businesses include new legislation such as the national
minimum wage and setting tax rates such as VAT or Corporation Tax.
 Economic factors that affect firms are inflation and unemployment, interest rates and
exchange rates (if importing or exporting goods abroad).
 Social factors that can affect businesses include fashions, tastes and trends, and also
demographic factors such as the ageing population of the UK. This has seen the rise of
what is called the 'grey pound' – an increased number of wealthier older people with a
disposable income.
 Technological factors consist of the rapid automation of factory and industrialised
work, or the worldwide increase of retailing online, e-commerce.
 Environmental factors that affect firms are mainly concerned with being sustainable
and being ethical. Examples of these issues are the recycling of used products, whether
products are bio-degradable and the disposal of industrial waste.
 Competitive factors is concerned with rival firms' affect on a business. Imitation
products and price wars are factors that can have a negative affect on profits.