GUEST BLOG: Using PEST to get the best

By Norma Murphy, programme director of the IMI Diploma in International Business Development

Analysing political, economical, social and technological (PEST) factors on a regular basis can be a powerful indicator of macro influences that could impact your company both positively and negatively in the global economy.

The global business environment is constantly changing, offering both opportunities for your company to exploit and threats for your company to manage.

If we take a look at some current global issues, we can see that even by examining a tiny snapshot of what’s going on, we are provided with potential opportunities and threats that could have a significant influence on Irish companies operating in the global market place.

POLITICAL

How Europe is going to look in the future and the unstable political climate in the Middle East are risk factors for most Irish firms.

Examining the future shape of the European Union, we have all heard and read about the potential Brexit, but what about the countries looking to join? They include Turkey, Albania, Macedonia, Montenegro and Serbia, all of which have been confirmed as candidates by the European Union.

In relation to Britain, can you imagine a European Union without our nearest neighbour? Ireland may gain from additional foreign direct investment being channelled here rather than Britain, but think of the impact on Irish companies exporting there. Will there be trade barriers if Britain is outside the European Union and what will they look like? It’s hard to envisage a Europe without Britain.

ECONOMIC

The huge economies of the Brazil, Russia, India And China (BRIC) have offered invaluable market opportunities for Irish companies in the last decade. Beyond the BRICs there are some rising future stars. Not only is Turkey a candidate for EU membership, in 2014 it had the 17th largest economy in the world in terms of GDP and with a population of 73 million has to be considered a major emerging market in the future.

Are there opportunities to be gained from first mover advantage? Will the upside risk of being first into a new market be off set by the downside risk of uncertainty and political risk? The risk associated with a land border with Syria, which is in an on-going state of crisis, is also a factor.

If we take another recent economic event, the devaluation of the Chinese yuan in August 2015, this can be an opportunity or threat to Irish companies depending on whether they are importers from China or exporters to China.

If China is part of your company’s supply chain, it could be good news for your company with the potential for cheaper raw materials, services and other products as the euro can buy more in Yuan. However, if your company is involved in exporting, these exports will now cost more in China and could result in decreased sales and loss of revenue.

Not only is Turkey a candidate for EU membership, in 2014 it had the 17th largest economy in the world in terms of GDP and with a population of 73 million has to be considered a major emerging market in the future

SOCIAL

Much has been written about the aging population of Europe, attributed to people living longer due to advances in medicine and the decline in fertility rates. An interesting fact is the progressive aging of the older population, with those aged 80 or over projected to double between 2014 and 2080, a very relevant statistic indeed for those companies involved in the medical and care sectors.

In addition, with more people staying healthy during their retirement, the leisure market for retirees is becoming more significant and will offer increased opportunities for firms involved in this area.

TECHNOLOGICAL

It is estimated that 80% of all adults will have smartphones by 2020. It’s hard to believe that the smartphone is not even 10 years old and was launched only in 2007 by Steve Jobs.

It reshaped the entire PC and mobile phone industry and created new industries for apps in the process. There is a continuing shift to mobile, with many people spending more time on mobile devices than they do watching TV.

Depending on the industry your company operates in, this could have a potential upside or downside. It could offer opportunities to companies involved in the mobile computing industry and potential treats to the desktop and traditional advertising industries.

As demonstrated above, a PEST analysis can offer insightful information on future opportunities and threats in the global macro environment, which could help to mould the strategy of a company.

As the macro environment is continuously changing any PEST analysis should be carried on a regular basis. Numerous PEST factors could be considered for this analysis, however companies should consider focusing on those that impact their industries and shape their strategy accordingly.