Pest analysis of business environment
In the previous post, we discussed about the analysis of Nigerian business environment using the SWOT as an instrument for analyzing it. Here, we shall be putting an Education and Information searchlight on how to use PEST analytical tool to analyze a business environment.
First of all, you need to know that the word PEST is an acronym for Political, Economic, Social and Technological factors. The roles of pest analysis in determining whether a business in a particular Business environment will succeed or not can never be over-emphasis.
Therefore, it is expected that entrepreneurs should endeavor to check his business environment before major investments are made. Major investment may be in form of starting a new business in or wanting to expand an existing business. Whatever the case may be, this PEST Analysis will give a real picture of how the business environment in a given environment looks like.
Read also: SWOT analysis of the Nigerian business environment
In this post we shall be using a food processing business as a case study so as to give better understanding on the study at hand.
PEST Analysis of a food processing business
The various Political, Economic, Social and Technical factors that a firm needs to consider and research, in order to enter a restaurant business in a new environment are as follows:-
Political Factors
- Government regulations regarding hygiene, health and food regulations, food standards, etc.
- Economic policies of government regarding the restaurant industry and running eating joints; these may include licenses, inspections by Health and Food Ministry departments, etc.
Economic Factors
- Interest rate would impact the cost of capital, the rate of interest being directly proportionate to the cost of capital.
- Rate of inflation determines the rate of remuneration of employees and directly affects the price of the restaurant’s products. Again, the proportion between the inflation rate and wages/prices is direct.
- Economic trends act as an indicator of the sustenance and profitability of your business in the chosen region and help you in deciding your marketing strategy.
Social Factors
- Certain cultures abhor certain foods. For instance, Hindus will not eat beef and Muslims would not even touch pork. Therefore knowledge of these cultural facts about your business environment will help you decide whether or not you’ll be able to do any business there.
- Eating habits of the people in your chosen business environment may, and certainly will, affect your marketing decisions.
- Ratio of people preferring to eat out regularly.
Technological Factors
- A good technical infrastructure would lead to better production, procurement and distribution logistics, resulting in reduced wastage and lower costs.
- Sound technology may be a decisive factor for food technology innovation, better presentation, more effective business marketing, etc.That is a sample of PEST report. Hotel and restaurant businesses would also have a similar PEST structure with some changes here and there.
In conclusion, PEST analysis is a great way of getting to know the features of an environment before you jump into it. After all, it’s always good to look before you leap!
Read also: Pest analysis of Nigerian business Environment