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What Are the Different PEST Analysis Political Factors?

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  • Last Modified Date: 12 November 2016
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PEST analysis stands for Political, Economic, Social, and Technological analysis. Items that fall under the "political" part include regulations, tax policies, employment laws, and political stability, among others. Companies use these PEST analysis political factors to determine how external government forces may alter operational plans. While it may be impossible to list every single political factor in the analysis, companies should attempt to define those that are most important. International companies also have to deal with import and export laws as well.

Regulations are often wide ranging in the business environment, but a few of the most common are environmental and competition related. Environmental regulations in terms of a PEST analysis include any laws that restrict the use of natural resources, such as water, air, timber, and similar items. Competition regulations restrict companies from colluding with others, attempting to monopolize a market, engaging in price gouging, or other competition-reducing tactics. These regulations may actually prevent a company from entering a new market whether domestic or international.

Tax policies are among the most common and difficult political factors. Heavily taxed economies can make it difficult for companies to use resources efficiently. Any taxed business activities tend to reduce a company’s profit, so taxes on various business activities often make company leaders think twice about entering a market. The company must weigh the pros and cons of government taxation against the potential returns from any activity.

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Employment laws are another important factor in terms of a PEST analysis. Government agencies can make laws or regulations on the hours an employee works, minimum wages paid per hour, benefits offered, and a host of other issues. Businesses must comply with these laws to the fullest extent or pay significant fines. Employment laws and regulations may also change very frequently, which makes it harder for a business to simply put programs and policies into place and not have to worry about any future maintenance on them.

Political stability is necessary for a company to remain in business for a long period of time. Frequent changes or sharp adjustments in a country’s political environment can result in a very unstable business environment. Companies that exist in these environments tend not to do well and make less investments in unsecure markets. The political factors of a PEST analysis can often unearth these issues and make companies aware of the potential drawbacks in a politically charged market.

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NathanG
Post 4

@hamje32 - Business is out to make money. Do you realize that many large multinationals have relocated their headquarters overseas because other countries have low tax rates?

The United States has one of the largest corporate tax rates in the world. I am totally convinced that if we slashed our rates that many of those businesses would come back to the United States, propelling job growth once again.

hamje32
Post 3

@allenJo - Well, environmental regulations are important. Unfortunately some people make the environment the big bugaboo in any political debate.

The environmentalists are always portrayed as extremists wanting to lay an axe to business, when all they want to do is make sure we live in a cleaner planet that will be beneficial to all.

The oil industry is one area where environmentalists and business interests tend to butt heads a lot. Personally, I think oil can continue to flourish so long as it avoids areas that are environmentally sensitive. They don’t have to drill everywhere in my opinion.

allenJo
Post 2

@nony - Even when things are unstable however some businesses will thrive. This is where they are in collusion with the government or the powers that be.

Whichever way the dice roll, these businesses remain on the winning side. Sometimes there is nepotism where a country’s dictator and his family pretty much own the wealth.

So I don’t think political stability is the one requirement in every situation – but economic growth of some kind is. It’s better too if that economic growth is unimpeded by a litany of regulations.

I think one of the reasons that China is booming is that it doesn’t suffer from the red tape that strangles so many American businesses. You can argue whether you think regulations are good or bad, but you can’t deny that China is going full steam ahead without them.

nony
Post 1

PEST stands for political, economic, social and technological analysis. In my experience all of these factors are important in business decision making.

Permit me to say a word about political stability, since I have some exposure in that regard. I lived in Asia for quite some time during the booming last decade of the twentieth century.

Asia was on a roll financially, and by all accounts it was the place to be if you were a multinational corporation. Then the financial crisis hit, first with the Indonesian meltdown and then in other places.

Near where we lived, a Wal Mart had just opened up. It was a contract that was a long time in the making. After the unrest and riots however Wal Mart packed up and left. They weren’t about to stay put in a country that was politically unstable. Political stability is in my opinion the most important of the factors listed in the article.

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