PEST Analysis

Last Updated :

21 Aug, 2024

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Table Of Contents

What is PEST Analysis?

PEST Analysis is a strategic tool used by organizations to identify Political, Social, Economic, and Technological aspects that would impact a business. It helps in understanding the impact of the external factors on the business. This analysis can be expanded to include 'Legal' and 'Environmental' factors, termed PESTLE Analysis.

PEST Analysis provides a context for analyzing different aspects of the external factors of a business, which helps in arriving at decisions, keeping in mind the risk involved. The analysis helps an organization to make better decisions based on the analysis of the various external factors that might impact the business. It is similar to SWOT Analysis, "Strengths, Weakness, Opportunities, and Threats."

What is PEST Analysis?

PEST Analysis is a valuable tool that organizations can use to assess the political, social, economic, and technological factors that impact their business. This analysis may also consider legal and environmental factors, known as PESTLE Analysis.
PEST Analysis helps organizations make informed decisions by examining various external factors.
The results of PEST Analysis can be used with other analytical tools, such as SWOT Analysis, SOAR Analysis, and risk analysis.
PEST Analysis examples can help create an objective view of the external business environment, allowing organizations to identify opportunities at the right time.

PEST Analysis Example of XIAOMI

Xiaomi – the world’s fourth-largest tech company, is a Chinese electronics manufacturer headquartered in Beijing. The company rose to fame in 2013 with the success of its Mi 2 phones. The analysis would help understand what Xiaomi should focus its efforts on to reap the maximum benefits.

Political

Xiaomi is a Chinese brand. From design to packaging, everything is done in China. Thereby Xiaomi gets exposed to import tariffs in all the countries they wish to sell their products.
The current trade war between China and the United States would deepen the wounds. Moreover, to add insult to injury, the current President of the United States, Donald Trump, has tightened trade policies.
The tightened trade policies would make it difficult for Xiaomi to enter the US market anytime soon. Even if it enters the market, it would have to make hefty tariff payments.
Xiaomi has good support from the Chinese political system, which allows it to thrive in its home country. However, it magnifies the pressure when it wishes to spread its wings to expand to a new country like the US.

Economic

Due to the boom in credit and loans across the globe and the rise in disposable income, customers tend to spend more money than they used to be previously. As a result, the demand for cutting-edge technology smartphones has skyrocketed. Brands like Xiaomi are most sought after due to the high-end specifications offered at an economical rate.
Xiaomi offers quality at a price that is easy on the pockets of budget-conscious customers. Unlike Apple and Samsung, which offer innovative specifications at a premium price, Xiaomi offers a pocket-friendly price. This gives Xiaomi an upper hand among other manufacturers due to the brand value over the years.

The market has changed over the years; every individual today desires to own a smartphone due to its ease of use and the power to make life easy. More and more customers are switching to smartphones and other electronic gadgets, which is good news for Xiaomi.
Customers in western nations believe that any product labeled ‘Made in China’ is substandard and wouldn’t perform as expected. Xiaomi is a Chinese brand that also gets judged due to this. Although Xiaomi doesn’t compromise on the quality of the product, this notion among the customers makes it a daunting task for Xiaomi to make it big in the US market.

Technological

Xiaomi offers gadgets with the latest technology in each segment at a pocket-friendly pricing scheme; this makes it the most sought-after electronics brand. The ability to deliver high-quality products at an economical rate distinguishes Xiaomi from the rest.
Technologically Xiaomi is a beast with an array of products at its disposal. From smartphones to smart TVs and now phones capable of operating the fifth generation of mobile communication, you name it! Xiaomi has it all. It stands ahead of the crowd implementing the latest hardware and software upgrades.
The sports and activity segment currently makes it big in the market. Xiaomi has a wide range of smartwatches that have captured a good market share. Xiaomi has ventured into all possible facets of electronics and gadgets with cutting-edge technology.

Findings

Xiaomi has been a brand that offers the best software and hardware for any gadget in the market at a price that does not pinch the pocket. This quality distinguishes Xiaomi from the rest in the competition. It has created an image that not many companies in its line of business have been able to establish. The PEST Analysis example has identified that Xiaomi needs to buckle up and expand its business in the American market, which seems to be a big opportunity for future growth. Being one of the best to implement the latest software and hardware quickly makes Xiaomi a brand that customers look forward to.

Xiaomi is in demand and has a firm ground in today's market conditions. If Xiaomi stays ahead in the race at the current pace, the giant is all set to be a behemoth.

Conclusion

The PEST Analysis helps identify opportunities and potential threats shortly.
Any change in the business environment is highlighted, which helps the business take calculated risks.
It gives a caution about any ambitious projects that are bound to fail due to external factors beyond an individual's control.
PEST Analysis examples help develop an objective view of the external business environment, which helps in tapping opportunities at the right time.
The output from PEST analysis can be used for other tools such as SWOT analysis, SOAR analysis, and risk analysis, to name a few.
PEST analysis is cost-effective and provides a deeper insight into the external factors surrounding a business.
The real value of PEST analysis can be achieved if the findings are deeply studied and acted upon.

Frequently Asked Questions (FAQs)

1. What are the advantages of PEST Analysis?

PEST Analysis can help organizations identify and understand the external factors that may affect their business, such as political, economic, social, and technological factors. By analyzing these factors, organizations can develop strategies that take advantage of opportunities and mitigate risks.

2. What are the disadvantages of PEST Analysis?

One disadvantage of PEST Analysis is that it may overlook internal factors and organizational capabilities, such as strengths and weaknesses. Additionally, PEST Analysis is a static tool and may not account for changes in the external environment over time. Finally, PEST Analysis may not provide specific recommendations or solutions and may require additional analysis to identify appropriate strategies.

3. What is a PEST Analysis chart?

A PEST Analysis chart is a visual tool that displays the results of a PEST Analysis. The chart typically includes four quadrants representing the political, economic, social, and technological factors that may impact an organization. Within each quadrant, key factors are identified and analyzed, and their potential impact on the organization is assessed. The chart can summarize the key findings of a PEST Analysis and help communicate these findings to stakeholders.