What is PEST Analysis?
PEST Analysis is a strategic tool used by organizations to identify Political, Social, Economic, and Technological aspects that would have an impact on 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 which are termed as PESTLE Analysis.
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 AnalysisSWOT AnalysisSWOT Analysis is an analytical tool to identify and evaluate an entity’s strengths, weaknesses, opportunities, and threats., which is “Strengths, Weakness, Opportunities, and Threats.” 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.
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 in understanding what should Xiaomi focus its efforts on to reap the maximum benefits.
- Xiaomi is a Chinese brand in all aspects; 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 warTrade WarA trade war occurs when one country raises its tariff on imports, and the other country responds by raising its own tariff to restrict imports. 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 manages to enter the market, they 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, when it magnifies the pressure when it wishes to spread its wings to expand to a new country like the US.
- Due to the boom in the credit and loans across the globe and the rise in disposable incomeDisposable IncomeDisposable income is an important mechanism to measure household incomes, and includes all sorts of income such as wages and salaries, retirement income, investment gains. In other words, it is the amount of money left after paying off all the direct taxes., customers tend to spend more money than what used to be previously. As a result, the demand for cutting edge technology smartphones have 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 the same as a pocket-friendly price. This gives Xiaomi an upper hand among other manufacturers due to the brand value entrusted over the years.
- The market has changed over the years; every individual today desires to own a smartphone due owing 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 have a notion 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.
- 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 in 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 share of the market. It is evident that Xiaomi has ventured in all possible facets of electronics and gadgets with their cutting edge technology.
Xiaomi has been a brand that offers the best software and hardware for any gadget in the market at a price which 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 make efforts to expand its business in the American market, which seems to be a big opportunity for future growth. Being one of the best in the industry to quickly implement the latest software and hardware makes Xiaomi a brand that customers look forward to.
Xiaomi is in demand and has a firm ground in today’s market conditions. At the current pace, if Xiaomi stays ahead in the race, the giant is all set to be a behemoth.
- The PEST Analysis helps in identifying opportunities and potential threats in the near future.
- Any change in the business environment is highlighted, which in turn helps the business to take calculated risks.
- It gives a caution about any ambitious projects that are bound to fail due to the external factors which are beyond an individual’s control.
- PEST Analysis examples help in developing 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 analysisRisk AnalysisRisk analysis refers to the process of identifying, measuring, and mitigating the uncertainties involved in a project, investment, or business. There are two types of risk analysis - quantitative and qualitative risk analysis., to name a few.
- PEST analysis is cost effective and provides a deeper insight into the external factors that surround a business.
- The real value of PEST analysis can be achieved only if the findings are deeply studied and acted upon.
This has been a guide to what is PEST Analysis and its definition. Here we discuss an example of PEST Analysis (Xiaomi) with a detailed explanation. You can learn more about financing from the following articles –