Lesson 2.

Indirect Environment Factors

These comprise the forces that affect a This environment is primarily concerned
business as well as other business with complex laws, regulations and
organizations. They include: 1. Political government agencies and their actions
Legal Environment which affect all kinds of enterprises in
varying degrees.
The government, in improving the
standard of living of the society, uses the
resources within which the company is
endowed to play the three major roles of
participants, facilitators and regulators of
business activities.
2. Economic Environment The general pattern of the economy can be
viewed from three dimensions: the
economic system, the general business
cycle and the economic policies.
The main economic effect is on business
organizations today are usually classified
as fiscal and monetary policies.
Fiscal policies deal with the use of
government spending and taxation to
improve the position of the economy.
Monetary policies refer to the use of monetary instruments through the Central Bank
of the Philippines, to influence the money in circulation.
For example, the tight monetary control measures implemented by the government as
part of the national economic development strategy have a considerable impact of
business.
3.Socio-Cultural Environment The way of life of the people. These are
made up of attitudes desires,
expectations, beliefs, degree of education
and customs of the people.
The attitude of the society to a business
also depends on whether the firms have
been responsive to the needs ad
aspirations of the society.
4. Technological Environment This comprises the innovations and
improvements in methods, machines and
materials. Technology can be acquirement
through indigenous technology or transfer
of technology.
Technology has considerable impact on
business by enhancing competitive
provision of a variety of products,
efficiency of products ion, mechanization
and automation of the organizational
system and improving the method of
planning, scheduling and controlling of
the industrial system.
PEST ANALYSIS
Political Economic Social Technological
1. Tax Policies 1. Inflation Rates 1. Age 1. Threats from
Demographics competing
technologies
2. Labor Policies 2. Iterest Rates 2. Lifestyle Choices 2. Research and
development
3. Environmental 3. Current 3. Population 3. Speed of data
Policies Economic Climate Growth Rate transfer

So how does PEST Analysis work?

PEST Analysis (political, economic, social and technological) is a management method
whereby an organization can assess major external factors that influence its operation
in order to become more competitive in the market.
Are you familiar with the SWOT Analysis?
SWOT or TOWS Analysis (Strengths, Weaknesses, Opportunities, Threats)
These are factors found within the business environment in which the organization operate. SWOT
Analysis is a systematic identification of these factors and the strategy that reflects the best
combinations of these factors

Helpful Harmful
to achieving the objective to achieving the objective
Internal Origin STRENGTHS WEAKNESSES
(things your company does (Competitors in your area,
well) emerging needs of your
1. Leading fast-food chains product)
in the Philippines 1. Adapting to the rise of
2.Food items are suitable to healthy living
Filipino taste 2. branch expansion in
3.Cheaper food items other countries
compared to other food
chains.
External Origin OPPORTUNITIES THREATS
(things your company (Emerging
lacks) competitors,changing
1. Unhealthy food items customers
2. Food items appeal only attitude,changing
to Filipinos but not to other regulatory environment)
foreigners 1. Rivalry with other
3.Lack of presence in other fastfood chain
countries 2.The rise of healthy living/
veganism
3. Wealthy people may find
fastfood chain unappealing

Why conduct Environmental Analysis/Scanning?

Environmental analysis is the scanning the environment to identify the changes or trends that have the
potential to generate opportunities ad threats to the organization’s current or future intended strategies
(Worthington and Britton, 2009). The way this environmental scanning may be put into operations
depends on the firm and can be undertaken informally or using quite sophisticated analytical tools and
techniques that require significant employment of an organization’s resources.