A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the political, Economic, Social, and technological factors of the external macro-environment. Such factors usually are beyond the firm’s control and sometimes presents themselves as threats. For this reason, some say that “PEST” is an appropriate term for these factors. However, changes in the external environment also create new opportunities and the letters sometimes are rearranged to construct the more optimistic term of STEP analysis.
Many macro-environmental factors are country-specific and a PEST analysis will need to be performed for all countries of interest. In the following, the analysis of the political, economic, social and technological factors leads to a description of the macro environment of Dell computers.
Political Environment
The political environment of a country is influenced by the political organisations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. Political factors include government regulations and legal issues determining the conditions under which companies have to operate. In this field, DELL computers has to face certain restraints. Like in all markets, DELL computers is also subject to laws that regulate virtually all aspects of their business, including such areas as health, safety, pollution, and advertising and labelling requirements. Problems can arise in countries where political stability is not guaranteed, no matter whether companies operate production facilities or if they do business with that country through exports. Many countries still have restrictive policies which are maintained to protect domestic manufacturers and production. Such policies often hinder foreign companies from entering into these markets. The only possibility to do business in those countries is to establish partnerships with local companies, where they are additionally forced to accept minority shares and to provide money and technological know-how. However, DELL computers sees great potential in those countries which loose their restrictions.
Economic Environment
Economic environment refers to the aggregate of the nature of the economic system of the country, the structural anatomy of the economy to economic policies of the government, the organization of the capital market, the nature of factor endowment, business cycles, the socioeconomic infrastructure etc. The economic environment includes factors and trends related to income levels and the production of goods and services. The economic environment consists of the “factors that affects consumer buying power and spending patterns”. DELL computers expects a growth of approximately ten percent over the next five years. This growth is influenced by the economic situation in a specific country, having an impact on the purchasing power of potential customers. Additionally, changing inflation rates and currency fluctuation also determine the profitability of a company. Another economic factor that can adversely affect the computer industry is the exchange rate of the home currency, all branded products are imported, and their prices vary with changes in the relative exchange rates. Also with an increase in income, consumers are likely to purchase higher quality products rather than to simply purchase more. Thus there is a growing market for higher quality and priced computers.
Social Environment
The social dimension or environment of a nation determines the value system of the society which, in turn affects the functioning of the business. The social environment includes all factors and trends related to groups of people, including their number, characteristics, behavior, and growth projections. Because consumer markets have specific needs and problems, changes in the social environment can affect markets differently. Trends in the social environment might increase the size of some markets, decrease the size of others, or even help to create new markets. The potential for internet growth is huge in Asian countries like India and China, giving foreign computer companies, the opportunities to expand into a new market. DELL computers has to invest in door-to-door or face-to-face operations to gain consumers faith and consumer’s trust in the company and product.
The national demand for DELL computers is dependent on the educational level prevailing in a specific country. The higher the educational standard, the higher is the demand. Furthermore, Dell computers get more and more involved in daily life. Today, children already get familiar with the use of computers at a very young age, representing a generation that will hardly live and work without a computer in the future. Additionally, the brand image of a computer and lifestyle trends get more and more decisive for the purchasing decision. DELL computers adapts to this trend, e. g. by offering a wider range of notebooks and by trying to create a strong brand name.
Technological Environment
The technological environment includes factors and trends related to innovations that affect the development of new products or the marketing process. These technological trends can provide opportunities for new product development; affect how marketing activities are performed, or both. For example, advances in information and communication technologies provide new products for firms to markets, and the buyers of these products often use them to change the way they market their own products. Using these technologies products can help marketers be more productive. In the Computer industry, technology continues to be smaller and faster than ever. Providing access to technologies developed by institutions has proven a key government resource. It was observed that by the year 2000, mainland China’s annual PC production would reach 7.6 million making it the third largest in the world. The internet is a great opportunity for companies to get their into the public domain as well as a fast way to tailor services to its customer segments. A threat in the technological segment to DELL’S business in China is that access to the internet is costly.