PEST analysis Essay Example | Topics and Well Written Essays - 2250 words

PEST analysis - Essay Example The external environment consists of four main factors, political, economic, social and technological (Dubrin, 2012). These factors are collectively known as PEST. These factors appear as opportunities for the organisation while it is also possible that at certain point in time, they pose threats. The organisations need to keep a constant eye upon these four factors to stay profitable and at times for core survival. The paper discusses about these factors and their influences upon the organisations policies, functions and profitability. Political Aspects of External Environment The political aspect of external environment is related to the government laws, legislations, rules, polices and other international principles that are enforced from time to time. These factors supersede all local and organisational doctrines and every organisation is bound to obey them for its existence (D’Anieri, 2009). The common example of this factor is tariff guidelines, tax rates, employment law s (Collins, 2010) and trade quotas. Every organisation needs to cater for all these points to comply with the regulation. The non-compliance poses the most serious threat and organisations take years to settle the law suits filed against them because of violation of laws. Many government policies are related to foreign direct investment and impose certain restrictions on the ownership rights of the business. Particularly in the Gulf States, ownership of real-estate resources by foreigners is banned. It creates insecurity for the business concerns while they plan to invest in these countries. Another point of concern in this regard is about the balance sheet of the organisation that has strong financial position but cannot own the land and building which automatically decreases their assets side. In the present business era, globalization has removed many barriers and the free movement of capital, goods and labour has become a practice. The employment laws are relaxed about hiring ex patriates and it is increasing the level of diversity in the organisation (Barak, 2011). There are certain Acts which ensure formal protection of employees’ rights. This situation has raised many challenges to the organisations. Ensuring satisfaction of a diverse workforce on the grounds of equitable treatment is not child’s play. Every employee has different needs and it is no surprise that one’s interest harms the benefit of others. The organisations have to ensure that a win-win condition is met all the time (Vent, 2009). There are regulations related to minimum wage which affect the organisations cost structure and in turn the profit margins. There are certain guidelines about employment quota of local and foreign employees, it forces organisations to compromise over the talented pool and hire the one who may not be at par in educational and professional requirements. The political aspects are related with the performance of stock exchange as well. Stock exc hange is the most volatile sector of the economy which is influenced by every news and event in any corner of the world. The riots and political stability in one country negatively affects the market value of the companies which belong to that country no matter they are registered with some international stock exchange like London Stock Exchange or New York Stock Exchange. Economic Aspects of External Environment The affect of economic aspects in the external environment is as evident as the