1. PEST Factors

　　The external environment can be analysed using the four environment factors of PEST analysis. Some analysts extend PEST to PESTEL.

　　2. Political Factors

　　The political climate can have significant influence on the performance of a business. The following are some of the issues relating to the political climate:

　　Amount of government control. Governments in some countries try to adopt a "laissez-faire" attitude, whereby businesses are subject to few regulations. It is argued that this allows businesses to flourish. At the other end of the scale, governments may regulate businesses heavily. This can lead to high costs of compliance, and in some cases, the necessity to pay bribes to state officials in order to be allowed to continue in business.

　　Political stability. How likely it is that the existing government will continue in office for a longer period of time, or whether a change in government is likely in the near future? In Italy, for example, there have been more than 60 changes of government since 1945. An unstable political environment causes uncertainty, as businesses cannot plan for future changes in laws such as tax. This can have adverse effect on the economy and therefore affect the demand for an organisation's products or services.

　　Attitude of the government towards business. In some countries, governments aim to be business-friendly, and provide support and incentives to help businesses. In the UK, for example, the government provides an enterprise finance guarantee scheme, which guarantees 75% of the loans of qualifying small businesses. In other countries, businesses, particularly big multinationals, are often treated as being a force for bad, and suffer punitive taxes.

　　3. Economic Environment

　　The level of growth of gross domestic product will clearly influence demand for an organisation's products or services. Organisations need to consider the impact of government actions on economic growth (e.g. increases in tax rates or cuts in government spending may lead to a reduction of aggregate demand in the economy).

　　The level of inflation will influence monetary policy. If inflation is high, or rising, governments may increase interest rates in order to control it. This will have the effect of:

　　= Reducing aggregate demand in the economy—people will spend less because they have to pay higher interest on loans;

　　= Increasing the cost of financing for companies;

　　= The domestic currency may strengthen as a result of higher interest rates—this may mean that exporters are forced to cut their prices and imports will be cheaper.

　　4. Social Factors

　　Social (also called socio-cultural) factors concern the effects of changes in society on the organisation. Examples include:

　　demographic changes (e.g. increasing numbers of pensioners increasing demand for package holidays for senior citizens);

　　changing attitudes of society (e.g. increasing health consciousness leading to increased demand for sports equipment and declining demand for tobacco products)*; and

　　changes in population growth rates and life expectancy (e.g. an ageing population may imply a smaller workforce which increases the cost of labour).

　　5. Technological Factors

　　These are changes in technology that may affect the organisation. For example, the development of electric cars clearly affects the automobile industry but also affects taxi companies (e.g. reduced fuel costs and road taxes). Technological factors include:

　　local infrastructure, as this may affect an organisation's logistics;

　　investment in research and development; and

　　communication and Internet infrastructure.