How to Do P.E.S.T Analysis for Small Businesses (Example)

External Considerations and P.E.S.T. Analysis

Political

The legislations issued by the government in the U.K. by Acts of Parliament and Judicial Precedent, and E.U. law will have an effect on the new business since a business must adhere to laws to maintain its reputation and to avoid legal penalties.

“The Lithuanian Sunset” will have to adhere to all laws in order to appear in positive limelight as well as gain free marketing through positive publicity. In turn, behaving ethically in the eyes of the consumers will give “The Lithuanian Sunset” a competitive advantage over its main rival “The Brother’s Food Store”, which will be important if the “The Lithuanian Sunset” is to survive and prosper in the long-term. However, the scope of laws will certainly strain the budget of “The Lithuanian Sunset” since the law requirements are increasing fastly. For instance, the new disability act requires shops to have access for the disabled, which in turn requires additional facilities that will certainly be costly to “The Lithuanian Sunset” but may prove less of a strain for “The Brother’s Food Store” as they certainly have more working capital that can be used to cover the costs of required facilities. The greater expenditure required by the law could in turn make a Lithuanian shop less feasible as it would reduce its working capital and so may limit the speed of stock turnover.

Economic

Demand for Lithuanian produce will be certainly affected by the business cycle that will act as a catalyst for people’s disposable income, which determines their spending habits. At the moment the business cycle is steady but its is slowly entering recession (for moiré details please refer to appendix 3), as unemployment in the U.K. is on a slow increase and the banks are set to levy higher interest rates, which will in turn reduce the spending power of the Lithuanian target audience and make saving a more favourable alternative to spending. Yet, at the moment the British Pounds is strong against the Lithuanian Litas, which is advantageous to “The Lithuanian Sunset” because more Lithuanian Litas will be obtained for a pound, which will effectively allow the Lituanica wholesalers to buy more produce from Lithuania and in effect achieve economies of scale through greater buying, which is likely to have a price reduction for the products supplied to “The Lithuanian Sunset”. This will thus increase the feasibility and competitiveness of “The Lithuanian Sunset” as it will be able to charge lower prices for its products, which is important to maintain customer loyalty (see questionnaire, q.3 and q.4).

Social

It will be important for “The Lithuanian Sunset” to act in a socially responsible manner in order to receive positive publicity, which may well prove to be an effective marketing tool that could act as a gateway to success of “The Lithuanian Sunset”.

Since people are becoming increasingly socially conscious “The Lithuanian Sunset” could correspond with the contemporary ethical values by employing Lithuanian staff and giving opportunities to those Lithuanians who are either homeless and or jobless. Such a move would not only improve the reputation of “The Lithuanian Sunset”, but will also allow it to receive certain grants and sponsorship from the government, which would create additional inflows into the business that could be used as working capital to increase the operation of the business. The combination of good publicity and grants will therefore make “The Lithuanian Sunset”  more feasible as it will receive free marketing and additional cash inflows and will thus allow “The Lithuanian Sunset”  to operate successfully. However, the employment of homeless or jobless may incur opportunity costs to “The Lithuanian Sunset” as those people may need training that will in effect cost money to the business and strain the cash flow. Nonetheless, “The Lithuanian Sunset” should go on with its decision of creating opportunities for the socially deprived Lithuanians as it will inspire a greater sense of cultural protection in the shop and despite the fact that additional training will incur extra costs in the short-term, the publicity may conceivably create a customer base that would help and contribute to the success of “The Lithuanian Sunset” in the long-term.

Technological

The developments in networking can now link a business directly to its supplier through an extranet. “The Lithuanian Sunset” will have a direct link to its supplier meaning that it could integrate its Just-In-Time system, which could result in the automatic re-order of stock. The new system will create high initial costs for “The Lithuanian Sunset” but in the long-term it may increase the efficiency of the operation of “The Lithuanian Sunset” as the manual processing time will be able to be used more efficiently, which could help to enhance the operations of “The Lithuanian Sunset”.