Market Environment Analysis — PEST, SWOT, and Competitive Analysis

1. PEST Macro-Environment Analysis

Political / Legal

Regulatory and legislative changes
Government policy and taxation
Trade barriers and tariffs

Economic

Business cycles and growth rates
Interest rates, exchange rates, inflation
Consumer purchasing power

Social / Cultural

Demographic shifts
Lifestyle trends
Cultural values

Technological

Speed of technological innovation
Digital transformation
R&D investment trends

2. SWOT Analysis

Internal Factors:

S (Strengths):	Sources of competitive advantage
W (Weaknesses):	Areas requiring improvement

External Factors:

O (Opportunities): Environmental changes that can be leveraged
T (Threats): Risks that need to be addressed

Strategy Matrix:

SO: Use strengths to seize opportunities
ST: Use strengths to overcome threats
WO: Use opportunities to address weaknesses
WT: Minimize both weaknesses and threats

3. Porter’s Five Forces

Determinants of Industry Profitability

Rivalry Among Existing Competitors

Competitive intensity and concentration
Level of product differentiation

Threat of New Entrants

Entry barriers (economies of scale, brand loyalty, capital requirements)

Threat of Substitute Products

Products from other industries that can fulfill the same need

Bargaining Power of Buyers

Concentration, switching costs, access to information

Bargaining Power of Suppliers

Supplier concentration, availability of alternative sources

4. Competitor Analysis

Types of Competitors

Brand competitors: similar products targeting the same customers
Industry competitors: within the same industry
Generic competitors: competing for the same budget
Total budget competitors: competing for all consumer spending

Benchmarking

Learn from the best-practice competitors
Analyze performance gaps → drive improvement

Competitive Strategies (Porter)

Cost leadership: standard products at lower cost
Differentiation: premium pricing through unique value
Focus: concentration on a specific segment

5. Key Concept Cards

PEST = Political · Economic · Social · Technological ★★★★★ : The four dimensions of macro-environment analysis. Memory tip: PEST — think of the pest that disrupts your plans from the outside

SWOT = Strengths · Weaknesses · Opportunities · Threats ★★★★★ : Internal (S/W) and external (O/T) factors. Memory tip: internal first, external second

Porter’s Five Forces ★★★★☆ : Rivalry, New Entrants, Substitutes, Buyers, Suppliers — five forces that determine industry profitability. Memory tip: RNSBS — five forces, five letters

6. Practice Quiz

Q. What is a WO strategy in SWOT analysis?

WO strategy (Weakness + Opportunity): use external opportunities to compensate for internal weaknesses. Example: a company lacking technology capabilities can leverage a wave of technological advancement by forming partnerships or making acquisitions. A resource-constrained startup growing through strategic alliances during a market expansion phase is also a WO strategy.

Q. Under what conditions does buyer bargaining power increase?

Buyer concentration: a small number of large customers. Low switching costs: easy to change suppliers. High buyer information: rich knowledge of prices and quality. Many substitutes: can shift to other suppliers. Threat of backward integration: buyers could produce the product themselves. The opposite conditions increase supplier bargaining power.