Pest analysis

PEST analysis of any industry sector investigates the important factors that are affecting the industry and influencing the companies operating in that sector. PEST is an acronym for political, economic, social and technological analysis. Political factors include government policies relating to the industry, tax policies, laws and regulations, trade restrictions and tariffs etc. The economic factors relate to changes in the wider economy such as economic growth, interest rates, exchange rates and inflation rate, etc. Social factors often look at the cultural aspects and include health consciousness, population growth rate, age distribution, changes in tastes and buying patterns, etc. The technological factors relate to the application of new inventions and ideas such as R&D activity, automation, technology incentives and the rate of technological change.

It is very important for any company to look for pest analysis before entering into any foreign market. The PEST Analysis is a perfect tool for managers and policy makers; helping them in analyzing the forces that are driving their industry and how these factors will influence their businesses and the whole industry in general.

ENERGY SECTOR IN RUSSIA

PEST ANALYSIS

Economic Factors

• Economic Growth
• International Trade
• Energy Prices

Social Factors

• Corruption
• Bureaucracy
• Non-Payment of Bills

Technological Factors

• competitive oil industry
• New Drilling Technologies

Political

Uncertain political decisions

Politics is in the hands of the government official.

Economical factors

1. Russian economy

2. Russia is the largest country in the world. It is one of the world’s richest countries in terms of raw material and accounts for 20% of the world’s production of oil and natural gas. Between the period 1998 – 2007 the Russian GDP expanded by an estimation of 69%.At the end of year 2007, Russia’s FDI (foreign direct investment) accounted to US $ 103 billion. In few years Russia became the one of the largest recipient of FDI.As far as economical factor is concerned, Russia economy grew by 8.1% in 2007 and 7% average growth rate per year.

3. Growth in motorisation

4. The Russian motor vehicle market grew by 57% in 2007. Russia is the 3rd largest care seller in Europe and 6th largest in the world.As far as economical factor is concerned, for PCL Company it is the least affecting factor in pest analysis. Because Russian economy is growing and especially Russian economy hugely depends on its oil industry which is a good indicator to enter into Russian market.

Social factors

Social factor plays a significant role and have a great influence on the business in Russia. This factor should be considered before entering into Russian market. But it depends on type of business companies performing.

Corruption and bureaucracy

According to Moscow news, corruption costs Russia 120$ billion every year. In 2007 Russia was ranked 143rd out 179 by the corruption perception index by transparency international. Corrupt officials are siphoning off $120 billion dollars a year from the government’s national budget according to a senior government prosecutor. This is approximately a third of the $376 billion dollar budget for 2008. Non payment of bills is a significant barrier to foreign investors. The bank of Russia occupies a special place in the Russian payment system. It coordinates and regulates settlement relations in Russia and monitors the activities of private system of payments. But despite this, the corruption seems very high in Russia. Like the people who are in charge of customs are making good money by illegal confiscation goods and money from bus or trains passengers who across the border. This is the reason why many companies persist to do business with Russia. But if measures can be taken to prevent frauds then it is good to do business in Russia. As far as the business of PCL is concerned social factor must be considered before choosing any partner to do business with. To overcome this factor, credit history of the trading partner must be reviewed to begin transactions.

Political

Politics is in the hands of the government official. Due to bureaucracy governance, the import/export policies are totally structured by the government. And the civilian sector has less impact on the structure of the policies on trades. This is another influential factor. But due to dependency on oil and industry sector on the economical growth of Russia, fair policies are made toward oil industry activities in regard to achieve good economic growth. Foreign direct investment policy is liberal in Russia which is an attractive factor for foreign investors. But the political decisions are unstable in Russia because of the bureaucratic government.

Technological factor

As for technology, they can’t run their oil companies without western help. But there are many global players in Russia doing business in manufacturing of automotive parts who are direct competitors to Russia.

1. http://www.mnweekly.ru/business/20080610/55332947.html
2. http://www.gasandoil.com/goc/reports/rex72501.htm
3. http://www.energy-market-research.info/research/EMAAAAQR-PEST-Analysis—Energy-Sector-in-Russia.shtml
4. http://www.nes.ru/english/research/pdf/2001/Yudaeva.pdf
5. http://www.oecd.org/dataoecd/12/43/40578459.pdf
6. http://www.mnweekly.ru/business/20080610/55332947.html
7. http://www.gasandoil.com/goc/reports/rex72501.htm
8. http://www.energy-market-research.info/research/EMAAAAQR-PEST-Analysis—Energy-Sector-in-Russia.shtml
9. http://www.nes.ru/english/research/pdf/2001/Yudaeva.pdf
10. http://www.oecd.org/dataoecd/12/43/40578459.pdf
11. http://www.lib.tsinghua.edu.cn/find/guide/russia.pdf
12. http://en.reingex.com/en133.asp