PEST Analysis in the Tourism Sector

Business organizations do not exist in a vacuum. They have to act and react to what happens within and outside the business premises. Indeed, organizations are confronted by a double avalanche of internal and external factors in the day-to-day running of their operations. While business leaders may exercise a firm grip and control of the internal factors bedevilling their respective organizations, it becomes almost impossible for organizations to control or influence the external factors (Swartbrooke & Horner, 2001; Recklies, 2006). The external environment, especially in the tourism sector, consists of a multitude of factors and processes of other players and driving forces outside the organization. For organizations to remain afloat in the ever competitive business environment, proper analysis of external factors need to be carried out since they have a bearing on the core internal functions of the business, and ultimately the objectives and strategies of the entities. This essay therefore concerns itself with discussing how the changing business environment affects future growth in the tourism sector using the PEST analysis.

The tourism sector often finds itself on the receiving end due to escalation of political wars, religious intolerance, and general insecurity experienced in many tourist destinations around the world. Due to fear of terrorist attacks, countries such as the US and UK have tightened the requirements needed to obtain a tourist visa and other related travel documents. Further a field, the souring global fuel prices have inarguably made cross-border tourism a preserve of the rich due to the huge travel expenses involved. International news coverage is always bent on highlighting the hotspots of violence and instability, further discouraging potential tourists from visiting such places. Although many other sectors and industries are affected by such external factors, the tourism sector is undeniably the worst hit (Parera, 2008; Lohmann, 2004).

The changing external environment factors affecting the tourism sector calls for an international perspective since most of the factors cut across countries. For example, many tourist destinations have suffered under the travel advisories issued by developed countries warning their citizens not to travel to ‘perceived’ enemy lines. Sadly, the bulk of tourists come from these countries. Such international interferences in the tourism sector bring about negative attitudes that are bound to ignite a multiplier effect, eventually impacting negatively on the sector (Parera, 2008; Hall, 2007). Internationally, stakeholders in the tourism sector have also singled out language barriers as a major external hindrance to their business processes. This therefore shows that although many macro-environment factors affecting organizations are country-specific, an analysis on the tourism sector needs an international perspective since it must be performed for all the countries and tourist destinations of interest.

The changing external business environment and how it will affect the future growth of the tourism sector can effectively be analyzed using the PEST analytical framework. According to Brassington & Pettitt (2006), PEST signifies a short form for all the Political, Economic, Social and Technological factors that illustrates a framework of external macro-environmental factors affecting an organization. This analysis is mostly utilized when firms are streamlining their strategic management or undertaking market research as it assists in bringing to the fore factors that are beyond the organizations control and which occasionally present themselves as operational threats.

The ever changing external environment have seen the PEST model rearranged to PESTLE or STEEPLE to take care of the new opportunities and threats presented by emerging macro-environmental factors. Many organizations are considering legal, environmental, and demographic factors in their analysis depending on the nature of their operations (Brassington & Pettitt, 2006). However, PEST analysis has become an important strategic tool for reflecting on market growth or decline, including forecasting on organizational position, potential for growth, and direction for operations.

Political and economic factors have affected and influenced the tourism sector more than any other factors in recent times. However, technological and socio-cultural factors must never be downplayed. According to Brassington and Pettitt (2006), the tourism sector is continually affected by political factors such as taxation systems; government legislations, regulations, and policies; cooperation and integration between governments and regions; government grants and monetary incentives; tourism licensing reforms; and political stability. All these factors are outside the control of the organization. The opportunities brought about by these macro-environmental factors are as many as the threats posed.

The integration of Europe to become a single trading block positively reduced bureaucracy in applying for tourist visas and other travel documents. Tour organizations can now engage in cross-border tourism through mutually agreed tariffs that serve to promote the tourism sector. Regional integration has also neutralized the trade restrictions that existed between countries, further boosting the sector. The future growth of tourism sector will also be influenced by the dilution of employment, labour, and tax impediments to cross-border tourism. These external factors will definitely bring positive growth to the tourism sector (Cardoso & Ferreira 2000). However, other political factors such as political instability, civil disorders, terrorism threats, strikes, and wars are detrimental to the sector. According to available data, there is a close correlation between these negative political factors and a decline of tourism activities in the affected countries (Swartbrooke & Horner, 2001; Parera, 2008).

The economic viability of a country, interest and exchange rates, prices of inflation, globalization, wealth distribution, and industry ownership are some of the economic factors that must be included in any PEST analysis targeting the tourism sector (Swartbrooke & Horner, 2001). The above factors have immense impacts on how organizations within the sector perform their operation and decision making processes. It is also a well known fact that the international economy has a direct impact on the sector since tourism is international in its very nature. In this respect, the tourism sector is bound to grow exponentially in countries with strong economies as interest and inflation rates are maintained at a minimum (Dyson, 2004).

Low interest and inflation rates will trigger a reduction of the organization’s cost of capital as well as cost of doing business, ultimately facilitating the growth and expansion of the business. In the same vein, exchange rates have a direct impact on the choice of tourists destinations made by the tourists (Dyson, 2004). Depending on the rate of currency exchange, one country may prove expensive to visit over another offering the same tourism facilities. This inevitably affects the ability to travel (Lohmann, 2004). According to Swartbrooke & Horner (2001), the economic situation of any given country unequivocally influences the level of tourism demand in the market as well as the cost of labour. All these economic factors have far-reaching ramifications for the growth of tourism sector now and in the future.

Of all the external factors included in the PEST model, technological factors bring more positive contributions to the future growth of the tourism sector than the negatives. Communication and information technologies coupled with advancement in operational technologies have immensely boosted the sector (Swartbrooke & Horner, 2001). Today, it is possible for a tourist from US to make travel arrangements online, thanks to the fast development of internet. An individual working in London can book for a hotel room in the tourist resort town of Mombasa in Kenya within seconds. Global distributions systems have remarkably improved owing to advancements in technology. Through online advertisements of products and services, organizations plying the trade have expanded their markets.

Ultimately, organizations have gained immeasurably from technological advancements and will resoundingly stand to gain in the future. Emerging technological factors will continue to play a complementary role in designing new tourism products. The future growth of the tourism sector will substantially depend on technological processes that will enable organizations to come up with new and flexible products and services that are cost-effective, cost-competitive, and flexible (Mariana & Mykola, 2008 ; Dyson, 2004). However, it might not be lost in us that new technologies call for capital investment, and affects costs and quality. This is the way to go.

Factors such as population growth rate, environmental issues, age distribution, lifestyle and health consciousness issues, and carer attitudes are all classified under social-cultural factors in the PEST model (Swarbrooke & Horner 2001). Trends in social factors cannot be willed away as they have an immense impact on the current and future operations and growth of the tourism sector. For instance, an ageing population will form the wrong audience for any tourism marketing venture. Recently, they have been a noted shift in lifestyle behaviour. In the tourism sector, visitors are bound to identify more with organizations that market products and services that amplify healthy living.

Such a shift in social trends and modernization of society definitely affects demand, resulting to the need by industry players to develop new products (Swartbrooke & Horner, 2001). Organizations that have been more responsive to the social-cultural needs of their clients have a brighter future. Other social-cultural issues such as religious fundamentalism have a negative impact on the future growth of the tourism industry. Visitors always like to visit secure and hospitable places. But after the 9/11 terrorist attacks, tourists have always been cautious when choosing travel destinations to avoid trouble hotspots (Benne & Bray, 2001). This does not augur well with future prospects and growth of the tourism sector. Also, other social concerns such as prostitution and environmental issues affect the future growth of the industry.

All said and done, it is vehemently clear that there exist strong associations and interrelationships between the mentioned macro-environment factors. Every tourism organization has a unique macro-environment that is different in nature and scope from other external environments affecting other organizations within the same sector (Swartbrooke & Horner, 2001). However, the future growth of the industry will ultimately be directed by how well these factors are utilized to take advantage of the various opportunities offered while at the same time managing the threats posed. The ability to precisely predict what will ensue in the macro-environment in the future for the tourism sector and take appropriate action in anticipation of the changes will be synonymous to success (Dyson, 2004).


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