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IAI Actuarial Core Principles · Business Management · Strategy, competitive advantage, strategic decision process and PEST analysis

A newly set-up Indian insurtech start-up wants to use PEST analysis to inform its strategic decision on entering rural markets. Which use of the output is best aligned with its purpose in the strategic decision process?

PEST should be used to identify external opportunities and threats, then combined with internal analysis of strengths and weaknesses to choose a strategy. It does not compute cost of capital, assess employees, set dividends, or replace competitor and pricing research.

  1. AUse it to assess opportunities and threats from the external environment, then combine it with internal analysis to choose a strategyCorrect
  2. BUse it to calculate the firm's cost of capital
  3. CUse it to appraise the firm's employees' performance
  4. DUse it to decide the firm's dividend payout
  5. Use it as a replacement for market research on competitors' prices

Explanation

PEST feeds the analysis stage of strategy by identifying external opportunities and threats, which are then matched with the firm's internal strengths and weaknesses. It does not compute cost of capital, appraise staff, set dividends or replace competitor analysis.

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