Introduction to Macro-Environment

Introduction to Macro-Environment: A macro environment refers to the overall, broader economy and the forces affecting it versus a microenvironment, which focuses on a specific sector or region’s economy. There are macroeconomic conditions or factors that affect how all businesses operate, which, in turn, affect the economy as a whole. In general, macroeconomics deals with:

• Spending
• Price levels
• Aggregate production

Factors

Demographic

Demographic forces ultimately involve human populations that patronize businesses and contribute to the economy. There are a variety of statistics that must be analyzed when it comes to demography, including age, gender, size, occupation, and need.

Ultimately, the need for any demographic is the reason that businesses operate in the first place and are ultimately successful, provided the businesses meet the needs of the demographics patronizing them. Demographics, then, ultimately drive how a company operates and how broader markets develop.

Population growth and resulting changes to demographics are important areas of study for any business. A company needs to understand exactly who is patronizing it to best be of service, and thereby, generate a profit.

Marketing, for any business, depends heavily on paying close attention to changes in demographics. Knowing how to target new or emerging demographics is critical. Changes also must be passed on to operations and production to make sure the company continually meets its clients’ needs.

Natural

Ecology and physical environment play a huge part in the performance of any business. This is especially true for manufacturing/production companies. Let us take the example for global warming.

This change in our physical environment has started affecting the rainfall in certain regions. This in turn may affect the crops and cause a shortage in raw materials such as jute, cotton, rubber etc.

Weather conditions, topographical elements, geographical location, climate changes and other ecological factors are a very important element in the macro environment of a business.

Political & Legal

Businesses are always limited by the political environment in which they exist. Laws and governments regularly shape how a company can operate and even have sway over the markets that companies can serve.

The primary instance where political factors play a supremely critical shaping factor is when a company tries to move into a new market – specifically one in a different country. The company must understand the laws and regulations that dictate both the industry it operates in and any specific rules it may be subjected to. It may affect whether it’s financially responsible for the company to enter the new market at all.

It’s also important to keep abreast of new legislation in the works or up to be passed. Understanding shifting political forces can help a company change its procedures to skirt any serious impact should new regulations or rules be passed.

The legal environment refers to the rules, laws, regulations, and judgments etc. that affect the functioning of a business. And this will also include the taxation laws and the Budget for the given year. So stable legal and political government is really important if the business and the economy as a whole has to succeed.

It can be influenced by bureaucracy, tariffs, trade control, corruption level, tax policy, competition regulation and changes in different laws.

Moreover, legal environment covers the laws of the country, the changes in which might affect the functioning of the business, as every organization works within the framework of law and adhere to these laws strictly. These laws may include minimum wage laws, worker safety laws, company law, union law, etc.

Introduction to Macro-Environment

Social-Cultural

The social values and culture of an environment play a huge role in the functioning of the company. So when the social environment changes it can have a direct or indirect effect on the company.

For example, in recent time society has seen a shift, and people no longer retire at 60. They work five to ten years more after sixty. So this has had a huge impact on companies.

Cultural forces also have a significant impact on the success of a company in the long run. Especially in a country like India where the cultural influences are strong and complicated.

When we are talking about culture, we are stressing on the dance, drama, music, food, lifestyle and festivals. It also includes arts, law, morals, customs, traditions and habits. Goods and services bought and sold, highly depends on the culture prevalent in the region. Moreover, it also describes the attitude of people towards work.

For instance, there is a boom in the demand for clothes, electronic items, flowers, fruits, sweets, vehicles, etc at the time of festivals or new year. Further, it must be noted that the consumption, lifestyle and dressing style of people vary in different societies and cultures.

Economic

Economic environment of business has reference to the broad characteristics of the economic system in which the business firm operates. The present day economic environment of business is a mixture of national and international environments. The existing economic environment of business is highly complex and it is not easy to comprehend it. It is the reason the firms operating in the same economic environment often take different decisions.

The economic environment encompasses a number of factors such as nature and structure of the economy, availability of resources, level of income, GDP, rate of inflation, degree of economic development, distribution of income, factors of production, economic policies, economic conditions, monetary policy, fiscal policy, licensing policy, etc. which influences the business of a firm.

Further, the lending rates of the bank determines the investment level in any country, such the higher the rate of interest the lower will be the investment made by people.

Technological

Technological environment consists of those factors related to knowledge applied and the materials and machines used in the production of goods and services that have an impact on the business of an organisation.

The important factors operating in the technological environment are as follows:

(i) Sources of technology like company sources, external sources and foreign sources, cost of technology acquisition, collaboration in and transfer of technology.

(ii) Technological development, stages of development, rate of change of technology and research and development.

(iii) Impact of technology on human beings, the man-machine system and the environmental effects of technology.

(iv) Communication and infrastructure technology and technology in management.

In the Indian context, we find that the state of technological development varies among different sectors of the industry. Generally it is felt that the technological aspect of competition varies with customer needs and government policy. At the macro level. Foreign technical collaborations are popular in India but subjected to strict regulation regarding indigenization, impact on local technological development and employment export commitments etc.

The technological developments are strong and pervasive force in the business environment. Although technology can be beneficial for business, it can also have unfavorable effects. Technology can affect business in two major ways.

(i) Impact of technology on society:

Technology affects the society. In fact, we feel its effect on our everyday life. It affects economic growth, our standard of living, and our culture. However, whereas some of the effects of technology are highly beneficial, others are detrimental.

(ii) Impact of technology on business:

The technology also affects the business operations. It also has very strong, direct effects on such business activities as production, product development, employment, finance, marketing and information, processing. The effects of technology on these activities can be extremely beneficial or extremely harmful to business organisations.

Normally, technological advancement always leads to improvement in the process of production, transportation and communication. Change in technology is mostly associated with better service and cost efficiency.

In recent years, information processing and storage with the use of computers and telecommunication facilities have developed rapidly. People now prefer to use mobile phones in place of landline phones. Now a day’s electronic appliances have replaced electrical equipment vary widely.

Business activities are bond to suffer if enterprises do not adopt up-to-date technology as and when necessary. So the business firms are very much required to pay attention to the changing technological environment and to see as to how new technologies can serve best to the human needs.

International

After globalization, the companies see the whole world as a market where they can introduce and sell their product and service. However, companies need to adhere to the laws of the countries in which they are operating their businesses, as well as global laws.

Along with that, they need to conduct market research before setting up a company in another country. Further, they have to be familiar with the local language, so as to run the business effectively.

The global environment covers all the factors that have an impact on the businesses operating at the transnational, cross-cultural level and across the border.

The environment consists of those factors which have an impact on foreign trade of a country. Those factors may be foreign policy, international treaties and foreign investment policy and various acts which are concerned with the dealings with other countries in trade matters. With the charges in government and their policies, there will be change in international environment.

With the introduction of economic reforms and the policy of liberalisation in our country, our exports have increased considerably and many foreign companies started to trade with our country.

With the formation of World Trade Organisation (WTO), there is a tremendous change in the international trading environment.

Although Government of India’s policy has been encouraging foreign investment in Indian companies, subject to certain conditions, and several factors like the domestic economic policy and the domestic economic situation have been deterrents to foreign investment to Indian companies.

The new economic policy of India is expected to encourage the internationalisation of Indian business with removing all international environmental obstacles. The increasing domestic competition is compelling many companies to pursue International Trade. The foreign collaborations is enabling Indian companies to upgrade their production methods.