A business and its forces in its micro environment operate in larger macro environment of forces that shape opportunities and pose threats to the business. It refers the major external and uncontrollable factors that influence an organization’s decision making, and affect its performance and strategies.
This involves factors outside of the direct control of the business. These macro-factors such as the economy, government policy and social change can have a significant effect on a firm’s success but the relationship is fairly one way. A change in the exchange rate can affect the ability of a firm to sell abroad; for example, the pound rose in value to nearly 2 dollars in 2007 making UK exports expensive in America or Chinese government support on continued devaluation of their Yuan currency made them penetrate and sell more and cheaper in worldwide market. The increasing interest in healthy eating has boosted organic sales. The ageing population in some economies has increased demand for healthcare resources. However, whilst these macro factors can fundamentally change the environment of an organization one individual business can rarely do much on its own to shape them.
Any one firm is unlikely to be able to influence government taxation policy or new legislation, for example. The macro-environment can be analysis using PESTEL analysis which is outlined below.
PESTEL analysis of the macro-environment
There are many factors in the macro-environment that will affect the decisions of the managers of any organization. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. To help analyse these we managers can categorize them using the PESTEL model. This classification distinguishes between:
A] Political Factors :
Political and Governmental Environment : These refer to government policy such as the degree of intervention in the economy. What goods and services does a government want to provide? To what extent does it believe in subsidising firms? What are its priorities in terms of business support? Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation, international business and the quality of the infrastructure of the economy such as the road and rail system as few examples of areas affected.
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Political factors often impact on business of every type and size : Some examples are the worldwide movement towards privatization of former government-owned utilities and businesses and the shift away from protection of workers’ rights. Firms need to be able to respond to the prevailing political climate and adjust the marketing policy accordingly. For example, British Telecom, Deutsche Telekom and Telstra of Australia have all had to make major readjustments to their marketing approaches since being privatized, and in particular since seeing an upswing in competitive levels. Almost all the firms’ activities have been affected, from cutting the lead time between ordering and obtaining a new telephone, through to price competition in response to competitors’ cut-price long-distance and international calls. British Telecom was the UK’s fifth biggest spender on advertising during 2003
The political Factors includes laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society. Various forms of legislation regulate business.
1). Governments develop public policy to guide commerce, sets of laws and regulations limiting business for the good of society as a whole.
2). Almost every marketing activity is subject to a wide range of laws and regulations. Some trends in the political environment include:
Increasing legislation to:
a). Protect companies from each other.
b). Protecting consumers from unfair business practices.
c). Protecting interests of society against unrestrained business behavior.
Changing government agency enforcement. New laws and their enforcement will continue or increase.
Increased emphasis on ethics and socially responsible actions. Socially responsible firms actively seek out ways to protect the long-run interests of their consumers and the environment.
a). Enlightened companies encourage their managers to look beyond regulation and “do the right thing.”
b). Recent scandals have increased concern about ethics and social responsibility.
c). The boom in e-commerce and Internet marketing has created a new set of social and ethical issues. Concerns are Privacy, Security, Access by vulnerable or unauthorized groups.
B] Economic factors :
These include interest rates, taxation changes, economic growth, inflation and exchange rates .It encompass such areas as the boom/bust cycle, and the growth in unemployment in some parts of the country as a result of the closing of traditional industries. Macro-economic factors deal with the management of demand in the economy; the main mechanisms governments use for this are interest rate controls, taxation policy and government expenditure. If the government increases expenditure (or reduces taxation), there will be more money in the economy and demand will rise; if taxation is increased (or expenditure cut), there will be less money for consumers to spend, so demand will shrink. Rises in interest rates tend to reduce demand, as home loans become more expensive and credit card charges rise.
Economic environment of business has reference to the board characteristics of the economic system in which the business operates. The business sector has economic relation with the government, capital market; household sector and global sector. These sectors together influence the trends and structure of the economy. The form and functioning of the economy vary widely.
The importance external factors that affect the economic environment of a business are;
(i) Economic Conditions: – The general Economic conditions prevailing in the country viz. national income, per capita income, economic resources, distribution of income and assets, economic development etc. are important determinants of the business strategies.
Business cycles and economic growth of the economy are important factors defining the economic environment.
(ii) The economic system operating in the country also affects the business enterprise to a very great extent. The economic system of a country may be capitalist, socialist, communist or mixed.
(iii) Economic Policies: – The government decides the economic environment of business through Budges, Industrial regulations, Economic planning, Import and Export regulations, Business laws, Industrial policy, Control on prices and wages, Trade and transport policies, the size of the national Income, Demand & supply of various goods etc.
(iv) Economic Growth: – The stage of economic growth of the economy has direct impact on the business strategies. Increased economic growth rate and increase in consumption expenditure, lower the general pressure within an industry and offers more opportunities then threats.
(v) The rate of interest affects the demand for the products in the economy, particularly when general goods are to be purchased through borrowed finance. Low interest rated provides opportunities to the industries to expand whereas rising interest rates pose a threat to these institutions.
(vi) Currency Exchange: – Current exchange rates have direct impact on the business environment. When the rupee was devalued in 1991, it was to make Indian products cheaper in the world market and consequently boost India’s exports.
C] Socio-cultural factors :
Socio-cultural factors are those areas that involve the shared beliefs and attitudes of the population. People learn to behave in particular ways as a result of feedback from the rest of society; behaviour and attitudes that are regarded as inappropriate or rude are quickly modified, and also people develop expectations about how other people should behave.
In the marketing context, people come to believe (for example) that shop assistants should be polite and helpful, that fastfood restaurants should be brightly lit and clean, that shops should have advertised items in stock. These beliefs are not laws of nature, but merely a consensus view of what should happen. There have certainly been many times (and many countries) where these standards have not applied. These prevailing beliefs and attitudes change over a period of time owing to changes in the world environment, changes in ethnic mix and changes in technology. These changes usually happen over fairly long periods of time. Since 1970 in most Western countries there has been a development towards a more diverse, individualistic society; a large increase in the number of couples living together without being married; and a marked increase in the acceptance (and frequency)of single-parent families.
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Socio-cultural Environment: – Changes in social trends can impact on the demand for a firm’s products and the availability and willingness of individuals to work. Social class and caste of a person goes a long way in deciding the business activities in relation to its production and marketing activities. Tradition, customs and social attitudes have changed the attitude and beliefs of the persons which have their effect on organizational environment. Class and caste are influencing the purchasing pattern. Socio-cultural environment may include expectations of the society from business, attitudes of society towards business and its management, views towards achievement of work, views towards structure, responsibility and organizational positions, views towards customs, traditional and conventional, class structure and labour mobility and level of education.
A very few cultural changes come about as the result of marketing activities: a recent example in the UK is the gradual replacement of Guy Fawkes night as a family occasion with Hallowe’en, an American import which has children dressing up in costumes and going from house to house ‘trick or treat-ing.’ In replacement of celebrations involve letting off fireworks, which is a dangerous activity for amateurs, but much of the change has been driven by a desire by marketers to sell costumes, and by the influx of US-made films and TV programs which show Halloween celebrations
D] Technological factors :
Technological advances in recent years have been rapid, and have affected almost all areas of life. Whole new industries have appeared: for example, satellite TV stations, cable networks, the Internet, CD recordings and virtual reality, and computer- aided design systems. All of these industries were unknown even twenty years ago. It seems likely that technological change will continue to increase, and that more new industries will appear in future. The corollary, of course, is that some old industries will disappear, or at the very least will face competition from entirely unexpected directions. Identifying these trends in advance is extremely difficult, but not impossible.
The macro-environment also contains the remainder of the organization’s publics:
Governmental publics are the local, national and international agencies that restrict the company’s activities by passing legislation, setting interest rates, and fixing exchange rates. Governmental publics can be influenced by lobbying and by trade associations.
Media publics: Press, television, and radio services carry news, features and advertising that can aid the firm’s marketing, or conversely can damage a firm’s reputation. Public relations departments go to great lengths to ensure that positive images of the firm are conveyed to (and by) the media publics. For example, a company might issue a press release to publicise its sponsorship of a major sporting event. This could generate positive responses from the public, and a positive image of the company when the sporting event is broadcast.
Citizen action publics are the pressure groups such as Greenpeace or consumers’ rights groups who lobby manufacturers and others in order to improve life for the public at large. Some pressure groups are informally organised; recent years have seen an upsurge in local pressure groups and protesters.
New technologies create new products and new processes. MP3 players, computer games, online gambling and high definition TVs are all new markets created by technological advances. Online shopping, bar coding and computer aided design are all improvements to the way we do business as a result of better technology. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products.
E] Environmental factors :
Environmental factors have come to the forefront of thinking in the past fifteen years or so. The increasing scarcity of raw materials, the problems of disposing of waste materials, and the difficulty of finding appropriate locations for industrial complexes (particularly those with a major environmental impact) are all factors that are seriously affecting the business decision-making framework. In a marketing context, firms are having to take account of public views on these issues and are often subjected to pressure from organized groups as well as individuals. Often the most effective way to deal with these issues is to begin by consulting the pressure groups concerned, so that disagreements can be resolved before the company has committed too many resources; firms adopting the societal marketing concept would do this as a matter of course.
Environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.
F] Legal factors :
These are related to the legal environment in which firms operate. In recent years in the UK there have been many significant legal changes that have affected firms’ behaviour. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organisation’s actions. Legal changes can affect a firm’s costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service).
Legal factors follow on from political factors, in that governments often pass laws which affect business. Sometimes judges decide cases in a way that re-interprets legislation, however, and this in itself can affect the business position. A further complication within Europe arises as a result of EU legislation, which takes precedence over national law, and which can seriously affect the way firms do business in Europe. Case law and EU law are not dependent on the politics of the national governments, and are therefore less easy to predict. Clearly businesses must stay within the law, but it is increasingly difficult to be sure what the law says, and to know what changes in the law might be imminent.
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