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Ecommerce · Strategy · Consulting

PESTLE Analysis: The Macro-Environmental Analysis Explained

by Martin Heubel

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Unstable market conditions are one of the biggest threats to the success of any company. For decades, managers have used the PESTLE framework to assess the opportunities and risks of their organisation’s macro environment.

Events such as the Brexit referendum or the coronavirus pandemic have had a significant impact on the way companies operate. But even smaller changes such as the introduction of new laws or technologies can pose a significant threat and force companies to react quickly.

If political and macro-economic changes are not recognised by businesses and included in their strategic planning process , attentive competitors can easily take advantage of this shortcoming.

But worry not! Today, you’re going to learn how to analyse your businesses macro environment with the PESTLE framework.

This article will cover:

Political Factors

Economic factors, social factors, technological factors, legal factors, environmental factors.

• How to do a PESTLE Analysis (incl. Template)

What is PESTLE Analysis

The PESTLE analysis is a concept first mentioned by Harvard Business School professor Francis J. Aguilar. He introduced the framework back in 1964 in his book “ Scanning the Business Environment “.

Since then, the PESTLE analysis has become a popular strategic tool to assess the macro environment of organisations worldwide.

The framework categorises the six forces of p olitics, e conomics, s ocio-culture, t echnology, e nvironment and l aw.

The PESTLE framework begins with an analysis of the political landscape. That’s because the political stability of a country is probably the biggest priority for any commercial organization.

Unstable conditions or extreme changes in government direction pose a major threat to ongoing operations. They can also lead to a dependency on political goodwill, making it almost impossible to operate economically.

While this is less likely to be the case in democratic states, totalitarian states often have centrally controlled economic systems. These severely restrict any form of business activities or even make them impossible in the first place.

For example, in conflict regions where civil wars prevail, or political power changes are frequent, companies are better off building local distribution networks than setting up nationwide production facilities.

But also relatively stable political conditions can pose challenges:

Take the European Union as an example:

Different legislative, anti-trust, and tax guidelines apply in each country. German domestic and foreign policies will differ widely from the ones in France or Poland.

Organisations need to be aware of the political movements in countries they operate in to minimise the risk of becoming the target of government action.

Typical political factors of a PESTLE analysis, include:

• Government policies
• Political stability
• Foreign trade policies
• Tax policies
• Labour laws
• Trade restrictions

In addition to the political situation, economic aspects play an important role when assessing a company’s macro environment.

The factors to be considered are manifold:

Currency stability, wealth and income distribution, unemployment rates, economic growth rates, wage costs or inflation rates are only a small excerpt of what managers should consider when analysing macroeconomic factors.

These factors can have a direct impact on the growth and profitability of a company.

Before entering a market, decision-makers must ask themselves whether the market is economically attractive and suitable for the intended operation.

Typical economical factors of a PESTLE analysis, include:

• Economic growth
• Exchange rates
• Interest rates
• Inflation rates
• Disposable income
• Unemployment rates

Following on from the economic analysis of a market, the analysis of socio-cultural characteristics provides an insight into the existing values, norms, institutions, education levels and consumption patterns of a population.

Put simply, this information allows businesses to outline the structures and values of a society.

However, managers need to take extra care in this part of the PESTLE analysis:

That’s because they often fall victim to predefined stereotypes when analysing geographically-distant markets.

The socio-cultural factors should always be assessed by several stakeholders with different backgrounds to ensure an objective evaluation of a market.

Typical social factors of a PESTLE analysis, include:

• Population growth rate
• Age distribution
• Career attitudes
• Safety emphasis
• Health consciousness
• Lifestyle attitudes
• Cultural barriers

In today’s age, almost every company is dependent on modern technologies.

Whether it’s due to the use of digital sales channels or the precise manufacturing of products with modern production facilities.

The rise in technological complexities also increasingly influence strategic decisions in companies.

When assessing environmental factors with the PESTLE framework, decision-makers must consider the technological progress of their time.

Managers can do this by asking a set of questions, like:

• Does the technological progress and infrastructure of a region meet the requirements of the plans to build a new manufacturing plant?
• Do specific technological standards exist with the entry into a new market, which must be met to build an effective supply chain?
• Are there any emerging technologies posing a threat of substitution ?

Typical technological factors of a PESTLE analysis, include:

• Technology incentives
• Level of innovation
• R&D activity
• Technological change
• Technological awareness

The legal framework is a central component in the analysis of a company’s macro environment. Even though this area is ranked at the lower end of the PESTLE framework, it is the most important for many companies.

For example, organisations within the EU have to consider at least three legal systems :

• The legislation in the country of the headquarters or production,
• The respective legal system of the country or countries in which the products are sold.
• Additional laws from the European Union that facilitate (or limit) business activities.

These legal systems often deprive managers of the flexibility they seek.

Advertising bans for certain product categories or special requirements for product design must be considered and taken into account on a country by country basis.

The resulting challenges often affect the entire marketing mix and can be costly to solve.

Typical legal factors of a PESTLE analysis, include:

• Discrimination laws
• Antitrust laws
• Employment laws
• Consumer protection laws
• Copyright and patent laws
• Health and safety laws

Environmental factors not only assess the climatic and topographical conditions of a country. They also evaluate a country’s availability of resources.

This is important, as products in regions with extreme climatic conditions have to meet different requirements than in their country of origin.

A car in the desert of Dubai has to meet different criteria than in Germany. European carmakers had to adjust their production to ensure their cars would stop catching fire in the UAE, following multiple reports back in 2005.

Geographical distances also pose a challenge for the distribution of products.

Mountains, rivers or other geographical conditions can quickly become a hurdle for transporting raw materials or goods.

Managers must carefully consider whether the ecological-geographical conditions of a region match their organisation’s strategic ambitions.

Typical environmental factors of a PESTLE analysis, include:

• Environmental policies
• Climate change
• Pressure from NGO’s

How to do a PESTLE Analysis (Free PDF Template)

Conducting the PESTLE analysis can be overwhelming. But with my easy-to-use template, it becomes a lot more manageable!

Simply print out the below template and start researching your industry.

A couple of great places to start your research are:

• statista.com
• ec.europa.eu

Free PESTLE Template

Simply click on the image to get redirected to the high-res PDF.

Over the past decades, the PESTLE Analysis has proven to be an effective concept to assess an organisation’s macro environment.

Its simple setup allows managers to anticipate future business threats and to take action to avoid or minimise their impact by incorporating them into their organisation’s strategic decision-making.

As with any analysis, it reflects the moment and is based on the current knowledge of those carrying it out. That’s why it is recommended to conduct the PESTLE analysis regularly.

Need help analysing your macro-environment?

If you want to better understand the factors that affect your business, get in touch . I offer tailored advice to help you assess your macro environment.

Enjoyed this article? Here are more things you might like:

What is Business Strategy? – Increase your chances of success and understand what it takes to build an effective business strategy.

Porter’s Five Forces Analysis – A complete guide to Michael E. Porter’s 5 Forces Analysis to help you assess your competitive landscape.

The Product Life Cycle – A complete breakdown of the individual stages of the product life cycle to plan your next marketing moves.

The Macro Environment in Marketing – Why is it important and how to work with it?

Home » Marketing » The Macro Environment in Marketing – Why is it important and how to work with it?

• February 5, 2022
• Consumer Demand , DESTEP/ DEPEST Analysis , Go-To-Market Strategy , Macro Environment

The Macro Environment is the larger context a business operates in. Therefore, the role of the macro environment in marketing is of immense importance. Consequently, it is absolutely critical for marketers to understand what the role of the macro environment in marketing is, why it is important, and how to work with it. In this article, we want to explore in a bit more detail why the macro environment is such a critical thing to understand and what you can do to best work with the environment your business operates in.

What is the Macro Environment?

Before taking a closer look at the importance of the macro environment in marketing, let’s review what the macro environment actually is.

The macro environment refers to the key external and uncontrolled elements that impact an organization’s decision making and effect its performance and strategy. This includes economic variables, demography, legal, political, and social influences, technological developments, and environmental factors.

The macro environment is generally made up of six distinct forces . Demographic, economic, political, ecological, socio-cultural, and technological influences are among them. This is simple to remember: The DESTEP model, also known as the DEPEST model, aids in remembering the key macro environmental variables.

Why is it so important for Marketing?

As indicated before, the macro environment is of great importance from a marketing perspective. However, the importance of the macro environment in marketing is often underestimated.

The primary reason for the key role of the macro environment in marketing is the fact that it is one of the primary influences on both the company’s ability to operate as well as on consumer demand.

First of all, the macro environment consists of all those forces that directly or indirectly influence an organization’s acquisition of inputs and its generation of outputs (Pride & Ferrell). This clearly has a strong impact on the way the business can operate. For instance, if political or legal forces forbid the company to sell its products, the company obviously has a major problem and cannot operate properly anymore.

Secondly, the macro environment shapes consumer demand. For instance, think about economic factors. If the economy is down, selling goods and services obviously may become much more difficult as consumer spending decreases. This of course also depends on the types of products in question.

As you can see, the macro environment is a critical concept to understand. A company should never enter a new geographical market before having completed a thorough analysis of the macro environment.

As a result, these factors should be a key influence when developing the marketing strategy . Read on to learn more.

How to work with the Macro Environment in Marketing

The macro environment is a key influence on how the company can operate and in which form it will find consumer demand.

Let’s consider the economic environment to give you an example. Depending on the state of the economic environment, the company should:

• Develop the right products that meet consumer demand and are affordable to them. For instance, in an economic downturn, a car manufacturer may focus more on entry-level models.
• Price the products appropriately , using an adequate pricing strategy, and potentially apply discounts to attract consumer demand. For instance, if the economy is down, the company may want to introduce discount schemes to stimulate demand.
• Shape marketing messages in an optimal way that is most appealing to consumers. For instance, if the economy is booming, consumerism and the demand for luxury is usually booming as well. The company may want to focus on factors such as status symbols in the communication of product benefits.

Another example is the socio-cultural force. Companies often ignore or underestimate this force and tap into cultural blunders . Based on the specific culture you find in a region, you should reconsider your marketing strategy and check for any points that may lead to cultural blunders. However, you should also consider redesigning your products to meet consumer expectations, and especially adapt your marketing messages to appeal to the regional culture.

The same exercise can be done with all six forces in the macro environment .

Analyzing the Macro Environment to Design the Optimal Marketing Strategy

As you can see from the examples above, the macro environment shapes the marketplace and should therefore be the key guiding factor when developing a marketing strategy.

Therefore, when thinking about entering a market, consider each of the elements in the marketing strategy carefully (e.g., along the 7Ps of marketing ).

However, analyzing the macro environment before entering a new market or region is not enough. As you can imagine, the macro environment is not constant but often subject to change. While some of the forces in the macro environment are changing rather slowly (e.g., the socio-cultural environment), others may change rapidly in some situations (e.g., political or legal forces when there is a change in government or government strategy).

Therefore, constantly monitoring the macro environment is of critical importance. Given the role of the macro environment in marketing, you should watch any developments closely and if necessary readjust your marketing strategy early. For instance, if there is a change in regulations visible, the company should consider adjustments to its product early. If there is an economic downturn, try to spot it early and consider developing entry-versions of its products and introducing discount schemes.

Whenever analyzing the macro environment, companies should follow the DESTEP or DEPEST model and investigate each force step by step. In addition to the individual forces, the company should also examine interdependencies between the six forces. Finally, next to analyzing the macro environment, further analyses should be conducted, for instance on the competitive intensity in the marketplace. For this, models such as Porter’s Five Forces or Porter’s Diamond can be helpful.

Learn more about Macro Environment Analysis – how to analyze the macro environment.

Closing Words

The macro environment plays a key role in marketing. It can be a key influence on the way the company can operate as well as on consumer demand. Therefore, before entering a new market or region, the company should carefully analyze the six forces in the macro environment and develop an optimal marketing strategy. Afterwards, any developments in the macro environment should be closely watched to readjust the marketing strategy when needed.

The Macro Environment – Six Forces To Consider (DEPEST/ DESTEP)

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Ready to Expand Your Business? Understand the Big Picture First. Doing business in a new market is exciting, but it comes with risks. Before you invest, learn about macro environment analysis. Discover how economic factors, political landscape, consumer trends, and more can make or break your success. Use tools like PESTLE Analysis and SWOT Analysis to make informed decisions!

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• What is macro enviroment and why it matters to businesses

In the contemporary world, organizations lay great emphasis on the business environment. In fact, the business environment is a key determinant of strategic planning, change management, and goal setting that companies undertake to stay ahead in an enormously competitive business ecosystem. Having said that, the environmental analysis holds great significance in terms of business planning. The business environment and marketing environment are both essential for businesses to thrive and advance towards greater scalability.

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What is macro environment, macro environment in business.

• Macro environment factors

Macro environment in marketing

Further, it is important for you to know that both the business environment and marketing environment are broadly categorized into two classifications. To explain, micro and macro environment are the two major bifurcations of business environment and marketing environment.

In this blog, we shed light on what the macro environment is with respect to business planning and marketing. The blog elaborates on the macro environment definition, macro environment factors, and its applicability for businesses. So, let us get started without further ado.

A macro environment can be understood as the mix of external factors that affect decision-making, strategic planning, and operational strategies at organizational levels. To discuss further, the macro environment with respect to a country or specific geographical area including political, economic, social, technological, legal, and environmental factors that can have a direct or indirect influence on industries. In simpler terms, the macro environment takes into account the broader picture with respect to the state of the external environment.

Here, it is imperative to note that a macro environment is always external to the organization and looks at the set of overall external factors that affect the entire industry. For instance, when the top management at Apple will be conducting a macro environment analysis, it will look into external factors with respect to a country or location that affects the entire consumer electronics industry.

To further explain, when organizations undertake strategic planning in terms of expansion to new markets or other business objectives , the external environment has a massive role to play. Let’s say a company has to expand into a new market in one of the emerging markets. For the company to be able to formulate an effective expansion strategy, the overall political, economic, and social environments and their influence on that industry will be a major consideration. Similarly, the legal framework in the country and the environmental norms that affect the industry in the country will also be a major consideration.

While the micro environment in business delves into factors like competitors, the influence of customers or suppliers, trade unions, market intermediaries, and so on, the macro environment looks at the overall environment prevailing in the industry with respect to a specific market or country. This is where the major difference between micro and macro environment lies. Also, when it comes to the macro environment, companies or governments cannot really completely control the macro environment.

Further, in the context of macro environment analysis, businesses apply various strategic planning models to assess macro environment factors. For instance, PESTLE analysis is a widely applied strategic planning model that organizations implement to examine the business environment external to the company. What are the macro environment factors that we are talking about? How do these factors influence business decisions and strategic planning at organizational levels? Let’s find out in the subsequent section.

Macro environment factors you need to know

The macro environment factors in business influencing strategic planning and change management at the organizational level are broadly categorized into the following segments.

1. Demographic factors

An analysis of demographics takes into account the divisions of populations in terms of age, gender, race, income, profession, and other factors with respect to population. An analysis of demographic factors has a vital role to play in strategic planning.

When it comes to product diversification or entering a new market, the population demographics with respect to that market will be significant in decision making. To explain, when it comes to segmentation of the target audience for a product or service, the demographic division will be an essential dimension of segmentation.

In the ultimate sense, for business success, organizations need to identify the demographic breakdown of their niche target audience and deliver on their expectations for worthwhile customer experiences.

Let us try to understand the significance of demographic factors through an example. Let’s say a premium smartphone brand plans to expand to a developing nation like. Now being a premium smartphone brand, the company will only want to cater to the premium segment customers. This is where the demographic context of income levels will have a huge role to play. The target audience of this brand will be the upper financial segments that can spend on premium phones. If there are not many people in the country that have above-average income levels, the idea of expansion may not seem beneficial.

Similarly, for most businesses, millennials and Gen Z folks make the most important markets. So, a country where millennials and Gen Z make up the most considerable part of the population will be an ideal market for brands. Makes great sense, right?

This is how demographic factors prove substantial for businesses. This explains why businesses pay great heed to the demographic segments of their niche market.

2. Ecological factors

Ecological factors correspond to the natural factors pertaining to a country or a geographical region. In simpler terms, ecological factors define the convenience of access to key natural resources that are vital for supply chain operations and production.

If companies have easy access to natural resources that are required in a recurring manner for key operations like production, assembly, or distribution, it will certainly add greater value to business success. On the contrary, if a geographical area is such that the supply of natural resources is scarce, not only will it add to the operational cost but also increase the risk of unprecedented delays in operations.

For instance, the food and beverages industries are a lot dependent on water resources. As per the Water Footprint Network , beverage companies use more than 600 liters of water in the production of a 2-liter bottle of soda. Hence, it is important for beverage companies to set up their plants and production units in areas that have an abundance of water resources.

3. Political factors

Political factors play a very crucial role in strategic planning at the organizational level. The political scenario of a country is a major determinant for companies to continue their operations, expand to the country, or make future strategies for business growth in the country.

As a business owner, would you like to expand to a country that has an unstable government or harsh taxation policies? For your company’s expansion, you would rather want to enter a market where the political environment is stable and there are attractive tax rebates for industries.

With respect to the political environment of a country, the following considerations are vital.

Does the government offer subsidies?

Are the taxation policies favorable or not?

What is the state of FDI norms in the country?

What are social welfare policies or CSR policies?

Is the legal framework a hindrance for industries?

To cite an example, most international brands are now entering the Indian market given the favorable and thriving political environment in the country. In some sectors, the Indian government even allows a hundred percent FDI making the country highly attractive to companies. Besides, the country has strong diplomatic relations with the strongest economies of the world and has signed various free trade agreements. All these factors make India one of the most sought-after countries for global trade and commerce.

4. Economic factors

Cost, profits and net present value are the most important considerable metrics for each and every type of business. If you are a business owner, you will ultimately measure the success of your business in terms of numbers that correlate to profitability, sales, revenue, and so on. Hence, in terms of macro environment analysis, taking economic factors into account is highly vital.

Economic factors with respect to a market include determinants like inflation rate , GDP growth projections, exchange rates, industry growth rate, price index, and interest rate. Also, the per capita GDP income in the country and the unemployment rate are key factors to analyze.

To explain the context, if there is economic stability in a country and growth projections are promising for industries, enterprises will get the confidence to invest. On the contrary, if an economy is not doing well as in the case of Sri Lanka, companies will rather want to withdraw.

Hence, the economic prosperity of a country and the key economic trends form an important part of the business macro environment. If the macro environment with respect to industry growth projections and GDP projections is favorable, companies will embrace the idea of expansion without a second thought.

5. Socio-cultural factors

Another important dimension of the business macro environment is the set of socio-cultural factors that define the cultural and social trends in a market. These social and cultural trends have a direct correlation with consumer preferences and shopping patterns in a country. Needless to say, to stay ahead of the competition, it is vital for contemporary businesses to formulate strategies that have consumer preferences at the epicenter.

Probing further, customer needs and wants are often influenced by their cultural norms and social habits. For instance, beef consumption is banned in India given the religious and cultural significance of cows in the country. On the contrary, beef consumption is one of the most common needs of American consumers because their culture does not hold them back from consuming beef. So, when an American meat brand looks to enter the Indian market, it will have to alter its product portfolio for the Indian market.

Moreover, social factor examples can also include e-commerce trends in a country. In some countries, there is a greater preference for online shopping while in others, people have a greater preference for shopping offline. Subject to this trend, businesses need to keep flexibility in their distribution channels.

All in all, for greater success, companies need to keep up with the latest social and cultural trends that have a direct impact on consumers’ buying preferences and patterns. Given the dynamic nature of social trends, companies need to plan for effective change management. An understanding of Hofstede’s cultural dimensions can be of great help for organizations.

6. Technological factors

Last on the list of macro environment factors is the assessment of a country’s level of technological advancement. As we know, every industry today is going through a technological revolution, and the overall business environment is embracing disruptive technologies.

Companies are more interested in exploring markets wherein there is impressive technological advancement and emerging technologies have attained maturity. Basically, the technological infrastructure should be supportive of processes like business automation , remote working, advanced testing, digital communication, and so on.

If we talk about countries like the US, China, Japan, Germany, or Russia, these countries have acquired next-level technological capabilities and their technological infrastructures can offer crucial competitive advantages to any industry. On the other hand, countries like Bangladesh, and Indonesia are yet in the process of developing technological capabilities that can give a major boost to industries Global innovation rankings have a huge impact on companies’ approaches to strategic planning.

Nations with exemplary innovation capabilities make the ideal choices for multinational companies looking for business expansion.

Now that we have understood the macro environment in business with attention to detail, the next section explains the concept of the macro environment in marketing.

The macro environment in marketing is inclusive of the external factors or influences that have a direct or indirect impact on the marketing strategies of a business. It is a well-known fact that marketing is among the functional areas of business operation. Effective marketing could well be the underlying difference between a highly successful business and a business struggling to get desired results in terms of market penetration .

In the contemporary world, marketing has new dynamics altogether. With most businesses going online, marketing has become quite synonymous with digital marketing through social media and search engine marketing. Statistically speaking, the global market size for digital marketing in 2021 was USD 56.5 billion as per Grand View Research . By 2030, this market is projected to grow at an impressive compound annual growth rate of 19 percent.

Moreover, interestingly, as per Statista, the global spending on digital marketing is more than 600 US dollars in 2022. Clearly, businesses are spending on digital marketing with all their heart. However, the formulation of marketing strategies and the success of marketing approaches is largely dependent on the macro environment.

Further, speaking of the factors linked to the macro environment in marketing, the macro environment factors that affect marketing strategies or the marketing mix of a company are explained below along with their impact.

Demographic segments and divisions in a country can have a huge impact on an organization’s marketing strategies . Subject to variations in different population groups and their preferences, companies need to show greater flexibility in their marketing tactics and pricing strategies.

For instance, if in a country, the millennial and Gen Z population is much higher than baby boomers and Gen X shoppers, companies can run sponsored ads on social media as millennials and Gen Z are quite active on social media platforms like Instagram, Facebook, Snapchat and so on. In fact, a large proportion of millennials search for new businesses and brands online.

2. Political factors

As in the case of business planning, the political environment of a country also has a great influence on the marketing strategies of a company. Companies have to frame their marketing and pricing strategies as per the prevailing political environment.

For instance, if there are anti-monopoly laws in place, companies cannot exploit pricing strategies by creating monopolies. Also, we can understand the influence of political factors on marketing strategies through another example. In Norway, there is a complete ban on advertising alcohol brands on TV or even on billboards. Hence, the liquor brands in the country have to be considerate of this ban and have to find ways for indirect brand promotions.

3. Economic factors

We saw above how economic determinants and metrics hold immense significance in the analysis of the macro environment in business. Similarly, the assessment of economic factors is also crucial for strategic planning with respect to marketing mix and marketing strategies.

To explain, if the per capita income in a country is high, businesses can go for a premium pricing strategy for their products or services. However, if the personal disposable income levels are low in a country, a premium pricing strategy will not be the best-fit pricing strategy for that market.

Since pricing is an imperative element of the marketing mix, the economic determinants of a country have a direct correlation with pricing strategies. Also, if the industry growth rate is high in a country, companies will not mind allocating additional funds to marketing channels given the scope of a high return on investment .

To cite an example, in the United States, Apple products have a normal perception among consumers given high-income levels in the country and the affordability associated with it. On the contrary, in emerging markets like India or Bangladesh with lower personal incomes , the perception of Apple products is that of premium segment products. So, the company can use this income disparity in emerging markets to market its products in association with a sense of financial superiority to consumers. On the other hand, the marketing approach will be different in the US.

4. Technological factors

In contemporary times, marketing has immense dependence on technological innovations. To explain, emerging technologies like AMP, 5G, blockchain, AI and other innovations are changing the marketing landscape for the better. For instance, the market size of AI in marketing is expected to reach 40.09 billion by 2025. This clearly speaks on behalf of a technological revolution transpring in marketing. With digital tools and automation software, companies have been highly successful in expanding their outreach in a targeted way.

Hence, from the marketing perspective, the technological environment in a country is a significant consideration for companies. The companies will have to determine the best-fit marketing strategies in alignment with the technologies supported by the country. For instance, if a country has a 5G infrastructure or not will be a key determinant for mobile marketing or online marketing. While China and the US already have an extensive 5G presence, developing nations are yet to launch 5G connectivity.

5. Cultural factors

Cultural factors include social trends, religious virtues, ethics, consumption patterns, and other factors that collectively form the culture of a place. With respect to marketing strategies, violating the cultural sentiments of a country or a significant religious group in the country can prove to be detrimental to a company. Having said that, in their promotional strategies, it is important that companies are considerate of the emotions and sentiments that are intrinsic to the prevailing culture.

For a better understanding, let us understand the configuration of the 4 Ps of the marketing mix. The 4Ps of the marketing mix include product, place, price, and promotion. Hence, from the marketing point of view, the product is a highly critical factor. Now, all of us know that pork products are against the cultural views of Islam. So, if a company introduces and markets pork products in an Islamic nation, it can prove to be a disastrous move.

6. Ecological factors

We have already discussed the ecological factors above. Not only are they important for the analysis of the macro environment in business but also in marketing. If natural resources are easily available to a firm in a geographical area, the operational costs will be low and the company can go for a moderate pricing strategy.

However, if the natural resources in an area are insufficient, the operational costs will be high and the companies will need to go for a premium pricing strategy to attain profits. Hence, ecological factors pertaining to a country or area can influence the marketing strategies in multiple ways. This makes the analysis of the macro environment in marketing with respect to ecological or natural factors indispensable.

Recommended Readings

An Explicit Description of Change Management Models

A Complete Guide on Porter Five Forces Model

To recapitulate, the macro environment, external to an organization, has a massive role to play in strategic planning for advancement and expansion. An effective understanding of the macro environment enables organizations to determine the best-fit strategies that are aligned with their strategic goals. This explains why business analysts and consultants give immense importance to the analysis of external business factors that define the macro environment.

How can businesses adapt to changes in the macro environment?

Adapting to changes in the macro environment is essential for business survival and growth and it can do so by

Monitoring trends: Stay informed about political, economic, social, technological, environmental, and legal changes that could impact the business.

Ensuring Flexibility: Build a flexible organizational structure and strategies that can adjust to shifting conditions.

Enabling Diversification: Expand the product or service portfolio to mitigate risks associated with changes in specific industries or markets.

Embracing Innovation: Embrace technological advancements to improve products, services, and operations.

How can businesses conduct a macro environment analysis to inform their strategies?

Business managers can perform a macro environment analysis by conducting a PESTEL analysis that would help them understand various factors such as political, economical, etc., and then gather data to analyze the impact of these factors. Then ultimately, formulate strategies accordingly.

What are the tools used for external analysis of the business environment?

A business manager can make use of PESTEL Analysis to examine the various factors that can influence business operations, and apply SWOT analysis to understand the threats and opportunities from the environment to a business.

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MACRO Environment of Business Essay

Business cycles and the global economy before 2008, stagflation, works cited.

In business and economics, a macro environment reflects the overall conditions in an economy. The macro-environment of a company thus encompasses the factors that are outside of the organization’s control, although they still impact organizational functioning and success. Understanding macroeconomics is significant for business leaders to be able to adjust to challenging economic conditions and ensure that their organizations succeed in the long term. The present paper will focus on two essential concepts in macroeconomics. Question 1 will consider the application of business cycles to the global economy before the 2008 financial crisis. Question 2 will explore the notion of stagflation and assess the government’s option for responding to this economic condition.

The authors of the provided passage focus on the global economic environment of 2007, right before the global financial crisis of 2008. Despite the upcoming recession, the passage conveys the ideas of stability and reduced volatility. In particular, the authors note that the global economic environment at the time was associated with an increased rate of growth and decreased variation in outputs. According to the passage, these factors could become a foundation for future economic stability. Despite these positive claims, the authors avoid making predictions regarding the future. In particular, they note that, despite the evident change in business cycles, there may still be emergent risks that affect the economy of individual countries, and that governments should take action to manage these risks promptly.

The application of business cycles to the passage provides an excellent opportunity for analysis. Based on the theory of business cycles, the overall positive trend in economic growth is interrupted by periods of growth and recession. During a recession, the level of economic activity decreases significantly until the point of a trough, after which it starts to rise again, reaching the peak before another recession occurs (Lipschitz and Schadler 7). It is critical to note that business cycles represent short-term changes in outputs, whereas the general growth trend remains intact (Lipschitz and Schadler 8). This is primarily because long-term economic growth depends on a set of fundamental factors, whereas short-term output fluctuations occur irrespective of them due to exogenous variables.

Several conclusions can be made from the application of the business cycle theory to the model. The first observation is that the authors are correct in stating that there are still certain risks that could affect outputs and economic growth in the short term. Based on the business cycle theory, 2007 was the time when economic activity in many global regions peaked, and thus the recession was inevitably close. Because short-term economic fluctuations depend on somewhat unpredictable, exogenous factors, the authors are correct in warning governments about the importance of monitoring and addressing emergent risks. Failure to do so was the primary reason as to why the recession of 2008 turned into a global economic crisis.

The second conclusion that can be made from the analysis is that improvements in institutional quality and monetary and fiscal policy contribute to long-term growth rather than short-term stability. The authors claim that these factors had a significant contribution to the reduction in output volatility and increased economic growth. However, as evident from the application of business cycle theory, these factors cannot prevent a recession, only delay or limit the reduction in output. This means that institutional quality and policy improvements contributed to the long-term growth trend rather than to the change in business cycles, as the authors claim.

Lastly, the overall description provided by the authors fits into the business cycle theory. The concepts and relationships discussed in the passage, including the increased growth and reduced volatility, point to the fact that the 2007 economy was at its peak point. As explained by Lipschitz and Schadler, the peak of economic activity is characterized by high outputs and fast economic growth (7-8). Additionally, the relationship between government policy and economic growth described by the authors also provides evidence in favor of the business cycle theory. Monetary and fiscal policies affect government purchases and inflation, thus contributing to GDP growth and stimulating outputs.

The analysis of short-term economic fluctuations discussed in the passage also prompts an evaluation of the desirable level of fluctuations and the reasons as to why output fluctuations occur. The answer to the first question lies in the business cycle theory. The theory posits that short-term changes do not usually impact the long-term growth trend, as the output still increases from one peak point to another (Lipschitz and Schadler 9). However, if adverse economic fluctuations are too significant, they might affect long-term economic growth, as more time will be required for an economy to recover. This means that limited, short-term fluctuations are more desirable for an economy to experience a higher long-term growth rate.

The second question is also crucial as it concerns the prevention of significant fluctuations that could influence the long-term growth rate. According to Gans et al., it is challenging to explain the factors causing short-term volatility as there are too many variables to be taken into account (742). Nevertheless, most economists agree that applying the aggregate demand and supply model helps to analyze economic fluctuations and map out their possible causes (Gans et al. 744).

Hence, the reason for short-term fluctuations is the changes in aggregate demand and supply. The factors influencing these changes are varied, but usually include variables such as productivity and price changes. In 2019, many factors can affect short-term economic fluctuations and cause a recession. In Saudi Arabia and the GCC in general, the primary factors are oil production outputs and oil prices. Changes in these variables would affect exports, leading to shifts in GDP and the AD-AS model. On the global level, monetary policy prompting currency changes could impact the economic growth of various countries by influencing exports and imports.

Stagflation is a complicated economic situation because it involves two competing economic conditions. On the one hand, stagflation means the rise in prices associated with inflation (Gans et al. 767). On the other hand, stagflation also includes a decrease in outputs or stagnation (Gans et al. 767). Because stagflation involves both of these aspects, it can be graphically represented using the aggregate demand and aggregate supply framework.

The AD-AS framework provides valuable insight into stagflation by allowing users to understand the causes and effects involved in stagflation. According to the explanation by Gans et al., “when some event increases firms’ costs, the short-run aggregate supply curve shifts to the left from AS1 to AS2. The economy moves from point A to point B. The result is stagflation: Output falls from Y1 to Y2, and the price level rises from P1 to P2” (768). This process is apparent in Figure 1, which explains all of the steps leading to stagflation.

Based on the AD-AS framework, the primary reason for stagflation is a sudden increase in production cost. This can occur due to a significant rise in material costs, as well as due to other factors impacting production, such as unemployment. If firms rely on a particular material to produce outputs, and the price of this material rises suddenly, this will result in higher production costs. Similarly, when firms experience staff shortages, productivity will drop, leading to an increase in firms’ costs. To control the costs, firms will typically try to decrease their output to a manageable level, leading to reduced outputs. This, in turn, causes an increase in prices and the change in demand, shifting economic growth across the AD-AS curve.

Hence, the analysis shows that the loss of output is of primary importance to economic growth during stagflation, whereas inflation can be considered a secondary issue. The cause and effect relationships explained above shape the governments’ responses to stagflation, prompting governments to focus on compensating for the loss of output. There are several options as to how this goal can be achieved, although all of them require supporting businesses. First of all, governments could establish control over the price of materials used in production. This would be particularly useful in cases when the decrease in aggregate supply was caused by increased raw material prices. For instance, governments could support domestic producers of raw materials, thus reducing the costs by limiting imports. This would help firms to make up for the loss in output by lowering production costs.

Secondly, government policy can be used to address other sources of increased production costs. In many settings, personnel costs constitute a substantial share of a firm’s production expenses. If this is the case, governments could apply deregulation, thus enabling businesses to set appropriate wages below the minimum limits. This would also contribute to output growth since companies would be able to pay less for the same quantity of goods produced.

Another vital question to consider is whether governments can address both aspects of stagflation at the same time. Based on the theory of macroeconomics, it would not be feasible for governments to control inflation while increasing outputs. To address inflation, the government would need to increase its regulation of businesses, and the resulting reduction in prices will increase firms’ losses further, thus limiting output. Nevertheless, the theoretical material suggests that controlling inflation during stagflation is not necessary. Once the businesses make up for the decline in output, and the aggregate supply curve shifts back to its previous position, the demand will also shift until it reaches an equilibrium. The shift of both curves to the right will result in a decrease in prices, thus reducing the effects of inflation.

Overall, the analysis of business cycles and the discussion of stagflation provides some critical insights into the contemporary macro-environment of businesses. In particular, it shows that companies face several economic challenges, which cannot always be predicted and anticipated. While the management of short-term fluctuations often involves government policy, managers should be able to tailor the business activity to changes in the external environment. This will help to limit profit losses and ensure the future stability of their business.

Gans, Joshua, et al. Principles of Economics . 7th edn., Cengage Learning, 2018.

Lipschitz, Leslie, and Susan Schadler. Macroeconomics for Professionals: A Guide for Analysts and Those Who Need to Understand Them . Cambridge University Press, 2019.

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Macro Environment: What It Means in Economics, and Key Factors

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

What Is a Macro Environment?

A macro environment refers to the set of conditions that exist in the economy as a whole, rather than in a particular sector or region. In general, the macro environment includes trends in the gross domestic product (GDP), inflation, employment, spending, and monetary and fiscal policy. The macro-environment is closely linked to the general business cycle as opposed to the performance of an individual business sector.

Key Takeaways

• The macro-environment refers to the broader condition of an economy as opposed to specific markets.
• The macro-environment can be affected by GDP, fiscal policy, monetary policy, inflation, employment rates, and consumer spending.
• The state of the macro environment affects business decisions on things such as spending, borrowing, and investing.

Investopedia / Paige McLaughlin

Understanding the Macro Environment

The macro-environment refers to how the macroeconomic conditions in which a company or sector operates influence its performance. Macroeconomics deals with aggregate production, spending, and the price level in an economy as opposed to individual industries and markets.

The amount of the macro environment's influence depends on how much of a company's business is dependent on the health of the overall economy. Cyclical industries are heavily influenced by the macro environment, while basic staple industries are less influenced. Industries that are highly dependent on credit to finance purchases and business investments are strongly influenced by changes in interest rates and global financial markets.

The macro-environment can also directly affect consumers’ ability and willingness to spend. Luxury goods industries and big-ticket consumer goods can be highly impacted by fluctuations in consumer spending. Consumers’ reactions to the broad macro-environment are closely monitored by businesses and economists as a gauge for an economy’s health.

Factors of the Macro Environment

Analyzing the macro environment is an important part of strategic management. Business analysts often conduct a PEST (political, economic, socio-cultural, and technological) analysis to identify macro-economic factors that currently affect or in the future may affect business. Some of the key factors composing the macro environment include the following:

Gross Domestic Product

Gross Domestic Product (GDP) is a measure of a country’s output and production of goods and services. The Bureau of Economic Analysis releases a quarterly report on GDP growth that provides a broad overview of the output of goods and services across all sectors. An especially influential aspect of GDP is corporate profits for the economy, which is another measure of an economy’s comprehensive productivity.

Inflation is a key factor watched by economists, investors, and consumers. It affects the purchasing power of the US dollar and is closely watched by the Federal Reserve. The target rate for annual inflation from the Federal Reserve is 2%. Inflation higher than 2% significantly diminishes the purchasing power of the dollar, making each unit less valuable as inflation rises.

Employment levels in the United States are measured by the Bureau of Labor Statistics, which releases a monthly report on business payrolls and the status of the unemployment rate. The Federal Reserve also seeks to regulate employment levels through monetary policy stimulus and credit measures. These policies can ease borrowing rates for businesses to help improve capital spending and business growth, resulting in employment growth.

Consumer Spending

Consumer spending made up 54% of the U.S. GDP in the second quarter of 2021 and is widely considered to be an important indicator of macroeconomic performance. Slow growth or decline in consumer spending suggests a decline in aggregate demand, which economists consider to be a symptom or even a cause of macroeconomic downturns and recessions. 

Monetary Policy

The Federal Reserve’s monetary policy initiatives are a key factor influencing the macro environment in the United States. Monetary policy measures are typically centered around interest rates and access to credit. Federal interest rate limits are one of the main levers of the Federal Reserve’s monetary policy tools. The Federal Reserve sets a federal funds rate for which federal banks borrow from each other, and this rate is used as a base rate for all credit rates in the broader market. The tightening of monetary policy indicates rates are rising, making borrowing more costly and less affordable.

Fiscal Policy

Fiscal policy refers to government policy around taxation, borrowing, and spending. High tax rates can reduce individual and business incentives to work, invest, and save. The size of a government’s annual deficits and total debt can influence market expectations regarding future tax rates, inflation, and overall macroeconomic stability. Government spending drives borrowing and taxation; it is also widely used as a policy tool to try to stimulate economic activity during slow times and make up for sluggish, consumer spending and business investment during recessions.

What Are the Differences Between a Micro and Macro Environment?

The micro environment refers to the factors within a company that impact its ability to do business. Micro environmental factors are specific to a company and can influence the operation of a company and management's ability to meet the goals of the business. Examples of these factors include the company's suppliers, resellers, customers, and competition.

The micro environment is specific to a business or the immediate location or sector in which it operates. In contrast, the macro environment refers to broader factors that can affect a business. Examples of these factors include demographic , ecological, political, economic, socio-cultural, and technological factors.

What Is Macro Environment Analysis?

Macro environment analysis is part of a company's strategic management that enables it to analyze and identify potential opportunities and hazards that might impact the business. The goal is to prepare management in advance with information that assists them in making operational decisions.

Some companies will employ analysts trained to evaluate macro-environmental factors and provide recommendations based on their research. These analysts will review broad macro-environmental forces related to such factors as politics, the economy, demographics, and technology.

What Is an Example of a Macro Environment?

Political factors are an example of a macro-environmental force that can impact a business. These include laws or government regulations governing companies or the industry in which they operate.

For example, a government can enact tariffs that increase the cost of an imported good a company needs to manufacture its products. Rather than paying the tariff, the company can look for a domestic source for these goods that is cheaper than the imported good. If they can't find a domestic source, they will have to purchase the more expensive imported goods. In many cases, the company will need to pass the additional cost on to the consumer in the form of increased product prices. This could reduce the company's revenue if sales decrease because of the company's higher prices.

U.S. Bureau of Economic Analysis. " Gross Domestic Product ." Accessed Sept. 3, 2021.

U.S. Bureau of Economic Analysis. " U.S. Economy at a Glance ." Accessed Sept. 3, 2021.

Federal Reserve Board. " Why does the Federal Reserve aim for inflation of 2 percent over the longer run? " Accessed Sept. 3, 2021.

U.S. Bureau of Labor Statistics. " Local Area Unemployment Statistics: Unemployment Rates for States ." Accessed Sept. 3, 2021.

U.S. Bureau of Labor Statistics. " Current Employment Statistics - CES (National) ." Accessed Sept. 3, 2021.

Federal Reserve Bank of St. Louis. " Real GDP and Its Components, Quarterly, Seasonally Adjusted ." Accessed Sept. 3, 2021.

Federal Reserve Board. " Review of Monetary Policy Strategy, Tools, and Communications: 2019-2020 Review: Overview ." Accessed Sept. 3, 2021.

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A practical introduction to Marketing Environmental Analysis

The development of your overall marketing strategy has to start with an assessment of your business environment. In order to cover all bases, you can use a mix of several marketing frameworks. You can also use applied theories to evaluate different factors that affect your marketing strategy. So this is what marketing environmental analysis is all about. It can be broadly classified under external and internal factors. A marketing environmental analysis will highlight critical factors. You can use this to your advantage. But it also presents elements that are a risk to your planning and implementation.  

Before you look into the “How”, let’s establish the “Why”. The benefits of doing a marketing environmental analysis vary. Generally speaking, the analysis:

• helps in setting and attaining marketing or organizational objectives
• indicates internal strengths and weaknesses of the organization
• highlights external threats and opportunities
• provides an understanding of trends and insights to gain advantage or improve offering
• clarifies expectations by considering capabilities and resources
• prepares organizations for adversity and changes within their industry
• forecasts possibilities for the future of the offering, brand or organization

There are 2 widely accepted divisions to the marketing environmental analysis. External & Internal environments. The external is split into macro-environment and micro-environment forces. So, let’s take a deeper dive into each of the main classifications. We will be using some popular models and theories to explain them.

Macro-Environment – Marketing Environmental Analysis

The macro-environment factors are external forces indirectly affecting the growth of your business. These affect both the micro and internal factors. Thus, leaving an impact on your brand and organization. One of the most popular models for inspecting the macro-environment is a PESTLE/PESTEL analysis. PESTLE/PESTEL is a business analysis tool that is also useful for marketing strategy. There are 6 major elements to explore here. These are:

• Sociological
• Technological
• Environmental

By examining each of the 6 forces, you will have a clear understanding of external factors that provide opportunities for you, your brand, or your business. It will also prepare you to plan against threats and challenges.

Let’s look at each of the 6 factors of PESTLE/PESTEL now:

The political situation of the region/country you are marketing to needs to be considered. Most industries have regulations in place for trade, taxes, quality, and labor. These and other government policies make up the political external factors that affect you and your business.

The pricing of your offering could be severely affected by demand/supply imbalance. Thus, it is important to analyze economic factors. Some inclusions are direct like interest rates and inflation. There are complex ones too. Such as purchasing power of consumers or regional economic growth.

SOCIOLOGICAL

Also referred to as Social factors. These forces include but are not limited to, demographics by region, and general sentiment towards the industry. These also consider the lifestyle, culture, and values of society and individuals.

TECHNOLOGICAL

The innovation revolution today means an ever-changing technological landscape. Consequently, this can affect Research & Development, resource utilization, and costs. It is important to study the way technology changes industries. Also, to understand the way consumers interact with a brand. As a result, it can exponentially help growth.

ENVIRONMENTAL

Besides general sustainability practices, there are government policies and initiatives. They all hold everyone responsible for their own environmental impact. These factors include climate change and best practices. But there is also alignment with regional and international norms. Finally, corporate social responsibility (CSR) initiatives are a part of these as well.

Despite commonalities between legal and political factors, it is necessary to look at these separately. Since there are international and local government laws that could affect you and your brand. The legal factors may include patents and intellectual property. Or occupational health & safety protocols too. But it’s important to also consider employment and consumer protection laws among others.

There are great examples of how to conduct a PESTEL/PESTEL analysis on pestleanalysis.com . Check these out to gain a better understanding of the model. And surely implement its application!

Micro-Environment – Marketing Environmental Analysis

Unlike macro-environmental external factors, these forces have a direct impact on your organization or brand. There are several classifications for these. But the simplest is Competitors, Partners , and Customers . A thorough analysis of micro-environmental factors is necessary. Since the application of strategy and the success of its execution is connected to these forces. Let’s take a closer look at elements of each category now:

Competitors

In 1980, Harvard Business School’s Michael E. Porter outlined his 5 forces theory. He highlights major forces that shape marketing and organizational strategy. Undoubtedly, he did it in a competitive environment. This we can see in all industries now. These 5 forces can be further explored by looking for answers to the questions under each force below:

COMPETITIVE RIVALRY

Who are your competitors? And, how many of them are there? How do their products compare to yours? Besides, what advantages or disadvantages do you have on them? Lastly, how does your pricing, strategy, marketing, and market share match up to these competitors?

SUPPLIER POWER

How many suppliers do you deal with? Furthermore, what are the benefits and risks of dealing with them? If not them, what are your alternatives? And, how much do they charge you? Finally, how much control do you have in the relationship? 

BUYER POWER

How many buyers do you have? Also, what is the nature of your relationship with them? Are they distributors or direct customers? Moreover, what is the size and frequency of their orders? Because that shows who dictates the terms of the relationship. Consequently affecting… Will they go to a competitor’s offering? And the all-important, what will make them stay?

THREAT OF SUBSTITUTION

Is there another way… to do what you do? Are there alternatives? Or new options coming to the market? Besides, can what you do be outsourced for cheaper? Lastly of course, is there an easier solution to the problem you aim to solve?

THREAT OF NEW ENTRANTS

How easy is it for new brands to enter your domain? Is there a way to protect your market share? How are your brand and its identity positioned in your industry? Are you prepared for new entrants?

Without a doubt, analyzing your prospective and current customers is an essential undertaking. It has the biggest impact on your success. Performing consumer research will help you understand how the “public” feels about your brand. This research can be done with surveys. But also through feedback and analytics. It will aid decision-making for you or your business, as a result.

Successful analysis of your customers will help you:

• Connect with your customers to create meaningful relationships.
• Target high-value segments
• Meet service expectations
• Improve your offering
• Shape your brand image.

Once you have completed an analysis of your customers, you have to channel this into successfully creating Customer Personas. You can use these to serve segments better. And, you can check out how to create Customer Personas in this blog post here. Furthermore, Alexa’s blog has 10 great examples of personas that you can use to understand the inputs you may need to take in. Obviously, by adding value to your customers, you will position your brand as an effective solution to their needs!

Your partners could include a host of affiliates or agencies. Even service providers or consultants. The actual number depends on the nature of your business. It’s vital for these partners to be aligned with your goals. If so, you can be assured of their commitment to mutual success. For example, you could have agencies for your branding needs that uphold your brand image. They do this with quality signage. Additionally, you could be using third-party delivery partners for your e-commerce products. They need to ensure the delivery process is as seamless as an online purchase.

You have to take a deep look at every partnership that can benefit you. Then plan the terms within which you will operate. You have to maintain control processes to uphold your values and standards. Forming the right partnerships propels growth. It can add value for your customers. Further, it can revolutionize the way you and your industry do business. So a periodic examination of your partners will benefit you, your brand, your customers, and all marketing efforts.

Managing Partnerships

According to a 2015 McKinsey survey on managing strategic partnerships , the top 3 essential elements for shared success with partners are:

• Alignment on objectives
• Effective communication and trust
• Constructive leadership and processes

While looking at causes of failure in the same survey above, the factor that replaces leadership and processes is restructuring and evolution. How does this affect a constantly changing business landscape? It is always necessary to be prepared for the future! And ensuring your partners are positioned to join you. As you inevitably grow together. Despite this, do not forget to be agile enough. You have to be able to adapt too. There will be changes that your partners may be experiencing. Obviously, all relationships benefit from mutual understanding. And the way through is to have empathy!

Internal Environment – Marketing Environmental Analysis

Lastly, you have to take a closer look at all internal forces affecting how you operate. Your core mission and vision will address why you are in business, Consequently, it clarifies what you want to achieve. The McKinsey 7S framework is one of the most popularly used methods to analyze the internal environment. Being used since the late 1970s, it helps in assessing the functioning of organizations. It contains tangible elements such as Staff, Systems, Skills, and Structure. It also includes others like Shared Values, Strategy, and Style. Let’s take a look at these now:

Your goal helps you plan how you establish and grow. You do this to remain competitive within your industry. Your strategy has to be readily adaptable to changes in the environment. That’s how you meet your objectives.

Before, hierarchy defined the structure. Things are a little complex now with fluid work teams. But the shape and composition can evolve. The difference is made by communication and the ability to work together. This leads to an ideal situation where you work towards goals together.

Visibly, processes are in place everywhere. It includes all functions such as HR, Finance, IT, Sales, and Marketing. Other procedures also constitute systems like SOPs and guides. This undeniably contributes to how everyone in the organization plans to achieve set goals. Proper allocation of resources is important. But, constant tracking is vital.

The core competencies and capabilities of the entire team equal its skills. It is important to ensure new skills are taught. As well as the development of current skills. This will increase output. Thus making it easier to reach targets.

You have to take a look at each of your employees. Assess their behavior and motivations. Track their progression. Provide training. And engage them to earn their commitment. You have to constantly gauge them to have the best possible group of people. They will help you achieve your goals.

How the heads and managers chose to lead is crucial. It becomes a part of its style. Patterns of behavior will help in the formation of a culture. This culture brings employees together. They are in sync. In turn, this creates alignment with broader goals.

Shared Values

Culture is an accumulation of beliefs and values. Also, includes standards and behaviors. They shape how everyone conducts themselves. This applies to teams and organizations as well. It determines how staff treat each other. The shared values boost work ethic. Corporate culture leads to a direct effect on employee output and agility.

Critically, the framework relies on the integration of the 7Ss. You have to set the right goals. You can follow the SMARTER goals framework to do this. Check out this blog post that sheds light on it. Align your goals with your vision and mission. Your values and culture affect how your team performs. This changes the way your organization works and how others perceive your brand.

It’s directly connected to success for a brand. Assessment of your capabilities will help you play to your strengths. Additionally, the systems and processes you have in place optimize efficiency. This directly affects your bottom line. Your resource management and investment into R&D help you chart a way forward. Lastly, your employees, their capabilities, and continued growth are vital to achieving your goals, so keep that in mind always! This is much like running a content audit for your content strategy ! It is immensely useful and effective.

Above all, understanding how external factors affect your internal environment is crucial. It determines where you stand. You can’t expect to plan for the future without fully grasping your current position. Listing all the forces, directly and indirectly, is essential. It affects you and your business. But it is only part of the process. And connecting the dots to form patterns and trends in the next step. It will show you a way forward. Using the insights gained from the marketing environmental analysis makes the difference. You have to then turn it into an actionable plan in the next step.

A SWOT analysis is the most common, tried-and-tested method to utilize the information from marketing environmental analysis. You can see more about SWOT analysis, which is discussed here, in another blog post.

Clearly, there are several other frameworks, models, and applied theories in marketing. These are often interconnected. You can connect findings from the marketing environmental analysis to: – Choosing your Marketing mix – Selecting a broader marketing strategy such as the Ansoff matrix – Setting and deriving SMARTER goals or establishing OKRs – Understanding internal factors affecting change like the 7S McKinsey framework

Though, all can help you achieve similar results. The takeaway should be that your marketing environmental analysis is essential. How you do it, is up to you. It would be based on your resources and capabilities. Just remember that this isn’t a one-off exercise. You have to repeat it periodically. This is how you prepare for continued growth and success.

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Better Knowledge. Your Insight Is Sharper

Macro Environment: Factors and Their Impacts on Business

Updated on August 13, 2023 by Ahmad Nasrudin

The macro environment is dynamic and keeps changing from time to time. In comparison, changes in demographic factors may take a long time, but not for other factors such as technology and the economy.

For example, globalization makes it difficult for domestic companies to avoid external shocks. The economy has become increasingly intertwined from country to country. Thus, shocks in one country, such as the 2008 crisis, spread quickly to other countries. It creates a rapid and dramatic contagion effect.

Likewise, technology brings significant changes to the market. The world is getting online. Changes in technology are disrupting many conventional businesses, such as retail. It also introduces new business models, such as ride-hailing services.

What is a macro environment?

The macro-environment refers to the factors and forces outside the company which affect business operations. Every change in these factors can impact the competitive environment and the company’s internal environment. But the company has no control over its changes.

• The competitive environment , or industry environment, is around the company’s external stakeholders. It is formed through the relationships and linkages between companies and their stakeholders, such as competitors, governments, suppliers, customers, local communities, creditors, etc.
• The internal environment  includes aspects within the organization, such as corporate culture, organizational structure, and company resources.

The macro environment is vital because it exposes opportunities and threats to the company. Thus, failure to adapt to changes makes companies lose opportunities to exploit external opportunities to build competitive advantage. Or, it exposes the risk where the company fails to address external threats, leading to business failure.

• See also : A Learning Material on Business Environment: Factors and Their Influence on Companies

Factors in the macro environment

The macro-environment comprises seven factors, namely:

• Political factors
• Economic factors
• Socio-cultural factors

Technological factor

Environmental factor.

• Legal factors

We briefly PESTEEL these seven factors.

Please remember these six factors can be local, national, or global. Thus, their exposure will also differ between  businesses .

Take economic factors as an example. For example, trade protection by trading partners is a global rather than a local issue. The policy affected domestic export-oriented companies. However, it is less significant for companies if their revenue comes from local sales.

Political factor

Developments in the political environment can significantly expose businesses to opportunities and threats. Changes in taxation, laws, and government policies are examples.

In addition,  the political environment  also includes political stability, corruption, rule of law, and institutional strength. For example, a change in a country’s leadership might create political instability and policy uncertainty, which raises business concerns.

Economic factor

Economic factors  include many variables, such as:

• Economic growth
• Interest rate
• Exchange rate
• Unemployment rate

The economic environment also includes government policies such as fiscal policy, monetary policy, and trade policy. They all affect business operations, either directly or indirectly.

For example, an increase in import tariffs reduces competition in the market. It makes foreign goods more expensive when they arrive in the domestic market, making them less competitive.

Take exchange rates as another example. For example, a depreciating exchange rate makes aluminum imports more expensive. The increase has a direct impact on car manufacturers. Meanwhile, service companies may not be directly affected. They may be exposed to depreciation if automakers increase prices to maintain profitability.

Economic factors can also have an indirect impact by influencing consumers’ purchasing power and spending patterns. For example, an increase in interest rates makes borrowing more expensive. Consumers responded to this condition by reducing demand for durable goods, which have relied on loans to purchase them.

Socio-cultural factor

These factors include demographic factors related to changes in the population and its composition (such as age, sex, race, education, religion, and ethnicity). In addition, there are socio-cultural factors.

Socio-cultural factors  include aspects such as:

• Social class
• A religious norm
• Distribution of wealth
• Shared practices, values, norms, and behaviors
• Social standards and traditions

Socio-cultural factors influence business in several ways. First, it affects consumer spending patterns and behavior. For example, the middle class spends more on services than the lower class. The middle class also has higher education, influencing their spending patterns.

Second, it influences practices and culture within the organization. For example, employees’ social values, traditions, and beliefs shape the workplace’s culture.

Technological advances have disrupted several conventional businesses. For example, e-commerce makes traditional retail bankrupt. They also influence production techniques and communication channels.

Technology also affects work practices, such as working from home. Moreover, they are bringing a new business model as introduced by Uber through its ride-hailing service.

The technological factor  includes not only outputs such as the internet, 3D printers, fiber optic technology, and nanotechnology. However, the knowledge surrounding its development is also essential, including research and development.

Environmental factors include natural resources, physical environment, or natural ecological conditions. This factor is becoming increasingly important as environmental issues have increased recently.

Natural disasters, global warming, and pollution expose many businesses. Logistical disruption due to natural disasters is an example.

Consumers and governments have also increased their concern for the environment and sustainability for future generations. As a result, these factors have influenced consumer demand patterns for products and prompted the government to launch related policies and regulations.

Legal factor

Legal factors are closely tied to political factors. For example, political stability significantly influences changes in laws and government regulations. Unstable politics can encourage inconsistency in laws or regulations issued by government regimes.

Legal aspects affect business in many areas, including:

• Competition
• Labor practices
• Consumer protection
• Product health and safety
• Environmental regulations

How the macro environment affects the business

On the one hand, changes in the macro environment affect decisions, profitability, and operations. On the other hand, companies do not have absolute control to direct their impact in their favor.

Therefore, companies need to consider these factors in strategic planning. For example, they forecast interest rates in the next few years to inform investment decisions.

Let’s take the insurance company as a case.

Insurance companies earn premium income. In addition, their revenue also comes from investment. Let’s narrow the discussion to investment income.

Insurance companies must predict future trends to obtain optimum return on investment at a tolerable risk level. For example, they forecast economic indicators such as stock and bond price indices, interest rates, economic growth, and inflation. The forecast is helpful for properly allocating investments to asset classes.

Say, an insurance company predicts the central bank will raise policy rates next year. Among asset classes, rising interest rates significantly expose bond prices. Higher interest rates push bond prices down. So, for example, the company might reduce its exposure to bonds.

Dynamic, but not all strategic

The factors in the above macro environment are dynamic. They change from time to time. And the changes bring both opportunities and threats to businesses.

However, businesses have varying exposure to these factors. Some factors can have a more significant effect on specific industries but not on other industries.

For example, an increase in interest rates has a more significant impact on the banking industry than manufacturing. Meanwhile, inflation was more important for food and beverage companies than utility companies.

So, we don’t have to include all the factors when analyzing a company. Just focus on the significant aspects of the company.

Analyze changes in the macro environment and their impact

Businesses must identify the most uncertain factors and significantly affect business operations. They need to sort out the main factors in the macro environment and determine their significance.

The steps in analyzing the macro environment involve the following stages:

• Identify and sort out the most uncertain and most significant key factors affecting the company.
• Determine the future trend for each factor and whether it is moving in a favorable direction or not.
• Classify each factor as an “opportunity” or a “threat.”
• Evaluate how significant the opportunities or threats affect the company’s performance and how significant the opportunities are

We use the results in a SWOT analysis. Next, we map and relate these opportunities and threats to the company’s internal strengths and weaknesses. Companies should be able to optimize opportunities by exploiting existing internal strengths and minimizing threats impacting internal weaknesses.

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