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Macro and micro environments both fall into the categories of environmental scanning. The general scope of environmental scanning is that it is a component of global environmental analysis. While analyses are typically carried out on the macro environment, the micro environment still has an important role to play. In summary, the macro environment is involved with the industries, companies, markets, clients and competitors, while the micro environment can be represented by the suppliers, competitors and customers.
These are the major external and uncontrollable factors that influence an organization’s decision making, and affect its performance and strategies.The macro environment is typically segmented for the reasons of analysis. This analysis, commonly referred to as a PESTLE analysis, allows researchers to look at the main six environmental factors that affect a business. These factors are political, economical, technological, environmental, legal and social. Each of these factors indirectly affects the company but the company cannot control them. Instead the company is required to adapt to these factors in the most efficient way possible. The results of this analysis allow the company to see where their strengths are when adapting to the macro environment and where they could improve on their methods.
1. Economic Environment:
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 important 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.
2. Political and Governmental Environment:
Political environment refers to the influence exerted by the three political institutions they are; Legislature, Executive, Judiciary etc. The legislature decides on a particular course of action. Government is the executive and its job is to implement whatever was decided by parliament. The judiciary has ensure that both the legislature and executive function in public interest and within the boundaries of constitution. Legal and political environment provides a framework within the business is to function and its existence depends on the success with which it can face the various challenges constructed out of political and legal framework.
3. 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 labor mobility and level of education.
4. Natural Environment:
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.
5. Demographic Environment:
Demographic factor include Size, growth rate, age composition, sex composition etc. of population, Family size, Economic stratification of population, Educational level, Caste, religion etc. All these demographic factors are relevant to business. These factors affect the demand for goods and services. High population growth rate indicates an enormous increase in labor supply. Population with varied tastes, preferences, beliefs, temperaments etc. gives rise to differing demand pattern and calls for different marketing strategies.
6. Technological Environment:
In order to survive in today’s competitive world, a business has to adopt technological changes from time to time. New technologies create new products and new processes. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organizations providing the products. 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.
7. International Environment:
Another environmental factor which is fast emerging as the force to reckon with is the international environment. Implications of global or international environment are; (i)Due to liberalization, Indian companies are forced to view business issues from the global perspective. (ii)Safe and protected markets are no longer there. World is becoming small in size due to advanced means of transport and communication facilities. (iii)Learning of foreign languages is must for every business manager. (iv)Acquiring familiarity with foreign currencies is also must. (v)Facing political and legal uncertainties is inevitable.
Micro environmental factors are internal factors close to a business that have a direct impact on its strategy. . Within the micro environment it is important that the layout of the physical infrastructure is focused on competitiveness.
These factors include:
Organizations’ survive on the basis of meeting customer needs and wants and providing benefits for their customers. Failure to do so will result in a failed business strategy. As all businesses need customers, they should be customer oriented.
Employing the correct staff and keeping staff motivated is an essential part of an organization’s strategic planning process. Training and development play a critical role in achieving a competitive edge; especially in service sector marketing. This is clearly apparent in the airline industry, where customer services is crucial in obtaining a competitive edge. Employing staff with relevant skills and experience is essential. This process begins at recruitment stage and continues throughout an employee’s employment via ongoing training and promotion opportunities. If a business employs staff without motivation, skills or experience it will affect customer service and ultimately sales.
Suppliers provide businesses with the materials they need to carry out their business activities. A supplier’s behavior will directly impact the business it supplies. For example if a supplier provides a poor service this could increase timescales or lower product quality. An increase in raw material prices will affect an organization’s marketing mix strategy and may even force price increases. Close supplier relationships are an effective way to remain competitive and secure quality products.
As organisations require inward investment to grow, they may decide to move from private to public ownership and list on the stock market. The introduction of public shareholders brings new pressures as public shareholders want a return from the money they have invested in the company. Shareholder pressure to increase profits will affect organisational strategy. Relationships with shareholders need to be managed carefully as rapid short term increases in profit could detrimentally affect the long term success of the business.
Positive media attention can make an organisation or its products and negative media attention can break an organisation. Organisations need to manage the media so that the media help promote the positive things about the organisation and reduce the impact of a negative event on their reputation. Some organisations will even employ public relations (PR) consultants to help them manage a particular event or incident. Consumer television programs with a wide and more direct audience can also have a very powerful impact on the success of an organisation. Some businesses recognise this and will change their reaction when consumers mention that they are going to contact a consumer television programme or the newspapers about the business.
The name of the game in marketing is differentiation. Can the organisation offer benefits that are better than those offered by competitors? Does the business have a unique selling point (USP)? Competitor analysis and monitoring is crucial if an organisation is to maintain or improve its position within the market. If a business is unaware of its competitor’s activities they will find it very difficult to “beat” their competitors. The market can move very quickly for example through a change in trading conditions, consumer behavior or technological developments. As a business it is important to examine competitors’ responses to these changes so that you can maximise the impact of your response
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