The Macro environment tends to focus on the broader issues of the business like the economy, socio-cultural environment, laws and regulations, technology, and politics. Economics is going to be the main area of interest when we speak of business. But it doesn’t mean we can ignore other macro-environmental factors, all of those factors are equally important.
In simple words, we can say that the macro environment includes all of those factors over which any business doesn’t have any control of. Those factors in the macro-environment are social, political, technological, demographic, laws and regulations, ecology, interest rates, and inflation, because they all affect the functionality and decision-making process of any business.
Table of Contents
What is Macro Environment? – Explanation
As we know that the macro environment includes all of those factors over which a business doesn’t have any control of and affect its ability to sever its customers. They impose certain conditions over the business of any brand, and the company doesn’t have any choice except to abide by them.
Now, the question is how much a business/company is vulnerable to macro-economic factors. It depends on how much a company is dependent on the health of the economy and external factors. If a company is relying more on the economic health of the country, then it’ll be more vulnerable to macro-economic factors. Banks, financial institutions, and credit card companies are a very good example of such businesses that are heavily reliant on the macro-economic factors.
Such macro-environmental factors also affect the spending power of consumers along with affecting businesses and companies. Luxury products and costly tickets impact the spending of customers. Businesses and companies also closely evaluate the reactions of customers on such factors and how they perceive it.
What is Macro Environmental Analysis?
The macro-environment analysis involves brainstorming and a lot of research to initiate the process. It starts by creating a list of trends that would have a positive and negative impact on your business. Here are 6 broad factors that would give you clear structure and idea about macro-environmental analysis, and they’re as follows;
Political Factors
Macro political environment analysis comprises of the political changes and the stand of a politician on a certain political issue. For instance, politicians are becoming pro-environmentalist and they’re enforcing policies of creating a world a greener place. In the election period, you should study the stand of politicians on different policies that would impact the business.
Economic Factors
The macroeconomic environmental analysis would study the trends like the unemployment rate, interest rate, income level, spending habits, inflation, and currency exchange rates.
Social Factors
Macro social environment factors would involve the study of behavior and attitude of people, family setup, culture, and values, stand of people on issues like global warming and cleanliness, and migration of people from villages to cities and vice versa.
Technology Factors
Macro tech environment factors mean analyzing the changes in technology and the country’s interest in the latest tech development. For instance, businesses in some countries are moving towards online shopping and transactions and it isn’t in other countries.
Legal Factors
Macro legal environmental factors mean studying and closely monitoring the changes in the political environment and court hearings. Both of these factors would help you to understand the conditions of labor laws in the country.
Environmental Factors
Macro environmental analysis means studying the impact of environmental changes on the country. These factors include geographical locations of business, weather and climatic conditions and more.
Major Macro Environmental Factors in Your Analysis
We have discussed it earlier that macro-environment means broad factors like technology, politics, economy, social, and regulations. Now, we’ll focus on economic factors because they play a major role in affecting the performance of any business. Here are some of the crucial macroeconomic factors with example, and you’ll learn how these factors impact the decision making and functionality of the business.
Political Stability
When we talk about international trade, policies, and business, then political stability plays a very important role. It tells us many things like the socio-cultural values of any country.
For instance, we live in an interconnected world. If the country of your organization doesn’t have any geographic and regional agreement with a certain country, then it’s highly probable that you have to pay heavy import taxes. It would impact your whole budget and brand visibility later on. In some cases, it becomes almost impossible to impossible to conduct and run various operations of your business in some political environment. Like protest, procession, roadblocks, etc.
Demography
Demography means dividing and breaking up the whole population into different parts like income level, gender, age, behavior, attitude, etc. The reason is that one word population doesn’t tell you any solid information. The population would only tell you that certain figures of people are living in some country. That’s why you need demography to subdivide the whole population into different parts so that the data could become more understandable.
For instance, if the target market of your product is middle-aged and about 60 people. Then you have to study the trends of different countries, where people are living a long and happy life. Once you know that, only then you would be able to find and target your audience.
For instance, if your target audience belongs to a certain ethnic group in the whole population, then demography would be the most suitable option.
Laws and Regulations
Laws and regulations are also very important in the macro-environment if you’re doing your business globally. You have to abide by the laws of the land where you’re planning to go. There’s so much diversity around the world. You would be surprised to know that something is legal in one country, but it isn’t in the other.
For instance, blockchain and cryptocurrency is the latest form of a digital asset in the world. Some countries like Switzerland and Malta have established laws and regulations about cryptocurrency. If you have to hold and trade digital financial assets, then you should know where it’s legal and it’s not. It’s because some countries haven’t established the laws for cryptocurrency and other digital assets.
Technology
The world of technology is very intense, crucial, and competitive nowadays. It has great growth potential. Technological infrastructure for research and development plays a huge role in the macro-environment. It also tells us the technological environment in a certain country.
For instance, you have a business of developing Software and Mobile Application. You’re planning to launch software or a mobile app in some countries. Therefore, it’s important to know the technological environment of the country. Whether you should translate the application or not; it depends on the tech culture and preferences of the people.
Ecology
Nowadays, the world has become very cautious about the scarcity of natural resources. Ecology also falls under the category of macro-environment, and it’s a very important one. Soil fertility, air pollution, weather and climate, and territory flatness are some of the common ecological concerns in the macro-environment of any country.
For instance, global warming is the most significant prevailing issue of our time. It doesn’t matter wherever your target market is. Global warming and rising sea level would affect everyone worldwide. That’s why you’ve to manufacture products accordingly.
Spending Habits of Consumer
The spending habits of the consumer mean the number of money people spends on products and services. It’s also a very interesting macro-economic environmental factor. The socio-cultural factor is involved in it as well because people in some cultures love shopping and others don’t.
For instance, companies like Apple, iPhone, and Samsung sell their luxury premium products in those markets where the income level of customers is higher and they love shopping.
Employment
If the unemployment rate is lower and people have jobs, then they would have extra money to spend. That’s why the employment rate is also a significant factor in the macro-environment.
Countries where the GDP and income level are higher and the inflation rate is lower, it means that the people living in those countries are well off and they have extra money to spend. In such circumstances, the target market would be interested in luxury products. Therefore, it’s very important to know the employment and income level of customers.
Interest Rates
The interest rate is also a macro-economic factor. If the government plans to increase the interest rate, then the prices of all the products and services would increase automatically.
Why You Need to Conduct Pestle Analysis
Pestle analysis involves studying the political, economical, social, technological, legal, and environmental factors. It comprises of all the factors of macro-environment factors. In other words, macro environment analysis and Pestle analysis are the same things.
Who is Eligible for Conducting Macro Environmental Analysis
There are numbers of researchers and analysts who have experience in collecting and gather information from various sources. It’s because finding the right and exact information from valid sources is the key to conducting the macro-environmental analysis.
When to Conduct Macro Environmental Analysis
A macro environment analysis would give you a clear picture of the market. You should conduct market analysis over time because it makes you aware of the changes in the market.
Examples of Macro Environment
China
China is one of the most successful economies in the world with a GDP of more than 12 trillion US dollars. The country is also one of the world’s most populous regions with a population of 1.4 billion people. The demography of China comprises of mostly Asians and some Caucasians.
United States
United States is one of the world’s top leading economies for 60 or 70 years with a GDP of more than 17 trillion US dollars. She also has the highest consumer spending market in the world. 325 million people are populating the country. The diverse country’s population also comprises Africans, White Americans, Asian Americans, Hispanics, and Native Indians.
Conclusion
The macro-environment focuses on the broader aspect of the business and it studies how different geographic factors impact the companies. If you want to conduct and study macro-environmental analysis, you should start with pestle analysis.
