Lecture 5

The context of
Macro environment
 Contents

The Political environment

The Macroeconomic environment
The Demographic, social and culture context
The Legal environment
PESTLE framework
 Types of
Macro Environment
environment

<TITLE>
Economic (PESTLE) Non-economic

Internal
environment
The company
External
environment
Customers
Micro environment
Marketing
Competitors
(Competitive environment) intermediaries
Suppliers
Public
3
 The Political environment

• Politics and Government

• Political systems
• Politics and Business
 Politics and Government

• Politics is concerned with those processes which help to

determine how conflicts are contained, modified,
postponed or settled; it can be seen as a universal social
activity
• Government as a process is concerned with the pursuit
and exercise of power –be it at local, regional, national or
even international level
 Political systems

• In an authoritarian political system the disposition is to

settle conflicts through the enforcement of rules,
regulations and orders by an established authority
• In a democratic political system, conflicts should be
resolved by rational discussions between the various
parties concerned, with the final solution being accepted
voluntarily by all participants, even if they disagree.
 Politics and Business

• Politics affects the business world in a variety of ways 

understanding them will help making better business
decision
• With globalization of markets, these two are closely related
and affect each other
• Example:
• Trade war between the US and the world
• Economic sanction of certain countries
• Joining free trade organizations
 The Macroeconomic
environment
• Scarcity
• Types of economy
• Government and the Macroeconomy: objectives
• Government and the Macroeconomy: policies
 The Macroeconomic
environment

• Scarcity centers around the relationship between a

society’s needs and wants and the resources available
to satisfy them.
• Choices have to be made by both individuals and
society concerning the priorities in the use of resources
 opportunity cost or real cost of the decision
• Example: money spent on food will not be spend on
clothing
 Types of economy

• Centrally planned economy: most of

the key decisions on production are
taken by a central planning authority
• The government does not make all the
decision, many decisions are devolved
to subordinate agencies
• Firms are not sensitive to the
customers’ needs
• Black market
 Types of economy

• The centrally planned economy typically do the following:

• Owns and/or controls the main economic resources;
• Establishes priorities in the use of those resources;
• Sets output targets for businesses which are largely under
state ownership and/or control;
• Directs resources in an effort to achieve these predetermined
targets; and
• Seeks to co-ordinate production in such a way as to ensure
consistency between output and input demands.
 Types of economy

• Free market economy: individuals and firms interact in

free market, through a system of prices, to determine the
allocation of resources
Consumers
Supply Deman
d
Income Expens
Market for e Markets for
resources products
Expens Income
e
Deman Supply
d Producers
 Types of economy

• Free market economy’s key features are:

• Resources are in private ownership and the individuals owning
them are free to use them as they wish.
• Firms, also in private ownership, are equally able to make
decisions on production, free from state interference.
• No blueprint (or master plan) exists to direct production and
consumption.
• Decisions on resource allocation are the result of a decentralized
system of markets and prices, in which the decisions consumers
and firms are automatically coordinated.
• The consumer is sovereign, i.e. dictates the pattern of supply and
hence the pattern of resource allocation.
 Politico-economic
synthesis

Democratic
• This graph represent the
link between economic
system and political
Free regime
market • Horizontal axis:
Planned
Economic system
• Vertical axis: Political
system
Authoritarian • This is a very
complicated debate
 The macroeconomy

• Microeconomic analysis, which is concerned with the

study of economic decision taking by both individuals and
firms.
• Macroeconomic analysis, which is concerned with
interactions in the economy as a whole (i.e. )with
economic aggregates
• In reality, all sectors of the economy are interrelated to
some degree
 Government and the
Macroeconomy:
• Controlling inflation objectives
• Economic Growth
• Reducing unemployment
• A favorable balance of payments
• Controlling public borrowing
• Stabilizing exchange rate
 Controlling inflation

• Inflation is usually defined as an upward and persistent movement

in the general level of prices over a given period of time; it can also
be characterized as a fall in the value of money
• Normally measured by Consumer Price Index (CPI)
• Why prices tend to rise over time: supply sides and demand-siders
• Rising price may results in firm losing sales, employment rate,
investing, etc.
• Wage/prices inflationary spiral
• Deflation
 Economic Growth

• For governments, the aim is usually to achieve steady

and sustained levels of non-inflationary growth,
preferably led by exports
• If given a choice, governments would basically prefer:
steady level of growth rate, growth based on investment
in tech, growth higher than competitors
• Good growths = business confidence  increase level of
investments  increase levels of employment
 Reducing unemployment

• Government focus more on job creation, maintenance

and developing skills appropriate to future demands
• High inflation often cause unemployment
• Unemployment creates negative effects for both society
and the economy: waste of resource, pressure on the
public service, growing social and health problems
• 3 main types of unemployment: cyclical unemployment,
structural unemployment and technological
unemployment
 A favorable balance of
payments
• A country’s balance of payments is essentially the net
balance of credits (earnings) and debits (payments)
arising from its international trade over a given period of
time.
• The balance of payment is measured by imports and
exports of goods and services
• Sustained current account tends to suggest favorable
trading condition  boost growth. (However, a current
account deficit is not entirely bad for the country.)
 Vietnam’s July balance of
payments

Changes to
July 2018 Cumulative
Criteria Delta (%) previous year
(Billion USD) (Billion USD)
(%)
Export 8.34 -12.2 122.50 15
Import 9.22 -2.7 119.9 9.5
Total 17.56 -7.5 242.54 12.2
Balance of
-0.88 N/A 2.54 N/A
https://www.customs.gov.vn/Lists/ThongKeHaiQuan/ChiTieuThongKeTongHop.aspx?Group=S%u1e
payment
d1+li%u1ec7u+th%u1ed1ng+k%u00ea (Retrieved 6th August, 2018)
 Controlling public
borrowing
• Government’s main revenue came from taxation
• Most governments often face annual budget deficit rather
than budget surpluses
• The accumulated debt of past and present governments
represents a country’s National Debt
• Controlling public borrowing is best tackled by restraining
the public spending rate rather than increase revenue
through taxation (most people do not like high tax)
 Concerning regard high
public debt:
• Higher interest rate and its impact on consumption,
investment and business
• Public sector “crowding out” private sector’s search for
funds
• Higher cost of debts, especially public spending
• Low public confidence
• Example: US debt crisis
 Top ten countries by
national debts

300.00%
253%
250.00%

200.00% 179%
148%
150.00% 132% 126% 125%
112% 111% 108% 105%
100.00%

50.00%

0.00%
Japan Greece Lebanon Italy Portugal Cape Congo Singapore Bhutan United
Verde States
Vietnam’s national debt
(by year)
 Stabilizing exchange rate

• A country’s currency has two values: an internal value

and an external value
• Internally, its value is expressed in terms of the goods
and services it can buy and hence it is affected by
changes in domestic prices
• Externally, its value is expressed as an ‘exchange rate’
which governs how much of another country’s currency it
can purchase
• Example: exchange rate according to Vietcombank
 Government and the
macroeconomy: policies

• Government can influence the

macroeconomy through the following
instruments:
1. Fiscal policies
2. Monetary policies
3. Direct controls
 Fiscal policy

• Fiscal policy involves the use of changes in government

spending and revenue (taxation)
• Multiplier effect
• A reduction in taxation or increase in government
spending will inject addition income to the economy
• Fiscal policy is very complicated; as a result, its effects
need to be critical analyzed
• For example: US tax cut
The US Government
spending
 Vietnam’s Govt spending

Source: General Statistics Office of Vietnam

 Monetary policy

• Monetary policy seeks to influence monetary variables

such as the money supply or rates of interest in order to
regulate the economy
• Lowering interest rates encourage firms to invest and
consumption to increase
• Raising the interest rate has the opposite effect
Vietnam’s Interest Rate
 Direct controls

• Direct controls are policies which are designed to

achieve a specific objective
• Incomes policies, which seek to control inflationary
pressures by influencing the rate at which wages and
salaries rise
• Import controls, which attempt to improve a country’s
balance of payments situation (quotas, tariffs, subsidies,
etc.)
 The demographic, social
and cultural context
• Demographic
• Key demographic trends
• How social and demographic factors affect business
• Market segment
 Demography

• Demography is the study of population in term of

overall size and structural characteristics
• For example: age structure, gender balance,
geographic distribution, ethnicity etc.
• This factor has an important implication for both the
demand and supply side of the economy
 Birth rate

• Birth rate: number of live births per thousand of

population annually.
• There are some countries with reducing number of births:
 Smaller family as people become better off and good healthcare
 Availability of contraception
 Later marriage and child bearing
 Declining fertility rate
 Changing attitudes toward women and work
 Death rate

• Like birth rates, death rates are usually measured per

thousand of the population annually
• Factors contributing to a fallen death rates:
 Rising living standards, including better housing, sanitation and
nutrition.
 Developments in medical technology and practice.
 Better education.
 Improved working conditions.
 Net migration

• Net migration is the balance between those leaving and

those entering a country in a period of time
• Influences on the net migration are:
 Legal barriers (e.g. immigration laws).
 Economic migrancy.
 The numbers fleeing persecution.
 Government policy.
 Vietnam’s 2018
demography

• Rank: 15th
• Population: 96 million
• Growth rate: 0.99%
• Gender balance: 49.49% male; 50.51% female
• Birth rate per day: 4,268
• Death rate: 1,536
• Net migration: -110
Vietnam Age Structure
 Demographic and
business
• Some example:
• A growing population means more demand or more
supply of manpower
• “Aging” population’s demand
• Change in ethnic make up
• Distribution of population creates commercial hubs
 Social context

• Social class: the idea of grouping people who share

similar social status (rich, poor and middle class)
• Social mobility: individual’s ability to move between
the different social class
• Lifestyles: factor that clearly affect people’s attitudes
and behavior
• Other social influences: family life cycle; reference
groups, etc.
 Culture

• The term ‘culture’ generally refers to a complex set of

values, norms, beliefs, attitudes, customs, systems and
artefacts which are handed down from generation to
generations
• Culture can affect not only the kinds of goods and services
that are consumed but also the production process
• Sub culture: groups of individuals with shared value systems
based on common experiences, origins and/or situations
 Market segmentation

• Market segmentation refers to the practice of dividing

market into distinct groups of buyers who have similar
taste, needs and behaviors
• Segmenting help business focus their marketing effort
more effectively and efficiently
• Demographic, social and culture factors can provide
good a basis for identifying distinct market segments
Methods of segmenting
consumer markets
 Class discussion

• Case study questions

• 1 Think of some examples of goods and services for
which demand will rise as a consequence of an ageing
population. How should marketers address this new buyer
segment?
• 2 What types of policy can organisations use to:
• (a) encourage the older worker to stay in employment for
longer?
• (b) recruit older workers into the workplace?
 The Legal Environment

• Law and sources of law

• Business and the law
• Consumer protection
 Classification of Laws

• Public law: concern the state, whether in international

agreements or disputes or between the state and
individual; for example: criminal, administration and
constitutional law
• Private law: law governing the relationship between
individuals; for example: contract, property, trust and the
family
 Sources of Law

• Custom
• Judicial precedent: previous decisions of the courts
• Legislation
 Business and the law

• Law not only constraint but also assist business activity

 Contract law: the
essentials
• An offer is a declaration by the offeror that they intend to
be legally bound by the terms stated in the offer if it is
accepted by the offeree
• Acceptance: Just as an offer must be firm and certain,
the acceptance of an offer by the person(s) to whom it
was made must be unequivocal and must not contain any
alternation or addition
 Contract law: the
essentials
• Consideration: right, interest, profit or benefit accruing to
one party or some loss, responsibility given by the other
• Capacity: depends on the firm’s legal status (ie. Sole
trade, partnership and LLC have distinct legal
personality)
 Law and the consumer

• Ideally, economic theory tend to suggest that law to

protect the consumer are unnecessary because of
rationality and market forces.
• However, reality is different; most countries have
consumer protection law
• Vietnam’s Consumer protection law
 PESTEL Framework

• This models looks at likely changes in political, economic,

socio-cultural and technological factors to predict how
change is likely to occur
• To analyze the industry environment, Porter-five-forces
model of competition provides a more appropriate model
PESTLE Framework
 Class discussion

• Apply PESTLE framework to analyze the following macro

environment:
1. Japan
2. The US
3. The UK
4. China
5. India
• Prepare a presentation, each group has 10 minutes to present
and 5 minutes for Q&A
THE END