UNIT 01 : BUSINESS AND

ITS ENVIRONMENT
1.9 Analyses the influences of macro environmental forces on
businesses.
LEARNING OBJECTIVES
 Lists the macro environmental forces that influence on businesses.
 Explains each macro environmental force.
 Shows the importance of each macro environmental force to businesses.
 Presents examples for the influences of macro environment on businesses.
 Analyses the influence of macro environmental forces on to task
environmental forces.
 Explains with examples that there is an inter-relationship between the macro
environmental forces.
MACRO ENVIRONMENT
 The broad environment of a business and influential groups related to it are
known as macro environment or general environment.

Political Economic Social and cultural Technological

environment environment environment environment

Demographic Natural
Legal environment
environment environment

Global
environment
Political Environment
 The policies of a government will have an influence on the
businesses.
 Businesses have to conduct their business activities by considering
these policies.
 Infrastructure development policy
 Government spending levels will influence the businesses. For a example, if
the government decides to build a new motorway ,businesses in the
construction industry will benefit the most.
 Fiscal policy
 Government may change the levels of government spending and taxation to
influence total demand in the economy. This is called Fiscal Policy.
.
Legal Environment

 The legal environment consists of laws and regulations in order to protect

consumers, domestic businesses, local community and environment.
 The government appoints institutions, boards, commissions and responsible
authorities and individuals to enact these laws.

Examples :- Examples :-
 Companies Act No. 07 of  Registrar of Companies
2007 Consumer Affairs Authority
 Consumer affairs authority  Labour Courts and Labour
Act No. 09 of 2003 Tribunals
 Shop and Office Employees  Central Environmental
Act No. 14 of 1954 Authority
 Public Health Inspector
Companies Act No. 07 of 2007

 he Companies Act (No. 7 of 2007) contains the rules,

procedures, accounting and reporting requirements
for companies incorporated or registered in Sri Lanka. 

 http://www.drc.gov.lk/en/wp-content/uploads/2018/
04/Act-7-of-2007-English.pdf
Consumer affairs authority Act No. 09 of
2003
 Ithas been designed to protect the interest of the
consumers.
 It safeguards the rights of not only the consumers
but also the traders who are subjected to
injustice.
 http://www.caa.gov.lk/web/images/Act/CAA_Ac
t_E.pdf
Legal Environment
These law and regulations exists to prevent businesses from making false claims
about the performance of their products, selling goods that are not fit for human
consumption and selling goods that are not fit for purpose. Every businessman is
expected to comply with these laws and regulations that are applicable, imposed
by the government. If the business break the laws, they may be fined.
Economic Environment
 Economic environment consists of economic factors that affect businesses

Economic Description
Factors
Interest rate It is the interest rate given for bank deposits and charged
for bank loans.
Inflation Inflation is the continuous increase in the general price
levels of goods and services.
Income It is how the national income of a country has been
distribution distributed among its people.
Level If every one expecting a job receives a suitable job, a
employment country will achieve a full employment level.
Foreign It is the rate at which the currency of one country is
exchange rate exchanged with the currency of another country.
https://youtu.be/NH9bbBd8yec

International International relations are the relationships existing

relations between countries.
Technological Environment

 Trends in communication technology and the changes that have happened in

agricultural, industrial and medical sector belong to technological
environment.
 The technological environment grows rapidly due to new innovations.
 Technological environment factors:
Advancement in computer technology
advancement in communication technology due to internet
Advancement in production methods
Nano technology and digital technology
Advancement in transportation technology
Agricultural Sector
Demographic Environment

 The main factor that connect with businesses is population. That is, market is made
up of persons.
 Examples -:
 Size of the population
 Growth rate of population
 Gender
 Age structure
 Composition of ethnicity (Sinhalese, Muslims, Tamil etc.,)
 Level of education
 Composition of family
 Household patterns
Size of the population
Growth rate of population

We can also compare the year on year population growth rates for the period 2000–
2018
 The nature of these features in demographic environment may influence the
businesses in different ways.
 The rapid increase of population is more important from two angels.

More are more resources are Countries with very large

required to provide for the populations will find it difficult to
population. support them.

Increasing population naturally has a large impact on businesses. However

such an increase in population would not lead to a market growth unless it is
accompanied by a parallel increase in the purchasing power.
Social and cultural environment

 Beliefs, social ethics etc. that individuals possess are included in social and
cultural environment.
 Examples :
 Beliefs of individuals
 Values of individuals
 Customs
 Wishes
 Religious beliefs
Natural Environment

 Today, there is a global awareness on the damages caused to natural resources.

 Business activities in many countries have polluted air, water and land.
 Rules and regulations have been imposed to conduct business activities in order
to protect the natural environment.
 Changes in natural environment will impact on businesses.
 Example -:
 Finding new natural resources
 Changes in weather and climate
 Location of the land
 Natural disasters
Global Environment

 There are greater opportunities to exchange goods and services from the time
of globalization.
 The culture of individuals has changed as well. As a result, different kinds of
goods and services have entered the world market. Tough competition can
also be seen.
 Examples :
 Trade agreements are signed
 Trade blocs being created
 Formation of world organization
 Creating rules and regulations internationally
The impacts of macro environmental
forces on the business
Macro environment force Impact to the business

Demographic Environment The demand for goods and services is increased

because of the increase in population which will
create opportunities to businesses.
In the same way, decrease in population will
decrease the demand which will create threats to
businesses.

Economic Environment A decrease in interest rate results in increase in

borrowing loans which will create opportunities to
businesses
Similarly, increase in interest rate limits the
borrowing of loans and businesses have to face
threats.
The impacts of macro environmental
forces on the business

Macro environment force Impact to the business

Political and legal Imposing favorable rules and regulations for

environment businessmen will create business opportunities.

Imposing unfavorable rules and regulations will

cause businesses to face threats.
 interconnections among macro
environmental forces.
Gem mines belong to natural environment. But to make it a
business activity, one has to take legal approval.

When commercial banks install ATM machines for the

convenience of customers, they should get the approval
from the central bank.
QUESTIONS