Macro Environment

Learning objectives

After learning this chapter, the students are expected to be able to:
• Describe the concept of macro business environment
• Explain the significance of macro business environment
• Identify the constituents of macro business environment
• Identify the factors affecting the macro business environment
• Macro business environment consists of
those factors which are beyond control and
unpredictable and makes them threatening
to businesses
CONCEPT OF MACRO BUSINESS
ENVIRONMENT
• All organisations, whether big or small, are part
of the business environment
Two major types of business environments
are given as follows:
• Macro business environment: This the general environment affects
the operations of all the business entities that operate in an economy.
It affects its business enterprises indirectly and distantly.
• Micro business environment: This is the immediate environment in
which a particular organisation operates. Thus, it only affects that
organisation directly and regularly.
SIGNIFICANCE OF MACRO BUSINESS
ENVIRONMENT
• Some of the environmental factors are controlable, whereas others
cannot be controlled. Therefore, they must accommodate these
uncontrollable factors in their decision-making process.
Cosntituent of Macro Environment
The macro environment consists of political,
economic, socio-cultural, technological, legal and
environmental factors (PESTLE).
PESTLE
Political and legal environment: These forces determine the laws and
regulations within which businesses have to operate. These forces
influence the market, organisation and industry.
Some examples of political and legal forces
• Patent legislation: Intellectual property, patent and copyright laws
have significant influence in high-tech industries and pharmaceuticals.
Governments establish the rules about what may or may not be
patented.
• Taxation: Governments impose general tax as well as selective tax on
companies’ specific products to manage demand and raise revenue.
• Safety regulations: Governments expect products to confirm to
specified safety regulations.
• Labour law: Different countries have different labour laws. In India,
the labour laws are quite restrictive, whereas the US has relaxed
labour laws.
• Consumer protection law: Governments enact laws to protect
consumers.
Economic environment: Most economies follow a cycle of growth for 7-
8 years followed by a recession of 7-8 years. Companies have to
carefully scrutinise the economic environment particularly in periods of
recession. In recession, consumers are likely to delay the purchase of
major items due to employment insecurity. By the same token,
business organisations reduce their capital expenditure on new
factories or equipment. They will borrow less, as they are not confident
about their ability to repay.
Socio-cultural environment. This environment is made up of:
• Demographic forces: These factors determine the structure of a population,
such as age, income distribution and ethnicity.
• Cultural forces: The beliefs, behaviours and customs among different people.
• Social responsibility and ethics: These include the ethical beliefs of people as
in how businesses should operate socially and ethically.
• Consumerism: The shift from business organisations to consumers.
The illustration of Socio-cultural environment

Demographic Social Responsibility and Ethics

Cultural Consumerism
The socio-cultural environment determines the value system of a
society. It includes factors such as:
• Purchase and consumption behaviour
• Ethical values and beliefs
• Literacy and education
• Consumer tastes and preferences
• Human relationships
• Language and norms in society
• Social customs and traditions
• Family structure
• Changing life style patterns
Technological environment:
• New technologies have a tremendous capacity to make and destroy businesses.
Technological innovation is a pervasive factor that cannot be ignored.
• Assignment :
• Read the story of Blackberry, Nokia, Kodak demise.
• What other impacts resulted from the technologies
Natural and global environment: Ecological or natural forces, such as weather and
climate, are relevant to business.
 The global environment refers to factors that are relevant to the internal business
environment. These factors include:
• World Trade Organization (WTO) agreements
• International conventions
• Business treaties among countries
• International agreements
• Rise in oil prices