What is Macro Environment?
The general environment within the economy which affects the working environment, performance of employees, decision-making, and strategy of all business groups at the same time, is known as the macro environment. The macro environment is the remote environment of the firm, i.e. it exists in the external environment. As a rule, this environment is not controlled by the firm, it is huge and unpredictable to control it.
Therefore, the company’s success to a large extent will depend on the company’s ability to adapt and respond to changes in the macro environment. Basically, the company has to closely monitor the various elements of the macro environment. This will help them understand the dynamic nature of the macro economic environment. It also helps them adapt to continuous changes in the environment.
It constitutes those external forces that are not under the control of the firm but have a powerful influence on the functioning of the firm. This includes individuals, groups, organizations, agencies and others, with whom the firm works during their business.
Macro Environment Factors:
Demographic Environment: The demographic environment is related to the human population in terms of its size, education, sex ratio, age, occupation, income, status etc. Business deals with people, therefore, have to be studied in detail in detail of various components of the demographic environment.
The demographic environment is different from the country. Demographic factors such as population size, age structure, population density, rural-urban distribution, family size, income level, status etc. have significant impact on the business.
For example: If the population is large, then demand for goods and services will be high. It will have a favorable impact on the business. In the same way the educational level is also an important factor affecting the business.
Also read | Organizational environment
Natural Environment: Resource availability like land, water and minerals is the root cause of the business organization’s development. It includes natural resources, weather, climatic conditions, port facilities, topographical factors such as soil, sea, rivers, rain, etc.
Each business unit should look for these factors before choosing a place for its business.
The natural environment determines the functioning of a business firm to a large extent. The natural environment has a great effect on the functioning of the business. The business organization should consider natural factors before starting its operations.
Natural disasters such as floods, droughts, cyclones, tsunamis, etc. can also affect the business environment.
Political environment: The political environment in any country affects legislation and government rules and regulations, under which a firm operates. The effect of the political environment, affected by:
- Legislature: This includes Parliament, Legislative Assemblies. They are law-making bodies that enforce rules and regulations.
- Executive: They include the government enforcing the government’s decision.
- Judiciary: It includes the Supreme Court, the High Court, who see whether the decisions taken by the executive are within the constitutional framework or not. They are also known as dispute settlement bodies.
Also read | Micro environment – Factors of micro environment
Legislature, officials, and judiciary are important pillars of the political environment. A steady, progressive, and healthy political environment is vital for the growth and development of the business.
Social environment: Social forces connect with factors that affect the core values, priorities and behavior of society. The basis of these factors is formed by the fact that people are a part of a society and cultural group that shape their beliefs and values. There are many cultural blunders due to the failure of businesses to understand foreign cultures. For example, symbols can take a negative meaning in another culture.
Cultural Environment: Culture includes knowledge, value, faith, ethics, law, customs, traditions, etc. Culture goes through institutions like family, school and college from one generation to the next. Business is an integral part of social order. Society is largely influenced by culture and in turn, culture influences the business firm. Culture shapes the attitude and behavior of society. Any change in the cultural factor affects the business on a large scale. Businesses should be organized and governed keeping in view the various values and norms of society.
Economic environment: There are economic factors in the economic environment that affect the functioning of a business entity. These factors include economic systems, economic policies, business cycles, economic resources, gross national product, corporate profitability, inflation rate, employment, balance of payments, interest rates, consumer income, etc. The economic environment is dynamic and complex in nature. A business firm closely interacts with the economic environment, including:
- The economic situation in the market i.e. demand and supply factor
- Government’s economic policies: monetary policy, fiscal policy, industrial policy, trade policy, foreign investment policy, etc.
Also read | Development in economic environment
The prevailing economic system in the country also affects the growth of the business. Every country has different economic systems. The economic system includes socialism, capitalism, and mixed economy. Business relies on economic exchange for their exchange and market. Changes in economic factors can adversely affect the business of the business firm.
Technical Environment: Technology has brought far-reaching changes in production, quality of goods, productivity and packaging methods. Continuous technical development is happening. The business firm should constantly monitor the changes in the technical environment, which can have a great impact on the business’s business practices. It also indicates the speed of research and development and progress made in introducing modern technology in production.
Technology provides fundamental but cost-effective options for traditional labor-intensive methods. Technology is the key to technology development in a competitive business environment. Technology helps businesses run better and faster.
Also read | Environmental analysis
International Environment: International managers have to face intensive and ongoing challenges, which require training and understanding of foreign environments. In order to manage a business in a foreign country, managers need to deal with a large number of cultural and environmental differences.
Legal environment: The state determines the formal rules, laws and rules for the country’s operating system. It creates a structure of rules and regulations within which a business has to operate. To run a business effectively, the business should have full knowledge of laws and policies. Some laws are as follows:
- Consumer Protection Act-1986
- Act of factories -1948
- Workers’ Compensation Act-1923
- FEMA Act-1999
- Company Act-1956
- Environment Protection Act-1986
Also read | Five-year plan of economic growth of India