Micro and Macro Environment of Business

Many of the teams heading to Brasil for the World Cup will have spend time studying
their opposing teams, climate, forex rate etc, athletes and others do the same.
This way they hope to formulate game plans that have a competitive advantage.
Entrepreneurs likewise study their immediate and surrounding environment so as
to formulate competitive marketing strategies form a mix of product, price,
distriution ! promotion.
Broadly speaking, the environment of business is composed of the micro environment
and macro environment.
Micro Environment
The microenvironment is also called the operating, competitive or task environment. It
consists of sets of forces and conditions that originate with suppliers, distriutors,
customers, creditors, competitors, employees, and shareholders, as well as trade
unions, and the community in which the usiness operates. These forces, on a
daily basis, impact the organisations ability to obtain inputs and discharge of its
outputs. Factors in the microenvironment are largely within the control of the
managers. In this way, organisations can be much more proactive in dealing
with the task environment than in dealing with the macro environment.
Forces in the microenvironment result from the actions of four main elements or groups,
namely suppliers, distributors, customers, and competitors, employees. These
groups affect the managers or firms ability to produce on a daily, weekly and
monthly basis, and thus significantly impact short-term decision making. ets
e!amine these main actors.
"uppliers
"uppliers are individuals or organisations that supply an enterprise with the
various inputs #such as raw materials, component parts, or employees$ re%uired
for production. It is important that the firm ensures a reliable supply of input
resources. The effectiveness of the supply system determines the organisations
long-term survival and growth.
&hanges in the nature, numbers, or types of any supplier result in forces that produce
opportunities and threats to which the managers must respond if their
organisation is to prosper. 'nother ma(or supplier-related threat that confronts
managers pertains to prices of inputs. )hen supplies bargaining position with an
organisation is so strong, they can raise the prices of inputs that they supply the
organisation. ' suppliers bargaining position is especially strong if*
#+$ The supplier is the ma(or,sole source of an input, and
#-$ The input is vital to the organi.ation
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In addition to raising prices, suppliers can make operations difficult for an organisation
by restricting its access to important inputs. For e!ample, a reduction in government
funding in terms of financial resources impact universities. In the same vain, a cut in
%uota of the supply of crude oil by 1/2& member countries affect global consumption
of unrefined or refined petroleum.
3istributors
In the microenvironment of business, another group of actors are distributors.
3istributors are organisations that help other organisations sell their goods and
services to customers. The decisions that managers make on how to distribute
products to customers can have an important effect on organisational
performance.
The changing nature of distributors and distribution methods can also bring opportunities
and threats for managers. If distributors are so large and powerful that they can
threaten the organi.ation by demanding that it reduces the prices of its goods and
services, then, the manager becomes constrained and challenged. In contrast, the
power of the distribution may be weakened if there are many options or
alternatives.
&ustomers
&ustomers are another group of actors in the operating environment of business.
&ustomers are the individuals and groups that buy the goods and services that an
enterprise produces, changes in the numbers and types of customers or changes in
customers tastes and needs result in opportunities and threats. ' forward looking
organisation must meet the needs and wants of its customers or e!ceed the
customers e!pectations. The organisation must have a customer orientation to
succeed in this competitive, unpredictable and challenging business environment.
&ompetitors
&ompetitors are businesses that produce goods and services that are similar to a particular
organisations goods and services. /ut differently, they are organisations that are
vying for same customers. 4ivalry between competitors is potentially the most
threatening force that managers must deal with. ' high level of rivalry often
results in price competition, and falling prices reduce access to resources and
lower profit.
2mployees
2mploying staff with relevant skills and e!perience is essential. This process begins at
recruitment stage and continues throughout an employee5s employment via ongoing
training and promotion opportunities. Training and development play a critical role in
achieving a competitive edge6 especially in "ervice "ector 7arketing. If a business
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employs staff without motivation, skills or e!perience it will affect customer service and
ultimately sales.
Competitors and Customers are specifically analy"ed under competitor analysis and
competitor analysis so as to formulate focused marketing strategies that can address the
challenges and opportunities existing in a market.
MACRO ENVIRONMEN
This environment refers to the wide ranging economic, socio#cultural, political and legal,
and technological forces that affect the organisation and its operating environment.
These forces originate beyond the firms operating situation. The macroenvironment is
also called the e!ternal or remote environment. The macroenvironment presents threats
and opportunities that are often difficult to grapple with #that is, identify and respond to$,
than with events in the microenvironment.
2conomic Forces
The economic forces have significant impact on the success of any organisation. These
forces on factors affect the conditions of procurement #buying$ and sales market. 3uring
periods of unhealthy economic growth occasioned by such factors as inflation, rising
unemployment, high interest rates, and high ta!es, among others, individuals as well as
businesses have problems. This is more serious in the case of emerging enterprises, or
new entrants.
Inflation is a rise in the general level of prices of goods and services in an economy over
a period of time. )hen the price level rises, each unit of currency buys fewer goods and
services. ' chief measure of price inflation is the inflation rate. )hen /rices rise the
8alue of 7oney falls. Inflation can have positive and negative effects on an economy.
9egative effects of inflation include loss in stability in the real value of money and other
monetary items over time6 uncertainty about future inflation may discourage investment
and saving, and high inflation may lead to shortages of goods if consumers begin
hoarding out of concern that prices will increase in the future. /ositive effects include a
mitigation of economic recessions, and debt relief by reducing the real level of debt.
3emand pull Inflation* &auses for Increase in 3emand *-
a$ Increase in 7oney "upply
b$ Increase in Black 7arketing
c$ Increase in :oarding
d$ Increase in 2!ports
e$ 3eficit Financing
&ost /ush Inflation* &auses for Increase in &ost *-
a$ Increase in cost of raw materials
b$ "hortage of "upplies
c$ 9atural calamities
d$ Industrial 3isputes
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e$ Increase in 2!ports
f$ Increase in )ages
The Monetary $olicy mainly through central bank, regulates the supply of money and the
cost #interest rates, e!change rates$ and availability of credit in the economy. It deals with
both the lending and borrowing rates of interest for commercial banks. 'ims to maintain
price stability, full employment and economic growth. "tability for the national currency
#after looking at prevailing economic conditions$, growth in employment and income are
also looked into. The monetary policy affects the real sector through long and variable
periods while the financial markets are also impacted through short-term implications.
The ob(ectives are to maintain price stability and ensure ade%uate flow of credit to the
productive sectors of the economy.
The %iscal $olicy can be used to overcome recession and control inflation. It is a
deliberate change in government revenue #ta!es, duties and rates$ and e!penditure #on
infrastructure, health, etc$ to influence the level of national output and prices.
/olitical and egal Forces
aws regulating the macro environment include legislations on monetary and fiscal
policies, percentage of industrial emission, into the air, safety and health at work, wage
and price control. 1thers are e%ual employment opportunity, contract of employment,
and law of collective bargaining, among others. These regulations influence business
operations either positively or negatively.
egislation on fiscal and monetary policies, for e!ample, might encourage favourable ta!
reliefs and financial assistance for small-scale industry.
Technological Forces
Technological forces or factors could be said to be the most pervasive in the
environment. Technology refers to the application of knowledge base which science
provides. It is a well established fact that information and communication technology has
revolutioni.ed business operations. &onse%uently, organisations that apply knowledge
that is rapidly changing and comple! are highly vulnerable.
These changes bring about new inventions and gradual improvements in methods, in
design, in materials, in application, in efficiency, and diffusion into new industries.
&orporate managers must adapt or ad(ust to these changes, in order to survive and
prosper in this competitive and challenging business environment. The changes
constitute threats and opportunities for any manager.
"ocio-cultural Forces
"ocio-cultural forces have to do with the attitudes and values of the society, and these to
a great e!tent, shape behaviour. &hanges in socio-cultural factors also impact the
business enterprise in its internal relations with employees within the conte!t of changes
in attitude to work changes in political awareness, and cultural norms, among others.
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In sum, the impact of the social forces is felt in changing needs, tastes, and preferences of
consumers, in relation with employees, and in e!pectations of society form the company
with regard to its social responsibility. 3imensions of culture include*
"ocial structure = stratification
4eligion
anguage
2ducation
'ttitudes, 8alues = 'esthetics
2thics
Culture is a system of values and norms that are shared among a group of people and
that when taken together constitute a design for living where*
Values are abstract ideas about what a group believes to be good, right and desirable.
Norms are the social rules and guidelines that prescribe appropriate behaviour in
particular situations.
!ociet" refers to a group of people who share a common set of values and norms.
While culture is a characteristic of society as a whole, it shapes individual ehaviour y
identifying appropriate and inappropriate forms of human interaction and impacts on
consumption of goods and services. &n a sense, culture is the collective programming of
the mind which distinguishes the memers of one human group from another.
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