Business Environment Overview: Micro and Macro Factors

MEANING OF BUSINESS  ENVIRONMENT  ❅  environmentimplies all the internal  and the external factors that have an  impact on the business . ❅  The factors may be the internal  power relationship and orientation of  the organization , government  policies and regulations etc. ❅  The term ' business environment '  means the sum total of all  individuals , institutions and other  forces like government policies and  regulations , nature of the economy ,  socio cultural factors , demographic  factors , natural factors etc. that may  affect the performance of business .

❅  Business environment is the  combination of internal and external  factors that influence a company's  operating system . ❅  Business environment are of two  types :  1. Internal environment :  The factors  that are internal to the organization  2. External environment  : The factors  that are external to the organization

✿   From the above section it is  become clear that every business  organization is a part of the business  environment , within which it  operates . ✿  No entity can function in isolation  because there are many factors that  are directly or indirectly related to  the business , which is known as  business environment .  MICRO AND MACRO  ENVIRONMENT   ❀  The external environment is  broadly classified into two  categories , i.e. microenvironment  and macro environment .    ( i ) Micro Environment of Business :

❇  Micro environment refers to the  environment which is in direct  contact with the business  organization and can affect the  routine activities of business straight away . ❇  It is associated with a small area  in which the firm functions .  ❇  Micro environment deals suppliers  , competitors , marketing  intermediaries ( like dealers ,  wholesalers etc. ) , customers ,  pressure groups and the general  public . a  . Supplier : Banks and other similar  organizations that supply money to  the organization are also termed as  suppliers .The firms that supply raw  materials and machineries are also  included in suppliers . b  . Customers are also an important  factor in the micro environment of 

business . The customers or the  clients absorb the output of an  organization and a business exists to  meet the demands of the customers  . Customers could be individuals ,  industries , government and other  institutions .  c  . Labor force is also an important  part of the internal environment of  business . The employees of the  business enterprise produce and  provide the services for the  customers . d  . In addition to the above ,  theadvertising agencies , business  associates , competitors , regulatory  agencies and the marketing  intermediaries are also a part of the  micro environment .

 ( ii ) Macro environment of Business  : ♡  Macro environment refers to the  forces and institutions outside the  organization that can potentially  affect the performance of the  organization .  ♡  These forces originate beyond the  firm's operating situation .  ♡  The study of Macro Environment is  known as PESTLE Analysis . ♡  PESTLE stands for the variables  that exist in the environment , i.e.  Population & Demographic ,  Economic , Socio Cultural ,  Technological , Legal & Political ,  and Environmental .

♡  These variables , encompass  economic and non - economic  factors like social concerns ,  government policies , family  structure , population size , inflation  , GDP aspects , income distribution ,  ethnic mix , political stability , taxes  and duties etc. Differences between Micro  Environment and Macro  Environment ༺  The following are the major  differences between micro and  macro environment :  1. Micro environment is the  environment which is in immediate  contact with the firm . The  environment which is not specific

 for a particular firm but has the  ability to influence the working of all  the business groups is known as  Macro Environment . 2. Micro Environment may also be  considered as internal environment  of business , whereas Macro  Environment is the external  environment . 3. The factors of the micro  environment affect the particular  business only , but the macro  environmental factors affect all the  business entities .  4. The micro environmental factors  are controllable by the business to  some extent ; however the  macroeconomic variables are  uncontrollable . 

5. The elements of the micro  environment affect directly and  regularly on the firm ; in case of the  macro environment it is not that  direct and regular .  IMPORTANCE OF BUSINESS  ENVIRONMENT ლ  There is a close and continuous  interaction between the business and  its environment . If managed well ,  this interaction helps in  strengthening the business firm and  using its resources more effectively  .  ლ  As stated above , the business  environment is multifaceted ,  complex , and dynamic in natureand  has a far - reaching impact on the  survival and growth of the business . ლ  To be morespecific , proper  understanding of the social , political 

, legal and economic environment  helps the business in the following  ways :

 ( a ) Determining Opportunities and  Threats :  ⛧  The interaction between the  businessand its environment would  identify opportunities for the  business and threats to the business  as well .  ⛧  It helps the business enterprises  for meeting the challenges  successfully  ( b ) Giving Direction for Growth :  ❥  The interaction with the  environment leads to openingup new  frontiers of growth for the business  firms .  ❥  It enables the business to identify  theareas for growth and expansion of  their activities . 

( c ) Continuous Learning : ✮  Environmental analysis makes the  task of managers easier indealing  with business challenges .  ✮  The managers are motivated to  continuously updatetheir knowledge  and skills to meet the predicted  changes in realm ofbusiness .  ( d ) Efficiency development : ✲  Environmental understanding  helps the business organisations  inimproving their functioning by  showing their sensitivity to the  environment within which theyare  working . ✲  For example , in view of the  shortage of power , many companies  haveset up Captive Power Plants (  CPP ) in their factories to meet their  own requirement ofpower 

( e ) Meeting Competition :  ༊ ˚ It helps the firms to analyse the  competitors ' strategies  andformulate their own strategies  accordingly  ( f ) Identifying Firm's Strength and  Weakness : ☫  Business environment helps to  identify the individual strengths and  weaknesses in view of the  technological and  globaldevelopments  ENVIRONMENTAL ANALYSIS   ֍  The purpose of environmental  analysis is to identify the existing  and emerging threats and  opportunities to help formulate  appropriate strategies .  ֍  It is a strategic tool . 

֍  In today's changing world , many  new things develop over time and the  whole scenario can alter in a very  short time .  ֍  As discussed in the previous  sections , businesses are influenced  by their environment .  ֍  All the situational factors which  determine day to day circumstances  impact firms . So , businesses must  constantly analyse the internal and  external environment and the market  .  Environmental analysis

 can be divided into four stages  namely : Scanning , Monitoring ,  Forecasting and Assessment . a ) Scanning is the process of  analysing the environment for  identification of the factors which  has an impact on the business .  b ) Monitoring represents a process  whereby analysts observe  environmental changes ( over time )  to see if an important trend begins to  emerge  c ) Forecasting represents the  process where analysts develop  feasible projections of what might  happen - and how quickly as a result  of the changes and trends detected  through scanning and monitoring . 

d ) Assessing is to determine the  timing and significance of the  effects of changes and trends in the  environment on the strategic  management of a firm .  The commonly used analysis of the  environment is the PESTLE analysis .  PESTLE stands for :  P : Political factors  E : Economic factors  S : Social factors  T : Technological factors  L : Legal factors  E : Environmental factor  Let us discuss about the factors in  detail : a . Political factors :

☂  Changes in the political system ,  changes in the internal power  structure of political parties  including the changes in leadership ,  political alliance etc. has  implications for business .  ☂  The political factors take the  country's current political situation . ☂  It also reads the effect of global  politics on the country and business  . ☂  Some political factors that are  taken into consideration are :  Government policies Taxeation laws  and tariff Entry mode regulations  b . Economic factors : ☽  Economic factors involve all the  determinants of 

 the economy which include general  economic conditions , GDP growth  rate , per capita income , distribution  of income , investment , price trends  etc. It helps to set up strategies in  line with changes .  Following is the list of some  determinants that can be assessed  to know how economic factors affect  business :  ⚘  The inflation rate  ⚘  The interest rate  ⚘  Disposable income of buyers  ⚘  Credit accessibility   ⚘  Unemployment rates  ⚘  The monetary or fiscal policies 

⚘  The foreign exchange rate  c . Social factors :  ☘  The social factors includes the  population growth / decline , age  structure of population , ethnic  composition of population ,  occupational pattern , migration ,  factors related to family , lifestyle  etc.  d . Technological factors : ❈  Technologyis advancing daily and  continuously .  ❈  The advancement is greatly  influencing businesses .  ❈  Performing environmental  analysis on these factors will help a  business to stay up to date with the  changes .

Firms can use the following factors  for their benefit :  ࿐  New discoveries  ࿐  Rate of technological ࿐  obsolescence ࿐  Rate of technological advances ࿐   Innovative technological  platforms e . Legal factors :  ♡  Legislative changes take place  from time to time . Many of these  changes affect the business  environment . ♡  If a regulatory body sets up a  regulation for industries , that law  would impact industries and  business in that economy . 

♡  So , businesses should also  analyse the legal developments in  respective environments . The following are some of the legal  factors : ༊ ˚ Product regulations  ༊ ˚ Employment regulations  ༊ ˚ Competitive regulations

༊ ˚  Patent infringements  ༊ ˚ Health and safety regulations f . Environmental factors :  ❥  The location and topography  influences business and trades . ❥  Changes in climatic changes can  affect the trade .  ❥  Some environmental factors are :        Geographical location        The climate and weather       Waste disposal laws       Energy consumption regulation       People's attitude towards the                  environment 

The following are the benefits of  environmental analysis : ✩  The very idea of environmental  analysis makes one aware of the  environment - organization linkage . ✩  It helps an organization to identify  present and future threats and  opportunities .  ✩  It helps to understand the  transformation of the industry  environment .  ✩  It contributes in identification of  risks .  ✩  It helps in formulation of  strategies . ✩  It keeps the mangers informed ,  alert and dynamic .  

 LET US SUM UP  ლ  After going through the unit we  have come through the following : ❥  Business involves the activities  like production or purchase of goods  for sale , or exchange of goods or  supply of services to satisfy the  needs of other people .  ❥  Business may be classified in the  following ways : ☫  Business that produces Goods ☫  Business which produces Services ☫  Business that distribute Goods ☫  Business that facilitate  distribution of Goods 

☫  Business that deals in Finance  and Financial Services Goods  ❥  Business is an activity that is  carried out with the intention of  making financial benefits and it has  the following characteristics : ☫  Exchange of goods and services  for Income  ☫  Profit Motive ☫  Recurring Activities  ☫  Risks  ☫  Society Oriented  ❥  Business activity has two  branches . They are as follows :  ☫  Industry  ☫  Commerce 

❥  Industry is an activity concerned  with conversion of raw materials or  semi - finished goods into finished  goods . ❥  Industry provides two types of  goods namely consumer goods and  Industrial goods . ❥  Commerce has been defined as "  the sum total of those processes  which are engaged in the removal of  the hindrance of persons ( trade ) ,  Place ( transport and insurance ) ,  and time ( warehousing ) in the  exchange ( banking ) of commodities  " .  ❥  Business Environment refers to  the sum total of all individuals ,  institutions and other forces like  governmentpolicies and regulations ,

 nature of the economy , socio  cultural factors , demographic  factors , natural factors etc. that may  affect its performance .  ❥  It is broadly classified into two  categories , i.e.  microenvironment  and macro environment .  ❥  The purpose of environmental  analysis is to identify the existing  and emerging threats and  opportunities to help formulae  appropriate strategies . ❥  Environmental analysis can be  divided into four stages namely :  Scanning , Monitoring , Forecasting  and Assessment .  ❥  The business enterprises need to  understand the forces and emerging 

trends in different sectors of the  broad environment .  ❥  These could be economic  environment , social environment ,  political and legal environment etc.