Thursday, March 20, 2014

Macro environment

Macro environment

A company and the forces in its micro environment operate in larger macro environment of forces that shape opportunities and pose threats to the company. The macro forces are, generally, more uncontrollable than the micro forces. The macro environmental forces are given below:

1.           Economic environment: Economic conditions, economic policies and the economic system are the important external factors that constitute the economic environment of a business.

The economic conditions of a country e.g., the nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets etc. are among the very important determinants of business strategies. In a developing economy, the low income may be the reason for the very low demand for a product. In countries where investment and income are steadily and rapidly rising, business prospects are generally bright, and further investments are encouraged.

The economic policy of the government, needless to say, has a very strong impact on business. Some types of businesses are favorably affected by government policy, some adversely affected, while it is neutral in respect of others, e.g. in case of India, the priority sector and the small-scale sector get a number of incentives and positive support from the government, whereas those industries which are regarded as inessential may find the odds against them.

The monetary and fiscal policies by way of incentives and disincentives they offer and by their neutrality, also affect the business in different ways. The scope of private business depends, to a large extent, on the economic system. At one end, there are the free market economies, or capitalist economies, and at the other are the centrally planned economies or communist economies. In between these two extremes are the mixed economies.

A completely free economy is an abstract rather than a real system because some amount of government regulations always exist. Countries like the United States, Japan, Canada, Australia etc. are regarded as free market economies.

The communist countries have, by and large, a centrally planned economic system. The State, under this system, owns all the means of production, determines the goals of production and controls the economy. China, Hungary, Poland etc. had centrally planned economies. However, recently, several of these countries have discarded communist system and have moved towards the market economy.

In a mixed economy, both public and private sectors co-exist, as in India. The extent of state participation varies widely across different mixed economies. However, in many mixed economies, the strategic and other nationally very important industries are fully owned or dominated by the state.

The economic system, thus, is a very important determinant of the scope of business.

2.           Political and Government environment: Political and government environment has a close relationship with the economic system and economic policy. In most countries, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standards of product, packaging, promotion etc. In many countries, with a view to protecting consumer interests, regulations have become stronger. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many countries.

In most nations, promotional activities are subject to various types of controls. Media advertising is not permitted in Libya. In India too, till recently advertisements of liquor, cigarettes, gold, silver etc. were prohibited. There is a host of statutory control on business in India. MRTP commission, industrial licensing, FEMA regulations etc. kept a strict check on the expansion of private enterprises till recently. Recent changes in the statutes and policies have had a profound and positive impact on business.

Thus, marketing policies are definitely influenced by government policies and controls throughout the world.

3.           Socio-cultural environment: The socio-cultural environment includes the customs, traditions, taboos, tastes, preferences etc. of the members of the society, which cannot be ignored at any cost by any business unit. For a business to be successful, its strategy should be the one that is appropriate in the socio-cultural environment. The marketing-mix will have to be so designed as to suit the environmental characteristics of the market. Nestle, a Swiss multinational company, today brews more than forty varieties of instant coffee to satisfy different national tastes.

Even when people of different cultures use the same basic product, the mode of consumption, conditions of use, purpose of use or the perceptions of the product attributes may vary so much so that the product attributes, method of presentation, or promotion etc. may have to be varied to suit the characteristics of different markets.

The differences in language sometimes pose a serious challenge and even necessitate a change in the brand name. The values and beliefs associated with color vary significantly across different cultures e.g. white is a color which indicates death and mourning in countries like China, Korea and India but in many countries it is a color expressing happiness and often used as a wedding dress color.

While dealing with the social environment, it is important to remember that the social environment of business also encompasses its social responsibility, alertness or vigilance of the consumers and the society's interests and well-being at large.

4.           Demographic environment: Demographic factors like the size, growth rate, age composition, sex composition, family size, economic stratification of the population, educational levels,

language, caste, religion etc. are all factors relevant to business. All these demographic variables affect the demand for goods and services. Markets with growing population and income are growth markets. But the decline in birth rates in countries like United States, etc. has affected the demand for baby products. Johnson and Johnson had to overcome this problem by repositioning their products like baby shampoo and baby soaps, and promoting them to the adult segment particularly females.

A rapidly increasing population indicates a growing demand for many products. High population growth rates also indicate an enormous increase in labor supply. Cheap labor and a growing market have encouraged many multinational corporations to invest in developing countries like India.

5.           Natural environment: Geographical and ecological factors such as natural resources endowments, weather and climate conditions, topographical factors, location aspects in the global context, port facilities etc. are all relevant to business.

Geographical and ecological factors also influence the location of certain industries, e.g. industries with high material index tend to be located near the raw material sources. Climate and weather conditions affect the location of certain industries like the cotton textile industry. Topographical factors may affect the demand

pattern, e.g. in hilly areas with a difficult terrain, jeeps may be in greater demand than cars.

Ecological factors have recently assumed greater importance. The depletion of natural resources, environmental pollution and the disturbance of the ecological balance has caused great concern. Government policies aimed at the preservation of environmental purity and ecological balance, conservation of non-replenishable resources etc. have resulted in additional responsibilities and problems for business, and some of these have the effect of increasing the cost of production and marketing.

6.           Physical facilities and technological environment: Business prospects depend on the availability of certain physical facilities. The sale of television sets e.g. is limited by the extent of coverage of telecasting. Similarly, the demand for refrigerators and other electrical appliances is affected by the extent of electrification and the reliability of power supply.

Technological factors sometimes pose problems. A firm which is unable to cope with the technological changes may not survive. Further, the different technological environment of different markets or countries may call for product modifications, e.g. many appliances and instruments in the U.S.A. are designed for 110 volts but this needs to be converted into 240 volts in countries which have that power system.

7.           International environment: The international environment is very important from the point of view of certain categories of business. It is particularly important for industries directly depending on exports or imports. E.g. a recession in foreign markets or the adoption of protectionist policies may help the export-oriented industries. Similarly, liberalization of imports may help some industries which use imported items, but may adversely affect import-competing industries.

Similarly, international bodies like WTO, IMF, WHO, ILO etc. have had a major impact on influencing the policies and trade of many countries, especially India.