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What Is Macro Environment Analysis?

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  • Written By: Osmand Vitez
  • Edited By: Kristen Osborne
  • Last Modified Date: 19 July 2014
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Macro environment analysis is a review of all the factors that a company is unable to control. Companies conduct this analysis to stay abreast of the issue in the current business environment. A common tool for conducting a macro environment analysis is the PESTEL framework, which include factors from the political, economic, social, technological, environmental and legal aspects in the business environment. The ultimate purpose of this analysis is to create a strategy that will leverage as many of these external factors as possible to the company’s favor.

The political factors of the PESTEL analysis include the current stability of the government, social welfare policies imposed upon companies, trade tariffs or regulations that restrict international business and tax policies on corporate profits. This information is quite important to businesses, as extremely difficult political situations often result in lower profits and a more inflexible business environment. A macro environment analysis may focus heavily on the political factors in countries with difficult business environments.

The group of external factors for this analysis comes from the economic factors within a country. Companies are unable to control issues like the income of buyers in the market, available credit offered by banks, unemployment, interest rates and inflation found in the economic market. These factors can also affect the company, lowering purchasing power from currency, available credit and inflation, which makes it more difficult for the company to conduct normal business operations.

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Social factors included in the macro environment analysis include demographics, wealth distribution, lifestyles and the education of consumers. Each of these factors will determine how a company interacts with consumers. Lower education among consumers, for example, will often lead the company to create marketing campaigns easily understood by a majority of the population. Changes in lifestyle often occur with shifts in the economy, forcing the company to change the quality and/or price of goods.

Technological factors of macro environment analysis include new innovations, the frequency of technological change and new platforms or software used by companies and consumers. Failing to keep pace with technology can put a company behind competitors. Changes to consumer products will also drive this change, as consumers will have certain expectations of technology from products offered by a company.

Environmental factors include the items that affect the common living area around the company and its consumers. Energy consumption, maintaining a livable environment, waste disposal and other items can all affect the natural environment around a business. Companies must be mindful of changes to these laws that can change how they interact with the environment. The macro environment analysis should focus on this as consumers become more aware of the effects of business on environment.

Legal factors include regulations regarding competition, employment, health and safety or of issues. Owners and managers must be aware of these laws to prevent lawsuits. Changes in the law from current cases can also affect how a company does business.

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Amphibious54
Post 3

@babalaas- When an environmental analysis discovers a potential area of weakness, there are a number of ways that a business can respond to the threat. The least interactive strategy and potentially the most dangerous is to take a passive stance and study the issue farther. This can be god in certain situations, but it takes someone with good vision to know when a passive strategy is best.

Adaptation, contingency, and redeployment strategies can be used to make the best of an issue that is hard to mitigate. These strategies can also be used as back-up strategies should a first strategy fail. These strategies help a company adapt its marketing plan, find strategies for issues with multiple negative implications, and redeploy assets into other areas to hedge against risk.

Other strategies can include opposition and offensive strategies. These strategies take a more proactive approach to either change a situation, or manipulate a situation so it becomes beneficial to the company. These offensive strategies often require some type of control over the environmental issue that the company is facing.

highlighter
Post 2

@Babalaas- STEEP, VSTEEP, and PESTLE are the most common frameworks for environmental scanning. These strategies analyze a number of factors and indicators within those factors. For example, the framework might examine the GDP, inflation rate, unemployment rate, currency exchange rate, balance of payments, and the economic environment of competitors, all under the economic factor. These frameworks also analyze ecological, regulatory/political, technology, and socio-cultural factors among others.

This environmental scanning is usually done ad-hoc, scheduled, or continuous. How companies scan their environment depends on the type of company, where the company is in its life cycle, and the industry or sector they are in. For example, an electric utility may only use environmental scanning on an ad-hoc or yearly basis. The business environment of an electric utility is so static that it is able to scan the environment only when a crisis or major policy change occurs or on a regularly scheduled basis.

On the other hand, a business like a clothing company will need to scan its environment continuously because it is constantly watching commodity prices, monitoring political and regulatory environments in foreign countries, and monitoring exchange rates. This type of company is in a much more volatile business environment.

Babalaas
Post 1

What other types of business environment analysis can I use to plan business strategies for a small business? What factors do these types of analysis analyze and how do I create strategies based on these analysis? I am hoping to learn about some of these analysis tools for a high school business class. Thanks to all those who can answer my questions.

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