A macro environment comprises the external factors that can influence a business. These factors are often out of the control or management ability of a company. Factors typically include economic, demographic, political, and technological forces in business. Business owners and managers often spend copious amount of time and effort to assess the overall economic environment in order to determine the number and strength of each factor. Strategies and performance reviews can help owners and managers use the macro environment factors to create a competitive advantage for their respective companies.
General economic factors in the macro environment can include supply and demand, number of competitors in the market, availability of economic resources, and efficient production methods employed by companies. Each of these factors impact a company’s production output and potential profit margins when selling goods and services to consumers. Free market economies often have more competition because more individuals and businesses can avail themselves to the raw materials, labor, and facilities in the market.
Demographics relates to information about the consumers in an economic market. This information includes statistics on consumer age, sex, race, religion, education, household size, marital status, and other similar information. Companies use this information to create products and marketing strategies to meet the needs of each consumer in the macro environment. This information also plays a role into general economic factors. Companies must be able to determine consumer supply and demand by measuring consumer income and the desire to spend money on various goods and services.
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Political forces typically represent the government agencies and policies responsible for governing a nation’s economy. These policies can relate to business taxes, interest rate regarding loans and availability of currency. Companies often make business decisions based on the tax liability or government involvement in a business industry or sector. Creating business divisions or departments in these areas can decrease a company’s profits and subject it to more compliance laws and regulations, which often increases operating costs.
Technological changes in the last few decades have transformed the way companies do business in the macro environment. Websites, Internet-based software, and fulfillment centers allow companies to sell goods and services in national and international economic markets. Companies can also improve production output and lower costs through technological additions to their company. Companies who implement business technology can force competitors in the marketplace to adjust their practices to meet new product improvements. Developing an in-house custom software package or application can also shift the macro environment if other companies cannot replicate this technology.