The Impact of Micro and Macro Environment Factors on Business

Table of Content

micro and macro environmental factors

“What does it mean to say that “business” has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense.”

"Friedman doctrine — The Social Responsibility Of Business Is to Increase Its Profits"

by Milton Friedman, The New York Times, Archive


Community “humanizes” business, endowing an inanimate subject with some human qualities, like social responsibility. Why is this happening?

When we talk about business, we most likely associate it with its shareholders. Just like a person, a business exists in an environment, not in a vacuum. Just like a person, any business develops connections. While some of the connections have a direct and strong influence on the state of the business, others are indirect and less powerful but yet no less important.

There is "a couple of cases" where the business creator was guided solely by their inner instinct while neglecting environmental factors. Well, you can probably find information about some of them on, say, CBInsights.

As for the more successful entrepreneurs, they are always respectful of the micro- and macro-environmental factors that directly affect their well-being.

Now, we will try to show you as simplified as possible a list of micro- and macro-environmental factors, which we hope you will find useful. But first…

What is Micro Environment?

micro and macro economic factors failure

The macro environment is a set of factors and elements in a company's immediate environment that have an impact on its performance and decision-making process. Among these factors are start-up capital, competition, availability of employees, customers, distribution channels, and the general public. Let’s take a brief look at each factor.

Micro Environment Factors

Availability of investors

Opening your business without the initial capital, you should calculate all the financial risks. Investors can help finance your company at the start. Sometimes you won't be able to run your business without these funds. However, by accepting funding from investors, you give up some control and burden yourself with constant reporting of actions. Alternatively, you can choose creditors. But any loan funds involve paying a loan with interest, which is not an option for everyone.

Level of competition

The level of competition directly affects your economic situation. The logical conclusion is simple — the more competitors you have, the less share in dollars you will get from your customers. Conversely, a highly competitive environment indicates that a product or service is in high demand but you will have to work really hard to make your place in the sun.

Availability of employees

Any company's most valuable resource is its people. In other words, they are the driving force behind your business, without whom neither product nor service is possible. To achieve economic success, you definitely have to consider the qualifications (continuous development) and motivation of your employees. Moreover, to hire a highly qualified specialist of niche specialization, you will have to struggle financially for them to come and stay with you, and this is an additional cost due to the labor market and supply chain constraints.

swot analysis for micro and macro environment factors

Customers

Customers are the most essential asset of your business. In the pursuit of success, businesses are focused on their customers’ needs, the quality of the deal, and its lasting value rather than on the number of sales. Neglecting this trend, the business can incur heavy losses.

Distribution channels and suppliers

Just think back to the beginning of the pandemic, all distribution channels and supply chains were affected. Transportation became costly if at all possible. In this system, all players are interconnected: manufacturers depend on material suppliers, resellers depend on manufacturers and wholesalers. And all these factors in combination influence your business viability.

That's where supply chain software development services come into play. By leveraging AI, these services can help you optimize your supply chain operations, streamline your processes, and reduce costs. Integrating SaaS development services can further streamline business operations, providing scalable solutions that adapt to the ever-changing market demands.

Media and the general public

Your business image largely depends on the local community and media. The way your company operates with social and environmental responsibility is very important in creating and maintaining a positive image.

What is the Macro Environment?

The macro environment is a set of external factors that build up the company's macro environment, including economic factors, demography, technologies, natural forces, as well as political and sociocultural factors.

macro environment factorsMacro Environment Factors

Demography

Any and local business, in particular, depends on general demographic factors, including country, region, age, ethnicity, education level, household lifestyle, cultural characteristics, and displacement.

Economics

The economic environment can impact both the company’s production and the customers' decision-making. This is one of the reasons why in countries with declining prosperity and economies, company stocks are so cheap. Opening and doing business in such countries is very risky.

Natural factors

When doing business, it is necessary to consider the natural resources required for the healthy operation of the business. These can be forests, agricultural products, marine products, oil, coal, minerals, etc. All of these can influence the production of the company.

Technologies

The technology required to produce products and services impacts the operation of the company and should be taken into account. High-tech production is the most exposed to this factor and must consider all possible risks first. Website testing services can play a crucial role in ensuring that a business's online presence remains robust and effective. Likewise, fast and reliable web hosting from providers like NameHero will ensure that when prospective customers and clients encounter your carefully crafted online presence, the experience they have is swift, responsive and consistent. This will help to bolster your reputation in much the same way as a quality product and a positive customer service setup, so should not be overlooked.

When building a business strategy and marketing PR you can’t but consider the political situation in the country of your sales market, as well as the legal component of starting and running a business.

Social factors

Any company should take social responsibility making sure that any of the products or services produced aren’t harmful to the society and environment.

Cultural environment

The cultural environment influences society's core values, preferences, perceptions, and behaviors. So, to make sound marketing decisions, a company should understand how the product or service matches the basic values of its customers.

SWOT Analysis for Micro and Macro Environment Factors

Conducting a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis for both micro and macro environmental factors is a strategic process that can help you understand the current standing of your business in the market. This analysis provides valuable insights as it highlights the areas for capitalizing on strengths and opportunities, as well as helps identify potential threats and weaknesses.

swot analysis for micro and macro environment factors

Here's a guide on how to conduct a SWOT analysis for both micro and macro environments:

  1. Strengths

First, identify the company's internal impactful competencies. To do this, assess factors such as skilled employees, brand reputation, streamlined processes, and proprietary technology. Next, evaluate positive external factors that can benefit the business. Consider favorable economic conditions, supportive government policies, or industry-specific trends.

  1. Weaknesses

While evaluating internal limitations or areas that need improvement, think of aspects like outdated technology, lack of skilled personnel, or inefficient processes. Identify and list them all. Then, assess your business’s vulnerability to external factors such as economic downturns, regulatory changes, or industry disruptions.

  1. Opportunities

Here, examine external factors that could positively impact the business first. Look for emerging market trends, changes in consumer behavior, or gaps in the market – and then explore how your company can capitalize on the strengths to exploit these external opportunities. Consider leveraging your brand reputation to enter new markets or adopting innovative technologies.

  1. Threats

Analyze external factors that could pose challenges to the business, minding competitive pressures, policy changes, or shifts in consumer behavior. Once you recognize how internal weaknesses might expose the business to external threats, mitigate potential risks by addressing internal weaknesses that could be exploited by external factors. Here is a useful excerpt of best practices for approaching risk management that may help you with that.

With a properly done SWOT analysis, you can learn the business’s strengths, address weaknesses, capitalize on opportunities, and proactively mitigate all potential threats.  

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Macro and Micro Environment Factors: Adaptation Techniques

While SWOT analysis can bring a lot of insights, it still needs deep research and expert advice to be effective. Below, we offer the most popular and effective adaptation techniques for the micro and macroenvironment factors along with the statistics these tips are based on.

For macro environment factors:

  • Economic Resilience. According to the World Economic Forum, companies with diversified revenue streams are more resilient during economic uncertainties. Strive to build your economic resilience by diversifying revenue streams and preparing for economic downturns.
  • Social and Cultural Awareness. Nielsen's 2023 Survey found that more consumers are willing to pay more for products that come from socially and environmentally responsible companies. Pay attention to social and cultural trends and align your products and services with evolving consumer preferences.
  • Political and Regulatory Compliance. Research from PwC indicates that 79% of CEOs are concerned about the impact of overregulation on their business. Yet, the constantly evolving policies are an inescapable reality. Stay informed and comply with political and regulatory changes to mitigate risks associated with non-compliance. Consider leveraging GDPR, CCPA, and other policy extensions for your website.
  • Technological Integration. According to a study by IDC, global spending on digital transformation is expected to hit $3.4 trillion by 2026. To meet changing consumer expectations, embrace technological advancements to improve efficiency and enhance your products and services.

For micro environment factors:

  • Customer-Centric Approach. According to a survey by Accenture, 91% of consumers are more likely to shop with brands that provide relevant offers and recommendations. To foster engagement and loyalty of your clients, embrace a customer-centric approach by understanding and responding to customer needs and preferences.
  • Supplier and Intermediary Relationship Management. A report by McKinsey highlights the role of intermediaries in creating value in the supply chain and improving customer experience. But just establishing strong relationships with suppliers isn’t enough. You need to collaborate with intermediaries (distributors and retailers) to enhance product reach and distribution efficiency. Consider leveraging special shipping optimization tools for more transparency and predictability, too.
  • Competitive Analysis and Positioning. Research by Harvard Business Review emphasizes the importance of strategic positioning, stating that companies with a clear position in the market tend to outperform their competitors. To effectively position the business in the market, conduct a thorough and realistic competitive analysis and find your niche. 

macro and micro environment competitive analysis

Recap 

Any company's mission, vision, and objectives depend in large part on environmental factors. So when you're building a business development strategy, considering micro- and macro-environmental forces is paramount. Understanding these forces will enable your company to achieve its long-term objectives. 

In this context, all the factors we provided in this article influence business opportunities and sometimes bring threats. To convert threats into foreseeable circumstances, you need to analyze all possible risks coming from the micro and macro factors and then opt for the adaptation strategies most fitting for your business.

January 11, 2024
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Comments
Megan zile
February 8, 2023
Thank you! I was especially hooked with political and legal factors - we're currently living in a very unstable world and it's hard to navigate everything and each business has to conduct continuous research to make sure that they are still on the agenda and not crossing on of new lines. Tough out there!
Reply
Chen-Aiden
February 24, 2023
Such an amazing post. All the thought process is converted as a beautiful blog without any hiccups in the relevance.
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Eunice
September 16, 2023
Best and great answer so far
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