The Impact of Micro and Macro Environment Factors on Business

micro and macro environmental factors
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Community “humanizes” business, endowing an inanimate subject with some human qualities, like social responsibility.

“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

Why is this happening then?

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.

micro and macro economic factors failure

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?

It 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

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. 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, in order to hire a highly qualified specialist of niche specialization, you will actually 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.

customers

Customers are the most essential asset of your business. In the pursuit of success, businesses are focused on their customer’s 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 combo influence your business viability.

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 macro environment?

It is a set of external factors that build up the company's macro environment, including economic factors, demography, technologies, natural forces, political and socio-cultural factors.

macro environment factors

Macro 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 factor

When doing business, it is necessary to consider 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.

political and legal factors

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 and cultural factors

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

cultural environment

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

What are the opportunities and threats of micro and macro environment?

When building a business development strategy, it is important to consider micro- and macro-environmental forces. This enables a company to achieve its long-term objectives. Any company's mission, vision, and objectives depend in large part on the environment.

In this context, all the factors and forces we provided in this article influence the business opportunities and sometimes bring threats. To convert threats into foreseeable circumstances, it is necessary to analyze all possible risks coming from the micro and macro factors. And here is a useful excerpt of best practices for approaching risk management that may help you with that.

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