BUSINESS ENVIRONMENT

THE MICRO AND MACRO ENVIRONMENT

Every business organization is a part of the business environment, within which it operates.
No entity can function in isolation because there are many factors that closely or distantly
surrounds the business, which is known as a business environment.

It is broadly classified into two categories, i.e. micro environment, and macro
environment. The former affects the working of a particular business only, to which they relate
to, while the latter affects the functioning of all the business entities, operating in the economy.

While microenvironment has a direct impact on the business activities, the macro environment is
a general business environment, which influences all business groups at large. It is important to
learn the business environment, so as to understand the effect of various forces on business. Take
a read of the given article to know the difference between micro environment and macro
environment.

Definition of Micro Environment

Microenvironment refers to the environment which is in direct contact with the business
organization and can affect the routine activities of business straight away. It is associated with a
small area in which the firm functions.

Microenvironment is a collection of all the forces that are close to the firm. These forces
are very particular for the said business only. They can influence the performance and day to day
operations of the company, but for a short term only. Its elements include suppliers,
competitors, marketing intermediaries, customers and the firm itself.
 Suppliers are the ones who provide inputs to the business like raw material, equipment and
so on.
 Competitors
Direct Competitor - are the firms which offer the same or similar products and
services
Indirect Competitor - is the conflict between vendors whose product and services
are not the same but that could satisfy the same customer needs
 Marketing intermediaries
Reseller - they are those who hold and sell company's product Physical distribution
firm - they help the company to stock and move goods from their point of origin to its
destinations
Marketing service agencies - they help the company target and promote its
products
Financial intermediaries - they help finance transactions and insure against risk
 Customers
Consumer market - individuals and households that buy goods and services for
personal consumption
Business market - but goods and services for further processing or for use in their
production process
Reseller market - buy goods and services in order to resell them at a profit
Government market - agencies that buy goods and services in order to produce
public services or transfer them to those that need them International market - buyers from
foreign countries

 The firm itself is an aggregate of a number of elements like owners like shareholders or
investors, employees and the board of directors.
Definition of Macro Environment

The general environment within the economy that influences the working, performance,
decision making and strategy of all business groups at the same time is known as Macro
Environment. It is dynamic in nature. Therefore it keeps on changing.

It constitutes those outside forces that are not under the control of the firm but have a
powerful impact on the firm’s functioning. It consists of individuals, groups, organizations,
agencies and others with which the firm deals during the course of its business.

The study of Macro Environment is known as PESTLE Analysis. PESTLE stands for the
variables that exist in the environment, i.e. Population & Demographic, Economic, Socio-Cultural,
Technological, Legal & Political and Environmental. These variables, consider both economic and
non-economic factors like social concerns, government policies, family structure, population size,
inflation, GDP aspects, income distribution, ethnic mix, political stability, taxes, and duties, etc.
Economic Environment

 The economic environment constitutes factors which influence customers’ purchasing

power and spending patterns. These factors include the GDP, GNP, interest rates, inflation,
income distribution, government funding and subsidies, and other major economic
variables.

Physical Environment

 The physical environment includes the natural environment in which the business operates.
This includes the climatic conditions, environmental change, accessibility to water and raw
materials, natural disasters, pollution etc.

Technological Environment

 The technological environment constitutes innovation, research and development in

technology, technological alternatives, innovation inducements also technological barriers
to smooth operation. Technology is one of the biggest sources of threats and opportunities
for the organisation and it is very dynamic.

Political-Legal Environment

 The political & Legal environment includes laws and government’s policies prevailing in
the country. It also includes other pressure groups and agencies which influence or limit
the working of industry and/or the business in the society.

Social-Cultural Environment

 The social-cultural aspect of the macro environment is made up of the lifestyle, values,
culture, prejudice and beliefs of the people. This differs in different regions.
Key Differences Between Micro Environment and Macro Environment

The following are the major difference between micro and macro environment:

1. Microenvironment is the environment which is in immediate contact with the firm. The
environment which is not specific to a particular firm but can influence the working of all
the business groups is known as Macro Environment.

2. The factors of the microenvironment affect the particular business only, but the macro
environmental factors affect all the business entities.

3. The microenvironmental factors are controllable by the business. However, the

macroeconomic variables are uncontrollable.

4. The elements of the microenvironment affect directly and regularly to the firm which is
just opposite in the case of the macro environment.

5. The study of the microenvironment is described as COSMIC analysis. Conversely,

PESTLE Analysis is a study of the macro environment.
 BASIS FOR
MICRO ENVIRONMENT MACRO ENVIRONMENT
COMPARISON

Meaning Micro environment is defined as Macro environment refers to the

the nearby environment, under general environment, that can affect
which the firm operates. the working of all business
enterprises.

Elements COSMIC, i.e. Competitors, PESTLE, i.e. Population &

Organization itself, Suppliers, Demographic, Economic, Socio-
Market, Intermediaries and Cultural, Technological, Legal &
Customers. Political and Environmental.

Nature of elements Specific General

Are these factors Yes No

controllable?

Influence Directly and Regularly Indirectly and Distantly

How Macro Environment Factors affect Business
There are 6 macro factors that affect business environment positively or negatively.
Marketers must assess macro factors for developing sound marketing strategy. There are many
strategic analysis tools (PEST, SWOT, Porter’s 5 Forces) to assess these macro environmental
factors. PESTLE Analysis tool is widely used in the business community to find out opportunities
and threats. Once understand the outcome, marketers can utilize opportunities and minimize
threats.
Political Factors
In external environment, political factors are Government actions, rules and regulation.
Change in political situation can be a very sensitive issue to a company. Political factors that
affect business are uncontrollable like political stability, current and impending legislation. The
only solution is to conduct environmental analysis. It will help to know the threats and
opportunities and take precautionary measures as desired.
Economic Cycles
Companies are enormously sensitive to occurrence of changes in an economy. Economic
factors include inflation rate, currency exchange rate etc.
Social Factors
Organizations can be affected by demographics change and change in customs.

Technological Factors
Technological factors are those variables rely on current, available and change in
technology. These factors may be technological products and process.

The changing trends in the advancement of technology are very rapid. These
technological changes can affect business negatively or positively, if not responded properly.
These changes can positively improve business productivity, cut costs and minimize production
and distribution cost.
Legal Factors
Organizations are very susceptible to change in laws and interpretations done by courts.
Examples of Micro Environment Factors Affect Business
Customers
The customers are the central part of any business as they tend to attract and retain most of
the customers to generate revenue. Therefore, organizations must adopt a marketing strategy that
attracts the potential customers and retains the existing customers by taking into consideration the
wants and needs of customers and by providing the after sales services and value-added services.

Competitors
The competitors of an organization can have a direct impact on business strategies. The
organization must know how to do a competitive analysis of competitors and have a competitive
advantage. An organization must understand, what value added services their competitor is
providing or the unique selling point of their competitors. How they can differentiate from their
competitors. What benefits a company can offer to the customers which competitors does not offer.

Employees
Skilled employees can help an organization to achieve organizational goals and objectives.
As skilled and experienced employees has expertise to support organization to get success. This
begins with the hiring process and continues through regular and timely training and development
sessions. The training and development process helps the employees to work effectively and
efficiently in order to achieve the organizational goals, specifically in service sector.

Suppliers
Actions of a supplier can influence the business strategy, as they provide the materials for
production. For instance, if their services will not reasonable and timely that will affect the
production time and the sales due to delayed process of production.

Shareholders
Shareholders of an organization have an influence as the company want investors to
increase for this they might make a decision to increase money by buoyant on stock market, i.e.
shifting to public from private ownership. This change will pressure the company as the public
shareholders seek returns on their investment.
Media and Social Media
The way media acts can make or break an organization. Organization should manage to
keep a good relationship with media as whatever it shows will directly influence the organization
business. If media will show positive aspect, this will increase the business of organization and
vice-versa. In order to maintain good relations with media some organization do maintain a public
relation department who manage events and deal with media on behalf of company

Organizations must understand the ways which they can reach their customers and have positive
company and brand image in their mind. For this, some organization approaches newspapers to let
people know about their business and some approach consumer television programs to have the
attention of a large number of direct audience. These days social media applications are a good
idea to reach customers in a more appropriate way i.e. Facebook, Youtube, Twitter and Instagram
etc.

Importance of Marketing Environment to a Marketer

1. Helps Understand Consumer Behavior

Understanding the marketing environment is vital in helping marketers identify and

recognize what customers want. In simpler terms, without an understanding of a marketing
environment, the situation would be complicated for the firm, and therefore miss on what consumers
need, thus resulting in losses.

2. Understand the competition

The company is able to survive and thrive in the competitive market by keeping a detailed
eye on the competitors by checking and understanding that what are the features and nature of their
offerings, levels of customer service experience provided by them, marketing and promotional
strategies, steps opted to retain the customers such as loyalty programs, discount offers, and more
along with their pricing strategy; the company is able to plan its offering and the marketing
strategies that are a notch higher than that of the competition to gain the advantage in the market.
 3. Essential for planning

It also helps in planning of various marketing and promotional strategies so as to match the
offerings of the company to the current Marketing environment. The planning of business
operations and strategies has to be done in accordance to the evolving factors of the marketing
environment

4. Tap new trends

It is necessary for the brand to understand, tap, and embrace the new trends that
are ruling the market in order to stay relevant and consistent amidst the changing dynamics.
Business is known for its volatile nature as the dynamics keep on changing and developing
at a very fast pace with the change in the codes and policies of the government authorities,
the onset of competition from the domestic and international brands, and customers opting
for the new and innovative trends in the market

5. Keep a check on threats

Giving attention to the Importance of Marketing Environment, the company is able to keep a
thorough check on the factors that can have a negative impact on its business operations and act
as an obstacle in its trajectory of growth and success. The brand has to keep an eye on the
threatening factors such as growing competition in the market, price variations, evolving tastes of
the customers, and other socio-economic factors.