Definition of Macro-Environment
Macro-environment (general environment) is a major component of the external environment that produces general trends and events.
These trends and events in turn determine external strategic factors and classify opportunities for a firm to exploit for promoting its business and presents threats in the sense that they can put restrictions on the expansion of business activities.
Firms cannot directly control the general environment’s segments. Accordingly, what a company seeks to do is recognize trends in each segment of the general environment and then predict each trend’s effect on it. In general, the macro-environment affects a firm’s objectives and strategies and influences its long-term decision-making.
PESTLE Forces within Macro-Environment
Macro-environment composes of 6 forces (or dimensions) that influence an industry and the firms within it: (1) environmental, (2) demographic, (3) economic, (4) political/legal, (5) sociocultural, and (6) technological.
PEST technique analysis is the study to understand these forces. PEST technique is categorized into 4 areas: Political, Economic, Social, and Technological.
By including trends from the ecological forces, the combined technique can be called STEPE analysis, which stands for Political, Economic, Social, Technology, and Ecological environmental forces.
In some variations, other forces have been added to the techniques, such as legal and environmental. This type of scanning is one of the most widely used techniques in macro-environment analysis, which is called PESTLE, or PESTEL. It stands for Political, Economic, Social, Technological, Legal, and Environmental.
The characteristics of today’s macro-environment differ greatly from historical conditions.
Technological changes and the continuing growth of information gathering, and processing capabilities increase the need for firms to develop effective competitive tactics on a timely basis.
The rapid social changes occurring in many countries affect labor practices and the nature of products that increasingly diverse consumer’s demand.
Governmental policies and laws also affect where and how firms choose to compete.
Changes to several nations’ financial regulatory systems that have been enacted are expected to increase the complexity of organizations’ financial transactions.
Important Trends and Events are Strategic Factors
Each of the macro-environment’s forces nurtures trends and events that may or may not be relevant to the development of a particular firm. Trends and events in one force may be critical to a firm but not to others, or maybe important to firms in one industry, but not in other industries.
This particular phenomenon determines a firm’s strategic factors. These factors are trends and events that play an important role in determining a firm’s opportunities and threats, which in turn are critical to a firm’s objectives and strategies.
Firms must study these anticipated trends and events, and anticipate their effects on the firm’s ability to identify strategies. An adequate understanding of these strategic factors will allow a firm to remain successful as market conditions change.
Interrelationship between Macro-Environment and Firms
Decisions and actions of firms can affect forces in the macro-environment. Every action that an organization takes, such as raising its prices or launching an advertising campaign, creates some degree of change in the world around it.
Most organizations are limited to influencing their industry. A few organizations wield such power and influence that they can shape some elements of the general environment. Some aspects of the general environment, such as demographics, simply must be taken as a given by all organizations.
Overall, however, the macro-environment has a far greater influence on most organizations than they individually would ever have on the environment. Macro-environment also has a direct impact on forces of narrower environments resided within it, such as the micro-environment.