Macro environment factors are uncontrollable external forces that affect how a business operates. They are largely out of the control of the business, and often require changes in operating, management, production, and marketing. Analysts often categorize them using the acronyms PEST or PESTEL. Broken down, PEST stands for political, economic, social, and technological concerns. PESTEL also includes environmental and legal factors.
Political macro environment factors include things like tax policies, government-issued safety regulations, the availability of government contracts, and even shifts in the controlling political party. International laws, such as trade agreements and tariffs, may affect the supply and demand chains and available markets for many different companies as well.
A market boom, recession, or growing inflation problem can all change the way an organization plans for the future and operates in the present. Economic factors are often difficult to assess, since economic forecasts and analyses vary widely between experts. Unemployment levels, comparative foreign exchange rates, and the state of the global economy can all help or hurt a business' ability to get needed components and maintain a stable profit.
The mood and demographics of the population make up the social area of macro environment factors. For example, a society that places an emphasis on self-guided jobs with room for creativity may cause organizations to redefine job descriptions and adapt the model of the workplace to attract workers. Social trends, such as a preference for on-demand mobile media devices, can also influence which products a company manufacturers and where it chooses to spend advertising dollars.
Technological macro environment factors can influence how an organization does business. A new type of machinery, computer chip, or product created through research and development can help a company stay modernized and ahead of the market curve. Owners must be able to accurately identify which new developments will be truly useful, and which are just fads.
Environmental concerns are important to businesses both in the short and long term. In the short-term, things like natural disasters can disrupt production and supply operations, or even destroy company assets. Programs such as environmental risk assessment can help companies prepare to handle many of the most likely short-term crises. In the long view, however, businesses may have an interest in ensuring that their supply chains are not destroyed by unsustainable practices.
Legal factors can limit or change how a business operates. For example, they may have to hire additional supervisory staff or purchase safety equipment after a new health and safety law is passed. Child labor laws often limit the hours a minor can work and require set break periods. If an organization employs several minors, it may have to hire additional help to cover the hours when the minors cannot legally work. Legal factors are determined by both local legislation and regional and national laws. In some cases, companies that do business internationally are also affected by international laws.
Hedging Against the Macro Environment
Generally, businesses have little to no control over their macro environment. They can, however, prepare for the unexpected by using a PEST orPESTEL analysis
. For example, if a business has a manufacturing plant in an area prone to hurricanes, they could hedge against the possible loss by developing an action plan to relocate employees or supplies if threatened by a hurricane. Many organizations conduct regular analyses of the macro environment factors connected to them, and revise their strategies accordingly.