How Macroenvironmental Forces Affect Business Growth?
The macro-environment of a firm consists of major uncontrollable forces that affect its decision making and performance. There are six major macro-environmental factors affecting the decision making and performance of a firm. They are economic, demographic, sociocultural, technological, natural and political forces.
While these forces are outside the control of businesses, considering their influence on performance and forming a business strategy accordingly helps minimize their negative impact. The importance of these factors increases because of the fact that they are outside the firms’ control and can have a positive or negative impact on firm performance.
Investing time in understanding the impact and its level helps managers build better strategies and improve business performance. Otherwise, an environmental change can have a strong adverse impact on its performance and bottom line.
Demographic Forces:-
Demographic forces are related to people. The demographic factors are socioeconomic characteristics of a population expressed statistically like age, sex, income, education, occupation, religion, etc. Demographic factors are a very important consideration in business which is because you need to understand your customers and their buying habits to drive higher sales.
These factors present opportunities as well as challenges for business managers and marketers. Marketers and business managers must consider these several factors which are of critical importance to formulate a product, marketing or sales strategy. Whether it is the age of your customers, their income, education, gender or occupation, understanding these factors can help you market your products or services better.
The demographic composition of the US population has changed a lot. These demographic changes have also brought other related shifts to the market. Businesses are now focusing on Millennials and making strategies to serve them better. Other types of changes in global population demographics like immigration and population explosion, changing composition of the global population, and changes in family structures also affect businesses.
Economic:-
Economic factors are also of immense importance for businesses and affect important decisions as well as business output. The economic environment of a market has a direct and significant impact on businesses and their output. For example, if Apple is trying to sell iPhones in China then it will consider the economic performance of the market, consumer spending, purchasing power of individual consumers, level of inflation, unemployment and other related factors before it makes important decisions.
If the level of unemployment is high during a season then releasing costly products could lead to lower sales. The GDP of a country, disposable income, tax structure, and the key economic performance indicators are also of special importance with regards to important business decisions. Many companies consider the performance of a particular economy over the past several years before making any major investment. The tax structure of the Asian nations many times becomes an impediment to faster business expansion.
Sociocultural:-
The socio-cultural forces too are of high relevance in the context of business. Their relevance has grown a lot during the last decade and businesses are considering their impact to make their sales and marketing strategies more targeted. Society and culture have a definite and clear impact on people’s buying habits. Beliefs and values differ across societies and cultures and so do people’s preferences.
Finding faster growth in a region can be easier by developing an understanding of the local society and culture. Businesses can accordingly form a business marketing and sales strategy for their products/services or create new products and services for the local market. To understand people’s needs and serve them better, it is also crucial to understand the local society and culture. This enables faster growth and superior performance.
Social trends also affect people’s preferences and considering how they impact the consumers helps build better strategies suited to long term growth.
Technological:-
Technology and technological factors are now a central consideration in the context of business and one of the most important factors driving business growth in the 21st century. Technology does not just drive business growth, but also creates new opportunities, new products, and markets as well as facilitates higher customer convenience through improved customer service.
Considering the importance of technological factors in business strategy also helps manage competitive pressure as well as anticipate changes that could affect growth in the future. Nowadays, companies are focusing more on technology and innovation and the chances of a technology or product growing esoteric sooner are higher.
Business managers must observe the technological environment closely in order to avoid hitting a barrier. Changes in the technological environment are most crucial since any new technological innovation by a rival can affect the demand for an existing product negatively. Continuous innovation is not just crucial but imperative for businesses and understanding the changes in the technological environment helps adapt and improve for better results.
The growth of mobile technology and the growing use of smartphones and tablets have also led to the emergence of new opportunities for businesses. There are challenges related to technology as well. Businesses that fail to understand how these changes affect their business will not be able to find faster growth. Every year the number of smartphone users is growing and businesses need to build apps and mobile-optimized websites for customer convenience and sales growth.
Ecological:-
Ecological or natural factors have special relevance in the context of business. Natural resources are not just raw material but the impact of businesses on nature and the environment is also a critical factor that affects their image and performance. Society and the government are also focusing on how businesses affect nature and their overall size of environmental impact.
Governments around the world have formed laws that protect the environment and focus upon preventing the exploitation of natural resources. Leading companies including automobile, technology, and fashion companies are working on managing their environmental impact and reducing it to the minimum through the use of renewable resources and creating more environment-friendly products.
There are several ecological concerns including increased pollution in the world environment, large scale fires causing depletion of natural resources or overexploitation of nature for raw material by some large firms are among the main concerns drawing the attention of society and governments around the world.
Business managers must focus upon their environmental strategy to make business processes more efficient and environment-friendly as well as to reduce wastage throughout their operations. This will not just facilitate faster growth but will help build a stronger image while also minimizing wastage of critical resources like water, electricity, and fuel. Investing in nature and natural resources is critical for companies and in the longer-term benefits society and businesses both.
Political:-
Business managers must observe the political and legal environment of their domestic and international markets closely in order to avoid disruption or other difficulties which political changes can cause. Government policies play a central role in setting the economic environment of a market. These policies play a direct role in the performance of the economy. A business-friendly environment facilitates growth. Business managers must consider the local political and legal environment before investing in a market and try to build a complete understanding before entering. China has grown into a leading market for both the Asian and Western brands. However, success in the Chinese market requires a good understanding of local laws, tax structure, and other factors. The level of government intervention in the business environment of China is higher than the Western nations. However, international brands can form local partnerships and find faster growth in China. Several brands have thus been able to penetrate the Chinese market. In the Indian market too, the role of government policies is central to ensuring the growth of local and international businesses.
CITE THIS ARTICLE:
| MLA. | Pratap, Abhijeet. “Role of Macroenvironmental Forces in Business .” Cheshnotes, 17 Jan. 2020, notesmatic.com/role-of-macroenvironmental-forces-in-business/. |
| APA. | Pratap, A. (2020, January 17). Role of Macroenvironmental Forces in Business. Retrieved January 17, 2020, from https://notesmatic.com/role-of-macroenvironmental-forces-in-business/ |