Micro And Macro Environment Factors That Affect Your Business

Every business is affected by a myriad of factors. In other words, an organization as such can never exist and operate “in a vacuum”. It is a part of a larger entity known as the business environment. In broad terms, this environment can be divided into two categories. The first one is the micro-environment. This category influences the functionality of a particular business itself. The latter one is the macro-environment which affects the operation of all existing business entities out there.

The two categories may be different, but both are essential to understand in order to truly see your business in its full context. You have to be knowledgeable about the business environment in order to be able to track and comprehend how various factors affect your company.

What is the micro-environment?

The micro-environment is the environment that has a direct impact on your business. It is related to the particular area where your company operates and can directly affect all of your business processes. In other words, it consists of all the factors that affect particularly your business. They have the ability to influence your daily proceedings and general performance of the company. Still, the effect that they have is not a long-lasting one.

The micro-environment includes customers, suppliers, resellers, competitors, and the general public.

What is the macro-environment?

The macro-environment is more general - it is the environment in the economy itself. It has an effect on how all business groups operate, perform, make decisions, and form strategies simultaneously. It is quite dynamic, which means that a business has to constantly track its changes. It consists of external factors that the company itself doesn’t control but is certainly affected by.

The factors that make up the macro-environment are economic factors, demographic forces, technological factors, natural and physical forces, political and legal forces, and social and cultural forces.

Key Differences Between Micro Environment and Macro Environment

Here are the major difference between micro and macro environment:

• For a company, the microenvironment is its closest circle of neighbors, like suppliers and customers. The macroenvironment is like the whole city it operates in, with big forces like the economy and culture affecting everyone.

• While microenvironment factors are like close contacts who impact only a specific business, macroenvironment forces are akin to weather changes that affect all players in the market.

• While businesses can tweak some microenvironmental factors, like choosing suppliers or targeting specific customers, macro forces like inflation and government policies are completely out of their control.

• The firm feels the immediate and regular ripples of the microenvironment, whereas the macroenvironment casts a broader, slower-moving shadow.

• On a daily basis, a firm feels the direct sting of the microenvironment – competitors, customers, and suppliers. The macroenvironment, like the economy or government policies, casts a longer shadow, affecting businesses more subtly over time.

Micro-environment factors:

Customers

The kind of customer base that your company attracts, as well as the reasoning behind purchasing your product, are going to highly affect the way you create marketing campaigns. Besides, when it comes to choosing product photography ideas to display the advantages of items on offer, you have to look up to the marketing principles you’ve defined as the core.Your customers can be B2C, B2B, international, local, and so on. Adopting a cloud-based contact center can help streamline communication and support for these diverse customer segments.

Important factors related to customers are:

• Stability of demand
• Prospects of sale growth
• Relative profitability
• Intensity of competition

Suppliers

If a supplier of a particular product is the largest, or even the only one, they are certainly going to have a big influence on how successful your business is.

The suppliers are extremely important factors as:

• Key link in the value delivery process
• Insurance that your business has the necessary resources
• Essential determinants in terms of price increase or decrease

Resellers

If you decide to sell your product via a third party reseller, or middlemen such as wholesalers and retailers, then the success of your marketing is going to be highly dependent on them. If let’s say, a certain retail seller has a strong reputation, it will pass on to your product.

As a link between you and the customer, they are important in terms of these factors:

• Promotion
• Sale
• Distribution
• Marketing
• Financial mediation

Competitors

Logically, every business that sells the same or a similar kind of product as you do is your competition on the market. So, their sale and marketing tactics matter to you a lot. You need to answer various questions, such as how their product and its price affect yours and how you can make use of that in order to gain an edge over them.

The three factors that matter in this case are:

• Desire competition
• Product form competition
• Brand competition

The general public

Of course, every business organization has in its best interest to appease to the general public. Every step that you take needs to be viewed from their perspective as well. It is extremely important how your actions affect others because their opinion can be the one thing that either pushes you towards success or pulls you down from the pedestal.

So, the general public is very important in terms of:

• Public opinion
• Media
• Environmental pollution

Macro-environment factors

Economic factors

Basically, the very environment of the economy can have an effect on two essential aspects – your company’s levels of production and the decision-making process of your customers.

Some examples of economic factors affecting business:

• Interest rates
• Exchange rates
• Recession
• Inflation
• Taxes
• Demand / Supply

Demographic forces

Every chunk of the market is affected by universal demographic forces. These are age, education level, cultural characteristics, country and region, lifestyle, and so on.

The crucial variables include:

• How income variables influence business
• Age variables that affect business
• Geographic Region Variables
• Education Level as a Variable

Technological factors

These factors are related to skills and ability that are implemented into production, as well as all the materials and technology that a particular product requires to be made. They are essential and can have a big impact on how well your business is running. It boils down to even the most basic factors, such as what kind of maintenance trolleys you use in order to preserve your tools and equipment for as long as you possibly can.

Some of the most common technological factors are:

• Automation
• Internet connectivity
• 3D technology
• Speed/power of computer calculation
• Engine performance and efficiency
• Security in terms of cryptography
• Wireless charging

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Natural and physical forces

Every business must also take into account the very planet and its resources. There are those that can be renewed, such as forests and agricultural products, and those that cannot, such as coal, minerals, oil, and the like. Both are strongly related to production. So, natural and physical forces can be:

• Climate change
• Pollution
• Weather
• Availability of both non-renewable and renewable resources
• Laws that regulate the environment
• Survival of particular biological species

Political and legal forces

The market develops according to the political and legal environment in various areas. This means that every business needs to be up to date with such forces worldwide to be able to make the right decisions.

This generally includes legal factors such as:

• Copyright law
• Employment law
• Fraud law
• Discrimination law
• Health and Safety law
• Import/Export law

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Social and cultural forces

Finally, it is crucial to understand that the product that you bring to the market can have a strong impact on society. For example, your production needs to eliminate every practice that is hazardous to society, and show that it is socially responsible. There is a wide variety of social and cultural factors, some of them being:

• Purchasing habits
• Level of education
• Religion and beliefs
• Consciousness about health issues
• Social classes
• Structure and size of a family
• Growth rate of the population
• Emigration and immigration rates
• Life expectancy rates and age distribution
• Different lifestyles

SWOT analysis

The SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) is useful both for understanding the micro and the macro factors. The former two are internal and affect the very business, while the latter are external and not under the organization’s control.

In terms of strengths, you should ask yourself what you are good at, what value you bring, what kind of difference you make, and so on. On the other hand, when it comes to weaknesses, you need to evaluate your dependency on outside vendors, aspects that need to be improved, and so on.

Opportunities are related to favorable circumstances that the company needs to make use of in order to improve its position on the market. Threats are factors that cannot be controlled but need to be acknowledged. This includes political, economic, and customer trends, as well as debts and costs.

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Two Sides of the micro and macro factors - Chance or Threat?

Both the micro and macro environments present challenges and opportunities for businesses. These can be seen as two sides of the same coin, where the same factor can be both a threat and an opportunity depending on how a business reacts.

Microenvironment

Opportunities

• Identifying unmet customer needs: Understanding customer preferences and desires in your immediate vicinity can lead to developing new products or services tailored to your local market.
• Building strong relationships with suppliers and distributors: Fostering close partnerships can result in better deals, more reliable supply chains, and increased efficiency.
• Outmaneuvering local competitors: Analyzing competitor strategies and weaknesses can help you differentiate yourself and attract customers.
• Leveraging local events and trends: Participating in local events or catering to specific cultural trends can generate positive publicity and attract new customers.

Threats

• Changes in customer preferences: Shifts in local tastes or purchasing behaviors can quickly hurt your sales.
• Disruptions in your supply chain: Local supplier issues or logistical problems can impact your production and availability of products.
• Intensified competition: Increased competition in your immediate area can put pressure on your prices and market share.
• Negative local publicity: Bad reviews, scandals, or negative local image can significantly damage your business reputation.

Macroenvironment

Opportunities

• Taking advantage of economic growth: Expanding businesses during economic booms can lead to increased profits and market share.
• Adapting to technological advancements: Embracing new technologies can improve efficiency, reach new customers, and offer innovative products or services.
• Capitalizing on favorable government policies: Tax breaks, subsidies, or other government initiatives can create new business opportunities.
• Addressing social and environmental concerns: Aligning your business with sustainability practices or addressing social issues can attract customers and investors.

Threats

• Economic downturns: Recessionary periods can decrease consumer spending and hurt your business revenue.
• Disruptive technological shifts: Emerging technologies can render your current products or services obsolete.
• Uncertain political or legal landscape: Changes in government regulations or political instability can create risks and disrupt operations.
• Climate change and environmental factors: Extreme weather events, resource scarcity, or stricter environmental regulations can impact your business.
• Remember, these are just examples, and the specific opportunities and threats will vary depending on your industry, location, and size. It’s crucial for businesses to constantly monitor both the micro and macro environments and develop strategies to adapt and thrive in a changing landscape.

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In Conclusion

Both micro and macro factors have a strong influence on how successful your business is. Every decision that you make needs to take these two environments into consideration. Your marketing strategies have to be based on them as well, if you truly want them to be lucrative, and retain a reputable position on the market.