Question

You have to write a 'Thought Paper' expressing your views regarding:

1. The impact of Micro Environment on a company's working.

2. The impact of Macro Environment on a company's working.

3. Do you think Micro, Macro, both or none of the factors are most critical when it comes to running a corporate venture? Defend your answer with pertinent examples.

Answer 1

Part 1.

Micro-Environmental Factors in Business:

The micro-environment of a business includes the factors in the immediate area of operation affecting its performance and decision making freedom. They include competitors, customers, distribution channels, suppliers, and the public. These factors affect the performance of the business in several ways and understanding them is important for strategy formulation. It also helps in organizational planning for operational efficiency and financial success. These factors are important for any business. Below is a brief analysis of these micro-economic factors that affect nearly every business.

Customers:

Customers are considered the most important factor in the microenvironment because of the impact they have on business. Their importance has grown higher in the 21^st century. Moreover, the better a business knows its customers, the healthier is its bottom line. A company can create promotional strategies and campaigns to attract and retain its customers effectively by understanding them better. Being more customer-oriented helps in this hyperccompetitive era because customized service helps retain your customers longer. Sometimes, it also helps at generating new revenue streams as you can sell more to your existing customer base if you understand its preferences better. There are several more things that show the central importance of customers in the context of business. Businesses are using every means to strengthen their customer connection. It is not just about earning from them but knowing them, including and retaining them for longer. Customer engagement has become a key focus for businesses and it is also because of the growing competition.

Employees:

Employees are one of the very important micro-economic factors affecting the performance of any business. The performance of the employees is one of the primary drivers of organizational performance and productivity. Research has also highlighted the key role HR plays in the success of a business. A large number of successful companies have excellent HR policies in place. They offer the best training and salaries to their employees, like Google, Facebook, Microsoft, Apple, and Amazon. Apple is also focusing on inclusion and diversity as well as employee engagement. Motivated and skilled employees are essential for the success of a business. This is also why companies focus on attracting and retaining the best talent. Leading companies offer a mix of financial and non-financial benefits to maximize employee satisfaction.

Suppliers and distribution channels:

Managing the supply chain and distribution network should also be a primary focus of businesses that strive to be successful. A well-managed supply chain reduces operational costs and improves efficiency. Some companies that have managed efficient supply chains have been able to pass the savings to their customers. For example, Costco and Walmart are large retailers with well-managed supply chains. They have been able to maintain lower prices through supply chain optimization. Selecting the right distribution channels and optimizing them also affects operational efficiency and improves the bottom line. Apart from sales, customer service is also just as important. You need to be within your customers’ reach if you want to see your business being popular and successful. The importance of managing the supply chain and distribution network has also grown because of the fact that it helps reduce operating expenses.

Competitors:

Competition is everywhere and in every industry. The level of competition in any industry has a major effect on profits. The higher the number of your competitors, the lower is your market share. When several businesses are battling for winning market share in a limited space, the chances of market growing saturated quicker are higher. Not just this, competition affects businesses in other ways too. To stand out in a highly competitive market is not easy and businesses must differentiate to attract customers. Moreover, the pressure of competition also compels businesses to regularly update their business and marketing strategies. However, sometimes competition can be a positive factor and can help churn demand.

Shareholders and Investors:

Shareholders and investors are among the most important internal stakeholders for any business. Businesses also exist for creating shareholder value. These people have helped you grow your business and expect returns on their investment. You share both your risks and profits with them. So, any business must create healthy profits to keep its investors happy.

Public and Media:

A company’s image also decides its fortune in the market. So, every brand in the 21^st century needs a strong brand image. It is why they are investing in social and environmental concerns to create a responsible social image. Often this also translates into financial success for businesses. Brands with a good brand image are easily noticed and are therefore successful at attracting customers. The public supports the companies that have an ethical image and if you are not a responsible business, chances of a poor image in public and media are higher. Image means a lot in today’s environment and sometimes lost reputation can be very difficult to regain.

These were some of the most important micro-economic factors that are a part of the immediate operational environment of businesses. Customers, employees, and shareholders are people you need to really care for. Having motivated employees leads to good business performance. Maximizing customer satisfaction improves your bottom line. So, the satisfaction of both should be a focus of businesses. However, shareholder happiness is also important. Apart from these things, a strong brand image is just as essential and businesses must care for their image in the public and the media. If businesses understand these micro-economic factors and their effect, they can plan and formulate strategies effectively.

Part 2.

Impact of Macro Environment on a Company's Working :

The Macro Environment consists of 6 different forces. These are: Demographic, Economic, Political, Ecological, Socio-Cultural, and Technological forces. This can easily be remembered: the DESTEP model, also called DEPEST model, helps to consider the different factors of the Macro Environment.

Demographic Forces in the Macro Environment

Demographic forces relate to people. The name refers to the term Demography. The latter refers to the study of human populations. This includes size, density, age, gender, occupation and other statistics. Why are people important? Because, on the whole, their needs is the reason for businesses to exist. In other words, people are the driving force for the development of markets. The large and diverse demographics both offer opportunities but also challenges for businesses. Especially in times of rapid world population growth, and overall demographic changes, the study of people is crucial for marketers. The reason is that changing demographics mean changing markets. Further, changing markets mean a need for adjusted marketing strategies.

Therefore, marketers should keep a close eye on demographics. This may include all kinds of characteristics of the population, such as size, growth, density, age- and gender structure, and so on. Some of the most important demographic trends that affect markets are:

World population growth

The world population is growing at an explosive rate. Already in 2011, it reached 7 billion, while being expected to reach 8 billion by the year 2030. By the end of the century, it is likely to double. However, the strongest growth occurs where wealth and stability is mostly absent. More than 70% of the expected world population growth in the next 40 years is expected to take place outside of the 20 richest nations on earth. This changes requirements for effective marketing strategies and should be kept in mind.

Changing age structure

The changing age structure of world population is another critical factor influencing marketing. In the future, there will be countries with far more favorable age structures than others. For example, India has one of the youngest populations on earth and is expected to keep that status. By 2020, the median age in India will be 28 years. In contrast, the countries of the European Union and the USA have to face an aging population already today. This may lead to harmful reductions in dynamism and challenges regarding the supply of young workers who, at the same time, have to support a growing population of elderly people.

Changing family structures

Also, families are changing which means that the marketing strategies aimed at them must undergo an adjustment. For example, new household formats start emerging in many countries. While in traditional western countries a typical household consisted of husband, wife and children, nowadays there are more married couples without children, as well as single parent and single households. Another factor comes from the growing number of women working full time, particularly in European nations. Together with further forces, changing family structures require the marketing strategy to be changed.

Geographic shifts in population

One – and the most important – element of geographic shifts is migration. By 2050, global migration is expected to double. This has a major impact on both the location and the nature of demand for products and services. The reason is that the place people can be reached has changed, as have their needs because of the new situations. Other important factors are the ethnic diversity that provides new opportunities, as well as urbanisation.

Economic forces in the Macro Environment

The Economic forces relate to factors that affect consumer purchasing power and spending patterns. For instance, a company should never start exporting to a country before having examined how much people will be able to spend. Important criteria are: GDP, GDP real growth rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment, Inflation, Disposable personal income, and Spending patterns.

Socio-Cultural forces in the Macro Environment

The Socio-Cultural forces link to factors that affect society’s basic values, preferences and behavior. The basis for these factors is formed by the fact that people are part of a society and cultural group that shape their beliefs and values. Many cultural blunders occur due to the failure of businesses in understanding foreign cultures. For instance, symbols may carry a negative meaning in another culture. To understand these forces, Hofstede’s cultural dimensions can be used: Power Distance, Individualism versus Collectivism, Masculinity versus Femininity, Uncertainty Avoidance etc.

Technological forces in the Macro Environment

Technological forces form a crucial influence in the Macro Environment. They relate to factors that create new technologies and thereby create new product and market opportunities.

A technological force everybody can think of nowadays is the development of wireless communication techniques, smartphones, tablets and so further. This may mean the emerge of opportunities for a business, but watch out: every new technology replaces an older one. Thus, marketers must watch the technological environment closely and adapt in order to keep up. Otherwise, the products will soon be outdated, and the company will miss new product and market opportunities.

Ecological forces in the Macro Environment

Ecological, or natural forces in the Macro Environment are important since they are about the natural resources which are needed as inputs by marketers or which are affected by their marketing activities. Also, environmental concerns have grown strongly in recent years, which makes the ecological force a crucial factor to consider. For instance, world, air and water pollution are headlines every marketer should be aware of. In other words, you should keep track of the trends in the ecological environment.

Important trends in the ecological environment are the growing shortage of raw materials and the care for renewable resources. In addition, increased pollution, but also increased intervention of government in natural resource management is an issue.

Because of all these concerns and the increased involvement of society in ecological issues, companies more than ever before need to consider and implement environmental sustainability. This means that they should contribute to supporting the environment, for instance by using renewable energy sources. Thereby, businesses do not only support the maintenance of a green planet, but also respond to consumer demands for environmentally friendly and responsible products.

Political forces in the Macro Environment

Every business is limited by the political environment. This involves laws, government agencies and pressure groups. These influence and restrict organizations and individuals in a society. Therefore, marketing decisions are strongly influenced and affected by developments in the political environment.

Before entering a new market in a foreign country, the company should know everything about the legal and political environment. How will the legislation affect the business? What rules does it need to obey? What laws may limit the company’s ability to be successful? For example, laws covering issues such as environmental protection, product safety regulations, competition, pricing etc. might require the firm to adapt certain aspects and strategies to the new market.

As we have seen, the company is surrounded by a complex environment. The Macro Environment consists of a large variety of different forces. All of these may shape opportunities for the company, but could also pose threats. Therefore, it is of critical importance that marketers understand and have an eye on development in the Macro Environment, to make their business grow in the long term.

Part 3.

Micro and Macro both the factors are most critical when it comes to running a corporate venture.

Some examples of economic factors affecting business:

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