Definition: A macro environment is a set of external conditions that affect a business’ development efforts either positively or negatively. These elements are considered uncontrollable and they have an impact in the company’s overall performance.
What Does Macro Environment Mean?
These factors are classified as macro because they are realities affecting the economic system as a whole and not just the company’s immediate market. Some of these elements are economic growth, inflation, social conditions, interest rates, government policies, technological developments and climate changes, among others. Each of them have a different impact in the way businesses perform and they also demand strategies to be formulated to deal with the threats and seize the opportunities that this macro environment is currently offering. A company’s flexibility to adapt quickly to external changes is definitely a great attribute, since it can react positively and shape its business model around new paradigm shifts.
This guarantees the business’ sustainability over time, since macro environments are very dynamic. The PESTLE (Political, Economic, Socio-cultural, Technological, Legal and Environmental) analysis is one of the most popular tool employed to have a better understanding of an organization’s macro environment. Along with a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis, a company can not only identify external conditions, but it can also design effective strategies to deal with these elements adequately.
Example
Soft Paper Co. is a company that produces toilet paper, towels and napkins for both the industrial and domestic market. The company currently has a presence in the U.S. but it is analyzing its expansion to the Mexican market. A consulting firm was hired to build a PESTLE analysis for Mexico to understand which conditions prevail.
After several months of research they identified many different elements that the company should consider like: ambiguous employment laws, a high degree of government corruption, low level of competition and a preference for international brands. These elements should be considered by the company before entering this new market because they will have an effect on the company’s overall performance.
