Today, I studied macro environmental factors that affect the business. These macro environmental factors are the external forces that affect not just individual businesses but the whole industry. These are the factors that are not in the control of the organization.
The macro environmental factors include:
These are often represented by the acronym PESTLE:
P = Political
E = Economic
S = Social
T = Technological
L = Legal
E = Environmental factors
Let’s understand them one by one:
Political factors
These include government policies, political stability, new trade policies started by the government, tax laws, labor laws, and any other laws that impact businesses.
Economic factors
A country’s economic condition also impacts business. The inflation rate, interest rate, and foreign policies help shape the industry.
For example, home mortgage rates in the USA are around 4%, while in India they are around 10%. Switzerland has one of the lowest interest rate policies of any country in the world, set at -0.75% for commercial banks that store their money with the central bank – the Swiss National Bank (SNB). In a strong economy, people have higher purchasing power, whereas in a less strong economy, people do not spend much money on purchasing things.
Social factors
Demographic changes, cultural trends, and lifestyle shifts also impact business. For example, awareness of health has boomed the health segment and medical policies.
Technological factors
The most important factors are the technological factors. Technology is changing rapidly these days. On one side, it is creating new businesses, and on the other side, it is disrupting old businesses. Machine learning and artificial intelligence have generated new businesses in the tech market, but they have also disrupted traditional businesses. Artificial intelligence and automation are transforming the manufacturing business these days.
Legal factors
These include safety standards, environmental laws, rules, and policies that an organization’s legal department should know before starting a business. Legal laws vary from country to country.
Environmental factors
These include climate changes, pollution, and sustainability practices that have a growing impact on business. Single-use plastics are not good for the environment. India banned the manufacture, distribution, stocking, sale, and use of selected 19 single-use plastic items with effect from July 1, 2022.
Understanding these macro factors is required for strategic planning, risk management, and identifying opportunities for growth. Businesses must be ready to adapt to the competitiveness in the rapidly changing global market.
