According to Philip Kotler, “Macro environment create forces that creates opportunities and pose threats to the business unit. It includes economic, demographic, natural, technological, political, political and cultural environments.”
Demographic Economic Technological Cultural Political Natural Legal
- Demographic Environment
Demographic Environment relates to the human population with reference to its size, education, sex ratio, age, occupation, income, status etc. Business deals with people so they have to study in detail the various components of demographic environment.
Demographic environment differs from country to country. Demographic factors like size of the population, age composition, density of population, rural-urban distribution, family size, income level, status etc. have significant implications on business.
For example: If the population is large, then the demand for goods and services will be more. It will have favourable effect on the business. In the same way educational level is also an important factor affecting business.
- Natural Environment
Resource availability like land, water and mineral is the fundamental factor in the development of business organization. It includes natural resources, weather, climatic conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc.
Every business unit must look for these factors before choosing the location for their business.
The natural environment largely determines the functioning of a business firm. Natural environment has a great influence on the working of a business. The business organization should consider the natural factors before starting their operations.
Natural calamities like flood, drought, cyclone, Tsunami etc. can also affect the business environment.
- Political Environment
The political environment in a country influences the legislations and government rules and regulations under which a firm operates.
Political environment means influence exerted by:
This includes parliament, legislative assemblies. They are the law making bodies that frame rules and regulations.
They include government beurocracy who implements the decision.
(c) The Judiciary
It includes Supreme Court, High Court who sees whether the decisions taken and implemented by the executive are within the constitutional framework. They are also known as dispute settlement bodies.
Legislature, executives and judiciary are the important pillars of political environment. A stable progressive and healthy political environment is very necessary for the growth and development of business.
- Social Environment
The Social 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.
- Cultural Environment
Culture involves knowledge, values, belief, morals, laws, customs, traditions etc. Culture passes from one generation to another through institutions like family, schools, and colleges. Business is an integral part of the social system.
Society is largely influenced by the culture and in turn culture influence the business firm. Culture shapes the attitude and behaviour of the society. Any change in the cultural factor affects the business in large. Business should be organized and governed, taking into consideration various values and norms of the society.
- Economic Environment
Economic environment consists of economic factors that influence the functioning of a business unit. These factors include economic system, economic policies, trade cycle, economic resources, gross national product, corporate profits, inflation rate, employment, balance of payments, interest rates, consumer income etc. Economic environment is dynamic and complex in nature
A business firm closely interacts with economic environment that consist of:
(a) Economic conditions in the market i.e. demand and supply factors
(b) Economic policies of the government: monetary policy, fiscal policy, industrial policy, trade policy, foreign investment policy etc.
Economic system prevailing in the country also affects the business growth. Every country has different economic system. The economic system includes capitalism, socialism, and mixed economy. Business depends upon economic environment for their inputs and also for market. Changes in the economic factors can adversely affect the working of a business firm.
- Technological Environment
Technology has brought about far reaching changes in the methods of production, quality of goods, productivity, and packaging. There is a constant technological development-taking place.
The business firm must constantly monitor the changes in the technological environment, which may have a considerable impact on the working of a business. It also indicates the pace of research and development and progress made in introducing modern technology in production.
Technology provides capital intensive but cost effective alternative to traditional labour-intensive methods. In a competitive business environment technology is the key to development. Technology helps to run the business better and faster.
- International Environment
International managers face intense and constant challenges that require training and understanding of the foreign environment. Managing a business in a foreign country requires managers to deal with a large variety of cultural and environmental differences.
- Legal Environment
The state sets the formal rules, laws and regulations for the country’s operational system. It creates a framework of rules and regulations within which a business has to operate. The business should have complete knowledge of laws and policies to run the business effectively. Some of the laws are:
(a) Consumer protection Act-1986
(b) Factories Act-1948
(c) Workers compensation Act-1923
(d) FEMA Act-1999
(e) The Companies Act-1956
(f) The Environment protection Act-1986