Macro and Micro Factors that affect the Environment

01/05/2020 2 By indiafreenotes


The micro-environment is basically 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.


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.

Micro Environment of Business:

The micro environment consists of the factors of the firm’s immediate environment.

These include:

(a) Suppliers

Suppliers or vendors are those persons or firms who supply inputs like new materials, certain parts, cutting tools etc., to the company. The vendor quality and reliability is a must for the smooth functioning of the business.

They should supply all imputes of right quality and stated quantity in time. In order to be on safe side, adequate stock of input elements should be preserved in the company and services should be taken of more than one vendor to supply the goods.

(b) Customers

Today with the advancement of technology and because of foreign collaborations, it has become easy to manufacture any product, but it is still very difficult to sell i.e., to create, increase and sustain the customers.

Every day we watch a new advertisement e.g., buy one tooth paste tube and take another free along with it or take two shampoo bottles at the price of one etc., to allure the customers. Monitoring the customer sensitivity is, therefore, a prerequisite for the business success. How many different categories of customers shall be there to buy a product, depends upon the product itself.

For example, an automobile tyre manufacturing concern, can sell their tyres to:

  • Individual scooter or car owners
  • Scooter, car, truck manufacturing industries
  • Governments and other user institutions
  • Public sector or private sector transport undertakings etc.

(c) Competitors

Take an example of a firm ‘A’ making Televisions. Its competitors are not only the firms making and marketing T.V., but are all those firms who compete for the discretionary income of the customers. There are so many firms making T.V., scooters, refrigerators, cooking ranges, stereo sets etc.

The first is the desire competition amongst them. In other words, the primary task of firm ‘A’ here is to influence the basic desire of the customer to buy only T.V. and no other product. This desire can be created in the customer by giving festival discount or by introducing some installment scheme etc.

The second is the product form competition if once the customer decides to by a T.V. Product form competition implies, whether the customer should go for a black and white T.V. or a colour T.V., should he buy a T.V. with or without remote control.

Should he buy a 14″ TV or 21″ TV or still of bigger size. The firm ‘A’ may or may not be making all these models. So it has to attract, by its advertisement, the attention of the customers to go for a model being manufactured by them.

The third is the brand competition i.e., the competition between the different brands of the same product form. For example, there are a number of T.V. makes in the market, such as, Onida, BPL, Sony, Beltek, Videocon, Crown, Texla, etc. Now, the firm ‘A’ should work to create primary and selective demand for his T.V. sets, by alluring the customers by enchanting advertisements, and attractive schemes.

(d) Public

Public means a group of people. Public opinion can be a threat to a business firm whereas it can be an opportunity for another business firm. Public normally forms an opinion about different brands of the same product after using the same.

Opinion travels from friend-to-friend, neighbour-to-neighbour etc.,— Use this brand of washing powder or buy that brand of T.V. or refrigerator. They are using it for the last five years and it is working trouble-free etc. This is consumer publics which has an important effect on any companies business, can make or mar it.

The second is the Media publics where some newspaper tries to tarnish the image of a business firm by giving his own reasons or logic, and this adversely affects the business of the firm. Its share price may also come down. The third is Local publics.

The issue of environmental pollution caused from chimneys or waste liquid streams from the factories has often been taken up by local public and, at times, it has resulted in the suspension of production operations and/or take pollution abatement measures by the factories.

(e) Marketing Intermediaries

Marketing Intermediaries are those firms/individuals who help the company in promoting, selling and distributing its goods to final buyers.

Examples of marketing intermediaries are:

  • Middlemen (agents/merchants) who help the company find customers.
  • Physical distribution firms who assist the company in stocking and moving goods from their origin to their destination, such as warehouses and transportation firms.
  • Marketing service agencies such as advertising agencies, market research firms etc., which assist the company in targeting and promoting its products to the right markets.

Macro Environment of Business

The macro environment consists of larger societal forces that affect all the factors in the company’s micro environment.

(a) Economic Environment

Economic environment refers to all those economic factors which have a bearing on the functioning of a business unit. Some such factors have been discussed below:

  • Growth Strategy: The economic environment in our country is the result of the economic growth strategy pursued during the past five decades by the Government of India. The growth strategy followed was based on the Soviet Planning Model which believed that the saving rate in the economy and growth rate could be increased by investing heavily in the capital goods and heavy industry sectors at the expense of the consumer goods sector.
  • Economic System: The economic system is a very important determinant of the scope of (private) business. The economic system and policy are a very important external constraint on business.
  • Economic Planning: The Government prepares and implements a comprehensive economic plan integrating the private sector with the public sector. India has been doing economic planning since 1951, when First Five Year Plan was launched.
  • Industry: Around mid-1960s, India had a better industrial base and possessed more pre-requisites for industrial growth than South Korea, Malaysia, Taiwan etc. But the country subjected all outputs and other factors to rigid price and quantity controls, investment was strictly rationed, there were multiple barriers to entry, and the objective of the financial system was to supply subsidised development funds irrespective of returns. As a result all the countries mentioned above are far ahead of India in industrial growth. In 1970’s, Indian Government started believing that mini-plants constituted appropriate technology, notwithstanding strong evidence to the contrary. Such plants were encouraged through fiscal concessions and subsidised development finance. Mini-cement, mini-paper, mini-steel, mini-sugar plants were set up. None of these were technically viable, so they fell short of economies of scales, and could only exist under a regime of subsidies, high tariffs, severe quotas and purchase preferences. In 1980’s as the financial situation worsened, all these mini-plants became sick units. According to the Industrial Policy of the Government of India until July 1991, the development of 17 of the most important industries were reserved for the state. In the development of another 12 major industries, the state was to play a dominant role. In the remaining industries, cooperative enterprises, joint sector enterprises and small-scale units were to get preferential treatment over large entrepreneurs in the public sector. The government policy, thus limited the scope of private business. However, the new policy ushered in, since July 1991 has wide opened many of the industries for the private sector.
  • Human Resource: Human Resources play a crucial role (of people) in an economy. People work to produce goods and services. People provide markets for goods produced. Degree of economic prosperity depends on the quality and skill of the people. People need economic growth just as prosperity demands services of people. Unluckily, our country has more number of people than the economy could afford. However it goes to the credit of the country that it was the first in the world to adopt family planning as a state policy.
  • National Income and Per Capita Income: The aggregate flow of goods and services represents the total income earned by factors of production (such as) land and other natural resources, labour, capital and enterprise) employed during the year and this is popularly called national income. The rate of growth of the national income in an economy is an indication of the pace at which the economy has been growing. A high growth rate indicates that the economy is a developed one. Low growth rate implies that the economy is a developing or a poor one. A high national income indicates that the economy is developed and the overall environment is favourable for business growth.

(b) Technological Environment

Science is a systematised body of knowledge and when this knowledge is put into practice (or to practical tasks) it becomes technology. Technology changes very fast and a firm which is unable to cope with the technological changes may not survive.

(c) Political Environment

Political environment is another important constituent of the business environment which can bring any business enterprise to the ground. A Political (and Government) Environment or system prevailing in a country decides, promotes, fosters, encourages, shelters, directs and controls the business activities of that country.

A political environment/system that is stable, honest, efficient and dynamic and which ensures political participation of the people, and assures personal security to the citizens, is a primary factor for economic development. Two basic political philosophies exist all over the world.

The first, known as Democracy refers to a political arrangement in which the supreme power is vested in the hands of people. They have got the right to rule and vote on every matter. But this form of pure democracy is not workable in a complex society. Hence the Republican form of government comes into the picture in which the people/public, in a democratic manner, elects their representatives who do the ruling.

The second system known as totalitarianism also called Authoritarianism is one in which individual (person’s) freedom is completely subordinated to the power of authority of the state and concentrated in the hands of one person (i.e., a Dictator) or in a small group which is not constitutionally accountable to the, people. Societies ruled by military or by a dictator, plus most oligarchies and monarchies belong to this category.

(d) Social Environment

The social environment is made up of the attitudes, desires, expectations, degrees of intelligence and education, beliefs, and customs of people in a given group or society. Social desires, expectations and pressures give rise to laws and laws, in turn, influence the business.

Social factors include:

(i) Attitude of people to work

(ii) Attitude to wealth.

(iii) Desires and expectations.

(iv) Family and customs.

(v) Religion and Marriage.

(vi) Values and beliefs.

(vii) Intelligence and education.

(viii) Ethics-personal conduct.

(ix) Tastes and preferences.

(x) Social responsibility of business.

For any business, the cost of ignoring the customs, traditions, taboos, tastes and preferences, etc., of individuals or of society can be very high. The buying and consumption factors, habits of people, their language, beliefs and values, customs and traditions, tastes and preferences, education, all these factors affect the business. In Thailand, Helene Curtis switched to black shampoo because Thai women felt that it made their hair look glossier.

(e) Legal Environment

Judiciary settles legal disputes between the employer and the employees, employer and public or employer and government and hence affects the business. Legal authority also sees to it that the exercise of government conforms to the general rules laid down by the legislature, it may declare that the particular order issued is, in fact, ultra vires.

The courts of justice protect the citizens from unlawful acts passed by the legislature and arbitrary acts done by the government. Many times, judiciary has ordered the closure of fume-emitting and other factories spreading pollution which became dangerous for society. Judiciary has also restrained and censored human rights violations etc. The legal environment has far-reacting consequences on business.


Macro Environment

Micro Environment

Meaning Macro environment refers to the general environment, that can affect the working of all business enterprises. Micro environment is defined as the nearby environment, under which the firm operates.
Elements PESTLE, i.e. Political, Economic, Socio-cultural, Technological, Legal and Environmental. COSMIC, i.e. Competitors, Organization itself, Suppliers, Market, Intermediaries and Customers.
Nature of elements General Specific
Are these factors controllable? No Yes, but to some extent only
Influence Indirectly and Distantly

Directly and Regularly