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What Are Macro Environment Factors?

Environmental disasters, such as a hurricane, may impact businesses.
Government regulations, such as safety standards and tax policies, represent one variety of macro environmental factor.
Market realities are macro environmental factors.
Technological macro environmental factors may influence the direction of a business.
International laws may affect supply and demand for many companies.
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  • Originally Written By: Jessica Ellis
  • Revised By: Angela Colley
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 November 2014
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Macro environment factors are uncontrollable external forces that affect how a business operates. They are largely out of the control of the business, and often require changes in operating, management, production, and marketing. Analysts often categorize them using the acronyms PEST or PESTEL. Broken down, PEST stands for political, economic, social, and technological concerns. PESTEL also includes environmental and legal factors.

Political

Political macro environment factors include things like tax policies, government-issued safety regulations, the availability of government contracts, and even shifts in the controlling political party. International laws, such as trade agreements and tariffs, may affect the supply and demand chains and available markets for many different companies as well.

Economic

A market boom, recession, or growing inflation problem can all change the way an organization plans for the future and operates in the present. Economic factors are often difficult to assess, since economic forecasts and analyses vary widely between experts. Unemployment levels, comparative foreign exchange rates, and the state of the global economy can all help or hurt a business' ability to get needed components and maintain a stable profit.

Social

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The mood and demographics of the population make up the social area of macro environment factors. For example, a society that places an emphasis on self-guided jobs with room for creativity may cause organizations to redefine job descriptions and adapt the model of the workplace to attract workers. Social trends, such as a preference for on-demand mobile media devices, can also influence which products a company manufacturers and where it chooses to spend advertising dollars.

Technological

Technological macro environment factors can influence how an organization does business. A new type of machinery, computer chip, or product created through research and development can help a company stay modernized and ahead of the market curve. Owners must be able to accurately identify which new developments will be truly useful, and which are just fads.

Environmental

Environmental concerns are important to businesses both in the short and long term. In the short-term, things like natural disasters can disrupt production and supply operations, or even destroy company assets. Programs such as environmental risk assessment can help companies prepare to handle many of the most likely short-term crises. In the long view, however, businesses may have an interest in ensuring that their supply chains are not destroyed by unsustainable practices.

Legal

Legal factors can limit or change how a business operates. For example, they may have to hire additional supervisory staff or purchase safety equipment after a new health and safety law is passed. Child labor laws often limit the hours a minor can work and require set break periods. If an organization employs several minors, it may have to hire additional help to cover the hours when the minors cannot legally work. Legal factors are determined by both local legislation and regional and national laws. In some cases, companies that do business internationally are also affected by international laws.

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Discuss this Article

anon312910
Post 7

What are some issues evolving in the macro business environment which may impact, positively or negatively,

the conference and event sector?

vigilant
Post 6

What kind of macro event was the global economic collapse of 2008? It seems like this was a bunch of things going wrong at the same time, but they must have had some ultimate, overarching cause. Where do we place the blame?

summing
Post 5

That environmental one really stood out to me. Just in the last year there have been storms, droughts and other unexpected weather events that have disrupted businesses across huge areas. Recovering from these disasters is also expensive for the government. I think I heard recently that the average disaster response costs $11 billion. As climate change gets worse this will only become a bigger problem.

GiraffeEars
Post 3

@Glasshouse- There are events that even PESTEL Framework will not protect against. Black swan incidents are completely unpredictable and cannot be foreseen. These events share four common characteristics, and are almost always devastating in nature. The four factors of a black swan incident are:

1) They are random

2) The incidences cannot be predicted with empirical probabilities

3) They catch people by surprise

4) People often have hindsight bias once these events occur.

These events cannot be predicted or mitigated at the organizational level. The only protections against these types of incidents would be institutional safeguards and robustness put in place within a nation. A company may survive a black swan incident in a nation like the United States or Japan, but would be hard pressed to do the same in a less developed country where the geopolitical climate is more risky.

Glasshouse
Post 2

@cougars- Although you cannot always prepare for environmental problems, you can minimize their damage. Businesses with god leadership will recognize threats through analysis. Using a PESTEL or STEER (Socio-cultural, Technical, economic, ecological, and regulatory) analysis can help a business identify how each of these factors would affect their price, product, production and place in the market. Once a business can analyze these factors, they can implement strategies to mitigate these risks.

For example, establishing multiple resource streams so production is not completely shut down in case of a disaster. The trick is to balance these risks and redundancies so that a business is maximizing profit for the least risk. The best way for a business to manage these risks is not to let them catch it off guard.

cougars
Post 1

How does a company prepare for macro environmental factors? Is there any way to hedge against these risks so they have less of an impact on the company? Incidents like natural disasters cannot be predicted, making them very hard to plan for. Is the only option to rely on insurance and hope that if a disaster occurs, it will not be catastrophic to a business?

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