External Business Environment
Macroenvironment
2. lecture
Ing. Šárka Zapletalová, Ph.D.
Department of Business Economics and Management
BUSINESS ENVIRONMENT

Outline of the lecture
1.External environment
2.
2.Macroenvironment
3.
3.Concept of sustainable development
4.
4.

Introduction
•Organizations don´t operate in vacuum. Each organization operates within a specific environment.
•
•Environment of each organization is unique to it and no two organizations operate in exactly the
same environment. Thus the business environment is situational. We are talking about environmental
uniqueness.
•
•An external environment is composed of all the outside factors or influences that impact the
operation of business.
•
•The business must act or react to keep up its flow of operations. All outside factors that may
affect an organization make up the external environment.
•
•The external environment can be broken down into two types: macroenvironment and task environment.
•
•

External Environment
•An external environment is composed of all the outside factors or influences that impact the
operation of business.
•
•The business must act or react to keep up its flow of operations. All outside factors that may
affect an organization make up the external environment.
•
The external environment can be broken down into two types:
•Macroenvironment – this environment has a secondary and more distant effect upon the organization.
Indirectly interactive forces may impact one organization more than another simply because of the
nature of a particular business.
•Task environment (microenvironment, market environment) – this environment has an immediate and
firsthand impact upon the organization. Directly interactive forces include owners, customers,
suppliers, competitors, employees, employee unions, and public. Management has a responsibility to
each of these groups.

External Environment: Macroenvironment
•Macroenvironment consists of large-scale fundamental forces that shape opportunities and pose
threats to the organization. These forces are largely uncontrollable but must be monitored for
purposes of both short- and long-term planning.
•
•Macroenvironment concerns events and systems that operate on a large scale and form a backdrop to
day-to-day business decisions. The macro environment also contains issues and events which are
beyond the capacity of individual organizations to influence or control. The macro environment is
affecting all organizations in the economy/industry and over which no individual organization has
much (if any) influence or control.
•
•These forces affect companies and are as follows:
•economic forces;
•technological forces;
•political forces;
•legal forces;
•social forces
•natural forces;
•demographic forces;
•cultural forces.
•
•

Macroenvironment
Economic Environment
•
•The nature of the economic environment is a complex mix of economic, social and political factors.
•Change and uncertainty are at the heart of the economic environment and this has been seen in the
dynamic changes that have occurred in both the domestic and global economic environments over time.
•The economic environment is the source of these resources which can be grouped together into four
categories:
•Labor – proportion of the population engaged in production;
•Land – refers to all natural resources;
•Capital – resources in the form of machinery, tools and factories;
•Enterprise – entrepreneur is the key person without whom production would not take place.
•

Macroenvironment
Economic Environment: Framework of economic environment
•Economic system
•Economic structure of the country;
•Nature of economic planning in the country.
•Economic policy
•Industrial policy;
•Fiscal policy;
•Monetary policy;
•FDI norms.
•Economic indices
•National income, distribution of income, per capita income;
•Rate of growth of GNP;
•Value of imports and exports.
•State of economic infrastructure
•Strength of money and capital markets
•

Macroenvironment
Economic Environment: Economic System
•
Economic system is a social organism through which people earn their living.  A modern economic
system is complex.
•Kinds of economic systems:
•Free enterprise economy – this economic system works on the principle of the least interference by
the government or any external force. The primary role of the government is to ensure free working
of the economy by removing obstacles to free competition.
•Government controlled economy – economies are controlled, regulated and managed by the government
agencies.
•Mixed economy – is one in which there exist both government and private economic systems. A mixed
economy has both public sector (the government economy) and private sector (the private economy).
•

Macroenvironment
Economic Environment: Business and economic system (economic problems)
•The allocation problem
•If there are insufficient resources to satisfy every need or want then decisions have to be made
as to what to produce.
•When any decision is being made about resource use, the full range of options has to be
considered.
•The production problem
•How does the economy organize the production of the chosen commodity?
•We need to carefully examine the economic environment that would lead to such productive
efficiency.
•
•The distribution problem
•We ought to have a clear set of criteria for judging distributive efficiency or what can be
variously described as equity, fairness or justice.
•

Macroenvironment
Demographic Environment
•
•The demographic environment includes factors like:
•Size, density and location of human populations;
•Distribution of a particular market in terms of age, gender, race, occupation;
•Other statistical information.
•These factors have a considerable impact on the business as they determine the size of the market
for different types of products and services and also influence the cost of serving that market.
•

Macroenvironment
Demographic Environment: Demographic trends
•In the environment we will focus on the following dimensions of the population and demographic
change:
•population size;
•population structure.
•Population change (growth or decline) is determined by the combined effects of:
•natural changes resulting from birth and death rates;
•net migration.
• Ageing population means that there is a growing number and proportion of people at the top end of
the age structure, particularly those who are above retirement age.
•

Macroenvironment
Political Environment
•
•Political environment describes the political system prevailing in the country and also deals with
the regulations and legislations, government programs and other similar problems.
•
•Political environment determines the rules under which we live together and creates a „good
society“. Political environment refers to the influence exerted by political institutions in
shaping, directing, developing and controlling business activities.
•
•Politics is an important element of the external business environment, but it also has an internal
dimension. Politics and governance operate on a number of levels or spatial scales.
•
•The relationship between business and politics is a key aspect of the complex business
environment, including social, technological and other dimensions.
•

Macroenvironment
Political Environment: Types of political systems
•We can classify political systems into broad types, which allows us to see the most important
differences and group countries with similar political systems together.
•
•Types of political systems:
•Liberal democracy – the form of government that combines democratic procedures with forms of
individual freedom and equity.
•Non-democratic systems
•Communist regimes;
•Dictatorships.
•

Macroenvironment
Political Environment: Government-Business Relationships
•
•Politics and business are not separate but interdependent. In some ways business depends on
government and government in some ways depends on business.
•
•The basic task of government in all societies is to determine the rules within which people live,
including rules governing business behavior.
•
•Law or regulation and taxation are key elements of the government and business relationship.
•
•Business has an important stake in these and other areas of government activity.
•
•Government is the principal customer for some organizations and industries.
•

Macroenvironment
Political Environment: Role of Government
•The role of government in relations to business can be examined by identifying three models
•minimal state;
•developmental state;
•social-democratic state.
•
• Government:
•determines the legal framework within which business operates;
•influences or determines the scope of market relationships and the balance or mix between the
market and other sectors;
•relates to private sector business as a major customer;
•relates to private sector business as a provider of services and resources;
•relates to private sector business as a tax collector;
•manages the macroeconomic environment;
•represents business interests overseas, in relation to foreign governments and international
organizations.
•

Macroenvironment
Legal Environment
•Legal environment is a dynamic part of the business environment. The law changes on a daily basis
and adds to the complexity of the business environment.
•
•Legal environment determines the parameters within which businesses can operate.
•
•The law is shaped by a number of factors such as social, economic and political. The law cannot be
seen in isolation and in particular it is closely linked to the political environment.
•
•Legal systems operate within geographical boundaries or jurisdictions. The law in different nation
states will therefore vary.
•

Macroenvironment
Legal Environment: Legislative Systems
•There are four major bases for legislative systems:
•Common law – found in the UK, the USA, Canada and other countries under the English influence.
Common law is employed by the greatest number of people in the world;
•Islamic law – derived from the Koran and applied in Islamic States;
•Commercial legal system – found in socialist economies and states like China and the former Soviet
Union;
•Civil (also known as Continental European) or Code law – found in Germany, France and other
European countries, Japan and non-Islamic and non-socialist countries. Civil law is the most
widespread by landmass.
•

Macroenvironment
Legal Environment: Law and Business Activities
•The law plays an important role in creating markets and enabling them to operate.
•
•The law determines the different structures a business can adopt.
•
•The law does not exist in a vacuum and therefore is strongly influenced by the prevailing values
within society. These values reflect different competing interests.
•
•In modern society the law affects all aspects of business activity:
•Relations with employees (employee protection);
•Relations with consumers (consumer protection);
•Competitive behaviors and relationships (competition policy);
•Impacts on third parties and the environment (planning law).
•

Macroenvironment
Cultural Environment
•Culture refers to the specific learned norms of a society based on attitudes, values, beliefs, and
frameworks for processing information and tasks.
•Cultural environment deals with values, norms and accepted behavioral patterns.
•
•An important aspect of the cultural environment is related to the values that consumers hold.
These values revolve around a number of fundamental concerns like time, quality, health,
environment, home, personal finance and diversity. Any shift in the values of a society directly or
indirectly influences business.
•

Macroenvironment
Cultural Environment: Cultural Environment and Business
•People´s attitude towards business and work is strongly influenced by the culture in which they
are born and brought up.
•The extent of collectivism and individualism in the thinking and behavior of people is strongly
influenced by their culture. This further affects the behavior of individuals as consumers.
•
•Concern for environmental pollution, attitude towards consumerism, use of mass media and the role
of business in society are strongly influenced by the culture of a society.
•

Macroenvironment
Social Environment
•Social environment describes the people, their attitudes, social behavior and impact of education,
knowledge explosion and public opinion.
•A person´s interaction with the society he or she lives in shapes, refines and even alters his or
her beliefs, values and norms which in turn define his or her tastes and preferences and even
prompts him or her to absorb a world view of things.
•The social environment greatly influences the nature of consumer demand, the consumer
decision-making etc. The environment strongly influences the behavior of the individuals of a
group, which further has an impact on the practices adopted by business organizations.
•

Macroenvironment
Social Environment: Impact of Social Environment on Business
•Social environment creates or influences the attitude, personality, thought process and behavior
of the people who are part of it.
•
•It determines of influences consumption patterns and demand for goods and services in a society.
•
•It includes the awareness about the rights and the work ethics of the members of society.
•
•Parameters of social division too have an impact on the attitudes and thinking of people as
consumers of goods and services.
•

Macroenvironment
Technological Environment
•Technological environment can be seen as encompassing both the creation of new knowledge and its
application to improve business efficiency and, in so doing, improve the standards of living and
the quality of life.
•
•Technological environment is conducive to the development and implementation of technological
improvement. Technology alters the business environment by providing new opportunities.
•Globalization is rapidly combining with the new technologies to transform the external business
environment. Technological change is rapid and no business can afford to stand still in the face of
this change.
•
•There is a range of political, economic and social conditions that need to be present in the
external environment if technological change is to be supported.
•

Macroenvironment
Technological Environment: Technology
•Technology is application of knowledge to production and this can happen in a variety of ways.
•
•Invention – completely new ideas about products or ways of producing things arise.
•Innovation – improves or enhances original inventions (product innovation) or develops production
processes (process innovation).
•How this technology is used or applied fundamentally depends on the wider political, economic, and
socio-cultural environment and the way in which people within business seek to exploit its
commercial potential.
•

Macroenvironment
Technological Environment: The Impact of Technology on Business
•Technological change can improve the competitiveness of the organization and add value to the
organization.
•
•Technology cannot be ignored by business and it can either boost an organization´s individual
position or improve the profitability of the industry in which it operates.
•
•It is important for an organization to adopt a technology strategy that enables it to respond to
external changes as well as to develop a consistent approach in relation to its goals.
•
•Finally, the impact of technology in a business can potentially reduce costs, improve quality and
productivity, and enable new products to be developed and differentiated.
•

Macroenvironment
Natural Environment
•The natural environment is a term which covers a series of fairly obvious categories such as
climate and weather conditions, natural resources and topography. These may affect an organization
on a purely local level or there may be global implications.
•
•Business in its activities has a major impact on the natural environment, but this impact can
strike back at business.
•The current global environmental problems are:
•Global warming;
•Pollution;
•Resource depletion.
•

Concept of Sustainable Development
•The idea and strategy of sustainable development is put forward as a way of ensuring that we
collectively live within the constrains of our resources, and the capacity of the environment to
absorb the effects of our presence on the planet.
•
•Sustainable development involves cooperative action at global, national and local level.
•
•Governments at all levels may set frameworks of laws and regulations involving a variety tools:
•Market based policy;
•Non-market based policy.
•