Business Environment - Macro Environment Macro Environment: A. General Economic Conditions

Lecture 10
Business environment – Macro environment
Macro environment
It may broadly be classified into (1) Economic environment, (2) Demographic

environment, (3) Socio-cultural environment, (4) Technological environment (5) Political
environment, and (6) Legal environment
1. Economic Environment
Economic environment is the most significant component of the marketing environment.

It affects the success of a firm. The economic environmental forces can be studied under three
broad categories: (a) General economic conditions (b) Industrial conditions, and (c) State of
supply of resources for production.
a. General Economic Conditions
General economic conditions in a country are influenced by various factors. The
following factors are important.
i) Agricultural trends
ii) Industrial output trends
iii) Per capita income trends
iv) Pattern of income distribution
v) Pattern of savings and expenditures
vi) Price levels
vii) Employment trends
viii) Impact of government policies and
ix) Economic systems
b) Industrial Conditions
Economic environment of a country is influenced by the prevalent industrial conditions
as well as industrial policies of a country. A Manager needs to pay attention to the following
aspects of the industrial conditions.
i) Market growth of the industry
ii) Demand patterns of the industry, and
iii) Its stage in product life cycle
c) State of Supply of Resources for Production
Supply of resources required for production determines inputs which are available for
production. These are the most important resources required for production.
i) Land
ii) Labour
iii) Capital
iv) Machinery and equipment, and
v) Managers
The above-stated environmental forces determine the economic environment of a
country.
To sum up, economic environment describes the overall economic situation in country
and helps in analysing GNP per capita, rate of economic growth, inflation rate, interest rates,
unemployment problems, etc. Therefore it is necessary to examine carefully the economic
environment of the country.
2. Demographic environment
Demographic environment explains the pattern and changes in the society based on age,
sex, educational background, marital status, family size, family life style, religion, nationality,
etc. Demographic environment is useful for marketing decisions, market segmentation and
formulation of marketing strategies. Knowledge of the demographic environment is very
important to a marketer for performance of his functions. People constitute the market and
market depends on customers. Demography provides quantitative as well as qualitative aspects
of population.
3. Socio-cultural environment
The social environment of a nation determines the value system of the society which in
turn affects the marketing of products. Social factors are caste. Customs, conventions, cultural
heritage and respect for seniority, etc. For example, the nature of goods and services in demand
depends upon people's attitudes, customs, social values, etc. In India, social environment is
continuously changing.
Changing social values and increased acceptance of improved birth control methods have
resulted in a rise in the mean age of various countries. The social environment has the following
dimensions.
- Changes in people's lifestyles
- Concerns for social problems and
- Growth of consumerism
Culture influences every aspect of marketing. Marketing decisions are based on
recognition of needs and wants of the customers, which is a function of customer’s perceptions.
These help in understanding of lifestyles and behaviour patterns as they have grown in the
society's culture in which the individual has been groomed. Thus a person's perspective is
generated, groomed and conditioned by culture.
4. Technological environment
Technological environment provides both opportunities and threats, and its impact is
direct as well as indirect. Certain aspects to which a marketing planner should pay attention are;
i) High expenditure on research and development
ii) Concentration on product improvement and development
iii) Unlimited innovations in technology
iv) Accelerating pace of technological change and
v) Greater emphasis upon the regulation of technological change
Advances in technology are difficult to predict. However, the manager should consider
potential, technological development determined from resources committed by major industries
or the government. Being in a market that is rapidly changing due to technological development,
will require the manager to make careful short-term marketing decisions as well as being
prepared with contingency plans given any new technological developments that may affect
product or services.
5. Political environment
Political factors play a major role in shaping the environment in which business
organizations operate. Thus a business organization has to attempt to study and analyse political
environment. Such a study and analysis help in estimating risks opportunities and threats
involved, and then adjusting their decisions and operations to anticipated changes.
To conclude, the various political factors that should be considered are;
i) Role of private sector in the economy

ii) Government procedures and changes in government policy
iii) Type of government and stability in government
iv) Role of small-scale industry in the economy and
v) Role of service sector in the economy
6. Legal environment
Decisions are strongly affected by laws pertaining to competition, price setting,

distribution arrangements, advertising, etc. It is necessary for a manager to understand the legal
environment of the country and the jurisdiction of its courts. The following laws affecting
business in India are important.
1) Indian Contract Act, 1872

2) Factories Act, 1948
3) Minimum Wages Act, 1948
4) Essential Commodities Act, 1955
5) Food Products Order
6) Securities contracts Regulation Act, 1956 (Now replaced by SEBI Act)
7) The Companies Act, 1956
8) Trade and Merchandise Marks Act, 1958
9) Monopolies and Restrictive Trade Practices Act, 1969
10) The Water (Prevention and Control of Pollution) Act, 1974
11) The Air (Prevention and Control of pollution ) Act, 1981
12) Sick Industrial Companies (Special provision) act, 1985
13) Environment Protection Act, 1986
14) Consumer Protection Act, 1986
15) Securities and Exchange Board of India Act, 1992
16) Taxation laws covering Corporate tax, indirect taxes like Excise, Customs, Sales tax and
Wealth tax)
Importance of Environment Analysis
The manager needs to be dynamic to effectively deal with the challenges of environment.
The environment of business is not static. The some of the following benefits of environment
scanning are as follows:
 It creates an increased general awareness of environmental changes on the part of
management
 It guides with greater effectiveness in matters relating to Government
 It helps in marketing analysis
 It suggests improvements in diversification and resource allocation
 It helps firms to identify and capitalise upon opportunities rather than losing out to
competitors
 It provides a base of objective qualitative information about the business environment that
can subsequently be of value in designing the strategies.

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Lecture 10

Business environment – Macro environment

It may broadly be classified into (1) Economic environment, (2) Demographic

Economic environment is the most significant component of the marketing environment.

c) State of Supply of Resources for Production

i) Role of private sector in the economy

Decisions are strongly affected by laws pertaining to competition, price setting,

1) Indian Contract Act, 1872

Importance of Environment Analysis

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