Saturday, November 5, 2011

Micro and Macroenvironment of Business

Posted by Benjamin Atuma at 6:51 PM
Broadly speaking, the environment of business is composed of the microenvironment and macroenvironment.

Micro Environment

The microenvironment is also called the operating, competitive or task environment. It consists of sets of forces and conditions that originate with suppliers, distributors, customers, creditors, competitors, and shareholders, as well as trade unions, and the community in which the business operates.  These forces, on a daily basis, impact the organisation’s ability to obtain inputs and discharge of its outputs.  Factors in the microenvironment are largely within the control of the managers.  In this way, organisations can be much more proactive in dealing with the task environment than in dealing with the macro environment.
   
Forces in the microenvironment result from the actions of four main elements or groups, namely suppliers, distributors, customers, and competitors.  These groups affect the manager’s or firm’s ability to produce on a daily, weekly and monthly basis, and thus significantly impact short-term decision making.  Let’s examine these main actors.

Suppliers

Suppliers are individuals or organisations that provide (supply) an enterprise with the various inputs (such as raw materials, component parts, or employees) required for production.  It is important that the manager ensures a reliable supply of input resources.  The effectiveness of the supply system determines the organisation’s long-term survival and growth.

Changes in the nature, numbers, or types of any supplier result in forces that produce opportunities and threats to which the managers must respond if their organisation is to prosper.  Another major supplier-related threat that confronts managers pertains to prices of inputs.  When supplies bargaining position with an organisation is so strong, they can raise the prices of inputs that they supply the organisation.  A supplier’s bargaining position is especially strong if:

(1) The supplier is the source of an input, and
(2) The input is vital to the organisation

In addition to raising prices, suppliers can make operations difficult for an organisation by restricting its access to important inputs.  For example, a reduction in government funding in terms of financial resources impact universities.  In the same vain, a cut in quota of the supply of crude oil by OPEC member countries affect global consumption of unrefined or refined petroleum.


Distributors

In the microenvironment of business, another group of actors are distributors.  Distributors are organisations that help other organisations sell their goods and services to customers.  The decisions that managers make on how to distribute products to customers can have an important effect on organisational performance.

The changing nature of distributors and distribution methods can also bring opportunities and threats for managers.  If distributors are so large and powerful that they can threaten the organization by demanding that it reduces the prices of its goods and services, then, the manager becomes constrained and challenged.  In contrast, the power of the distribution may be weakened if there are many options or alternatives.

Customers

Customers are another group of actors in the operating environment of business.  Customers are the individuals and groups that buy the goods and services that an enterprise produces, changes in the numbers and types of customers or changes in customers’ tastes and needs result in opportunities and threats.  A forward looking organisation must meet the needs and wants of its customers or exceed the customers’ expectations.  The organisation must have a customer orientation to succeed in this competitive, unpredictable and challenging business environment.

Competitors

Competitors are businesses that produce goods and services that are similar to a particular organisation’s goods and services.  Put differently, they are organisations that are vying for same customers.  Rivalry between competitors is potentially the most threatening force that managers must deal with.  A high level of rivalry often results in price competition, and falling prices reduce access to resources and lower profit.

Macro Environment

This environment refers to the wide ranging economic, socio-cultural, political and legal, and technological forces that affect the organisation and its operating environment.  These forces originate beyond the firm’s operating situation.  The macroenvironment is also called the external or remote environment.  The macroenvironment presents threats and opportunities that are often difficult to grapple with (that is, identify and respond to), than with events in the microenvironment.


Economic Forces

The economic forces have significant impact on the success of any organisation.  These forces on factors affect the conditions of procurement (buying) and sales market.  For example, in Nigeria ( as elsewhere) where the Naira is so devalued relative to foreign currencies (e.g. the dollar and pound), importation of required inputs of production constitutes a major threat to the corporate managers.  In the same vein, during periods of unhealthy economic growth occasioned by such factors as inflation, rising unemployment, high interest rates, and high taxes, among others, individuals as well as businesses have problems.  This is more serious in the case of emerging enterprises, or new entrants.


Political and Legal Forces

The political and legal forces are paralleled to the social environment.  This is because, laws are ordinarily passed following social pressures and problems.  In Nigeria, as else where, laws regulating the macro environment include legislations on monetary and fiscal policies, percentage of industrial emission, into the air, safety and health at work, wage and price control.  Others are equal employment opportunity, contract of employment, and law of collective bargaining, among others.  These regulations influence business operations either positively or negatively.

Legislation on fiscal and monetary policies, for example, might encourage favourable tax reliefs and financial assistance for small-scale industry.  The challenge, though, is that considering the nature of our political climate, legislations change at the whims and caprices of political and government leaders.  There is political instability in Nigeria, this way, existing legislations change as new political and government leaders emerge.  In this light, corporate managers should consider regulations both as threats and opportunities.  Besides, political and government leaders, the actions or political activities by pressure groups and lobbying groups should be taken into consideration, when considering investments or projects.

Technological Forces

Technological forces or factors could be said to be the most pervasive in the environment.  Technology refers to the application of knowledge base which science provides.  It is a well established fact that information and communication technology has revolutionized business operations.  Consequently, organisations that apply knowledge that is rapidly changing and complex are highly vulnerable.

These changes bring about new inventions and gradual improvements in methods, in design, in materials, in application, in efficiency, and diffusion into new industries.  Corporate managers must adapt or adjust to these changes, in order to survive and prosper in this competitive and challenging business environment.  The changes constitute threats and opportunities for any manager.

Socio-cultural Forces

Socio-cultural forces have to do with the attitudes and values of the society, and these to a great extent, shape behaviour.  For example, in certain parts of Northern Nigeria (where Sharia Penal Code is “strictly” observed), there are restrictions on the sales and consumption of tobacco, alcoholic liquors and others.  A manager in these parts faces unique challenges.  He has to undertake deliberate and planned strategy of market segmentation.  Similarly, in Southern Nigeria, there are changes in attitude to the issue of environmental degradation or pollution.  This has led to frequent restiveness or unrest in the Niger Delta.  The challenges before the managers of the multinational oil companies are unimaginable.

Changes in socio-cultural factors also impact the business enterprise in its internal relations with employees within the context of changes in attitude to work changes in political awareness, and cultural norms, among others.

In sum, the impact of the social forces is felt in changing needs, tastes, and preferences of consumers, in relation with employees, and in expectations of society form the company with regard to its social responsibility.


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Benjamin Atuma
I am a writer, teacher, web consultant, and an entrepreneur.  Enjoy blogging, business networking, traveling, and preaching the Gospel of Jesus.

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