Understanding a Firm's Macroenvironmental Factors

The components of a company’s macro-environment are essentially just external factors that a company itself cannot control but is certainly affected by. The factors that make up the macro-environment include economic factors, political/legal forces, social/cultural forces, technological factors, demographic factors, and natural/physical forces (macro environment, 2021).

Economic factors- When the money supply is high during an economic surplus consumers have more spending power and this requires a firm e.g Walmart to do more imports to fuel the demand. This is a positive effect as higher exports lead to more employment in the export sector and also lower import spending means consumers are spending more on local goods than foreign-made goods (Pettinger, 2019)

Political-legal forces- Government can set laws for example the PCAOB governs audit firms to check if companies they audit have clean audit reports and they can shut down firms if there is a high degree of fraud committed. For example, Enron who were involved in wire and financial fraud in 2002, where they misstated their financial accounts in order to improve revenues and hide their liabilities. Hence the Sarban-Oxley act was put in place and is aimed to protect investors from fraudulent accounting practices set by corporations.

Social/cultural forces-This is essential because for example KFC, is an international company and it would be harder for the company to work with just American workers in a foreign country. It will be much better if the foreign country uses their people because the employees will understand the culture/language and this will allow the brand to be more diverse.

Technological factors-To be ahead of the competition, innovation has to be a priority, for example, tesla wants to make electric vehicles faster than fuel-injected engines. They have built automated cars recently and consumers are buying into that market so definitely the technological enhancement can help them to grow and earn more profits globally.

Demographic factors- A college such as FSU is built-in Tampa with over 30,000. This is a very good location as it can attract people especially from the Caribbean and countries in central/south America. Not to mention Florida has an attractive geographic location where there is good weather and college students can go to the beach on the weekends.

Natural/physical forces- Covid-19 pandemic crimpled the airline industry for a few months and many airline companies lost a lot of revenues as the airline production was at a standstill. Right now, the market is coming back to normal as the airline business has to adapt to the corona outbreak and this took deep planning for e.g. promoting clean sanitization practices in the airport and allowing passengers who have done covid testing 3 days before departure.

The purpose of a competitive environment analysis is to “determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle (competitive analysis, 2021).

According, to the apple article the global chip shortage will disrupt the supply chain so the company will lose revenue. Just this week they have missed wall street's expectation in Q4 revenues as iPhone revenues fell short and this is due to covid-19 because many production facilities have been put at standstill in many countries which leads to the depletion of stocks (Tiernan, 2021). The chip shortage also affects the automotive industry and it is expected to cost them $210billion in revenue. With these disappointing results, chipmakers have seen their revenues grow substantially as many of them increased the prices of the products as the demand for them peaked in 2021 (cnbc website, 2021). For both cases, I believe it’s mostly economic forces that come into play that has impacted the tech and automotive industry to have a low supply and high demand for the chip globally.

Learning the external environment helps the firm to understand how to gain a competitive advantage and this will enable them to develop strategies that would allow them to be innovative so that they can adapt to market changes especially when forces such as technological factors and economic factors come into play. Managers have to think strategically to build a sustainable company and this is essential for taking control of the marketplace in any given environment.

References

cnbc website. (2021, October 29). Retrieved from https://www.cnbc.com/2021/10/28/chip-shortage-continues-to-wreak-havoc-on-vw-and-stellantis.html

competitive analysis. (2021, october 29). Retrieved from https://www.entrepreneur.com/article/25756

macro environment. (2021, November 1). Retrieved from https://www.mageplaza.com/blog/micro-and-macro-factors-affect-your-business.html#what-is-the-macro-environment

Pettinger, T. (2019, february 17). surplus. Retrieved from https://www.economicshelp.org/blog/9996/trade/effect-current-account-surplus/

Tiernan, R. (2021, October 28). macro-factors. Retrieved from https://www.zdnet.com/article/apple-fiscal-q4-revenue-misses-expectations-eps-in-line-citing-uncertain-macro-environment/