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Macro environment is major external and uncontrollable factors that influence organization's decision making, and affect its performance and strategies. These factors include the economic factors; demographics; legal, political and social conditions; technological changes and natural forces. Specific examples of macro environment influences include competitors, changes in interest rates, changes in cultural tastes, disastrous weather, or government regulations. There are a number of common approaches how the external factors which describe the macro environment, can be identified and examined. These factors indirectly affect the organization but cannot be controlled by it. One approach could be the PEST analysis. PEST stands for political, economic, social and technological. Two more factors, the environmental and legal factor, are defined within the PESTEL analysis. The six environmental factors of the PESTEL analysis are the following:
- Political factors (like Taxation Policy, Governmental stability)
- Economical factors (like Inflation rate, Rate of people in a pensionable age)
- Technological factors (like Improved communication and knowledge transfer, Technological changes)
- Environmental factors (like Energy consumption, Waste disposal)
- Legal factors (like Unemployment law, Health and safety, Advertising regulations)
- Ecology (affects customer's buying habits, affect the firm production process)
- Socio-cultural (like consumerism, income level)
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The macro environment in which a company or sector operates will influence its performance and the amount of the influence will depend on how much of the company's business is dependent on the health of the overall economy. Cyclical industries, for example, are heavily influenced by the macro environment, while consumer staples are less so.
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