The Macro Environment – Six Forces in the Environment of a Business

The company is not alone in doing business. It is surrounded by and operates in a larger context. This context is called the Macro Environment. It consists of all the forces that shape opportunities, but also pose threats to the company.

The Macro Environment consists of 6 different forces. These are: Demographic, Economic, Political, Ecological, Socio-Cultural, and Technological forces. This can easily be remembered: the DESTEP model, also called DEPEST model, helps to consider the different factors of the Macro Environment.

The Macro Environment - Six Forces in the Environment of a Business
The Macro Environment – Six Forces in the Environment of a Business
  1. Demographic Forces in the Macro Environment

Demographic forces relate to people. The name refers to the term Demography. The latter refers to the study of human populations. This includes size, density, age, gender, occupation and other statistics. Why are people important? Because, on the whole, their needs is the reason for businesses to exist. In other words, people are the driving force for the development of markets. The large and diverse demographics both offer opportunities but also challenges for businesses. Especially in times of rapid world population growth, and overall demographic changes, the study of people is crucial for marketers. The reason is that changing demographics mean changing markets. Further, changing markets mean a need for adjusted marketing strategies.

Therefore, marketers should keep a close eye on demographics. This may include all kinds of characteristics of the population, such as size, growth, density, age- and gender structure, and so on.

Some of the most important demographic trends that affect markets are:

World population growth

The world population is growing at an explosive rate. Already in 2011, it reached 7 million, while being expected to reach 8 billion by the year 2030. By the end of the century, it is likely to double. However, the strongest growth occurs where wealth and stability is mostly absent. More than 70% of the expected world population growth in the next 40 years is expected to take place outside of the 20 richest nations on earth. This changes requirements for effective marketing strategies and should be kept in mind.

Changing age structure

The changing age structure of world population is another critical factor influencing marketing. In the future, there will be countries with far more favourable age structures than others. For example, India has one of the youngest populations on earth and is expected to keep that status. By 2020, the median age in India will be 28 years. In contrast, the countries of the European Union and the USA have to face an aging population already today. This may lead to harmful reductions in dynamism and challenges regarding the supply of young workers who, at the same time, have to support a growing population of elderly people.

Changing family structures

Also, families are changing which means that the marketing strategies aimed at them must undergo an adjustment. For example, new household formats start emerging in many countries. While in traditional western countries a typical household consisted of husband, wife and children, nowadays there are more married couples without children, as well as single parent and single households. Another factor comes from the growing number of women working full time, particularly in European nations. Together with further forces, changing family structures require the marketing strategy to be changed.

Geographic shifts in population

One – and the most important – element of geographic shifts is migration. By 2050, global migration is expected to double. This has a major impact on both the location and the nature of demand for products and services. The reason is that the place people can be reached has changed, as have their needs because of the new situations. Other important factors are the ethnic diversity that provides new opportunities, as well as urbanisation.

  1. Economic forces in the Macro Environment

The Economic forces relate to factors that affect consumer purchasing power and spending patterns. For instance, a company should never start exporting to a country before having examined how much people will be able to spend. Important criteria are: GDP, GDP real growth rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment, Inflation, Disposable personal income, and Spending patterns.

  1. Socio-Cultural forces in the Macro Environment

The Socio-Cultural forces link to factors that affect society’s basic values, preferences and behavior. The basis for these factors is formed by the fact that people are part of a society and cultural group that shape their beliefs and values. Many cultural blunders occur due to the failure of businesses in understanding foreign cultures. For instance, symbols may carry a negative meaning in another culture. To understand these forces, Hofstede’s cultural dimensions can be used: Power Distance, Individualism versus Collectivism, Masculinity versus Femininity, Uncertainty Avoidance etc. 

  1. Technological forces in the Macro Environment

Technological forces form a crucial influence in the Macro Environment. They relate to factors that create new technologies and thereby create new product and market opportunities.

A technological force everybody can think of nowadays is the development of wireless communication techniques, smartphones, tablets and so further. This may mean the emerge of opportunities for a business, but watch out: every new technology replaces an older one. Thus, marketers must watch the technological environment closely and adapt in order to keep up. Otherwise, the products will soon be outdated, and the company will miss new product and market opportunities.

  1. Ecological forces in the Macro Environment

Ecological, or natural forces in the Macro Environment are important since they are about the natural resources which are needed as inputs by marketers or which are affected by their marketing activities. Also, environmental concerns have grown strongly in recent years, which makes the ecological force a crucial factor to consider. For instance, world, air and water pollution are headlines every marketer should be aware of. In other words, you should keep track of the trends in the ecological environment.

Important trends in the ecological environment are the growing shortage of raw materials and the care for renewable resources. In addition, increased pollution, but also increased intervention of government in natural resource management is an issue.

Because of all these concerns and the increased involvement of society in ecological issues, companies more than ever before need to consider and implement environmental sustainability. This means that they should contribute to supporting the environment, for instance by using renewable energy sources. Thereby, businesses do not only support the maintenance of a green planet, but also respond to consumer demands for environmentally friendly and responsible products.

  1. Political forces in the Macro Environment

Every business is limited by the political environment. This involves laws, government agencies and pressure groups. These influence and restrict organisations and individuals in a society. Therefore, marketing decisions are strongly influenced and affected by developments in the political environment.

Before entering a new market in a foreign country, the company should know everything about the legal and political environment. How will the legislation affect the business? What rules does it need to obey? What laws may limit the company’s ability to be successful? For example, laws covering issues such as environmental protection, product safety regulations, competition, pricing etc. might require the firm to adapt certain aspects and strategies to the new market.

 

As we have seen, the company is surrounded by a complex environment. The Macro Environment consists of a large variety of different forces. All of these may shape opportunities for the company, but could also pose threats. Therefore, it is of critical importance that marketers understand and have an eye on development in the Macro Environment, to make their business grow in the long term.

 

 

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