Macro Environment Analysis

Introduction
Business:
Business may be understood as the organized efforts of enterprises to supply consumers with goods or
services for a profit.
Every business requires some form of investment and enough customers to whom its output can be sold on a
consistent basis in order to make a profit. Businesses can be privately owned, not-for-profit or state-owned. An
example of a corporate business is PepsiCo, while a mom-and-pop catering business is a private enterprise.

Business Environment: Business Environment means a collection of all individuals, entities and other factors,
which may or may not be under the control of the organization, but can affect its performance, profitability,
growth and even survival. Every business organization operates in a distinctive environment, as it cannot exist
in isolation. Such an environment influences business and also gets affected by its activities.

The combination of internal and external factors influences a company's operating situation. The business
environment can include factors such as: clients and suppliers; its competition and owners; improvements in
technology; laws and government activities; and market, social and economic trends.

What is a Macro Environment?

A macro environment is the condition that exists in the economy as a whole, rather than in a particular sector or
region. In general, the macro environment includes trends in the gross domestic product (GDP), inflation,
employment, spending, and monetary and fiscal policy. The macro-environment is closely linked to the
general business cycle as opposed to the performance of an individual business sector.

Macro Environment Analysis: Environmental Analysis is described as the process which examines all the
components, internal or external that has an influence on the performance of the organization. The internal
components indicate the strengths and weakness of the business entity whereas the external components
represent the opportunities and threats outside the organization.
Environmental scanning is necessary because there are rapid changes taking place in the environment that has a
great impact on the working of the business firm. Analysis of business environment helps to identify strength
weakness, opportunities and threats. SWOT analysis is necessary for the survival and growth of every business
enterprise.

The following is the need and importance of environmental scanning:

1. Identification of strength:

Strength of the business firm means capacity of the firm to gain advantage over its competitors. Analysis of
internal business environment helps to identify strength of the firm. After identifying the strength, the firm must
try to consolidate or maximize its strength by further improvement in its existing plans, policies and resources.

2. Identification of weakness:

Weakness of the firm means limitations of the firm. Monitoring internal environment helps to identify not only
the strength but also the weakness of the firm. A firm may be strong in certain areas but may be weak in some
other areas. For further growth and expansion, the weakness should be identified so as to correct them as soon
as possible.

3. Identification of opportunities:

Environmental analyses helps to identify the opportunities in the market. The firm should make every possible
effort to grab the opportunities as and when they come.

4. Identification of threat:

Business is subject to threat from competitors and various factors. Environmental analyses help them to identify
threat from the external environment. Early identification of threat is always beneficial as it helps to diffuse off
some threat.

5. Optimum use of resources:

Proper environmental assessment helps to make optimum utilization of human, natural and capital resources.
Systematic analyses of business environment helps the firm to reduce wastage and make optimum use of
available resources. Without understanding the internal and external environment, resources cannot be used in
an effective manner.

6. Survival and growth:

Systematic analyses of business environment help the firm to maximize their strength, minimize the weakness,
grab the opportunities and diffuse threats. This enables the firm to survive and grow in the competitive business
world.

7. To plan long-term business strategy:

A business organization has short term and long-term objectives. Proper analyses of environmental factors help
the business firm to frame plans and policies that could help in easy accomplishment of those organizational
objectives. Without undertaking environmental scanning, the firm cannot develop a strategy for business
success.

8. Environmental scanning aids decision-making:

Decision-making is a process of selecting the best alternative from various available alternatives. An
environmental analysis is an extremely important tool in understanding and decision making in all situation of
the business. Success of the firm depends upon the precise decision making ability. Study of environmental
analyses enables the firm to select the best option for the success and growth of the firm.

Characteristics of Contemporary Business

The following are the important characteristics of a business:

1. Economic activity
2. Buying and Selling
3. Continuous process
4. Profit Motive
5. Risk and Uncertainties
6. Creativity and Dynamism
7. Customer satisfaction
8. Social Activity
9. Government control
10. Optimum utilization of resources
11. Globalization
12. Competition

Importance of Business Environment

Business Environment presents threats as well as opportunities for any business. A good business manager not only
identifies and evaluates the environment but also reacts to these external forces. The importance of the business
environment can be neatly understood if we consider the following facts:

Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which
can affect the organization’s performance. The analysis entails assessing the level of threat or opportunity the
factors might present. These evaluations are later translated into the decision-making process. The analysis
helps align strategies with the firm’s environment.
Our market is facing changes every day. Many new things develop over time and the whole scenario can alter in
only a few seconds. There are some factors that are beyond your control. But, you can control a lot of these
things.
Businesses are greatly influenced by their environment. All the situational factors which determine day to day
circumstances impact firms. So, businesses must constantly analyze the trade environment and the market.
There are many strategic analysis tools that a firm can use, but some are more common. The most used detailed
analysis of the environment is the PESTLE analysis. This is a bird’s eye view of the business conduct.
Managers and strategy builders use this analysis to find where their market lies currently. It also helps foresee
where the organization will be in the future.
PESTLE analysis consists of various factors that affect the business environment. Each letter in the acronym
signifies a set of factors. These factors can affect every industry directly or indirectly.

The letters in PESTLE, also called PESTEL, denote the following things:
 Political factors
 Economic factors
 Social factors
 Technological factors
 Legal factors
 Environmental factor

Often, managers choose to learn about political, economic, social and technological factors only. In that case,
they conduct the PEST analysis. PEST is also an environmental analysis. It is a shorter version of PESTLE
analysis. STEP, STEEP, STEEPLE, STEEPLED, STEPJE and LEPEST: All of these are acronyms for the same
set of factors. Some of them gauge additional factors like ethical and demographical factors.

P FOR POLITICAL FACTORS

The political factors take the country’s current political situation. It also reads the global political condition’s
effect on the country and business. When conducting this step, ask questions like “What kind of government
leadership is impacting decisions of the firm?”

Some political factors that you can study are:

 Government policies
 Taxes laws and tariff
 Stability of government
 Entry mode regulations

E FOR ECONOMIC FACTORS

Economic factors involve all the determinants of the economy and its state. These are factors that can conclude
the direction in which the economy might move. So, businesses analyze this factor based on the environment. It
helps to set up strategies in line with changes.

 The inflation rate

 The interest rate
 Disposable income of buyers
 Credit accessibility
 Unemployment rates
 The monetary or fiscal policies
  The foreign exchange rate

S FOR SOCIAL FACTORS

Countries vary from each other. Every country has a distinctive mindset. These attitudes have an impact on the
businesses. The social factors might ultimately affect the sales of products and services. But some of the social
factors you should study are:

 The cultural implications

 The gender and connected demographics
 The social lifestyles
 The domestic structures
 Educational levels
 Distribution of Wealth

T FOR TECHNOLOGICAL FACTORS

Technology is advancing continuously. The advancement is greatly influencing businesses. Performing
environmental analysis on these factors will help you stay up to date with the changes. Technology alters every
minute. This is why companies must stay connected all the time. Firms should integrate when needed.
Technological factors will help you know how the consumers react to various trends.
Firms can use these factors for their benefit:
 New discoveries
 Rate of technological obsolescence
 Rate of technological advances
 Innovative technological platforms

L FOR LEGAL FACTORS

Legislative changes take place from time to time. Many of these changes affect the business environment. If a
regulatory body sets up a regulation for industries, for example, that law would impact industries and business
in that economy. So, businesses should also analyze the legal developments in respective environments.

 Product regulations
 Employment regulations
 Competitive regulations
 Patent infringements
 Health and safety regulations

E FOR ENVIRONMENTAL FACTORS

The location influences business trades. Changes in climatic changes can affect the trade. The consumer
reactions to particular offering can also be an issue. This most often affects agri-businesses.

Some environmental factors you can study are:

 Geographical location
 The climate and weather
 Waste disposal laws
 Energy consumption regulation
  People’s attitude towards the environment

There are many external factors other than the ones mentioned above. None of these factors are independent.
They rely on each other.

If you are wondering how you can conduct environmental analysis, here are 5 simple steps you could follow:

1. Understand all the environmental factors before moving to the next step.
2. Collect all the relevant information.
3. Identify the opportunities for your organization.
4. Recognize the threats your company faces.
5. The final step is to take action.

It is true that industry factors have an impact on the company performance. Environmental analysis is essential
to determine what role certain factors play in your business. PEST or PESTLE analysis allows businesses to
take a look at the external factors. Many organizations use these tools to project the growth of their company
effectively.

The analyses provide a good look at factors like revenue, profitability, and corporate success. If you want to
take the right decisions for your firm, employ environmental analysis. The analysis you should conduct depends
on the nature of your company.

Environmental analysis helps in the detection of threats at an early stage that assist the organization in
developing strategies for its survival. Add to that, it identifies opportunities, such as prospective customers, new
product, segment and technology, to occupy a maximum share of the market than its competitors etc.

Steps Involved in the Process of Environmental Analysis

Identifying: First of all, the factors which influence the business entity are to be identified, to improve its
position in the market. The identification is performed at various levels, i.e. company level, market level,
national level and global level.

Scanning: Scanning implies the process of critically examining the factors that highly influence the business, as
all the factors identified in the previous step effects the entity with the same intensity. Once the important
factors are identified, strategies can be made for its improvement.

Analyzing: In this step, a careful analysis of all the environmental factors is made to determine their effect on
different business levels and on the business as a whole using benchmarking or other tools.

Forecasting: After identification, examination and analysis, lastly the impact of the variables is to be forecasted.
Environmental analysis is an ongoing process and follows a holistic approach that continuously scans the forces
effecting the business environment and covers 360 degrees of the horizon, rather than a specific segment.
Environmental Factors in the context of Bangladesh

The following set of ten most urgent actions could form a package in environmental governance and
contribution to sustainable development that supports rapid economic growth and the human development
suitable to Bangladesh in a climate change world.

Bangladesh has many priorities, most of them are competing and yet complementary. The canvas is very broad.
Most of the priorities need urgent and immediate attention, as delay in addressing some will be creating greater
challenges in resolving other priorities. Given this broader context, the following ten priorities deserve
immediate and urgent attention. In Bangladesh's phenomenal journey towards a sustainable development future
in a rapidly changing horizon of enhanced globalization, greater need for employment and sustainable
livelihoods, food, water and energy securities are required to face the emerging challenges of climate change.

None of these proposed tasks are totally new. Most of them are multi-dimensional and need the involvement of
several institutions in addressing the challenges. Many of them have been addressed and incorporated in the
planning documents but not in the context of a concerted sustainable development paradigm. It is a worthwhile
effort to address these ten activities simultaneously to achieve rapid economic growth which is pro-poor and
pro-environment. If serious attempts are made, the opportunities for global fund mobilization for Bangladesh
from emerging climate change funds and other resources, as well as releasing the energy of its people, economy
and natural resources base will receive a huge dividend towards a sustainable development pathway. The time
horizon in each of the ten tasks may vary-say between two to ten years. But they are complementary and
mutually reinforcing in a sustainable development world for Bangladesh. Of course, the availability of the
resources for these is within the capacity of Bangladesh. But these will require good implementation, rigorous
monitoring and better inter-agency cooperation and governance practices.

1. Converting population to human resource: Bangladesh has been a role model for several aspects of
development. The greatest resource of Bangladesh is its people. But the population density in Bangladesh is one
of the highest in the world. Though there has been significant reduction in the population growth rate, it remains
most urgent to continue all efforts to reduce the rate of population growth by aggressive family planning,
educating and investing in the health and welfare of the women as well as the new generations. The burgeoning
population must be part of a national plan to generate new and worthwhile jobs and livelihoods. To achieve this
there has to be an aggressive employment generating and entrepreneurship enabling strategy and plan.
Appropriate vocational training and productive man power based education and empowerment of this
population deserve greatest attention. This will greatly improve the emerging garments and associated
industries, quality of manpower export and greater agricultural productivity. The synergies are evident but
investment time horizon is indicated and must be reinforcing.

2. Light for all: Electricity is the major source of power for most of the country’s economic activities. The
largest energy consumers in Bangladesh are industries and the residential sector, followed by the commercial
and agricultural sectors. According to the Bangladesh Power development Board in July2018, 90% of the
population had access to electricity. However per capita energy consumption in Bangladesh is considered low.
Bangladesh will need an estimated 34,000MW of power by 2030 to sustain its economic growth of over 7
percent. Problems in Bangladesh’s electric power sector include high system losses, delays in completion of
new plants, low plant efficiency, erratic power supply, electricity theft, blackouts, and shortages of fund for
power plant maintenance. Overall, the country’s generation plants have been unable to meet system demand
over the past decade. However, technology is available, financial and social mechanism will have to be evolved.
This is within the reach of the common people. Political will is the need of the hour.

3. Clean and free rivers: Rivers have been occupied by the powerful people where flow of rivers has been
restricted. Many rivers have been silted up. Further industrial and domestic pollution have severely
contaminated many rivers particularly around the cities. There is an urgent need to free the rivers both from
illegal encroachment situation, pollution and self-loading. This is urgent to establish rule of law, government
ownership of common property resources and principle and environmental governance.

4. Transfer of the tanneries and pollution management: Urgent and immediate implementation of the
tanneries with effective central effluent treatment plant must be undertaken immediately. Simultaneously the
garment, textile, ship breaking, brick making and other polluting industries must be made compliant of the
procedures and law of the country.

5. Effective implementation of Environmental Impact Assessment (EIA): Environmental Impact

Assessment is obligatory under the Bangladesh Environmental act. It is an effective tool to protect the natural
resources and for making policies, projects and infrastructure environmentally sound. But its implementation is
very weak. To ensure that EIAs are assessed fairly and professionally it is of utmost importance to have an
independent panel of experts to review the EIAs and ensure rigorous people’s participation. This will enable
effective use of this important tool for good environmental management practices and ensure a key step of
environmental governance and institutional development.

6. Improving the quality of soil fertility: Bangladesh soils are under stress. They need to enhance organic
matter and some micro nutrients. Proper monitoring and matching of crop-soil-micronutrient combinations
identification and their appropriate application will reduce fertilizer use and enhance food productivity. All soils
need to be enriched with more organic matter by using sustainable agriculture practices. Integrated pest
management, more efficient fertilizer and water use and diversification of crops and vegetables, afforestation of
deforested areas will help in soil quality improvement.

7. Increasing the efficiency of resource use: Bangladesh needs to increase its efficiency in use of water,
energy, waste, food items and through better post-harvest technologies, monitoring water needs for irrigation
and fertilizer use, and particularly encouraging use of fertilizing pellet available and use of improved safe
drinking water is essential particularly in vulnerable areas. Wide use of improved cook stoves and reduction of
line loss of electricity, gas and piped water supply would save significant amount of energy. Better management
of urban traffic will also reduce fuel waste. Recycling of plastics, polythene, polystyrene, electronic and other
wastes will save resources from wastage. Increase efficiency of chemical dosing in dye applications, fuel in
brick kilns are examples of better use of resources. Use of 3R (reduction, reuse and recycle) principles and
recycling of water, energy and chemicals will improve efficiency.

8. Better institutionalization of climate change management and governance: There has been significant
progress and many important initiatives have been undertaken in climate change. But climate change is
complex, and multifaceted. It involves largely environmental and even greater and increasing developmental
challenges. It encompasses many sectors and deep involvement of many actors. The real strengths in achieving
climate change risk reduction are integration of climate change into all relevant sectorial and rational policies.
These include local government agencies and above all the communities. Further, as the Green Climate Fund is
emerging Bangladesh must claim huge and significant funding from it. It is of utmost importance to nominate a
set of independent agencies to be the National Implementation Entity (NIE) under the supervision of the
appropriate National Designated Authority. The discourse and activities on this should be initiated soon. The
principles of MRV (Measurable, Reportable and Verifiable) activities and demonstrable transparency and
accountability are essential for fund mobilization, fund management under this mechanism. This will also
enable Bangladesh to mobilize its well-deserved claims to large global fund by setting these institutions with
accountability and transparency.

9. Strengthening local government and community based adaptation: Most climate change related activities
and adaptation responses will be addressed at the local level. Bangladesh's credibility and claim to global funds
will largely depend on its capacity to reach the funds to the climate vulnerable and affected poor. This will be
best served by strengthening the local government and its capacity to deliver development and environmental
services to the poor, both rural and urban. Hence it is of utmost importance to strengthen and enhance efficiency
of service delivery of the local government. It may be helpful to make a policy declaration that large proportion
of all climate funds, say 70 percent, should reach the most vulnerable and the poor. It is also important to use
this framework to enhance community based adaptation (CBA) which is to be delivered to the communities as
well as develop decision making processes ensuring the participation of the communities. This will be a great
contribution of Bangladesh to environmental democracy and climate change governance.

10. Planned urban-rural continuum and spatial management

Bangladesh still remains a largely rural country with population moving towards rapid urbanization. This
urbanization is happening with a rapid population increase in major cities such as Dhaka and Chittagong. There
is a second phenomenon of urbanization associated with emergence of small towns at district levels. The third
phenomenon is the access to urban services at the peri-urban areas at the two above levels. In Bangladesh rapid
urbanization is a part of the rural-urban continuum. Through the socio-economic network, continuity of
resource mobilization and demographic transitions from rural to urban migration remains a continuum. This is
more significant amongst the poor residing in urban slums; many of them have often been displaced by extreme
events, frequently connected with climate change induced events and the phenomenon of frequent river bank
erosions or floods. This is also continued amongst the middle class.

The urban and rural populations in Bangladesh are connected in a continuum; it is important to set the
framework for rural spatial planning also. It is worthwhile to consider multi storied buildings with low energy
needs to save agricultural land from occupation by housing. Cities spatial planning will also need to include
land use and natural resource planning integrated with energy – water – food nexus for the urban population
along with other services. Availing the urban services in the rural areas will make spatial planning more
manageable. The elements to consider in urban and rural spatial planning will need to be (a) Innovation and
Planning (b) Investment and Infrastructure (c) Participation and Information and (d) Good Governance.