What Is the Macro Environment in Business Analysis?
In business analysis, we tend to focus our research on individual markets and industries, without paying attention to the greater, so-called macro environment. But what exactly is the macro environment, and why should you care?
The macro environment is the broader business environment across all markets and industries. It takes into account the size and nature of entire national (or even international) economies and societies. Understanding the macro environment is crucial in measuring and strategizing for a business’ success.
Factors Affecting the Macro Environment
The macro environment refers to the broader business environment as a whole. While this can include political, technological, and other factors, the most relevant ones are all economic. In this section, we’ll dive into some of the core, mostly economic factors affecting the macro environment. If you think about it, you’ll see how each of these factors can influence a business regardless of its industry or geography.
1. Gross Domestic Product
The gross domestic product, referred to in short as GDP, is a measure of the total monetary value of goods sold or services enacted within a given quarter or year. GDP is typically measured on a national basis, and gives an insight into the strength of the local economy in terms of the value exchanged. A high GDP represents a strong economy, which is often what business wants to see in the macro environment.
2. Employment
Next up is employment, which is the fraction of the local or global population that is or isn’t employed. The employment rate is another factor which gives powerful insight into the state of an economy. Again, for most cases: the higher the employment, the better.
3. Taxes
Taxes are typically set on a national basis. Of course, taxes need no explanation — they’re the cut of your sweet business proceeds taken away by the government. The size of taxes can help you understand your jurisdiction’s monetary policy, and how that relates to the economy as a whole.
4. Consumer Spending
Somewhere on the scale between being an economic factor and a social factor lies consumer spending. This represents the amount of goods and services being purchased by everyday consumers. If you run a consumer-facing business, you’d like to see high consumer spending to feel confident about the macro environment.
Macro Environment Analysis
Macro environment analysis can be a powerful tool for businesses who use it in conjunction with smaller-scale market analysis. Together, these two modes of business analysis paint a full picture of the business environment.
If you’re familiar with PEST or PESTLE analysis, which takes into account the Political, Economic, Social, Technological, and sometimes Legal or Environmental factors affecting a target market, you may have noticed how these analysis tools can equally be applied to the macro environment.
That’s right, if you want to conduct macro environment analysis, you can simply apply the PEST(LE) toolset to the wider business environment. We outline exactly how to do that in this post.
Why Conduct Macro Environment Analysis?
You may be wondering why you conduct an analysis of the macro environment — and that’s a great question! After all, any business analysis takes lots of time, and very often equal amounts of money.
There are a number of reasons you might conduct macro environment analysis; for example, you represent a cross-industry enterprise or government that wishes to understand and plan for the future business environment as a whole. However, the most common application for macro environment analysis is in small and medium-sized enterprises (SMEs), who use the analysis together with individual market analysis to get the full view on their business environment.
For example, consider that your organization is a consumer electronics manufacturer. Your market analysis of the consumer electronics space may have generated some interesting results, like a growing number of television purchases. Further analysis of the market finds no explanation for this change. However, when you conduct macro environment analysis, you see that the economy is rapidly growing as a whole — and with it, consumer spending — which explains that households are buying more televisions simply because they can!
This is just one example of when you might look at the macro environment, but the general rule is that it completes the otherwise-missing piece of the puzzle.
Who Should Conduct Macro Environment Analysis?
As we alluded to above, there are quite a number of uses for macro environment analysis — and with that, there are quite a number of individuals and organizations who could benefit from it. So how do you know if you should conduct macro environment analysis?
As a general rule of thumb, if you conduct analysis for individual markets and industries, you should probably also conduct at least some macro environment analysis. There are exceptions to this rule, but they typically refer to large scale, transnational organizations or government bodies.
When to Conduct Macro Environment Analysis
After reading the last two sections, you may be seeing a pattern here: macro environment analysis is most often used together with market analysis. If you’re wondering when to conduct macro environment analysis, the answer lies in that same pattern.
If you’re a small or medium-sized enterprise conducting market analysis to get the full picture of your business environment, you should conduct macro environment analysis at the same time. If you’ve already conducted a market analysis before, and you’re not planning to do so again any time soon, you should go ahead and carry macro environment analysis as soon as possible to see whether there’s anything you missed in your market analysis.
Final Thoughts
The macro environment is the broader business environment which affects businesses across industries and geographies. It refers to the national or international business climate as a whole, which is usually dependent on regional economies and societies. Macro environment analysis can be a fantastic tool for your business if you’re looking to complete the business analysis puzzle, and you can get started right away by applying the same PEST principles you’ve come to know and love!
Photo by Vlad Busuioc on Unsplash
