Every business small or big is regulated and affected by various environmental factors at different levels. It is crucial to identify all the environmental factors that can affect the business. In order to create a fit between the environment and the firm these factors needed to be identified at both levels.
Any business small or big is the backbone of any economy. However, they often face difficulties in expanding their operations or entering new markets. There are several micro-level factors that influence businesses such as economic conditions and policies on a national level that can make it more difficult for firms to expand.
These environmental factors are of two types
Micro-Level environment Factor
Macro-Level Environment Factor
Macro-level environment factors are at a broad level like Demographic, Socia-cultural, Economic, Political, Natural, Legal, technological, and Govt policies.
Micro-level environmental factors are more specific to the business concern. There are 6 types of Micro-level environmental factors like
Supplier Related Factors
Micro-Level Environmental Factors
Many factors that are external to the organization can affect its success. These factors are called microlevel environment factors. For example, the government’s policies and regulations have a direct impact on some businesses.
The macroenvironment includes all factors—both internal and external—that influence a business. Here are the 6 factors,
A business must monitor the demand in the industry through various measures. It should look at
The Nature of demand
Current Demand, Future Forecasting(potential demand)
Various changes in demand
New products introduced in the market
Ever-changing buying behavior
A firm can monitor these factors through sales forecasting and demand measurement.
One of the critical factors about the consumer is that the taste and preference keep changing. With evolving technological updates, the introduction of new products, and new demands the taste changes, and consumers look for new products. It is imperative for businesses to identify these new trends and update their products to meet the new demands of their customers.
The loyalty of a consumer can shift for many reasons like a better alternative, cheaper products, products with more advanced features, etc. It is essential for firms to keep track of their consumer’s tastes and preferences.
The factors that need to be monitored are
Need it serves
Customer value proposition
Benefits for the consumers
Who are the customers
The purchasing capacity of consumers
Buyer personality traits
Brand switch and many more
A firm must possess information about the industry and its condition. Any decline or change in trend might not be the ideal condition for any firm in question. Industry knowledge is required in order to build a marketing strategy and competitive advantage.
The competition in a business is extremely fierce. You need to understand the competition to stay ahead of the curve. Monitoring the competition is as critical as watching the industry. An increase in competition, decrease in competition can affect the demand and the price as well. So keeping a tab on the demand is of paramount importance.
It is one of the factors that affect the business at both the micro and macro level. Govt policies can affect businesses at the local and international levels. By govt. Policies I meant the economic policies of a country, any restraining governing law for a certain product or service. Govt policies do matter because
Govt is a large buyer for various goods and services
Subsidies associated with some of the products and services
They promote local over international players
A few industries are restrained from foreign funding or players getting into the play
Govt can put a ban on the use of a few products or services
Govts as a producer can be a big competitor
Supplier Related Factors
Suppliers are one of the biggest influencers in any industry. They have their own purchasing and distributing capacity and can affect any business to a great deal. They can influence the cost of raw materials and other materials required for manufacturing. These suppliers are your raw material supplier, machine parts suppliers, machine suppliers, and others.
Sometimes these suppliers can also become direct competitors so keeping a great deal of knowledge is required for suppliers too.
The environmental factors of business include macro and micro-level factors. The macro-level refers to the economic, political, and social systems in which organizations operate. The micro-level refers to the relationships within an organization’s environment i.e. suppliers, customers, competitors.