In one of our recent posts, we introduced you to the concept of the macro environment: the broader business environment affecting all markets and industries. In this article, we’re going to walk you through some real-world examples of the macro environment — but first, let’s review the factors affecting the macro environment.
Example Factors in the Macro Environment
As we touched on a second ago, the macro environment is the overall business environment in a given geographic area. It affects all businesses in that area, regardless of the market or industry in which they operate.
When conducting macro environment analysis — just like with any other business analysis — it’s up to you to choose which factors you will consider in your analysis. Before we look at some real-world examples of the macro environment, let’s take a look at some example factors which you can use for your own macro environment analysis.
One of the most obvious macro environment factors is population. A high population gives you more individuals to whom you can sell products and services, and vice-versa. However, population doesn’t just refer to the number of people in a target area. It can also refer to the aging of the population — whether the population consists primarily of older or younger generations — and even the birth or death rate.
As an example of the latter concept, imagine an over-60s insurance company conducting business analysis for the Asian market. In this case, macro environment analysis can reveal the average age of individuals in the chosen geographic area, which could make or break the company’s business strategy.
2. Gross Domestic Product
Gross domestic product, abbreviated as GDP, is a measure of the total value of goods and services produced in a given area of the course of the year. As far as the economy is concerned: the higher the GDP, the better.
As a business, high GDP is typically a good thing, since it signals a strong economy. In a strong economy, consumers are more likely to purchase your product, and vice-versa.
3. Ethnic Breakdown
Another very interesting factor at play in the macro environment is the ethnic breakdown. This can refer to the race or religion of an area’s demographic, and may prove to be an important variable in some businesses’ analysis. This is because some products or services are only targeted at some ethnicities.
Let’s consider the very taboo example of skin color. Typically, those with lighter skin suffer more from sunburn. If your organization produces and distributes sun lotion, the breakdown of the target demographic — by skin color — might be a very important consideration in business analysis.
4. Consumer Spending
Another factor which we mentioned in our introductory article to the macro environment is consumer spending. This refers to the amount of goods and services being purchased by end-consumers. If your product or service targets consumers, this is also an important consideration.
Real Examples of Macro Environments
Now it’s time to dive into some real examples of macro environments. For the purpose of this article, we’re going to look at the macro environments in the United States and China.
Just like with any business analysis tool, the factors you choose to look at in your own macro environment analysis will depend on the information you consider to be most valuable. For this article, we’ll do a general overview of each macro environment — but bear in mind the weird and wonderful data that applies to your industry when you conduct your own macro environment analysis.
Macro Environment Example 1: United States
The United States is one of the world’s biggest economies, which makes it a favorable macro environment for almost any business. In 2017, the United States clocked a gross domestic product of over $19 trillion — the highest of any country in the world. Although it’s hard to measure, consumer spending is also extremely high in the United States.
Aside from that, the United States has a registered population of about 325 million people. Of these many million people, the population is split relatively evenly among the different age groups.
As far as ethnicities are concerned, there is quite a range. This includes a predominant portion of White Americans, as well as African, Hispanic, Native and Asian Americans.
Macro Environment Example 2: China
China is also an economic powerhouse on the global stage. China has a GDP of over $12 trillion, with a huge population of just under 1.4 billion people. As such, you can see that the average Chinese person gets a smaller slice of the pie, and the reduced consumer spending (in comparison to the US) reflects this.
In terms of ethnicities, the macro environment in China is almost entirely Asian, with a small handful of Caucasians present too.
The Scale of the Macro Environment
With those two examples behind us, it’s worth mentioning that the macro environment doesn’t just have to refer to a single country. In fact, you can look at a business’ macro environment on a local or global level.
The macro environment in a single city or region, although being a very narrow tool, can help a lot for smaller business. For example, if you run a restaurant, understanding the macro environment of your surrounding area can help you decide whether to opt for cheaper or more expensive menu options.
On the other hand, looking at the global macro environment can be a useful tool for enterprises big and small. If the global economy is in a recession, that might explain declining sales in your business however big it is. This is why macro environment analysis is so powerful — it captures data that other business analysis completely disregards!
The macro environment can be a tough topic to grasp, but hopefully you understand it better with these two examples. After all, the macro environment really is a business analysis tool that should be tailored to finding the data you need to effectively run your business.
Photo by Clay Banks.