Macro environment analysis is a fantastic business analysis tool for getting a better grasp of the greater business environment in which you operate. As we explained in another post, the macro environment itself is the broader business environment across all markets and industries — especially referring to the national or international economy.
Before you can dive into your own macro environment analysis, you need a solid grasp of the different factors at play in the macro environment. In this article, we’ll walk you through seven of the most important macro environment factors there are.
1. Gross Domestic Product
Gross domestic product is an economic macro environment factor. This single number represents the total value of goods and services exchanged across the span of a year, often within a single country. Another very related measure is gross domestic product per capita, which refers to the average value of goods and services exchanged across the span of a year, per each individual in the country.
As far as single numbers go, gross domestic product is one of the most effective tools for quickly and easily measuring a nation’s economy. A high gross domestic product signals a healthy economy (and a strong business environment) while a low gross domestic product signals a weak economy (and a poor business environment). Trends in gross domestic product may explain an increase or decline in your organization’s performance.
The word demography refers to the statistical breakdown of a population. As a single number, population on its own — i.e. the number of people living in a given area — doesn’t tell you a lot. However, the wider concept of demography, which also accounts for, for example, the breakdown of a population by age or gender, can tell you a lot about the macro environment.
Let’s look at an example. If your product targets over-60s individuals, you’ll be happy to know that there’s a trend of an aging population across the globe, which means people are living longer.
One specific demographic factor which we’ve looked at before is the ethnic breakdown in a country. If your organization targets people of a specific ethnicity, there probably isn’t a single more meaningful number for you than this one!
3. Consumer Spending
Consumer spending refers to the amount of goods and services end consumers are purchasing every year. While it’s also an economic factor, consumer spending is partially a socio-cultural factor as far as the macro environment is concerned. This is because some cultures are simply more or less prone to buying consumer products, and it might also relate to changes in cultures across time.
If your business targets end consumers with goods or services, then consumer spending can be an extremely powerful factor for understanding the spending habits of a chosen geographic region. For example, Apple, the premium electronics manufacturer, specifically targets nations with high consumer spending — such as the United States — because of just how expensive their branded products are.
Politics can also be an important factor in the macro environment, especially as related to international trade policies. A country’s political state can give you a lot of insight into its socio-cultural values, too.
Again, let’s look at an example. If a chosen geographic market doesn’t have trade agreements with your organization’s home nation, then your products might be subject to import taxes, which could affect the viability of your business model. In some cases, the political environment might even make it impossible for you to do business in a certain country.
Needless to say, technology is a crucial factor in today’s macro environment. Specifically, the technological infrastructure of a nation can be an important element of the macro environment. This may refer to the nation’s technological preferences, the widespreadness of certain technologies, or other such factors.
As an example, let’s imagine you’re a mobile software house. Before deciding whether to translate your applications into a chosen language, you can look at the technological advancement in the associated country as part of macro environment analysis. If there are few users of mobile phones in that country, you may decide not to bother.
We’re entering an age where the environment is more precious then ever, with depleting amounts of natural resources and growing pollution. As far as macro environment analysis is concerned, ecology is the category of all-important factors that account for this. Other examples of individual ecological factors include weather, terrain flatness, or even soil fertility.
Undoubtedly, the most significant factor on the world’s ecological playing field is global warming. Regardless of your target markets (in terms of their geography), global warming will affect your organization if you let it. Also, it’s probably a good time to start manufacturing parasols and sun lotion!
Bundled together as the last macro environment factor, we have law and regulation. If you’re going to operate in a certain nation, it’s imperative that you comply with the local laws and rules. There’s quite a disparity in regulation across the globe, so you might be surprised to hear what is or isn’t legal in some places.
Take the emerging market of cryptocurrencies. Cryptocurrencies are a new class of financial asset, for which specific rules and regulations haven’t yet been laid out in most countries. A select few countries, however, like Malta or Switzerland, have been quick to regulate the space, and may be a good choice of macro environment for your digital asset business.
As you can see, there are loads of potential factors which you could include in your own macro environment analysis. The most important thing to take away from this article is that you don’t have to include everything — and you shouldn’t! Choose the economic, political, social, legal, technological, and environmental factors you want to use for your macro environment analysis based on how relevant they are to your business.
If you’re keen to see how you can use these macro environment factors in action, definitely check out our macro environment examples for the United States and China.
Photo by Paul Calescu