·        The macro environment consists of all the forces, events and circumstances beyond the business’s control that affect the business

·        Business has no control over this environment

We will further look at the components of the macro environment

COMPONENTS OF THE MACRO ENVIRONMENT

a)     physical environment

The physical environment includes everything related to the immediate environment of the business, for instance:

•       landscape, site and buildings (location of the business)

•       local weather and weather changes

•       availability, cost and sustainability of resources (water and electricity)

•       Infrastructure (roads, transport and telecommunication)

•       Environmental factors like air, water, noise pollution

b)     economic environment

Consists of Interests rates, exchange rates, tax rates, inflation rates, level of unemployment as well as the type of labour available 

Interest rate

•        Rate at which borrowed money must be repaid. Expressed as a percentage. In S.A. it is set by the South African reserve bank.

Exchange rate

•        It is the price at which one currency can be exchanged for another

Inflation rate

•        General increase in the prices of goods and services in the economy.

Taxation

•        If it goes up, businesses will be charged more on profit, and people will have less money to spend on buying goods and services.

The gross domestic product (GDP)

•        Refers to how much an economy produces in a given year. It includes everything produced within the borders of a country regardless of the nationality of the producer. It indicates a country’s well-being. The higher the GDP, the better the economy is performing.

The labour force

•        Refers to all the people who productively work in the economy. It is important to have the right number of people with the right type of skill and education if businesses are going to be successful.

Government policies

Control unemployment levels, inflation rates and exchange rates. These can be good or bad for business

c)      social environment (also called the cultural and demographic environment)

•       Social and cultural aspects cover the customs, religion, languages, lifestyles and values (attitude towards right and wrong) of the society.

•       Demographics refer to age, gender, education, skills and racial groups in society.

•       If the type of people who live in a community changes, the business also have to change. The business need to be aware and adapt to changes such as: Demographics, education levels, people’s norms and values, attitudes towards health and lifestyle.

d)     technological environment

Impact of technology on business:

•        Communication, innovation and product development, production, marketing and advertising, skills development and access to knowledge and administration.

e)     political & legal environment

Political

•       A good relationship between a stable government and business creates a positive political environment.

•       An unstable government and poor relationship between the government and the business creates a negative political environment.

•       Some political decisions that influence businesses are: How the government levies tax How the government spends tax Interest rates and inflation

•       Other political factors are strike action, legal and illegal immigration, civil revolution and terrorism.

•       The political party in power can influence legal, economic and social developments

Legal

•       Laws are rules passed by parliament to control the behaviour of a country’s citizens

•       Legislation is enforced to exercise control. This is done through the legal system and courts.

f)      institutional environment

Includes municipalities as well as provincial governments. The government needs to provide a structure in which businesses can function. These institutions need to offer services that can:

•       Provide for testing products

•       Prevent the formation of monopolies

•       Protect legal trade

•       Promote standardisation

•       Control the money in circulation

g)     international environment

Events that take place elsewhere in the world and outside the borders of South Africa can have an impact on the economy, for example: Political unrest in Zimbabwe leads to illegal immigrants moving to South Africa, pushing up local unemployment.

Events that take place outside the borders of South Africa can impact local businesses, for example: Earthquakes elsewhere, such as in Japan, cause a shortage or imported goods. Policies control South African imports (bringing products from elsewhere in the world into South Africa) and exports (taking products from South Africa elsewhere in the world). A fluctuating demand for export commodities, such as gold, diamonds, platinum, other minerals, machinery and equipment

Fluctuating prices of import commodities such as machinery and equipment, chemicals, petroleum, scientific instruments and food from mainly Germany, China, USA, Saudi Arabia, Japan and the UK

(Read over pages 39-44 in the notes attached on the macro environment)