The Economic Context of International Business Theme: Combining Micro and Macro Analysis

THE ECONOMIC CONTEXT OF INTERNATIONAL BUSINESS
THEME: COMBINING MICRO AND MACRO ANALYSIS
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State
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Contents
Abbreviation…………………………………………………………….3
Introduction……………………………………………………………..4
Macro factors……………………………………………………………4
Micro factors…………………………………………………………….6
Conclusion………………………………………………………………8
Bibliography…………………………………………………………….10
Abbreviation
USA- United States of America
SWOT- Strengths, weaknesses, opportunities, threats
P& G- Proctor and Gamble
Introduction
Macro and microenvironmental factors pose opportunities or threats to all businesses. During formulation of a firm’s competitive strategy, all environmental factors should be considered. The management can not control the macro environment factors, but the microenvironmental factors are controllable. The essay involves a case study conducted on the influence of macro environmental factors in Walmart and influence of microenvironmental factors on Procter and Gamble. The essay also involves the contrast between macro and micro environmental factors in business.
Macro factors
Macro environmental factors are external forces that businesses have no control over. They influence a company’s competitive strategy at a great length. There are rapid changes to macro environment factors. Companies should make it their aim to keep up with the changes. Various forces associated with macro environmental factors include demographic, natural, political, economic, technological, and social and cultural (figure 1).

Macro environment model. Source: (Casadesus-Masanell and Ricart, 2010)
Walmart is a leading multinational retail company in North America. It engages the use of PESTEL/ PESTLE model for the analysis of the macro environmental factors affecting the business (figure 2). It faces competition from drug, discount, department, specialty stores, supermarkets and online- based retailers (Roberts and Berg, 2012).

PESTEL Analysis. Source: (Rothaermel, 2015)
Political factors are mainly categorized at how government actions affect the operations of business. They include public policies and government legislations. Walmart being a multinational company should consider international changes in legal and political factors. Walmart is under political pressure to increase wages to its laborers. It is a threat to the company as it aims at minimizing its operational costs. The new labor laws create a problem in the competitiveness of the business against its rivals. It has influenced the closure of some stores, for example, the Oakland store, due to changes in the minimum wages policy (Zieger, 2011). The changes have accounted for the loss of approximately 10000 jobs. Political stability and support for globalization is an opportunity for Walmart to compete with other businesses successfully. Political instability in China would affect the operations of Walmart. Most of its products are imported and supplied from China making the company vulnerable to political changes. Since China joined the World Trade Organization, close to 133000 jobs in the manufacturing industry were lost in the United States in a span of 5 years, from 2001 to 2006 (LeCavalier, 2010). The United States would be forced to ban imports from China to boost its manufacturing industry. The high costs would affect the competitiveness of Walmart (Barney, 2012). There are also legal factors that influence changes in the competitive strategies. Tax law reforms that demand for higher taxes from the company affects its strategy. The increase in taxes would coax Walmart to increase the prices of their products. It would, therefore, affect its competitiveness as consumers prefer low-cost products (Miller, 2001).
Economic factors relate to changes that directly affect a company’s revenues positively or negatively. The factors would be attributed to change in interest rates, change of currency and inflation levels. The rapid growth of developing countries’ economies increases their demand for goods from retail firms. Walmart should, therefore, venture in different locations to intensify its competitiveness. Change in value of the currency would also influence its competitive strategy. The increase in the strength of the dollar is beneficial but destabilizes the economy. (Dewachter and Lyric, n.d.) States that increase in inflation leads to increase in interest rates to try and stabilize the economy. In such cases, Walmart’s sales are negatively affected because consumers reduce their consumption levels. According to (Persky and Merriman, 2012), Walmart’s customers’ satisfaction and external relations helps it to weather successfully through economic recessions
Formulation of sociocultural factors in Walmart takes into consideration the customers preferences and perceptions. These factors should guide a business on how to regulate its productions to satisfy the needs of all their consumers. Cultural diversity trends and lifestyles motivate Walmart in increasing their array of products. People currently go after healthy quality products. Its priority of satisfying its customers’ preferences of best quality products has led to its continued leading in the retail industry. However, its discrimination against female employees affects its relations with the society. It has faced legal actions for paying female employees less than the males in the same positions. It would, therefore, affect its sales negatively for its discrimination (Wood, 2015).
Demographic factors also have an influence on the competitiveness of a firm. An increase in population leads to an increase in market and therefore an increase in sales. Walmart is a multinational company and therefore increase in population helps it increase its sales and compete with other companies. Technological forces change the markets rapidly by the innovation of new markets and presenting more opportunities for business. (Kumar, 2005) States that Walmart has faced stiff competition from the internet- based retailers who are getting fast awareness to the people. The online retailers would sell their products at a lower price because they forego some costs of having physical retail locations. Walmart, however, tries to remain innovative to retain its consumers.
Micro factors
Microenvironment factors are elements that influence decision making and performance in the internal operations of a company. The factors originate from relationships with consumers, employees, media, stakeholders, suppliers, shareholders, and competitors (figure 3). The management of a company controls the microenvironment factors.

Microenvironment model. Source: (Richardson, 2008)
Procter and Gamble is a multinational company that deals with manufacturing of consumer and household goods. Its main headquarters are in Ohio, USA. The main aim of Procter and Gamble (P& G) is to attain and retain customers. The company’s strategy to satisfy its customers is ensuring their products are of high quality and are durable (Procter & Gamble Co., 2006). When the needs of all consumers are met, it is easy to have loyal customers. It, therefore, enables the firm to have a successful competition. As times changes, the tastes and preferences of consumers would differ. P& G ensures it reviews its customers’ responses to the products. It also analyzes the consumer behavior to capture any changes that should be incorporated in their production. Consumers are the main microenvironmental factor because they enhance the existence of businesses.
Suppliers are an important factor for the running of a firm. P&G maintains a good relationship with its supplier for consistent supply of raw materials it uses for its production. Smooth supply ensures a stable production. Unhealthy relationships with the suppliers would contribute to losing business to the competitors. P& G hires employees with relevant skills and maintains staff training from the time of hiring to their retirement. It ensures that all their employees keep up with the changing trends in the market to maintain its competitiveness. It also engages in staff developments to motivate their employees. Increased motivation reflects better performances and customer services in the firm. P& G has earned several awards for its excellent employees’ relationship. It won Best Place to Work, The World’s Most Attractive Employers, Canada’s Top 100 Employers, and Greater Toronto’s Top Employers (Procter and Gamble, 2016). Good relations with the employees contributes to the attainment of set goals. Consumers yearn to be associated with top performing companies. Good performance reflects good services and products (Review Editor, 2006).
P& G good relations with its shareholders has led to increasing in market shares and profits (Procter & Gamble increases profits, 2014). Shareholders are the main decision makers in a firm. Good governance of the firm has attracted more investors to its firms. They formulate the strategies and guide financing of its operations. Unhealthy relationships with shareholders would lead to falling out of a firm from the business. It adheres to all the set objectives by the shareholders to attain maximum yield. Great performances are associated with leading in respective industries. It, therefore, is a good competitive firm’s strategy (Anon, 2016).
P& G has a strong public relations department which manages events and relates to the media. It has maintained a positive relation with the media who promote their products through advertisement. Negative media influence would ruin the reputation of a firm and its products. Advertisement increases the profits and the market of the firm. Awareness of its array of products intensifies its competitiveness as they attain new consumers (Reece, 2010). P& G has also sponsored some programs like The Brighter Day to increase its awareness to consumers. It has also produced and sponsored a prime- time show and joined the Olympic Sponsorship programme. The programme covers the Olympic Games till 2020. Its involvement with the society builds its reputation (Procter & Gamble improves results, 2002).
Globalization has helped P& G remain competitive with its rivals. It is currently easier to expand its markets to other fast-growing developing countries like India (Procter & Gamble exceeds expectations, 2016). Its adoption of a unique selling point enables the firm to compete with other companies. Its efforts of manufacturing household goods and consumer products made it become one of the top three competitors in 2011. It analyses its competitors who offer similar products and develop a strategy to improve the products for their customers. Innovation is an important tool for maintaining a healthy competition (Innovation: Putting Ideas into Action Procter & Gamble Case Study, 2006).
Conclusion
Macro and micro factors should all be incorporated during decisions making and strategic planning. They all play different roles in the operations of business. Considerations of one type of an environmental factor over another would cause failures in a firm. However, microenvironmental factors are the most influential factors in a firm. Good governance of a firm would place an organization in a top position irrespective of the macro factors. For example, some companies are not adversely affected during economic recessions, unlike most firms. Adequate involvement in the management of internal operations determines the performance of an organization. The internal operations of business would help the firm deal with changes in the external forces. Microenvironmental factors should, therefore, be flexible. Micro- environmental factors have the key elements to the excelling of a firm. However, during analysis of actions, most firms incorporate both macro and micro factor by using the SWOT analysis (Pahl and Richter, 2007). SWOT analysis dictates the changes in both the internal and the external factors. Strengths and weaknesses are used to analyze the internal operations of a firm while opportunities and threats analyze the external forces affecting the business (Mohammad Arabzad an, 2012)
. The results of both analyses influence the decisions of a business to achieve its objectives. Consumers, however, should be the main focus point of decision making. All consumer needs and preferences should be prioritized during production. Macro and microenvironmental factors should, therefore, be combined to attain a healthy business environment.
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