MT 140: introduction to management
Prof: William Whitle
Unit 2: Macro environment
Name: KAlsayed
Date: 09-08-2012

THE MACROENVIRONMENT The general environment; includes governments, economic conditions, and other fundamental factors that generally affect all organizations (Brady, 2009).
The changes in the macro-environment are not affecting firm’s day-to-day operations, but they are important for the continuous of the business and for being healthy. The main factors making up these macro-environmental forces fall into the below groups.
1. Political and legal factors:
Whatever industry the firm is involved in, changes in the political and legal environments at both the domestic and international levels can affect the company and therefore needs to be fully understood
2. Economic factors:
Economic factors are of highly importance for any firm because they are likely to influence the demands, costs, prices and profits. These economic factors are out of control of the individual firm but it highly affects and directly affects any firm.
3. Social and cultural factors:
Societal trends regarding how people think and behave have major implications for management of the labor force, corporate social actions, and strategic decisions about products and markets (Brady, 2009).
4. Technological factors:
Technology is a major macro-environmental variable which has influenced the development of many of the products we take for granted today. Marketing firms themselves play a part in technological progress. New technologies also provide new production techniques.
5. Demographical factors:
Demographics: Measures of various characteristics of the people who make up groups or other social units (Brady, 2009). Managers must consider workforce demographics in formulating their human resources strategies. Population growth influences the size and composition of the labor force.

COMPETITIVE ENVIRONMENT which is composed of the firm and its rivals, suppliers, customers (buyers), new entrants, and substitute or complementary products (Brady, 2009). The competitive environment is the part of a company's external environment known as the market structure, in which business competes and trying to win customers in the same market. The management must be aware to the possible risk of similar and substitute products whether they are domestic or foreign origin.
Determining the Strength of the Five Forces: (Michael, 1980).
1. customers: consumers are more powerful if:
Product differentiation is low---the competitors offer very similar products. Switching costs are low---the cost of changing from one competitor’s product to another is low. Customer loyalty is low---customers have little loyalty to a particular brand.
2. suppliers: Suppliers are more powerful when:
What they sell greatly affects the competitor’s product quality. A large percentage of a competitor’s purchases come from one supplier.
Switching costs for the competitor are high---it is costly to switch suppliers. There are few suppliers in the industry.
3. New entrants: If barriers to entry are strong, threat of entry is low.
These barriers include:
Capital requirements are high---it costs a great deal of money to get established in the industry. Examples: the pharmaceutical industry, the auto Industry. Product differentiation is high---products or services have unique features that have created high brand loyalty among customers. Getting customers to switch to a new competitor’s product is difficult and costly.
Economies of scale---the more products a firm makes and sells, the cheaper it is to make and sell each one on a per unit basis. This advantage applies more to the making of products than services.
Access to distribution channels is low—it is very difficult for a new competitor to get its products on the shelves. Another type of limited distribution access concerns location when current competitors enjoy close-to-customer locations that are scarce and costly for a new competitor to obtain.
Cost disadvantages are high---current competitors have major cost advantages such as access to limited raw materials.
Potential for retaliation is high---current competitors are known to react viciously to eliminate new competitors (such as cut-throat price wars).
Government regulations are restrictive---regulations can keep new competitors out of the industry.
4. substitute or complementary
A substitute is powerful if, compared to the industry’s product:
Its quality is the same or better.
Its cost is the same or lower.
Customers’ switching costs are low.
Competition is intense when: Industry growth rate is low. With a low growth rate, the only way a competitor can grow is to take sales away from other competitors.
Product differentiation is low. Consumer switching costs and brand loyalty are low.
Several competitors have great financial resources---these types of companies can withstand costly price wars and are thus more likely to wage them.
Exit barriers are high—it is financially and/or psychologically difficult for a competitor to leave the industry. References:
D. Brady, “Wanted: Eclectic Visionary with a Sense of Humor,” BusinessWeek, August 28, 2000, p. 144. © 2009 Time Inc. All rights reserved. Porter, Michael E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. NY: The Free Press.