Macroenvironmental Analysis

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Macroenvironmental Analysis

Industry boundaries have been permeable and industries fundamentally transformed because industry structure is not created in a vacuum. The five forces that define industry attractiveness are unstable. They continually evolve. The dynamism arises from forces in the macroenvironment that drive continuous change, create inflections, and alter industryattractiveness. Government, for instance, has a profound impact on industry structure as the pharmaceutical and airline industries show. The global economy too has a huge impact; the recent economic meltdown has removed advantages that the financial services sector once had. Large investment banks no longer exist. The macro factors to which managers must pay special attention include not only government andthe economy but also technology, social structure and demography, and energy and the natural environment (see Exhibit 2.6).
Components of the External Environment
The external elements examined below affect an industry’s future: (1) government, (2) national and international economies, (3) technology, (4) social structure and demography, and (5) energy and the natural environment (see Exhibit2.6). Each has an important impact on Porter’s five forces. The five forces are dynamic. Disruptive change in industry conditions is the norm.
Government
Government imposes constraints on businesses and generates opportunities. Trends in government budgets and taxes, trade and antitrust legislation, privatization and deregulation, defense spending, and national security affect companies. Also,issues that capture the attention of governments influence business. These include the menace of global terrorism, the relationships between prosperous and poor nations, and the move toward market economies in countries such as Russia and China.

* Industry environment—at core of macroenvironment
* Macroenvironment impacts through industry environment
EXHIBIT 2.6
From Industry Analysisto Analysis of the Macro- environment
Government Growth Governments throughout the world have grown, and they have done so for many reasons. The size and scope of governments in different parts of the world vary tremendously. The United States trails most nations in total taxes as a percentage of gross national product (GNP), and the relative size of the U.S. government actually is smaller thanthat of any developed country except Japan.7 However, the size of the U.S. government in proportion to GNP was changing as a result of the economic crisis of 2008. Just as the size and scope of the U.S. government expanded during the Great Depression, more than doubling in terms of proportion of GNP and employment between 1929 and World War II, so again the role of government in the U.S. economywas rapidly expanding. The vast stimulus proposed and passed by the Obama administration in 2009 and the ongoing bailout of the banks were profoundly affecting business- government relations.
Many theories have been offered to explain government size and scope. Some theorists have focused on the expansion of public revenues through taxation. A progressive income tax, coupled with inflation andunindexed tax brackets, moves taxpayers into higher marginal brackets and thus leads to increased public revenues and real increases in public expenditures. Other theorists explain the growth of government in terms of the needs that arise from economic development and industrialization. In undeveloped nations, taxes and social security generally account for a lower percentage of GNP than they do indeveloped countries.
In developed societies, people are more interdependent. As a consequence, government plays a larger role in maintaining public order, administering justice, and regulating business and other activities. Government must account for the unintended harm of private economic activities. It also has to alleviate the burden on the victims and help those who are unable to care for...