Macro Economy Elements

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1.0 MACRO ENVIRONMENT ELEMENTS

There are many factors in the macro-environment that will effect the decisions of the managers of any organization. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change.

1.1 Political and Legislation Factors

The political-legal dimension of the general environment also affects business activity. The philosophy of the political parties in power influences business practices. The legal environment serves to define what organizations can and cannot do at a particular point in time. Figures 1.1 shows the political and legislative segment of macro environment.

Figures 1.1: The political and legislative segment of macro environment

There are many political and legislative differences between one country and another. The global issues entrepreneurs should be aware of are trade barriers, tariff and political risks, as well as bilateral and multilateral relationships. All these issues are interrelated.

a)Trade Barriers and Tariffs
Trade barriers and tariff are imposed on goods and services that are traded internationally. They hinder the free flow of resources from other countries as a protection for the home country’s industries. Examples include trade barriers that are imposed on the automobile industry in Malaysia.

b)Political Risks
This refers to the potential for instability, corruption and violence in a country or region where business takes place. In regions where political risks are high, it is difficult and costly for entrepreneurs to buy, protect and dispose of resources. Other risks include political and physical violence, extortion and corruption which involve bribes and other forms of unethical payments. These will add to the new ventures.

c)Trade Agreement
There is a trend of increasing trade agreement between countries, for example, the ASEAN Free Trade Agreement (AFTA) that Malaysian entrepreneurs should consider when making decisions regarding trading internationally. The goal of this agreement is to increase economic productivity within geographical region covered. The national issues entrepreneurs must be aware

d)Taxation
This is the major political factor that entrepreneurs face at the national level. The impact of taxation on business operations are as follows: •Reduces the cash available for business ventures to invest. •Some taxes are favorable to only certain business and disadvantageous to others.

e)Regulation
An example of regulation is the regulation on the usage of drugs. However, sometimes the effect of regulations on business is negative. They sometimes add to the cost on business in terms of paperwork, testing, monitoring and compliancy.

Therefore, entrepreneurs should evaluate the political environment thoroughly in order to identify whether threats or opportunities exist. Generally, political stability of a country where the business operates provides opportunities for entrepreneurs to start up new ventures or expand their business.

1.2 Economic Factors

Economic factors refer to the character and direction of the economic system within which the firm operates. Economic factors include the balance of payments, the state of the business cycle, the distribution of income within the population, and governmental monetary and fiscal policies. The impact of economic factors may also differ between industries. These include interest rates, taxation changes, economic growth, inflation and exchange rates. As you will see throughout the "Foundations of Economics" book economic change can have a major impact on a firm's behaviour. For example: •higher interest rates may deter investment because it costs more to borrow •a strong currency may make exporting more difficult because it may raise the price in terms of foreign currency •inflation may provoke higher wage demands from employees and raise costs •higher national income growth may boost demand for a...
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