Analyzing Romania's macro and business environment
Part I – A theoretical view on PESTEL Analysis of the macro and business environment
1.1. Business environment – a general view
The business environment consists of all the factors in which any kind of business takes place and with which every business has to interact and find the forms and methods by which it can adapt. Given that these factors affect in fact the existence and success of the business itself and cannot be conditioned, in the sense that they are not under control, it is imperative to know these factors.
Every business aims to promote activities and actions designed to provide goods and services which, by selling, provide a profit from which to initially ensure survival and then development for the same purpose of maximizing profits. Such an objective is achieved on the one hand by identifying and satisfying the requirements of existing and potential clients, and on the other by adapting the whole activity to the concrete conditions and changing business environment. Thus, knowing the environment and the interdependencies between the environment and that particular business is a sine qua non condition that ensures functionality and, ultimately, success in a business.
Knowing the business environment, its physiognomy and its operating mechanisms allows both to identify the opportunities for opening and developing a business, as well as the risks and threats to which it may be exposed. Therefore, knowing the content and requirements of the business environment, the quantitative and qualitative changes that appear, and preferably anticipating their evolution, allow the adaptation of the business evolution to the existing conditions.
From the studied literature, there was no single unanimously accepted description of the components of the business environment. In fact, the dispute is about the ability of a particular business to influence that environment.
Thus, some theorists appreciate that the general business environment has three components: the internal environment, the micro environment and the macro environment (the external environment), while others support the existence of only two components, the internal environment and the external environment, considering that the micro environment or the operating environment is a component of the external environment (Figure 1.1). For the study to be even more complicated, there are researchers who consider the micro environment, being somehow under control, is a part of the internal environment.
Figure 1.1. Components of Business Environment
1.2. Internal business environment
From the perspective of dissertation theme, the external environment, especially the macro environment, represents the element of analysis, but for a better understanding we will make also short references to the internal environment.
The internal environment, seen as the enterprise's intrinsic environment, is represented by the participants in the closest business environment that primarily affects the ability of any business to serve its clients and is an essential element in defining the marketing strategy, the essential element that guarantees the existence and success of the business. The internal environment has a direct influence but can be supervised, is relatively controllable and susceptible to changes through concerted action, directed directly to those aspects of management or marketing that directly influence the development / success of the business.
Internal factors mainly refer to leadership, communication, organizational structure and learning. Leadership means the capacity of enterprise's leaders to have a deep understanding of the organization, the people involved, the real live in which it operates and, probably most importantly, self-insight. Communication seeks for robust communication practices, based on two-way communication up and down the hierarchical structure. From organizational structure point of view, long time, most organizations had highly hierarchical structures, with many layers of leadership and management defining the organization from top to bottom. More recently, there is a growing understanding that organizations with flat structures – few hierarchical layers from top to bottom – outperform organizations with hierarchical structures. Learning is one of the most fundamental human activities and accounts directly or indirectly for the success of any organization. As technological advances lead to faster rates of change, successful organizations need to find a way to respond that encourages innovation and builds into every employee's experience the opportunity to learn and explore.
1.3. The micro environment
The micro or operating environment of the organization consists of those elements which includes those factors with which business is closely related and, are controllable by the own management in general terms. The majority of theorist consider that micro environment consists of six major components: competitors, customers, suppliers, public, marketing intermediaries, and workers and their union (Fig. 1.2.).
Figure 1.2. Components of the micro environment of business
The competitive component consists of certain basic things which every firm has to take note of. No company, howsoever large it may be, enjoys monopoly. In the original business world a company encounters various forms of competition. The most common competition which a company's product now faces is from differentiated products of other companies. For example, Samsung, Apple, Huawei or Ovvo compete on the mobile phones market using two different operating systems – OS Android and iOS, respectively. The consumer wants to purchase a mobile phone, smartphone or iphone, with different applications, features and gadgets, smaller or larger, at a convenient price. This type of competition is called brand competition and it is found in all durable product markets. Philip Kotler is of the opinion that the best way for a company to grasp the full range of its competition is to take the viewpoint of a buyer. The idea is to find out what does a buyer thinks about that which eventually leads to purchasing something. So, tracing of the consumer mind set will help to retain the market share for all the firms.
Any business enterprise cannot live without customers. Peter. F. Drucker gives an interesting definition of business aim: “There is only one valid definition of business purpose, that is to create a customer.” The business enterprises aim to earn profit through serving the customer demand, therefore it thinks more in terms of profitable sale rather than more sales volume for its sake and we can say that products sales depend mainly on the degree of consumer satisfaction. In sucg circumstances the affirmation that the marketing of a firm begins and also ends with the customers is a very valid one and for this reason the customers constitute the most important element in the micro environment of business.
Suppliers play their role by availing the required material or labor according to enterprise's manufacturing programme. Suppliers, individuals or business houses, independent or combined should provide resources that are needed by the company and the success of a business depend at a great scale on how the company searches for potential suppliers, identifies and analyzes the suppliers' offers and thereafter choose those suppliers who offer best mix of quality, delivery reliability, credit, warranties and convenient cost (better but not necessarily the lowest one). The development in the supplier's environment has a substantial impact on the operations of the company. According to Michael Porter, “… the relationship between suppliers and the firm epitomizes a power equation between them. This equation is based on the industry conditions and the extent to which each of them is dependent on the other.”
From the micro environment of business public doesn't meant only people in general. According to Philip Kotler, “A public is any group that has an actual or potential interest in or impact on a company's ability to achieve its objectives”, what means that environmentalists, consumer protection groups, media persons and local people are also examples of publics. Creating goodwill among public, help to get a favorable response for a company. Kotler also underline that “Companies must put their primary energy into effectively managing their relationships with their customers, distributors and suppliers. Their overall success will be affected by how other publics in the society view their activity. Companies would be wise to spend time monitoring all their public understanding their needs and opinions and dealing with then constructively.” In the modern business public have assumed important role and their presence in the micro environment of business.
Market intermediaries are either individuals or business houses who come to the aid of the company in promoting, selling and distributing the goods to the ultimate consumers and are represented by middlemen (wholesalers, retailers and agents), distributing agencies, market service agencies and financial institutions all of them helping firms to reach the product to the consumer. It is up to company has to find the best way of analyze and to choose the most cost-effective method of intermediaries in order to increase the profit.
The labor, workers, are one of the pillars of the company, the “tool” to transform company's strategy, plans and programs in reality. The organized labors highly secured their position compare to unorganized workers, and workers prefer to join labor unions which resort to collective bargaining and thereby makes them less vulnerable to employer's exploitation. Trade Unions are a major component of a modern business, are organizations formed by workers to protect their interests, improve their working conditions and rely with employers. It is into company interest to have a strategy that maintain clear, fair and stable relationships between employers and workers in order to develop company and avoid conflict between labor and management that could lead to a sick unit.
If the internal environment is, at least theoretically, totally under control and the micro environment to a large extent, the macro business environment, as we will see below, is totally out of control. For this reason, when designing and implementing strategies to ensure the success of any organization, it is necessary to analyze all component of business environment and to link the results obtained. That is why the study of the company's internal and micro business environment should establish the resources at its disposal and if it is able to follow the chosen strategy, identify the type of organizational culture in the firm and the sources of power, those leading to success.
1.4. The Macro Business Environment
There are still many views on the concept of external environment in the literature particularly due to the complexity and multidimensionality of the environment in which an enterprise operates.
Ph. Kotler, in a general approach, considers that the macro environment is the totality of uncontrollable forces to which the enterprise has to adapt its policy and is made up of external participants and forces influencing the enterprise's ability to develop and maintain advantageous transactions. According to M. Marchesnay the external environment is made up of all the organizations, assets and factors whose existence is likely to influence the behavior and performance of the enterprise. C. Florescu states that the external environment appears to be made up of a network of exogenous variables, opposes its own human, material and financial resources, respectively, a set of endogenous variables.
The selected definitions, like others, highlight the fact that the external environment expresses all the heterogeneous conditions that exert direct or indirect influence on the way in which an enterprise operates, being the framework for its manifestation, a framework capable of capturing converging and divergent developments between its components that may favor or hinder the development of its actions.
The macro business environment is designated by large-scale societal forces that affect all participants in the enterprise's micro business. The macro business environment has the essential place to orientate the business in accordance with the needs of society, influencing the actions of an enterprise through several types of behaviors - buyer and trade behavior, behavior and position of competition and government. It exerts a wide range of influences on the enterprise through a complex of factors that, in fact, constitute its components, must be approached in close interdependence, even if they are of a very diverse nature: economic, demographic, technical, political, legal, psychosocial, cultural, educational, environmental, etc.
The elements of the macro business environment are uncontrollable, cannot be influenced, but can be known and, on this basis, to set up actions to adapt the enterprise to its configuration. Like said before, there are close interconditioning relationships between the two components of the environment, and it is therefore absolutely necessary to understand the environment in which it operates. This understanding offers to a company the possibility not only to keep its place on the market, but also to detect and conquer other markets and even to create new markets, even to bring some changes in the structure of the environment. This requires strict and continuous surveillance of the exogenous and endogenous factors of the company's environment, as changes in their structure and evolution can have a profound impact on the enterprise's business.
Although in the specialized works the approach of the macro business environment components is quite nuanced, there is a consensus to consider that the most important exogenous factors influencing the activity of an enterprise are those that make up the economic, socio-cultural, political, demographic, technical/technological, nature (natural environment) and legal environment.
In the following sequences we will try analyze what are the main factors and how they influence the macro business environment.
1. The economic factor is the essential element at both national and international level with a significant impact on an enterprise as it decisively influences its operation and development. It establishes the concrete framework in which the enterprise operates, being defined both by the relationships that occur in society in the production, distribution, the exchange and consumption of material goods and services, and by structuring them on branches, sub-branches and fields of activity. It reflects the level of development both as a whole and at the level of the component links and is reflected in the internal market, the external market and the economic and financial levers.
The survival and success of every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are: economic system (capitalist economy with emphasis on market forces, socialist economy with emphasis on central planning and mixed economy); economic conditions (a set of economic factors within a nation that have great influence on business organizations and their operations); economic policies (all policies framed by the government from time to time as industrial policy, fiscal policy, monetary policy, foreign investment policy and export –import policy).
2. The socio-cultural factors include customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during a festive season there is an increase in the demand for new clothes, flower, etc. Also, demands depend on the attractiveness of the product and their acceptance by the majority of the society.
Social factors are strongly related to the cultural and educational ones. Educational factors, and especially education, directly contribute to enhancing the level of culture and changing the mentality of the members of society, which is reflected in the company's relations with the market, imposing a diversification of market policy. Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products.
3. Political factors primordially refer to the political system. The political system prevailing in a country can promotes or discourages the business activities. A political system which is stable, honest, efficient and dynamic and which ensures political participation of the people, and assures personal security to the citizens, is primary factor for growth of any business.
The internal and international political climate always affects the activity of an enterprise because it has both direct and indirect implications, manifested through state organization and government, the economic policy it promotes, especially through the degree of state involvement in the economy (in the form of subsidies, protectionist measures, antitrust policies, etc.), belonging to economic and political groups and communities, generally by the concept of integration into the world economic and political life being promoted. All of these elements can stimulate or inhibit the enterprise's internal and international business.
4. Demographic factors mainly refer to the size and density of population, both having a direct bearing on the demand for various goods and services. Therefore, the demographic situation, especially in terms of level, dynamics, population structure, territorial distribution and by urban/rural environment, has multiple effects both on the short and long term on the activity of an enterprise, which implies continuous study and demographic forecasts. By analyzing patterns of population structure, one can predict consumer behavior on each type of market, when the large number of needs and desires of individuals are expressed in demographic features such as age, gender, civil status, race, occupation. Thus, the main trends in the evolution of the population that underlie the forecasts and activity plans of the producers of goods and services can be revealed.
5. Technical/technological factors are probably one of the most dynamic elements in the external environment. New technologies are continually being developed and these provide opportunities to some organizations and threats to others. All organizations therefore need to follow and ideally anticipate changes or developments in new technology to ensure that they continue to meet their customers' needs and create or maintain competitive advantage.
The increased dynamics of technology and technology leads to a new correlation with social values and ideals, as the new type of technology shapes attitudes, promotes another style of work and life, generally another behavior, proving once more the close interdependence of al factors that characterize the macro environment.
6. The natural environment has become a component of the macro environment that can no longer be ignored at the present stage, since it is widely accepted that environmental issues are restricting the development of an enterprise not only by reducing the resources made available, especially the non-renewable and depleting resources, but also through acceptable pollution levels. Therefore, any enterprise is obliged to use only clean technologies and to organize its entire activity so as to protect the environment, but also to combat its degradation. During last years nature became slowly a focus point of human activities and its protection is already a very important target to both, politicians and businessmen, particularly within European Union.
7. Legal factors refer to a set of laws, regulations, which influence the business organizations and their operations. Every business organization has to obey, and work within the framework of the law. Legal factors represent means of control established to protect the interests of society. The institutional-legislative system establishes the framework within which the enterprise can carry out its activity by ensuring the use of resources, profitable completion on the market, protecting the interests of the national economy, and preventing the orientation in unfavorable directions.
Legal environment should establish clear regulation to protect both producers and consumers, concurrency, as well as the nature, resources and fundamental interests of a nation.
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