The macro environment

Question 1

The business environment

Answer 1

It is critical for effective strategic planning (rational approach) and strategic
management (resource-based approach) that a business understands and ‘best fits’
the environment in which it is operating.

Question 2

The environments

Answer 2

The macro environment consists of external factors that affect the overall
environment that the business operates in.

The industry environment consists of external factors affecting the
competitiveness of the industry that the business operates in.

The internal environment (internal capabilities) consists of the organisation’s
own internal resources and capabilities.

Question 3

Environmental analysis

Answer 3

PESTEL

Analysis can be used to analyse the macro environment as
part of strategic planning to identify potential opportunities and threats
facing the industry

Question 4

PESTEL analysis

Answer 4

Political
 Taxation policy
 Government spending
 Foreign trade regulations

Economic
 Economic growth
 Exchange/interest rates
 Inflation

Social and
demographic
 Attitudes, tastes and fashions
 Population demographics
 Income distribution

Technological
 New products
 Improved production methods
 Rate of obsolescence

Ecological
(environmental)
 Sustainability
 Pollution and climate change
 Natural capital impact
 ‘Green finance’ issues

Legal
 Industry regulation
 Competition legislation
 Employment law

Question 5

Porter’s diamond

Answer 5

Porter’s diamond can be used to explain why some nations have a
competitive advantage in certain industries.

Question 6

Porter’s diamond

Answer 6

Porter identified 4 key determinants of national competitive advantage. These four
factors make up the diamond.

Demand conditions

Factor conditions

Strategy, structure and rivalry

Related and supporting industry

Question 7

Porter’s diamond: Factor conditions – supply side

Answer 7

 The availability of the factors of production (the resources needed to operate).
 These include human resources, physical resources, knowledge, capital and
infrastructure.
 e.g. French wine industry benefits from being able to grow good quality grapes

Question 8

Porter’s diamond: Demand conditions

Answer 8

 Demanding local consumers force firms to become more innovative.
 Trend setting local consumers help local producers to anticipate future global
trends.
 e.g. German drivers demanded powerful cars from German car manufacturers

Question 9

Porter’s diamond: Related and supporting industries

Answer 9

Proximity of related and supporting industries leads to:
 Easy access to components, with reduced lead times and carriage costs.
 Encourages knowledge sharing which increases innovation.
 e.g. The finance sector in the UK is aided by large accountancy and legal firms

Question 10

Porter’s diamond: Strategy, structure and rivalry

Answer 10

Two key possible advantages:

Strong domestic rivalry forces local firms to become more efficient to survive.

The strategies or structures that have become prevalent in a particular nation
may give advantages in particular industries.
e.g. flat, decentralised organisation structures are popular in Japan and are
believed to encourage innovation