How does micro and macro environment influence the business firm?

 MICRO AND MACRO ENVIRONMENT

A business firm's environment can be characterized as the different external actors and forces that surround the company and have an impact on its operations and decisions. According to this definition, the environment has two main features: first, these actors and forces are external to the company, and second, they are basically uncontrollable. Little can be done by the company to alter them. Instead, it must learn to coexist with them.

Micro Environment: The actors in the firm's immediate surroundings that have a direct impact on its operations and decisions are referred to as the micro environment. Among them are suppliers, a range of market intermediaries, and service providers like middlemen, transporters,

warehouses, marketing and advertising research companies, business advisory firms, and financial institutions; rivals, clients, and members of the public. Although the firm's market is made up of its customers, suppliers and market intermediaries aid in the firm's production and marketing processes by supplying inputs. A firm's business practices are also influenced by its competitors and the general public.

Macro Environment: On the other hand, the macro environment is made up of larger forces that have an impact on both the firm and other players in its micro environment. Geographical, economic, financial, sociocultural, political, legal, technological, and ecological factors are among them.

forces. Businesses must constantly assess how these environmental factors are changing and create plans to deal with them.

Domestic, Foreign and Global Environment 

Separating the different elements that make up the international business environment into three major categories—domestic, foreign, and global environments—is another method of comprehending them. The basis for this classification is the place where environmental actors and forces exist and function.

Look at Figure where a schematic presentation of these three levels of environment along with their components has been shown:

The innermost circle in the figure stands for the company's business plan and choices about its marketing, finance, production, human resources, and research initiatives. These tactics and choices are referred to as controllables since the firm makes them. Firm has the ability to alter them but "under the limitations of different environmental factors." 

The next circle denotes the domestic environment, which includes elements that a firm cannot really control, such as the economic climate, competitive structure, and political and legal forces. Along with having a significant impact on the company's domestic operations, these factors have an impact on how the company operates in international markets. For example, a lack of domestic demand or fierce competition in the home market have led many Indian businesses to expand internationally. Other driving forces behind businesses' internationalization of operations have been the nation's export promotion policies and incentives. Businesses are typically aware of these factors and can respond to them quickly because they operate at the national level. 

The third circle symbolizes the foreign environment, which includes elements such as sociocultural characteristics, political and legal forces, technological and ecological aspects common in a foreign nation, and geographic and economic conditions. Businesses are typically unaware of these facts and their impact on business operations due to their operations in foreign markets. The only way for the company to ignore them is to lose business in overseas markets. The more international markets there are, the more complex the issue becomes where a business operates. There are differences between the environments that are prevalent in various foreign markets as well as between the domestic and foreign environments. Business strategies that work well in one country may not work well in another due to environmental differences. Therefore, operating in foreign markets necessitates a greater awareness of environmental variations and the modification of business plans to accommodate the various market conditions.

The global environment is represented by circle four, which is the highest circle. The effects of the global environment are not limited to a single nation and transcend national boundaries. Both domestic and foreign nations are impacted by the global environment as well as elements such as global economic conditions, the international financial system, international treaties and agreements, and regional economic blocs. global economic expansion; global financial stability or liquidity; the operations of international organizations like the United Nations Conference on Trade and Development (UNCTAD), the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO); the Agreement on Textiles and Clothing (ATC); the Generalized System of Preferences (GSP); international commodity agreements; and regional initiatives like the European Union (EU), North American Free Trade Association(NAFTA), and Association.