The cost of living crisis in the UK has been a reminder of the influence that the macro-environment can have on the business economy. At the start of 2022, 5.5 million businesses were operating in the UK’s private sector.

By October 2022, the annual inflation rate had reached 11.1% and rose to 10.4% in February 2023. This crisis continues to have a significant impact on consumer spending and business operations, and here’s why.

The Macro-Environment

All businesses must conduct an external environment analysis when starting or about to launch a new product or service. The external environment affects marketing decisions and firm performance because companies can’t directly or indirectly control what happens in this environment. The marketing environment consists of the macro-environment, dealing with economic, political, socio-cultural, legal, and technical factors. In the UK, economic inflation impacted consumer buying behaviour, impacting everyday business operations. Similarly, companies in countries like the United States are impacted by the strength of the DXY. The DXY is an index that tracks the US dollar’s value against other currencies. This strength can affect everything from inflation to trade deficit.

It’s also important to consider whether a business operates in a centrally planned economy. The government primarily controls a centrally planned economy, whereas market economies have minimal government intervention. Political and legal factors also impact businesses. Instability, risk, corruption, or poor leadership can also impact the success of a business or industry.

What Can Businesses Do?

Carefully watching the external environment is one of the best ways a company can avoid being blindsided. One way to manage this environment is to conduct frequent PESTLE analyses. A PESTLE study looks at the political environment, the economic environment, the technological environment, the legal environment, and the socio-cultural environment. This tool will help companies understand what is happening worldwide and how it will affect sales or positioning.

What Else Can They Do?

Of course, the macro-environment isn’t the only thing businesses should consider. They also have to look inward at the microenvironment to determine future business objectives and whether there are trends and risks they need to accommodate or avoid. The microenvironment consists of the industry a business operates in, customers, competitors, and the company itself.

The industry lifecycle and Porter’s Five Forces are two helpful tools for understanding how an industry is doing. The industry lifecycle looks at the different stages of an industry — emerging, growing, mature, and declining — and tells businesses how they can compete at each stage. Porter’s Five Forces explore the attractiveness of an industry by looking at the threat of new entrants and the bargaining power of suppliers.

The global business economy is constantly changing because of the external environment. This environment cannot be controlled, but it can be monitored using tools like a PESTLE analysis. However, it’s important to remember that businesses must also consider what’s happening in the microenvironment. That includes watching competitors to see how they’re doing and how companies can compete at different stages of the industry lifecycle.