nmbng mb b

1. LESSON 5: UNDERSTANDING THE MACRO ENVIRONMENT
LEARNING OBJECTIVES:
At the end of the lesson, students must be able to:
 Define the macro environment
 Discuss the types of environment
 Explain how the different types of environment impact the hospitality and
tourism industry
INTRODUCTION:
The firm is located in an environment that influences its customers and
stakeholders. The immediate environment that affects the firm is the micro
environment in which it operates. Beyond this environment lies the macro
environment, which influences the firm from sociocultural, economic,
technological, political (including legal), and ecological perspectives. It should be
noted that there are no clear demarcations between environment categories, but
the boundaries are imaginary for the purpose of conceptualization and
comprehension.
These categories form the five major subcategories of the macro
environments: (Figure 3.1).

2. A PESTEL analysis or PESTLE analysis
(formerly known as PEST analysis) is a
framework or tool used to analyze and monitor
the macro-environmental factors that may have
a profound impact on an organization’s
performance.
This tool is especially useful when starting a
new business or entering a foreign market. It is
often used in collaboration with other analytical
business tools such as the SWOT analysis and
Porter’s Five Forces to give a clear understanding of a situation and related
internal and external factors.
A. The Political/Legal Environment
 The political and regulatory factors have been instrumental in defining
how firms can maneuver, succeed, and expand in local and international
markets.
 Transparent legal and political systems, especially in the West, have
enabled firms to use franchising as a mode of development in the
international context.
 Firms are impacted by regulations related to human resources
management, ecology, technology, copyright- and patent-related issues,
and market-related factors and issues, including handling customer-
related issues. The regulations related to how tourism businesses are
formed and how they need to be operated from human resources and
ecological viewpoints are important to consider from local and global
perspectives.
 From the employees relations perspective, due consideration should be
given to legal issues related to human resources from different ethnic

3. backgrounds as well as gender-related issues. Changes in rules,
regulations, and laws in the business environment that impact the firm
must be tracked.
B. The Economic Environment
 The economic environment relates to the forces that emanate from the
economy, which includes variables such as the GDP growth rate, interest
rates, mortgage rates, stock market performance, foreign direct
investment, consumer confidence, and inflation rates.
 These variables depict the state of the economy and the prospects of
business in that economy. Firms would need to track changes in the
economy so they will be aware of the impact of these changes in terms of
cause and effect.
 The business cycles need to be considered in the analysis in terms of
economic cycles as well as industry related impacts of these cycles. An
upturn in the economy would have an impact on businesses in terms of
opportunities for enhancing their profitability, which would in turn have
an effect on the tourism industry in terms of business and leisure travel.
 For instance, the greater the business opportunities, the greater the
number of managers who would be willing to travel for business to tap
those opportunities. In fact, the more the business succeeds, the more
their managers would earn bonuses, which in turn would also impact the
propensity to consume products and services for leisure.

4. C. The Sociocultural Environment
 The sociocultural environment pertains to the geographic, demographic,
and psychographic description of markets and the emerging trends in
them.
 The geographic locations of markets in particular zip codes, counties,
states, regions, and national contexts have an influence on the business.
 For instance, the sociocultural factors that influence businesses in New
England would be considerably different from those in California. There
could also be significant differences between regions in the same state,
such as Los Angeles, California, and San Francisco, California. These
differences are based on demographic and psychographic factors that are
influenced by generational differences.
 Needless to say, sociocultural differences across national contexts—for
example, the United States and the United Kingdom, the United States
and Turkey, or the United States and China—could be significant.
Therefore, in the context of the business, it is essential that the factors
related to the sociocultural environment be tracked to comprehend the
cause-and-effect relationship.
D. The Technological Environment

5.  Whereas the economic and sociocultural environments have a significant
impact on the firm, it is equally important to consider the impact of the
technological environment that has had a major influence on businesses
over the past two decades.
 Technology has played a major role in the way products and services are
consumed, how they are produced, and even how they are marketed and
distributed.
 Significant changes have taken place in the post–World War II era in terms
of the role of technology in science, engineering, and business. In the past
two decades, the advent of computer technology has revolutionized how
markets and businesses connect with one another and how linkages
among business units are established across national contexts. The thrust
to globalization of businesses during the past three decades has been
propelled by technological advancements in the eighties and nineties,
which is continuing at a rapid pace today.
E. The Ecological Environment
 The ecological environment has had a major impact on businesses in
recent years, with more and more firms becoming socially responsible in
how they deal with increasing threats related to the environment.
 These threats have emanated because of degradation of the environment
and depleting natural resources, including global warming. Key
variables/issues include demand for and supply of “green” products,
global warming and greenhouse gas emissions, disposal of waste, recycling
paper and landfills, deforestation and climatic changes, and protecting the
natural environment.

6. General Environment-Key Variables/Issues to Track and Analyze
A. Political
- Regional policies
- Change in government
- Terrorism
- Wars
- New regulations impacting businesses, including minimum wage,
manufacturing and consumption of indigenous products, and so on.
- Labor and hiring workforce locally versus form abroad
- Policies related to the ecology including global warming, greenhouse gas
emissions, and so on
- Policies related to corporate and personal taxation
B. Economic
- Interest rates
- Inflation rates
- GDP growth rate
- Cost of input factors
- Consumer price index
- Consumer confidence
- Price of oil and commodities
- Stock markets
- Mortgage rates
- Balance of trade/exports and imports
- Exchange rates and purchasing power parity
- Corporate, personal, and capital gains taxes
- Availability of credit
- Unemployment rates
C. Sociocultural
 Demographic changes
- Birth and death rates
- Immigration
- Emigration
- Age related changes
- Gender related changes
- Education related developments
 Psychographic changes
- Life style of the baby-boomer generation

7. - Life styles of generations X and Y
 Cultural changes
- Multiculturalism
 Other factors
- Spread of disease
- Work-life balance
- Terrorism
- Religion
- Nationalism
D. Technological
- New technology-related hardware
- New technology related software
- New technology application
- Development of new products
- Investments in technology related R&D
- Safety and security related technological developments
E. Ecological
- Demand for “green products”
- Supply of “green products”
- Global warming and greenhouse gas emissions
- Disposal of waste
- Recycling paper and landfills
- Deforestation and climatic changes
- Protecting the natural environment
Having holistic understanding of the general environment and the associated
issues that accrues from these environments will enable you comprehend the
day to day challenges the hospitality and tourism firms are constantly faced with.
This environmental awareness has helped the hospitality and tourism firms to
realign their strategies in order to be adequately prepared for external challenges.
REFERENCES:
BOOK SOURCE: Strategic Management for Hospitality and Tourism; Fevzi
Okumus, Levent Altinay and Prakash Chathoth