Macro Environment Toyota

how the macro environment impacts upon industries

1. Introduction

To answer this question, I will use Toyota as an example of an automotible industry within South Africa. An industry can be defined as a group of companies that satisfies a specific customer need.

2. Economic forces

Since economic forces can change the health of the economy, they also have a direct impact on the broader industrial competitive environment. The four most important of these forces are:

• the growth rate of the economy

• interest rates

• currency exchange rates

• inflation.

The growth rate of the economy leads to increased expenditure and, by increasing demand, reduces competitive pressures in industry.

• Lower interest rates determine a company’s cost of capital, and thereby its fixed cost structure, stimulating investment, but also lowering barriers to entry by potential competitors.

• Currency exchange rates directly impact on a company’s competitive position in the global marketplace, making its products more or less competitive in foreign markets, depending on the rate of exchange.

• Price inflation, in turn, will produce slower economic growth, higher interest rates and volatile currency movements. Planning under such conditions becomes hazardous.

• Price deflation on the other hand, increases the price of fixed payments.

• Companies with a high level of debt have to service this debt with a steady fixed amount, which will become more expensive under these conditions.

3. Technological forces

Technological forces can be seen as being both a threat as well as creating opportunities. New products become obsolete overnight by being replaced by a host of new and innovative products. This rate of change has been accelerating steadily since the early 1950s. Its most important effect is to reduce barriers to entry and therefore radically reshape industry structure by reducing switching costs, increasing rivalry and thereby reducing prices and profits.

4. Demographic forces

The demographic structure of a market, namely the age, gender, ethnic origin, race and social structure, creates threats as well as opportunities with major implications for a company. Most industrialised nations are experiencing an ageing of the population as a result of falling birth rates, and better health of the elderly, which in turn creates new markets for an older population. Similarly, the other demographic factors, in turn, offer opportunities and pose threats to established companies in industry.

5. Social forces

Like the other macroeconomic forces discussed above, social forces can pose threats, as well as create opportunities. The trend towards greater health consciousness, for instance, has created a host of new industries, designed to improve the health of individuals, as well as impacting negatively on industries whose products had an adverse effect on health.

6. Political and legal forces

Managers and companies are significantly affected by political and legal forces arising from the changes in laws and regulations. Significant opportunities and threats again emerge as a result of such changes. The interplay between political and legal forces on the one hand, and business on the other, is a two way process, both interacting in a way that finally affects the competitive landscape. Industry can lobby government through industry associations. Industry can therefore influence the regulations that government promulgates by means of laws.

7. Global and national environments

Two important factors that impact on the competitive structure of an industry from the global and national environments are the globalisation of production and markets, and the national competitive advantage.

8. The globalisation of production and markets

The globalisation of markets has shifted the world’s economic system from one in which national