Impact of Macro Environment on Business Performance

The assignment discusses the significant attributes of the business environment, including political, economic, social, technological, environmental, and legal factors. It analyzes how these factors affect business performance, using case studies from various industries. The report also touches on the impact of Brexit on the UK economy, highlighting the decline in GDP and its effects on businesses.

Business Environment

TABLE OF CONTENTS
INTRODUCTION:.........................................................................................................................1
TASK 1............................................................................................................................................1
PESTEL analysis of Volkswagen...............................................................................................1
TASK 2............................................................................................................................................4
Market forces affecting demand and supply...............................................................................4
TASK 3............................................................................................................................................9
Role of stack holders in Volkswagen..........................................................................................9
TASK 4..........................................................................................................................................11
A) Pros and cons of UK leaving EU.........................................................................................11
B) Business response to local and global environmental
challenges and the impact it will have on future business
development.
...................................................................................................................................................12
CONCLUSION:.............................................................................................................................13
REFERENCES:.............................................................................................................................14

INTRODUCTION:
Business environment is the key to success for any organisation. By understanding the
surrounding environment the business can survive for long run. It is important for every business
to have a deep knowledge of the environment as it helps in development of business. The various
factors are persons, place, things and natural resources. All these factors and forces are combined
together called business environment. It consists of micro and macro forces in which business
functions are performed. Macro forces are external environment which can not be controlled and
affects the performance of business. In this assignment the external factors which affects the
business are elaborated. How the price changes due to change in product demand and supply
and the law has been shown. Further how business contributes towards the society and what role
does stack-holder plays in the organisation for decision making has been shown. At last the pros
and cons of UK leaving EU and what impact will this have on business in long run in UK has
been described.
For undertaking this present organisation selected is Volkswagen. The cited firm belongs
to auto-mobile sector and operates globally. The existence of the company on such a great level
requires understanding business environment. Thus, this report will help in developing a relevant
one for the cited establishment
TASK 1
PESTEL analysis of Volkswagen
Every business is affected by the external business environment in which they operate. It is due
to the various factors which influence the business decisions that are to be taken. It is a concept
which defines the marketing principles. PESTEL is a mnemonic which denotes P for political, E
for economical, S for social, T for technological, E for environmental and L for legal. The
business like Volkswagen will analyse these factors while taking decisions. The explanation of
these factors are given below:
Political factors- It means the political framework within which the business is affected by
government decisions. The government may take various decisions like a new tax law by which
the entire organisational operations will affect. These factors influence the business to a great

extent. The various political factors include fiscal policy, import export tariffs, etc. the
Volkswagen operates globally so it has to depend on the government for making their strategies.
The different political pressure of different countries affects the strategies of Volkswagen. Auto
mobile sector is closely related to government as it contributes in GDP of the country. The
Asian and European market are very different in many ways. The financial sector is also related
to the auto mobile sector as it provides loans to people (Prajogo, , 2016)
Economical factors- national income of the nation determines the economic factors. It includes
elements like GDP, inflation rate, etc. it also involves in defining the economic growth and
foreign exchange rates of the country. These actors directly affects the long term strategies that
has been made in regards for doing business. The auto mobile industry helps in development of
other industries like steel, glass, etc. which contributes in GDP as well as providing employment
to the people. The advantage can be taken by grabbing the opportunities in developing
economies On other side of this factor is uncertainty in economic conditions which arises due
to fall in currency rates or increase in the price of fuel. Volkswagen usually focuses on lower
segment cars in developing nations so that they can establish a market position in the country.
Social factors- These factors include the elements of society in which business operates. The
elements are needs and culture of the people. It also defines the lifestyle and standards which are
been maintained in the society. The social environment plays a big role in development of every
industry. Through employment in these industries the needs and wants are fulfilled which
enhances in level of society and changes the living standards of people.
Technological factors- It refers to the innovation in the technology. These innovations helps in
creating the demands of the new product and allows in less accidental hazards. awareness of new
technology in the market helps business to adopt it in their industry for their growth and
development. With the help of new technology changes in market arises which leads to
reduction in costs and increasing the profits. The Volkswagen invest a huge in development of
the cars as they have to maintain their standards (Welford, , 2013) The cars are the most complex
product to produce because it consists a lot of components and parts. So a minute defect in any
part or component can lead to loss of life of customer. The variety in cars that they produce
differs according to the segments. Due to this the use of advanced technology is more in luxury

segment as compared to the normal segment. Volkswagen has to compete with their rivals like
BMW and Mercedes to maintain competition.
Environmental factors- environment consists of the external elements in which business in
working. It is determined by the surrounding environment. These are not limited to the climate,
weather, etc but also the health of the people. The cars uses the petrol or diesel which leads
increase in pollution level of that nation. So the government imposes various actions on auto
mobile industries to produce fuel efficient cars. Moreover, the raw materials used in
manufacturing cars such as steel, glass, etc also harms the climate of that region. business has to
protect the natural environment of the society by reducing wastage otherwise it will be very
difficult for them to survive. Volkswagen is now producing electric cars by investing in research
and development (Cai, and Yang, 2014)
Legal factors- It includes both the internal and external factors within the industry. These laws
are made by the government so it differs according to ruling parties in that country. It consists of
consumers, safety laws, etc. these laws are set according to the standards which determines the
way a business responds to people. Volkswagen is operating in around 153 countries so for each
country they have their own laws. Volkswagen has to follow these in order to survive. The
various laws like labour, competition law, etc has to deal with so that it provides security t both
people and enterprise.
Globalisation- it is a process through which the integration and inter dependent of various
economies have been increased. It is a process of making the world economy more connected by
doing trade in goods and services. It focuses on foreign investment, capital, etc. but it is not
getting broader by change in culture, technology, political and biological factors. It is also called
as one world way of doing business. Volkswagen has been greatly affected by this as the
business has now expanded in almost 155 countries. That's why they have generated more
revenue (Belás, and et.al, 2014 )
Privatisation- in this the business is transferred from public to private sector. It usually happens
when government is not able to run business successfully or private firms buy that business to
serve the public. Private sector runs the business more effectively by widening the share
ownership and increasing investment. Volkswagen is a privately owned business so it has the

capability to expand their business in various countries. Different private firms like Hyundai,
Toyota affects the profits of Volkswagen.
Liberalisation- by removing of control to encourage the economic development in the country.
It states that reducing the rules and regulation of government in economy to increase the
participation of private sector. It includes lower tax rates, market flexibility, etc. Volkswagen
does business by following the laws that has been imposed by the government (Belás, and et.al,
2014)
Conclusion: It suggests that there are many factors that affects the business. Volkswagen
operates globally by following the rules and regulations of different countries. This affects their
business as they are been restricted by various laws. Volkswagen uses the latest technology for
manufacturing in order to protect the environment and to reduce their cost. In order to survive
and remain competitive in the market they have to focus on all the segments and according to
their needs they make products.
TASK 2
Market forces affecting demand and supply
The market forces are elements that includes both demand and supply of a product. In general it
means that increase in demand rises the price and increase in supply falls down the price of
product.
Theory of demand- the consumers desires and willingness to pay for quantity of goods or
service at a given price is called as demand. demand of goods depends upon the situation and
price of product. The demand is derived from the various demands:
 effective demand- when desire to buy a product is backed up by the ability to pay is
called effective demand.
 Latent demand- it exists when the consumer desires to buy product but is not having
enough money to afford that product.
 Derived demand- it exists when demand for product X increases due to increase in
demand of related product Y. for example- demand of diesel will increase due to
increase in demand of cars (Savrul, and et.al., 2014)


Law of demand- it states that the increase in price of goods will decrease the demand of that
good. Quantity demanded and price have an inverse relationship between them due to which the
quantity demanded changes due to change in price. This change occurs due to many factors but
the most important is nature of commodity.
Demand schedule: this table shows the demands of goods in the market. When the price
decreases the demand of goods increases and vice versa.
Price Quantity demanded
5 100
4 200
3 300
2 400
1 500

The demand curve falls due to change in price. Every time the price decreases their is increases
in demand. There are various reasons in fall of demand curve. Marginal utility of commodity
declines whenever consumers buys more units of such commodity. Moreover, when price rises
the consumption falls. Apart from this the price of substitute remains the same even if price of
goods falls.
Importance of law- It helps in determining the price in monopoly market. Demand schedule
helps in setting the most suitable price level. The effect on tax commodities can be checked.
There should be more tax imposed when the demand is inelastic. The agricultural product price
are determined with the help of this law. When there is good crop due to change in demand ,
price falls. Also, it is shows the effect on change in price on goods at national level.
Elasticity of demand- It measures the elasticity of quantity demanded to its change in price. The
formula for calculating this is change in quantity demanded divided by change in price.

 If PED =1 demand is perfectly unitary, it means despite been change in price the
demands do not change.
 If PED>1 demand is elastic, it means demand increases with change in price.
 If PED<1 demand is inelastic
Law of supply- it states that the supply of goods increases with increase in price of goods. And
vice versa. There is a direct relationship between price of goods and how much producers are
willing to supply.
supply schedule: this table shows the supply of goods in the market. When the price increases
the supply of goods increases and vice versa.
Price Quantity supplied
1 20

2 40
3 60
4 80
5 100
The supply curve rises due to change in price. if their in increase in price the supply increases.
This law is based to meet the needs of people. It can be used to measure the demand. Excessive
supply will result in lack of customers whereas shortage will generate more demand.
Importance of law- it helps in determining different prices of different goods. The suppliers will
reduce the supply if prices falls and rise the supply if price rises, this helps in generating more
profits.

Elasticity of supply- it measures the elasticity of quantity supplied following a change in price.
The formula for calculating this is change in quantity supplied divided by change in price.
 If PES =1 supply is perfectly unitary, it means despite been change in price the demands
do not change.
 If PES>1 supply is elastic, it supply increases with change in price.
 If PES<1 supply is inelastic.
Volkswagen price is based upon the price elasticity of the demand. If demand increases there
will not be any effect on the price of products. Therefore, Volkswagen do not make any changes
in the price of goods.(.Kim, and et.al 2013.)Even if the price falls down there will not be increase
in demand of product . This is due to Volkswagen price is based on the competitors price.
Conclusion: it is concluded that there is inverse relationship between demand and price of
goods. If prices falls demand increases and vice versa. While in supply the price increases supply

also increases. Also, the law of demand is useful in monopoly market and controlling the tax
when it is inelastic. Volkswagen demand is dependent on the income level of consumer. If it
rises the demand will increase and vice versa.
TASK 3
Role of stack holders in Volkswagen.
A person who shows interest in business by investing and is affected by the actions or policies of
business. The stakeholder can be internal (employees, directors, etc.) or external (customers,
creditors, suppliers, etc.). Corporate social responsibility (CSR) is a business approach which
contributes to the stakeholder by developing economic and social environment benefits to them.
It can involve short term cost to business as it promotes social and ecological change. This is
useful for large companies because it can have a huge impact on the environment. There are
three approaches of CSR theory:
CSR- it consists of four obligations-
The first one is economic which means to make money. Without making profit it is not
possible to survive. Non profit organisation make profits through donations whereas private
organisation makes money by business operations. Second one is legal obligation which includes
rules and regulations. They are not the boundaries but organisation accept them for social good
and make efforts to obey them. Third is ethical obligation that means to do right for society even
if it is not described in the law. business is itself a citizen in the society who protects the culture
and obligation of every citizen prevailing in that society (Georgescu, and Popescul, 2015)Fourth
is philanthropic obligation in which business contributes to society project even when it is
independent. These four obligations has to be followed in which the top one remains the most
important and after that second one and so on.
Triple bottom line- it is also a form of CSR in which the management evaluate the bottom line
results in economic and social terms. it differs from traditional method as it incudes ecological
and social factors for appropriate measurement. It has two elements, first one is the three

responsibility must be separated and second is to identify results from each one. It measures the
scope of the business in a particular location.
 Economic sustainability-it defines long and short term financial profits.. large firms
create business plans for stable profits. It shows the flow of money involving the business
and climate factors. Few examples are job growth, personal income, etc
 Social sustainability- it means that the business balances peoples life and their standard
of living.. however, the business is stable for long term profits opportunities and
developing wealth to cover as many people as possible. It is required that business
maintain healthy relationship with people.
 Ecological sustainability- the potential influence of natural resources on business is
evaluated. It includes quality of life, and its
together these three gives a direction to business to participate as a citizen in community.
Sustainability helps business to grow and develop in the economic world.
Stakeholder theory- there must be a strong connection between organisation and others so that
the influence of business activities can be find out (Menychtas, and et.al, 2014 ) It means that the
internal and external environment of the organisation must have a strong relationship. it suggests
that the purpose of firm is to create value for stakeholder to survive and sustain for long term.
They are groups or individual who lives in the surrounding community and are affected by the
firms actions. Business must follow ethics to provide clean air and water to these people. They
must be include in the decision making process. Internal stakeholder are company workers,
owners, while the external are suppliers, creditors, etc. the purpose of firm is to maximise profit
but as human welfare. company managers represent the interest of stack-holders by balancing
conflicts between them and generating benefits for long terms. Directors explains the current
plans to board members that how it will boost profits. Moreover, they ask for how to control
pollution, how to improve safety, etc. it is important to know what risks are associated with
people and environment. for promoting ethics it is important to have some transparency because
due to active participation they will have an idea what's going on.
The directors of company has a very difficult role to play for guiding the enterprise
towards the profits. Best companies are those who have large number of customers and are fully

concerned towards the CSR. Business ethics is of different kinds in CSR, triple bottom line and
stack-holder theory. (Savrul, and et.al., 2014)
In terms of business ethics Volkswagen is transforming by taking care of bottom line and CSR
engaged a broad vision of social responsibility. In terms of CSR Volkswagen is addressing
specific regional and social issues. They are creating fuel efficient cars to protect the
environment and to control the pollution. Volkswagen make sure that new vehicle achieve the
best possible value by protecting the climate. They have been engaged in protecting nature and
diversity by various campaigns and programs.
Conclusion- it states that business can be done for long term by sustaining in the society. Main
objectives of business is not only ot earn profits but also to give to society what they deserve.
This can be done by following CSR and other business ethics. Stakeholder plays a crucial role in
growth of business. They must be involved in the decision making process which helps firm to
decide what is best for society and people. Volkswagen takes decision by involving various
people so that it helps them in growth and development.
TASK 4
A) Pros and cons of UK leaving EU
With Britain leaving the European union it will have a huge impact on their economic and
cultural development of the country and people (Kim, and et.al 2013.). The various pros and
cons of brexit are:
Pros:-
They will not have to pay the membership fees to remain in the EU which is of 200 million
euros. This can be used in any other projects for the development of people. Consumers will be
benefited as they will not have to follow the common agricultural policy for trading. This will
reduce the costs of products. Apart from this common customer barriers will be removed which
will lower down the price of clothing industry. There will no longer be regulation of trade cost
by EU so Britain can set their own taxes and other regulations. Decisions regarding the other
world affairs will be made independently by Britain. UK can make policy regarding to control

the immigrants. Less immigrants' means more job opportunities and increase in wages. EU
people can live wherever they want but many stays in UK for a better health care system. Britain
will be free to set up their own laws and they would no longer be obliged to follow any laws of
EU. The regulation of ports will remain the same. The import and export laws and duties will be
same as before (Menychtas, and et.al, 2014)There will not be any impact on the immigration
policy of UK. Therefore, entering or passing Britain will remain unchanged.
Cons:-
There will be decrease in imports and exports as Britain is the largest trading partner of EU.
Many companies will now focus more on EU than Britain. This will also affect the relationship
between the EU and US as Britain have to create new relations with US regarding the business.
The price is regulated by EU which ensures that consumers get quality products so customers in
Britain will be affected by this. There will rise in the price of flights due to change in currency.
It will affect the universities of Britain as they have to lower their tuition fees for students to
pursue their study. Leaving the EU will affect the Britain energy sector as their efforts in
reducing pollution will be revised. Immigrants contributes to the growth and culture of society
so restricting immigrants will create a bad image. People who are engaged in trading jobs that
are linked with EU will be finished. All the laws relating to workers rights and protection are
regulated by EU so it will be Britain decision to keep it or remove.
B) Business response to local and global environmental
challenges and the impact it will have on future business
development.
There will be a huge impact on the business hat are existing in Britain and those who want to
start their business. The various companies will be focusing on the new policies and regulations
that are been made. A huge impact will be on the import and export trade, this will lower down
the GDP creating uncertainty in economy and growth and development of country will he at hold
for some time (Welford,, 2013 ) The exports of UK will get a hit as costs will hike up with

increase in tariffs. Even if business lowers their price it will reduce their profits and they will
not be able to survive. There is increase in inflation and economic growth has slowed as well.
There is gap rising in the wages of skilled and unskilled worker. Many people are not doing job
because their needs and wants are not been satisfied because of the lower wages. It is been
forecast that about 10000 financial jobs will be moved away due to oversea business. There are
chances of getting the credit rating of Britain falling down. Inflation has risen due to Brexit and
the value of pound sterling have also gone down. The business have responded negatively
towards the Brexit. There is decline in the profits and sales of business as import and export
trades have been largely affected. Small business are finding it difficult to survive in the market
due to fall in price of goods. There has been increase in taxes and ease of doing business is not
easy. The rate of tariff and other taxes has been raised by the government to earn revenue. Many
big companies are finding it difficult to do business there because of changed policies and laws.
CONCLUSION:
From this report it is concluded that macro environment affects the business to a very
large extent. For this PESTEL needs to be conducted which will help in clear and better
understanding of various problems and issues related to environment. In addition to this law of
demand stats that demand increases due to decrease in price and vice versa. On the other hand
law of supply stats that price increases with increase in supply. Other than earning profits, major
role of enterprise is the social welfare of people and society. For the stack-holder plays a role in
making strategies with them. In the last task the affect of Brexit is discussed which states that the
GDP reduce which will lead to uncertainty in their economy. There will be major effect on
growth of the business that are existing in UK.