What is the difference between macro environment and external environment?

The external environment of a business, also known as the macro environment, includes all factors outside the reach of the business, that can impact the operations of the business. External factors influence the choices a business makes, as they determine opportunities and risks. Let's take a look at these different factors in more detail.

External business environment

All businesses are impacted by their external environment. Sometimes a business has to act upon and react to what happens outside of the scope of its operations. These external influences are known as external factors. Multiple different factors can influence a business's external environment. These factors are often unpredictable and can change suddenly.

The external environment plays a huge role in the types of strategies and actions a business decides to implement. The external environment can affect competitiveness, budgeting, decision making, and the marketing mix.

The main external factor that influences business most is competition.

Competition is the degree to which businesses compete with one another in the market.

Most businesses, especially when operating in a popular industry, will have to face intense competition. The amount and type of competition mostly depend on the industry a business operates in. Although competition is one of the most significant factors, several other external aspects affect the strategies and actions taken by a business.

External environmental factors

Four main components make up the external environment of businesses. These are the main external factors you have to consider when operating a business.

Economic factors

Several economic factors can influence the business environment. One of them is market conditions. Size and growth rates are good indicators of market conditions. Market conditions are made up of many different economic elements that affect the attractiveness of a market. For instance, good market conditions can be described by economic growth and increasing market demand. Economic growth measures the value of output in a country's economy. One way you can measure economic growth is through Gross Domestic Product (GDP). This is the total value of all finished goods and services produced in a country's economy during a given period. Another factor is market demand, which measures how much of a good or service consumers are willing and able to pay for.

Demographic factors are related to the population. For instance, an increase in the size of a population will most likely lead to an increase in demand for goods and services, as there are more potential consumers. Changes in the age of a population will also have significant influences on businesses.

An ageing population (more old people) will have different demands than a younger population. Older consumers tend to want and need different goods and services than young people.

Environmental and social factors

Society increasingly expects higher standards of environmental and sustainability-related awareness from businesses. Unfortunately, a lot of businesses contribute significantly to the creation of environmental damage.

Some governments have stepped up in this regard, passing certain legislation in order to protect the environment. Many governments impose quotas on the amount of harmful substances firms can emit within a timeframe, and fine businesses that over-pollute or ignore the legislation. These legislations are there to force firms to take into account the social costs (the cost to society and the environment) of production.

External environment analysis

A useful tool for analysing the external environment of an organisation is 'PESTLE'. PESTLE analysis takes a look at six different external factors that could have an impact on your business and rates the intensity and importance of each. PESTLE stands for political, economic, social, technological, legal, and environmental/ethical factors.

What is the difference between macro environment and external environment?
PESTLE factors. StudySmarter


The 'P' in PESTLE. Political factors play a huge role for businesses operating in certain industries. Political factors include:

  • Political stability

  • Government stability

  • Industry regulations

  • Competition policy

  • Trade union power


The first 'E' in PESTLE. As outlined earlier, economic and market factors can significantly impact business functions. Some economic factors to consider include:

  • Interest rates

  • Inflation rates

  • Unemployment

  • GDP and GNP trends

  • Investment levels

  • Exchange rates

  • Consumer spending and income


The 'S' in PESTLE. These socio-cultural factors include:

  • Demographics

  • Lifestyles and lifestyle changes

  • Education levels

  • Attitudes

  • Level of consumerism (how important consumption of goods and services is to people of a certain demographic)


The 'T' in PESTLE. Technology, especially in today's society, plays a huge role in business development and decisions. With technology developing rapidly, here are a few factors to keep in mind when considering the external environment of the business:

  • Levels of government and industrial R&D investment

  • Disruptive technologies

  • New production processes

  • Big data & AI

  • Speed of technology transfer

  • Product life cycles


The 'L' in PESTLE stands for legal considerations regarding the external environment of a business. These include:

What is the difference between macro and external environment?

Macro environment refers to all those external environment factors that immensely influence the business success, strategies, and decision making. These external factors that highly influence the business success are not controlled by the organization easily.

What is the difference between macro and micro external business environment?

The micro environment is specific to a business or the immediate location or sector in which it operates. In contrast, the macro environment refers to broader factors that can affect a business. Examples of these factors include demographic, ecological, political, economic, socio-cultural, and technological factors.

What is the difference between macro and market environment?

The macro-environment consisting of wider societal authorities, and the micro-environment which incorporates the influences related to a company, together form the general marketing environment of a company. Macro-factors linked to economic, social, cultural aspects, etc.

Is macro The external environment?

the major uncontrollable, external forces (economic, demographic, technological, natural, social and cultural, legal and political) which influence a firm's decision making and have an impact upon its performance.