The Macro Environment Impacts upon Industries

how the macro environment impacts upon industries

Introduction

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

1. 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.

2. 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.

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.

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