Description on Maybank
Businesses operate in an environment. Understanding the environment in which the company operates is essential for the success of the organization. The business environment is complex, dynamic and multifaceted in nature and has an enormous impact on the growth and survival of a firm. Usually, an enterprise is confronted by the internal and external environmental factors. Internal environment factors take place within the organization and are easier to regulate than the external factors. Employee morale and changes in the management are some of the internal factors (Neelankavil, 2015). The external environmental factors occur outside the enterprise and are difficult to foresee and control. Moreover, the external factors can more precarious to an organization as they are hard to prepare for, unpredictable and often puzzling (Fernando, 2011). This paper, therefore, examines the macro environment elements of Maybank and effects of the elements on the operation of this firm. The study culminates by offering recommendations on how the administration of Maybank can improve the management of the macro environment.
Maybank is based in Malaysia and Southeast Asia. Maybank was incorporated on 31st May 1960 and commenced its operation the same year on the month of September. Khoo Teck Puatand, Malaysian business tycoon, and his partners in Kuala Lumpur were individuals behind the formation and establishment of this financial institution. The bank expanded its networks fast, and it was listed on Kuala Lumpur Stock Exchange, currently Bursa Malaysia, on 17th February 1962. Maybank has since grown rapidly, and it is the leading bank in Malaysia (Maybank, 2017).
In 2008, this bank completed the acquisition of 20% of Muslim Commercial Bank of Pakistan, 15% in An Binh Bank of Vietnam and 97.5% of Bank Internasional Indonesia. Maybank Foundation was established as the main roadmap for the corporate responsibility of the MAYBANK GROUP. The mandate of Maybank Foundation is to ascertain programs that will bring the most sustainable and tangible results for the company (Syed, 2012).
Furthermore, Maybank belongs to the banking industry and is among the five top banks in South East Asia with aggregate assets of 165 billion U.S dollars. It has an international coverage of over 2,400 offices and branches in 20 countries and with approximately 45,000 employees. The Maybank Group provides a comprehensive range of services and products to its clients. These products and services include commercial banking, Islamic banking, investment banking, leasing and hire purchase, offshore banking, insurance, factoring, asset management, trustee services, stock broking, nominee services, Internet banking and venture capital. The bank has the mission of humanizing banking services across Asia by ensuring fair pricing and terms (Maybank, 2017).
Description on General Macro Environment Elements
The macro elements take place outside the organization, and firms have no control over them. These factors are usually difficult to predict and control. Therefore, the companies must consider the macro elements as part of environmental scanning to have a better understanding of the opportunities and threats associated with these variables. The elements that make up the external environment include political forces, social-cultural, economic and technological factors (Gillespie, 2014).
Political influences entail the stability of the political atmosphere as well as the attitudes of political movements or parties. These forces determine government participation in trade agreements and tax policies. Political factors are usually intertwined with the statutory factors like employment and trade restriction policies (Fernando, 2011).
Political processes of a country are known to take different forms such as participatory democracies to dictatorships. From recent history it is evident that states across the world are not free from revolutions and civil wars. For instance, the current situations in Syria and South Sudan, as well as the previous chaos in Tunisia and Egypt, represent political instabilities that affect the operations of businesses negatively. During political upheavals, there is a lot of uncertainty in the market which curtails business expansion and new investments (Gillespie, 2014).
The political regimes significantly determine the government policies. Some politicians may come up with plans that provide a favorable environment for the flourishing of businesses while others make policies that hinder the growth of firms. For example, there is decrease or increase in taxation. The government may reduce tax for some companies while increasing the tax for other businesses. Such decisions have a direct impact on the operations of firms, and it is the responsibility of business managers to stay informed in order make the required adjustments (Craig & Campbell, 2012).
The economic factors incorporate the wider economy and vary among countries. These factors significantly determine how products are demanded and supplied within an economy. They include economic growth rates, costs of raw materials, employment and unemployment levels, monetary and interest rates policies, inflation and exchange rates.
Inflation entails a persistent increase in the prices of goods and services within an economy. Inflation is a common phenomenon experienced by many countries. This economic event is known to increase the expenses of the business such as rent, the cost of raw material and utilities. The increase in the cost of doing business forces the companies to raise the prices of goods and services with the aim of maintaining profits. Additionally, the inflation reduces the purchasing power especially for the luxuries and the firms dealing with expensive products make low returns (Cadle, Turner, & Paul, 2010).
Employment is a major factor that influences the wellbeing of companies in the economy. In most instances, the level of employment tends to go in hand with a business cycle of booms followed by a period of decline or stagnation. During the boom periods, the economy experiences plenty jobs as the companies demand more employees to meet the rising demand for products. When there are plenty jobs, the consumer spending will also increase thus providing incentives for the growth and establishment of new ventures. However, during decline or stagnation moments, the unemployment is always high leading to low purchasing power and little opportunities for the expansion of the businesses (Fernando, 2011).
Socio-cultural factors comprise the lifestyles of persons, their value system, and traditions. These forces influence the attitudes, interests, and opinions and finally determine the purchasing behaviors of individuals. Some of the social-cultural elements include demographics, population growth rates, social organization, language, age distribution, and level of education.
The average level of literacy in a community influences the sophistication and the interests of the clients. For instance, societies in which high proportion of customers have attained post-secondary education, the business owners will use more explanation and details when promoting and advertising the products. Furthermore, the language which the society speaks is a vital factor in advertising and labeling of the commodities. In some instances, companies are compelled to use more than one language in product labeling and advertising (Fernando, 2011).
The social structure forms part of the culture of the community. It refers to the way the community organizes itself, how it perceives status system, kinship, interest groups and the social institutions. For instance, consider the role of women in different societies. In some societies, the women occupy a significant role in making shopping decisions and therefore considered important factors in marketing.
The technological factors entail new development and inventions, modifications in mobile and information technology, changes in e-commerce and the internet and government expenditure on research. Technological forces are important in giving firms a competitive advantage in the market (Gillespie, 2014).
Automation of the operations of firms is one of the significant opportunity availed by technological advancement. With technological changes, it is possible for organizations to automate several unskilled tasks performed by humans. Task automation results in cost reduction for the distributors, manufacturers, and other types of businesses. Therefore, the organizations will make more profits to facilitate other new investments (Harrison, 2014).
Internet connectivity has been on the rise globally in the recent years. The internet provides a large market for many firms across the globe. As a result, the companies that exploit the opportunities availed by the web are in a better position of attaining competitive advantage in the market. Amazon is among those businesses that are flourishing by use of the internet to facilitate the e-commerce (Harrison, 2014).
The political environment is a crucial factor that affects the operations of businesses in any country. The political factors can impact on companies in many ways. They are known to accelerate risk factors and hence result in massive losses. The change in the government policies is one of the political factors that cause a significant impact on business activities (Craig & Campbell, 2012).
These policies can either promote or hinder the operations of the firm. For example, the government can either increase or decrease the tax levied on the companies. Increase in the taxes by the government will lead to a reduction in the earnings and profits of the firm (Cadle, Turner, & Paul, 2010). Therefore, the business managers are required to be keen on such changes and respond accordingly to keep the firm in operation. In Malaysia, tax rates the government imposes on businesses have been reduced in the recent years compared to past three decades. The corporate tax in Malaysia was reduced to 24% in 2016 from 25%. The sales tax rate and the social security rate for companies were also at the lowest at 6% and 13% respectively. Reduction in taxes levied on business is beneficial as the firms like Maybank retain a significant portion of their incomes and thus reinvest to expand their businesses (Malaysia: Tax regulations, 2016).
The intervention of the government in the interest rates is also known to affect the operations of the financial institutions significantly. Usually, the interest rates are determined by the forces of demand and supply. However, in some occasions, the government directly determines the shifts in the interest rates thus interfering with the price mechanism. The government can direct the central bank to either increase or reduce the bank rate (Gillespie, 2014). The legislators may also enact legislation to set maximum interest rates for the banks. Setting maximum interest rates is meant to cushion the customers but has a detrimental effect on the profits of the banks. In the recent years, Malaysian financial sector has experienced changes in the interest rates thus affecting the decisions regarding the rates. For example, in 2015, the Base Rate (BR) system was introduced to replace Base Lending Rate (BLR). The Base Rate (BR) system enables the banks to determine their interest rates using the formula given by the central bank (Hussain & Nahar, 2016). Moreover, through BR system, Maybank and other banks in Malaysia are required to disclose the base rate and margins which are used to determine the effective lending rate.
Politics of a country also affects the businesses. A stable political environment offers a conducive setting for the activities of the firm. When there is peace, both the sellers and clients get an opportunity to interact and exchange goods and services without fear. However, when there is political instability characterized by coups and clashes among the citizens, then business activities are considerably curtailed. During political upheavals business property is destroyed as well as the movement of goods and services hindered (Vejzagic, 2014). Currently, Malaysia is experiencing political stability thus providing a favorable environment for the prosperity of Maybank and other businesses in the country.
Recession refers to negative growth in the Gross Domestic Product (GDP) for two consecutive quarters. During the recession, there is a significant decline in the economic activities across the country as well as the entire globe. The reduction in sales and profits caused by recession make some businesses to close down while others reduce their operations. For example, the companies may stop rolling out of new products, cease development and research, stop buying new equipment and hiring of employees. Moreover, the quality of goods and services is considerably reduced during an economic downturn (Harrison, 2014).Recession hits banking sector harder. As a financial institution, Maybank is likely to suffer when the number of loan defaulters rises. Usually, individuals and other organizations take long to pay the loans borrowed, and in some situations, the loans are not repaid. The deterioration in economic activities results in lower earnings and losses for many individuals and firms hence unable to repay the loans taken from the banks. Therefore, the financial institutions tend to freeze interbank lending and credit to clients hence worsening the adverse effects of the recession (Mandal, 2014). Stocks and dividends are also affected negatively by an economic downturn. A typical scenario during the recessionary period is the decline in dividends and slump in shares. In some situations, the dividends are not paid at all. When the revenues fall, the banks are not in a position to pay the dividends to the shareholders due to a shortage of cash (Mandal, 2014). Furthermore, a recession is known to cause banking crisis where banks encounter liquidity problems. Such scenario was evident during the Great Recession of 1932. The banking crisis has a great impact on business, consumers, and savers. Shortage in liquidity makes the financial institutions reluctant to lend money to firms and clients. The banks will also avoid giving loans to individuals or business that is undertaking risky investment (Nelson, 2014).
Banks are exposed to exchange rate risks when they hold liabilities or assets in the foreign currencies. When fluctuations take place in the exchange rates, the earnings and capital of a bank are impacted. The exchange rates move either downward or upward at any time, and the bank has no control over the movement. Such uncertain changes pose a significant threat to the earnings and profits of financial institutions (Nelson, 2014). The fluctuations in foreign exchange rates may affect the bank either directly or indirectly. The direct impact results from bank’s holding of liabilities or assets with the payment streams mainly held in a foreign currency. The foreign exchange rate variations modify the local currency values of such liabilities or assets. Besides, when a bank lacks foreign liabilities or assets, it can be exposed to currency peril since the exchange rate can influence the success of its local banking operations. For example, contemplate the worth of bank’s loan to Japanese exporter. When the Yen appreciates, it becomes more difficult for this exporter to compete favorably with the foreign companies. In case the appreciation of Yen diminishes the profitability of the exporter, then it will hinder his ability to repay the bank loan on time. Consequently, the profitability of the bank is adversely affected. Likewise, foreign exchange risk of banks can also emanate from other types of market risks like the interest rates. The exchange rates and the interest rates move simultaneously. The effective lending rates of banks indirectly impact its overall foreign exchange risk (Stead & Stead, 2015).
Business does not only involve making sales and generating profits. The business managers are required to understand the environment in which the firm operates. Understanding the social-cultural attributes of the individuals is key to a successful business. Social-cultural factors involve the lifestyles of people, their value system, and customs. Therefore, business must exploit and adjust to its external social environment to attain a competitive advantage in the market. This can be accomplished by keenly analyzing the social preferences of the society concerning needs and wants (Kwon, 2010). Malaysia has many racial groups such as Chinese, Malays, Asians as well as Indians. The financial institutions should customize their services to appeal to different tastes and preferences of these groups. For example, communication needs vary among the racial groups. Therefore, the bank can avail various channels of communication with its clients so as to accommodate their expectations. The bank should also train its agents on how to provide personalized customer service during direct interaction with the customers (Kwon, 2010).
Technology is among the external factors affecting the operations of organizations in this 21st century. Technology hugely determines how things are carried out in the business. The banking industry is among those sectors that are benefiting from technological advancements. Therefore, banks are making significant efforts to make sure they do not lag behind in adopting and embracing changes in the technology (King, 2012). The computers are currently becoming more sophisticated. They offer banks the desired potential and increase the expectations of customers to receiving excellent services from the bank. The changes that the new technology brings to the banks are enormous. The banks can now deliver their products and services more conveniently to their customers and thus establishing new bases of competition. Rapid access to essential information and the capability to act efficiently and quickly is going to distinguish successful and unsuccessful banks in the future. Additionally, the banks are gaining significant competitive advantage through direct marketing and responsible customer service. Consistent decision support and management systems provide the bank a competitive edge to thrive in the banking industry (Scupola, 2012).
The management needs to establish an inquiry on the political setting of the business. Some of the political factors the company should analyze include market regulations, trade agreements, voluntary practices and codes, minimum wage and anti-discrimination laws (Research Industrial Systems, 2013). Examining such factors will enable the business to respond accordingly and thus avoid the consequences such as fines associated with non-compliance. Moreover, the managers should pay attention to the changes in positions taken by politicians on issues that are likely to affect the operations of the firm. For instance, if the elections are nearing, there is a need to examine variations in policies of various political parties and identify the impacts they are likely to have on the banking industry.
The macroeconomic environment examination will enable the business to ascertain external economic factors that may influence the activities of the organization. The economic factors dictate how suppliers, consumers, and players of the economy behave in the society. Key economic factors that should be incorporated in the analysis includes economic growth rates, exchange rates, unemployment and employment levels, oil prices, monetary and interest rates policies, and inflation rates (Stead & Stead, 2015). For example, when the economy is experiencing high inflation, banks may think that they are making profits and yet they are making losses. Therefore, economic analysis is essential for the well-being of the business.
The macro socio-cultural analysis is instrumental in comprehending the culture of the society where the business operates. The social forces shape the attitudes, interests, and opinions of the individuals. These forces finally determine how person behavior and what they purchase. Some of the important macro socio-cultural factors that need analysis entail demographics, population growth rates, age distribution, the level of education, social classes, distribution of wealth as well as living lifestyle and conditions (Singh, Verma, & Rao, 2016). When an organization understands these factors, it will be in a position to provide services and products that aim to supplement and benefit people's behavior and lifestyles. Moreover, the bank will adjust its products and services to meet the changing tastes and preferences of the consumers.
The company should assess the changes in the technology of the banking industry and make the necessary modification so as to remain relevant in the market. Technology has fashioned a society which anticipates instant results. Furthermore, the technological revolution has improved the rate at which information is conveyed among different stakeholders of the business. By undertaking macro technical analysis, the bank can enhance the interaction with the clients and thus improve sales and earnings. The bank should also encourage innovations and inventions as a way of improving the services offered to the customers (Kamboh & Leghari, 2016).
The understanding of the external environment of the business is imperative for the success of any organization. The macro environment is complex, dynamic and multifaceted in nature and has a massive influence on the growth and survival of the business. Besides, the external environment factors are more risk to an organization as they are hard to prepare for, unpredictable and often challenging. Some of the macro-environment elements that are likely to affect Maybank include political and legislation, macroeconomic environment, socio-cultural and technological factors. The political factors can impact on business enterprises in many ways and involve political stability and government regulations on taxes and interest rates. Some of the macroeconomic factors include recession and foreign exchange rate risks. Depression affects the banking sector severely as it results in increased loan defaulters; fall in stocks and dividends as well as liquidity problems. The social, cultural factors sway the tastes and preferences of persons and finally determine their purchasing behavior. Hence, the financial institutions should customize their services to appeal to different tastes and preferences of the racial groups they serve. Likewise, the technological revolution has made business transactions easier and more appealing to the clients. Companies are utilizing the benefits availed by technological changes to attain competitive advantage in the market. Ultimately, the business owners can improve the management of macro environment through political, macroeconomic, macro socio-cultural, and macro technological environment analysis.
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