The meso environment of a business firm

Explaining the statement

The environment of a business can be viewed in three layers:

• the micro (immediate) environment: the firm's own customers, suppliers, competitors, intermediaries, financiers and publics, which affect it directly;
• the macro (general) environment: broad economic, political, social, technological, legal and natural forces that affect all firms in a country;
• the meso (intermediate) environment: the setting between these two: the industry, sector, region or network to which the firm belongs.

The statement means that meso factors are neither as close as the firm's own business partners nor as remote as national and global forces. They are the industry- and region-level conditions through which macro forces reach the firm, and within which its micro relationships are formed. A change in national policy, for example, reaches a firm through its industry's regulations, associations and clusters. These conditions shape the firm's opportunities (which markets are open and growing), its costs (inputs, skills, infrastructure) and its competitive position (how many rivals it faces and how strong they are). The firm is not only acted upon: through an industry association, its choice of partners and suppliers, or its choice of location, it can shape parts of this setting.

Meso environmental factors of a business firm

1. Industry structure and competition. The number and size of firms, entry barriers, buyer and supplier power and substitutes in the industry (Porter's five forces) decide how attractive the industry is. How many competitors there are, and the strategies and products they bring, sets the room a firm has on price, how fast it must innovate and how much of the market it can hold.
2. Customers and market segments. Beyond the firm's own buyers, the industry's segments, their needs, their purchasing power and the pattern of demand decide what can be sold and at what price; a rise in incomes in one segment can open a market for every firm in the industry.
3. Suppliers and input providers. The availability, quality, price and reliability of the inputs the industry depends on set its costs and its ability to deliver on time.
4. Intermediaries. Distributors, retailers, online marketplaces and logistics firms decide how easily the industry's products reach customers and at what cost.
5. Industry life cycle and growth. Whether the industry is emerging, growing, mature or declining shapes opportunities and risks.
6. Sector-specific regulation and policy. Rules, licences, standards and incentives that apply to a particular industry: for instance, regulations for pharmaceuticals or telecom, or incentive schemes for a chosen industry.
7. Industry associations and networks. Chambers of commerce and trade bodies that lobby, set standards, share information and train members.
8. Clusters and regional factors. Concentrations of related firms in a region (such as textile or auto-component clusters) offer shared suppliers, skilled labour, infrastructure and knowledge; regional policies and local infrastructure also matter.
9. Supply chains and value networks. The structure of the industry's supply chain, logistics and distribution systems.
10. Industry technology and innovation systems. Research institutions, technical standards and the pace of technological change in the sector.
11. Labour market of the sector. Availability of industry-specific skills, wage levels and unions.
12. Financial institutions serving the sector. Specialised lenders, venture capital interest and sector risk ratings.

Example (illustrative). A leather-goods maker set among many similar firms can share suppliers, skilled workers and common facilities such as an effluent plant; a similar firm in an isolated town has to arrange all of these for itself, at higher cost.

Why the meso environment matters

It explains why firms in the same country perform differently according to their industry and region, helps a firm choose where to locate and which industry to enter, and points to collective action through associations and clusters.

Conclusion

The meso environment is the bridge between the firm's immediate dealings and the broad national and global forces. A firm that understands its industry and regional setting can anticipate change and shape it to its advantage.