Business Studies Grade 11 - All Terms

Influences on Business Environments

Topic Overview

This section revises the components of the micro, market, and macro environments. It also discusses the business's control over these environments and the challenges they present.

Learning Objectives

After completing this topic, learners should be able to:

• Identify the components of the micro, market, and macro environments.

• Explain why businesses have more control over the micro environment, less control over the market environment, and no control over the macro environment.

• Identify challenges within business environments from scenarios and state the extent of control a business has over these environments.

• Recommend ways businesses can be involved in the macro environment.

• Discuss the benefits of businesses involved in the macro environment.

1.1 Revising the Components of the Micro, Market, and Macro Environments

Micro Environment

The micro environment is the internal business environment, encompassing everything inside the business. The business has full control over it. Components include:

• Vision, mission statement, goals, and objectives

• Organizational structure

• Organizational resources

• Organizational culture

• Management and leadership

• Eight business functions

Market Environment

The market environment is the immediate external environment. A business has limited control over it. Components include:

• Customers/consumers

• Suppliers

• Intermediaries

• Competitors

• Other organizations/civil society (CBOs, NGOs, regulators, strategic allies, and unions)

Macro Environment

The macro environment is the broad external environment. A business has no control over it and must adapt to its challenges. Components include:

• Social

• Political

• Legal

• Economic

• Technological

• Physical

• Global/international environments

The internal environment is the micro environment, while the external environment consists of the market and macro environments.

1.2 Business’ Control Over the Micro, Market, and Macro Environments

The success of a business depends on factors within the three business environments. Entrepreneurs try to influence or control some of these factors to create favorable conditions. However, not all factors can be influenced or controlled.

Control Over the Micro Environment

The business has full control over its micro environment and can exercise control by:

• Establishing and revising its vision, mission statement, goals, and objectives.

• Engaging strategic management systems.

• Establishing policies, procedures, and management structures.

• Ensuring efficient and effective use of resources.

• Ensuring all employees understand the business's culture.

• Leading, organizing, and directing employee activities.

The CEO, along with other business functions, exercises control over the micro environment.

Influence Over the Market Environment

A business only has limited control over the market environment but can influence and shape some components. Examples of how entrepreneurs could influence some aspects of the market environment:

• Customers: Influence decisions through a well-considered and well-executed marketing strategy, conducting market research to identify needs/wants.

• Suppliers: Influence decisions by signing long-term contracts at fixed prices or forming strategic alliances.

• Competitors: Form strategic alliances, join business forums, or form a consortium to share ideas and resources.

• Regulators: Influence regulators by businesses joining together to lobby for beneficial legislation.

• Unions: Influence decisions by maintaining good relationships and engaging in collective bargaining sessions.

Influence Over the Macro Environment

Businesses have no direct control over the macro environment. However, when entrepreneurs join forces, they can influence some aspects:

• Lobbying for mutual trust to persuade the government to change certain regulations or establish policies.

• Hedging against inflation by investing surplus assets in investments, such as gold, oil, and property.

• Networking to share information on how to overcome challenges in the technological environment.

1.3 Challenges of the Business Environments

The three business environments are interrelated and influence each other. Activities in any of these environments may influence the other two. The long-term survival of a business depends on how best it can monitor, respond to, and influence the environments in which it operates.

Ways Businesses Can Be Involved in the Macro Environment

Businesses could improve the economic and social well-being of the people in their communities and the country if they actively get involved in the macro environment:

• Create job opportunities.

• Undertake social responsibility programs.

• Improve export markets by expanding into new African markets.

• Undertake scientific research to improve traditional medicines.

• Engage in collective bargaining or lobbying to improve working conditions.

• Enter into Private-Public partnerships to provide infrastructure.

• Provide education and training programs for workers.

Benefits/Advantages of Businesses That Are Involved in the Macro Environment

• Gain good publicity.

• Attract and retain skillful employees.

• Government tenders and contracts are often given to these businesses.

• Businesses that support their communities normally get some tax rebates.

• Anticipate likely challenges.

• Attract top investors.

• Prevent environmental damage.

• Easier to appeal to customers with knowledge of demographics.

The Challenges of the Business Environments

Topic Overview

This section examines the challenges posed by the micro, market, and macro environments.

Learning Objectives

After completing this topic, learners should be able to:

• Outline the challenges of the micro environment

• Explain the challenges of the market environment

• Recommend ways to overcome competition

• Explain the challenges of the macro environment

• Give examples of contemporary legislation affecting business

• Identify the challenges of the three business environments

2.1 Challenges in the Micro Environment

Many factors in the micro environment can threaten the profitability and survival of a business. Some of the challenges that businesses face in their micro environment include:

• Difficult employees: Those who do not support the vision, complain about work systems and are lazy, leading to conflict and unmet deadlines.

• Shortage of skilled employees: Leads to poor customer service and loss of customers to competitors.

• Lack of vision and mission: Means management and staff have conflicting ideas about the goals, negatively affecting productivity and resource allocation.

• Lack of adequate management skills: Inability to lead and control personnel and resources, leading to wasted resources.

• Unions: Organization established to protect employees' interests, sometimes making demands impossible for businesses to meet.

• Strikes and go-slows: Industrial actions that negatively impact business operations, causing lost production time, unmet targets and decreased profitability.

2.2 Challenges of the Market Environment

Several factors in the market environment could threaten the survival and success of a business:

• Competition: Refers to businesses that produce/sell the same goods or services. Businesses need to match the quality/prices of their goods or services or may lose customers.

• Shortage of suppliers: Disruption to the supply leads to decreased productivity/profits and potential loss of customers.

• Changes in consumer behavior: Changes in taste and preferences through economic conditions or fashions - leads to reduced sales, stockpiling and pressure to understand factors driving change.

• Demographics: Constant demographics changes leading to shifting demands, increased demand and potential loss of skilled labor.

• Psychographics: Difficulty to determine the frequently changing attitudes/interests/opinions/lifestyles of customers. Clear understanding of factors is needed to adapt appropriately to change.

• Socio-cultural factors: Clear understanding of factors that drive socio-cultural changes is needed to respond appropriately, and maintain appropriate marketing material.

Ways to Overcome Competition:

• Produce unique/differentiated goods or services.

• Provide more personalized services.

• Price goods/services lower than competitors.

• Produce high-quality goods/services.

• Create a positive image through community projects.

• Improve customer services.

• Regularly renovate premises.

• Undertake good marketing campaigns.

• Offer low-cost extras, such as improved credit terms.

• Ensure well-trained and dedicated employees.

2.3 Challenges of the Macro Environment

Although a business cannot influence or control the macro environment, it must understand its challenges:

• Changes in income levels: Decreased or high income means a decrease in consumer purchasing ability for goods and services.

• Political changes: New laws and policies are enacted with changes in government, resulting in political instability which can scare away investors and tourists.

• Contemporary legal legislation: Businesses not following certain established government laws could be fined or sent to prison, such as complying with the Employment Equity Act. The National Credit Act (NCA) (No. 34 of 2005), Consumer Protection Act (CPA) (No. 68 of 2008), and the Labour Relations Act (LRA) (No. 66 of 1995) also present challenges.

• Labour restrictions: Restrictions due to new laws passed that serve to protect employees.

• Micro-lending: Small loans to those who cannot access credit from commercial banks at higher interest rates and shorter repayment periods create a legal framework for employers.

• Globalization: Competing with international businesses for local customers and dealing with reduced prices for imported products from countries with cheap labor make it difficult for local businesses.

• Social values and demographics: It includes beliefs, norms, values and the changing characteristics of potential customers which affects what is produced/offered.

• Socio-economic issues: Influence business operations in different ways, such as crime and corruption leading to increased operational costs, HIV/AIDS resulting in a decreased labor force and consumer market.

Examples of Contemporary Legislation That May Affect Business Operations:

• The Labour Relations Act (LRA) (No. 66 of 1995)

• The Basic Conditions of Employment Act (BCEA) (No. 75 of 1997)

• The Compensation for Occupational Injuries and Diseases Act (COIDA) (No. 61 of 1997)

• The Skills Development Act (SDA) (No. 97 of 1998)

• Consumer Protection Act (CPA) (No. 68 of 2008)

• National Credit Act (NCA) (No. 34 of 2005)

• Employment Equity Act (EEA) (No. 55 of 1998)

• Broad Based Black Economic Empowerment (BBBEE) (No. 53 of 2003, as amended in 2013)

Adapting to the Challenges in the Business Environments

Topic Overview

This section focuses on ways in which businesses can adapt to the challenges of the business environment.

Learning Objectives

After completing this topic, learners should be able to:

• Explain ways in which businesses can adapt to challenges of the business environments.

• Suggest ways in which business can have a direct influence on the environment.

• Define the meaning of lobbying.

• Define the meaning and the importance of networking.

• Define the meaning of power relationships.

3.1 Ways in Which Businesses Can Adapt to Challenges of the Business Environments

• Information management: Collecting, storing, and distributing information that is accessible and useful to all staff.

• Strategic responses: Preparing proper plans in place to effectively eliminate certain external or internal business challenges.

• Mergers: Occurs when two companies join together, to form one new business. Example: Vodacom and Neotel

• Takeovers: Occurs when one business takes control of another business through majority ownership of its shares. Example: Vodacom and Neotel

• Acquisitions: Occurs when a business buys another business at an agreed price. Example: MTN and Afrihost

• Alliances: An agreement between businesses with common visions, working together for the benefit of all. *Example: MTN and Afrihost acquisition:MTN bought up 50% of Afrihost’s shares, and left the current Afrihost shareholders with the remaining 50% (MTN-Afrihost tie-up).

• Organisational design and flexibility: A business may describe how it is structured and how it communicates its culture in attempt to improves efficiency and adapt easily to the challenges of the business environments.

• Direct influence on the environment and social responsibility: Alternative environmental friendly production techniques, environmental awareness, joint ventures with businesses and the government, conservation and preservation programmes, and CSI programme implementation.

3.2 Ways in Which Businesses Can Have a Direct Influence on the Environment

• Businesses need to be flexible by getting involved in research/development so that they can continue to operate.

• Influence suppliers by signing long-term contracts for their raw materials at fixed prices.

• Influence customer base by creating new uses of a product, taking customers away from competitors, finding new customers, and convincing them that they need the new product.

• Influence regulators through lobbying and bargaining, as well as owners with information contained in annual reports.

Projects That Can Be Undertaken By Businesses as Part of Social Responsibility:

• Businesses must allow their employees to get involved in social development programs.

• Must protect the environment and participate in community upliftment programs, i.e. engage in environmentally friendly campaigns like recycling or re-using scarce resources.

• Businesses must also support less-fortunate people by providing donations to charity organizations and engage in economic development projects and education programs on HIV/AIDS.

Benefits of Social Responsibility Projects for Businesses:

• Increase employees’ morale and job satisfaction.

• Can be used as a marketing strategy.

• Helps attract investors due to increased profits.

• Promotes customer loyalty, resulting in more sales.

• May attract skilled labor, which could increase productivity.

• The business enjoys the good will of communities.

3.3 Lobbying, Networking and Power Relationships

Lobbying:

An organized process where individuals, businesses, and organizations use their influence to change government policy.

Reasons Why Businesses Lobby:

• To influence prices, policies, regulations, and other decisions made by the regulator or the supervisory body.

• Lobby to change laws.

• Provide input to business challenges.

• Build public trust.

• Find solutions to emerging generic challenges.

Types of Lobbying:

• Hedging against inflation: Investing money in a way that its value overcomes inflation by buying bonds/shares/property.

• Bargaining sessions between management and unions: Enable employees to negotiate with employers as a group to protect employees’ rights and prevent labour strikes.

• Influencing supervisory body/regulators: Businesses influence and negotiate with these regulators to protect their sustainability.

Networking:

Networking refers to a coordinated activity where people who have similar objectives meet and exchange information and ideas.

Practical Examples of Networking:

• Formal networking

• Informal networking

• Social media and the internet

Advantages of Networking:

• Attract new customers, resulting in increased market share and profitability.

• Source of new prospective and business ideas.

• Build new business relationships and generate new business opportunities.

• Leads to new insights for expansion, better decisions, and new business strategies.

Power Relationship

Power relations can be described as a measure of a business’ ability to control its environment and the behavior of other businesses.

Ways Businesses Can Form Power Relations:

• Strategic alliance/partnership agreements: Benefit from each other’s involvement.

• Persuasion of large investors: Gain investments and credit more easily, while negotiating better deals from suppliers.

• Company representatives’ influence: Important function in trying to persuade investors to invest in particular business.