Business Studies Grade 12 HEAD FOR SUCCESS. Topic 4: The business sector and its environment TERM 2.

Business Studies Grade 12

HEAD FOR SUCCESS

Topic 4: The business sector and its environment

TERM 2

INTRODUCTION:THE THREE BUSINESS ENVIRONMENTS :

Businesses operate in the business environment. The business environment is made up of three

components: The micro environment The market environment The macro environment

Each of these environments has its own characteristics.

THE BUSINESS SECTOR AND ITS ENVIRONMENT

INTRODUCTION:THE THREE BUSINESS ENVIRONMENTS:

In general, we can say that the business environment is:


Dynamic • The business environment changes frequently.• Businesses must adapt to the challenges in the

business environment and formulate strategies to cope with these challenges.

Interrelated

• If something happens in one business environment, it can have an influence on other business environments.

• Businesses in one sector need goods/services provided by other sectors.

Unpredictable

• There are many factor that contribute to the volatility of the business environments, for example new competitors, consumer behaviour and economic conditions.

Complex • Each business environment is made up of several control factors - each of which is continually influencing a business.


Not always under control

• The degree of control businesses have over control factors differ from one environment to the next.

• The elements of the micro environment are fully controlled by a business.

• The control factor from the market environment give rise to opportunities and threats.

• The business enterprise has no control over these factors.

• The business enterprise is, however, able to influence some of the control factors from the market environment.

• Management has no control over the elements of the macro environment.

• However, management must react to these elements before they develop into dangerous threats

• One way in which business enterprises can deal with the challenging macro-environment, is by getting involved in the macro-environment, for example by:

Investing money in research to develop new technologies.

Fighting inflation by offering products at reasonable prices.

Applying for government tenders. If a tender is granted to an enterprise, it creates the opportunity to interact with and influence government.

INTRODUCTION:THE THREE BUSINESS ENVIRONMENTS:

In general, we can say that the business environment is:


Different for

different businesses

• Even though every business operates within the business environment, this environment differs from one business to another, for example the management team of Business A differs from the management team of Business B.

EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:

CONTROL OVER THE MICRO ENVIRONMENT :


Element Description Control

Vision, mission,

strategy and objectives

Written statements of what a business enterprise hopes to achieve.

• Management determines a business enterprise’s vision, mission strategy and objectives.

• Management has full control over a business enterprise’s vision, mission, strategy and objectives.

Organisational resources

The means or resources available to a business enterprise, including human resources, capital resources, natural resources and entrepreneurial resources.

• Management decides which resources are required to run a business.

• Therefore, management has full control over organisational resources.





Management The people responsible for running a business.

• Managers and leaders are appointed by a business.

• The business chooses which people to employ.

Business functions

Eight business functions can be identified. These functions refer to the different departments of a business enterprise.

• Management determines how each department is managed, what the functions of each department are and what each department is responsible for.

• The various business functions are therefore under the control of management.





Organisational structure

Refers to the way employees are organised in a business enterprise.

• Management decides how the employees of an enterprise are organised.

• Management can either choose a hierarchical management structure or a flatter organisational structure.

Organisational culture

Refers to “the way in which things are done” in a business enterprise.

• The business enterprise’s culture and atmosphere are created by management.

• Management has full control over a business’ organisational culture and structure.

Working environment

Refers to the atmosphere in which employees work.


CONTROL OVER THE MARKET ENVIRONMENT :



Market (Consumers / Customers)

Buyers of the goods and services a business enterprise offers.

• A business enterprise cannot force consumers to buy its goods or services.

• Businesses can, however, influence consumers to buy goods and services through advertising, sales promotions and fair prices.

Competitors Other businesses who offer consumers the same or similar goods and services.

• Business enterprises cannot control their competitors’ behaviour.

• Business enterprises can, however, influence their competitors’ behaviour by offering excellent services and good prices.





Suppliers Business enterprises and people who provide resources to other enterprises to produce goods or services.

• Business enterprises depend on prompt delivery of good quality goods by suppliers.

• Sometimes, suppliers experience problems which result in goods being late.

• It also happens that suppliers deliver sub-standard goods.

• Business enterprises cannot control problems experienced by suppliers.

• However, if a business is not satisfied with a supplier, it can change suppliers.





Intermediaries

Also known as agents who help promote, sell and distribute products to consumers.

• Business enterprises acquire the services of intermediaries to sell goods and services on their behalf.

• Intermediaries usually work for commission.

• This means that the more products intermediaries sell, the more money they earn.

• Businesses cannot control the actions of intermediaries.

• Businesses can influence intermediaries to a great extent, because intermediaries depend on selling a business’s goods and services to earn commission.

Element

Description Control

Other organi-sations (civil

society)

Civil society consists of organisations at local, provincial and national level. Most civil society organisations focus on welfare. Civil society includes:• CBO’s and

NGO’s• Regulators• Strategic

allies• Unions

• Business enterprises form part of civil society.

• Business enterprises can play an active role in civil society by getting involved in the fight against corruption, poverty and unemployment.

• Regulators make rules for enterprises in different industries.

• Businesses must abide by the rules of regulators.

• However, businesses can influence regulators by getting involved in the law-making process.

• Business enterprises cannot control the decisions or actions taken by its allies, because strategic allies are independently managed, separate businesses.

• Strategic allies work together, influencing one another in order to obtain the maximum benefit from the relationship.

• Businesses cannot control the actions or decisions of unions. However, businesses can work together with unions to establish good working conditions and fair workplace policies.





Opportunities and threats

Opportunities are trends or events that can be utilised to the advantage of a business enterprise. Threats are trends or events that affect a business enterprise negatively.

• Businesses cannot control opportunities or threats which may appear suddenly in the business environment. However, a business must position itself to be capable of reacting to opportunities and threats.


CONTROL OVER THE MACRO ENVIRONMENT :



Social / Cultural /

Demographic environment

People and factors that influence consumer behaviour. Includes the personal values, perceptions, behaviour and preferences that influence consumer’s buying decisions.

• Challenges relating to this environment include the HIV/Aids pandemic, skills shortages and crime.

• These problems influence both business operations and consumer spending.

• Business enterprises cannot exercise control over these problems.

Institutional environment

Refers to institutions that provide a series of services to business enterprises, for example the SABS, JSE and the CSIR.

• Business enterprises must meet the standards set by the institutions they deal with.

• For example, the SABS will not approve a product if the product does not meet the standards set by the SABS.





Legal and political

environment

The laws and legislations that businesses have to comply with. Also refers to the political situation in a country.

• Business enterprises must comply with legislation.

• New laws can influence the way business enterprises operate.

• If business enterprises disobey laws, they are fined or punished.

• Business enterprises cannot control new legislation.

• Politics influence business enterprises because investors are reluctant to invest money in businesses operation in countries that are politically unstable.

• Business enterprises cannot control the election of the government or the decisions government makes.


Element

Description Control

Econo-mic

environment

Refers to global and local economic forces that influence business enterprises, including exchange rates, interest rates and labour action.

• The economic environment has a big influence on both business operations and consumer spending as it includes control factors such as inflation, interest rates and exchange rates.

• Business enterprises cannot control any of these factors.

Global /

Interna-tional envi-ron-ment

Global and international forces that influence business operations, for example international competition.

• Local business enterprises operate in the global environment.

• In order for local business enterprises to compete internationally, the goods and services of local businesses must meet international standards.

• Local business enterprises are influenced by the global environment and do not have any control over factors influencing the global market.





Physical / Natural

environment

Refers to forces that are present in the natural environment, including natural resources, infrastructure, pollution and finding alternative means of generating energy.

• The world is facing major crisis regarding the availability of natural resources such as oil, coal and food.

• Business enterprises must get involved in finding solutions to these problems, but are unable to control the availability of natural resources.


CONTROL OVET THE MACRO ENVIRONMENT :



Technological environment

New technology creates new business opportunities and influences the way business is conducted. The internet has, for example, enabled businesses to market their products globally.

• New technology not only influence business enterprises that sell technological products, it influences the way in which business operations are conducted.

• Upgrading to new technology is very expensive and employees usually need to be trained to use new technology.

• However, access to new technology benefits business enterprises in the long run.

• Business enterprises do not have control over the development of new technology that impacts on business operations.

THE BUSINESS SECTORS:The distinction between the three sectors lies in

the activities performed by each sector.Primary sector: extracting of raw materials.Secondary sector: manufacturing.Tertiary sector: distribution and sale of goods

to consumers and rendering of services.


THE BUSINESS SECTORS:THE PRIMARY SECTOR:

Provide resources to the secondary sector by mining, cultivation and collection of natural resources.

Raw or unprocessed materials are then supplied to other businesses for further processing, to be useful for the consumer.

Al the things that people need to meet their needs have their origins in this sector.

Natural resources such as water, minerals and metals are not made by man, but are found in nature.

This sector provides, among others, food and earns foreign exchange through the export of coal, for example.

This sector consists of different branches such as agriculture and mining sectors.

Each of the abovementioned branches in the primary sector also consists of various branches, such as the agricultural sector comprises enterprises for meat production, vegetable cultivation, grain production, fruit production, wool production, etc.

For example: forestry, agriculture, fishing and mining.


THE BUSINESS SECTORS:THE SECONDARY SECTOR:

The secondary sector is responsible for the conversion of raw materials into final products.

The secondary sector is also known as the industrial sector because this is where manufacturing processes take place.

Include factories, abattoirs, millers, etc. each with their own branches, e.g. clothing factories, car assembly plants, shoe factories, etc.

Raw materials provided by the primary sector are processed by factories / abattoir, etc. (secondary sector) into useful consumer goods.

Some businesses in this sector operates in both the primary and secondary sector, such as Karan Beef who processed beef products from their own feedlots, Sappi manufacture paper products from trees from their own plantations, etc. This type of operation ensures continuity of raw materials for processing.


THE BUSINESS SECTORS:THE SECONDARY SECTOR:

This sector makes a huge contribution to the economy of a country because many jobs are provided, machines and other equipment necessary for the processing to be purchased, foreign currency earned by the export of the finished product, etc.

Some of the businesses in this sector also make use of the by-products of their own or other factories as raw material to manufacture products, for example SASOL who manufactures fertilizer from the by-products from their petroleum plants.

The secondary sector is the link between the primary sector, where raw materials are extracted form nature, and the tertiary sector, where the products are marketed and sold.


THE BUSINESS SECTORS:THE TERTIARY SECTOR:

The tertiary industry focuses on two activities: distributing products rendering services

All institutions / businesses that deal with the distribution of finished products from the secondary sector to the consumer as well as service delivery, for example:

Wholesalers and retailers, banking, transportation, advertising agencies, etc.

Some businesses in the primary sector, for example ZZ2 Farms, is also involved in the tertiary sector, because the company has its own fleet of trucks transporting their products to different markets and outlets.

Similarly, there are businesses involved in all three sectors, for example SASOL. (Mining or coal [primary sector], processing it into petroleum [secondary sector] and transport of finished products in their own trucks to various dealers [tertiary sector]).


THE BUSINESS SECTORS:


Primary sector

Secondary sector Tertiary sector

Definition

• Extracts raw materials from nature.

• Converts raw materials into final products.

• Also known as the industrial sector and the manufacturing sector.

• Manufacturing processes take place in this sector.

• Link between primary sector and the tertiary sector.

• The production branch in the secondary sector is known as manufacturing

• Brings goods and services within reach of consumers.

• Two production branches: trade and services.

THE BUSINESS SECTORS:


Primary sector

Secondary sector Tertiary sector

Classification of

industries (example

s)

• Agricultural activities

• Mining• Forestry• Fishing

• Clothing manufacturing industry

• Motor manufacturing industry

• Furniture manufacturing industry

• Trade: Retail Wholesale • Services: Insurance Hotel and tourism Financial services

INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE PR IMARY SECTOR OVER THE MICRO ENVIRONMENT:

The way the business (farming/mining) are managed and internally organised, can help to supply better raw materials more effi ciently to buyers.

Training of workers and better use of business resources, can improve the productivity of the farm / mine.

Good strategic planning and preventative measures against natural disasters such as floods, droughts, fi res, rock falls in mines, etc. can reduce loss of production.

The use of technology can help to save money because information is always available.

Research on production methods ensures that the company can supply good quality raw materials to buyers.

Preventive measures such as insurance of assets may reduce risks.


INFLUENCE/EXTENT OF CONTROL OF BUS INESSES IN THE SECONDARY SECTOR OVER THE MICRO ENVIRONMENT:

Change in manufacturing processes can assist that raw materials are more effi ciently and more cost eff ective changed into consumer goods.

Improvement of the factory workers’ skil ls can increase the factory’s productivity.

On-going training of workers can reduce staff turnover. Improving of management skills on all three levels of

management can contribute to manage the business more eff ectively.

Purchase of quality materials can help to manufacture better quality products.

Use of cost-eff ective machinery can improve productivity and reduce costs.

Expansion of the product range can enlarge the market of the business.



INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE TERTIARY SECTOR OVER THE MICRO ENVIRONMENT:

Well trained and skilled workers will improve the quality of service to customers.

Research and development can help to provide better services.

Expansion and improvement of existing services may increase the existing market.


Improving the business’ organisational culture and the image of the business, can decrease the loss of customers.


INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE PRIMARY SECTOR OVER THE MARKET ENVIRONMENT:

The supply and demand of agricultural products affect prices and therefore particularly businesses in the agriculture sector can held non-perishable products back in the times when the product is abundant and market it later when the product is not in abundance.

Customer loyalty should be improved through improved public relations and marketing strategies.

Negotiate with suppliers for discounts when production resources are purchased.

Organise an alliance with competitors to purchase and use machinery jointly.


INFLUENCE/EXTENT OF CONTROL OF BUS INESSES IN THE SECONDARY SECTOR OVER THE MARKET ENVIRONMENT:

Just as businesses in the primary sector, businesses in the secondary sector are aff ected by the supply and demand for their product, e.g. an oversupply of maize meal will cause the price to drops.

The price of raw materials has a direct impact on the price of the final product. Businesses in this sector have to investigate from which of their suppliers of raw materials they can negotiate the best quality, price and terms.

Try to keep the selling price of the final product as low as possible, without giving up too much profi t, so that the business can compete with their rivals.

Good and eff ective marketing strategies that include good advertising practices will assist in marketing of the product to intermediaries.


INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE SECONDARY SECTOR OVER THE MARKET ENVIRONMENT:

Businesses in this sector are in the middle of the supply chain and they are exposed to the additional cost added by the intermediaries. If the extra costs of intermediaries increase the price of the product to a large extent, consumers will not be able to afford the product, which means that the factory will be producing less because the product did not sell well. A control measure in this regard may be that the manufacturer sells the product directly to consumers.


INFLUENCE/EXTENT OF CONTROL OF BUS INESSES IN THE TERT IARY SECTOR OVER THE MARKET ENV IRONMENT:

Businesses in this sector buy and sell goods or provide services for a profit. The number of competitors in the specific industry and the quality of the goods/services they provide will have an impact on a specific business’ pricing. Good service/products are therefor essential to gain an edge over competitors.

Market access can be diffi cult if there are already many businesses providing that specific goods/services.

Through market research business in this sector determine the needs of the market and ensure that they comply.

Consumer decisions should be influenced through competitive advertising.


I N FLUE N C E / E XTE N T O F C O N TR O L O F B US I N E S SE S I N TH E PR I MA RY S E C TO R OV E R THE MACR O E N V I R O N ME N T:

Statutory provisions must be adhered to, but businesses in this sector may air their views in this regard during public meetings before the Act is passed by parliament in order to reduce the eff ects of the law on the industry.

The determination of minimum wages for farm workers has a major impact on the expenses of farming, especially those that are labour intensive. Farmers can consider mechanisation to save salary costs.

Farmers can join Agricultural organisations to create opportunities for the businesses in this industry through collective bargaining e.g. negotiations with the Government to increase import duties on certain imported agricultural products in order to sell local products at competitive prices.

Conservation farming/rehabilitation of mining land after the exploitation of the minerals is important to manage a business in a sustainable manner in this sector.


I N FLUE N C E / E XTE N T O F C O N TR O L O F B US I N E S SE S I N TH E SE CO N DA RY SE CTO R OV E R THE MAC R O E N V I R O N ME N T:

International trade has a major impact on this sector. The provision of cheaper raw materials from overseas suppliers means that factories could manufacture products at lower costs and thus can ask lower prices for the processed product.

The Government and specifi c regulations in the specifi c industry has an impact on the production costs, e.g. regulations by the SABS (Institutional variable) require that products must meet certain requirements.

Various laws aff ect businesses in the industry, e.g. the Skills Development Act and Skills Development Levies Act, etc. but the advantage is that the industry has access to skilled workers which can increase productivity.

High electricity costs and uneven availability of electricity cause higher production costs. Businesses in this industry try to control the eff ect of this by making use of alternative energy sources such as solar power.


INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE TERTIARY SECTOR OVER THE MACRO ENVIRONMENT:

When manufactured goods are imported, the business should try to do it when the exchange rate for the country is the best.

The use of the latest technology regarding information and communication give the business the opportunity to grow and to increase the market share.

Through organised trading businesses in this sector can agitate against government regulations which have a disadvantage for the business.


THE THREE BUSINESS ENVIRONMENTS RELATED TO THE THREE BUSINESS SECTORS:

Look at the tables in textbook for specifi c examples p 110 - 113


Sector Business Short description

Primary SafeFish (Pty) Ltd. A private company that provides fresh fish to the secondary sector.

Secondary

Maya’s Jewellery Manufacturing (MJM)

A small contemporary jewellery manufacturing business, owned by a single owner, Maya.

Tertiary Stay Well Hotels (Ltd) (SWH)

A large hotel group with hotels in all major cities across South Africa.

Business Studies Grade 12 HEAD FOR SUCCESS. Topic 4: The business sector and its environment TERM 2.

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