MNB1501/1/2018–2020

Learning Unit 4
The business environment

INTRODUCTION AND AIM OF THE UNIT

The South African business environment is dynamic and changes from day to day. A com-
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pany exporting or importing products from the European Union (EU) or the United States
experiences constant fluctuations in the economic environment. An example is the daily
change in the official exchange rate of the rand against the euro and the US dollar. Another
variable that impacts on organisations and customers alike is the dramatic changes in
the price of petrol. Petrol, a basic commodity, currently costs more than R10 a litre, thus
having a negative effect on the inflation rate and ultimately economic activity. Climate
changes in South Africa may also have a negative effect on businesses and the private
customer alike. Prices of basic foodstuffs such as vegetables are influenced by periods
of drought, cold spells and wet spells. This learning unit introduces you to the environ-
ment in which the business organisation functions and explains how the environment
impacts on business.

STUDY CHAPTER 4 (sections 4.1, 4.3–4.8) IN ITBM

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Contents of the learning unit:

 The business and environmental change

 The composition of the business environment
 The micro-environment
 The market or task environment
 The macro-environment
 Environmental scanning

20 Learning objectives

When you have worked through learning unit 4, you should be able to

 explain the meaning of environmental change

 explain the nature and composition of the business environment
 discuss each of the components of the environmental model
 explain how each of the environmental variables can impact on an industry or an indi-
vidual business
 describe some ways in which management should respond to the influences of the
environment
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 KEY TERMS

business environment micro-environment

market environment macro-environment
environmental change composition of the business
environmental scanning environmental SWOT analysis

Refer to the end of chapter 4 in the prescribed book to familiarise yourself with the key
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terms for this learning unit before continuing.

4.1 THE BUSINESS AND ENVIRONMENTAL CHANGE

Study section 4.1 and read section 4.2 in ITBM.

The effect of change

Change can be described as an alteration in the status quo – in a business sense imply-
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ing that there are alterations in the business environment, which the business must take
note of. Some years ago, in his book Future Shock, Alvin Toffler predicted that the rate of
change in society would increase dramatically and that most people would have great
difficulty just keeping up. Practical examples of the increase in the rate of change are to
be found in the convergence of different elements of telecommunications. Today’s cell
phone is a minicomputer, giving you, for example, access to your e-mail – a function that
was previously only possible on your computer. More and more we see that changes in
technology are occurring at a faster rate. The long-playing vinyl records of the 1960s were
replaced by compact disks, which were then replaced by DVDs and MP3 equipment.
Older people are usually more affected by these rapid changes than younger people. In
the business world we also see older businesspeople struggling to keep track of changes
in technology and its impact on the business.

Section 4.2 of the prescribed book describes some of these changes and the effect they
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may have on a business. You do not need to memorise the details of these changes, but
you do need to understand how important it is for management to continuously monitor
changes in the environment that will affect the business.

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4.2 THE COMPOSITION OF THE BUSINESS ENVIRONMENT

Study section 4.3 in ITBM.

Defining the business environment

It has been stated that the business environment is dynamic and that the business must
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adapt to changes in the environment. The business environment in which the business
operates can be defined as the sum of all those variables which may influence the successful
existence of the organisation.

The three subenvironments of the business environment

The functioning of the business environment is explained by subdividing the business
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environment into three subenvironments: the micro-environment, the market environ-

ment and the macro-environment.

The micro-environment refers to the business itself – the workers and managers, and
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the functional areas in which a business are divided, such as the financial section and the
marketing section. The main characteristic of the micro-environment is that management
have almost complete control over things that happen in this environment. Management
can, for instance, decide on the price that they will charge for the product that they sell,
or how they are going to market the product to the customer.

The market environment refers to the immediate external subenvironment that has a di-
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rect influence on the business. For most businesses, this environment comprises consumers
(also called customers), competitors and suppliers. It may also include intermediaries (or
distributors). For example, Ford Motor Corporation manufactures and markets vehicles
in South Africa. The actual selling of the vehicles, however, is done through a network of
independent dealers (i.e. the intermediaries). Management can exert some control over
this environment, but certainly not as much as they can over the micro-environment.

The macro-environment refers to the greater external environment that will influence
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the business to a lesser or greater extent. Take the impact of an economic recession,
for example. A recession may have a tremendous impact on future expansion plans, on
production volumes, purchases and labour employment for the business. Management
probably have the least control over what happens in the macro-environment. The effect
of an increase in the interest rate by the Reserve Bank must be accepted by the business
and they must live with the consequences of this increase.

Characteristics of the business environment

Section 4.3.2 of the prescribed book sets out some important characteristics of the busi-
385

ness environment:

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 The variables are mutually related, that is, changes in one variable will often bring about
changes in another. To illustrate the point, a shortage of crude oil and the resultant
increase in the international oil price will negatively affect (increase) the inflation
rate of South Africa. The oil supply forms part of the international environment and
the inflation rate forms part of the economic environment. For some businesses the
oil supply can also be seen as part of the market environment, that is, the suppliers!
 There is evidence of increasing instability in the sense that nothing stays the same
for very long. Look, for instance, at the daily fluctuations in the rand–US dollar
exchange rate.
 There is growing uncertainty about the future – even the immediate future is difficult
to predict because of the lack of information or the unreliability of information. Who
knows what the rand–US dollar exchange rate will be next year?
 It is a complex environment because of the many variables that may cause and
influence change. Various components in the three subenvironments may change
at the same time. There could be a strike at the business, which affects the output
and profitability of the business; at the same time the retailers that are stocking the
product may be demanding increased supplies, while the Chinese exporters are
exporting more competitive products to South Africa. We see here that variables in
the micro-environment, the market environment and the macro-environment are
simultaneously at play and influencing this business.
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Activity 4.1

Identify the three subenvironments of the business environment for an organisation

such as Shoprite and briefly describe the influence of each of these subenvironments
on this business.

21 Feedback:

Contact your e-tutor via myUnisa for the answer to this activity.

4.3 THE MICRO-ENVIRONMENT

Study section 4.4 in ITBM.

Components of the micro-environment

387 This subenvironment has the following three components.

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4.3.1 The mission and objectives of the business

The Pick n Pay retailing group has the following group mission statement which says
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a lot about the organisation: “We serve – with our hearts we create a great place to be
– with our minds we create an excellent place to shop.” In its mission statement Pick n
Pay indicates its intention to serve its customers while striving to make its organisation
the preferred place where customers do their shopping. The objectives of this retailing
group are usually measured in terms of market share, profits to be realised and even
empowerment of their workers. These objectives are usually sensitive and not divulged
to the public, because they could land up in the hands of the competition.

4.3.2 Organisational functions

Among other things, organisational functions refer to purchasing the necessary supplies
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and the logistics of getting the supplies at the right place, the marketing efforts needed
to meet the wants and needs of the organisation and the financial expertise needed to
ensure that profits are made and that taxes paid to the South African Revenue Service
are correctly calculated and paid over on time.

4.3.3 Human resources

The human resources of the business are an important asset that must be carefully
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nurtured and developed to make a business successful. Without the necessary skilled
and enthusiastic personnel many a business has been forced to close its doors. One of
the major problems faced by South African businesses is the impact of HIV/Aids on the
workplace and on employees. Although the HIV/Aids problem can be seen as part of the
macro-environment and, more specifically, as part of the social environment, managers
must take notice of its implications for the specific business that they are managing. It
is a fact that South African businesses cannot afford to lose highly skilled workers to
this debilitating sickness. Businesses vary in their approach to managing HIV/Aids in the
workplace. Business practices that contribute to mitigating the effects of the illness and
preventing its spread include the following:

 Gathering information from partnerships and collaborations. Partnerships or collabo-

rations with external experts, local and international NGOs, academic institutions,
government bodies, multilateral institutions, labour unions or employee associations
are critical to the development and implementation of an HIV/Aids programme.
 Creating an HIV/Aids policy. A written statement by the organisation describes their
policy on HIV/Aids; if possible people living with HIV/Aids should be involved in draw-
ing up this statement. Businesses where employees are at risk of workplace exposure
to HIV should spell out training requirements, safety procedures and equipment, and
have a plan for responding to workplace exposure to the virus.
 Involving multiple stakeholders in policy and programme development. The organi-
sation should seek feedback from local and international NGOs, academics, health
experts, unions and employees to make sure that a policy is thorough, fair and just,
and answers concerns of workers. During programme development, the Ford Motor

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 Company of Southern Africa held a series of round-table discussions with stakeholders
to gain the support of the community and feedback on its HIV/Aids policy.
 Approaching HIV/Aids as any other debilitating disease. From a policy perspective,
approaching HIV/Aids as any other progressive disease will help remove its stigma
and make employees living with HIV/Aids less likely to suffer discrimination and,
therefore, willing to come forward for treatment.
 Designing workplace HIV/Aids programmes to fit local cultures. The organisation
should develop policies and programmes to deal with the circumstances of HIV/Aids
prevalence, primary mode of transmission, level of work force education and cultural
norms, by taking into account local cultures and conditions.
 Ensuring that the HIV/Aids policy is a living document. The organisation should make
sure that the policy is driven by all levels and units within the organisation, so that
it is not viewed as only a human resource policy.
 Using a comprehensive approach. It is important to follow an approach that focuses
on prevention, education and treatment. A programme that focuses only on providing
access to drugs while ignoring behaviour will ultimately not have a significant impact
on workers’ behaviour.
 Intervening early. Early intervention is one of the most important strategies of any
HIV/Aids programme. Organisations such as Eskom, with education programmes
dating back to the late 1980s, claim to have lower prevalence rates in their work force
than other businesses in their community because they made HIV/Aids a business
priority early on.
 Getting support from the organisation’s leadership. Clear support from leader-
ship is critical, particularly with respect to obtaining resources for comprehensive
programmes.
 Providing ongoing education and training. The organisation should reinforce and
expand the organisation’s HIV/Aids policy by providing education and training for all
employees, starting with the orientation of new employees. Include information on
the illness, how to prevent HIV infection, appropriate workplace conduct and legal
issues that may arise; and provide guidance for managers and supervisors on com-
plying with laws and regulations, managing benefits, accommodating employees
with HIV/Aids and helping employees who ask for counselling.
 Ensuring legal compliance. The organisation should gain a full understanding of the
laws and regulations governing workplace practices with respect to HIV/Aids and be
certain to learn about new legal developments as they occur.
 Supporting employees with HIV/Aids. Employees with HIV/Aids should be helped to
balance their job demands and stresses associated with illness-related issues by of-
fering support groups, flexible work scheduling, telecommuting and extra time off.
Nutrition and exercise programmes have proven particularly effective in improving
lifestyle and maintaining productivity.
 Giving employees opportunities to support the fight against HIV/Aids. Where cul-
turally appropriate, employees should get regular opportunities to make a positive
contribution by creating fund-raising ventures and volunteer opportunities with local
HIV/Aids-support groups – and be given time off to participate in these activities.
 Helping build local capacity. The organisation should work with local governments,
NGOs and health-care providers to strengthen local infrastructure and capacity with

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a view to creating sustainable health-care access for employees and the broader
community.
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It is clear from the above that management can, to a large extent, determine the success
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of the business. When things do go wrong for the business, one of the most common
reasons can be traced back to poor management practices.

Activity 4.2

Why is it necessary for South African businesses to actively get involved in tackling HIV/
Aids in the workplace?

22 Feedback:

Contact your e-tutor via myUnisa for the answer to this activity.

4.4 THE MARKET OR TASK ENVIRONMENT

Study section 4.5 in ITBM.

Description of the market environment

The more common term used in management terminology to describe this environment
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is the “market environment” because it refers to the immediate consumer market, the
supplier market and the intermediary market in which competitors also operate. However,
because the profitable development of this market is often seen as management’s most
important task, it is sometimes referred to as the task environment.

Components of the market environment

394 As stated above, the market environment consists of the following components:

 The consumer (also called the customer) is the main reason why the business is in
operation. Without a consumer to buy the product or service of the business that
business will eventually fail. So the business must understand the wants and needs
of the customer. Information about the customer is therefore needed and the or-
ganisation must ensure that they keep track of changes in this market.
 Suppliers are categorised as supplying material, capital and labour to businesses
in South Africa. Material is a broad term referring to the raw material required,
the manufacturers of products and the supplier of energy, which is used by most
businesses. Capital is supplied to businesses through various alternative sources of

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 which banks (e.g. Absa, Nedbank, Standard Bank and First National Bank) are the
most important. Labour is supplied to businesses through organised labour which,
especially in South Africa, has an important say in what the workers are paid and
what the conditions of service will be.
 Intermediaries are those institutions used to bridge the gaps between the manufac-
turer and the customer. Some of the most important intermediaries are the whole-
salers that sell grocery products to small businesses such as the spaza shops in the
townships. Agents who sell real estate are another form of intermediary that bridge
the gap between the buyer and seller of a property.
 Competitors are rival businesses competing for the custom of the consumer. The most
direct competitor of a Checkers supermarket situated in Edenvale, Gauteng, is usually
the nearest Pick n Pay supermarket or Spar supermarket. More indirect competition
may be the Woolworths store or the convenience stores at the nearest petrol stations.
395

Opportunities and threats in the market environment

The market environment has a direct influence on the business, because this is where com-
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petitors compete, where the customer is found and where the suppliers and intermediaries
operate. So crucial business transactions take place in this environment. Therefore, most
of a business’s opportunities or threats are found here. For example, a strong competitor
could be a very serious threat to the existing businesses operating in the same market.
At the same time, if a business finds it difficult to compete with a strong competitor, it
may identify other needs that it can satisfy in the community – and in so doing exploit
(or utilise) an opportunity in that market. Cell C was a late entrant in the cellular phone
marketplace and from the start was under threat because it was competing against two
established competitors (Vodacom and MTN). Cell C identified a need for a different and
more cheaply structured usage for cell phone users, providing substantial savings to
prepaid as well as contract customers. Today Cell C is a niche player in the market and
has carved out a viable target market against tough competition.

4.5 THE MACRO-ENVIRONMENT

Study section 4.6 in ITBM.

The variables of the macro-environment

The wider macro-environment consists of variables that influence the business in a direct
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and indirect manner. The changes in the macro-environment are called megatrends be-
cause they influence all businesses in all the countries of the world. There are six variables
in the macro-environment:

 Technological environment. Technology is one of the main drivers of change in the

world. Old technology is replaced by new, which creates opportunities and threats

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for businesses. One example is the old telegraph service delivered by the post office.
This service was replaced by new technologies such as faxes and e-mails, creating
new opportunities for businesses as well as making what was a viable service of the
post office obsolete.
 Economic environment. This environment has a direct influence on other variables
in the micro-environment, the market environment and the macro-environment.
For example, a dramatic increase in bank interest rates may negatively impact the
disposable income of consumers who are borrowing money from banks. This may
then negatively impact the social structure of the country when fewer people are
able to buy necessities such as food, which may result in social unrest.
 Social environment. This environment is influenced to a great extent by the tech-
nological and economic environment. For example, we are all aware of growing
urbanisation with more people moving to cities because of growing unemployment
in the rural areas and the belief that better-paying jobs are available in the major
cities of South Africa. This has resulted in the rapid growth of informal settlements
with resultant demands on the infrastructure of the cities and the development of
new retailing outlets in the form of spaza shops and shebeens. HIV/Aids is another
social problem and one that has massive social and economic implications for South
African businesses.
 Physical environment. This environment focuses on the physical resources that
businesses and we as consumers use. Important aspects of the physical environ-
ment are the scarce resources that we must manage in South Africa. South Africa is
a semi-arid country and there is speculation that we will not be able to supply the
minimum needs of the population by the middle of this century. Businesses must
take this into consideration, as the primary manufacturing businesses are some of
the major users of water.
 Institutional/Political-governmental environment. The South African government
has a major influence on the landscape of business, for instance labour legislation
on employment and minimum wages.
 International environment. This environment also has a major influence on the
other variables in the macro-environment, the market environment and the micro-
environment. One example of the influence of the international environment on
South African businesses is the changing crude oil price and its impact on the price
of fuel and the inflation rate. We have seen dramatic increases in the fuel price and
the knock-on effect on the prices of food and other commodities.
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Activity 4.3

How would you classify the following developments as part of the six subenvironments
of the macro-environment?

• The government announces the date of the general election.

• Inflation is on the rise.
• Unemployment figures are on the rise.
• More women are going out to work.
• A wonder cure for influenza has been found.
• There is an increase in oil spills on the South African coastline.

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Feedback:

Contact your e-tutor via myUnisa for the answer to this activity.

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4.6 ENVIRONMENTAL SCANNING

Study section 4.8 in ITBM.

Description of environmental scanning

Environmental scanning is described as the process of the measurement, projection and
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evaluation of change in the different subenvironments. It can therefore be used to keep

abreast of external social, economic, technological and political developments which
may be difficult to observe or predict, but which management dare not ignore. It entails
the identification and monitoring of every opportunity or threat, and may range from a
simple information system to a formal environmental scanning division or unit whose
sole task is to monitor external environmental factors.

Because of dynamic changes in the business environment, the organisation must scan
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its environment on a continuous basis. As stated previously, the scanning process may
differ from one business to another.

Activity 4.3

Is environmental scanning the same for all types of businesses?

Feedback:
24

Contact your e-tutor via myUnisa for the answer to this activity.

SUMMARY
You now have a basic insight into the business organisation and the business environment.
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In topic 2 we will study the general management principles needed to manage a business.

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BUSINESS IN CONTEXT
Refer to the recommended book entitled Business Cases, in particular case study number
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3 “The business environment: The airline industry”. This is not compulsory for you to
do, but merely a business-in-context addition to your learning of business management.

SELF-ASSESSMENT QUESTIONS

You are the CEO of the Chicken Spice fast-food franchise with 20 company-owned stores
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in South Africa and 50 franchisees operating Chicken Spice stores under licence. You are
preparing for a meeting with the board of directors of the business and have drawn up
a SWOT analysis of the business environment in which the company is operating. Write
down the key points that you will cover at the board meeting regarding the SWOT analysis.
Use the current business environment in South Africa as your point of departure.

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

The South African fast-food business is a vibrant sector with numerous success stories,
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such as Nandos, Kentucky Fried Chicken and Chicken Licken to name but a few. Against
this background, let us take a look at the Strengths, Weaknesses, Opportunities and
Threats of this company (do a SWOT analysis).

406 Strengths of the company may be

407 • a good product
408 • good relationships with customers
409 • good management team
410

Weaknesses may be
411

•
412 small operation with limited reach – there are other fast-food franchises with more
than 100 outlets, making it difficult to compete
•
413 because of small operations, no economies of scale regarding aspects such as bulk
buying and reaping the benefits of cheaper prices
•
414 regular cash flow problems
415

416 Opportunities may be

417 • rapidly growing new middle class with the money to buy chicken products at fast-
food stores
418 • changing tastes of consumers and recognition in the market that chicken is a healthier
alternative than red-meat products such a hamburgers
419 • diversifying into a number of product lines, such as low-fat French fries, salads and
low-fat ice cream
420

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421 Threats may be
422 • growing competition from rivals in this sector
423 • slowdown in the economy, reducing demand from consumers
424 • negative publicity from the Minister of Health on the consumption of fast-food
products containing chicken
425 • increase in Aids-related deaths in the middle-income market, reducing the number
of households able to buy chicken fast-food products
426

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