Announcements

 Activity 1 will take place on 14 April. Refer to the

announcement sent yesterday for more information.
 More details about the tutorial classes will be
shared during the week.
CHAPTER Business Environment
Learning Outcomes
 Explain what the business environment is;
 Explain the main characteristics of the business
environment;
 Distinguish between the internal and external
environment;
 Explain how each of the business environments
impact on each other;
 Illustrate by means of a diagram and discuss the
macro-, market, and micro-environments, and the
variables that comprise each of these.
Introduction
 Businesses do not operate in isolation.
 A business is situated within an

environment – business environment.

 Environment – all the factors and forces

outside the business’s boundaries which

influence the businesses' goals,
objectives and strategies.
 In the same way people should be aware of their
environment, so should business managers be aware
about their business’s environment.
 Joe Biden is the new president of the USA. How will this
influence businesses in the USA?

As the new president:-

Is he going to increase or cut taxes?
Will he change any strategies for Covid-19?

Can you think of any other current affairs (in the news) that
could affect the business environment?
 Business Environment Defined
“All the factors and variables which influence the
establishment, growth and continued existence of the business
positively and/or negatively, thereby promoting or hindering
the achievement of the business’s objectives”

The same applies to a soccer

match. The objective is to win
the game, but players should
consider factors such as:
•The pitch condition,
•The pitch size,
•The opposition style of play
etc.
The Business Environment
 Characteristics of the Business Environment

The Business
Environment is:-
•Interrelated
•Unstable
•Uncertain
•Complex
•Unpredictable
Characteristics of the Business Environment
Characteristics of the Business Environment
Characteristics of the Business Environment

Changes in computer storage,

from a CD to a USB disk.
THE BUSINESS ENVIRONMENT
 The Micro-environment
THINK OUTSIDE THE BOX!!
Managers should be creative enough to influence the internal
environment positively.

The micro-environment consist of various variables. Let’s

see what these are…
Variables in the Micro-
environment
1. Mission Statement &
Goals
 What the business hopes
to achieve

 Must correspond with the

demands of the external
environment
This is Nike’s mission statement. It explains what Nike would
like to achieve… to bring inspiration and innovation to
everyone.
Nike’s mission statement should link to their vision statement.
It is underpinned by the core values of the company.
 Do you see innovation in this shoe?
It certainly looks very different.
It certainly does inspire athletes with
confidence about style.
 Variables in the Micro-
environment
2. The Business Functions 3. The Production Functions
 Who does what? In a  This is the resources
business each division is available to a business
responsible for different  It includes labour, raw
activities, but work together
to ensure success for the materials, capital,
business. information
 These functions include
marketing, Finance, PR, etc.
– refer back to chapter 1 if
you need more information
about the business functions.
 InfluenceofofManagement
Influence Management ononthethe
Micro-environment ?
Micro-environment
How Business and
Production
functions will be
Where to go? managed
How to get there?

How to react to
threats and
opportunities?

These are some of the questions a manager needs to answer in a business.

THE BUSINESS ENVIRONMENT


 The Market Environment
 The market environment variable are:

2.Suppliers
Provides businesses with raw materials/
3.Competition manufactured products or services
Sell SAME product or service to
the SAME consumers as the
business
 The Market Environment
Is the link between the business and the macro-environment
Influenced by both the MICRO and MACRO environment and

MACRO
Influence of MICRO-environment on
the MARKET-environment
 New products introduced
by competitors= new need
Influence of MACRO-environment
on the MARKET-environment
 Recession, Trade laws etc.
impacts consumers,
suppliers and competitors
 The Market Environment
 Can you analyse the market environment of the
UFS?
 Write down at least 2 customers, 2 suppliers and 2
competitors.
 The Market Environment
 Did you indicate any of these customers?
 The Market Environment
 Did you indicate any of these suppliers?
 The Market Environment
 Did you indicate any of these competitors?
 The Market Environment
 You can be more specific and add more examples, this was
show you in broad terms the market environment of the UFS.
Types of Markets
Practical application

Identify the markets by looking at the following

5 pictures and short explanations. Answers will
follow after picture 5.
Number 1

De Beers selling diamonds to various international

clients and jewelers.
Number 2

Diary Bell factory produces yogurt and cheese.

Number 3
Jumbo Wholesalers and Pick and Pay sell tinned goods to earn a
profit.
Number 4
Mangaung Metro Municipality purchases new vehicles for refuse
collection.
Number 5
A lady purchasing make-up for personal use.
Practical Application - Answers…

Were you correct?

Number 1 – International market

Number 2 - Industrial market

Number 3 – Resale market

Number 4 – Government market

Number 5 – Consumer market

Competition
Competitors
 Businesses that compete with one another to sell the SAME
product or service to the SAME consumers.
 Convince consumers: “We are Better”
 Competitors try to convince consumers to buy their products
by means of marketing
 Competitors actions- present threats and opportunities.
 Keep undated knowledge on competitors.
 An example of how competitors, whether direct or indirect, can see an
opportunity in the market.
Woolworths vs Pizza Hut

In 2018 Woolworths created an advertisement campaign to promote Valentine’s

day. The banners above were portraying the small relationship irritations men and
women experience. There was a widespread social media outrage about this.
Consumers felt that this was gender stereotyping. Woolworths had to retract the
campaign.
 An example of how competitors, whether direct or indirect, can see an
opportunity in the market.
Woolworths vs Pizza Hut

Pizza Hut saw this as an opportunity.

They created an advert to indicate that pizza is for everyone and that Pizza Hut
does not have gender stereotypes.
Types of Competition
Let’s look at a practical example
to explain the different types of
competition…
 Needs Competition
A consumer is hungry and wants to buy clothes, but only has R150
available. The consumer decides to buy food. He/She had to
decide which need to satisfy, either food or clothes.
Ways to satisfy needs competition
Now that the consumer decided to buy food he/she
can decide to either buy a pizza or a burger. The
consumer decides to buy a burger.
Product Form Competition
Which type of burger will the consumer choose?
Various options are available: chicken, beef or fish.
Trademark Competition
Let’s assume the consumer decided to purchase a
beef burger. He/She can decide to buy at any of the
competing companies displayed.
Suppliers
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THE BUSINESS ENVIRONMENT



THE MACRO-ENVIRONMENT

 The macro-environment surrounds the business and

its market environment.
 Consist of a variety of variables/ forces that can
affect the business positively or negatively.
 The positive or negative influence on the business
can encourage or hinder the achievement of
objectives.
 These sub-environments influence one another.
 Major Forces in the Environment

Economic Natural/ Physical

Social Political

Technological International

Firms must monitor six major forces in the broad environment:

demographic, economic, social/cultural, natural, technological,
and political-legal. We’ll describe them separately, but
remember that their interactions will lead to new opportunities
and threats.
56
 The Economic Environment

 The economic environment is that part of the macro-

environment consisting of factors which influence
the personal disposable income of consumers as well
as their purchasing behaviour.
 The disposable income can be influenced by interest
rates, inflation, trade cycles and the economic growth
rate.
 The Economic Environment
 INTEREST RATES
 The Price at which money can be bought
 The current prime interest rate is 7,00%. This is the
rate consumers pay to secure loans from financial
institutions.
 The current repo interest rate is 3,50%. This is the rate
financial institutions pay to secure loans from the
South African reserve bank.
 Interest rates fluctuate over time.
 It can increase (leading to less disposable income) or
decrease (leading to more disposable income)
This graph displays the decrease in the prime interest rate from
December 2019. During the Covid-pandemic the South African Reserve
Bank reduced the prime interest rate by 3% to assist the economy. The
Monetary Policy Committee has meetings every 2 months to decide
whether the interest rate should increase, decrease or stay the same.
Various factors are considered before making their decision.
The Economic Environment
 Inflation
 Continual rise in the prices of products and services
 Has an impact on the purchasing power of the Rand
 Ideal inflation rate is between 3-6%
How things can change in 15 years…
500g Flora margarine

2006 – R9.49
2021 – R36.99

Five roses tea

2006 – R13.95
2021 – R54.99

Long life milk

2006 – R5.75
2021 – R14.95

Six pack soft drink

2006 – R16.70
2021 – R57.99

2kg Frozen chicken

2006 – R21.89
2021 – R74.99
The Economic Environment
 Trade Cycles
 Cyclic changes in the economy
 A business needs to be aware of the phase through
which the economy is moving, because the different
phases has it’s own demands on the business.
63
 The Social Environment

 The social environment is linked to the

demographics of the market and the social and
cultural aspects which may influence the market.
 The factors which influence the social environment
will be discussed on the next few slides.
 The Social Environment
 Size and composition of the population
 Population growth – bigger or smaller families
 Market Composition – different ethnic groups, genders
etc.

Population Growth Market Composition

 The Social Environment
 Size and composition of the population
 The changing role of women – women are more
empowered
 Life expectancy – people live longer

Changing role of Life Expectancy

Women
 The Social Environment
 Geographic Location
 Urbanisation and depopulation of the rural areas
 Development level of the market
 Consumer education and training
 Information is available everywhere and consumers can use the
internet to access a lot of information
 Other factors
 Changing Lifestyles- Consumer are quality conscious
 Time- Convenience is very important, consumers do not want to
spend a lot of time shopping
 Healthier lifestyles- fitness and healthy food
68
Technological Environment
 Rise to new products and services made available in
the market
 Product Improvements

 Create Opportunities as well as Threats

 Products and services can become obsolete
 Make provision for research and development
(R&D)
70

Changes in cell phone technology

Various services can now be accessed through
cell phones e.g. choosing between restaurants,
getting quotes online etc.
72
The Natural/ Physical Environment

 This is the natural resources of a

country
Includes gold, coal, diamonds, water,
natural forests etc.
Air, Natural beauty of a country
(scenery)
 The Natural/ Physical Environment
 Limited and Expensive Resources
 Needs to be managed efficiently
 Mining Industry
 The world’s sea life (ban on whaling)
 Technological alternatives: find cheaper ways – e.g. use
of water, wind and solar to generate electricity.

 Environmentalism and Pollution

 Air, water & noise pollution
 Poisonous waste products
 Combating pollution- Packaging
“Green” Packaging
 How does drought affect farmers?
What about the prices of farm products?
Floods and the economy.

Are floods good for the economy?

Why do you think so?
Can business managers control flooding/rain?
78
POLITICAL
 The influence which authorities (government,
provinces, and municipalities) are able to exert on
the business by means of legislation and
regulations.
 Effect that specific institutions & pressure groups
have on business.
 -Treasury: fiscal & monetary policy, municipal
rates
 - Reserve Bank: interest, taxes, budget
The Political Environment
 Statutory Provisions
 Companies Act: trading license, registration with
SARS
 Advertising Regulations
 Consumer Protection Act
Looking after
 Trade Unions Employees

Looking after Businesses

 Associations and institutes
 In this advertisement the clown of McDonalds is
featured in an advertisement of Burger King. Two
brands are showed against each other. This is not
allowed in South Africa due to advertising legislation.
82
The International Environment
 International Technology
 SA Imports Technologies
 Sasol- synthetic fuel
 International Politics
 Zimbabwe
 Sanctions against Russia
 The war in Syria
 The travel ban in USA
 International Economies
 Rand/Dollar Exchange rate
 The International Environment
 The ongoing civil wars in Syria
and Iraq has caused a lot of
people to flee their homes and
head for safety, mainly in
Europe.

Q: How does this crisis affect the

European business environment?
Announcements
 Activity 1 will take place on 14 April. Refer to the
announcement sent yesterday for more information.
 More details about the tutorial classes will be
shared during the week.