An in depth summary of the Grade 12 IEB Business Environments topic; summary made using the Consumo Business Studies Grade 12 Learner book! These notes got me a distinction in Business studies with an average of 87%!
Business environments (Grade 12)
17 July 2022 1:16 PM
Macro environment
• Both the macro and market environments form part of the external environment
• Business has no control over events taking place in the external environment, but it needs to consider these events and must design strategies (plans of
action) to adapt to situations in the external environment
• Nevertheless, it is also important to keep in mind that the events occurring within the business (internal environment/ macroenvironment) may in turn
impact on events in the macro environment, as illustrated by the following examples:
○ In the event of a strike, an individual business or group of businesses (industry) may have an effect in the economy
○ A business employing or retrenching workers contributes to the employment/unemployment rate of the country
○ The way the business operates may directly influence the physical environment in which it operates
• Various tools may be used to analyse the events in the macro environment in order to:
○ Determine how the business should react to eliminate any threats
○ Capitalise on opportunities to achieve a competitive advantage
• Some tools that may be used to analyse the macro environment include:
○ An environmental scan
○ A SWOT analysis
○ A PESTLE analysis
An environmental scan
It is important to do an environmental scan to identify factors that may impact on the business and then adjust existing plans or develop new plans to deal
with these factors/events.
An environmental scan is not limited only to macro environment, but can be used as a tool when looking at the market environment and the micro
environment as well
However, when an environmental scan is used in the macro environment, the following process is applied:
• The business will scan (look at) the macro environment in order to identify issues which need be to be addressed:
• Although a SWOT analysis may be used to evaluate factors in both the external and internal environments, in the macro environment, only
opportunities and threats are considered
• PESTLE is a useful tool to identify specific opportunities and threats in the macro environment
A SWOT analysis (Only O and T)
The O (opportunities) and T (threats) refer to issues in the macro and/or market environments. In the macro environment the exchange rate may deteriorate
and if raw materials are imported, it may threaten the profitability of the business.
A PE²STLE-analysis
Each of the letters in PESTLE represents a factor in the macro environment that could potentially threaten the business or that the business may use as an
opportunity to create or strengthen the competitive advantage
1. Political factors:
• The factor is important in relation to:
○ The local political situation of the country in which the business operates
○ The political situation of other countries in which the business may operate.
○ But also including world politics in general
• Political factors and legal factors are closely related, as the political party running the country, will make the laws (legislation) that determine what is
acceptable and what is not allowed.
• When one reviews the political factors that may impact the business, the following aspects should be considered:
○ The likelihood of the government interference in the economic functioning of the country (and therefore, the running of the businesses), as with a free
market vs. socialism vs. communism
○ The degree of political stability in the country and its impact in business confidence
○ Political ties with other counties as this may for instance influence trade agreements
○ Degree of media freedom/freedom of speech which may be used to criticise the political parties in the country when government officials make
themselves guilty of corruption
○ The attitude of different political parties in the country where business is conducted is important. The local banking and mining sectors for example may
want to take note of a political party such as the EFF that is in favour of nationalising banks and mines. Even though the ruling party does not support
this view, it is good to consider the point of views of opposing political parties as they may (or may not) shape the future political orientation of the
country
○ The process followed when government tenders are allocated (if the business is interest in tendering for government contracts)
2. Economic factors:
Economic factors that may affect the business and which ought to be analysed to assess what the implications may be include:
○ Economic growth and development rates in the country and the direct consequences of these factors: the improvement (or deterioration) of the
standard of living of the people of the country
○ Inflation rates: inflation is the continuous and significant increase in the general price level of goods and services. The higher the inflation rate, the
lower then purchasing power of the monetary unit will be
○ Interest rates: the rate at which people or businesses borrow money from the bank or the percentage return on investment when saving money in the
bank. High interest rates make it difficult for businesses to borrow money to expand
○ Exchange rates (the strength of the local currency vs. the currencies of other countries) : if the rand depreciates against another currency, it will become
more expensive to import from that country
○ High unemployment rates mean people do not have money and as a result businesses suffer lower profits
○ Taxes such as income tax, VAT and import duties etc.
Business environments Page 1
, 3. Ethical factors:
• Ethical refers to the principles and/or values that will determine if decisions and actions are acceptable.
• Ethics provide a guideline for the person/business to evaluate how to act in the "right" way when faced with a moral dilemma or difficult situation.
• Elements that should be considered include:
○ What is the difference between ethical and legal? Something may be legal but not ethical in a particular situation. A person's or business' set of
principles may be ethical, but it may not be legal in terms of a country's trade regulations
○ Fair trade refers to respect and transparency in business dealings, acknowledging that one party will not attempt to exploit the other
○ Corporate social responsibility: it is then responsibility towards the shareholders to make profit vs. the responsibility towards giving back to community
○ An employee's privacy regarding the use of the internet vs. the rights of the business to exact responsible behaviour from employees. Employers must
be able to access computers to ensure employees are not contravening the company's regulations
4. Social/ socio-economic factors:
• Socio-economic factors refer to the impact that social trends have on the economy and the role players in the economy, such as businesses and
consumers' behaviour and their lifestyle.
• The business has to adapt to changes in social trends. Think about the impact that social media has on the world around you and how businesses have
to adapt their marketing and sales tactics to utilise opportunities related to the use of mobile devices
• Other factors may include:
○ The average age of the population, the life expectancy and people becoming more health conscious
○ The number of single parents providing for a family
○ HIV/AIDS infection and diseases such as TB and malaria
○ Levels of literacy/ education
○ Unemployment rates
○ Personal safety and crime
○ Awareness of the issue of pollution and recycling
○ Distribution of wealth/ poverty
○ The changing role of women in society in certain cultures
5. Technological factors:
• Technology refers to the equipment the business uses to buy (or make), advertise or sell the products or services
• Think about the following factors:
○ We have already referred to the rapid development of issues surrounding social media
○ Automation of different processes, requiring less use of lower-skilled (and thus cheaper manual labour)
○ Advances in online money transfers (internet banking, electronic fund transfers)
○ Online shopping
○ Quicker sales transactions through EPOSSE (electronic point of sales scanning equipment as opposed to manual pricing) at pay points
○ Product innovation through research and development (R and D)
6. Legal environment:
• The legal environment refers to all the laws that impact on the business. This may include:
○ Labour legislation such as the Labour Relations Act, the Basic Conditions of Employment Act, Broad Based Black Economic Empowerment, Skills
Development Act and the Occupational Health and Safety Act.
○ Legislation introduced to protect the consumer and consider the Consumer Protection Act and the Credit Act (the latter not part of the syllabus).
Scrutinize information displayed on labels designed to inform and protect consumers
○ Laws that protect the environment against exploitation and pollution
○ Criminal justice that protects the business against piracy and rip-offs.
○ Laws relating to paying tax, registering the business, health and safety and specifications for dealing with food
7. Physical environment and other environmental factors:
• Environmental factors are important if one thinks of the growing awareness to protect the environment and to prevent negative consequences such as
global warming and changes in weather patterns
• Think about the general move towards more environmentally friendly products, the emphasis placed on recycling, hybrid cars, higher taxes on air travel
and efforts to reduce the carbon footprint
The Market environment
• The market environment is any place (physical or electronic) where goods and services are bought and sold.
• A variety of tools can be used to investigate forces in the market environment which may include:
○ An environmental scan
○ A SWOT analysis (O and T only)
○ The use of the six forces as identified by Porter
Environmental scan
• The business scans (looks at) the market environment in order to identify issues that need to be addressed
SWOT analysis
• Can be used to consider factors in both the external and internal environments, in the market environment, only Opportunitiesand Threats will be
considered
Porter's Six Force Model
• Is a useful tool to identify specific opportunities and threats in the market environment
• It investigates the following:
○ Competitors: which businesses sell the same product
○ Substitutes: which businesses sell a similar (substitute) product
New entries: which businesses may try to enter the market in the future
Business environments Page 2
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