HEAD FOR SUCCESS
Business Studies
Grade 1 2
TERM 2
Topic 4: The
business sector
and its
environment
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
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.
THE BUSINESS SECTOR AND ITS ENVIRONMENT
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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MICRO ENVIRONMENT :
Element
Description
Control
Vision, mission, Written statements of what a
strategy and
business enterprise hopes to
objectives
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
• Management decides which
resources are required to run a
business.
• Therefore, management has full
control over organisational
resources.
The means or resources
available to a business
enterprise, including human
resources, capital resources,
natural resources and
entrepreneurial resources.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MICRO ENVIRONMENT :
Element
Management
Business
functions
Description
Control
The people responsible for
running a business.
• Managers and leaders are
appointed by a business.
• The business chooses which people
to employ.
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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MICRO ENVIRONMENT :
Element
Description
Control
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.
Working
environment
Refers to the atmosphere in
which employees work.
• The business enterprise’s culture
and atmosphere are created by
management.
• Management has full control over a
business’ organisational culture and
structure.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MARKET ENVIRONMENT :
Element
Market
(Consumers /
Customers)
Competitors
Description
Control
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.
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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MARKET ENVIRONMENT :
Element
Suppliers
Description
Control
Business enterprises and
• Business enterprises depend on
people who provide
prompt delivery of good quality
resources to other
goods by suppliers.
enterprises to produce goods • Sometimes, suppliers experience
or services.
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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MARKET ENVIRONMENT :
Element
Intermediaries
Description
Control
Also known as agents • Business enterprises acquire the services
who help promote, sell
of intermediaries to sell goods and services
and distribute
on their behalf.
products to
• Intermediaries usually work for
consumers.
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
organisations
(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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MARKET ENVIRONMENT :
Element
Description
Control
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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MACRO ENVIRONMENT :
Element
Description
Control
Social /
Cultural /
Demographic
environment
People and factors that • Challenges relating to this environment
influence consumer
include the HIV/Aids pandemic, skills
behaviour. Includes the
shortages and crime.
personal values,
• These problems influence both business
perceptions, behaviour
operations and consumer spending.
and preferences that
• Business enterprises cannot exercise
influence consumer’s
control over these problems.
buying decisions.
Institutional
environment
Refers to institutions
• Business enterprises must meet the
that provide a series of
standards set by the institutions they deal
services to business
with.
enterprises, for example • For example, the SABS will not approve a
the SABS, JSE and the
product if the product does not meet the
CSIR.
standards set by the SABS.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MACRO ENVIRONMENT :
Element
Description
Legal and
political
environment
The laws and
legislations that
businesses have to
comply with. Also
refers to the
political situation in
a country.
Control
• 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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
Element
Description
Control
Economic
environ
ment
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 /
International
environment
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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVER THE MACRO ENVIRONMENT :
Element
Physical /
Natural
environment
Description
Refers to forces that are
present in the natural
environment, including
natural resources,
infrastructure, pollution and
finding alternative means of
generating energy.
Control
• 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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
EXTENT TO WHICH THE BUSINESS ENVIRONMENTS CAN BE CONTROLLED:
 CONTROL OVET THE MACRO ENVIRONMENT :
Element
Technological
environment
Description
Control
New technology
• New technology not only influence business
creates new business
enterprises that sell technological products,
opportunities and
it influences the way in which business
influences the way
operations are conducted.
business is
• Upgrading to new technology is very
conducted. The
expensive and employees usually need to
internet has, for
be trained to use new technology.
example, enabled
• However, access to new technology
businesses to market
benefits business enterprises in the long
their products globally.
run.
• Business enterprises do not have control
over the development of new technology
that impacts on business operations.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
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 SECTOR AND ITS
ENVIRONMENT
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 SECTOR AND ITS
ENVIRONMENT
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 SECTOR AND ITS
ENVIRONMENT
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 SECTOR AND ITS
ENVIRONMENT
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 SECTOR AND ITS
ENVIRONMENT
THE BUSINESS SECTORS:
Primary sector
Definition
Secondary sector
• Extracts raw • Converts raw materials
materials
into final products.
from nature. • 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
Tertiary sector
• Brings goods and
services within reach
of consumers.
• Two production
branches: trade and
services.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
THE BUSINESS SECTORS:
Primary sector
Classification • Agricultural
of industries
activities
(examples) • Mining
• Forestry
• Fishing
Secondary sector
• Clothing
manufacturing
industry
• Motor manufacturing
industry
• Furniture
manufacturing
industry
Tertiary sector
•


•



Trade:
Retail
Wholesale
Services:
Insurance
Hotel and tourism
Financial services
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE PRIMARY SECTOR OVER THE MICRO
E N V I R O N M E N T:
 The way the business (farming/mining) are managed and
internally organised, can help to supply better raw materials
more efficiently 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, fires, 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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE SECONDARY SECTOR OVER THE MICRO
E N V I R O N M E N T:
 Change in manufacturing processes can assist that raw materials
are more ef ficiently and more cost ef fective changed into
consumer goods.
 Improvement of the factory workers’ skills can increase the
factory’s productivity.
 On-going training of workers can reduce staf f turnover.
 Improving of management skills on all three levels of
management can contribute to manage the business more
ef fectively.
 Purchase of quality materials can help to manufacture better
quality products.
 Use of cost-ef fective machinery can improve productivity and
reduce costs.
 Expansion of the product range can enlarge the market of the
business.
 Preventive measures such as insurance of assets may reduce
risks.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE TERTIARY SECTOR OVER THE MICRO
E N V I R O N M E N T:
 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.
 Preventive measures such as insurance of assets may
reduce risks.
 Improving the business’ organisational culture and the
image of the business, can decrease the loss of customers.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE PRIMARY SECTOR OVER THE MARKET
E N V I R O N M E N T:
 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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE SECONDARY SECTOR OVER THE MARKET
E N V I R O N M E N T:
 Just as businesses in the primary sector, businesses in the
secondary sector are affected 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 profit, so that the
business can compete with their rivals.
 Good and effective marketing strategies that include good
advertising practices will assist in marketing of the product
to intermediaries.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE SECONDARY SECTOR OVER THE MARKET
E N V I R O N M E N T:
 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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE TERTIARY SECTOR OVER THE MARKET
E N V I R O N M E N T:
 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 difficult 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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE PRIMARY SECTOR OVER THE MACRO ENVIRONMENT:
 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
ef fects 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.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE SECONDARY SECTOR OVER THE MACRO ENVIRONMENT:
 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 specific regulations in the specific 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 af fect 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 ef fect of this by making use of alternative energy
sources such as solar power.
THE BUSINESS SECTOR AND ITS
ENVIRONMENT
INFLUENCE/EXTENT OF CONTROL OF BUSINESSES IN THE TERTIARY SECTOR OVER THE MACRO
E N V I R O N M E N T:
 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 BUSINESS SECTOR AND ITS
ENVIRONMENT
THE THREE BUSINESS ENVIRONMENT S RELATED TO THE THREE BUSINESS
SECTORS:
Sector
Primary
Business
Short description
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.
Look at the tables in textbook for specific examples p 110 - 11 3