Business Environments

The business environments has two aspects:The internal environment also known as the micro-

environment andThe external environment, which is made up of two parts,

that is the market environment and the macro environment.

A Microsoft Word document has been added on the site with the business environments diagram to show the relationships between the different environments.

Micro-environmentBusinesses exist to satisfy the unlimited needs of consumers. To provide for people’s needs, the necessary goods and services must be made available. Goods that satisfy needs can be divided into three main groups:

Consumer goodsGoods that are consumed when they are used.

Production goodsAlso known as capital goods, which are necessary for the production of consumer goods.

Semi-finished goodsGoods that are used to produce other goods.

On the other hand people need services

Services can be categorized into:

Personal ServicesActivities that provide services of a personal nature.

Commercial servicesServices that bring goods to the consumer

Factors of production

Natural ResourcesNatural resources include all natural elements such as land, water, air, sun, fruit, vegetables, minerals. These raw materials. These natural resources are changed into raw materials that are then processed into intermediate products and then into final products then into final products.

LabourIt includes all human skills, physical and mental, which are employed to provide goods and services. Compensation or payment for labor is in the form of wages or salaries.

CapitalCapital can be acquired through savings. These savings are invested in capital goods such as buildings and machinery. Capital includes items such as tools and computers which are used to make labour more easier and more effective and to produce goods and services to satisfy needs.

EntrepreneurshipThe entrepreneurship brings together natural resources, capital and labour in the correct relationship, and coordinates them in a single projects or organization, to produce goods and services. Entrepreneurs can be individuals who work for their own interest, or directors of companies whom represent the shareholders. In both cases the aim remains the same , namely to make a profit.

Market Environment

A business does not perform in a vacuum. It will be of no avail if an entrepreneur formulates the mission and objectives and organizes the business to produce goods and services, if he does not consider the market. • The market environment surrounds the micro-environment and refers to all the variables and factors

outside the business that have a positive or negative influence on the growth of the business.

The MarketThe word market does not refer to physical space but rather all the consumers the business wants to sell its products to. There are different kinds of markets. • Consumer market• Retail market• Industrial market

CompetitorsFor the business to develop an effective marketing strategy, it must be fully aware of the following regarding its competitors:• Who they are• Where they operate from• Quality and price of their

products• Share of the target markets

they serve• Financial resources and ability

to market• Their image in the market-

place

SuppliersIt is extremely important to select reliable suppliers in order to be able to deliver the goods and services to the selected market.

Macro Environment

The macro-environment surrounds the business and its market environment. It includes a variety of uncontrollable factors outside the business that can impact either positively and negatively on the achievement of the business objectives. External conditions in the macro-environment that influence the life of a business are illustrated in the outer ring below:

1.1 Physical EnvironmentThe physical environment includes the availability and development of natural resources of the country. The availability of buildings for factories, offices and houses Services like electricity and water, provided by government enterprises Convenient transport systems that facilitate business The provision of good telephone and other communications services to make business easier Pollution control, where strict measures prevent air, noise and water pollution.

1.2 Political environmentSome political decisions taken by the government impact greatly on the day-to-day functioning of the business enterprises. Some of these political decisions are: Taxes How the taxes are spent The level of interest rates as determined by South African citizens Import and export policiesOther political factors such as strike action and terrorism can have a direct impact on the normal functioning of the business.

1.3 Technological environmentA change in the environment of the business enterprise is very often the result of new developments in technology. Improvements in technology are the result of research by businesses and the government. These new developments in technology result in new machinery, new production processes, new methods and even new approaches to managing these developments.

1.4 Economic environmentThe economic environment includes the government and all the organizations and business enterprises involved in commerce and industry. The never ending changes in these organizations have a tremendous impact on the activities of all business enterprises. In order to stay in business, the managers of business enterprises must take note of these changes and take steps to limit any negative effect they might haven on their business.

1.5 Social environmentA business enterprise operates in a society of people. The society provides all the resources the business enterprise needs, such as raw materials, labour, capital and also uses the goods the enterprise produces. The manager must understand how the social environment affects the running of the business. The manager should be aware of: The income of various sections Education and training services offered in the society at primary, secondary, tertiary and vocational level. The social responsibility of the business to the society.

1.6 Legal environmentLaws are rules that are passed by the parliament in order to control the behavior of the country’s citizens, and set penalties for those who fail to obey the rules. Laws are meant to protect the people, business enterprises and other organizations. The legal system includes: Jurisdiction of the various courts Laws pertaining to contracts Laws pertaining to employment, tax, workplace Laws to protect the trade mark rights, patent rights and copyrights Laws regulating the sale of goods between sellers and buyers Protection of property rights