Business Environments: Micro and Market

• Businesses are impacted by events, challenges, and variables.
• These are categorized into three environments: Micro, Market, and Macro

Micro Environment

• The micro environment is the smallest and internal environment.
• Challenges come from within the business.
• Management has full control over these factors.
• Factors include organogram/organizational structure, vision/mission/goals, organizational culture, management and leadership, 8 functions and activities, organizational resources such as capital, natural resources, labour, and entrepreneurial resources.

Market Environment

• The Market environment is external.
• A business cannot control factors but can influence them.
• Factors include market (consumers), suppliers, intermediaries, and competitors.
• Market research helps determine factors.
• Suppliers provide inputs required by the business.
• Intermediaries transfer goods to and from the business.
• Competitors are opponents that are the same or similar, stimulating productivity and ensuring quality.

Macro Environment

• The Macro environment is external.
• A business has no control over these factors but is still influenced by them.
• Factors include PESTLE (Political, Economic, Social, Technological, Legal, Environmental).

All Environments and Environmental Scanning

• Environmental Scanning involves obtaining information about potential current and future events that may impact business success.
• Scanning ensures a business is ready for internal and external environment developments.
• It assists in identifying possible challenges and opportunities.
• Management must use the information to develop flexible strategies which helps to respond quickly to crises and opportunities.
• It helps management understand impact, competitive position, and sustainability of the business
• Crisis is a quick and unexpected change the business did not anticipate.
• Trend is changes which occur over a period of time.
• Micro environment is internal, uses SWOT (Strengths and Weaknesses).
• Market environment is external, uses SWOT (Opportunities and Threats) and Porter's Six Forces.
• Macro environment is external, uses SWOT (Opportunities and Threats) and PESTLE.
• Continuous environmental scanning is required.

SWOT Analysis

• SWOT involves Strengths (Helpful, Internal), Weaknesses (Harmful, Internal), Opportunities (Helpful, External), and Threats (Harmful, External).
• A SWOT matrix is used to develop strategies and information to evaluate how information will lead to success/failure.
• Establish strengths and weaknesses of a business idea, and opportunities and threats of the environment.
• It helps entrepreneurs decide whether or not to implement an opportunity, and whether weaknesses can become strengths and threats can become opportunities

Strengths

• Strengths are factors that add value to the performance of the business, give the business a competitive advantage within the marketplace.
• Strategies should be developed to use strengths to overcome weaknesses and threats, and take advantage of opportunities.
• Competitive price is selling products at a better price than competitors.
• Location factors include clothing outlets depending on impulse purchases, easy accessibility, determining the easier option on transporting raw materials, fitting in with the neighbourhood, considering complementary businesses, and having security.
• Patents offer a unique product and limit potential competitors.
• A skilled workforce leads to less wastage and improved productivity; pay fair salary to attract skilled labourers.
• Business culture is the way things are done.
• Good marketing and a string brand creates a positive association that people have with the brand.
• Access to finance and resources allow it to be easier to obtain more , if the business has sufficient capital.
• Efficiency equals less wastage.
• Good quality products result in greater profits.

Weaknesses

• These are the opposite of strengths.
• Necessary strategies must be put in place to overcome weaknesses.

Opportunities

• External factors allow the business to have a competitive edge.
• Opportunity to offer a better product, faster delivery to consumers, access to larger markets.

Threats

• External factors could hinder the success/growth of the business.
• A contingency plan must be put in place for threats, use PESTLE analysis to identify them.

TOWS Analysis

• SO Strategies use strengths to take advantage of opportunities.
• WO Strategies take advantage of opportunities by overcoming weaknesses.
• ST Strategies use strengths to avoid threats.
• WT Strategies minimize weaknesses and avoid threats.

Micro Environment Tools

• Tools to investigate forces: Environmental scan, SWOT analysis (S+W), resource-based analysis, and value-chain analysis.

8 Business Functions

• The business functions are purchasing, production, financial, human resources, marketing, public relations, administrative and general management.
• Purchasing buys goods and services needed by all departments at the lowest price possible for own use, resale, or processing, includes choosing a suitable supplier ensuring ROI and developing a system to control inventory.
• Combination of the four factors of production to provide the right product at the right quantity: transforms raw materials into a product that satisfies the consumer’s needs, keeps manufacturing costs as low as possible while retaining quality, continuous product design, automation= activities now performed by machines which equates to low labour costs, faster more accurate production and high capital investment.
• Quality control eliminates problems in the production process, encourages standard workers to deliver high-quality products through incentives, and builds retailer loyalty: sampling, inspections and run risk of approving bad batches.
• Financial function needs capital that can be contributed by owners or borrowed, includes the statement of comprehensive income and financial position; Maximizes profits, remains solvent increases profitability, Ensures liquidity, turnover increases/increase selling price which leads to stimulating economy.
• Human Resources includes Labour and is an important factor of production where management and trade unions have a good relationship of motivated, happy workers, employers are in the most employable position, wages are increased and rewarding.
• Marketing functions satisfies the needs of the consumer where products are easily located, consumers are informed and easy to communicate, determines pricing, includes personal sales, advertising and promotion, price and place.
• Public relations activities influence the opinions of the public through continuous interaction, creates a favorable environment to mange and respond to, issues and provide information.
• Administrative functions collects all the important data collected for a business and record-keeping.
• General management encompasses planning, organizing, leading, and controlling.

Political Macro Environment

• Includes Trading policies, wars and conflict, elections and government policies.
• Considerations include the likelihood of government interference, free market vs. communism, stability within the country and economic relationship with other countries.

Economic Macro Environment

• Overseas economies, taxation(40%), unemployment, decreases in consumer purchasing power and exchange rates are all considerations. Includes economic growth and development rates in the country, inflation rates and interest rates.

Ethical Macro Environment

• Determine if the decisions and actions are morally acceptable, ethical vs legal, fair trade, and social responsibility.

Social Macro Environment

• Levels of education, AIDS, crimes, changing demographics immigration, changing family structures, leisure activities

Technological Macro Environment

• Includes research and development, the pace of technology, technology legislation and inventions.

Legal Macro Environment

• Current legislation
• Future legislation
• Environmental regulations
• Consumer Protection Legal: BEE / BBBEE, Consumer Protection Act, Labour relations Act

Environmental Macro Environment

Environmental regulations, Staff + customer attitudes, Environmental issues, and Protection Groups.

Market Environment Tools Used

• The market environment refers to any place where goods and services are bought and sold.
• Tools to investigate forces: Environmental scan, which looks at the market environment to identify issues to be addressed, SWOT Analysis (O+T), and Porter's Six Forces Model.

Porter's Six Forces Model

• The model is used to assess the attractiveness of a market and analyze competitive forces.

Attractive Markets

• High barriers to enter
• Low levels of competition
• Weak supplier bargaining power
• Weak buyer bargaining power
• Few substitute products/services

Unattractive Markets

• Low barriers to enter
• High levels of competition
• Strong supplier bargaining power
• Strong buyer bargaining power
• Many substitute products/services

Threat of New Entrants to the Market

• Assess how easy/difficult it is for new companies to enter the market, profits decrease when there are many companies.
• Possible barriers to build: large capital needed, high customer loyalty, register a patent, invest in advertising, and tax on imported goods, or economic scale is not easily achieved.

Rivalry Among Existing Competitors

• The amount of current competitors is an important factor when assessing competitiveness/profitability of a market..
• Rivalry is high when: there are many competitors, competitors are more or less equal in size with high exit barriers, products are homogenous, there is a low level of customer loyalty.

Threat of Substitutes

• A business is threatened when buyers can easily find a substitute product at a better price/quality
• A substitute satisfies the same need, but is completely different.

Bargaining Power of Suppliers

• High bargaining power of suppliers leads to higher prices or lower quality, causes a negative impact.
• Strong bargaining power when: there are fewer suppliers, there are limited options for raw materials, the cost of switching materials is high.

Bargaining Power of Buyers

• Buyer has the power to demand lower prices, better quality, and longer trading hours.
• Satisfies the need to meet customer demands, it is lowers profit.
• Strong bargaining power when: They buyer is buying in bulk, many suppliers are selling the same/similar products, few buyers exist, easy to switch to another supplier, ability to integrate backwards. Consider selling to buyer that buyer that:
• Strong bargaining power when: the buyyer is buying in bulk, many suppliers are selling the same/similar products, few buyers exist, easy to switch to another supplier, ability to integrate backwards.
• Consider selling to buyers with high brand loyalty with consideration to price sensitivity

Complementary Products

• Add an element that increases demand for the original product.
• Example: Appl created itunes to compliment their ipod

Explore the Micro and Market environments impacting businesses. The Micro environment is internal and controllable, including organizational structure and resources. The Market environment is external and influenceable through market research, encompassing suppliers, intermediaries, and competitors.