Chapter 2

BUSINESS PRACTICE I
(BNP110C)

Chapter 2: Basic business

concepts and the business
environment
 Chapter 2
Chapter 2: Entrepreneurship and small, medium and
micro enterprises (SMMEs) in perspective

Learning outcomes
• define ‘entrepreneur’

• indicate the similarities and differences between entrepreneurship,

a small business enterprise and small business management

• know what key factors contribute to successful entrepreneurship

• give a critical evaluation of personal skills, expertise and
aptitude
• personal characteristics
• functional management skills.
 Chapter 2
Chap 2: Basic business concepts and the business environment

Learning outcomes:

i. discuss the motivation for setting up a business

ii. analyse the relationship between the business and its

establishment

iii. distinguish between the terms ‘branch of industry’ and

‘production branch’, using examples to illustrate them and
their use in classifying a business

iv. arrange the three sectors in which businesses are grouped

and provide suitable examples
 Topic 2
Topic 2: Basic business concepts and the business environment

Learning outcomes:
v. draw an industrial column for a product to illustrate the route it
follows – from the raw material stage, to delivery, to the customer

vi. describe the micro environment of the business

vii. explain the market environment and the variables which influence
the business’s growth and existence

viii. Identify the macro environment and all the forces and influences
which affect the business.
 Introduction
• Today’s businesses function in an ‘economy of
. ideas’.

• There is a changing business environment

specifically with technology developments.

• Entrepreneurs should be aware of

environmental variables and changes.

• With such information you can develop a plan

of action to deal with potential opportunities or
threats.
 The Business

Definition:
.

• A business or an enterprise is an independent body

that is established by an entrepreneur to provide
products and services that will meet the needs of
consumers, with the main aim or motive of making
a profit.

• The enterprise consists of all the functions of the

enterprise and the establishment.
 The relationship between the Business
and the
establishment
Definition:
.
• The establishment can be described as the place where
inputs such as raw materials and other components are
processed to produce a product or provide a service

• The establishment is part of the business and refers only to the

place where the product is made or where the service is
provided.

• An establishment is the place where inputs are converted to outputs.

This is the place where physical production takes place, in other words
the factory or plant.
.
Classification of a business and its establishment in the economy

The branch of industry and the production branch:

 Classification of a business and its establishment in the economy

The different sectors in which a business can operate:

1. Primary: Exploitation of natural resources in unprocessed form

Example: Crude oil extracted from the sea.

2. Secondary: Exploited natural resources are processed and transformed

into products
Example: Crude oil refined and processed into petroleum.

3. Tertiary: Conveying or distributing final products from the manufacturer to

the consumer. This includes wholesalers, retailers and the end-consumers. The
tertiary sector therefore includes all enterprises that sell final products to the
consumers, as well as enterprises that provide services.
Example: Petroleum distributed to wholesalers, filling stations, consumers.
 Classification of a business and its establishment in the economy

The industrial column:

• Definition: Course the product follows from its unprocessed, natural resource
state, to the final form in which it is supplied to the customer. Including all
processes and transactions that take place from the primary sector to tertiary
sector

• An industrial column represents the route that an individual product follows

from its original stage until it ends up in the hands of the consumer.

• It is important to remember that we classify enterprises into sectors according

to the activities they perform.

• However, if we look at an individual product, we combine all the processes and

transactions that take place from the primary sector, through the secondary
sector, along to the tertiary sector, where the product ends up in the hands of
the end consumer.

• In other words, we combine the sectors in an industrial column.

Classification of a business and its establishment in the economy
Classification of a business and its establishment in the economy
 The Business environment

• The business environment includes all the factors and variables which
influence the establishment, growth and continued existence of the
enterprise positively and/or negatively, thereby promoting or hindering
the achievement of the enterprise’s objectives.

• The business environment can positively and/or negatively affect the

enterprise.

• The entrepreneur must be aware of the variables in the business

environment, since they represent the strengths, weaknesses,
opportunities and threats that can benefit or harm the enterprise.

• The strengths, weaknesses, opportunities and threats form the basis of

SWOT analysis that the entrepreneur has to compile for his or her
enterprise.
 The Business environment
Characteristics of the business environment
• The business environment changes constantly.

• The enterprise must keep up with the changing environment.

• The establishment, growth and continued existence (survival) of the

enterprise are directly influenced by the business environment.

• The business environment influences the future of the enterprise.

• There are both opportunities and threats in the business environment.

• The variables are interdependent.

• The complexity of the influence of the business environment depends on

the type of enterprise.
The Business environment
 The Business environment

The micro-environment
(internal environment)
represents the strengths and
weaknesses of the enterprise.

The market and macro-

environments (external
environment) represent the
opportunities and threats of the
enterprise.
 The micro environment
• Definition: Sum total of all the factors and variables which
occur internally in the business and are influenced in a direct
or indirect way by management decisions.

• These factors and variables have a fundamental influence on

the establishment and on the growth and continued existence
of the business.

• The internal environment is the enterprise itself and is under

direct control of the enterprise’s management.

• The variables of the micro-environment are

• the mission and objectives of the enterprise
• the functions of the enterprise
• the factors of production
 The micro environment

Four variables of the micro environment:

i. Mission statement and objectives of the business:
What the business hopes to achieve and and how it intends to
do so

ii. Functions of the business:

– General management
– Personnel management
– Operations management
– Purchasing management
– Marketing management
– Public relations management
– Administrative management
– Financial management
 The micro environment

Four variables of the micro environment:

iii. Production factors of the business:

• Production factors of the business include the resources available

to a business, such as labour, raw materials (eg minerals, timber
and water), capital and entrepreneurship.

• All enterprises need four factors of production.

• These factors are scarce and expensive and must be used carefully
to produce products or to provide services that will satisfy the
unlimited needs of consumers
 The market environment

• The market environment is defined as the sum total of all the

factors and variables which exist externally and which can
positively or negatively influence the growth and existence of
the enterprise.

• The market environment is the link between the enterprise and

the macro-environment.

• It surrounds the micro-environment and is surrounded by the

macro-environment.

• The enterprise has limited or no control over this environment

 The market environment

Three variables to the market

environment:
i. The consumers and their needs (the
market)

ii. The competition

iii. The suppliers of resources and

services
 The market environment
i. The consumers and their needs (the market):

• Refers to the concerns of the customers and his or her

needs rather than the physical market place.

• Active customers have the financial means to act upon

their needs and wants.

• The market therefore includes all individuals, groups or

institutions that have a specific need for the enterprise’s
products or services and that are prepared to pay for it.

• In other words, they are the people to whom the

entrepreneur is going to sell his or her products.
 The market environment
Segments of the market:
• Consumer- buying customers
• Industrial- goods/services used in
manufacturing procedures
• Re-sale- manufactured goods are purchased by
business to re-sell
• International- Includes foreign
customers/manufactures and retailers
• Government- goods and services purchased to
render governmental services
 The market environment

Rights of customers: As an entrepreneur, you should also be

aware that consumers have certain rights.

• the right to be informed

• the right to exercise personal choice

• the right to be heard

• the right to be protected

 The market environment

ii. The competition

• Competition means that each enterprise tries to convince a
consumer that its products and services are the best, and
that the consumer should therefore buy products and
services from this specific enterprise.

• Entrepreneurs should be aware of competitors activities as

their actions may constitute a threat to your business.

• Entrepreneur must know everything there is to know about

each competitor.
 The market environment

iii. The suppliers of resources and services

• Entrepreneurs must decide which products they are going to
manufacture and market, the quantities they can produce and the
capital outlay required and affordable for the project.

• Entrepreneur will be dependent on other institutions in the external

environment to carry out these activities.

• This variable deals with all the businesses and institutions that supply
the resources (factors of production) to the enterprise.

• Examples include suppliers of raw materials or stock, suppliers of capital

and suppliers of labour.

• It also includes suppliers of services, such as water and electricity,

municipal services and telephone services .
 The macro environment

• The macro-environment consists of all the variables

and factors outside (external to) the enterprise which
have a positive or negative influence on the growth
and continued existence of the enterprise and which
encourage or hinder the achievement of objectives.

• The enterprise has no control over this environment

or the variables which operate within it.

• It surrounds the business and its marketing

environment.
 The macro environment
Sub environments in the macro environments:
• Economic

• Social
• Technological
• Physical
• Political and statutory
• International
 The macro environment

Sub environments in the macro environments:

i. Economic
The part of the macro environment consisting of factors that
influence the personal disposable income of the customer as well
as their purchasing behaviour

The disposable income of the customers are influenced by

economic factors such as:
-Interest rates
-Inflation
-Trade cycles
 The macro environment
Sub environments in the macro environments:
ii. Social environment
• This environment refers to the needs and preferences
of consumers.
• It includes aspects such as:
• the size and composition of the market,
• geographic location of consumers (needs differ between
regions),
• the changing role of women (more working women),
• changing lifestyles (consumers are more health-conscious)
and
• the development level of the market (consumers are more
informed).
 The macro environment
Sub environments in the macro environments:
iii. Technological environment
• Affects all people in all enterprises and in all industries.

• It influences the effectiveness, efficiency and productivity of

workers.

• Businesses can now produce their products using fewer

resources.

• Includes all aspects which give rise to new or improved

products and services being made available on the market
 The macro environment
Sub environments in the macro environments:
iv. Physical environment
• The natural resources in the country, and incorporates the total
management of these resources.

• Natural resources include gold, coal, diamonds, water and natural

forests.

• The natural beauty of the country can be included as this influences

the tourist market.

• Variables to be taken into consideration:

• Limited and expensive resources
• Environmentalism and pollution
 The macro environment

Sub environments in the macro environments:

v. Political and statutory environment

• Fiscal and monetary policies of the government of
the day influence business

• Variable influences on individual businesses:

• Statutory provisions
• Trade unions
• Associations and institutes
 The macro environment

Sub environments in the macro environments:

vi. International environment
• The variables influencing individual businesses originate from
the local sphere (the business itself) and the national sphere
(the market and macro environments).

• Includes:
• International technology
• International politics
• International economy
The macro environment
 Summary

• A business cannot function in total isolation.

• Without interaction with the business environment,

achieving your objectives will remain a dream and your
business will not continue to grow and may even cease
to exist.

• The entrepreneur must continually gather information

as a basis for analysing market trends.
THANK YOU