Chapter 2_Basic business concepts and the business environment.ppt

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Entrepreneurship and how to establish your own business 6e
Chapter 2: Basic business concepts
and the business environment
• The relationship between a business and an
establishment
• Classification of a business and its
establishment in the economy
• The business environment
• The micro environment
• The market environment
• The macro environment

Learning outcomes
• After you have studied this chapter, you
should be able to:
• Explain the relationship between a business
and an establishment
• Discuss the classification of a business and its
• Explain the business environment

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 relationship between a
business and an establishment
• A business or enterprise – independent
institution, established by an entrepreneur to
make a profit by producing goods or providing
services that satisfy customers’ needs
• Entrepreneur identifies a customer need and
creates a business to produce goods and/or
provide services to satisfy that need
• Motive – to make a profit

The relationship between a business
and an establishment (cont.)
• The establishment - the place where inputs
such as raw materials and other components
are processed to produce a product or provide
a service
• Production activities take place in the
establishment

Classification of a business and its
• The branch of industry and the production
branch:

establishment in the economy (cont.)
• The different sectors in which a business can
operate:
- Primary: Exploitation of natural resources in
unprocessed form
- Secondary: Exploited natural resources are
processed and transformed into products
- Tertiary: Distributing final products from
manufacturer to customers

establishment in the economy (cont.)
• The industrial column - course that a product
takes from its unprocessed, natural resource state
to the final form in which it is supplied to the
customer
• Includes all the processes and transactions that
occur from the primary sector, through the
secondary sector and along to the tertiary sector,
where it is passed on to the customer

The business environment
• The business environment - the sum of all
the factors and variables that influence the
creation, growth and continued existence of
the business either positively or negatively,
thereby promoting or hindering the
achievement of its objectives

The business environment
(cont.)
• Characteristics of the business environment:
– Interrelatedness of environmental factors or
variables
– Increasing instability
– Environmental uncertainty
– Complexity of the environment
– Unpredictability of the environment

The micro environment
• The micro environment - the sum of factors and
variables which occur internally in the business,
and are influenced directly or indirectly by
management decisions
• These factors and variables have a fundamental
influence on the establishment, growth and
continued existence of the business

The micro environment (cont.)
• The mission statement and objectives of the business
– What the business hopes to achieve and how it intends to do
so
• The functions of the business
– General management
– Human resource management
– Operations
– Logistics
– Marketing
– Public relations
– Information management
– Finance

The micro environment (cont.)
• The production factors of the business
– Resources available to the business such as labour, raw
materials, capital and entrepreneurship
• Influence of management on the micro
environment
– As manager of your own business you will exert a direct
influence on the mission statement and objectives of the
business

The market environment
• The market is the link between the business
and the environment in which it functions
• Definition: Sum total of all the factors and/or
variables which exist externally, that cannot
be controlled but can sometimes be
influenced so that it will have a positive or
negative effect on the growth and existence of
the business

(cont.)
• 3 variables peculiar to the market
environment:
- The market
- The competition
- The suppliers of resources and services

(cont.)
• The market:
- 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
- Includes all individuals, groups or institutions who
have specific needs for goods and services and who
are prepared to use their available financial means to
acquire them

(cont.)
• Segments of the market:
- Consumer - buying customers
- Industrial - goods/services used in manufacturing
procedures
- Resale - manufactured goods are purchased by
business to re-sell
- International - foreign customers/ manufactures and
retailers
- Government - goods and services purchased to render
governmental services

(cont.)
• Rights of customers:
- To be informed
- Exercise personal choice
- Be heard
- Protection

(cont.)
• The competition:
- Each business tries to convince consumers that its
products and services are the best and that they
should therefore buy from their business
- As an entrepreneur you 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

(cont.)
• The suppliers of resources and services:
- Decide on products to manufacture and market,
the quantities to be produced and the capital
required
- You will be dependent on other institutions in the
external environment to carry out your activities

The macro environment
• Consists of all the variables and factors
outside the business which have a positive or
negative influence on the growth and
continued existence of the business and which
encourage or hinder the achievement of its
objectives
• Individual businesses have no control over the
macro environment

(cont.)
• Sub-environments in the macro environments:
- Economic environment
- Social environment
- Technological environment
- Physical environment
- Political and statutory environment
- International environment

(cont.)
• Economic environment (economic conditions)
– 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

(cont.)
• Social environment
– Governed by the demographics of the
population and social and cultural variables
– Size and composition of the population:
 Population growth
 Market composition
 Changing role of women
 Life expectancy

(cont.)
• Social environment (cont.)
– Geographic location
– Development level of the market
– Other considerations:
 Changing awareness
 Time
 Healthier lifestyle

(cont.)
• Technological environment
– All aspects which give rise to new or improved
products or services
– Create definite opportunities and may also
constitute a threat
– Keep up to date with changes in the technological
field to ensure that products are not obsolete

(cont.)
• Physical environment
– Natural resources in the country and the
management therefore
– Limited and expensive resources
– Environmentalism and pollution

(cont.)
• Political and statutory environments
– The government influences businesses through its
fiscal and monetary policies
– Statutory provisions
– Trade Unions
– Associations and institutes

(cont.)
• International environment
– The business must keep abreast of variables
operating in the international sphere
– International technology
– International politics
– International economy

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
• Businesses are classified into three sectors

Summary (cont.)
• The business environment can positively or
negatively affect the business
• Entrepreneur must be aware of the variables
in the business environment
• Business environment consists of the external
environment and the internal environment

Chapter 2_Basic business concepts and the business environment.ppt

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