BUSINESS ENVIRONMENTS 

MACRO ENVIRONMENT (look at the other notes on the macro environment in the booklet given in term1 AS WELL AS topic 3 of the study guide sent to you via D6)

The macro environment is also known as the external environment of a business. It consists of 7 major components: Physical, Economic, Social, Technological, Legal/political, Institutional and International (PESTLII).

1.      PHYSICAL/NATURAL ENVIRONMENT

The physical environment includes everything related to the immediate environment of the business, for instance i.e.  Landscape, site and buildings, local weather and weather changes, availability, cost and sustainability of resources (water and electricity), Infrastructure (roads, transport and telecommunication), Environmental factors like air, water, noise pollution. Where a business is physically located is meant to be suitable for the demand and supply of natural resources required for production.

2.      ECONOMIC ENVIRONMENT

Economic forces have a large effect on consumer buying and spending as well as the production process of the business.  Changes in income levels, exchange rates inflation, interest rates and taxes may affect the business. Management has to study and be aware of economic factors that affect consumer spending patterns.

3.      SOCIAL/CULTURAL AND DEMOGRAPHIC ENVIRONMENT

The physical environment deals specifically with the people of the community, the country and he target market of the business. These could be the suppliers, investors, buyers and their preferences. Values, tastes, traditions and culture influence the society’s interaction with the business. Therefore, businesses should be aware of the changes in this environment as they affect the performance of a business.

4.      TECHNOLOGICAL ENVIRONMENT

Technology refers to all the ways in which people use tools or machines to make work easier. Technological advances affect all aspects of businesses and can be classified as follows:

·         For production: use machinery and robots

·         For daily business operations: using computers for emails, faxing, data- capturing, online banking, online shopping etc.

The technological environment is a fast-changing environment and has forced businesses to keep up to date with new trend. Businesses need to be aware of new technology that their competitors are developing and using.

5.      LEGAL/POLITICAL ENVIRONMENT

This environment consists of hey consist of legislative bills, tax policies, health and safety laws, and government stability. The average businessman can’t lower taxes or introduce new legislation that’ll affect the entire economy. They must instead understand these factors on a grand level and ensure their business aligns to laws, regulations, and policies. The government plays a large role in the development of policies and legal frameworks. These policies and frameworks can have a huge impact on the business environment.

6.      INSTITUTIONAL ENVIRONMENT

This environment refers to the official and non-official procedures to do business and the institutions involved in this procedure. Starting a company (company formation procedure):

·         Reserving a name and registration of a company with the Registrar of Companies.

·         Registering with SARS for income tax, VAT (value added tax) and PAYE (pay as youearn tax for employees).

·         Registering with the Department of Labour for UIF (unemployment insurance fund) and workman's compensation fund.

Examples of non-official procedures:

·         Getting to know customs and traditions of people in the area of trade

·         Belonging to a chamber of commerce.

7.      INTERNATIONAL ENVIRONMENT

Events that take place elsewhere in the world and outside the borders of South Africa can have an impact on the economy, for example:

·         Political unrest in Zimbabwe leads to illegal immigrants moving to South Africa, pushing up local unemployment.

Events that take place outside the borders of South Africa can impact local businesses, for example:

·         Earthquakes elsewhere, such as in Japan, cause a shortage or imported goods. Policies control South African imports (bringing products from elsewhere in the world into South Africa) and exports (taking products from South Africa elsewhere in the world).

·         A fluctuating demand for export commodities, such as gold, diamonds, platinum, other minerals, machinery and equipment.

Globalisation (the process by which businesses or other organizations develop international influence or start operating on an international scale) is an example of the international environment.