FACTORS INFLUENCING THE MACRO ENVIRONMENT:

 

Technological

·         New technologies/inventions change how a business is run, e.g. Internet, fax machines, computers, scanners, etc.

·         New technologies also change the way of life of most people. Hence, the business consumers’ needs and wants.

·         Technology increases productivity, quality and minimises wastage of materials. This leads to higher efficiency and rate of production à lower prices and higher profits.

·         New technologies for businesses àcommunication, selling and providing of services will be easier, e.g. Internet, e-mail, voice-over Internet, etc àopportunities – advertising.

 

What are the possible threats from the technological environment?

 

 

Economical

·         Changes in the government’s economic policy àchanges in money supply, interest rates and exchange rate àchanges in market and micro environments.

·         Economic growthðrange and number of products and services produced in a country – MEASURED IN GDP (total value of all goods/services produced within the borders of a country in a year).

·         Sustainable economic growth àhigher employment, salaries and disposable income to spend on goods and services.

Exchange rate

·         Amount of ONE CURRENCY YOU CAN GET IN EXCHANGE FOR ANOTHER, e.g. US$1 = R6.00 ð$1 can be exchanged for R6.

·         If the exchange rate depreciates against those of major trading partners, imported goods become more expensive. More local currency can be earned when exporting àmore TOURISM.

·         If the exchange rate appreciates it becomes expensive to export and cheaper to import.

·         A volatile (fluctuating) exchange rate makes it difficult for importers and exporters to time their purchases and sales.

·         Factors influencing the exchange rate

o   Investors’ confidence

o   International events

o   Strength of the economy

o   Foreign debt

o   Supply and demand for foreign and local currency

Fiscal and monetary policies

·         FP – rules for government expenditure and taxation as set out in its annual budget. e.g. AsgiSA – Accelerated Shared Growth Initiative for SA – it is an infrastructural plan (expansion of ports, railways, roads, power stations and communication systems) which aims to increases economic growth by 6%p.a. Other govt initiatives include skill development through the SDF and creation of SMMEs and building of stadia for the FIFA world cup. Government in the budget aims to reduce the budget deficit àaffects future economic growth.

·         MP – SARB formulates and implements MP. AIM – reduce inflation rate while maintaining a stable currency and containing growth in the MS.

Inflation

·         General increase in prices over a specified period together with a reduction in the buying power of money.

·         Measures of inflation

o   CPI (CONSUMER PRICE INDEX) – measures increases in consumer prices.

o   PPI (PRODUCER PRICE INDEX) – measures increases in production prices.

·         A high inflation rate àincrease in cost of goods/services; workers demand higher wage increases to keep pace with higher inflation rates. Products may become too expensive and which may result in reduction in sales.

 

Interest rates

·         The rate at which financial institutions lend money is known as the prime rate. A prime rate of 10% means that 10%interest will be charged on money borrowed from the bank. When level of savings is low, commercial banks borrow money from SARB. Commercial banks borrow at the repo rate – interest rate at which the SARB lends money to commercial banks. The prime rate is higher than the repo rate. An increase in the repo rate àincrease in the prime rate àincrease in interest repayments by customers and therefore making it difficult for firms to borrow money àreduction of production and employment.

 

 

Go to www.reservebank.co.za; find what the repo, prime and inflation rates are currently.

 

Found out what effect the interest and inflation rates have on credit purchases and profits for those businesses selling on credit.

 

Taxation

·         Used to raise funds in order to manage the country and provide infrastructure and social services.

·         A growing economy àbroader tax base because of more people who are employed. Businesses therefore make bigger profits and consumers spend more on purchasing goods/services.

·         More tax collected àreduced tax rate paid by individuals and businesses.

·         Less tax collected àmore disposable income to spend.

 

 

Social

·         Expression of cultures, norms, values and lifestyles of citizens and this influence goods/services that businesses supply and way in which they are marketed.

·         CONSUMER RIGHTS (SA Consumer’s Union)

o   Right to safety – protection against potentially dangerous products.

o   Right to be informed – providing correct information on labels.

o   Right to freedom of choice – access to competitors products and protection against unfair competition.

o   Right to be heard – consumers receiving attention from the govt and business

 

 

Physical (Raw Materials in a country)

·         LTD resources to satisfy UNLTD needs, e.g. SA blessed with natural beauty, good climate and abundant minerals àmining and tourism industries being the major sources of business creation.

·         Water is scarce àreduced economic development and agriculture, therefore water conservation schemes

·         Carbon pollution àglobal warming àopportunity to create sustainable energy.

International

·         MNCs find themselves in complex global business environment with more threats and opportunities.

·         E.g. Apartheid era – international and local politics were in conflict hence affecting how a local business made decisions and operated, then.

Legal

·         Put additional pressure on a business. E.g. law on plastic bag packaging, where consumers have to pay for this packaging in order to reduce pollution.

·         Other laws such as employment equity – it forces firms to change racial composition of their workforce. Firms without an equity plan can be fined.

Political/institutional

·         Political situation in a country can affect both domestic and international trade.

·         CSIR, SABS, SARB, etc pose interpersonal relations challenges.

Economic sanction

 

1.      What does the term ‘economic sanction’ mean? 2.      Give examples of situations where economic sanctions were applied. 3.      In each situation, what sanctions were applied? 4.      What are the economic effects of sanctions? List two.

 

·         The international community can impose economic sanctions if a government follows policies that contradict acceptable standards, e.g. economic sanctions were applied to South Africa during the apartheid era.

·         Disadvantage of economic sanctions – Restrict development because of limited supplies of strategic materials such as oil. Products also become more expensive because of a lack of supplies and the consumer will have a limited variety of goods to choose from.

 

Globalisation

 

1.      What does the term ‘globalisation’ mean? 2.      How does globalisation affect a country’s economy? 3.      How does globalisation affect a business? 4.      Define the terms ‘tariffs’ and ‘subsidies’. 5.      How does tariffs and subsidies affect price of goods sold in South Africa?

 

·         International events such as __________________________________________________________________

can have an indirect impact on most businesses.

 

Give an example and explain how an international event can affect a business and its customers.

 

·         Globalisation offers many opportunities to businesses, e.g. trade agreements between countries can open new markets and enable businesses to import materials and components more cheaply. This enables them to cut the cost of production and makes prices of goods and services more affordable for the consumer. E.g. the South African Motor vehicle industry.

·         International trade is a challenge in terms of the massive and diverse products that are now globally available to many countries. Multinational companies affect the macro environment throughout the world.

·         Cheaper imported goods are a major challenge to local suppliers and producers. Local businesses that cannot compete with imports could have to close down. Workers will lose their jobs.

·         Dumping – Goods that are exported at extremely low prices by countries wishing to establish a market.

·         All countries gain from international trade bringing greater competition, greater choice and greater specialisation.

·         A disadvantage to a country restricting international trade is that other countries ‘follow suit’, with the risk of a trade war and an inevitable economic recession.

 

 

UNIT 3: CHALLENGES IN THE MACRO ENVIRONMENT

 

CHANGES IN INCOME LEVEL

Businesses have a problem in that their customer income changes as the economy grows and contracts. The country’s central bank (South African Reserve Bank) is responsible for guiding the development of the economy in the following ways:

 

When the economy is growing:

·         More people are employed

·         Consumers have more money to spend

·         Greater demand stimulates production

·         Businesses sell more products and make bigger profits

 

When the economy is not growing:

·         Fewer people are employed

·         Consumers have less money to spend

·         Lower demand means reduced production

·         Businesses sell fewer products, profits drop and some workers lose their jobs

 

When SARB wants to stimulate growth, it reduces the interest rate. This means that:

·         It becomes cheaper to buy on credit so consumers buy more

·         Businesses expand

·         More people are employed

 

When the economy is growing too fast and prices go up (inflation), SARB increases interest rates. This means that:

·         It is more expensive to buy on credit so consumers buy less

·         Businesses stop expanding so fast

·         Fewer people are employed

 

Changes in taxation also influence the buying power of consumers. Increases in taxes increase prices of goods and services so people have less money to spend.

 

 

POLITICAL CHANGES

A stable government is one that is free of political unrest and, as a result:

·         Promotes a feeling of security and confidence for businesses

·         Is essential for economic growth and successful business

·         Can make lasting trade agreements that promote the development of markets

·         Attracts foreign investment in new businesses

 

Instability results in low rates of investment in new and existing businesses.

 

CONTEMPORARY LEGISLATION

Laws passed by Parliament to ensure that country is governed properly. Businesses must operate within legal framework of, e.g. Consumer Protection Act, National Credit Act, New Companies Act.

 

The challenge for businesses is to:

·         Keep track of new legislation concerning businesses

·         Understand how the new conditions apply to business

·         Carry out the laws correctly

 

LABOUR RESTRICTIONS

SA has lots of legislation to protect workers, to redress inequalities of the past and to restrict practices of employers. These laws include: Labour Relations Act, Employment Equity Act, Basic Conditions of Employment Act, Compensation for Occupational Injuries and Diseases Act, and Broad-based Black Economic Empowerment Act.

 

For each of the laws listed under contemporary legislation and labour restrictions, write a brief description of what they are for in your exercise book.

 

MICRO-LENDING

Providing short-term cash loans to low-income clients who are unable to access funds from the usual banking system.

Small businesses cannot go to commercial bank for loans to fund their business operation. Thus, they go to micro-lenders who often charge very high interest rates. In SA micro-lending is regulated by the Micro Finance Regulatory Council, which is regulated by the National Credit Regulator. The advantages of micro-lending for businesses include:

·         People who earn low incomes can get credit and increase their buying power

·         The promotion of entrepreneurship and job creation

·         The generating of economic activity

 

GLOBALISATION AND OTHER INTERNATIONAL CHALLENGES

The breaking down of international barriers to trade to promote the free movement of goods and services to create a global economy.

Businesses can benefit from:

·         The creation of an international market for their output of goods and services

·         Production that can take place anywhere and take advantage of lower costs

·         The fact that their consumers take advantage of lower prices

 

The challenges of globalisation include:

·         Dealing with increased competition from producers all over the world

·         Subsidies to local industries in some countries, which give them advantages

·         Import duties imposed by some countries so that foreign goods are disadvantaged

·         Labour costs that are so low in some countries that local industries can’t compete with

·         Industries without modern technology can’t compete

·         Language differences, which create complications

 

 

SOCIAL VALUES AND DEMOGRAPHICS

Businesses draw customers and workers from the people of the country, so they need to be aware of the social and cultural values and religious beliefs that exist in various local communities.

The challenge is for businesses to:

·         Understand employees and customers – including their different cultures and social values – in the areas and countries  to which they export

·         Adapt to changes that occur in the target market

 

SOCIO-ECONOMIC ISSUES

In SA, these include:

·         A high crime rate

·         Large numbers of poor people

·         High levels of unemployment

·         A shortage of skills

·         Many unskilled people with limited education

·         A high rate of HIV infection

 

Because government has been ineffective in reducing these, businesses are expected to implement social-responsibility programmes to try to deal with social problems in their areas.

The challenge is to:

·         Create effective social responsibility programmes

·         Take steps to guard against criminal activity

·         Set up training programmes

·         Operate HIV-awareness programmes

 

1.      Identify the following definitions: 1.1  Short-term cash loans to low-income clients who are outside the banking system. 1.2  Programmes set up by firms that try to deal with social problems in their areas. 1.3  The free movement of goods and services between countries to create a global economy. 2.      Explain 3 circumstances in which customers can experience a drop in their income and the effect of this on the motor industry. 3.      Explain how the clothing and textile industry in SA has been affected by globalisation. 4.      Give 3 examples of labour legislation that influence the way businesses employ people. Give a challenge that each Act imposes on a business.

ANSWER THE QUESTIONS IN YOUR BOOKS

Last Edited by: Ms Kheswa