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The market and macro-environments pose many challenges to business operations that may have a negative impact on business success - English General - NSC Business Studies - Question 7 - 2016 - Paper 1
Question 7
The market and macro-environments pose many challenges to business operations that may have a negative impact on business success. It is important that these challen... show full transcript
Worked Solution & Example Answer:The market and macro-environments pose many challenges to business operations that may have a negative impact on business success - English General - NSC Business Studies - Question 7 - 2016 - Paper 1
Step 1
Explain how businesses may use Porter's Five Forces Model to analyse the market environment.
Answer
Businesses can employ Porter's Five Forces Model as a framework to understand the competitive landscape of their market. This model identifies five key forces that affect market dynamics and profitability.
- Power of Suppliers: Businesses analyze the bargaining power of suppliers to determine how much control they have over pricing and quality. A strong supplier can dictate terms, affecting the profitability of firms.
- Power of Buyers: Understanding buyer power helps businesses tailor their product offerings. High buyer power can lead to increased competition on price and quality.
- Competitive Rivalry: This force examines the number and strength of competitors. A market with many rivals requires firms to differentiate themselves to maintain market share.
- Threat of Substitutes: Businesses need to identify alternatives available to consumers that could replace their offerings. A high threat of substitutes requires firms to innovate continually.
- Barriers to Entry: Assessing how easy or difficult it is for new competitors to enter the market helps businesses prepare for potential disruptions. High barriers typically protect established firms.
Step 2
Describe THREE types of defensive strategies that businesses may use to address challenges in the macro-environment.
Answer
- Divestiture: This strategy involves selling off unprofitable divisions or assets. By divesting, businesses can focus resources on more lucrative areas, enhancing overall efficiency and potential profitability.
- Liquidation: In dire situations, firms may resort to liquidating assets to repay creditors. This strategy can provide immediate cash flow, but it may also lead to the closure of business operations.
- Retrenchment: This involves cutting down on operational costs, which may include terminating employment contracts or consolidating departments to streamline operations. Retrenchment can help a business regain stability during challenging periods.
Step 3
Discuss the effectiveness of intensive strategies in addressing business challenges.
Answer
Intensive strategies can significantly enhance a business's competitive position in various ways:
- Price Control: By improving service delivery and gaining pricing power, businesses can increase sales and profitability, thus providing a buffer against market challenges.
- Customer Engagement: Intensifying efforts to understand customer preferences can lead to better-targeted products, enhancing loyalty and reducing susceptibility to competitive pressures.
- Market Expansion: Intensive strategies often include diversifying into new markets or product lines, which can reduce risk by spreading investments across multiple avenues.
Overall, when executed effectively, intensive strategies create resilience against market fluctuations, positioning businesses for sustained growth.
Step 4
Suggest steps that businesses may use to evaluate a strategy.
Answer
- Examine the Underlying Basis: Businesses should assess the foundational assumptions of their strategy to ensure they align with market realities.
- Formulate Specific Objectives: Setting clear and measurable objectives allows businesses to track progress and make informed adjustments.
- Implementation Process Review: Regularly reviewing how well the strategy is being put into action helps identify any deviations or areas needing correction.
- External and Internal Analysis: Examining external factors (e.g., market trends) and internal capabilities helps in understanding the broader context in which the strategy operates, ensuring adaptability.