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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
Porter's Five Forces Model helps businesses understand the competitive forces in their industry and how these can impact their strategy and profitability. The five forces include:
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Power of Suppliers: Businesses assess the power their suppliers have over pricing and availability of materials. A strong supplier can exert pressure, influencing a business’s operational costs.
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Power of Buyers: Understanding how much influence customers have in dictating prices and terms helps businesses strategize on how to improve customer loyalty and market share.
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Threat of Competitors: The level of competition within the market affects pricing strategies and market penetration. Businesses need to evaluate how they can differentiate their products to gain a competitive edge.
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Threat of Substitutes: Businesses examine how easily their products can be substituted by alternatives. A high threat of substitutes can lead to price wars and loss of customers.
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Barriers to Entry: Understanding what challenges new entrants face in the industry allows existing businesses to strengthen their market position and defend against potential competitors.
Step 2
Describe THREE types of defensive strategies that businesses may use to address challenges in the macro-environment.
Answer
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Divestiture: Businesses may decide to sell off divisions that are not performing well. This helps to refocus resources on more profitable areas, thus strengthening overall performance.
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Liquidation: In extreme cases where a business faces significant financial pressure, liquidating assets is an option to raise funds and pay creditors, helping to mitigate financial risk.
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Retrenchment: This involves reducing costs by downsizing operations or terminating positions. By streamlining the workforce, businesses can improve their financial health while staying competitive.
Step 3
Discuss the effectiveness of intensive strategies in addressing business challenges.
Answer
Intensive strategies involve focused efforts to increase market share or expand product offerings. They can be effective in several ways:
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Increased Market Share: By doubling efforts in marketing and customer engagement, businesses can gain a larger share of the market, which can lead to increased sales and revenue.
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Cost Control: Intensive strategies often focus on optimizing operations, helping businesses reduce costs and improve profit margins.
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Enhanced Control Over Pricing: Improved service delivery and customer loyalty can enable businesses to exert more control over their pricing structures, positively affecting profitability.
In conclusion, while intensive strategies require investment and effort, they can yield significant returns by positioning businesses favorably against competitors.
Step 4
Suggest steps that businesses may use to evaluate a strategy.
Answer
To effectively evaluate a strategy, businesses can follow these steps:
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Examine the Underlying Basis: Assess the rationale behind the strategy, ensuring it aligns with overall business objectives.
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Formulate Strategies and Set Objectives: Develop specific, measurable objectives for the strategy to track its effectiveness.
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Monitor Implementation: Regularly check progress against objectives, making adjustments as necessary to stay on track.
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Assess Outcomes: Analyze the results of the strategy against its original objectives to determine success and areas for improvement.
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Review Market Conditions: Stay informed about market changes that may impact the strategy, ensuring adaptability to external factors.