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The market and macro-environments pose many challenges to business operations that may have a negative impact on business success - 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 - 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 utilize Porter's Five Forces Model to assess the competitive landscape and the factors that influence their position within the market. This model highlights five critical forces:
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Power of Suppliers: Suppliers can shape the market dynamics by controlling costs and availability of goods. Businesses must understand their supplier relationships to mitigate risks associated with supply chain disruptions.
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Power of Buyers: Buyers dictate market conditions through their purchasing decisions. Recognizing buyer power helps businesses to tailor their offerings and enhance customer satisfaction to retain clientele.
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Threat of New Entrants: New competitors can flood the market, hence understanding barriers to entry is essential. Businesses should assess how easily new entrants can join and disrupt market equilibrium.
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Threat of Substitutes: Substitutes can threaten market share and profitability. Businesses must be aware of alternative products or services that could lure away customers.
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Competitive Rivalry: The level of competition within the industry affects profitability. Analyzing competitor strategies can help businesses identify areas for improvement and differentiation.
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 sell off underperforming divisions or assets that do not fit their core strategy. This allows them to reallocate resources to more profitable areas, strengthening their market position.
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Liquidation: In dire situations, businesses may need to liquidate assets to settle debts or to fund essential functions. This is a drastic measure that should be taken when other strategies are insufficient to address financial challenges.
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Retrenchment: By reducing operational costs through layoffs or streamlining processes, businesses can sustain their operations during difficult times. This strategy allows companies to maintain their market presence while adjusting to economic pressures.
Step 3
Discuss the effectiveness of intensive strategies in addressing business challenges.
Answer
Intensive strategies focus on growth and increasing market share, allowing businesses to fortify their market presence. These strategies can be effective in several ways:
- Increased Market Share: By prioritizing market penetration and product development, businesses can attract new customers and enhance loyalty among existing ones.
- Cost Control: With economies of scale, intensive strategies can reduce per-unit costs, leading to increased profitability.
- Innovation and Adaptation: Businesses that adopt intensive strategies are often more agile, able to respond quickly to market changes and consumer demands, which is critical in fast-paced environments.
Step 4
Suggest steps that businesses may use to evaluate a strategy.
Answer
To effectively evaluate a business strategy, consider the following steps:
- Assess the Objectives: Review the initial goals set for the strategy and determine if they are still relevant.
- Analyze Performance Metrics: Measure success through KPIs to identify strengths and weaknesses in the strategy's implementation.
- Inspect Internal and External Factors: Conduct a SWOT analysis to recognize internal capabilities and external market conditions that could impact strategy effectiveness.
- Solicit Feedback: Gaining input from stakeholders and employees helps provide diverse perspectives on the strategy's effectiveness.
- Make Adjustments: Based on the assessment, adapt the strategy as needed to address any identified shortcomings.