1. Business Studies Grade 12
HEAD FOR SUCCESS
Business Studies Grade 12

2. Topic 5: Macro environment – Business Strategies
TERM 1
Topic 5:
Macro environment – Business Strategies

3. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Business Strategies
Integration strategies
Usually applied when a business sees an opportunity to solve a challenge by shortening the distribution channel of the product by combining two or more links in the channel.
This strategy can be in the form of an alliance, a merger / amalgamation or a takeover.
Integration strategy can be vertical or horizontal, and vertical integration can be forward or backwards.
The type of strategy depends on which part of the production- / distribution process is taken over

4. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Business Strategies
Intensive strategies
Aimed at raising turnover (sales) and increased market share by utilizing existing and available resources.
The purpose of this strategy is to promote the growth of the business.
Diversification strategies
Involves the changing of both the product and the market.
This strategy is designed to increase sales and the growth of the business by making new products available to a new target market or by improving existing products.
A strategy with a high risk because the business is moving into unknown territory, namely a new product and a new market.
The application of this strategy requires new skills, techniques and infrastructure.

5. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Business Strategies
Defensive strategies
Used when the business is under pressure to downsize in order to survive.
This is usually the last resort to take drastic measures after all other strategies have failed, to save the business.

6. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Business Strategies
Most businesses consider the following types of strategies when having to resolve a problem:
Types of strategies:
Definition:
Growth strategies
Integration strategies
Forward integration (vertical)
A business takes control of distributing and marketing its goods.
Backward integration (vertical)
A business takes control of its supplier.
Horizontal integration
A business takes control over a competitor.
Intensive strategies
Market penetration
A business increases sales by increasing marketing or by lowering prices in existing markets.
Market development
A business increases sales by exploring new markets.
Product development
A business increases sales by developing new products.

7. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Business Strategies
Most businesses consider the following types of strategies when having to resolve a problem:
Types of strategies:
Definition:
Growth strategies
Diversification strategies
Concentric diversification
A business increases sales by selling new products that are similar to existing products, on new markets.
Horizontal diversification
A business increases sales by appealing to loyal customers to buy products different from the products that are currently being sold.
Conglomerate diversification
A high risk strategy where a business expands its operations by moving into new markets with new products.

8. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Business Strategies
Most businesses consider the following types of strategies when having to resolve a problem:
Types of strategies:
Definition:
Defensive strategies
Retrenchment
Costs are cut by eliminating jobs.
Divestiture
Costs are cut by selling parts of a business.
Liquidation
The assets of a business are sold.
Other strategies
The strategy depends on the challenge at hand.

9. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Integration Strategies
There are two types of integration strategies: vertical and horizontal integration.
Both strategies focus on taking over other businesses.
Definition:
Vertical integration
Forward integration
A business is combined with its buyers.
A business takes control of its own marketing and distribution.
Example: an apple juice manufacturer acquires its own packaging plant.
Example: A livestock farmer opened his own butchery or amalgamates with an existing butchery.
Backward integration
A business is combined with its suppliers.
In doing so, a business ceases to be dependent on a supplier.
Example: An apple juice manufacturer acquires its own apple farm.
Example: A clothing store buys a clothes factory to reduce the risk associated with the acquisition of clothing.

10. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies Integration Strategies
Definition:
Horizontal
Integration
A business is combined with its competition, or with a business that supplies substitute or complementary goods.
Examples of substitute goods are diary milk and soy.
Examples of complementary goods are cricket bats and cricket balls.
Hence, horizontal integration is the combination of two businesses on the same value chain level.
Example: an apple juice manufacturer takes over a mango juice manufacturer or a dried fruit manufacturer.
Example: Takeover of competitors or businesses with substitute and / or complementary products that you sell.

11. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Integration Strategies
Advantages and disadvantages of integration strategies
Advantages:
Disadvantages:
Vertical integration
A business has complete control over manufacturing and selling its goods.
A business is better equipped to deal with shortages of supply.
Ensure that stock is always available.
More control over quality and delivery.
Increased difficulty for a new business to enter the market as sole access to a resource can be acquired.
A business has to perform functions it has never done before, like marketing and distribution.
A business may need to acquire new infrastructure to perform new functions
Monopoly may arise.
Product variety is limited.
Solve a challenge, but create other threats / challenges.
Long process.

12. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Integration Strategies
Advantages and disadvantages of integration strategies
Advantages:
Disadvantages:
Horizontal integration
Provides consumers with a greater product selection.
Greater product selection draws in more consumers.
More consumers results in an increase in sales and profit.
Reduces risk competition caused by suppliers of similar goods (competition), substitute goods and complementary goods.
Acquiring a business is expensive.
Can lead to the formation of monopolies.
Monopolies may result in consumers having less choice.
Monopolies are often associated with high prices.
Employees from the acquired business may lose their jobs.

13. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Intensive strategies:
Main objective is to increase sales and market share.
There are three intensive strategies:
Intensive strategies:
What?
How?
Market
penetration
A strategy focusing on increasing the sales of existing products.
New businesses often use this strategy to gain entry into a new market by initially selling their products very cheap.
Aims to drive out competitors by dominating the market.
A business is focusing on a market it knows well and does not have to spend time getting to know a new market.
Example: A new grocery store chain that offers meat at below the average price of other grocery stores.
Reducing the price of products to increase sales.
Increasing the number of sales staff.
Increasing advertising and promotion.

14. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies Intensive strategies:
Intensive strategies:
What?
How?
Market development
A strategy focusing on increasing sales by selling existing goods in new markets.
A business must research the markets it wants to enter.
Example: A local business that starts to export its goods.
Exporting products.
Finding new distribution channels.
Improve the packing material.
Product development
A strategy focusing on increasing sales by selling new products to existing markets.
A business may need to acquire new technology to develop new products.
Example: A computer company that develops a new computer that is faster, smarter and smaller than existing ones.
Developing new products.
Concept testing

15. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies Intensive strategies:
VOORDELE:
NADELE:
Increase the market.
Broaden the vision of the business.
Help to manage the business in a profitable and sustainable manner.
A large variety of ways in which intensive strategies can be implemented.
Some strategies can make a big positive impact with a small capital investment.
Can easily fit in with long term vision of the business.
High marketing costs.
Positive impact is not always big enough.
Expensive to develop new products.
Labour intensive.
Can also be an extra pressure on staff.

16. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of strategies
Diversification Strategies:
A high risk strategy that involves businesses moving into markets where they have little or now experience.
Diversification often requires a business to acquire new skills, facilities and techniques.
There are three diversification strategies:
Diversification strategies:
What?
Example
Concentric diversification
New products, which are related to existing products, are added to existing product lines to attract more customers.
Example: a cell phone manufacturer that starts manufacturing tablets.

17. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of strategies Diversification Strategies:
Diversification strategies:
What?
Example
Horizontal diversification
New products, which are unrelated to existing products, are added to attract more customers.
This strategy can be very successful if existing clients are loyal.
A business’ reputation may be severely damaged if the new products are inferior.
A car dealership that starts to offer insurance.

18. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of strategies Diversification Strategies:
Diversification strategies:
What?
Example
Conglomerate diversification
A business expands its operations by moving into new markets with new products.
If an industry suffers a downswing, it will have other income streams as well.
However, extensive research needs to be done, before entering a whole new market.
The Virgin group is well known, for example:
Virgin Atlantic (airways)
Virgin Money (insurance)
Virgin Active
Virgin Mobile

19. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of strategies Diversification Strategies:
ADVANTAGES:
DISADVANTAGES:
Can serve as motivation for staff.
Include opportunities to open a new mission and vision for business.
Distribution of risks.
High risk for the business entering uncharted territory.
Can shift focus from main operation of the business.
Can require high expenses for marketing, research, etc.
Requires skilled resources.

20. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of strategies
Defensive Strategies:
Defensive strategies aim to prevent businesses from closing down.
Usually considered during times of economic downswing.
There are three defensive strategies:
Defensive strategies
What?
How?
Retrenchment
A strategy that cuts costs by cutting jobs.
This strategy is usually used by businesses under pressure to raise profits.
Retrenchment will result in loss of skills for the business.
Cutting jobs.
Eliminating product lines.

21. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of strategies Defensive Strategies:
Defensive strategies
What?
How?
Divestiture (disposal / suspension)
Branches of a business, that are not performing well, are closed down or sold.
Selling some of the assets of the business.
Selling ownership by selling shares.
Closing subsidiaries.
Liquidation
A business’ assets are sold to be converted to cash.
Liquidation is only considered when all other options are exhausted.
During liquidation, assets are usually sold for much less than book value.
Converting a business’ assets into cash to pay creditors.
Paying off the staff.
Closing the business down.

22. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of strategies Defensive Strategies:
ADVANTAGES:
DISADVANTAGES:
Can save costs.
Serve as income for the business.
Get rid of divisions that are not profitable.
Can demotivate staff.
Long process.
Must adhere to a lot of legal requirements.
Can lose money.

23. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Other strategies:
Growth strategies and defensive strategies are well-known strategies for responding to challenges or eliminating threats in the business environment:
a) Replacing individuals
Businesses must employ people who will contribute to the business achieving its goals.
Sometimes, a business may be forced to replace individuals:
who are dismissed
who resign or retire
who are promoted
Due to the high cost or recruitment, replacing individuals is often an expensive process.

24. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Other strategies:
b) Revising a business’ mission
A clearly defined mission is the first step towards developing a sound strategic plan.
A mission describes the main reason for a business’ existence.
As a business grows over time, the mission statement may need to be revised to adapt to the changing business environment.
Even though revising a mission statement may give employees a new goal to work towards, it may not be enough to salvage a suffering business.

25. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Other strategies:
c) Establishing or revising objectives
Setting objectives converts the vision into specific performance targets.
Objectives will give direction to a business and provide managers with an action plan, stating how to cope with the challenges from the business environment.
Objectives must include a deadline for achievement.
Managers are responsible for achieving assigned tasks within a specified time frame.

26. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Other strategies:
d) Devising new policies
Policies provide managers with rules explaining how a business wishes to manage its operations.
Although policies sometimes impose constraints which can limit the decision making process, it gives direction for achieving a business’ goals.

27. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Other strategies:
e) Issuing stock to raise capital
Public companies raise capital by issuing stock.
Investors are attracted to stock in two ways:
Some companies pay large dividends.
Other companies attract investors by improving profitability and in doing so, increasing the value of its shares
Although companies are owned by the shareholders, the shareholders do not have any influence on the policies that influence business activities.
A company usually issues stock to raise capital in order to expand its operations.
Advantages of issuing stock:
Disadvantages of issuing stock:
Money is available for expansion.
A company can be managed more efficiently if money is available.
Making shares available can make the company a potential take-over target.

28. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Other strategies:
f) Adding additional sales staff
A business can hire additional sales staff in an effort to increase sales.
However, this will increase a business’ salary expenditure.
If this strategy fails, the business will have to pay the additional sales staff, without obtaining any monetary benefit in return.

29. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Other strategies:
g) Allocating resources differently
Resource allocation involves using available resources (financial resources, human resources, entrepreneurial resources and natural resources) in the most efficient way to achieve the business’ goals.
A business can re-allocate its resources to respond to challenges in the business environment.
This means that a business can concentrate its resources on its most important and most profitable operations.
This may result in other business operations being neglected.

30. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Other strategies:
h) Developing new performance incentives
Performance incentives are rewards offered to employees for reaching particular targets.
Developing new performance incentives can provide employees with a new goal to work towards.
Advantages of performance incentives:
Disadvantages of performance incentives:
Attracts and retains good employees.
Increases productivity.
Employees do not have to rely on the performance of others (individual incentives).
Team incentives encourages co-operation between employees.
Focus is on results and not on the process.
Emphasis is on short term results, rather than long term planning.
Individual incentives discourage teamwork.
Can create conflict between employees.

31. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Types of Strategies
Common problems experienced by businesses and strategic solutions:
Extent of control
Problems/challenges
Strategy
Micro
The elements of the micro environment are fully controlled by a business.
Finding skilled employees
Skills development
Enter into learnership agreements
Implement a mentorship programme
High employee turnover
Assess working conditions.
Determine reason why employees resign frequently
Assess salaries and wages
Lack of motivation among employees
Team building
Incentive bonuses
Lack of management and leadership
Do succession planning
Implement a mentorship coaching programme.
Headhunt good leaders from other businesses
Meeting employees’ demands
Engage in collective bargaining

32. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Extent of control
Problems/challenges
Strategy
Market
The control factors from the market environment give rise to opportunities and threats.
The business enterprise has no control over these factors.
The business enterprise is however able to influence some of the control factors from the market environment.
Competitors
Launch a new marketing campaign
Offer specials to draw attention away from competitors
Finding suitable suppliers
Give preference to black owned suppliers as this will benefit a business in terms of BEE rating
Strikes
Engage in collective bargaining processes
Devise a plan to make up for lost production time
Change in consumers’ taste
Product development to keep up with consumers’ tastes
Diversification – offer other types of goods to keep consumers interested
Change in consumers’ buying power
Diversification – offer similar goods, which can be sold cheaper.

33. MACRO ENVIRONMENT – BUSINESS STRATEGIES
Extent of control
Problems/challenges
Strategy
Macro
Management has no control over the elements of the macro environment.
Management must still react to these challenges before they develop into dangerous threats.
Businesses can deal with the challenging macro environment by getting involved in the macro environment.
Legislative requirements
Make contact with Government department responsible for enforcing a particular law.
Organise workshops where management is addressed by experts.
Technological inventions
Appoint employees to keep up with technological trends in the market.
Embrace technology and use it to the business’ advantage.
Increase in the interest rate
Do not apply for further credit.
Proper budgeting to ensure efficient use of money.
Increase in the fuel costs
Monitor use of company vehicles.
Efficient route planning.