Business Studies Grade 12 Notes On Business Strategies
Business Studies Grade 12 Notes On Business Strategies
BUSINESS STUDIES
GRADE 12
TERM ONE
CHAPTER5
BUSINESS STRATEGIES
2019
TABLE OF CONTENTS
TOPICS PAGES
Examination guidelines for human resources 2
Terms and definitions 2
Definition of a strategy 3
Steps in developing a strategy 3
The strategic management process 3
SWOT analysis 3-4
Example of a SWOT analysis 4
PORTERS’ FIVE Forces 4-5
PESTLE analysis 6-7
Types of business strategies 7-9
Steps in evaluating a strategy 9
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BUSINESS STRATEGIES CHAPTER 5
Term Definition
Formulation of strategies To devise/develop a strategy.
Implementation of strategies This takes place after the formulation of the strategy and
involves all the activities that are required for putting the strategy
Evaluation of strategies This takes place after the implementation of the strategy and
determines whether the implemented strategy resolved the
challenge.
Industry analysis tools SWOT, Porter’s Five Forces and PESTLE analysis models are used
to analyse the challenges posed by business environments.
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Definition of a strategy
• A strategy is a long term plan of action to achieve a goal.
• A strategy is a plan of action to address an opportunity or to solve a problem.
• The business needs a strategy to achieve its vision and mission.
NOTE: The industrial analysis tools (SWOT, PESTLE AND PORTERS’FIVE) and
business strategies form part of the strategic management process.
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OPPORTUNITIES THREATS
• Market growth for the business product. • Corporate tax may increase
• New technology that will enhance • Rising pay levels.
quality services and products • Intense competition.
• Changing customer habits. • Increasing fuel price.
• Disposable income level will increase. • Aging population.
• Government’s incentives for ‘specific • Stricter laws regulating environment
industry pollution
• Growing number of people buying on • Currency fluctuations.
line (electronic marketing) • Changing technology.
• What good opportunities can you spot?
NOTE: The SWOT analysis can is usually assessed in the form of a scenario as
indicated below:
NOTE: You need to quote verbatim (as is) from the scenario, otherwise you will lose
marks for writing incomplete quotes or for writing a summary of the scenario.
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BUSINESS STRATEGIES CHAPTER 5
Power of buyers
• Buyers buying in bulk can bargain for prices in their favour.
• If a business is dealing with a few powerful buyers, they are often able to dictate their
terms to the business.
• If buyers can do without the business’s products then they have more power to
determine the prices and terms of sale
• The business must assess how easy it is for buyers/customers to drive prices down.
• This will depend on the number of buyers/the importance of each buyer to the
business and the cost of switching to other products.
Threat of substitution/substitutes
• Substitute products or services are different products/services that satisfy the same
needs of consumers and can be used to replace one another.
• If the business’s product can be easily substituted, it weakens the power of the
business in the market.
• Substitute products may cause the business to completely lose its market share.
• Unique products will not be threatened by substitute products.
NOTE: The main aim of Porter’s Five Forces model is to analyse the business
position in the market. This is more of a research study done by
businesses. Do not focus on recommendations as this is not required at
this stage.
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BUSINESS STRATEGIES CHAPTER 5
2 PESTLE ANALYSIS
NOTE: You need to name the PESTLE factor, identify challenges of each factor
and make recommend ways businesses can deal with the identified challenges
as explained in the table below:
FACTOR CHALLENGE RECOMMENDATIONS
Political • Some government policies may • Research recent government
affect businesses policies
• Consumer rights organisations • Network and lobby with the
may prevent businesses from NGOs and all consumer
selling products if they do not rights organisations.
meet certain requirements. • Trade only with countries that
• Trade agreements may prevent have favourable trade
businesses from importing some agreements with the
medicine/products. government.
Economic • Inflation/Interest rates may • Consider decreasing profit
negatively impact on business. margins rather than increasing
• Loans may be expensive due to product prices.
high interest rates. • Borrow money from financial
• Fluctuations in foreign currency institutions when interest rates
may restrict import. are favourable.
• Consider exchange rates
when trading with other
countries
Social • Customers may not be able to • Sell substitute/generic
afford products due to low products at lower prices.
income levels. • Learn local languages/Hire
• Businesses may not be employees who are well
conversant with the local conversant with the local
language of their customers. language.
Technological • May not keep up with/be aware • Continuous research on the
of the latest technology. latest available
• Employees may not be skilled to technology/equipment in the
operate/maintain new market.
technology/ equipment. • Train existing/appoint new
• Businesses may not be able to employees to maintain/use
afford new technology. new equipment.
• May not be able to cater for/ • Compare prices/Select
afford online transactions/e- suitable suppliers for new
commerce. equipment at reasonable
prices.
• Businesses must be geared
for online trading/e-commerce
Legal • Consider certain Acts that may • Comply with all relevant
have a direct impact on a legislation that may impact on
business, e.g. the CPA/BCEA. businesses.
• Legal requirements for operating • Comply with the legal
certain types of businesses requirements for operating
time-consuming. businesses, e.g. licence/trade
• High legal costs involved in mark registration/patents.
obtaining a licence/trade • Budget for high legal
establishment costs.
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Horizontal integration
• A business takes control of/ incorporates other businesses in the same
industry/which produce/sell the same goods/services.
• The aim is to reduce the threat of competition /substitute products/services.
Intensive strategies
Market penetration
• New products penetrate an existing market at a low price, until it is well known to the
customers and then the prices increases.
• It is a growth strategy where businesses focus on selling existing products to existing
markets.
• Focuses on gaining a larger share of the market by reducing prices to increase
sales/increasing advertising and promotion.
Market Development
• It is a growth strategy where businesses aim to sell its existing products in new
markets.
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BUSINESS STRATEGIES CHAPTER 5
• This strategy involves finding new markets and new ways to distribute product.
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Product Development
• It is a growth strategy where businesses aim to introduce new products into existing
markets/modifies an existing product.
• Businesses generate new ideas and develop new products/services
Diversification strategies
Concentric diversification
• The business adds a new product or service that is related to existing products and
which will appeal to new customers.
• Occurs when a business wants to increase its product range and markets.
Horizontal diversification
• The business adds new products or services that are unrelated/ different to existing
products, but which may appeal to existing/current customers.
• Occurs when a business acquires or merges with a business that is at the same
production stage, but it may offer a different product
Conglomerate diversification
• The business adds new products or services that are unrelated to existing products
which may appeal to new groups of customers.
• Conglomerate diversification means that a business grows into new products,
services and markets.
• Occurs when a business wants to increase its product range and markets.
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BUSINESS STRATEGIES CHAPTER 5
Retrenchment
• Terminating the employment contracts of employees for operational reasons.
• Decreasing the number of product lines/Closing certain departments may result in
some workers becoming redundant.
Liquidation
• All assets are sold to pay creditors due to a lack of capital/cash flow.
• Selling the entire business in order to pay all liabilities/close down the business.
• Companies in financial difficulty may apply for business rescue to avoid liquidation.
• Creditors may apply for forced liquidation in order to have their claims settled.
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