Content Page

Topic 1 : The micro environment ..................................................................... 2

Topic 2 : The market environment ................................................................. 45
Topic 3 : The macro environment .................................................................. 55
Topic 4 : Socio-economic issues ................................................................... 70
Topic 5 : Social responsibility & ethics ........................................................... 79
Topic 6 : Business sectors ............................................................................. 85
Topic 7 : Avenues of acquiring a business .................................................... 91
Topic 8 : Forms of ownership ........................................................................ 96
Topic 9 : Contracts ...................................................................................... 101
Topic 10 : Entrepreneurship .......................................................................... 106
Topic 11 : Teamwork and Conflict Management ............................................ 111
Topic 12 : Creativity and Problem solving……………….……………………….115

Topic 13 : Location Factors………………………………………………………..125

Topic 14 : Business Related information ………………………………………..131

Revision questions………………………………………………………………….137

Printed by:
AYM Printers
Pinetown

Compiled by:
T. Kotzé

Edit contributions:
Mrs C. Brehany
J. Blofield
T. Nathoo

© 2016
6h edition 2023

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Topic 1 : The micro environment
Checklist:
What you should know:

 The various components and features of the micro environment

 An introduction to the eight business functions (role and importance and
relationship between functions)
 In-depth exploration of the general management, administration,
financing, purchasing and public relations functions
 The concept of quality in relation to the various business functions
 The correlation between management and the success of the business in
achieving its objectives.

UNIT 1: The micro environment (overview)

1 Characteristics of the micro environment
The characteristics of the micro environment are as follow:

 The micro environment is the internal environment of the business and is the
environment within which the business carries out its activities.
 The business has most control over all facets of the internal environment.
 The micro environment is multifaceted as it consists of many parts.
 The components of the micro environment are interdependent. This means that the
components are linked and a change in one factor may affect another factor.
 The business environment is dynamic as factors in the environment change
constantly. Businesses need to deal with change proactively (acting before an event
happens) and reactively (responding after an event has taken place).

2 Components (elements or factors) of the micro

environment
All elements which are internal to the business which could affect the performance of the
business:

Business Business
Policy Culture Resources Structure
Functions MICRO

2.1 The Business Policy

The business policy defines the scope for decision-making in the business and are
guidelines developed by the business to guide its action. The business policy defines the

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business strategy and consists of the vision, mission, goals and objectives of the
business.

Vision
Vision is the dream of the business (the road map to the future) and must be easily
understood yet ambitious. It is a long-term goal that takes 5 years or more to reach.

Mission
Mission describes how the business will reach its vision by outlining the purpose, basic
activities and explaining the reason why the business exist.

For example, a mission can link to the market, product/services and the qualities
pertaining to them. It could also include social responsibility and environmental concerns
and general values such as integrity, transparency and innovation.

Goals
Goals are long-term aims that the business puts in place to reach its mission and vision.
Goals give the business a sense of direction.

Objectives
Objectives explain how the goals of a business will be reached. Objectives are short-
term tasks or specific steps to reach goals.
Figure 1: Example of vision, mission, goals and objectives linked to Mc Donalds
Vision Mission Goals Objectives
"McDonald's “Providing Primary Goal: Objective
vision is to be outstanding To make maximum To get customer
the world's best quality, service, profit. satisfaction by
quick service cleanliness, and ensuring high
restaurant value, so that Secondary Goals:
quality, value for
experience.” we make every  Customer money, fast food
customer in satisfaction is served.
every restaurant  To grow and
smile." Ensuring hygiene
become more
by regular
well-known
cleaning every
 Socially half an hour.
responsible
business

2.2 Choice of strategy

Strategies are put in place by management to give the business the competitive
advantage. The overall business strategy is defined in its business policy (MVG0).
Due to a changing world and unexpected events, other complicated and simple
strategies are however necessary. Business managers must follow a strategy that would
be the best solution to challenges (problems) in their business environment (micro,
market and macro).

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2.3 Organisational (business) culture
The culture of the business consists of the different beliefs, expectations, values and
attitudes shared within the business, for example courage, accountability, humanity,
respect and integrity.

The culture will influence people’s actions and attitudes:

 A positive culture will ensure that people are motivated and productive, while a
negative culture would make workers feel discouraged and could cause conflict in the
workplace.
 An organisational culture could also be seen in the way staff dress for work. Google’s
employees can go to work in casual clothes because they don’t deal with their
customers face-to-face. On the other hand, employees at a bank are required to
dress and act in a more formal manner as they are dealing with customers face-to-
face.
 Organisations also consider the culture of their customers when adopting an
organisational culture. Food franchises often try to cater for customer needs such as
including halal or banting food on the menu.

2.4 Organisational (business) resources

Resources are the means available to the business to help it run smoothly. Organisations
need different types of resources, such as physical resources (natural resources and
raw materials), financial resources, Human Capital and intellectual resources
(knowledge and skills or entrepreneurs and intrepreneurs in the organisation). The
resources and distribution thereof in the business is controlled by management.

2.5 Organisational (business) structure

The structure of the organisation forms the system which the business uses to run the
business efficiently.

Every business must be organised into a basic structure that will show:

 Each person’s tasks

 Each person’s level of authority and responsibility
 The flow of instructions and feedback in the business.

The management structure can be divided into three levels:

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 Top level
management

Middle level
management

Lower level
management

2.6 Management and leadership

Workers can only be as effective as the leadership and management of the business.
Management is the process of achieving business goals through planning, organising,
leading and control.

Leadership is the process of inspiring and guiding others to achieve organisational goals.
Leaders and managers should motivate employees, lead by example, be committed and
hardworking. Different leadership styles could be used, depending on the situation. See
leadership styles in topic 9.

2.7 Business functions

In a business, there are a variety of activities that take place daily. These activities can
be divided into categories called business functions. There are eight business functions.
One person in a business can perform all the functions or the functions could be
performed by several individuals.

Below is a concise summary of each business function:

Business
Role (activities) of the business functions
Functions
General Management  Manage and oversees the other seven business
functions.
 This is done by planning, organisation, leading and
control so that business vision, mission, goals and
objectives set by management can be achieved.
 Management must motivate and guide the staff.
Purchasing Function  Responsible for buying goods and services needed
by all the other functions so that the business can
operate efficiently.
 Goods and services must be bought from the best
supplier available at the right price and time, in the
right quantities and of the right quality.
 Purchasing includes placing orders for stock for the
departments that need it, receiving goods, sorting,
storing and distributing stock to the different
departments.

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Production Function  Transforms raw materials into finished products by
combining raw materials with labour, capital and
entrepreneurial skill.
 Production methods (systems) include mass
production, batch production and jobbing.
 Products are standardised and checked for quality using
inspection or sampling (methods of quality control).
Marketing Function
 Responsible for the sale of goods and services to
meet the needs of consumers.
 The right product must be sold at the right price in the
right place and using the best communication mix
(Advertising, personal selling, sales promotion and
publicity).
Public Relations  Responsible for creating a positive image of the
Function business to the public.
 The public includes consumers, customers, suppliers,
government and the wider community.
 Public Relations often deals with customer
complaints, also online customer complaints such as
the ones on hellopeter.com.
Human Capital  This function is also known as the personnel function.
Function  Responsible for recruiting (finding) and selecting
suitably qualified employees as well as training,
evaluating and remunerating (paying) them. The
human resource function deals with all aspects related
to employees.
Administration  Responsible for collecting and processing data into
Function information used for decision-making
 Responsible for general office work such as filing and
storing of information. It includes the process of finding
data, handling and interpreting data and presenting it to
management.
Financial Function  Responsible for planning (budgeting) and managing
all the funds (money) and assets in the business as well
as investments.
 This function is responsible for any use of funds in the
business and controls the spending of all the other
business functions.
Risk Management  Risk management is the identification and evaluation of
threats that could have an impact on the finances of a
business, for example strategic risk, credit risk, market
risk, operational risk and liquidity risk.
 This function is responsible for identifying threats and
putting strategies in place to mitigate risk.

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 Procurement  Responsible for checking that contacts entered into with
suppliers are compliant
 Responsible for looking for cost-savings when
purchases need to be made
 Responsible for maintaining good supplier relationships
IT/ Technology  Responsible for keeping up-to-date with technology and
maintaining the IT department
 Responsible for finding technology that is effective to
assist in running a business
 Responsible for training employees on how to use
technology effectively
The ELEVEN Business Functions

2.8 Interrelation between functions

All ELEVEN functions depend on each other and are interrelated. The functions work
together (link) to make the business successful. For example: Human Capital and
Marketing link because Human Capital recruit and train the employees working in the
Marketing department.

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Questions
Question 1: Matching columns [10 x 2 = 20]
Match the definition in Column B with the terminology in Column A. Write only the letter of
the answer next to the corresponding number on your answer page.

Column A Column B
1.1 Mission A This business function is responsible
for ordering stock and liaison with
1.2 Vision suppliers.

1.3 Organisational structure B The function responsible for creating

a positive image of the business in
1.4 Organisational culture the eyes of their stakeholders.

1.5 Marketing C This outlines the purpose and basic

activities of the business and
1.6 Administration explains why the business exists.

1.7 Public Relations D Transforms raw materials into

finished products.
1.8 Finances
E Hierarchical representation of the
1.9 Purchasing management of the business.

1.10 Production F The function responsible for finding,

handling and interpreting data.

G Responsible for planning and

managing the funds of the business.

H Long-term aims that provide a sense

of direction.

I The personality of the business.

J The dream of the business.

K Responsible for the sale of goods

and services to meet the needs of
consumers.

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Question 2 – [2 x 3 = 6]
Suppose you are the general manager of a business. Supply a separate strategy for
each of the following challenges that may arise in the micro-environment of the business.

2.1 The product design team in the marketing department cannot reach consensus on
the new product idea and thus conflict arises.

2.2 When the financial department of the business prepared the financial statements
for year-end, they realised that the business does not generate sufficient profit to
keep the shareholders happy.

2.3 The general manager requested audit reports from the administration department,
but the administration department cannot find the audit report compiled by an
external accounting firm.

Question 3 - [2 x 2 = 4]
Identify the business function that would be most likely to deal with the following
situations. Motivate your answer.

3.1 The business decided to put products on sale to attract a larger customer base.

3.2 Customers filed complaints on hellopeter.com to report poor quality products and
bad service provided when returning faulty products.

Question 4 – [10]
Establish a link between the following business functions. (How do the functions
interrelate?)

4.1 Marketing and Financing (3)

4.2 Production and Marketing (3)

4.3 General Management and Human Capital (4)

UNIT 2: Business functions

1 General management function
Management is necessary to ensure that the business runs smoothly and that the work in
the various departments is integrated. As the business grows, the decisions that need to

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be made become more complex and it is therefore necessary to divide the decision-
making process between different people. Decisions are made at different levels.

1.1 Levels of management

Skills needed to
manage a business
well

Top level managers need conceptual

skills most as they make strategic
decisions and plans.

E.g. CEO and Board of Directors

Middle level managers need human

relational (inter-relational) skills
most as they are involved with tactical
decisions and plans.

E.g. Functional managers such as

marketing manager, financial manager

Lower level managers (also called

front-line managers) need technical
skills most as they are involved with
operational decisions and plans.

E.g. Supervisor / foreman Tactical decision:

Short-term strategies put in

Strategic place to make sure that the
decision: correct procedures take place.

Decisions that are

Operational decision:
made regarding
the goals, vision Processes put in place to
and mission of the carry out the strategic and
business. tactical decisions.

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The levels of management can be summarised as follow:

Criteria Top level Middle level Lower-level

management management management
Who performs at  Directors  Heads of  Supervisors
this level of  General business  Foreman
management? manager functions  Heads of
 Executive  Heads of specific teams
heads departments
 Members in a  Heads of
close sections
corporation
 Partners in a
partnership
 Owner in a
sole trader

Types of Strategic plans Tactical plans or Operational plans

decisions or or decisions decisions or decisions
plans made by
managers
performing at
this level
Type of skill Conceptual skills Human relational Technical skills
needed most by (Inter-relational)
this skills
management
level
Responsibilities Determines the Puts processes Responsible for
of the level of vision, mission, and procedures day to day
management goals and in place, for decision-making.
objectives of the example
business. determines the Ensures that
procedure to be processes and
followed by the procedures put in
purchasing place by top and
function. middle level
management is
carried out.

Spend most of
their time
supervising
subordinates.

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1.2 Management tasks
There are four basic tasks that need to be performed by management to ensure that the
business runs smoothly. In addition to the four basic tasks, there are also other tasks that
aid management to do their work.

Basic tasks of management (POLC)

The management tasks include:

PLANNING ORGANISING LEADING CONTROL

Looking at the Management Help Actual results

future and should employees are compared
deciding distribute the understand with standards
proactively resources what to do set during
how to tackle (human, and how to do planning.
certain issues financial, it. Effective
Employees
to achieve knowledge, leaders
receive
success. natural) in balance task
feedback
Different plans such a way orientation
about
must be that the (getting the
performance.
considered. It objectives of job done), with
is crucial to business are employee In case of
have a met. orientation - deviations,
contingency treating reasons for
plan (Plan B). people with deviations are
dignity and determined
The 5W1H respect. and rectified.
technique can
be used to
plan: what,
why, when,
where, who,
how.

What are deviations?

An outcome that is
different to the original
standard or plan.

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Additional management tasks
COMMUNICATION COORDINATION
MOTIVATION
Transfer and receiving of Ensure all departments are
Encourage employees to info between people.
perform to the best of their informed about what is
Important for relationships, expected of them to
abilities. Different types of to inform management achieve synergy between
motivation, monetary and about problems, to ensure work schedules of various
non-monetary rewards. employees know departments.
expectations and to
improve overall efficiency .

DELEGATING DISCIPLINE
DECISION-MAKING Purpose is to improve
Takes place to solve To reduce burden on future behaviour. To be
problems. All relevant facts management and ensure fair, everyone must know
must be considered before more meaningful what is regarded as
decision is taken. Pre- distribution of work. When misconduct and
conceived or personal delegating, duties, authority consequences of actions.
prejudice should not and responsibilities are Offenders should be dealt
influence decisions. allocated to subordinates. It with consistently and given
empowers employees. a fair hearing.

Questions
Question 1 – [30]

1.1 Managers need to have a variety of skills to run an organisation successfully. This
includes conceptual, human relational and operational skills when performing the
tasks of a manager (basic and additional).

Evaluate the quote by Tom Peters and argue whether this is true for
a manager. Include factual content and your own opinion in your
response. (10)

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1.2 Copy the table below:
Level of Type of Type of Responsibility Example
management decision skill of the level of of a
(1 mark (1 mark management manager
each x 3 = each x 3 = operating
3 marks) 3 marks) at this
(1 mark each x level
3 = 3marks)
(1 mark
each x 3 =
3 marks)
Top management
Middle
management
Lower management

a) Complete the table by filling in the missing information under the remaining three
columns. (15)
b) Which level of management do you think would make the most difficult decisions?
Give a reason for your answer. (3)
c) Which level of management do you think has the most interaction with workers? Give
a reason for your answer. (3)
d) Which skills will a till supervisor and a Front door manager at a grocery retailer need
most? Supply a reason for each answer. (4)
[25 marks]

Question 2 - [10]
Complete the crossword below by writing your answer next to the corresponding number
for DOWN and ACROSS on paper. (10)

ACROSS DOWN
1 The management task performed to 1 The management task
ensure that departments are performed when checking
working together to reach team whether the required
synergy. standards have been met.
5 Top level management needs to 3 Work that should have been
have more of this type of skill than done by management is
lower level management. given to sub-ordinates
instead.
6 Lower level management needs to 2 The type of decisions made
have more of this type of skill than by lower level management.
top level management.
7 The management task performed 4 The type of decisions made
when distributing resources in such by top-level management.
a way that the objectives are met.
9 The type of decisions made by 8 The dream of the business.
middle level management.

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 General management crossword

2 Administration function
It is essential that the business owner keep accurate records of the data and
information in the business. It is furthermore necessary to be able to make informed
decision in a business and it is therefore necessary to ensure that accurate information is
available to base decisions on.

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Questions

1 Study the picture and try to make a list of the different activities performed in
the office environment
2 Are there any other activities not illustrated in the picture you can think of?

The administrative function is responsible for the following activities:

 Collecting and handling of data and information

 Information management
 Information technology
 Office practice

2.1 Collecting and handling of data and information

The administration department is responsible for collecting data from both within and
outside the business and to process the collected data into meaningful information that
can be used by management in decision-making.

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Data versus information
The difference between data and information is as follow:

DATA INFORMATION

Raw facts or figures collected Data that have been processed

by means of observation or into information for decision-
research. making.

The process of handling data

The handling of data to process it into information follows a three-step process:

• Raw data in the

form of facts or
STEP 1: figures is
gathered from
Collect data other business
functions.

• Data is analysed and

STEP 2: processed into information
using computer software
Process data such as spreadsheets,
into information graphs, databases etc. or
manually by employees

• Store information using

STEP 3: a manual filing system
or storing information on
Store cloud, computer hard
information drive, USB storage, CDs
etc.

2.2 Information management

Managers should make decisions about the functioning of the business daily. Complete
and accurate information are necessary for decision-making. Incorrect and incomplete
information can lead to wrong decisions, loss of money, time and operations.

Types of information
Management needs the following types of information to manage information effectively:

 Accounting records
 Statistics
 Budgets
 Cost accounting

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Accounting records
Accounting records help keep control over the accuracy of financial information recorded
by the administrative staff and the financial aspects of the organisation. Accounting
records can be used to draw up financial statements and reports.

Statistics
Statistics are concerned with collecting, classifying, using and interpreting numerical
data. Statistics could help the business to predict trends. Some calculations are helpful
in the analysis and interpreting of data to predict trends.

Different types of calculations that can be used:

Calculation Description Example

name
Arithmetic Different values are added up Set of data: 5; 4; 6; 5
mean / average and divided by the number of
values in the set of data. 5 + 4 + 6 + 5 = 20
Divided by 4 numbers in the
set of data = 5

Mode The value that appears most Set of data: 5; 4; 6; 5

often in a set of data.
Mode is 5 (5 appears the
most)

Median Values that appear in the Set of data: 5; 4; 6; 5

middle of a set of data when
the data is arranged in order 4; 5; 5; 6 OR 6; 5; 5; 4
from the highest to the lowest
or the lowest to the highest. There are TWO values in the
middle of the data. Add them
together and divide by 2.

5 + 5 = 10 divide by 2 = 5
Frequency The number of times a value Set of data: 5; 4; 6; 5
distribution appears in a set of data.
4=1
5=2
6=1

Range Difference between the Set of data: 5; 4; 6; 5

highest and the lowest value
6–4=2

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Budgets
A budget is a plan of estimated expenses and income for a specific period, usually a
year. Each department is responsible for drawing up its own budget. Budgets help
management control the financial aspects of each department by comparing the actual
income and expenditure with the projected figures and making the necessary
adjustments. Should there be a variance between projected and actual figures,
management must investigate the reasons for the variance to improve on financial
management. This could also assist with predicting projected figures in the future.

Cost accounting
Cost accounting is used to determine whether a product can be sold at a competitive
price, by calculating how much it will cost to make or sell a product, or deliver a service.
Cost accounting takes place before the product is even made.

Characteristics of useful, meaningful information

 The information must be complete and accurate to enable management to make
meaningful decisions. Incorrect information will result in wrong decisions being made.
Information must also be relevant to the decision that is to be made.
 The cost of collecting information must be kept as low as possible.
 Information must be available when it is required, and presented in the way that the
businesses or managers require the information.
 Records in a business must comply with the legal requirements. Financial
information, particularly, must be kept according to legislative requirements for tax
and other purposes.

2.3 Information technology

Information technology refers to the extent to which the business decides to make use of
electronic equipment to assist with the various administrative tasks. Technology is used
to both communicate and handle information, and is often referred to as ICT
(information and communication technology).

The following list describes examples of how electronic equipment is used in the office
environment:

 Computers can be loaded with various software programs to assist with record
keeping, storing and retrieving information, stock management, presentations
and communication. The Internet enables the staff to communicate via email,
organise video conferences, send and receive faxes and make calls over the
Internet.
 Cell phones and tablets make it possible to reach people anywhere, whenever
required. New generation cell phones and tablets can be used as mini computers and
have many of the functions that we use computers for.
 Photocopy machines can be used as fax machines, copiers and scanners. The
equipment can be connected to the network system in the business so that they can
be shared.

19
 Data projectors and electronic whiteboards can be used when training the staff
and making presentations to prospective clients. Electronic whiteboards are
interactive and come with electronic pens and various applications, which are very
useful during presentations.
 Electronic scanners and sales terminals are fast and convenient methods of
recording purchases. The information is then saved in the system. Debit and credit
card transactions can be processed immediately.

2.4 Office practice

Office practice refers to the policy that determines how the administrative staff are
expected to carry out their duties. It covers matters such as the dress code for the
workers, proper filing of documents, telephone etiquette, copies to be made, internet
usage by staff and how to conduct yourself in the reception area of the business.

Questions
Question 1 – [20]
1.1 With the aid of an example, differentiate between data and
information. (4)
1.2 Describe the process that should be followed when handling data. (6)
1.3 What is meant by:
a) Cost accounting (2)
b) Budget (2)
c) Variance (2)
1.4 Discuss how information technology assist businesses. (4)
[20 marks]

20
Question 2 – [25]
2.1 With justification, classify the following as data or information:

a) A list of names. (2)

b) A list of items sold on a particular day. (2)
c) The quantity of goods sold this week in comparison to those sold
in the previous week. (2)
d) Your school report. (2)
e) A list of names arranged in alphabetical order with telephone
numbers. (2)

2.2 Refer to the extract from La-di-da’s Coffee Shop menu below to explain and
calculate the following:

a) Mode (3)
b) Median (3)
c) Mean (3)
d) Range (3)
e) Frequency distribution (3)

La-di-da’s Brews Price

Carefree Cappuccino R20,00
Easy Expresso R18,00
Lazy-Day Lattes R22,00
Moroccan Mocha R22,00
Creamy Caribbean R24,00
La-di-da’s Special Brew R20,00
Filter Blends R20,00

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3 Financial function
All the decisions made in the business have financial implications. It is the responsibility
of the financial function to:

 Determine how much capital the business needs

 Establish the sources for acquiring the capital
 Manage the funds of the business
 Manage investments

3.1 Types of capital

Capital is the money a business needs to start up and to operate. The business needs
fixed capital and working capital.

WORKING CAPITAL
FIXED CAPITAL
Working capital is used to keep the
Fixed capital pays for fixed assets business running from day to day,
such as land or buildings, to buy stock and to pay for
machinery, equipment. expenses such as labour cost and
rent.
We also call this long-term capital
because this capital stays in the We also call this short-term capital
business for a long period. because the capital needs change
daily.

The following factors determine the amount of capital a business needs:

 The size of the business: A large business employs many workers and need a large
building for their business operations.
 The stage of development of the business: A business that is just starting up will
need more fixed capital and stock than a business that has been operating for several
years.
 The nature of the business: A retailer will need less fixed capital than a manufacturer
as they do not need expensive machinery. A retailer will need to buy a large amount
of stock to operate successfully, but an electrician or hair dresser will not need to
invest large amounts of capital in stock.

3.2 Sources of acquiring capital

The two main sources from which businesses acquire funds are own capital and
borrowed capital.

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Own capital
The owner provides this capital in exchange for profit. The source of own capital depends
on the form of ownership of the business:

 In a sole trader, one owner provides capital to the business.

 In a partnership, two or more partners provide capital to the business.
 In a close corporation (CC), members provide capital to the business.
 In a company, shareholders provide capital to the business.

Profits (surplus funds) can also be reinvested in the enterprise to enable the owners to
receive larger profits in the long term.

Borrowed capital
Borrowed capital is obtained from financial institutions in exchange for interest. Borrowed
capital can be short-term or long-term financing. The following are examples of forms of
financing:

Short-term financing:
Short-term financing provides working capital needed by the business for day-to-day
operations and is used as working capital. Short-term financing is normally required for
no longer than a year.

 Overdrafts are a convenient and flexible type of short-term loan banks offer. The
bank allows the business to withdraw a negotiated amount more than the money that
it has in the bank.
 Suppliers’ credit (trade credit), where the buyer and the seller come to an agreement
that allows the buyer to settle debt at a later stage.
 Leases, where the lessee (customer) enters an agreement with the lessor (supplier)
for the use of an asset at a fixed remuneration. This is the same as rent. The asset
never becomes the possession of the lessee.
 Short-term loans are money borrowed from the bank or financial institution for less
than a year. The borrower pays the money back to the lender by a specified date, with
interest.
 Factoring of debt is an option whereby specialist agencies ‘buy’ the debts from firms
in return for immediate cash. They may offer to pay 90 percent of the existing debt.
The debtor who owes money to the business will then pay the specialist agency
instead.

Long-term financing:
Long-term financing is normally used to expand business operations or to purchase fixed
assets. It is therefore used to fund fixed capital.

 Long-term loans are loans from the bank or financial institution for which the
repayment takes longer than a year, normally with a mortgage (property) as security.

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 Debentures, which are long-term loans from the public where interest is paid at
regular intervals until the debt is repaid. Debentures are traded through the JSE.
 Hire purchase allow businesses to buy a fixed asset over a long period with monthly
payments which include an interest charge, e.g. purchasing a truck or delivery van.

3.3 Managing business funds (Budgets)

The finance department uses a budget to plan for the capital needs of the business. A
budget is a document which shows how a business plans to spend income it expects to
receive. A budget sets out figures for expected income and estimated expenses for a
period.

Types of budgets
A business uses two kinds of budgets, namely capital and cash budgets.

The capital budget details the plans for investment in fixed assets such as land and
buildings. It is therefore long term in nature.

The cash budget is used to determine how much working capital the business will need
over a specific period. It is therefore short term in nature.

How does a business earn income?

 Operations
 Interest from a positive bank balance, fixed deposits or debtors
 Rent
 Commission

What will a business spend money on?

 Capital expenses (e.g. new machines)
 Operating expenses (e.g. wages)
 Financing expenses (e.g. interest on loans)

3.4 Manage investments

Businesses or individuals can invest the money they earned to make more money. It is
the task of the financial department of the business to invest surplus funds. Asset
classes form the building blocks of any investment plan. There are four major asset
classes, namely cash, property, bonds and equities. The bigger the risk you take, the
greater the reward or return you can expect. The safer your investment and the smaller
the risk you take, the smaller the possibility of a high return. Investments may be
classified as low risk, moderate risk or high risk.

Short-term investments include money deposited into savings, notice deposits or

money market accounts. Long-term investments include fixed deposits, shares, unit
trusts and debentures.

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Cash – Low Risk
 Cash investments will not make a fortune, but is a safe investment.
 Cash investments, including bank deposits and money market accounts, offer
investors the assurance of a regular interest income (reward) and the knowledge
that their capital will not be subject to huge external fluctuations.
 There is no guarantee that the capital sum will be protected against inflation, as this
investment does not have capital growth potential i.e. it is essentially an income
generating investment and the initial investment will only grow if the income generated
is reinvested.
 Examples of cash investments include saving accounts, fixed deposits, notice
deposits and money market.

Savings accounts and notice deposit accounts – short-term

 Savings accounts allow the investor to withdraw amounts at any time, whereas
notice deposit accounts require a notice period, but interest earned will be higher.
 A call account is a notice deposit bank account with the cash being available with a
certain notice period being given e.g. a 32-day call account requires the holder to give
the bank 32 days’ notice of the intention to withdraw cash.
 Savings accounts and notice deposits are low risk investments.

Money market – short-term

 A money market account requires a notice period and a minimum balance.
A money market fund is a type of unit trust that invests in interest-bearing
instruments (bonds and debentures) issued by banks, the government and
companies when they want to borrow money.
 The interest rate is higher than for a bank deposit, as you are part of group
that can bargain for the best wholesale rates.
 You can withdraw your money, like a call deposit at a bank.
 Interest rate risk is largely eliminated because money market funds can
invest only in instruments with an average term of not more than 90 days.
 These short-term instruments are traded on the money market, and have a
maturity of less than 12 months.

Fixed deposits – best over a long term

 A fixed deposit means the investor deposits the money for a fixed period
[e.g. 90 days, 2 years] and may not withdraw before the maturity date.
 The interest rate on a call account is higher than that of a normal savings
account where the cash is immediately available and the interest rate on a
fixed deposit is higher than that of a call account (and varies per term).

Property – Moderate to High Risk

 Property is often the biggest asset in a person’s investment portfolio.

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 This risk of property is moderate to high as it depends on the location of the
property and the political and economic environment.
 One big drawback of this asset class is its lack of liquidity, i.e. the fact that investors
cannot sell property as quickly as investments in other asset classes.
 Property can generate income in the form of rent or profit made on the sale of a
property.
 Property is a long-term investment.

Bonds – Moderate Risk

 Bonds or gilts can be defined as interest-bearing securities issued by government
or companies to borrow money.
 A debenture is a type of bond that is not backed or secured by a property.
 It is an ‘IOU’ in which they promise to pay the lender interest and to pay back the
lender’s capital sum on a specific date.
 This asset class offers a moderate risk.
 The capital sum that is invested can fluctuate, while the interest payment can be
higher than on cash.
 Bonds can be traded through the JSE and should be a long-term investment.

Equities – High Risk

Shares or stocks
 An investment in equities (shares or stocks) means that investors have obtained part-
ownership in the company whose shares they have bought and become
shareholders.
 Some companies are listed on a stock exchange, which means that shares can be
traded freely on that stock exchange, e.g. JSE Ltd in South Africa.
 Although equities are a high-risk asset class, they have the best chance of beating
inflation over the longer term.
 The longer the time before retirement, the more you should invest in equities. Apart
from the capital growth when the value of the shares increase, a shareholder may
share in the profit of the company by receiving a dividend.
 A dividend is a share of the profit made by the company, divided amongst the
investors (shareholders).
 Equities are long-term investments.

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Unit trust – moderate to high risk, long-term
A unit trust is where the contributions of many investors are pooled and then invested in
a range of shares and other assets by portfolio managers. A unit trust is a moderate to
high risk investment and investors receive capital growth and dividends or interest as
reward.

27
Questions
Question 1 – [20]
1.1 Explain the difference between the following: (8)
a) Own and borrowed capital
b) Fixed and working capital
1.2 With the aid of examples, discuss TWO types of budgets. (4)
1.3 You won a Lotto draw of R 25 000 and decided to invest the money.
a) Identify a low, moderate and high-risk investment available to you. (3)
b) Which form of investment will you choose? Give a reason for your answer. (3)
1.4 What is a share? (2)

Question 2 – [15]
Re-draw the table below on your answer paper to complete it.

Type of Long-term or
Risk Reward
investment short term?
Equities / Shares
Property
Bonds /
Debentures
Fixed Deposit
Money Market

4 Marketing function
4.1 Aim of marketing
The aim of marketing is to:

 Retain customers
 Gain more customers
 Build and improve a brand
 Increase sales to generate more profit.

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4.2 Market research
The marketing function needs to conduct market research to find out what product /
service is in demand, what price consumers are prepared to pay, where (place) the
product must be sold and what the best method would be to communicate with the target
market. Target market made up of many variables such as age, gender, disposable
income (LSM / Living Standards Measure groupings), hobbies / interests, education,
occupation and/or marital status.

4.3 The Marketing mix (7 Ps of marketing)

Below is a summary of the elements that make up the marketing mix:

4 Traditional Ps 3 Service Ps
Product People
Price Processes
Place Physical evidence
Promotion

Product
This includes the whole package sold by the business, which includes:

 The features of the product (design)

 Quality of the product
 Branding
 Packaging
 Sales and after-sales service

The product must satisfy the needs and wants of the consumer. Needs and wants
include for example keeping the consumer warm (jacket) whilst also providing status.

Price
The price is the monetary value attached to a product or service. The following factors
influence pricing:

 Form of the market: monopoly, oligopoly, monopolistic competition, perfect

competition.
 Nature of demand: elastic or inelastic (elasticity of demand)
 Availability of substitute goods
 Normal trade practices such as allowing discounts
 Behaviour of the consumer
 Attitude of distributors (intermediaries)
 Production and distribution costs

A variety of pricing strategies could be used, such as psychological pricing, leader

pricing, market penetration pricing and price skimming.

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Place (Distribution)
The place policy is also known as the distribution policy. The product follows a route
from the time of production to reach the place where it is sold to the end consumer. The
route includes intermediaries such as the manufacturer, agents, wholesalers and retailers
as well as activities such as transport and storage.

Promotion (Communication)
Promotion is also known as the communication policy of marketing. It includes the way
the business communicates what it does and has to offer to the consumer.

The marketing communication mix consists of:

 Advertising: This is paid for communication by the business and sends a positive
message to the target market. The message sent is controlled by the business.
 Publicity: This is free communication about the business to the target market. It could
be positive or negative and is not controlled by the business.
 Personal selling: There is interaction between the buyer and the sales person. The
buyer often feels under pressure to listen and respond when the sales person shows
a personal interest.
 Sales promotion: This includes sampling of products, discount coupons, and buy-
one-get-one-free offers.

People
The employees who provide the service to customers are responsible for the perception
the customer has of the business. Employees, managers, directors, shareholders and
customers form part of the people policy of marketing. Interaction between employees
and customers contribute to the success of the business.

Processes
Processes includes all sales and marketing processes which effect a consumer’s
satisfaction. Examples include:

 Waiting times in queues

 Helpfulness of staff
 Correct systems such as point of sale systems
 Card machines
 Cash or credit options

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Questions

1 Briefly discuss THREE processes Steers have put in place to limit

the waiting time of customers. (9)
2 Discuss the importance of ‘people’ to Steers. (6)
[15 marks]

Physical evidence / Physical proof / Physical environment

The consumer takes a risk when they choose a service. Evidence of the service needs
to be provided to create a positive customer experience. Physical evidence could include,
but are not limited to:

 Location
 Reception area
 Professional appearance of staff
 Websites
 Business cards.

4.4 The Consumer Protection Act 68 of 2008

Purpose of the CPA

The purpose of the Consumer Protection Act (CPA) is to promote and advance the
social and economic welfare of consumers in South Africa by establishing a legal
framework for a consumer market that is fair, accessible and sustainable for consumers.
It aims at improving consumer awareness and encouraging responsible and
informed consumer choices and behaviour.

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Fundamental consumer rights
In terms of the Act, consumers have the right:

 to equality in the consumer market

 to privacy
 of choice
 to disclosure of information
 to fair and responsible marketing
 to fair and honest dealing
 to fair value, good quality and safety.

Remedies
 Consumers have the right to file a complaint with the Consumer Commission if a
person acted in a manner inconsistent with the Act.
 The Consumer Commission could refer the matter to a consumer court (Consumer
Tribunal).
 The consumer court may order the supplier to discontinue the conduct in violation of
the Act, or award damages against a supplier.

Questions
1 Does a market have to be in one place? Explain your answer. (3)

2 State THREE objectives (aims) of marketing. (3)

3 Use Woolworths as an example to explain each of the 7 Ps that form part of the
marketing mix. (5 x 7 = 35)

a) Product b) Price c) Place

d) Promotion e) Physical evidence f) People
g) Processes

4 Discuss the purpose of the Consumer Protection Act (CPA). (4)

[45 marks]

5 Purchasing function
The purchasing function buys goods and services for all the other departments in the
business. The purchasing department will receive an allocation from the finance
department to purchase what is needed for the business. It is important to make sure that
the purchasing function will contribute towards the profitability of the business and to
exercise proper control over the stock purchased.

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5.1 Activities of the purchasing department
 One of the important functions of the purchasing department is to determine the
needs of the other departments in the business.
 Buyers should have expert knowledge of both the products and the trends in the
market.
 All the necessary documentation that accompanies a purchase must be completed.
 Stock must be managed carefully to ensure a constant supply.

5.2 Purchases made by the purchasing department

 Purchases for resale: The purchasing department buys the stock that the business
sells to customers.
 Purchase for conversion: The purchasing department buys the raw-materials or
semi-finished goods used to produce finished goods sold to customers.
 Purchase for own use: The purchasing department buys products used by the
business, for example cleaning materials.

5.3 Aspects to be considered when buying for the business

The right quality

Quality refers to the suitability of the product for its intended use. Quality can be
specified by the following:

 Trademarks, which help the consumer identify the product with which a certain
quality is associated, for example Nike
 Grading of agricultural products, such as A Grade
 SABS quality marks indicate that a product meets internationally recognised
standards.
 ISO 9000 is a set of international standards of quality management and quality
assurance. It can help a company satisfy its customers, meet regulatory requirements
and achieve continuous improvement.

The right quantity

The buyers may need to order different amounts of the same goods from time to time.
The stock levels of the business must be monitored on a continuous basis. Accurate
records of goods in stock and goods sold must be kept. Once each stock item reaches
a pre-determined level, new items are ordered.

33
The right supplier
The stock for the business should be bought from different places. Potential suppliers
should be evaluated in terms of the following:

 The reputation of the supplier

 The price for the quality and quantity desired
 The time required for delivery
 The terms of payment
 The geographical location.

The right price

The right price is a price that is fair and reasonable to both the buyer and the seller.
Buyers must evaluate following:

 The quality and quantity of the goods required

 Market conditions, such as fluctuations in prices
 Seasonal factors where goods will be marked lower when they are unsold at the end
of a season
 Discounts for buying in bulk
 Trade discounts to encourage the prompt payment of goods bought on credit
 Discounts for paying cash for goods purchased.

The right time

The timing of the purchases also involves an understanding of the lead time
requirements of the various suppliers. The buyer can choose between the following
alternatives:

 Forward buying. This refers to the practice of buying more materials than needed,
but not more than estimated requirements.
 Minimum buying. This refers to keeping the minimum quantity of materials in stock
in anticipation of prices falling soon.

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5.4 Purchasing procedures
1. Purchasing 2. Gather 3. Choose suitable
4. Place order
requisition information supplier
•Department in •Purchasing •The best supplier •An order can be
need of goods or department is chosen, taking placed by:
service will collects into account •using a written
complete a information about price, quality, order form;
purchasing goods and delivery and after- •emailing supplier
requisition. services by sales service.
•phoning supplier
•Purchasing making phone
requisition will be calls or searching
given to the websites.
purchasing •They ask
department. suppliers for
quotes and
tenders.

6. Receive stock 7. Distribution of 8. Pay supplier and

5. Follow up
ordered goods file documents
•Purchasing •Goods are •Goods are sent to •The financial
department delivered the department department is
should follow up together with an that ordered given the order to
on the order to invoice and them. pay the supplier
find out if it will delivery note. •Copies of the
be delivered in •Quantity and purchase
time. price must be requisition form,
checked against the order form,
the original order delivery note and
form and delivery invoice must be
note. filed.
•Quality of goods
must be checked.
•Damaged goods
must be sent back
to the supplier.

5.5 Stock control

Stock control means determining the number and value of stock items on hand at any
given moment.

Aim of stock control

Stock control is used to ensure that:

 sufficient stock is available for sale or use in production

 the problem of obsolete (outdated / expired) and damage to stock is minimised
 the cost and selling prices of stock are controlled.

You should neither be overstocked nor under-stocked. When you are over-stocked,
you are going to pay too much for warehouse costs, and the stock may become shop

35
soiled, expire or go out of fashion. When you are under-stocked, the customers will
lose faith in your ability to provide goods on a continued basis, and this will result in
lower sales because the customers will buy elsewhere. The ordering level must lie
between the minimum and maximum stock levels.

The most economic ordering level is determined to:

 prevent stock shortages
 keep the investment in stock as low as possible
 minimise damage owing to perished and outdated goods
 reduce loss because of theft
 Keep storage cost such as electricity, rent and security as low as possible
 Minimise administrative expenses such as keeping stock records

Electronic stock control

An electronic stock control system will help the business to:

 Keep the correct levels of stock on hand

 Records the cost price and selling price of the product
 Identify theft in the business when the physical stock count is compared with the
electronic stock control system.

5.6 Cash and credit purchases

Purchases are either made on credit or by paying cash.

Cash purchases
Many businesses prefer to pay cash for purchases made. There are advantages and
disadvantages associated with buying or selling using cash.

36
Credit purchases
Purchasing on credit means that the seller trusts that the goods sold will be paid for in
the future. Credit sellers often charge interest on the outstanding amount. Credit sellers
allow 30, 60 or 90 days for accounts to be settled.

Purchasing on credit will have the following advantages and disadvantages:

5.7 The National Credit Act 34 of 2005

Purpose and aim of the NCA

The purpose of the National Credit Act (NCA) is to promote the development of a credit
market that is accessible to all South Africans.

 The Act aims to ensure consistent treatment of different credit products and credit
providers.
 The Act encourages consumers to borrow responsibly, avoid too much debt and
meet financial obligations.
 The NCA also aims to balance the rights and responsibilities of credit providers
and consumers.
 The Act discourages irresponsible credit granting by credit providers and the failure
to pay by consumers.
 The Act aims to address and correct imbalances in the negotiating power between
credit providers and consumers.

The rights of consumers

In terms of the National Credit Act, consumers have the right:

 not to be discriminated against unfairly

 to be given reasons why credit is not provided
 to information in any official language
 to information in clear and understandable language
 to a copy of the document that records the credit agreement
 to access and challenge credit records and information.

37
Implications for the business
 The consumer must be provided with a quotation, showing all the relevant costs and
repayment values before the credit agreement is signed.
 The credit provider must assess the consumer’s creditworthiness and ability to
repay the credit.
 It is more difficult for consumers to buy on credit and consequently for the business to
sell its products.

6 Public relations function

The public relations function aims at creating a favourable image of the business among
the public that have an interest in the business. It is important to build a good image of
the business in the eyes of their stakeholders. The stakeholders of the business include
everyone that has an interest in the business, such as customers, suppliers, competitors,
intermediaries, owners, employees, the greater community, the government, other
organisations and trade unions.

6.1 Objectives of public relations

The primary objective of public relations is to present facts in such a manner that
people form positive opinions of the business. Secondary objectives of public relations
are to:

 promote the success and growth of the business

 establish goodwill among the public by becoming involved in the community
 shape the public’s opinion in such a way that a favourable image of the business is
created
 attract top employees to the business.

6.2 Methods of shaping public opinion

When public opinion is formed, a certain image of the business is created. The ideal
would be for everyone to have a good impression of the business. However, a poor
impression of the business does not disappear if it is simply ignored by management.

The major methods used by public relations to shape public opinion are as follows:

 Exhibitions are good places to introduce people to your business or product because
large numbers attend and can see what you sell or offer.
 A neat entrance area and a friendly reception will have a positive effect on potential
customers.
 It is important to answer the phone in a friendly and helpful manner.
 The media publishes or broadcasts news about the business and advertises products
and services offered by the business. It is important to use the media in such a way
that it can contribute to creating a positive image about the business.
 These days, businesses are expected to give back to the community. The
businesses can show social responsibility by improving the quality of life of the

38
 community they serve and minimising the impact they have on the natural
environment.
 Word-of-mouth advertising occurs when consumers share their experiences of the
business with one another. If consumers are satisfied with the service or product
offered, they will tell other people. However, people tend to talk more about negative
experiences, so the opinions of others can also easily be negatively affected.
 A website can be used as an effective public relations tool. The fact that ever-
increasing numbers of people have access to the Internet is a powerful tool in the
hands of the public relations department. Careful attention must be given to the
design of the site. It must be user-friendly to enable interested parties to access
information about the business, its products, social responsibility programme and
important events.
 Brochures and flyers are inexpensive ways of focusing attention on your business
and products. They can be handed out in the area close to your business.
 Direct contact with customers has an immediate impact on the target market.
Personal contact enables the customers to see for themselves what your business
offers. Direct contact can also be where the business responds to enquiries made by
customers about the business and its products/services.

7 Quality
The quality of a product or service is measured against specific standards. The business
must make sure that its products and services are consistently of the expected quality.
The business functions make this delivery of quality possible. Businesses can make use
of the South African Bureau of Standards to ensure that their products or services
comply with international standards in terms of the International Organisation for
Standardisation (ISO). ISO 9000 includes a set of standards that specify quality
management systems.

ISO 9000 standards are based on seven quality management principles:

 Customer focus by understanding the needs of customers

 Leadership by establishing a clear vision and setting challenging goals
 Engagement of people (employees) by using their abilities, making them accountable
and including them in discussion of problems
 Process approach that manage activities as processes
 Improvement of organisational performance by empowering people
 Evidence-based decision making using collected data
 Supplier relationship management

8 Management and success

Management plays a vital role in the success of the business. It is management’s task to
ensure that the vision, mission and goals are pursued to the best interest of the
business. The goals should be realistic and achievable. Management constantly needs
to measure the actual performance of the business against the set objectives.

39
A SWOT analysis is one way of assisting management in ensuring that strengths are
reinforced, and weaknesses turned into strengths. Opportunities need to be exploited to
the full and threats countered in advance to reduce their impact on the business.

External factors
Internal factors

It is crucial for business to maintain a healthy relationship with the workers to avoid
unnecessary industrial action, which will disrupt the operations of the enterprise and
could put added pressure on profitability. The workers need to feel that they are part of a
team and that their opinions are valued by management. Poor decisions by management
may put the survival of the business at stake and therefore the livelihood of the workers,
their families and the community. Management, therefore, needs to be sensitive to the
fact that their decisions can impact on the future success or failure of the business.

40
Questions
Question 1: Multiple choice – [20]
Choose the correct answer. Only write the letter of the answer you select.

1.1 The 'dream' of the business is known as the:

A mission
B vision
C goals
D objectives

1.2 The 'personality' of the business is known as the:

A organisational resources
B organisational structure
C organisational culture
D functions of management

1.3 Organisational resources include:

A mission, vision, goals and objectives

B financial, human, information and marketing
C human, information and technological, financial and physical
D product, price, place and promotion.

1.4 The business has full control over the components of the .... environment:

A market
B macro
C external
D micro

1.5 The basic tasks of management are:

A production, organisation, marketing and administration

B motivation, communication, delegation and activating
C leading, communicating, organising and control
D control, organising, leading and planning.

41
1.6 The level of management involved in medium-term tactical decision-making is:

A top-level management
B middle-level management
C lower-level management
D employees.

1.7 Who is responsible for the selection of a suitable sales manager of a large
company?

A Chief Executive Officer

B Managing Director
C Human Resource Manager
D Marketing Manager

1.8 An example of a manager operating on the top-level of management is the:

A Chief Executive Officer

B Marketing Manager
C Human Resource Manager
D Supervisor

1.9 An example of 'own funds' in the business is:

A personal savings
B retained profits
C selling of assets
D all of the above

1.10 The Act that protects consumers from unfair discrimination when credit is granted
is the:

A EEA (Employment Equity Act 55 of 1998)

B CPA (Consumer Protection Act 68 of 2008)
C NCA (National Credit Act 34 0f 2005)
D OHSA (Occupational Health and Safety Act 85 of 1993)

42
Question 2: Match terms – [20]
Choose a term from column B that matches a description in column A. Write only the
letter next to the question number.

COLUMN A COLUMN B
2.1 Money needed to run business daily A planning
such as buying trading stock, raw
materials, paying salaries B fixed capital

C public relations function

2.2 The process of activating workers to
do their job well D working capital
2.3 Responsible for creating a positive E leading
image of the business to the public
F marketing
2.4 Process in which a manager
considers the future and sets goals G financial function
and objectives
H organising
2.5 Responsible for collecting and
I administration function
processing information used for
decision-making J purchasing function

2.6 Large amounts of money needed to K production function

buy fixed assets
L personnel function
2.7 Responsible for the sales of goods
M control
and services to meet needs of
customers

2.8 Buys goods and services needed by

other functions

2.9 Synonym for the Human Capital

function

2.10 Discipline in the workplace will form a

part of this basic task of management

Question 3: True/false – [20] If FALSE, correct the staement

Indicate whether the following statements are TRUE or FALSE. Choose the answer and
write only 'true' or 'false' next to the question number.

3.1 Physical resources in a business include assets. (2)

3.2 Capital, own and borrowed, are information and technological

resources. (2)

43
3.3 A positive organisational structure helps staff to be motivated and
productive. (2)

3.4 An organogram of the levels of management may include their tasks, level of
authority and responsibility. (2)

3.5 The task of organising involves giving guidance and motivation to

employees. (2)

3.6 Top-level managers turn tactical decisions into action. (2)

3.7 Foremen in the production department function on the lower-level of

management. (2)

3.8 Lower-level managers monitor activities in all business

departments. (2)

3.9 When managers plan, they need to ask themselves questions such as
suggested by the 5W1H technique. (2)

3.10 A factor management needs to keep in mind when considering the amount of
working capital needed is the size of the business. (2)

Question 4: Short questions – [60]

4.1 Give an example for each level of management in an organisation. (3)

4.2 Explain the purpose of a budget. (6)

4.3 List THREE factors to consider concerning the amount of capital needed in a
business. (6)

4.4 Discuss the importance of the public relations function. (8)

4.5 Explain by means of TWO examples how the business functions interrelate with
one another. (6)

4.6 Discuss the basic activities of management, 'leading' and 'control'. (8)

4.7 Discuss THREE Ps of service marketing. (9)

4.8 List the steps that form part of the purchasing procedure. (8)

4.9 Discuss the purpose of the:

a) CPA (3)

b) NCA (3)

44
Topic 2 : The market environment
Checklist:
Are you able to:
 Identify the components that form part of the market environment
 Analyse the market environment for challenges by making use of Porter’s tool.
 Are you able to recommend strategies for these challenges?

The market environment is the environment directly outside the business. It includes all
the other people, businesses or institutions in the direct vicinity of the business. The
business has some control (depending on the attitude of the stakeholder) as it can
negotiate with these stakeholders.

Challenges that may arise in the market environment relate to customers, suppliers,
competitors, NGO’s, CBO’s, NPO’s, strategic alliances, intermediaries, industry
regulators, trade unions and government departments. The business has some control
over the elements of the market environment and can try to influence them.

1 Elements (factors) of the market environment

1.1 Customers / Clients / Consumers
Customers, clients and consumers are buyers of products or services. A buyer could be
a business buying raw-materials or semi-finished goods from another business, or it
could be the final consumer buying a product. People pay for goods and services to
satisfy their needs and wants.

45
A customer is a person or business who buys goods or services from a business whilst
a consumer is often thought of as the end-user of a product. A client is someone who
uses the professional services of an individual or company.

Consumer or customer behaviour are influenced by cultural, social, personal and

psychological factors:

Cultural factors
The cultural group to which consumers belong can influence their buying behaviour.
Cultural factors differ from country to country and sometimes also from region to region
within the country. Cultures has sub-cultures in it. Sub-cultures are based on religion,
geographical region, race, age groups and activity preferences or sport.

E.g. Many people are focused on their health nowadays. This will impact their diet. Some
diets promote eating fruit and vegetables, including carbs, whilst other diets promote a
low-carb diet (banting diet).

Social factors
Social factors which influence buying behaviour of consumers are the reference groups
of family, role and status in the community. A reference group is the group of people to
which individuals believe they belong. People have different roles and status depending
on the groups, clubs, family and organisations to which they belong.

E.g. A father, who owns his own business, is also the president of the local running club.
He plays four roles: husband, father, entrepreneur and community leader.

Personal factors
Personal factors that influence the buyer’s behaviour include age, occupation, lifestyle,
economic situation, personality and self-concept.

E.g. When you work for Pick n Pay you are most likely to buy your groceries at Pick n
Pay.

Psychological factors
There are FOUR psychological factors or needs which affect buying behaviour, namely
motivation, perception, learning, beliefs and attitudes.

 Motivation: The inward drive to get what we need or want.

 Perception: How you interpret the world around us, including selective exposure to
advertising media.
 Learning: Consumers change their perception after they gain information or
experience.
 Attitude: Feelings / emotions, favourable or unfavourable.

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E.g. Even though a person might not be able to afford a trip to Disney land, if they want it,
and has the inward drive (motivation) to save for it, the person will most probably enable
themselves to go to Disney land.

1.2 Suppliers/ Intermediaries

Suppliers
A business is dependent on its suppliers for materials and/or services to ensure it can
manufacture the product and/or sell to its target market. It is important that materials are
bought in the right quantity, the correct quality and fair price and at the time and place
where it is needed. Business should develop strong relationships with suppliers to
avoid disruption in supply.

The supplier has "some power over the business":

 If the supplier demands a higher price for materials, it will result in the businesses
having to increase their own selling price.
 If the supplier does not deliver the materials on time, the business will not be able to
meet its objectives, which could result in a loss of sales for the business.

Intermediaries
Intermediaries are "middlemen" who form a link between the business and its
consumers in the distribution channel. Intermediaries include any business that plays a
role in distributing and promoting the goods and services of the business to its
consumers. Intermediaries include wholesalers, retailers, agents, spaza shops, banks,
insurance brokers, micro-lenders, advertising agencies, telecommunication providers,
transport firms and e-commerce websites on the internet.

Functions of intermediaries
Place value: Intermediaries add place value to a product as intermediaries get a
business’s product to its consumers where the consumer wants it.

Time value: Intermediaries add time value to a product as intermediaries are open over
weekends and until late every week day. This means that intermediaries are open when
the consumer wants the product.

Ownership value: Intermediaries make ownership possible

and therefore add ownership value to a product. Many
intermediaries provide a credit option for customers who
want to own a product now and pay later. Banks make
electronic payments possible and supply finance in the
form of overdrafts, loans and credit cards.

47
1.3 Competitors
Any business offering the same / similar product or a substitute product could be a
competitor. A competitor could be a business that have been in operation for a long time,
or a business that just started trading. In fact, any business that targets the same market
or a part of the market is a competitor.

Michael Porter designed a tool that can be used by businesses to analyse their
competitors in the market environment. He first designed a FIVE FORCE tool and then
added a Sixth force at a later stage. The tool is used to come up with strategies for
challenges related to the six forces. This tool is discussed later in this chapter and
categorises competitors as follow:

 Competitors could be rivals in the same industry selling the same product to the
same target market. E.g. Steers and McDonalds
 Competitors could be new entrants who just started business operations in the same
market as the business. E.g. Steers and Burger King
 Competitors could be businesses that sell substitute products satisfying the same
need in the same target market. E.g. Steers and KFC

1.4 Civil society

Civil society is all the groups that have an actual or potential interest in or impact on an
organisation’s ability to achieve its objectives.

Categories of civil society

 Financial: Credit bureaus keep information on people who were blacklisted for credit
purposes
 Media: Local radio stations and newspapers that carry news, features and editorial
opinions.
 Citizen-action: Environmental activists who may question the decisions or operations
of the business.
 Local community: Neighbourhood residents and community organisations.
 General public: Everybody in the community in which a business or organisation
operates.

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Formal organisations in civil society
Different formal organisations play a role in the market environment. These are
community-based organisations (CBOs), non-governmental organisations (NGOs) and
non-profit organisations (NPOs).

 NGO’s are non-governmental organisations. Although NGO funds are mostly raised
by the government, they are not managed by the government and are not for profit
initiatives. Examples of NGO’s include Child Welfare, SPCA and local sport clubs.
 NPO’s are non-profit organisations. The profits are not used to share amongst the
members, but are used for the organisation’s purpose. NPO’s include the following:
 Organisations that have registered as Section 21 Companies under the Company
Act 61 of 1973.
 Trusts that have registered with Master of the Supreme Court under the Trust
Property Control Act 57 of 1988.
 Any other voluntary association that is not-for-profit.
 Examples are Trade Unions, public arts organisations, charitable organisations.
 CBO’s are Community Based Organisations and form part of non-profit
organisations (NPO’s).

1.5 Industry regulators

These groups provide guidelines to businesses on how to act to ensure
that businesses are operating in an ethical manner. Industry regulators
ensure that businesses comply with legislation and regulations. They are
the watchdogs of industry, e.g. SABS (South African Bureau of
Standards), ARB (Advertising Regulatory Board) and Ombudsman in the
Insurance and Financial Industries. Trade unions also form part of the industry
regulators. Their function is to ensure that no employee is unethically exploited and to
enforce employee rights.

1.6 Trade unions

Trade unions are associations created with the purpose to negotiate terms and
conditions on behalf of employees. They have the following functions:

 Protecting the rights of workers and ensuring fair treatment of members

 Improving conditions of service / employment by addressing salary issues,
employee benefits such as leave, housing etc, job security and the physical work
environment (safety)
 Representing employees in negotiations with employers and in disciplinary issues
 Advising employees on labour relations issues such as retrenchments / promotion
 Striving to achieve industrial peace

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1.7 Local Government
Municipalities oversee certain services in their area. Some of their areas of
responsibility include:

 Vehicle licence administration

 Drivers licence administration
 Waste management
 Electricity and water;
 City Health
 Fire and rescue services
 Traffic signal faults
 Property zoning (Zone as business / industrial / residential areas)
 Transport
 Tourism

1.8 Strategic allies

A strategic alliance is an arrangement between two companies (strategic allies) that have
decided to share resources to undertake a specific, mutually beneficial project. A
strategic alliance is less involved and less permanent than a joint venture. In a strategic
alliance, each company maintains its identity and independence while gaining a new
opportunity.

2 Tools used to analyse the market environment

2.1 Porter’s Six Force tool
The market environment of the businesses includes key components that impact on the
business. PORTER’s SIX FORCES is a tool designed by Michael Porter, a professor at
the HARVARD Business School. The tool analyses the key competitive forces that shape
strategy. The key components identified by Porter include competitors (in terms of
existing rivalry, new entrants and substitute products), suppliers and the buyer
(consumers, clients and customers).

The question needs to be asked if the PORTER force is a strong force or not. If it is a
strong force, the business should put strategies in place to overcome the challenge
related to the force. If the force is weak, it can be used as an opportunity by the
business.

Michael Porter identified the following SIX forces:

Level of competitive rivalry

These include the DIRECT competitors in a given market. It is in the business’s best
interests to find out as much as possible about competitors. This may include location(s),
any information about financial performance that may be available, their products
including patents, quality, brand loyalty, new products, market share, promotion
strategies, distribution channels, employees, organisation culture and morale etc.

50
Availability of substitute products
Substitute products include all the products on the market that can be used instead of
the product sold, i.e. all the alternatives that could be used. An example of a substitute
product for butter is margarine. For a business such as McDonald’s, a substitute product
would be Dominos, because Dominos sell a different product (pizza) to McDonalds’
(burgers and fries).

Threat of new entrants to the market

Any new business entering the same market is a new entrant. Businesses should assess
potential competitors and barriers to prevent entry in the given market. A barrier could
be expensive machinery or highly skilled employees needed for a business operation. A
new entrant could also be and established business expanding to explore a new market,
e.g. Woolworths that opened a Food section.

Power of Suppliers
Suppliers include suppliers of products or services. Relationship between the business
and its suppliers are very important. The business must assess the power of the supplier
and how willing the supplier is to bargain with the business.

Power of Buyers
The buyer can include agents, wholesalers and retailers buying from a factory or primary
producer. It also includes the final consumer. Businesses should assess the power of
their buyer to switch brands.

Complementary products
This includes all the related products and services within a given
market. It refers to products/ services that are compatible with what
an industry sells. The sales of complementary products can have
a huge effect on the sales of the business selling the reliant
product. One can say that the more reliable the products are, the greater the effect of
success or failure of the one will be on the other, e.g. Sales of DVD machines depend on
the sales or popularity of DVD’s; sales of tablet covers depend on the sale of tablets;
sales of cones depend on the sale of ice-cream.

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2.2 SWOT analysis

The SWOT analysis can be used to identify Opportunities and Threats in the market
environment of the business. Strengths and Weaknesses are internal of nature and
therefore apply to what the business already has (micro environment). Opportunities and
Threats are external of nature and apply to elements the business do not have.

The following are examples of opportunities and threats in the market environment:

51
Market element Opportunities Threats
Use market research to stay
in touch with consumer’s Decrease in consumer
needs. buying power.
Bring new product ideas to Change in consumer buying
Consumers
the market. patterns.
Use more cost-effective Consumers are protected by
methods to supply low cost the Consumer Protection Act.
products.
Businesses can negotiate
trade discount with regular
suppliers. Increase in the cost of raw
Businesses can investigate materials.
the possibility of new Unrest amongst workers as
suppliers providing a similar result of trade union
Suppliers
quality product at a more influence.
affordable price. Banks and insurance
Businesses can negotiate companies increase fees and
with trade unions on wage premium.
increases and working
conditions.
Competitors could think of
Business could analyse the
better product ideas,
product and pricing of
marketing campaigns and
competitors to try and focus
Competitors could have better pricing
on something unique that the
strategies.
consumer might want, for
Competitors could steal or
example better service.
copy ideas.
Good relationships with civil
Poor relationships with civil
society can create positive
Civil Society society can destroy a
image through public
business’s image.
relations.

52
Questions
Question 1 – [10]
Choose the correct answer. Only write the letter of the answer you select.

1.1 Race, religion, gender and hobbies relate to ………. factors that influence
consumer behaviour.

A social
B personal
C cultural
D psychological.

1.2 Personal factors influencing consumer behaviour include:

A motivation, perception, belief and attitude

B reference groups, family, role and status
C race, religion, hobbies, level of education
D age, occupation, self-concept and lifestyle.

1.3 The four factors of production are:

A product, price, place and promotion

B natural resources, entrepreneurship, capital and labour
C price, quality, quantity and time
D consumers, competitors, employees and owners.

1.4 Suppliers of capital are:

A banks
B shareholders
C micro-lenders
D all of the above.

1.5 Intermediaries get the product to the consumer where the consumer wants it. This
adds .... value to the product:

A time
B ownership
C place
D monetary.

53
Question 2 – [6]
Define the following terminology:

2.1 Regulator

2.2 Strategic alliance

2.3 Trade unions

Question 3 – [4]
Supply a separate strategy for each of the following market-related challenges:

3.1 Customers complain about the long queues at point of sale.

3.2 Competitors decreased the price of their products to attract a larger customer
base.

Question 4 – [10]
4.1 Discuss the ‘value’ of intermediaries. (9)

4.2 List the SIX forces identified by Michael Porter that shape strategy in a business.
(6)

Question 5 – [10]
Use a business of your choice as example to define, supply a challenge and propose a
strategy for the following Porter’s forces.

5.1 Power of the supplier

5.2 New entrant to the market

Tabulate your answer using the following headings:

Porter’s force Explaining force Challenge related Strategy to

(2) to force (4) overcome the force
(4)

54
Topic 3 : The macro environment
Checklist:
Are you able to:
 Identify challenges related to the macro environment of the business
 Use the PESTLE tool to identify challenges and recommend strategies for the
challenges businesses face.

Challenges in the macro environment relate to political-, physical-, ethical-, economic-,

social-, technological-, legal and environmental factors. The business has no control or
influence over these factors. The PESTLE analysis tool is often used to analyse the
macro environment. Each factor can pose a threat to the business, or the business can
turn it into an opportunity.

1 Elements (factors) in the macro environment

1.1 Political factors
These are the political developments within a country or in other countries that
influence the business. Stability of a government is very important to investors.

Some of the political decisions that influence business are:

 How the government levies and spend taxes

 Interest rates, petrol prices, etc.
 Other political factors such as strike action, legal and illegal immigration and
terrorism can have a direct impact on the normal functioning of business.

1.2 Physical factors

The physical environment includes everything that relates to the immediate environment
of the business, for example:

 The landscape, site and the buildings from which the business operates
 Local weather and weather changes such as very dry or very wet conditions
 Availability, cost and sustainability of resources such as water and electricity
 Availability and accessibility of infrastructure such as road, rail and air transport,
bridges and telecommunication
 Environmental factors such as air, water or noise pollution; also costs to prevent
pollution through recycling and waste control; businesses that cause pollution can get
heavy fines.

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1.3 Economic factors
The economic environment of business includes all the factors influencing finances and
prices. These are factors such as inflation, exchange rates, currency fluctuations, interest
rates and taxes.

 Inflation rates: Inflation is the continuous and significant increase in the general price
level of goods and services. The higher the inflation rate, the lower the purchasing
power of the monetary unit will be.
 Interest rates: the rate at which people or businesses borrow money from the bank
or the percentage return on investment when saving money in the bank. High interest
rates make it difficult for businesses to borrow money to expand.
 Exchange rates (imports and exports), i.e. the strength of the local currency vs. the
currencies of other countries
 High unemployment rates mean people do not have money and thus businesses
suffer lower profits.
 Taxes such as income tax, VAT, import duties, etc.
 The stage of the business cycle influences the businesses – recession, recovery,
prosperity (expansion) and peak (boom).

These economic factors could impact on the selling price of goods and services. The
business needs to keep these factors in mind when buying raw materials, manufactured
goods and when selling the goods to the final consumer.

Stages of the business cycle

The economies of countries repeatedly move through the four stages of the business
cycle: prosperity (expansion/ early upswing phase), peak (late upswing phase),
recession (economy slows) and recovery.

 During growth periods (prosperity, peak and recovery) there is an upturn in business
and thus an increase in employment opportunities.
 During periods of recession, however, a business may have lower profits and may
have to retrench workers. This is because a recession causes an overall decline in
the economy as result of a slowdown in businesses and an increase in unemployment
and poverty.
 A recession that continues over a long period develops into a depression.

The following provides more detail of the stages that form part of the economic
(business) cycle:

Recovery
The recovery phase is the period just after an economic downturn (recession).
Consumer confidence starts to pick up. The following economic indicators are evident of
a recovery phase:

 Bonds yields bottoming (investors don’t make a lot of return on their investment)
 Equities (share prices) are rising

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 Property prices are bottoming
 Inflation is falling

Early upswing (Prosperity)

Confidence level of consumers increase, and thus there is economic growth. The
following economic indicators are evident of a prosperity phase.

 Bonds are stable

 Equities (share prices) are strong
 Property prices increase
 Inflation remains low

Late upswing (Peak)

At this stage, the economy enters a boom. This means that consumer and investor
confidence are high, and thus businesses put up the prices of products to make more
profit. Government policies become more restrictive. The following are economic
indicators of the late upswing phase.

 Bonds yields rise.

 Equities are very strong; topping out
 Property prices are rising strongly
 Inflation gradually picks up

Recession
A recession is an economic downturn. Consumer and investor confidence are low
during a recession as they try to curb their spending. There is a myriad of factors that can
contribute to an economic downturn:

 A drought will cause in increase in the price of goods and services. If a drought
continues for a long period, it could cause a recession.
 Strikes will result in an increase in wages and thus businesses should increase the
prices of goods and services.

The following are economic indicators

of a recession:

 Bonds yields drop.

 Equities are bottoming
 Property prices are weak
 Inflation peaks

57
Summary of economic indicators
Recession Recovery Prosperity Peak
Factors such as The recovery Confidence level At this stage, the
droughts, floods, phase is the of consumers economy enters a
strikes, currencies period just after increase, and thus boom. This
cause economic an economic there is economic means that
downturn. downturn growth. consumer and
(recession). investor
confidence is
high.
 Bonds yields  Bonds yields  Bonds are  Bonds yields
drop. bottom stable rise.
 Equities are (investors  Equities are  Equities are
bottoming don’t make a strong very strong;
 Property lot of return on  Property topping out
prices are their prices  Property
weak investment) increase prices are
 Inflation peaks  Equities are  Inflation rising strongly
rising remains low  Inflation
 Property gradually picks
prices are up
bottoming
 Inflation is
falling

Income distribution and poverty

How income is distributed between the rich, middle class and poor will have an impact
on business because it will affect the size of the market for products and the buying
power of the consumers. If too many people are poor and only a few people are very rich,
the country will have a small market for luxury goods and most people will barely be able
to afford basics. Issues linked to income distribution are poverty and unemployment.
When people do not have the means to fend for themselves, they resort to crime.

Unemployment
Higher unemployment means that a country can produce fewer products and services.
Many potential workers are not earning an income; this reduces the market for
businesses to sell their products and services. South Africa’s unemployment rate is about
25% and the poverty rate about 50%. Unemployment is a socio-economic issue because
it is a social problem that has an economic impact on the country. It is discussed in more
depth under the topic on contemporary socio-economic issues.

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HIV/Aids
Human immunodeficiency virus (HIV) infection and acquired immune deficiency (AIDS)
syndrome leads to many conditions caused by infection with the virus. The spreading of
HIV/AIDS has become an economic issue because so many people are infected with it.
An added problem is that it often is the economically active people who become HIV
positive. In other words, skilled people who worked become ill and die before their time.
Businesses need to train new workers to take their place. Businesses also lose a lot of
money due to a decline in productivity as those who are HIV positive stay away from
work often due to illness and have less energy to perform to capacity when they are at
work. Thus, the productivity of the country therefore suffers.

As in the case of unemployment, HIV/Aids is a socio-economic issue because it is a

social problem that has an economic impact on the country. It is discussed in more depth
under the topic on contemporary socio-economic issues.

The GDP (Gross Domestic Product) of the country

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 The GDP is the monetary value of all the finished goods and services produced
within a country's borders in a specific period.
 The GDP indicates the economic growth of a country.
 Foreign investors take the GDP into consideration when they want to invest in South
African companies.
 Industrial action (such as strikes) and political unrest could have a negative effect on
the economic growth of the country.
 Strikes that continue over a long period, such as the strike in the mining industry
(2014, 2015, 2016) have a negative impact on the GDP.
 Hosting the World Cup had a positive effect on the GDP because of tourists
spending money in South Africa and more products sold in preparation for the World
Cup.

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Inflation
The most common inflation rate is consumer inflation, measured with the consumer
price index, or CPI for short. The South African CPI shows the increase in the general
price of goods and services. It could be as result of fuel increases over a period. The
higher the inflation rate, the less likely consumers are to spend money due to a decline in
their buying power.

The following table shows the CPI for South Africa during the month of May from 2006 to
2021
CPI South Africa 2006 - 2021

Period Inflation
May 2022 6.5%
May 2021 5.5%
May 2015 4.388 %
May 2014 6.836 %
May 2013 5.458 %
May 2012 5.773 %
May 2011 4.556 %
May 2010 4.276 %
May 2009 8.366 %
May 2008 9.805 %
May 2007 6.048 %
May 2006 2.432 %

Graph showing inflation rates fron 2021 to 2022

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cpi.png?s=sacpiyoy&v=202210190827V20220312&ismobile=1&w=400&h=250&lbl=0

Interest rates
Interest rates are important when making decisions such as whether to expand business
operations or not. If the interest rates are high, more interest will for example be paid on
a bank loan. Interest rates on loans for 2014 ranged between 20 and 35%, depending on
the term period or repayment and the client’s risk profile.

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1.4 Ethical factor
Ethics refers to principles or values that determine whether actions taken by directors,
managers or employees are correct. Ethics is more that complying with legislation. It is
the difference between right and wrong, what is acceptable in the community and what
is not.

Global business ethics, community ethics and attitudes and corruption risk include but a
few ethical issues that have an impact on the business. It is not easy to make the right
decision. The King Codes have been put in place to help businesses with ethical
decision making. Transparency in business dealings without exploiting consumers or
suppliers is of the utmost importance. Ethics will be discussed in more detail at a later
stage.

1.5 Social, cultural / demographic factor

Social factors are factors that have an impact on the standard of living, the quality of life
and disposable income levels of communities and include issues such as:

 Poverty, unemployment, crime

 Health issues (HIV/Aids, TB, Obesity, Diabetes, Listeriosis, Avian flu) – serious
impact on workers’ productivity/ efficiency
 Levels of education – the higher the level, the more highly skilled people.
 Demographics – size and characteristics of population, change in
growth/composition of population, numbers in various age groups, gender balance,
racial groups etc.
 Cultural issues (including discrimination)
 Population diversity – culture and inclusivity
 People’s norms and values
 Attitude towards health and lifestyle

1.6 Technological factor

There is a rapid advancement in the pace in which new technology is developed. This
pose both a threat and an opportunity for a business.

 A threat could be the fact that technology (in which large sums of money were
invested), becomes outdated.
 An opportunity is the ability of a business to create a competitive advantage using
new technology. Technological upgrades also mean that production is becoming
faster and more reliable, which could help the business to save on raw material
(less wastage).

Changes in the technological environment affect the kinds of products and services
that businesses produce, the ways in which they design, manufacture and market them
and manage stock control (e.g. EPOS – electronic point of sale).

There are TWO main types of technology used in business:

61
 TWO types of
technology that
update ALL THE
TIME!!!
Operations Information
technology technology

Operation technology
Operation technology includes the machinery used in production processes. Robotics
technology and automated machines have changed the production processes in many
factories. People are replaced by machinery. This speed up production, standardises
products and minimises breakage due to human error. It does however contribute to
unemployment.

Information technology
Information technology consists of computer hardware and computer software.
Hardware includes any part of the computer that can be touched. Computer software
includes all the programmes and applications that can be installed on a computer. Both
computer hardware and software become obsolete and should be replaced every 2-5
years. Software programmes such as Point of Sale programmes makes it easier to keep
control of stock. When scanning the barcode of an item at till point, the sale is recorded
on the electronic system immediately and the stock levels updated.

1.7 Legal factor

The legal environment consists of the institutions and laws that regulate how business is
performed.

Laws (acts) are rules that are passed by parliament to control the behaviour of a
country’s citizens and set penalties for those who fail to obey the rules. Acts protect the
people, businesses and other organisations in a country.

There are many laws which have an impact on businesses and the way it is run. The
legal system, through the courts have jurisdiction to oversee the following:

 Employment, tax and the workplace, e.g. Labour Relations Act (LRA); Basic
Conditions of Employment Act (BCEA); Employment Equity Act (EEA); Skills
Development Act (SDA), Occupational Health and Safety Act (OHSA), Companies Act
 Trademark rights, patent rights and intellectual property of businesses.
 Sale of goods between sellers and buyers e.g. Credit Agreement Act
 Property rights and ownership rights
 Consumerism e.g. Consumers Protection Act (CPA)
 Fair competition

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 Protecting the environment

1.8 Environmental factor

 Environmental factors include factors such as climate change (global warming), soil
erosion, land use, carbon footprint, energy consumption, waste disposal, pollution,
natural disasters, oil spills.
 Bio-fuels, recycling and nature conservation may also have an impact on the
business as well as the implementation of waste management for discharge of
waste materials.
 Limited resources available, means that businesses must manage it well. Use
alternative energy resources such as solar energy and wind power.

Examples of challenges related to the business environments

Micro (INTERNAL) Market (EXTERNAL) Macro (EXTERNAL)
full control some to no control no control
Internal challenges in External challenges External challenges
the business related to arising in the that affect all
any micro environment in which businesses in South
environmental factor the business operates Africa / globally
Challenge: Challenge: Challenge:
The marketing Consumer spending Environmental/
department overspent for luxury products physical factor:
their budget when decreased due to a A natural disaster (fire
implementing their decrease in their / storm) damaged a
advertising campaign buying power part of the building
Strategy: Strategy: Strategy:
The financial Focus on products Claim the damage
department must that satisfy the from insurance and
ensure that other primary need of the start with repairs to
departments spend less consumer – food / the building
on their budget to clothing
compensate for the OR
overspending of the Launch an aggressive
marketing department / advertising campaign
The marketing to create an
department can awareness of the
increase the final price need for the product
of the product.

2 Tools to analyse the macro environment

2.1 PESTLE
The PESTLE (or PESTEL) tool can be used to analyse the factors in the macro
environment so that businesses can implement strategies for the challenges they face.

The following is a summary of the factors that form part of the macro environment, using
the P2E2STLE tool.

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 Government interventions through legislation and
Political
P Factor
protection on imported products; infrastructure, political
climate, load shedding, xenophobia

Availability of natural resources, physical development or

Physical
P Factor
infrastructure of the area in which the business operates,
load shedding

Economic growth, interest rates, exchange rates, inflation,

Economic general economic climate (investor confidence, currency
E Factor value, world-wide recession), unemployment, poverty,
crime, GDP forms part of this environment

Global business ethics, community ethics and attitudes

Ethical
E Factor
and corruption risk, child labour, harsh labour conditions
such as at sweatshops

Culture, health, consciousness, population rates, age

Social distribution, social attitudes, poverty levels, unemployment
S Factor rates, HIV and other diseases, low level of education,
xenophobia

Research and development, technological landscape of

Technological
T factor
food production, internet, mobile phone use, barcode
scanners etc.

Policies and legislation e.g. Consumer Act, Companies

Legal
L Factor
Act, Skills Levies Act, Basic Conditions of Employment
Act, Labour Relations Act

Weather, climate change, soil erosion, land use, carbon

Environmental
E factor
footprint, energy consumption, waste disposal, demand for
eco-friendly or recycled products

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2.2 SWOT
 SWOT acronym for: Strengths; Weaknesses; Opportunities; Threats.
 Strengths and weaknesses are internal business factors, i.e. elements inside the
business which the business can control.
 Opportunities and threats are external business factors, i.e. elements outside the
business which the business cannot control.
Strengths Weaknesses
 These are the internal capabilities  The factors which could limit the
of the business, which could be success of a business if these
used to help the business gain a factors are not dealt with correctly
competitive advantage, over other and in a timely manner.
competitors in the market place.  They could have a negative
 It is about how the business uses impact on the competitive position
these strengths that will give it a of the business.
competitive advantage (or not).  Examples of possible weaknesses
 Examples of possible strengths: include poor marketing, lack of
The business's ability to get hold of resources, low-skilled employees.
raw materials, its brand and
intellectual property, good quality
products, competitive prices, etc.
Opportunities Threats
 Favourable external factors.  Unfavourable factors for the
 Factors are favourable when business originating from the
businesses can use the necessary market or macro environments.
mix of resources to capitalize on  These unfavourable factors are
these factors to increase the likely to place the business at a
demand for goods and increase risk or they have the potential to
customer loyalty. damage the business.

Questions
Question 1 – [10]
The following statements are FALSE. Substitute the bold underlined word or term with
the correct word or term to make the statement TRUE.

1.1 The micro environment is the external environment over which the business has
no control.

1.2 Recession is the general increase in the price of goods or services.

1.3 Infrastructure refer to aspects such as age, sex, education, skills and racial
groups in the society.

1.4 Information technology is technology used in the production process.

1.5 When a cashier at the point of sale avoids scanning the bar-code of a product item
for a family member, the action is known as fraud.

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Question 2 – [10]
Supply separate strategies for each one of the following macro challenges:

2.1 A strike resulted in a wage increase for employees.

2.2 The economic cycle is in a period of recession.

2.3 Competitors are using new technology at point of sale and as a result this speeds
up queues at the till.

2.4 The business operates in an area where the crime rate is high.

2.5 Due to the Consumer Protection Act, consumers know their rights.

Question 3 – [15]
3.1 Evaluate the impact of a natural disaster such as a drought OR strikes on the
South African economy. (5)

3.2 Contrast a positive and negative period that forms part of the business
cycle to evaluate whether we are currently experiencing a positive or negative
economic period. (10)

Questions
Question 1: Multiple choice [12]
Choose the correct answer. Only write the letter of the answer you select.

1.1 The costs of resources is a component of the ... environment:

A economic
B legal
C physical
D international

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1.2 Inflation is factor related to the ... environment of the business:

A economic
B legal
C physical
D international

1.3 Economies of countries move through four stages of the business cycle:

A expansion, peak, recovery and recession

B recession, expansion, growth, peak
C peak, recovery, growth, recession
D none of the above.

1.4 This act lays down rules for safety to reduce risks of poor health and injuries.

A BCEA
B Companies Act
C Consumer Act
D OHSA.

1.5 Tax deducted from employee salaries by the employer on behalf of SARS:

A value added tax

B provisional tax
C pay as you earn tax
D unemployment insurance.

1.6 The amount of working hours, leave and minimum wages are stipulated in the:

A Employment Equity Act

B Basic Conditions of Employment Act
C Skills Development Act
D Labour Relations Act.

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Question 2: Match terms – [18]
Choose a term from column B that matches a description in column A. Write only the
letter next to the question number.

COLUMN A COLUMN B
2.1 An Act that requires equal A BCEA
opportunities for further training in
the workplace B Power of the supplier

C Companies Act
2.2 Different forms of ownership and
their requirements are specified here D Productivity
2.3 Consumers, customers and clients E Redistribution
form part of this Porter’s Force.
F Imports
2.4 An act by consumers to lobby
against a specific issue such as G Consumer Protection Act
deforestation or animal abuse
H Power of the buyer
2.5 This refers to the age, gender,
I Employment Equity Act
education, skills and racial groups in
society J Consumerism

2.6 HIV/Aids lead to loss of production K Demographics

and therefore influences the .... of
L Economy
the country
M Exports
2.7 Through this act income is taken
from some people and given to
others where it is more needed

2.8 Products coming into the country

from other countries

2.9 Products going out of the country

into markets of other countries

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Question 3: Short questions – [20]
3.1 List EIGHT components that form a part of the Macro Environment of the
business. (8)

3.2 You want buy a business premises to start a business. During which stage of the
business cycle will it be best to start?
Motivate your answer. (2)

3.3 Discuss the effect of HIV/ Aids on the business. (8)

3.4 Define recession. (2)

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Topic 4 : Socio-economic issues
Checklist:
Are you able to discuss the impact of the following socio-economic issues on
businesses and suggest strategies a business can put in place to overcome the
socio-economic issues?

 Inequality/ poverty
 Inclusivity
 Unemployment / unproductive workforce
 HIV/Aids
 Gambling
 Piracy
 Counterfeiting and bootlegging
 Strikes, political disturbances and labour dispute
 Violence and riots
 Crime

Socio-economic issues have an impact on business operations and their productivity

and thus, these social issues have an economic impact for South Africa. The issues
are macro factors that cannot be controlled by the business. Businesses can however
put strategies in place to alleviate the impact of socio-economic issues and to try and
build a better South Africa.

1 Inequality and poverty

1.1 Definition and discussion
Inequality refers to the difference (disparity) between the rich and the poor. Poverty is
the state of being so poor that people are unable to fulfil their basic needs.
Unemployment is a major cause of poverty. Poverty can lead to crime and other social
evils.

The World Bank has classified South Africa as an upper-middle-income country, with
an average income per person of about R80 000 per year (about R6 600 per month). The
distribution of income among South Africa’s population is very uneven. We have a
problem of inequality with the gap between the rich and poor widening.

1.2 Impact on businesses in South Africa

 Poverty affects consumer spending because poor people have little ability to buy
goods.
 Businesses are expected to invest in poor communities, but this is an extra demand
placed on businesses.

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2 Inclusivity
2.1 Definition
Inclusivity means to give everyone equal opportunities. Inclusivity aims at redressing
the inequalities of the past based on prejudices on grounds of race, class, religion,
gender, disability etc.

2.2 Impact on businesses in South Africa

 There are laws in South Africa that promote inclusivity for example the Constitution
and the Employment Equity Act (EEA).
 The Broad-Based Black Economic Empowerment Act (BBBEE) was put in place to
ensure that people of colour are included in ownership structures and management in
a business. Businesses get points on a BEE scorecard rating their compliance to
FIVE key elements (pillars).
 Laws aim to protect people against prejudice in the workplace and in the employment
process.
 Businesses are required to work with the government to remove the legacy of
apartheid.

3 Unemployment
3.1 Definition
People are unemployed if they are part of the economic active population who are
willing to work, but cannot find a job.

3.2 Impact on businesses in South Africa

 Unemployment leads to a decrease in the demand for goods and services, resulting
in a decrease in production.
 Businesses must try to create as many job opportunities as possible.
 A skills levy has been implemented by law (Skills Development Act and the Skills
Development Levies Act) to develop skills and provide training.
 The skills levy force businesses to contribute towards training for their workers.

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4 Crime
4.1 Definition and discussion
Crime includes theft, hijackings, burglaries, fraud, corruption and assault.

4.2 Impact on businesses in South Africa

 Crime can affect the profitability of the business because it increases losses (stock
and financial) and expenses.
 Businesses need to ensure they have insurance and guard against theft.
 It costs businesses money to employ security guards, mystery shoppers, install
CCTV cameras and use RFID scanners on clothing items.

5 HIV/ Aids
5.1 Definition
Aids is a disease caused by the HI virus which attacks the immune system of humans.
Aids causes strain on the health-care and social services infrastructure of the country.
The government must spend large amounts of money on drugs to combat the effect of
HIV/ Aids.

Prevalence of HIV per province, 2012.

5.2 Impact on businesses in South Africa

 Leads to a decline in productivity of the affected employee.
 Trained and experienced workers die from the disease, increasing the employee
turnover of the business.
 There is a decrease in demand because of a decrease in customers.
 Prejudice towards employees who have HIV/ Aids which could result in conflict in the
workplace.
 Businesses must develop HIV/ Aids policies, inform workers of the causes and
effects of HIV/ Aids, have regular informative programmes about the disease, develop
support systems for employees who have HIV/ Aids and their families, place them in
work sites where their safety cannot be affected, perform voluntary testing.

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Research activity
Do research on any one of the following socio-economic issues and the
impact of the issue for South Africa:

- Poverty
- Unemployment
- Crime
- HIV/ Aids

Research criteria (55)

Research the following aspects related to the issue you have chosen:

 Introduction to the issue (10)

 Causal factors related to the issue (10)
 The impact of the issue for individuals, businesses and the country (15)
 Examples of what businesses have done to alleviate the issue (10)
 Conclude with recommendations of what businesses can still do (10)

Technicalities (15)
 Your final document must be typed and should include evidence of your research.
 Include a front cover with your name and surname, grade and the title of your
research.
 You must include a content page (index). The content page must have the topics on
the left and the page number on the right.
 The typed document must have page numbers in the header or footer of the
document.
 Include a reference list (Harvard style)
 You must use your own words and include a plagiarism declaration in which you
declare that you have not copied someone else’s work and used it as your own.

[70 marks]

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6 Gambling
6.1 Definition
Gambling is the act of using money to bet on an even with an unknown outcome in the
hope of winning more money. Some people use their money (own and borrowed) to
gamble instead of meeting their basic needs. Gambling can lead to financial insolvency
and increases the poverty problem.

6.2 Impact on businesses in South Africa

 Gambling provides both challenges and opportunities to businesses.
 Gambling can decrease the consumers’ spending power.
 Gambling is an industry in which there are legal and illegal gambling operations.
 Pyramid schemes are hierarchical systems where there is no sale of any actual item
or service.
 Money laundering is where people get money illegally and make it look like it has
come from another source by investing the ‘dirty’ profits they made from illegal
activities in legal activities.

7 Piracy
7.1 Definition
Piracy is the illegal copying of books, CD’s, DVDs or copying of trademarks. It also
includes the use of something without permission, such as something that is under
copyright or patented or a trademark that belongs to a company.

What is copyright?
A copyright is the right given to the creator of an original work so that it cannot be copied
without his/ her permission. The lifespan of copyright depends on the type of work
protected:

 The copyright of literacy works lasts for 50 years after death of the author.
 The copyright of computer programs lasts for 50 years after the first copies were
made available to the public.
 For sound recordings, the copyright lasts for 50 years from the day the work was first
broadcast.
 For films, 50 years from the date the film was shown.

What is a patent?
A patent is an exclusive right to a product or invention for a period. The patent provides
protection for the owner, which gives him/her the right to exclude others from making,
using, exercising, disposing of the invention, offering to dispose, or importing the
invention. The protection is granted for a limited period of 20 years.

74
What is a trademark?
A trademark is a word, picture, logo or combination of these that indicate a brand,
individual or company. A registered trade mark can be protected forever, provided it is
renewed every ten (10) years upon payment of the prescribed renewal fee.

7.2 Impact on businesses in South Africa

 The business or individual producing the original goods have their profits reduced if
piracy occurs.
 Piracy also deprives the original artist of his/ her income.
 The copying of trademarks confuses the consumer.

8 Counterfeiting and bootlegging

8.1 Definition
Counterfeiting is the illegal copying of a product whilst bootlegging is the illegal and
secret production, sale and distribution of an alcoholic drink or a recording.

8.2 Impact on businesses in South Africa

 Counterfeit money is fake money and businesses could receive payments in illegal
money.
 Some businesses make money out of selling copied products.
 Bootlegging could bring negative publicity to a business.

9 Industrial action
9.1 Definition and discussion
Industrial action is action taken by employees of a company to protest. Workers normally
protest for higher wages or for better working conditions.

There are various types of industrial action:

Strike
A strike is a temporary refusal of employees to work. The purpose is to force the
employer (company) to give in to their demands. Strikes could be protected (legal) or
unprotected (illegal). The Labour Relations Act (LRA) supplies a basic framework for
collective bargaining between the employer and employee and stipulates the procedure
trade unions need to follow for a strike to be protected.

Strikes are protected when trade unions followed the correct procedure (according to
the LRA) to organise a strike. The employer may enforce the
no-work-no-pay rule, but may not fire a worker for striking when a strike is protected. A
protected strike is a legal strike.

75
Strikes are unprotected when trade unions and workers did not follow the correct
procedure to organise a strike. Workers who participate in an unprotected strike may be
fired. An unprotected strike is an illegal strike.

Go-slow
A go-slow is an action taken by workers whereby they are still at work, but they are
working at a much slower pace than normal.

Work-to-rule
This type of industrial action happens when workers decide to follow official working
rules and hours exactly to reduce productivity.

Lockout
A lock-out happens when the employer (company) refuses to let the employees work.
Employers normally lock-out their employees when they fear vandalism or violence.

9.2 Impact on businesses in South Africa

 Any type of industrial action will reduce the productivity of the business.
 Industrial action normally results in violence.
 It can reduce sales and profits of the business.
 Industrial action leads to retrenchments and therefore contributes to a higher
unemployment rate.
 Industrial action has a devastating effect on the economy of the country.

10 Violence and riots

10.1 Definition and discussion
Violence and riots present threats to the community and deprive people of their income
and possessions. Violence is the exertion of physical force with the intention to hurt. A
riot is a form of civil disorder often characterised by acts of violence and vandalism.

10.2 Impact on businesses in South Africa

 Violence and riots have a negative impact on the economy and therefore the
business.
 Preventive measures such as security guards increase costs.

11 Economic crime
11.1 Definition and discussion
Economic crimes are illegal acts committed by individual for personal gain and include
cyber-crime, tax evasion, credit-card fraud, bank fraud and money laundering, corruption,
mismanagement of funds and identity theft. People who commit economic crime are
usually people of high status who misuse their power.

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11.2 Impact on businesses in South Africa
 Dishonesty undermines the good reputation of the business.
 Businesses such as banks spend large amounts on security and insurance.
 Crime leads to losses by businesses.
 Increases in the cost of production means that customers pay more.
 High rates of economic crime give the country a bad reputation among investors and
reduce the amount of foreign investment in the country.

MONEY LAUNDERING
Money laundering is when ‘dirty profits’ made from illegal activities are
invested in legal activities or businesses to get it ‘clean’.

Questions

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ACROSS DOWN
1 Employer refuses to let the 2 The right given to the creator of an
employees work because they fear original work so that it cannot be
vandalism. copied.
3 Illegal copying of books, CD's, DVDs 4 Disparity between the rich and the
or trademarks. poor.
7 A word, picture, logo or combination 5 The exclusive right to a product or
of these. invention for a period.
9 Dirty profits made from illegal 6 An illegal copy of a product.
activities are invested in legal
activities.
10 Temporary refusal of employees to 8 Giving everyone equal opportunities,
work. regardless of race, gender or other
prejudices.

78
Topic 5 : Social responsibility & ethics
Checklist:
Are you able to discuss social responsibility in terms of:

 Demands placed on the business by their stakeholders.

 Ethical and unethical behaviour.

1 Social responsibility
1.1 Definition of Social responsibility

Defining social responsibility

Social responsibility is the moral obligation the business, individuals and the
government to address the socio-economic issues and challenges in the country.

Defining corporate social responsibility

Corporate social responsibility is the willingness of the business to address socio-
economic issues. Businesses must take responsibility for their stakeholders and the
environment. Social responsibility projects undertaken by the business must be
sustainable to make a difference over the long term.

SUSTAINABLE
For something to be sustainable, it must make a difference over
the long term and must not be harmful to the environment.

1.2 Stakeholders
Stakeholders are also known as interest groups. A stakeholder is any person or
organisation that takes an interest in the business dealings. This includes the community
around the business, suppliers, trade unions, employees, competitors, government,
consumers, owners (shareholders, partners, members) and any other organisation
affected by the business.

On the one hand, stakeholders place a demand on the business and therefore the
business should take note of it and try to meet the demand. If the business takes care of
its stakeholders, it will benefit the business in the long run.

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Community
Definition Demand placed on the Benefit
business
The community The community expects A community that
includes all the people future jobs, ethical prospers will have more
who live in the area trading and quality money to buy from a
where the business products from the business and therefore
operates business. it makes sense for the
business to help
communities.

Suppliers
Definition Demand placed on the Benefit
business
Suppliers include Suppliers need prompt A good relationship with
other businesses that payment from the suppliers is necessary
supply raw-materials, business for orders or to ensure good service
stock, equipment and service delivery. delivery.
services to the
business.

Trade unions
Definition Demand placed on the Benefit
business
Trade unions are Trade unions negotiate Trade unions
organisations that for higher wages and communicate the
negotiate with better working grievances of
employers on behalf conditions. They employees to the
of employees in an demand that employees employer.
industry. are treated fairly.

Employees
Definition Demand placed on the Benefit
business
Employees include all Employees need good If the business looks
the people who work working conditions, fair after their employees,
for the business. payment, training, they will be loyal and will
professional be prepared to go the
development, job extra mile.
security and promotions
for the business.

80
Competitors
Definition Demand placed on the Benefit
business
Competitors include Businesses must Businesses can learn
all the businesses that respect the intellectual from their competitors
provide the same or a property of competitors and can work together
similar product or otherwise competitors to put pressure on
service to your may sue the business. government (lobbying)
business. to change strategies, for
example quotas on
import tariffs.

Government
Definition Demand placed on the Benefit
business
The government Government regulations Government protects
consists of the limit what businesses businesses against
national, provincial can do by putting crime and unfair
and local government. legislation and competition.
regulations in place.
Examples are the CPA,
NCA, UIF and skills
development.

Consumers
Definition Demand placed on the Benefit
business
Consumers include all Businesses must be If the business takes
the people who buy responsible towards care of their customers,
the business’ their consumers and their customers will be
products. must provide good loyal to them.
quality, safe and
reasonably priced
products and services.

Owners
Definition Demand placed on the Benefit
business
The owners include all The owners of the Owners contribute
the people who own a business want a return capital and skill to a
part of the business. on their investment. business.
Owners could be a They therefore require
sole trader, partners, that the business makes
members or profit.
shareholders.

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1.3 Addressing socio-economic issues
What can businesses do to address socio-economic issues? Some ideas are as follow:

 Businesses can create employment.

 Can provide work-experience to young people.
 Provide in-service training.
 Provide bursaries to employees to study further.
 Give bursaries to prospective employees.
 Run HIV/ Aids awareness campaigns.
 Give financial support to NGO’s that assist people who live with HIV/ Aids
 Supply anti-retroviral medicines to HIV-positive employees

2 Business ethics
2.1 What is ethics?
Ethics refer to moral principles or values that are held by
society to describe what is right and wrong, i.e. the
general rules that describe what acceptable behaviour is.

Ethical behaviour means the person will be honest and act with integrity, act in a manner
acceptable to society and do what is right rather than what is easy or financially rewarding.

How is a culture of ethical behaviour established in the business?

 The first step towards establishing a culture of ethical behaviour is to recruit and
select people who will act in an ethical manner.
 Management should lead by example and act in an ethical manner at all times - in
their professional and personal lives.
 There should be formal policies and ethical codes (Code of Ethics and Code of
Conduct) developed in the business and employees should constantly be reminded
of desired behaviour - through formal training sessions, but also through informal
conversations and stories that are shared amongst employees.
 Rewards employees for acting in an ethical manner and punishes them if they do
not.

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2.2 Unethical behaviour:
Unethical behaviour is when an individual or business does things which are against the
acceptable norm, violates on the rights or dignity of others, or is knowingly wrong.

 Nepotism – giving preferential treatment to family or friends in the workplace.

 Employers that abuse or exploit employees, e.g. not allowing them lunch breaks or
other basic conditions.
 Employees making confidential information about the business available to people
with no right to know the information – should respect the intellectual property of the
business.
 Employees abusing computers/ electronic media or other resources that belongs
to the business.
 False advertising – such as advertising second-hand goods.
 Misleading consumers – e.g. stating food is Kosher or Halal when it is not.
 “Cultural pollution” – behaviour that discriminates against certain groups of people
– e.g. racism, discriminating against disabled, unacceptable language.
 Creating false wants, known as materialism
 Exploiting consumers – e.g. giving credit to someone that cannot afford it.
 Conflict of interest – e.g. promoting self-interest rather than acting in a manner that
is in the best interest of the business.
 Other examples of unethical issues that the business should address in their ethical
codes include: bribes, inappropriate gifts, unauthorised use of business funds, sexual
harassment, insider trading, tax evasion, piracy, invasion of privacy.

83
2.3 Ethics in Marketing
The difference between ethical and legal is that something may be legal, but not ethical,
e.g. it is not illegal to sell basic goods and services such as bread and medicine at a high
price, because we live in a free-market economy but exploiting the poor in the process is
unethical.

One could argue that not everything that is illegal is unethical, e.g. if a business sells
petrol at the price below the Government-stipulated price and in the process, helps
consumers.

Examples of unethical behaviour when business markets products/services:

 Materialism, where false needs are created, namely business advertising liquor to
rehabilitated alcoholics.
 Giving products deceptive names such as calling a pizza a "Slimming meal".
 When the business tries to deceive the consumer by selling second-hand goods as
new goods.
 Any competitive advertising is illegal (and therefore unethical) in SA. Businesses
may not break down the name or image of a competitor in their advertising campaign.
 Using unacceptable language, discriminating against the disabled, gender bias or
being racist is unethical as it is "cultural pollution". No form of discrimination is
acceptable when advertising or promoting products.

Questions
Question 1: Research - [12]
Research the social responsibility initiatives undertaken by TWO of the following
companies to evaluate which one has the most sustainable SR program:

SPAR GAME Pick n Pay

Mr PRICE Woolworths Checkers

Question 2 – [18]
Find the definitions of the following unethical behaviour:

 Bribes
 Inappropriate gifts
 Unauthorised use of business funds
 Sexual harassment
 Insider trading
 Tax evasion
 Piracy
 Whistleblowing
 Invasion of privacy

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Topic 6 : Business sectors
Checklist:
Are you able to:
 Differentiate between businesses that operate in the primary,
secondary and tertiary business sectors;
 Businesses in the formal and informal sectors

There are five main types of industry in which businesses operate. These
sectors form a chain of production that provides customers with the finished
goods or services. The production process involved changing inputs into outputs. Inputs
can be raw materials such as milk, iron ore or wood whilst outputs are finished products
such as milk powder, motor cars and furniture.

1 Sectors of industry
1.1 Primary sector
Activities include the extraction or harvesting of raw materials from the earth such as
farming (crops and animal husbandry), fishing and mining.
People employed in this sector often have low educational levels, as it is a labour-
intensive sector, with the emphasis on manual labour. However, as technology
develops, it often replaces the manual labourers resulting in job losses for the "unskilled".

The primary sector provides raw materials to many other businesses and can be
classified into four categories:

Agriculture (farming)
The agricultural sector consists of farming with animals (animal husbandry) and crop
farming.

Animal farming: The most common farm animals include cattle, sheep, goats and
chickens. Crocodile farming has also become popular due to export opportunities for
leather items.

Crop farming: This depends on the climate of the area as well as the season. Fruit,
vegetables, rooibos tea, nuts, herbs and spice are harvested in different regions in South
Africa.

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Fishing / fishery
Fresh water fishing as well as deep sea fishing form part of the fishing industry.
Produce includes mussels, oysters, lobsters, sardines, calamari, tuna and hake. Fishing
licenses are needed. As part of environmental conservation, fish are classified as
endangered.

Forestry
The Department of Agriculture, Forestry and Fisheries (DAFF) is the custodian of
South Africa's forest resources, which cover over 40 million ha of the country's land
surface area. An amount of R1, 2 billion from the department's budget has been allocated
to forestry and natural resources management. The trees mainly used in the forestry
industry include pine trees and gum trees.

The forest sector employs around 165 900 workers and provides about 62 700 direct jobs
and 30 000 indirect jobs. Forestry provides livelihood support to 652 000 people of the
country's rural population. The pulp and paper industry provide about 13 200 direct and
11 000 indirect employment opportunities.

Mining
South Africa is a world leader in mining. The country is famous for its abundance of
mineral resources, accounting for a significant proportion of world production and
reserves, and South African mining companies are key players in the global industry.

Some of the main minerals and metals mined in South Africa include coal, gold,
diamonds, platinum, chromium, oil and natural gas.

Examples of mines include Harmony Gold Mine, Anglo American Corporation of South
Africa Limited (AAC), Avgold, Durban Roodepoort Deep, Impala Platinum Holdings Ltd
(Implats).

1.2 Secondary sector

Materials extracted in the primary sector are processed into manufactured goods. The
secondary sector includes manufacturing, construction, electricity generation, gas
production and water production.

This includes:

 Using raw materials to make plastics, steel, glass and petrol

 Making motor cars, furniture, electrical appliances, clothing
 Processing foods such as bread, canned fish, breakfast cereals
 Assembling goods such as cell phones and TV sets
 Constructing roads and buildings
 Generating power

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1.3 Tertiary sector
The tertiary sector is the services sector and includes industries that provide services
and sell goods to the final consumer and businesses.

Services Examples
Finance Banks and other financial institutions

Companies selling life, household and business

Insurance
insurance
Medical, educational, legal, cleaning,
Personal services
entertainment, tourism

Business services Information technology, storage, advertising

Real estate Property agencies

Wholesaling and
Shops and warehousing
retailing
Accommodation and
Restaurants and hotels
catering

Transport Airlines, railways, road and motor services, taxis

Cell phone networks, Telkom, Internet, radio

Communications
stations
Social services (medical, education) and
Government services community services (sanitation, power, roads,
police and courts)

1.4 Quaternary sector

Mainly intellectual activities and knowledge-based activities aimed at future growth
and development. Activities could include scientific research, education, consulting,
information management and financial planning, etc.

1.5 Quinary sector

Regarded as an extension of quaternary sector and refers to decision making at the
highest levels of society. These decisions have a big impact on society and general
economic conditions of a country. Activities include decisions taken at government level,
top management operations in large businesses and universities, as well as cultural
activities and the media.

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1.6 How the primary, secondary and tertiary business sectors
are linked
Businesses in the sectors of economy each play a role in the production process and are
closely linked:

TERTIARY SECTOR
PRIMARY SECTOR SECONDARY SECTOR Distributes goods;
creates ways for payment
Produces raw materials Change raw materials
to take place; provides
needed into finished goods
power, communications,
services for communities

+++++++++++++++++++++++++++

Industries in the sectors of industry operate as an interrelated system. Businesses are

interlinked, and each relies on other businesses to help create goods and services.
Products and services pass through different sectors in a series of stages before they
reach the final consumer.

4 Formal and informal sector

4.2 Formal sector
The formal business sector is all businesses which are formally registered to operate
under an acknowledged form of business ownership. Forms of ownership include
companies, partnerships, close corporations (CCs) and sole proprietors. The purpose of
businesses in this sector is to make profit.

 Businesses in the formal sector are registered with SARS for tax and contribute to
the GDP (Gross Domestic Product) of the country.
 They are registered with the Department of Labour to pay UIF (to the unemployment
insurance fund).
 Most businesses need to have their books audited.
 Businesses in this sector have fixed premises and offer employment to more than
one worker.

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Formal sector:

2.2 Informal sector

The purpose of businesses in the informal sector is survival.

 Informal businesses are not registered with SARS for tax and do not contribute
significantly to the GDP of the country.
 Examples are hawkers, street vendors, house-sitters, handyman services.
 Illegal activities such as drug dealing and illegal shebeens also fall into this category.
 Informal businesses should legally declare income for tax and register employees.
 It is difficult to get loans or credit facilities because there is no official record of
income. This limits growth.

Informal sector:

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Poster
In pairs, produce a poster that reflects the link between business sectors. Use any of the
following products as an example:

- Chocolate
- Crisps
- Canned food
- Biscuits
- Carbonated drink

The poster will be assessed using the following criteria:

1) Poster shows links between the sectors. (15)

2) Neatness (5)

[20 marks]

Question
Critically analyse and evaluate the value of the informal sector in
South Africa.

(HINT: when you critically analyse, you should look at positives and negatives. When you
have all your facts, you must give your opinion).

[10 marks]

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Topic 7 : Avenues of acquiring a business
Checklist:
Are you able to:
 Understand the difference between franchising, outsourcing and
leasing;
 List the advantages and disadvantages of each.

It is not always necessary to start a business from scratch. It sometimes makes more
sense to acquire a business that already exists in some form or another. This can be
done in three main ways, namely through franchising, leasing and outsourcing.

Franchising Outsourcing Leasing

A franchise is Outsourcing is Leasing is a
when one person when a business method where a
or a business buys goods or business can pay
gives another services from for the use of an
person or another business asset rather than
business the right or pays another buying it for
to sell the same business to carry themselves.
goods or service out a function
according to instead of them
certain criteria doing it.
and regulations.

1 Franchising
Are you able to recognise the following logo’s? What do these businesses do?

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Having recognised the logo’s, did you know that these businesses are referred to as
franchises? What is a franchise? Let us have a look:

The person who has come up with this business model is referred to as a franchisor, he
then sells this business – known as a franchise, to a franchisee, and the franchisee
becomes the owner of this ready-made business. The franchisee needs to adhere to all
the requirements that are laid out in the franchise agreement. If this does not happen,
the franchisee is in breach of contract.

The franchisee has many responsibilities as the owner: place orders, hire staff and put
business decisions into action.

The franchisor sets up the framework of what needs to be folloed and the franchisor is
not allowed to make changes to this framework. All franchises under the same name
need to be exactly the same – from colour schemes, menus, advertising and
uniforms.

Training is offered to all franchisees, by the franchisor so that all franchisees are trained
in the same way. On-going support is offered to the franchisee.

1.1 Fees involved in franchising

 Franchise fee: The franchisee buys a licence from the franchisor to use the brand
name. The licence fee normally covers the set-up costs of the business as well as
working capital to start the business.
 Royalty: The franchisee (owner of a new outlet) must pay the franchisor (owner of the
whole business) a percentage royalty. This is a fee charged on sales and is normally
between 5% and 7%. Most franchisors require the royalties’ payment each month. A
royalty fee allows the franchisor to expand the business with limited costs while the
franchisor keeps control. The franchisee relies on the skills, training, support and
marketing of the franchisor in exchange for this fee.
 An admin fee: An admin fee may be charged by the franchisor to cover the
administration costs of the franchise.
 Advertising: Franchisors charge an advertising levy to cover advertising done on
television as well as other marketing campaigns that can benefit the entire business.
Most franchisors charge about 4% of sales. In addition, franchisees are mostly
responsible for their own local advertising.

1.2 Advantages of franchising for the Franchisor:

 Due to many businesses opening up under the original name, the growth of the
business is rapid, the franchisor will also continue to receive royalties - therefore
continual income .
 Franchises are sold to enthusiastic and motivated franchisees who want to
succeed, and therefore benefiting both themselves and the franchisor.

1.3 Disadvantages of franchising for the Franchisor:

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  Helping franchisees is very time-consuming and the franchisor needs to be around
all the time to assist franchisees.
 A franchisor is dependent on the success of the franchisee – the less successful,
the less income for the franchisor.

1.4 Advantages of franchising for the franchisee:

 The chances of business failure are reduced because the brand is already well-
known.
 The franchisor organises the global or national advertising campaign.
 All supplies are obtained from a central source and is cheaper because supplies
are bought in bulk.
 Training and support is provided by the franchisor.
 Banks are willing to lend to franchisees because they are low risk.

1.5 Disadvantages of franchising for the franchisee:

 Initial capital layout is expensive.
 The franchisee cannot make decisions to change the pricing, menu or décor as
these are set by the franchisor.
 There are restrictions in the agreement which limits creativity.
 Various fees must be paid to the franchisor.

1.6 The role of FASA:

FASA is the acronym for Franchise Association of South Africa. This association is
the ‘watchdog’ of franchises and ensures all rules and regulations are adhered to and
that ethical practises are practised. FASA is the arbitrator for any disputes that may
arise between the franchisor and the franchisee.

www.fasa.co.za

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2 Outsourcing
Outsourcing is a business arrangement where a business uses another company or
person to carry out a task or operation that would normally have been done within that
business. This is normally done to reduce cost to the business and to simplify the
payroll.

 Many businesses for example make use of an external security company to provide
security guards.
 Cleaning of the business is often outsourced to Bidvest and gardening services to a
local business.
 Many businesses make use of external accountants and auditors to do the
bookkeeping of the business.

2.1 Advantages of outsourcing

 The company can reduce costs as outsourcing can lead to a decrease in staff
remuneration.
 The business can focus on other business operations as it does not have to employ
staff for activities that detract from the core business.
 The business has access to skilled staff, without having to employ them.

2.2 Disadvantages of outsourcing

 Management does not have control over outsourced staff which may affect the
quality of the task.
 There may be lack of personal care from the side of the outsourced staff as they are
not part of the business.
 There are often hidden costs in outsourcing.

3 Leasing
Leasing is the process where the business pays for the use of an asset (equipment,
land, materials or other assets) rather than purchasing these itself. This often occurs with
very expensive equipment or land.

The person who owns the asset is known as the lessor and the business using the asset
is known as the lessee. The lessee pays the lessor a fee for the asset, which would
cover the use of the asset and the long-term maintenance thereof. It means that, if
anything happens to the asset, the lessor will be responsible for the repairs or
replacement of the asset.

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2.1 Advantages of leasing
 There is no large financial outlay and the cost is spread over several months or
years.
 The lessor covers the maintenance and repairs.
 The asset can be returned to the lessor when it is no longer needed.
 There are tax advantages as leasing is regarded as an expense that reduces the
operating profit.
 When the asset is out of date, it is easy to lease a better, newer version of the asset.

2.2 Disadvantages of leasing

 The lessee never owns the asset.
 The lessor has control over the financial obligation of the lessee.
 Leasing could result in more money being spent than it would have cost to purchase
the asset.

Questions
Study the logos below and answer the questions that follow:

1 What do these companies have in common?

2 Who owns companies?
3 How does ‘franchising’ benefit these companies in terms of advertising.

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Topic 8 : Forms of ownership
Checklist:
Are you able to discuss the characteristics, advantages and
disadvantages of the following forms of ownership?
 Sole Trader
 Partnerships
 Close Corporations

There are six different forms of business ownership in South Africa, based on either the
personal capacity of the owners or its status as a legal entity.

1 Personal capacity versus legal entity

Personal capacity means that the business cannot be separated from its owners. The
owners are liable for all the debt of the business as well as any other legal aspects
related to the business. We refer to the liability of the owners as unlimited.

When a business is a legal entity, it means that they operate separate from their owners
and will be liable for its own debt, signing of contracts and other legal documents. We
refer to the liability of the owners of these businesses as limited.

1.1 Personal capacity

Forms of ownership based on the personal capacity of the owners include:

 Sole trader
 Partnership

The owners of these businesses have unlimited liability. This means that they have to
settle the debt of the business, even if it means that they will have to sell their personal
assets to do so.

1.2 Legal entity

Forms of ownership where the business is a legal entity separate from the owners
include:

 Close corporation (CC)

 Private company
 Public company
 Co-operatives

The owners of these forms of ownership have limited liability. They will not be kept liable
for the debt of the business and therefore will not have to sell personal assets to cover
the debt of the business.

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2 The Companies Act of 2008
The new Companies Act came into operation in May 2011. The Act was passed by
Parliament in 2008, but businesses were given three years to make the necessary
changes and adapt to the new conditions.

2.1 Implications of the New Companies Act

The Act had the following implications:

 The Act simplified the setting up of a private company so that only one document
(Memorandum of Incorporation) is needed.
 Small, private owner managed companies do not need to have the financial
statements audited, but only independently reviewed.
 Different-sized companies have different rules.
 After 1 May 2011, no new close corporations could be registered.
 Existing CC’s may convert to companies or remain as they are.
 Companies and Intellectual Property Commission (CIPC) will register all companies
and co-operatives.

2.2 Two types of companies

Two basic types of companies are now registered:

 Profit companies
 Non-profit Companies

Profit companies include:

 State-owned companies
 Private companies
 Personal liability companies
 Public companies

3 Characteristics of the forms of ownership

Take note of the following terminology related to the characteristics of the different forms
of ownership:

Capital: Money or assets provided by the owners to set up the business.

Legal This means that the business can sue, enter contracts and own
entity: property in its own capacity, separate from the owner. This is also
referred to as the ‘legal personality’ of the business.
Liability: The responsibility of the owner for the debt of the business. Sole
traders and partnerships have unlimited liability for the debt of the
business. This means that they will lose personal assets if the
business is declared insolvent. The owners of forms of ownership
that operate as legal entities have limited liability, which means
that they will not lose their personal assets if the business goes
bankrupt.

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 Continuity: The ability of the business to continue after the death or
retirement of its owner(s).
Jointly and This refers to businesses with more than one owner and means
severally: that all the owners are responsible for each other’s actions and
for the debt of the business.

In Grade 10 we are going to look at Sole traders, Partnerships and Close Corporations in
more detail. Private companies, Public companies and Co-operatives will be studies in
more detail in grade 11.

Sole trader /
Characteristic Partnership Close Corporation
proprietor
Name Name of business Name of business Name + CC
What are Owner Partners Members
owners
called?
Ownership One owner No restriction on the 1-10 members
number of partners
Transfer of Not possible Not possible Only with permission
ownership from members
Legal status Not a separate legal Not a separate legal Legal personality
entity entity separate from owners
Legal Non Partnership agreement Register with CIPC (no
requirements has to be drawn up new CC’s)
for founding
Start-up cost Low Low Higher than partnership
Financial Unlimited. Debts are Unlimited. Debts are Limited. CC is liable for
liability for responsibility of owner. responsibility of owner. debts. Personal assets
debts Personal assets not Personal assets not protected.
protected. protected.
Management Owner alone and / or Made by all partners or Made by all members or
decisions manager agreement agreement
Continuity of None. Limited to None. Limited to existing Indefinite continuity
business existing owner owner unless insolvent
Taxation Owner taxed Partners taxed CC pays company tax
personally on profits personally on their share on the profits. Members
of profits not taxed on CC profits
Access to Very limited. Depends Limited. Depends on Greater chance to raise
finance on owner contribution contribution or borrowing finance
or borrowing of partners
Financial Available only to Available only to Available only to
information owner partners members

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4 Advantages and disadvantages of forms of ownership
4.1 Sole traders
A sole trader is a form of business ownership with one owner and it is not legally registered
with CIPC.(no need to register) A sole trader may also be called a sole proprietor.

Advantages Disadvantages
 Owner taxed on profits and can get  Not a separate taxpayer so
tax rebates for individuals; personal income tax may be higher
 Owner makes all decisions, which than company tax of 28%;
can be made quickly;  Management specialists not
 Quality of management depends on employed and there is often no
skills of the owner; support staff;
 All profits go to the owner;  Low ability to produce goods and
 Easy and cheap to set up and services as there is only one owner
dissolve; and little capital and expertise are
 Formal auditing is not required. available;
 Very difficult to raise capital. Owner
uses personal assets such as fixed
property as collateral for borrowed
capital.
 Owner can lose all his/her personal
assets if the business is bankrupt;
 No legal protection; owner has
unlimited liability, owners is
responsible for business debts.

4.2 Partnerships
A partnership is a form of business ownership with more than one person. No restriction on the
number of partners. A partnership is not a legal entity. No need to register with the CIPC.

Advantages Disadvantages
 Excellent ability to produce services  Decision-making process takes
but limited to groups of professionals longer than in a sole trader,
who form part of the partnership; because partners need to reach
 Management responsibilities can be agreement;
shared among the partners;  Partnership agreement has to be
 Easier to raise capital than sole drawn up;
trader. Partners use personal assets  Capital depends on partner’s
such as fixed property as collateral contribution or ability to borrow;
for borrowed capital.  Unlimited liability. Partners are
 Easy to form and dissolve; personally responsible for debts,
 Can make more profit than a sole and their assets are not protected;
trader.  No legal protection.

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4.3 Close Corporation
A close corporation is a form of business ownership with 1-10 members that is legally
registered. According to the new Companies Act, no new Close Corporations may
register. Existing Close Corporations, registered prior to May 2011, may continue to
operate.

Advantages Disadvantages
 Greater capacity to produce  Restricted to 10 members limits
goods and some services than capital and expansion;
sole trader because there is  Administration more
more capital available; complicated than sole trader
 Can include specialist manager, and partnership;
and all members have own  Depends on 10 members’
duties; contribution of borrowing
 Easier, cheaper to establish capital;
than companies, and limited  Banks may be suspicious of
liability protects members; unaudited accounts.
 Only report by accounting
officer, and accounting records
do not have to be audited.

Questions
Question 1 – [5 x 2 = 10]
Identify the following forms of ownership:

1.1 A business that is legally registered with 1-10 members.

1.2 A business with more than one owner that is not legally registered.

1.3 Existing businesses may continue to use this form of ownership, but new
businesses may not register using this form of ownership.

1.4 A business that has continuity of existence and legal persona.

1.5 A business that has more than one owner, but no legal persona.

Question 2 – [10]
2.1 Give two disadvantages of sole proprietors. (4)

2.2 Contrast three differences between a partnership and a CC. (6)

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Topic 9 : Contracts
Checklist:
Are you able to:
 Discuss the different types of contracts
 Discuss the legal implications of contracts

A contract is an agreement between two or more people and is binding by law. One party
makes an offer and another accepts. A contract can be verbal or in writing. Some
contracts are only legal in writing, as a written contract provides proof of agreement.

1 Types of contracts
1.1 Employment contract (between employer and employee)
An employment contract is an agreement between an employer and an
employee where the employer promises to pay the worker for specific work
which the worker promises to do.

The contract must follow the stipulations of the Basic Conditions of

Employment Act 75 of 1997 (BCEA). The Act specifies:

 minimum payment
 maximum working hours
 minimum leave
 deductions from salaries or wages
 minimum period of notice for ending the contract and should be
included in the contract.
Other information that should appear on the contract includes the employer
details and employee details, (name, ID, contract details, tax number
of employee) as well as any other matter of importance such as benefits
offered.

1.2 Insurance (between insurer and insured)

A business needs to protect itself from risks that could result in a loss.
Insurance policies cover them against losses.

An insurance contract is an agreement between the business that needs

insurance (insured) and the insurance company (insurer).

The insured promises to pay the insurer a fixed amount per month
(called a premium) and the insurer in return promises to cover the insured
for any losses suffered from specific events or risks. The insurer will replace
the losses or pay an amount to cover the losses.

There are two types of insurance:

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 Life or long-term (lives of important people in the business can be
insured. Should these people die, money will be paid out by the insurance company
to cover loss.)
 Short-term (covers loss of assets due to accidents or crime).
An insurance contract must include:

 Insurer details (name and address of insurance company that offer insurance)
 Insured details (name and address of business that wants insurance)
 Terms and conditions (explanation of what it covers, duration of cover, conditions for
cover)
 Description of goods insured or details of life insured
 The sum insured
 Monthly premiums
 Excess (a specific amount the insured must pay every time a claim is made).

1.3 Lease agreement (between lessor and lessee)

Contract where one business leases goods to another business. It involves the lessor
(business that owns goods) and lessee (business that rents goods such as equipment,
copiers, and computers).

The lessee uses the goods and never becomes the owner. The lessor agrees that the
lessee will use the asset for a period. The lessee agrees to pay lessor a specific sum of
money.

Advantages for the lessee:

 A large capital outlay is not required.

 Goods never become outdated.
 The lessee can deduct leasing expense for tax purposes.

1.4 Hire purchase (between seller and buyer)

One business sells goods to another person or business and allows them to take the
goods immediately. Payment is done in instalments over a specified period. A hire
purchase transaction is a credit transaction. Maximum interest charged and maximum
period to repay is laid down by law.

The National Credit Act and the Hire Purchase Act regulate credit transactions and hire
purchase agreements. The buyer only owns the goods once last instalment has been
paid. The seller can take the goods back if the buyer does not honour the agreement.

The types of goods that can be bought on hire purchase include furniture, equipment and
vehicles.

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1.5 Rental agreement (between landlord and tenant)
The Rental Housing Act 50 of 1999 regulates all rental contracts.

A rental agreement is drawn up to rent premises. The rented property never becomes the
property of the tenant. The rental agreement specifies:

 the period of agreement

 deposit paid by the tenant
 amount of rent payable each month and date of payment
 percentage increase every year
 rights and responsibilities of the landlord and tenant
 other terms and conditions like payment of water and electricity and maintenance.

2 Legal implications of contracts

2.1 What makes a contract legal?
The following are requirements that need to be met for a contract to be legal:

Contractual Sound
Reasonable Legal Possible
capacity mind
The person is The person The conditions The duties The activities
legally allowed entering a of the contract carried out as that form part of
to enter a contract does must be part of the the contract
contract. For not suffer from reasonable and contract must must be
most contracts, any mental should be be legal. physically
legal age in S.A. illnesses, or is executable. Unlawful possible to
is 18. under the activities are not achieve.
influence of legally binding
alcohol or or protected by
drugs. the law.
If a contract does not answer to any of these conditions, the contract is null
and void. This means that the ‘contract’ does not exist.

2.2 Breach of contract

When either party fails to carry out responsibilities it is called breach of contract. A
contract is broken for one or more of the following reasons:

 There are mistakes in the contract such as the wrong date, spelling errors
with names, etc.
 One of the parties was forced to sign the contract and did not really agree
to conditions.
 The requirements and responsibilities of parties in the contract are unclear.
 The requirements and responsibilities of parties are physically impossible.
 One of the parties lied about some information in the contract or withheld important
information.

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Questions
Question 1: Match terms – [20]
Choose a term from column B that matches a description in column A. Write only the
letter next to the question number.

COLUMN A COLUMN B
1.1 A contract between the employer and A Insurer
employee
B Contractual capacity
1.2 A party in a lease agreement that owns
C Breach of contract
an asset it would like to rent out
D Premium
1.3 The party in a lease contract that rents
an asset to use in their business E Null and void
operations
F Insured
1.4 The party in an insurance contract that
needs to carry the risk of losses on G Long-term insurance
behalf of the other party
H Employment contract
1.5 This type of insurance covers loss of
I Short-term insurance
assets due to accidents or crime
J Lessor
1.6 The parties to a contract must be of
legal age and of a sound mind K Lessee

1.7 A fixed monthly payment towards L Contract

insurance

1.8 This means that the contract does not

exist

1.9 An agreement between two or more

parties that is binding by law

1.10 When a party fails to carry out

responsibilities

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Question 2: Short answers – [10]
Provide ONE word or term for the following:

2.1 A specific amount the insured has to pay every time a claim is made. (2)

2.2 A contract between a seller and a buyer. (2)

2.3 The Act that specifies minimum payment, working hours, leave, deductions and
period of notice. (2)

2.4 Copiers, machinery, equipment and vehicles that can be hired from a
lessor. (2)

2.5 Insurance taken out on the lives of important people in the business such
as the owners or managers. (2)

Question 3: Short answers – [30]

Abraham Renalds did market research and realised a need for a construction business in
Durban. He called his business 'Arnie's Construction'. The services he wants to provide
include landscaping, building and alterations. For these services, he needs expensive
equipment including graders and other earth moving equipment, and premises to operate
from. Because the machinery is so expensive, he decides to rent it. He needs to employ five
foremen to assist him with all the work and a secretary to deal with administration and clients.
He cannot afford expensive office equipment, but needs a photocopier, a couch, chairs and a
table for clients who must wait. He also needs a desk, chair and a computer for his secretary.

3.1 Identify FIVE contracts that Abraham should enter. Supply a reason
for the need for each contract. (10)

3.2 Identify the parties to each of these contracts. (10)

3.3 What contract do you suggest Abraham should enter to protect his business from
possible losses due to theft and accidents? (2)

3.4 Identify the parties involved in the contract stipulated in 3.3 above. (2)

3.5 Give THREE circumstances under which any of the contracts Abraham
enters could be regarded as breached. (6)

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Topic 10 : Entrepreneurship
Checklist
Are you able to:
- Define entrepreneurship
- Argue why entrepreneurship is important
- Discuss entrepreneurial characteristics / qualities
- Identify leadership styles that is best for a particular situation

1 Defining entrepreneurship
An entrepreneur is a person who can spot an opportunity or gap in the market and then
collects the necessary resources (factors of production) to take advantage of the
opportunity to start a business.

The entrepreneur will continuously try to make more profit (primary aim), as reward for
the risks taken.

The entrepreneur tries to grow the business venture by creating a loyal customer base.

2 Why is entrepreneurship important in South Africa?

2.1 Population growth
Population in South Africa is growing faster than the South African economy. This
means that more people are born every year than job created. Large number of educated
secondary and tertiary students are without jobs.

2.2 Unemployment, poverty and crime

South Africa’s high unemployment rate results in poverty and crime. When
entrepreneurs open businesses and create jobs, more people will be employed and as a
result it should decrease unemployment, poverty and crime.

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2.3 The government cannot do everything
It is not the Governments job to create more jobs. Government must focus on managing
a country (providing education, health, law and order). Therefore,
it’s the entrepreneur, who is required to create jobs.

3 Entrepreneurial qualities
Entrepreneurial qualities can be divided into 3 groups:

Achievement qualities Planning qualities Power qualities

 Opportunity seeking  Big dreams with a  Desire for
 Commitment clear vision responsibility
 Perseverance  Flexibility  Good management
 Risk taker and leadership
 Innovative  Confidence in the
ability to succeed
 High levels of energy
 Passion
 Exceptional
organisational skills
 Willpower to
overcome obstacles

3.1 Achievement qualities

Opportunity seeking
Entrepreneurs see business opportunities where other people see no hope or nothing but
problems. Entrepreneurs look for opportunities to do things faster, better & cheaper. This
allows them to get ahead of their competitors and capture the market share.

Commitment
Entrepreneurs work hard and are often workaholics. They aspire to be the best and want
something to be proud of.

Perseverance
Entrepreneurs are driven to get the job done and to reach their objectives, regardless of
the obstacles in their path.

Calculated risk taker

Entrepreneurs are calculated risk takers. This means that they think about a risk before
they take a risk. Entrepreneurs take financial, career, emotional, family and social risks.
They share risk with others to minimise their own risk. They make calculated risks based
on their assessment of business opportunities. They will not take more risk than
necessary, and they will not run away from unavoidable risk.

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Innovative
Entrepreneurs are creative thinkers who come up with new ideas.

3.2 Planning qualities

Big dreams with a clear vision

Entrepreneurs have big dreams of realising long-term rewards in the form of profit. Many
entrepreneurs have a clear vision of what they want to achieve. They set clear and
specific goals and objectives for themselves and their business

Flexibility
Entrepreneurs are quick to react to unexpected incidents and adapt to ever changing
situations and environments.

3.3 Power qualities

Desire for responsibility

Entrepreneur see their business as an extension of themselves, therefore accept full
responsibility.

Good management and leadership

Entrepreneurs can link, encourage and persuade employees to stay focused and on
track to reach the businesses goals.

Confidence in the ability to succeed

Entrepreneurs believe in themselves, and their ability to complete difficult tasks.

High levels of energy

High levels of energy are necessary to build a successful business. Although know-how
is more important, it is also necessary to have high levels of energy to be able persevere
to get the job done.

Passion
Entrepreneurs are driven by their passion for their brand or product. They are driven to
achieve.

Organisational skills
Entrepreneurs are good at combining all other factors of production. Entrepreneurs take
charge of a situation and make the business work.

Willpower to overcome obstacles

Entrepreneurs have the desire and willpower to solve problems and establish successful
businesses.

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4 Leadership styles
A leadership style is the manner or approach that a manager or leader use to provide
direction for the implementation of business goals, whilst motivating employees to work to
their best potential.

The following leadership styles are often used:

4.1 Democratic leader (also known as the participative leader)

A democratic leader has a very open way of running the team and regards the team as
equals. They encourage workers to share their ideas and information and creates two-
way communication or dialog. This style allows for more involvement by the workers in
the decision-making and will improve their ‘buy-in’ to the decisions.

4.2 Autocratic leader

An autocratic leader retains as much power and decision making as possible. This
leader dictates policies and procedures and does not value the opinion of staff or allow
them to contribute input. Staff are expected to obey orders without receiving any
explanation.

4.3 Laissez-faire leader

‘Laissez faire’ is a French word that means no interference. Managers inform workers
WHAT must be achieved, but do not get involved in telling workers HOW these
objectives should be achieved. The laissez-faire style is sometimes described as a
"hands off" leadership style because the leader delegates the tasks to their followers
while providing little or no direction to the followers.

4.4 Transformational leader (also known as a charismatic

leader)
A transformational or charismatic leader gather followers through personality and charm.
They motivate staff to achieve more than expected.

4.5 Transactional leader

Transactional leadership is based on a give-and-take transaction where the leader offers
something of value (e.g. remuneration) to his followers in return for their services and
following.

4.6 Situational leader

This style varies from situation to situation. The leader adapts their style according to the
circumstances. The situation is influenced by:

 The organisational culture

 Ability of the leader
 The relationship between the leader and the followers.

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Questions
Question 1 – [30]
1.1 Supply an example of a situation when it will not be appropriate to use the following
leadership styles and suggest which leadership style will be better to use. (12)
a) autocratic leadership style
b) laissez-faire style
c) Transactional leader
1.2 Recommend THREE important entrepreneurial qualities prospective business
owners should have. Justify why you regard these qualities as important. (12)
1.3 Explain why entrepreneurship is important for South Africa. (6)

Question 2 – [10]
Read the scenario below before answering the questions.

WhatsApp
WhatsApp Inc., was founded in 2009 by Brian Acton and Jan
Koum, both former employees of Yahoo!. After Koum and Acton
left Yahoo! in September 2007, the duo travelled to South
America as a break from work.
At one point the two friends applied for jobs at Facebook but were
rejected. It is ironic that on February 19, 2014, Facebook announced it was buying
WhatsApp for US$19 billion. In South African Rand, the amount would be about R300
billion.
[Adapted from: https://en.wikipedia.org/wiki/WhatsApp; Accessed 07 Feb 2016]

2.1 Use your own experience to explain how WhatsApp contributes to modern
lifestyle. (2)
2.2 Brian and Jan faced some challenges when they were busy developing
WhatsApp.
Without repeating characteristics you used in question 2.2, identify TWO
other important entrepreneurial characteristics Brian and Jan would have had when they
were working on WhatsApp. Justify (explain) your choice of characteristics. (4)
2.3 Do you think Brian and Jan made a wise decision to sell WhatsApp to
Facebook? Motivate your answer. (2)
2.4 Do you think the name “WhatsApp” was a good choice for the messenger
application Brian and Jan developed? Motivate your answer. (2)

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Topic 11 : Teamwork and Conflict management
Checklist:
Are you able to:
 Identify the roles assumed by the different members that form part of a
team;
 Identify the steps that form part of the processes that take place when
forming a team;
 Discuss team dynamics;
 Identify problems that may arise in a team;
 Discuss conflict management to resolve problems in teams.

Simple tasks are easy to do individually, but most tasks are too complex and time-
consuming for a single person to be able to handle on his or her own. It is therefore
necessary to be able to work in teams. When individuals work in teams, conflict may
however occur. Conflict need to be dealt with before it turns into a disaster.

1 Teamwork
1.1 Team roles
Team roles need to be clearly defined so that it minimises conflict in teams. The following
aspects need to be considered when allocating team roles:

 The aim of the team

 The size of the team
 The expected life span of the team
 The strengths and weaknesses of each member
 The available resources

The following team roles should be assumed in a team:

Initiator
This is the person who gets everyone going, will often read the instructions out loud and
organise the voting for a leader as well as contribute new ideas throughout the process.

Investigator
This is the person who will volunteer to do the research, find contacts or follow up on
leads regarding resources.

Administrator
This is the person who will do the paperwork, keep track of attendance at meetings, do
Agendas and Minutes, as well as typing up the final presentations etc.

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Motivator
This person is a caring “people’s person” who gets everyone excited about the project,
encourages them when things are not going according to plan, and makes sure that
everyone is happy, involved and has an opportunity to contribute. He/she will notice
when someone withdraws or when feelings are hurt, and try to rectify things.

Coordinator
This is the person who will ensure that resources are allocated and properly used, and
that all the bits are coming together, especially on timing issues (i.e. deadlines are met);
for example, that the research is ready on time, that the administration is being done
regularly etc.

Activator
In-between all these “glamorous” roles, the actual work also must be done! Most team
members will get involved and actively participate in the practical execution of the work in
the team.

Leader
True leadership is far more than any individual role – and although the leadership role
takes all the other activities to a whole new level, its primary focus is to do the decision-
making and crisis management.

Leadership includes the ability to solve problems as well as managing the ongoing
process. That is why it is possible to hand over managerial functions such as planning
and coordination to someone else. In some cases, especially where the situation is
volatile or problematic, it is essential for the leader to be able to step back and keep an
eye on the bigger picture, rather than to get too involved with the detail.

1.2 Stages of team development

The development of a successful team goes through different stages – each of which can
be achieved over time.

Forming stage
The forming stage is when the team first gets together. Team members do not know
each other and hold back. It is therefore not a very productive stage. The forming stage
has the following characteristics:

 Members are unsure of their role

 Members still need to get to know each other
 The mission and goals have not yet been clearly set
 A leader is chosen

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Storming stage
The storming stage is the most volatile stage. The storming stage is when the team has
had some time to get to know one another. Members begin to communicate more and
because they are still independent to some extent, tension and conflict occur. The
storming stage has the following characteristics:

 Members are finding their roles and testing those of fellow members
 Members show their true character and give opinions
 Conflict arise due to differences of opinion
 Much communication is needed to try to define mission and goals
 Frustration could lead to impatience and resignations from the group
 The leader needs to maintain control

Norming stage
The norming stage is the ‘calm after the storm’. At this stage, the team starts
to work together well to negotiate a single goal. Problems have been worked
out. The team starts to work together in synergy instead of working independently. The
norming stage has the following characteristics:

 The team leader assigns team roles or team members assume their roles
 Team briefing occur where procedures and ways of operating (rules) are
laid down
 Conflicts are resolved
 Team starts to come together, become tolerant and recognise their
similarities, not differences
 Concentrate on quickly resolving any problems
 Members accept that any diversity can be of value
 The style of the team emerges
 Members develop a feeling of unity

Performing stage
The actual work is done during the performing stage. The team works together
as a unit to achieve its objectives efficiently, without unnecessary conflict. Members
interact well and know each other’s skills and roles. The
performing stage has the following characteristics:

 Team is motivated to get the job done

 Team is fully involved in its work
 Members understand their roles and goals
 Members constantly need new challenges
 Members are self-motivated and cooperative
 Focus is on production
 Team takes pride in its achievements

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Adjourning stage
When the team achieved its mission and goals, the team will disband. Members formed
close bonds and thus morning will occur. In many cases the team will transform and start
with a new project that includes some, most or all the team members.

1.3 Team dynamics

Team dynamics is the way people interact in a group when they have a common goal. It
looks at how and when talents, skills and experiences are shared.

Team synergy is important for the team to work at achieving the same goals. Team
synergy is the process of optimal cooperation where the team together achieves more
than the individuals could on their own.

1.4 Problems in teams

Problems related to team roles

Role ambiguity
Role ambiguity may occur. This means that the team roles have not been clearly
defined and team members are therefore not sure what is expected from them.

Role overload
It may happen that some team members take on more work than they can cope with
whilst others have little to do. Role overload will lead to a decrease in productivity of the
group.

Role conflict
It may happen that more than one member in a team wants to play a certain role which
may result in conflict.

Other problems
 Lack of communication.
 Lack of strong leadership and management of team processes.
 Personality differences and underlying tensions.
 Not having the correct skills and resources to complete the task successfully.
 Lack of direction or clear goals (or team members put their personal goals ahead of
team goals).
 Lack of commitment from team members who do not work to their full potential or at
all.

Questions
Question 1 - [20]
Supply ONE word or term for the following definitions.

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1.1 During this stage of team performance, the members are finding their
roles and testing the roles of others.
1.2 The actual work is done during this stage.
1.3 The process of optimal cooperation when team members achieve more together
than the efforts of individuals put together.
1.4 The person in a team who will ensure that the resources are distributed equally.
1.5 The person in a team who gets everyone going.
1.6 The team role responsible for doing the actual work.
1.7 The person in a team who does all the paper work.
1.8 The stage in team development when the team is briefed on rules.
1.9 A problem that might occur in a team when members are not sure what
is expected from them.
1.10 A problem that might occur in a team if some team members take on
more work than they can cope with.

Question 2 – [10]
2.1 Name and briefly discuss the THREE team roles you consider most important for
team success. (9)
2.2 During which stage of team development will the team be sure of the role they
need to assume during the team task? (1)

2 Conflict management
Functional conflict may happen in a business where disagreements in teams lead to a
vast amount of new ideas. Functional conflict stimulates creativity. Dysfunctional
conflict on the other hand is conflict that arises, and due to
the inability of the team to understand each other’s viewpoints, feelings are
hurt. Dysfunctional conflict hampers creativity in businesses.

2.1 Causes of conflict (Reasons for conflict)

Wherever people are working together, they experience stress because of deadlines
looming. Conflict may occur due to the following reasons:

 Limited Resources – such as time, equipment and money

 Unrealistic expectations from management
 Emotional reactions
 Personality differences
 Lack of proper communication or instructions for a task

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Conflict may also arise when dealing with suppliers, unhappy customer, competitors,
government officials or any other stakeholder interacting with the business. Any of the
problems in teams as discussed in 2.4 above could also cause conflict.

2.2 Conflict resolution steps

The following conflict resolution steps can be followed by businesses:

Step 1: Negotiation
Negotiation happens between TWO parties who try and compromise without assistance
of a third party.

Step 2: Conciliation
When negotiation fails, a third party could get involved to try and resolve the conflict. The
third party facilitates the discussion by giving both parties the opportunity to speak.

Step 3: Mediation
If conciliation does not work, the third party gets more involved by giving advice. The
advice is however not binding.

Step 4: Arbitration
If mediation failed, the parties involved in a dispute must go for arbitration. Arbitration is
normally done in court. The third party makes a judgement call which is binding on both
the original parties involved in the dispute.

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Topic 12 : Creativity and problem-solving
Checklist
Are you able to:
- Differentiate between creative thinking and critical thinking?
- Identify a problem-solving technique that could be used to solve a specific
problem
- Discuss problem-solving techniques and explain how each technique could be
used:
Force-field analysis
Delphi technique
Nominal group technique
Forced combinations
Mind-mapping
Scamper
SMARTER goals
Six Thinking Hat technique

1 Creative thinking
1.1 What is creative thinking?
‘Creative’ means to be able to think of something new and original. It is innovative idea
generation. Creativity is the act of turning new and imaginative ideas into reality.
Creativity is characterised by the ability to perceive the world in new ways, to find hidden
patterns, to make connections between seemingly unrelated phenomena, and to
generate solutions.

Creative thinking is an effort of applying skills and techniques to a specific situation and
problem to solve the problem in a non-traditional way.

1.2 Creative thinking versus critical thinking

Creative thinking is not always realistic or financially viable. Critical thinking is however a
rational (realistic) process whereby a creative idea is analysed for viability (to see if it
could work).

1.3 Why creative thinking?

Creativity in business can help you to:

 Think of a completely new business idea

 Improve an existing product in a unique way
 Think of better ways to serve your customers
 Attract new customers
 Solve problems that your customers might experience.

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1.4 How do you develop your own creativity
There are several things you can do to maintain and to develop creative abilities. Some
of these include:

Think, think, Develop the habit of thinking about what is happening

think around you. Question everything.
Write it down Write down ideas as they come into your head; Compare
one idea with another: Combine one idea with another.
Ask questions Ask questions about something that you have always just
accepted. Do not stop asking questions when you come up
with an answer; continue to find a better answer.
Break the rules People create habits and fall into a rut. If you do things
differently for only one day, it can help to stimulate your
thought processes.
Banish fear Do not be afraid of making mistakes. Support friends if
they think of something new, instead of suggesting
reasons why it would not work.

2 Problem-solving
2.1 Problem solving
A problem occurs when things are not going as they should. Some problems, such as
natural disasters, we cannot predict. Other problems develop over a period of time and
are predictable. Monitoring the performance of business helps to recognise problems.

There are numerous ways in which you can find information to help you recognise when
there is a problem.

Information that could assist to identify problems:

 Feedback reports on quality control of production

 Sales reports indicating a sudden drop in sales figures
 Consumer feedback and complaints
 Magazines and business newspapers with financial information.
 Monitoring your own organisation for problems such as staff turnover due to
unhappy staff.
 Environmental scanning to pick up any internal or external problems that the
business needs to deal with.

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2.2 Problem-solving cycle
The steps of the problem-solving cycle are:
Step 7:
Evaluate the Step 1:
problem- Identify the
solving problem
process

Step 6:
Step 2:
Monitor the
Define the
problem-
problem
solving

Step 5:
Step 3:
Implement
Formulate
the
the strategy
strategies

Step 4:
Allocate
resources

STEP 1: Identify the problem – recognise the problem by asking questions.

STEP 2: Define the problem – give the problem a label to make it easier to find a
solution.
STEP 3: Formulate the strategy – think of various solutions to the problem.
STEP 4: Allocate resources – allocate more money, staff, time, equipment if needed. If
necessary, get a bank load or employ more staff.
STEP 5: Implement the strategy – implement according to a carefully thought through
plan.
STEP 6: Monitor the problem-solving – keep a careful watch on the process.
STEP 7: Evaluate the problem-solving process – evaluate so that you can see what was
done right and where it can be improved.

2.3 Problem solving techniques

Force-field Analysis
Force-field analysis is used to plan a change such as a change in management, change
in company vision or change in production or marketing. Negative forces are identified,
and steps taken to limit them (restraining forces). Positive forces are identified and

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strengthened (driving forces). This technique helps to think of the positives (driving forces
or pro’s) and negatives (restraining forces or con’s) of a decision.

Method
 Think of all the pros and cons of a proposed change.

 Weigh up the forces and determine a way to strengthening driving forces and weaken
the restraining forces
Example of a force-field analysis

Forces for change (driving) Forces against change (restraining)

Increased sales Increased cost

Change:
Become more Introduce Lose our
competitive a budget reputation/customers
version of
Expand target markets a current More strain on machinery
product and workers

Production machinery
used more effectively

Chair and empty chair technique

This technique encourages clear thinking.

Method
You must position yourself in a chair across an empty chair. Explain the problem aloud to
an imaginary person sitting in the empty chair. This makes it easier for people to air their
grievances when there is nobody to hear them.

Brainstorming
Brainstorming is a group problem-solving technique that involves the spontaneous
contribution of ideas from all members of the group.

Method
STEP 1: Write down all the thoughts about how to solve a problem.
STEP 2: The group will evaluate the ideas in the last step.
STEP 3: Take the ideas one by one and list the advantages and the disadvantages.
STEP 4: Evaluate each idea and choose the best one.

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Delphi Technique
The Delphi technique is used when expert advice is needed to solve a problem. The
Delphi method collects opinions on a research question based on the belief that the best
solution is found by pooling the ideas of a group of experts without having to get them
together.

Method:
Step 1: Anonymous interviews or questionnaires are issued to experts to determine
what their viewpoint is.

Step 2: Each expert completes the questionnaire, independently and anonymously. The
experts do not have to be physically present.

Step 3: The results are analysed in a central place.

Nominal Group Technique

This technique encourages independent thinking of group members. The contributions
of group members are anonymous. Everyone in the group has an equal say, regardless
of their rank or status.

Method:
STEP 1: The group session starts with an open-ended question.

STEP 2: Members have time to think before writing their ideas on a flip chart.

STEP 3: Members vote for the best idea.

Forced Combinations
Combine two seemingly unrelated ideas to come up with a new idea.

Method:
 Write down several words on separate scraps of paper.
 Put these into a hat.
 Draw two scraps of paper, read the two words, and think of something that would
combine the two words.

Mind-mapping
Used when it is necessary to change thoughts and ideas into a diagram.

Method:
STEP 1: Start with a central idea.

STEP 2: Break the idea up into logical units.

STEP 3: Use a variety of shapes, colours, symbols and styles.

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SCAMPER
The SCAMPER technique is used to come up with new or related innovative product
ideas. Start off with an existing product or service, then follow these steps:

Substitute (Can we use something/someone

S else for this purpose?)

Combine (Can we combine this resource with

C something else?)

A Adapt (Can we use this differently?)

Modify (How can we rearrange this product?

M Can we change the packaging, shape, size or
texture?)

Put to another use (Can we use this for

P something else?)

Eliminate (Can we remove a component or a

E part of it?)

Reverse (What if we did it the other way

R around?)

https://www.youtube.com/watch?v=G8w0rJhztJ4

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 SMART(ER) Goals
It is sometimes necessary for a business to set new goals to adapt to a changing and
challenging business environment. The SMART(ER) goal technique can be used for this
purpose.

S.M.A.R.T. goals are goals that are specific, meaningful, achievable, relevant, and time-
bound. SMART goals can also become SMARTER goals by taking it two steps further.
“E” could either be used for “ethical” or “evaluate” whilst “R” could be “recordable” or to
“re-adjust”.

E Ethical Goals must be ethical, which implies that it should not contradict
E what is lawful according to legislation or standards set by society.

Evaluate Goals need to be evaluated daily to ensure that you will be able to
achieve them.

RR Recordable Goals should be recordable, which means that one should be able to
keep record of the progress made to reach the goal.

Re-adjust What it means is that you should try different approaches until you
find yourself getting closer and closer to your goals.

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Six Thinking Hat technique
This technique is used to solve problems that do not seem logical at first.

 Each hat has a different colour and represents a specific point of view.
 Members in a team wear the same hat at the same time and think about the issue
from the same point of view.
 When the team generated enough ideas from a viewpoint, they move to the next hat.

Yellow Everyone looks at the positives of the idea or product

hat from an optimistic viewpoint.
Positive

Black hat Everyone is judgmental and critical and thinks of why

the idea or product won’t work.
Negative

White hat Factual data and information is considered in terms

of reliability and accuracy.
Objective

Red hat Emotions and feelings (gut feeling) about the idea or
product is considered.
Intuitive

Green New ideas or alternatives are considered to establish

hat whether there is a better solution, idea or product.
Creative

Blue hat The blue hat belongs to one person at a time. This
person wears the blue hat all the time and controls
Process the team. The blue hat enforces rules and ensures
that the process is orderly and recorded.

Indigenous thinking
This is a local way of making decisions rather than a global norm.

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Watch the following TED Talks related to creativity:
Do schools kill creativity – TED Talks

(Ken Robinson)

https://www.youtube.com/watch?v=iG9CE55wbtY

Draw your Future – TED Talks

(Patti Dobrowolski)

https://www.youtube.com/watch?v=4vl6wCiUZYc

On being wrong – TED Talks

(Kathryn Schulz)

https://www.ted.com/talks/kathryn_schulz_on_being_wrong#t-16297

Questions
Question 1 – [25]
Watch the video clip on HOW FRUSTRATION CAN MAKE US MORE CREATIVE on
TED talks by Tim Harford to answer the questions below.

https://www.ted.com/talks/tim_harford_how_messy_problems_can_inspire_creativity?lan
guage=en#

1.1 Briefly summarise the story of Keith Jarrett, told by Tim Harford, in
your own words. (10)

1.2 What is Tim Harford’s view on obstacles? (2)

1.3 According to Tim, how should one attempt to solve difficult

problems? (3)

1.4 Tim told a story about Catherin Phillips who had to interview two
groups. One group had 4 friends, whilst the other had a stranger in.
Argue why the group with the one stranger was regarded as
the best team. (4)

1.5 What is “the oblique strategy”? (3)

1.6 Do you think Tim Harford has a valid point? Motivate your answer. (3)

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Question 2 – [15]
Suggest a different creative problem-solving technique businesses should use to solve
the following problems. Justify your recommendation in each case.

2.1 A competitor launched a successful marketing campaign and in doing so attracted

many of your customers.
2.2 Customer trends changed and thus the customer base of the business is
decreasing.
2.3 The economic circumstances in the country is not favourable and is heading
towards an economic downturn.
2.4 A competitor invented a new product which seems to be popular with consumers.
2.5 The business appointed a new CEO.

Question 3 - [10]
a

b
c

3.1 What does ‘revenue’ mean? (2)

3.2 With reason, identify the thinking hat used for a – d. (8)

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Topic 13 : Location factors
Checklist:
Are you able to:
Discuss location factors that entrepreneurs must consider:
 Labour regulations
 Environmental factors
 Transport
 Infrastructure, electricity and water supply
 Potential markets
 Raw materials
 Labour market
 Climate
 Government and local regulations and taxes
 Competition
 Crime
 Water and electricity

The term ‘location’ refers to where a business will be set up. There are several factors
business owners should consider before setting up their business.
Location factors are also known as factors of establishment.

1 Labour regulations
 The government puts laws in place to regulate labour. Three important
labour laws in South Africa are:
 The Labour Relations Act 66 of 1995 provides basic rules for
communication and negotiations between employers and employees.
 The Basic Conditions of Employment Act 77 of 1997 aims to improve
the working conditions of employees by regulating working hours, leave,
pay, notice of termination, health and safety issues.
 The Employment Equity Act 55 of 1998 provides for affirmative action in
the areas of employment, training, promotion and pay.

These labour regulations can help to decide where to locate the business, choosing one
country over another.

2 Environmental factors
The environmental impact of a business can determine the location. If a business is likely
to cause a lot of pollution, the authorities may prohibit it in some areas,
or insist that a detailed environmental impact assessment (EIA) must be done before a
decision is made.

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 Air or water pollution - A factory that causes air or water pollution should be situated
in an industrial area, away from residential areas.
 Noise pollution - Some businesses are noisy and therefore not allowed to be in a
residential area.
 Toxic waste - If a factory produces toxic waste products, it should follow regulations
as to how to dump these and will locate close to where they can get rid of waste.

Most factories in S.A. are in the four main industrial regions:

 Gauteng (Pretoria-Witwatersrand-Vaal Triangle) area

 Durban-Pinetown area
 Port Elizabeth-Uitenhage area
 Western Cape area.

Access to the business and enough parking spaces play a role in the location of
businesses in residential areas.

3 Transport
An important factor is the availability of transport.

 Transport of goods from

suppliers by rail, road, air, water
or pipeline must be cost-effective
and reliable.
 Transport of goods to
customers, should keep costs
such as fuel, toll and
maintenance on vehicles as low
as possible.
 Transport for employees
(busses, trains or taxis) to get to
work should be reliable and cost-
effective.

4 Infrastructure and
availability of electricity and water
Infrastructure is all the basic facilities a business will
need to operate, including access to running water,
electricity, cellular networks and other telecommunication
services, railway lines, roads, harbours and airports.
Businesses such as mines and factories need a lot of
electricity and water.

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5 Potential markets
The demand for the product or service creates a market.

 A business in the tertiary sector must try to locate close to its target market. A
business in the secondary sector should be in an industrial area close to suppliers.
 The business must assess the current demand for the product and predict the future
demand.
 Businesses must look at characteristics of consumers such as age, gender, culture
and income.

6 Raw materials
Raw materials are needed to make a final product. If the manufacturer can
keep related costs low, it means higher profits for the business. It may be
cheaper to be close to the source of the raw materials, especially if:

 the transport costs are high

 the product is very big or heavy
 the product does not keep fresh for long and needs to be refrigerated.

7 Labour markets
Owners who want to set up businesses need to think about:

 How many and what type of workers the business will need.
 Businesses that employ many workers are labour intensive businesses
and need to locate close to where many workers live.
 Other businesses, using mainly machinery, may need only a few workers.
 Some businesses need skilled or highly skilled workers and need to locate where
people with these skills live.

8 Climate
 Agricultural products depend on the right climate.
 Some climates may attract tourists.
 Very hot or very cold weather will affect the productivity of workers as
most people prefer moderate climates.

9 Government, local regulations and taxes

 Owners choose places where costs will be lowest to maximise profits.
 Businesses pay for municipal service and rates and taxes on property.
 The government or municipalities encourage businesses in specific
industries to locate in certain towns by charging lower rates and taxes for services or
cheap business sites.

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10 Competition
Competition is any other businesses that offer the same or similar types of products or
services.

 Owners should consider present and future competition.

 If there are too many businesses offering the same products or services
in the same area, it might be difficult for all of them to survive.
 On the other hand, it could be to the benefit of the business to be close to competitors
as consumers are already attracted to competition and might decide to buy from the
business instead.

11 Crime
The crime rate in an area will influence the choice of location for a business.

 It is costly to install security systems to safeguard property.

 Employees and customers also want to feel safe.
 Transporting cash to and from the bank in an area with a high crime rate is risky.
 Parking in high-crime areas is also a risk for workers, customers and suppliers.

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Topic 14: Business Related Information
Checklist
Are you able to:
- Identify the importance of business related information
- Identify the various types of business presentation methods

1 Defining Business Information

This information is processed data that Management will use to make management
decisions.

Business information can be common knowledge, which means many people are know
about it, and it is freely available from various sources. If information is freely available
and not subject to any copyright – it is referred to as Public Domain.

We get Primary research [field] data and Secondary research [desk] data. Primary
data is data received from original sources and secondary data is where we use material
produced by someone else.

Business information can be very subjective – here facts are based personal feelings
and opinions have been relied upon, and we also get information that is Objective – here
the facts are not influenced or based on personal feelings and opinions

2 When doing research:

1. Use legitimate information
2. Use information that is appropriate to our task
3. Use more than one source of information and incorporate it with your own
conclusion
4. Present your work professionally

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3 Methods of presenting information

1. Advertisements
2. Staff news letters
3. Office memos
4. Financial statements
5. Diagrams/charts/graphs

4 Planning your presentation:

1. Know your audience (how many are you presenting to?)
2. Research the venue (sixe, availability of equipment)
3. What is your intention and purpose of the presentation (this must be clear)
4. How much time have you been allocated?
5. Gather the correct, and most meaningful information
6. Plan a format (introduction, body, conclusion)
7. Use humour effectively – and only when appropriate
8. Practise! Practise! Practise!

5 Delivering your presentation:

1. Dress appropriately – have that professional look (remember first impressions
stick!)
2. Stand correctly – don't slouch
3. Keep eye contact – they must move around looking at the whole audience
4. Try to avoid reading directly from your notes – make use of key cards – key words
5. Start your presentation off by greeting the audience
6. Speak with clarity (clearly) – can everyone hear you?
7. Pace your talk – not too fast, not too slow
8. Make sure to pause at key points – this shows the importance thereof
9. Pitch, pace and tone need to be varied
10. Using your hands is good – but don't make it look unnatural
11. Enjoy your presentation – by doing this you will be more relaxed
12. Always ask the audience at the end, if they have any question – be prepared to
answer them

6 Essential element of research:

1. Ensure research is complete – incomplete research will render your research as

invalid
2. Research presented must suite the target audience – the language of the
presentation must be understood, otherwise it is invalid

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 3. Timing must be correct – information must be accurate and up to date – otherwise
it will not be seen as valid and will be ignored
4. Organisation of information is vital – being disorganised, often means that the
information will be seen as invalid too
5. Presenting the related information must be done professionally – time is money
and not presenting properly could be detrimental to the aims of the organisation.

7 Format of information
This depends on several factors:

1. Type of information
2. Audience you have
3. Is it a verbal or a written presentation
4. How important is each piece of information

8 When presenting information:

1. It must be well researched and complete

2. Adapted to the target audience
3. Available at the right time and right place
4. Organised in a logical manner
5. Matching the goals of the organisation

9 Verbal presentations
These are often supported by:

1. Handouts
2. Multimedia presentations
3. Slides
4. Audio clips
5. Models or displays
6. Graphs or charts

10 Written presentations
These are used to:

1. Convey information
2. Record information for storage
3. Give feedback on meetings and events

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 11 Types of reports

1. Progress reports [give updates on projects]

2. Formal reports [business reports]
3. Minutes of meetings [what has been discussed and decided upon in meetings]
4. Post-event analysis [what went right and what went wrong]

12 Responding to information

1. Public relations – focusses on promoting and protecting the organisations image

2. Call centres – front line of any organisation
3. Internet – check any information for updates – not all websites are reliable

13 Adapting and flexibility of data and information

1. Needs to up to date
2. Pressure on organisations to be technologically advanced
3. Most flexible businesses will be most successful businesses

14 Examples of non-verbal presentation methods:

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

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 A Bar Chart

Sales

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

A Pie Chart

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

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 A line chart

An Organisational Structure

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7WM7EQEO7VV8WHMX2L79/Grapple+a+visual+table.png downloaded 26 October 2022]

A Table

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Revision Questions
Question 1: Match terms – [10]
Choose a term from column B that matches a description in column A. Write only the
letter next to the question number.

COLUMN A COLUMN B
1.1 Any businesses offering the same or A competition
similar types of products or services
B infrastructure
1.2 Natural input needed in the production
C raw materials
process
D potential market
1.3 The possible future customers of the
business E climate
1.4 Weather affecting the productivity of F labour market
workers
G transport
1.5 All the basic facilities a business will need
to operate, including access to running H labour regulation
water, electricity, roads and
communication lines

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Question 2: True/false – [16]
Indicate whether the following statements are TRUE or FALSE. Choose the answer and
write only 'true' or 'false' next to the question number.

2.1 The Labour Relations Act provides basic rules for communication and negotiation
between employers and employees. (2)

2.2 The Basic Conditions of Employment Act provides for affirmative action in areas of
employment, training, promotion and pay. (2)

2.3 Environmental factors will not have an impact on the decision for
location for the business. (2)

2.4 Transport needs to be available, reliable and cost-effective for the

workers and the business. (2)

2.5 A business needs to locate close to the target market to reduce

complication and costs. (2)

2.6 Rates and taxes on property are calculated at the same rate in all
areas. (2)

2.7 Some businesses like bakeries use more electricity and therefore need
to be located at a site with 3-phase electricity. (2)

2.8 Employees without the necessary skill to do the business's books can be trained for
the position and the therefore business can employ anyone
in the area for this position. (2)

Question 3: Short answers – [34]

3.1 Discuss the environmental factors that need to be considered when
looking at the establishment of a factory producing plastic. (8)

3.2 Explain why it is important for a business to consider the availability

of transport as a location factor. (6)

3.3 Define the term 'infrastructure' and supply THREE examples of

factors that relate to this concept. (5)

3.4 Mr Sputnik wants to open an accounting firm. He will need the

services of five chartered accountants. Other large businesses
will outsource their accounting audits to his firm. Where do you
suggest Mr Sputnik should open his business? Motivate your answer. (3)

3.5 Mr and Mrs Lambert want to open a DVD store in town close to where
you live. They want to rent out DVDs, videos and play-station games to
the public. Evaluate whether this is a good idea or not. Supply THREE reasons for
your answer. (7)

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3.6 Why would a business install security systems such as CCTV
cameras? (2)

3.7 If you had to open a business, which location factor would you regard
as the most important? Motivate your choice. (3)

Question 4: Business Report - [50]

Prenushka Perumal relocated to the South Coast (KZN) from Kokstad

because her husband was transferred to the ABSA bank branch close to
Shelly Mall. She had a bakery in Kokstad where she supplied the
community with fresh bread and other freshly baked products and is
familiar with all the requirements and challenges a bakery could face.
She wants to start a bakery on the South Coast and started looking
around for a business premises. One requirement for her bakery is that
she needs a shop with 3-phase electricity.

Read the scenario below:

Identify and discuss the factors that Prenushka should consider when
choosing an appropriate location for her new bakery. Discuss other
external challenges in the business environment that Prenushka
might encounter. Recommend solutions or strategies Prenushka
could use to overcome obstacles. (50)

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Questions

Question 1: Multiple choice – [18]

Choose the correct answer. Only write the letter of the answer you select.

1.1 A example of a convenience product:

A milk
C clothing
B jewellery
D A, B and C

1.2 An example of a shopping product:

A milk
C clothing
B jewellery
D A, B and C
1.3 An example of a select product:

A milk
C clothing
B jewellery
D A, B and C
1.4 An example of a personal service:

A doctor
C hairdresser
B insurance
D A, B and C
1.5 An example of a professional service:

A doctor
C hairdresser
B insurance
D A, B and C

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1.6 An example of an auxiliary service:

A doctor
C hairdresser
B insurance
D A, B and C
1.7 The average cost of making the product and adding on a profit is
referred to as:

A average cost
C mark-up pricing
B costing
D price fixing
1.8 Making customers aware of the product or service:

A pricing
C direct selling
B promotion
D purchasing
1.9 A system used to help a business deliver a service effectively.

A budget
C customer care
B production system
D process

Question 2: True/false – [12]

Indicate whether the following statements are TRUE or FALSE. Choose the answer and
write only 'true' or 'false' next to the question number.

2.1 The traditional distribution channel includes the flow of the product
from the manufacturer to the wholesaler, retailer and the consumer. (2)

2.2 The requirements of a good advertisement is known as AIDA: attention, intelligence,

desire and action. (2)

2.3 It is illegal to make a study of competitors. (2)

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2.4 A service is a tangible asset. (2)

2.5 Recruitment means to employ the right staff to do work. (2)

2.6 A bank may require a business plan when a business applies for a loan. (2)

Question 3: Match terms – [10]

Choose a term from column B that matches a description in column A. Write only the
letter next to the question number.

COLUMN A COLUMN B
3.1 A plan on how money received is to A print media
be spent
B projected income statement
3.2 Describes the financial needs of the
C cash flow statement
business and shows how funds are
used D budget
3.3 Shows the predicted profit or loss E financial analysis
calculated
F projected balance sheet
3.4 Newspapers, magazines, brochures
and pamphlets G business plan

3.5 Shows the predicted worth of the

business by calculated possessions
and liabilities

Question 4: Short answers – [20]

3.1 Which factors are important when considering a form of ownership for the
business? (4)
3.2 List the 7 Ps of the marketing mix. (7)
3.3 Discuss THREE important environmental issues to be sensitive to when deciding
on the type of business activities. (6)
3.4 Suggest information an entrepreneur must gather from the external environment
after identifying the business opportunity. (3)

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