LEARNING OUTCOME ENTSL 2.

2: DEMONSTRATE
UNDERSTANDING OF THE BUSINESS ENVIRONMENT

2.2.1 Explain the business environment

2.2.2 Describe factors in the Internal and External business environment
2.2.3 Examine the impact of Internal and External business environment
on a local enterprise
2.2.4 Use power point to make group presentations on impact of the
PESTEL on an enterprise activity
2.2.5 Explain the reasons for Government intervention in enterprise
activities
2.2.6 Describe ways in which the Government controls business enterprises
2.2.7 Explain ways in which Government assist enterprise activities.

EXPLAIN THE BUSINESS ENVIRONMENT

The business environment refers to all the factors that affect a company's
operations and performance. These factors can be broadly categorized into two
types: external and internal. Understanding the business environment is
important for companies because it helps them identify opportunities and reduce
risks.

DESCRIBE FACTORS IN THE INTERNAL AND EXTERNAL

BUSINESS ENVIRONMENT

1. Internal business Environment: refers to internal factors that directly affect

the company’s operations and performance. These factors are within the
company’s control.

• Human resource: Employees skills, productivity and morale within the

company, shape its internal dynamics, decision-making processes, and
employee behaviour.

• Resources ( finance) and Capabilities: Tangible resources (like

financial resources, physical assets) and intangible resources (like
intellectual property, brand reputation, and organizational knowledge)
that contribute to the company's competitive advantage and technologies
( processes and systems) used to produce goods or deliver services
efficiently and effectively.

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 • Management: The leadership, organizational structure and management
practices.
• Company culture: The shared values, beliefs and norms that influence
behaviour within the organisation.

2.External Business Environment : These are external factors that affect the
business indirectly and are generally beyond the company’s control

• Economic Factors: Includes factors like economic growth, inflation

rates, exchange rates, and interest rates that can impact business
operations, consumer spending, and profitability.

• Social Factors: Demographic trends(birth rates, death rates, migration

patterns, and age distribution), cultural norms, lifestyle changes, and
societal values that influence consumer behaviour and market demand.

• Technological Factors: Rapid advancements in technology, innovation

cycles, and digital transformation that can create new opportunities or
disrupt existing business models.

• Political: Every new political party comes to the government with its
new policies and gets rid of the old policies, and their change in policies
would impact relevant business and companies.

• Legal Factors: Legal factors comprise the law of the country impacting
how the company should operate its business and behaviour of customers.
Some of the main areas that fall under its category are the viability of the
certain products in certain markets, profit margin and product
transportation. Government policies, regulations, political stability, trade
policies, taxation laws, and legal frameworks that businesses must
comply with and navigate.

• Environmental Factors: Concerns related to environmental

sustainability, climate change regulations, resource scarcity, and
corporate responsibility towards environmental impact.

• Suppliers
• Customer: Customers are a requirement to run a business. If no one is
buying the business will have to close.

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 • Competitive factors: refers to the degree of competition in the industry,
including the number and strength of competitors, market share and
competitive strategies.
• Distributors

EXAMINE THE IMPACT OF INTERNAL AND EXTERNAL BUSINESS

ENVIRONMENT ON A LOCAL ENTERPRSE

INTERNAL BUSINESS ENVIRONMENT IMPACT:

1. Organizational Culture: The culture within a local enterprise can
influence employee morale, productivity, and overall performance. A
positive culture that promotes innovation and teamwork can lead to
higher employee satisfaction and retention, whereas a toxic culture may
hinder productivity and innovation.

2. Management Structure: The structure and effectiveness of management

within the enterprise can determine how decisions are made, how
resources are allocated, and how strategies are implemented. Efficient
management can lead to streamlined operations and better strategic
alignment.

3. Resources and Capabilities: The availability and management of

resources such as financial capital, human capital (skills and expertise of
employees), and physical assets (equipment, facilities) directly impact the
enterprise's ability to compete and grow. Effective utilization of resources
can enhance competitiveness and operational efficiency.

4. Human resource: Internal processes and operational workflows can

significantly impact the enterprise's ability to deliver products or services
efficiently and meet customer expectations. Improving operational
processes can lead to cost savings, improved quality, and faster delivery
times.

EXTERNAL BUSINESS ENVIRONMENT IMPACT :

1. Economic Factors: Fluctuations / changes in the local economy, such as

changes in GDP growth (Gross Domestic Product which measures the
value of total output of goods and services produced by an economy in a
certain period of time) inflation rates, and consumer spending patterns,
can affect the demand for the enterprise's products or services.

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 Economic downturns may reduce consumer purchasing power, while
economic upturns can create opportunities for growth.

2. Social Factors: Demographic shifts, cultural trends, and changing

consumer preferences can influence market demand and customer
behaviour. For instance, shifts towards healthier lifestyles may increase
demand for organic products, affecting local enterprises in the food
industry.

3. Technological Factors: Rapid developments in technology can disrupt

industries and create both opportunities and challenges for local
enterprises. Embracing new technologies can enhance operational
efficiency and improve product offerings, while failure to adopt may
result in falling behind competitors.

4. Political and Legal Factors: Government regulations, policies, and

political stability impact business operations and strategy. Changes in
taxation, labour laws, environmental regulations, or trade policies can
affect costs, profitability, and compliance requirements for local
enterprises.

5. Environmental Factors: Increasing awareness of environmental

sustainability and climate change issues can influence consumer
preferences and regulatory requirements. Local enterprises may need to
adopt sustainable practices or comply with environmental regulations to
maintain market relevance and avoid penalties.

6. Suppliers:

• Supply Chain Reliability: Dependable suppliers ensure consistent

access to raw materials, components, or services essential for
production.
• Cost and Quality: Supplier pricing, payment terms, and quality
standards directly affect an enterprise’s cost structure, product quality,
and competitiveness.
• Innovation and Collaboration: Collaborative relationships with
innovative suppliers can lead to new product development and
competitive advantages.
• Risk Management: Supplier disruptions (e.g., shortages, quality
issues) can impact production schedules, leading to delays and
increased costs.

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7. Competitors:

• Market Dynamics: Competitors influence market demand, pricing

strategies, and customer expectations through their offerings and
marketing efforts.
• Competitive Advantage: Understanding competitors’ strengths,
weaknesses, and market positioning helps enterprises differentiate
themselves and identify opportunities for improvement.
• Market Share and Growth: Intense competition can constrain
market share growth and profitability, necessitating strategic
differentiation or niche market targeting.
• Industry Innovation: Competitors’ innovations and technological
advancements drive industry trends and force enterprises to innovate
to maintain relevance and competitiveness.

8. Customers:

• Demand and Preferences: Customer needs, preferences, and

purchasing behaviours dictate product/service offerings, pricing
strategies, and marketing approaches.
• Customer Satisfaction: Customer feedback and satisfaction levels
influence brand reputation, repeat business, and referrals.
• Relationship Management: Building strong customer relationships
fosters loyalty, and increases lifetime customer value.
• Market Segmentation: Understanding diverse customer segments
helps tailor offerings and marketing efforts to specific needs and
preferences, enhancing market penetration and sales effectiveness.

9. Distributors:

• Market Access: Distributors facilitate access to new markets and

customer segments, expanding the enterprise’s reach and sales
potential.
• Logistics and Distribution: Efficient distribution networks managed
by distributors ensure timely delivery and customer satisfaction.
• Channel Relationships: Collaborative relationships with distributors
strengthen market presence and brand visibility.
• Competitive Edge: Distribution strategies impact product availability,
pricing, and promotional efforts, influencing competitive positioning
in the market.

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USE POWER POINT TO MAKE GROUP PRESENTATIONS ON
IMPACT OF THE PESTEL ON AN ENTERPRISE ACTIVITY

EXPLAIN THE REASONS FOR GOVERNMENT INTERVENTION IN

ENTERPRISE ACTIVITIES

Government intervention in enterprise activities occurs for several reasons,

which generally aim to achieve broader economic, social, and political
objectives. Here are some key reasons why governments intervene:

1. Market Failures:

o Externalities: When the actions of a firm affect third parties

(positive or negative) without compensation, such as pollution or
research spillovers.

o Public Goods: Goods or services that are non-excludable and non-

rivalrous, making it difficult for the private sector to provide them
efficiently (e.g., national defense).

o Market Power: Monopolies or oligopolies can abuse market

power to restrict output, raise prices, and reduce efficiency.

2. Redistribution of Income and Wealth: Governments may intervene to

reduce inequality by redistributing income through taxation and welfare
programs.

3. Ensuring Competition: Antitrust laws and regulations are designed to

prevent monopolistic practices that could harm consumers by limiting
choice, raising prices, or reducing innovation.

4. Stabilizing the Economy:

o Fiscal Policy: Governments use taxation and spending policies to

manage aggregate demand, aiming to achieve full employment and
stable prices.

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 o Monetary Policy: Central banks intervene to control inflation,
interest rates, and money supply to stabilize the economy.

5. Promoting Economic Development: Governments may intervene to

foster economic growth, industrialization, and infrastructure
development, particularly in developing countries.

6. Protecting Consumers: Regulations ensure products meet safety

standards and provide accurate information to consumers, protecting
them from fraud or harm.

7. Environmental Protection: Regulations and incentives encourage

businesses to adopt environmentally friendly practices and reduce
pollution.

8. Ensuring Social Goals: Governments may intervene to promote socially

desirable outcomes, such as healthcare, education, and housing, which
may not be adequately provided by the private sector alone.

9. Responding to Market Imperfections: In dynamic markets,

governments may provide support for research and development,
technology adoption, or regional development where private sector
investment may be insufficient.

10.Political Considerations: Governments may intervene to address public

pressures, maintain political stability, or support strategic industries seen
as vital to national interests.

11.Protecting workers: To ensure fair labour practices and protect workers

rights. Government establish labour laws and standards. e.g minimum
wage laws, workplace safety regulations and anti – discrimination laws to
ensure that workers are treated fairly and work in safe conditions

DESCRIBE WAYS IN WHICH THE GOVERNMENT CONTROLS

BUSINESS ENTERPRISES

1. Licensing and Permitting:

o Governments often require businesses to obtain licenses or permits

to operate legally. These licenses may be specific to certain
industries (e.g., healthcare, finance) or activities (e.g., construction,
environmental permits). This control ensures businesses meet
certain standards, such as safety regulations or professional
qualifications.
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 2. Regulations and Standards:

o Governments establish regulations and standards that businesses

must adhere to in areas such as product safety, environmental
protection, labour practices, and fair competition. For example,
regulations on emissions standards for factories or minimum wage
laws for workers.

3. Taxation Policies:

o Taxation is a significant way governments control businesses. Tax

policies can influence business decisions regarding investment,
hiring, and pricing. Governments use taxes not only to raise
revenue but also to incentivize certain behaviors (e.g., tax breaks
for research and development) or discourage others (e.g., carbon
taxes).

4. Antitrust and Competition Laws:

o Governments enforce antitrust laws to prevent monopolistic

practices and ensure fair competition. This includes measures to
prevent mergers that could reduce competition, regulate pricing
practices, and protect consumers from abuse of market power.

NB: Antitrust refers to a group of businesses that team up or form a monopoly

to dictate pricing.

5. Labour Laws and Employment Regulations:

o Governments regulate employment practices through laws that

govern wages, working conditions, collective bargaining rights,
and worker protections (e.g., safety standards, anti-discrimination
laws). These regulations aim to ensure fair treatment of workers
and maintain social stability.

6. Environmental Regulations:

o Governments impose regulations to protect the environment, such

as limits on pollution emissions, waste disposal requirements, and
conservation measures. Businesses must comply with these
regulations to minimize their environmental impact.

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 7. Consumer Protection Laws:

o Governments enact laws to protect consumers from unfair business

practices, misleading advertising, unsafe products, and fraud.
These laws ensure that businesses provide accurate information,
maintain product quality, and uphold consumer rights.

8. Subsidies and Grants:

o Governments may provide financial support to businesses through

subsidies, grants, or loans to promote specific industries, stimulate
economic development in certain regions, or encourage innovation
in strategic sectors.

9. Trade Policies and Tariffs:

o Governments regulate international trade through tariffs, quotas,

and trade agreements to protect domestic industries, promote
exports, and regulate imports. These policies can impact the
competitiveness and operations of businesses engaged in
international trade.

10.Public Ownership and State-Owned Enterprises (SOEs):

o In some cases, governments directly own and operate businesses or

key industries (SOEs) to ensure essential services, promote
economic stability, or achieve social objectives. Examples include
public utilities, transportation networks, and healthcare systems.

EXPLAIN WAYS IN WHICH GOVERNMENT ASSIST ENTERPRISE

ACTIVITIES.

1. Funding:

o Grants and Subsidies: Governments provide financial assistance

to businesses, particularly small and medium-sized enterprises
(SMEs), through grants, subsidies, or tax incentives. These funds
may support research and development, export initiatives,
technological innovation, or environmental sustainability efforts.

o Loans and Guarantees: Governments may offer loans at

preferential interest rates or provide guarantees to encourage banks
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 and financial institutions to lend to businesses that may otherwise
have difficulty accessing financing.

2. Mentorship:

o Governments support incubators and accelerators that provide

startups and entrepreneurs with resources, mentorship, networking
opportunities, and access to funding. These programs help new
businesses navigate early challenges and accelerate their growth.

3. Training:

o Governments invest in education and training programs to develop

a skilled workforce aligned with the needs of businesses. This
includes vocational training, apprenticeships, and initiatives to
retrain workers in industries undergoing technological change.

4. Trade Agreements:

o Governments provide support to businesses seeking to enter

international markets through trade agreements, export promotion
programs, market research, and assistance navigating trade
regulations and tariffs.

5. Industry-specific Policies:

o Governments develop policies tailored to specific industries or

sectors to address their unique challenges and opportunities. This
may include sectoral strategies, clusters development, and
initiatives to enhance competitiveness.

6. Tax Incentives and Relief:

o Governments offer tax incentives such as tax credits for hiring new
employees, deductions for investment in equipment or technology,
or reduced corporate tax rates for certain industries or regions.

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 7. Public Procurement Opportunities:

o Governments can support businesses by awarding contracts for

goods and services through public procurement processes. This
provides a stable revenue stream for businesses and opportunities
for growth.

8. Intellectual Property Protection:

o Governments establish and enforce laws protecting intellectual

property (IP) rights, such as patents, trademarks, and copyrights.
This encourages innovation and provides businesses with legal
recourse against infringement.

9. Emergency Assistance and Economic Stimulus:

o During economic downturns or crises, governments may provide

emergency assistance packages, financial stimulus programs, and
temporary relief measures (e.g., tax deferrals, wage subsidies) to
support businesses and maintain economic stability.

10. Advertising:

Public campaigns: Running public advertising campaigns to promote local

businesses and products, enhancing their visibility and reputation. Trade
shows and expos: organising and sponsoring trade shows and expos where
businesses can show case their products and services to potential customers
and partners.

Creating online platforms such as online directories or market places where

businesses can advertise their offerings to a broader audience.

These government interventions aim to create an enabling environment for

enterprise activities, reduce barriers to growth, and promote sustainable
economic development. The specific mix of policies and initiatives varies
across countries based on economic conditions, political priorities, and societal
needs.

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