Business Strategies

Question 1

DEFINITION OF A STRATEGY

Answer 1

A strategy is a long-term action plan to reach a goal.

Question 2

STRATEGIC MANAGEMENT PROCESS

Answer 2

• Take corrective action to ensure goals/objectives are met.
• Review the vision statement.
• Analyse mission statement.
• Formulate a strategy such as a defensive/retrenchment strategy

Question 3

STEPS TO STRATEGY EVALUATION

Answer 3

• Application of SWOT analysis/PESTLE/Porter’s Five Forces/environmental scanning of the business
  environments.
• Formulate strategies to meet objectives/Develop measurable strategic
  goals/ objectives.
• Implement strategies using action plans, etc.

Question 4

Power of supplier

Answer 4

• A business must assess the power of suppliers to influence prices.
• The more powerful the suppliers, the less control the business has over them

Question 5

Power of buyers

Answer 5

• Buyers buying in bulk can bargain for prices in their favour.
• The business must assess how easy it is for buyers/customers to drive prices down.

Question 6

Power of competitors

Answer 6

• If competitors have a unique product/service, then they will have greater power.
• A business with many competitors in the same market has very little power in their
  market.

Question 7

Threat of substitution

Answer 7

• Substitute products may cause the business to completely lose its market share.
• Unique products will not be threatened by substitute products.

Question 8

Threat/Barriers of new entrants to the market

Answer 8

• The power will depend on how easy it is for new businesses to enter the market
• If the barriers to enter the market are low, then it is easy for new businesses to enter
  the market.

Question 9

P- E- S

PESTLE recommendations

Answer 9

Political
* Research recent government
policies

Economic
- Consider exchange rates
when trading with other
countries

Social
* Learn local languages

Question 10

T-L-E

PESTLE recommendations

Answer 10

Technological
* Businesses must be geared
for online trading/e-commerce

Legal
* Comply with all relevant
legislation that may impact on
businesses

Environmental
- Implement recycling
measures to prevent pollutio

Question 11

Forward integration

Integration strategies

Answer 11

• The business combines business with or take over its distributors.
• Involves expansion of business activities to gain control over the direct distribution of
  the products

Question 12

Backward integration

Integration strategies

Answer 12

• The business combines business with or take over its suppliers.
• The aim is to decrease the business’s dependency on the supplier

Question 13

Horizontal integration

Integration strategies

Answer 13

• A business takes control of/ incorporates other businesses in the same
  industry/which produce/sell the same goods/services.
• The aim is to reduce the threat of competition /substitute products/services.

Question 14

Product Development

Intensive strategies

Answer 14

• It is a growth strategy where businesses aim to introduce new products into existing
  markets/modifies an existing product.
• Businesses generate new ideas and develop new products/services

Question 15

Market Development

Intensive strategies

Answer 15

• This strategy involves finding new markets and new ways to distribute product.
• It is a growth strategy where businesses aim to sell its existing products in new
  markets.

Question 16

Market penetration

Intensive strategies

Answer 16

• New products penetrate an existing market at a low price, until it is well known to the
  customers and then the prices increases.
• It is a growth strategy where businesses focus on selling existing products to existing
  markets.

Question 17

Advantages of intensive strategies

Answer 17

• Regular sales to existing customers may increase.
• Eliminate competitors and dominate market prices
• Gain loyal customers through effective promotion campaigns.
• Increase in sales/income and profitability.
• Improved service delivery may improve business image.

Question 18

Concentric diversification

Diversification strategies

Answer 18

• The business adds a new product or service that is related to existing products and
  which will appeal to new customers.
• Occurs when a business wants to increase its product range and markets

Question 19

Horizontal diversification

Answer 19

• The business adds new products or services that are unrelated/ different to existing
  products, but which may appeal to existing/current customers.
• Occurs when a business acquires or merges with a business that is at the same
  production stage, but it may offer a different product

Question 20

Conglomerate diversification

Answer 20

• The business adds new products or services that are unrelated to existing products
  which may appeal to new groups of customers.
• Conglomerate diversification means that a business grows into new products,
  services and markets.
• Occurs when a business wants to increase its product range and markets.

Question 21

Advantages of diversification strategies

Answer 21

• Improves the business brand and image.
• Reduces the risk of relying only on one product.
• Increase sales and business growth.
• Diversification into a number of industries or product line can help create a balance
  during economic fluctuations

Question 22

Divestment

Answer 22

• The business sells some assets that are no longer profitable.
• Businesses may sell off divisions/product lines with slow growth potential.
• Unproductive assets are sold to pay off debts.
• Process used to withdraw its investment in another business (divesting)

Question 23

Retrenchment

Answer 23

• Terminating the employment contracts of employees for operational reasons.
• Decreasing the number of product lines/Closing certain departments may result in
  some workers becoming redundant.

Question 24

Liquidation

Answer 24

• All assets are sold to pay creditors due to a lack of cash flow.
• Selling the entire business in order to pay all liabilities.
• Companies in financial difficulty may apply for business rescue to avoid liquidation.