Business and its Environment
Business and its Environment asks you to explain why organisations produce goods and services, how production is divided into sectors, and how internal and external forces constrain decisions. MSCE items typically require you to place a named Malawian business in the correct sector, identify stakeholders, or explain how an external change affects a firm's costs and sales.
Core rules
- A business combines factors of production (land, labour, capital, enterprise) to satisfy needs and wants, aiming at profit but also at survival, growth, market share and social responsibility.
- Primary production extracts raw materials (farming, fishing, mining, forestry). Secondary production processes them (maize milling, textile manufacture, bottling). Tertiary production provides services (transport, banking, retail, teaching).
- The chain of production links the sectors; each stage should add value, so output is worth more than the inputs used.
- The internal environment (owners, managers, employees, capital, culture) is largely controllable. The external environment is not: micro forces are customers, suppliers, competitors and intermediaries; macro forces are summarised by PESTLE - political, economic, social, technological, legal, environmental.
- Stakeholders include shareholders, employees, customers, suppliers, lenders, government and the local community. Their interests conflict, so managers must balance them.
Worked example
A Lilongwe dairy buys milk from smallholder farmers (primary), pasteurises and bottles it (secondary), then distributes to shops (tertiary). Fuel prices rise sharply and a new levy on packaging is announced. Both are external macro forces - economic and legal - and cannot be controlled. Reasoning: higher fuel and packaging costs raise unit cost, so the firm can raise price (risking price-sensitive customers), source packaging locally, or consolidate deliveries to cut trips per week.
Traps that cost marks
- Calling retail or transport "secondary" - trading and services are tertiary.
- Placing competitors in the macro environment; they belong to the micro environment.
- Writing that businesses exist only to make profit, ignoring survival, growth and social responsibility.
- Treating PESTLE factors as controllable.