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Businesses operate in dynamic environments that require diversification and defensive strategies to remain operational in the market - NSC Business Studies - Question 5 - 2024 - Paper 1
Question 5
Businesses operate in dynamic environments that require diversification and defensive strategies to remain operational in the market. Some businesses apply the PESTL... show full transcript
Worked Solution & Example Answer:Businesses operate in dynamic environments that require diversification and defensive strategies to remain operational in the market - NSC Business Studies - Question 5 - 2024 - Paper 1
Step 1
Outline the advantages of diversification strategies.
Answer
Diversification strategies provide numerous advantages for businesses. Firstly, they increase sales and revenue, thereby facilitating overall business growth. By expanding the product range or entering new markets, businesses can improve their brand image and awareness. Additionally, diversification reduces reliance on a single product or market, which mitigates risks associated with fluctuating economic conditions.
Furthermore, businesses can leverage technological advancements by modifying existing products, thus keeping pace with consumer demands. This strategy also allows companies to tap into new customer bases and establish a presence in unrelated markets, enhancing operational resilience.
Step 2
Discuss THREE types of defensive strategies.
Answer
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Divestiture: This strategy involves selling off assets or business segments that are no longer profitable. By disposing of non-productive elements, businesses can focus their resources on more profitable areas, improving overall efficiency and profitability.
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Retrenchment: Retrenchment encompasses measures such as terminating employee contracts or closing down underperforming product lines. This approach aims at reducing costs and streamlining operations to maintain viability during challenging economic times.
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Liquidation: As a last resort, liquidation entails selling all assets to pay creditors. While it signifies financial distress, this strategy can help recover some value for stakeholders and allow the business to cease operations in an orderly manner.
Step 3
Explain how the following PESTLE factors pose challenges to businesses: Social.
Answer
The social PESTLE factor presents challenges for businesses primarily through consumer behavior changes. Businesses might face declining sales if their products are unaffordable due to low income levels among customers. Furthermore, failure to engage with communities effectively can lead to reduced customer loyalty, as consumers prefer companies that understand their local needs and preferences. Additionally, high crime rates in certain areas can also affect trade, diminishing sales opportunities and increasing operational risks.
Step 4
Explain how the following PESTLE factors pose challenges to businesses: Environmental.
Answer
Environmental factors can significantly disrupt business operations. For instance, strict regulations concerning chemical use in products can lead to increased operational costs if businesses need to modify their processes to meet standards. Moreover, inadequate waste disposal measures can not only result in financial penalties but also damage a company's reputation, subsequently affecting customer trust. Furthermore, businesses may encounter challenges in ensuring that their packaging is environmentally friendly, as consumers increasingly demand sustainable practices.
Step 5
Advise businesses on the steps in strategy evaluation.
Answer
Businesses should undertake several steps in the strategy evaluation process. Firstly, they must understand the foundational basis of the strategy by outlining its objectives and expected outcomes. Following this, looking forward and backward in the implementation process can help identify areas of success and failure.
Comparing the expected performance with actual results is crucial, enabling businesses to pinpoint deviations from their initial plans. Taking corrective actions based on this analysis can help mitigate future discrepancies. Finally, setting clear measures for control and continuous follow-up is essential to assess the ongoing effectiveness of the strategy in achieving business goals.