INDUSTRY AND ENVIRONMENTAL ANALYSIS: BUSINESS - An agreement in which two or more persons combine their resources in a business

OPPORTUNITY IDENTIFICATION with a view to making profit.

 A PARTNERSHIP AGREEMENT is drawn up and profits are divided among the

PRINCIPLES, TOOLS AND TECHNIQUES partners according to the terms of agreement.
BUSINESS INDUSTRY TYPES OF PARTNERSHIP
- just a small portion of an industry. - aggregation of the GENERAL PARTNERSHIP LIMITED PARTNERSHIP
- an undertaking by a person or a group of persons different businesses all owners share the management of the some members are general partners who
who are partners, or stockholders who own a engaged in the same line business and each is personally responsible control and manage the business and may
juridical entity known as a CORPORATION. of undertaking. for and must assume the consequences of be entitled to a greater share of the profit
- Its main objective is to earn profit for the owners. the actions of the other partners. while other partners are limited and
contribute only capital, take no part in
CLASSIFICATION OF BUSINESSES all general partners have unlimited liability
control or management, and are liable for
which means loan payments will extend to
debts to a specific extent only.
CLASSIFICATION OF BUSINESS WORTH OF TOTAL ASSETS their personal property.
Micro business below ₱1,500,001
CORPORATION
Small business from ₱1,500,001 to ₱15,000,000
- a legal entity that is separate from its owners, the shareholders.
Medium business from ₱15,000,001 to ₱60,000,000
Large scale in excess of ₱60,000,000 - no shareholders is personally liable for the debts, obligations, or acts of the
corporation.
For any form of business organization, the business must be registered with the appropriate
government agencies. - exist for a life of 50 years, which is renewable for another 50 years.

- owners have limited liabilities. However, corporations are burdened by heavy taxes
SOLE PROPRIETORSHIP and PARTNERSHIPS 100% must be owned and capitalized by
Filipinos. COOPERATIVE
CORPORATIONS atleast 60% of the outstanding capital
stocks must be owned by Filiipino citizens - an entity organized by people with similar needs to provide themselves with goods
or services or to jointly use available resources to improve their income.
BUSINESS ORGANIZATION  Cooperative members have an equal say in decision-making with one vote per
SOLE PROPRIETORSHIP member regardless of number of shares held there is open and voluntary
- simplest way to set up a business; owned by a single individual who is singly membership and surplus earning is returned to the members according to the
responsible for running the business and is accountable for all debts and obligations amount of their patronage.
related to the business.
 The SOLE PROPRIETOR enjoys exclusive control and decision-making as well as gets
all the profits earned but he also shoulders all losses and has unlimited liability TOOLS IN EVALUATING A BUSINESS
which means payment of his loans will extend to his personal assets.
KEY FACTORS IN ANALYZING THE INDUSTRY
PARTNERSHIP
(According to a guide developed by North Carolina’s Small Business and Technology  The business owner can anticipate problems, including possible solutions and take
Department Center) advantage of identified opportunities

Is it limited to local areas? Or will it cover a INTERNAL FACTORS

The geographic area which your
1.,
business will cater to.
2. The size and outlook of the industry.
3. Description of the product.
4. The buyers have to be identified.
5. The regulatory environment.
The need to identify the leading
6.
businesses in the industry,
Factors that will affect the growth of
7.
the business.
region, the entire country, or even the
international market? 1. Financial resources money and sources of funds for investments
What trends can be identified?
2. Physical resources company’s location, facilities, machinery, equipment
Who are your target customers? 3. Human resources consisting of employees
Are there local, national laws that will restrict
Access to natural resources,
the business? One needs to identify
4. trademarks, patents, and
government regulations specific to the
copyrights; and
chosen industry.
and to provide company information on the employees programs, department hierarchies and
most successful businesses that you will be 5. Current processes software systems, sales and distribution capabilities,
up against. marketing programs
EXTERNAL FORCES

local, national and international financial trends

SWOT ANALYSIS developments in the country’s stock market
1. Economic trends
 created in the 1960s by business gurus in their book, Business Policy, Text and Cases reforms in the banking system
growth of the Gross Domestic Product
 Edmund P. Learned  Kenneth Andrews
 C. Roland Christensen  William D. Book new products/technology/evolving buyer’s profiles,
2. Market trends
 is an analytical framework that can help a company meet its challenges and identify including changes in tastes and lifestyle behavior
new markets.
National and local laws and as well as political, environmental, and economic
 is a tool that can help a proponent by enabling him/her to identify and assess the 3.
statuses regulations
internal and external forces that can affect the business.
 The framework can help identify the business’s risks and rewards Demographic characteristics
4. age, gender, culture of the customers;
 It is also a means of identifying the internal and external forces that may affect the of the target market
business. Relationships with suppliers
5.
 When drafting a SWOT analysis, what is created is a table split up into four columns and co-owners
to list each element side by side, for comparison.
6. Competitive threats
 Before an owner can plan for its business’ future, he/she must first evaluate the
business by identifying and analyzing internal and external resources and threats. PORTER’S FIVE FORCES OF COMPETITIVE POSITION
When used properly and regularly, ANALYSIS
 It can serve as a guide for the company to attain success.
 another analytical tool that can be used to assess a business
  developed in 1979 by MICHAEL E. PORTER of Harvard Business School as an
alternative perspective on profitability analysis and on the attractiveness of an
industry for business ventures
Under PORTER’S THEORY, he identifies five forces that determine the competitiveness and
attractiveness of a market and which seek to locate the power in a business situation, its
current competitive position, and the strength of a position that an organization may enter
to.
These five forces help in identifying if new products or services are potentially profitable.
Once the area where power lies is identified, then the areas of strength can be pinpointed
and exploited, solutions to weaknesses may be proposed, and possible mistakes avoided.
 According to PORTER, the stronger the forces of competition have bearing on the
industry the lower its profitability and the less attractive the industry for business
enterprises.
IMPORTANCE OF PORTER’S FIVE FORCES ANALYSIS
The Porter’s Five Forces Analysis is a significant tool for organizations to understand the
factors affecting profitability in a specific industry and can help to form decisions on
whether or not to enter a specific industry, whether or not to increase capacity in a specific
industry, and also for developing competitive strategies.
 Under this theory, a business becomes more attractive, the greater the supplier’s
power to drive prices up, the lesser the buyer’s power to drive prices down,
 The lesser the number of competitors in the market, the more differentiated the
product or service is.
 The lesser the substitutability of the products for similar goods, and the more
difficult it is for new entrants to participate in the market.
1. COMPETITIVE RIVALRY
2. BARGAINING POWER OF SUPPLIERS
3. BARGAINING POWER OF BUYERS
4. THREAT OF NEW ENTRANTS
5. THREAT OF SUBSTITUTE PRODUCTS OR SERVICES
COMPETITIVE RIVALRY
 This force examines how intense the competition currently is in the marketplace,
which is determined by the number of existing competitors and what each is
capable of doing. 
 Rivalry competition is high when there are just a few businesses equally selling a
product or service, when the industry is growing and when consumers can easily
switch to a competitor's offering for little cost.
 In a MONOPOLISTIC MARKET, a company which the sole seller industry will
enjoy huge market power.
 In a COMPETITIVE MARKET, the aggressive forces coming from rival
companies are very intense that a business enterprise is weak in mitigating
these strong forces because there are too many players in the market selling
similar products.
 In an OLIGOPOLISTIC MARKET, the forces of competition will depend on the
behaviour and the interactions of the few firms in the industry.
BARGAINING POWER OF SUPPLIERS
 This force analyses how much power a business's supplier has and how much
control it has over the potential to raise its prices, which, in turn, would lower a
business's profitability. 
 In addition, it looks at the number of suppliers available: The fewer there are, the
more power they have. Businesses are in a better position when there are a
multitude of suppliers.
 The sourcing of raw materials and factor inputs can have an impact of the
profitability of the industry if these suppliers have market power.
 In addressing the strong bargaining power of a single or very few sources of raw
material, the industry can adjust by diversifying its sources of raw materials to
weaken the bargaining power of the suppliers.
BARGAINING POWER OF BUYERS
 This force looks at the power of the consumer to affect pricing and quality. 
 Consumers have power when there aren't many of them, but lots of sellers, as well
as when it is easy to switch from one business's products or services to another.
 Utility maximizing buyers prefer lower price to enhance their level of satisfaction
while sellers want higher price to maximize their profits.
To mitigate the bargaining power of the buyers of the products and enhance the profitability COMPETITION
of the industry:  Who are the major businesses in  Have they been long existing or
the industry? still new entrants?
 One option is to diversify the buyers of the product. DIVERSIFICATION frees the  Are there locations close to your  What is the market share of each
dependence of a business enterprise and the industry on a single or relatively proposed business? of these businesses?
few buyers.
 Another alternative is to sell a variety of differentiated products instead of a It is very important that you know your competitors and be ready for them. Your
single product. aim is to win their customers, convince them to buy from you instead, and remain
as loyal customers.

THREAT OF NEW ENTRANTS CUSTOMERS

 This force examines how easy or difficult it is for competitors to join the  Who will you sell Who exactly will buy your What type of people will
marketplace in the industry being examined.  your product to? The products? What income groups? you cater to, based on their
 The easier it is for a competitor to join the marketplace, the greater the risk of a target market must be What age brackets? What preferences, lifestyles, and
business's market share being depleted. identified. gender? What career groups? buying habits?
 In the case of San Miguel Corporation, to arrest the competitive edge of its potential
SUPPLIERS
rivals in the beer market, they introduced various product lines from the original
Every retail business needs suppliers from whom one can source raw materials,
San Miguel beer to cater to various markets.
intermediate products, or even the finished goods one intends to resell.

MANUFACTURERS. DISTRIBUTORS. They are IMPORTS. This is advisable if the

THREAT OF SUBSTITUTE PRODUCTS OR SERVICES
This will be the wholesalers or brokers prices abroad are relatively
 This force studies how easy it is for consumers to switch from a business's product
cheapest source who buy in big quantities cheaper and no heavy duties will
or service to that of a competitor. since there are no from manufacturers, add raise the prices and make the
 It looks at how many competitors there are, how their prices and quality compare to middlemen a mark-up to their goods less competitive in the
the business being examined and how much of a profit those competitors are involved. purchase price, and sell country and when transport costs
earning, which would determine if they can lower their costs even more. to retailers. are not excessive.
 The strength of this competitive force may be measured by the CROSS ELASTICITY SUBSTITUTES
DEMAND – it is the responsiveness of the demand for a substitute good due to a  goods that can be used in place of another. These are goods that may satisfy the
change in price of the product produced in the industry. same needs of a consumer such that the consumer may use one instead of another.
 Margarine, Butter
 Wheat Bread, White bread
INDUSTRY ANALYSIS
ENVIRONMENTAL SCANNING OF AN INDUSTRY
 a tool that facilitates a company's understanding of its position relative to other
NATIONAL AND GLOBAL ECONOMIES
companies that produce similar products or services.
 VIBRANT ECONOMY implies that various sources of demand have sufficient
In a book published by the Development Academy of the Philippines, How to prepare purchasing power.
Project Feasibility Studies, it includes an industry analysis of the following important  LETHARGIC ECONOMY is characterized by very slow economic growth, huge
factors: unemployment, and depressed demand.
 o Example of the impact of the global economy the weakening of the sugar
industry in the Philippines. In the 1950s, SUGAR was one of the major
exports of the Philippines. However, with the Common Agricultural Policy
(CAP) in Europe that effectively protected the sugar producers in the union,
global supply of sugar went up and the price of sugar drastically went down.
GOVERNMENT POLICIES AND REGULATIONS
GOVERNMENT
 considered a parameter to be managed in any business venture.
 will always be there to regulate and tax not only businesses but also business
transactions.
 is also an agency tasked to stabilize the economy and promote its growth.
 Can, in regulating business transactions, impose heavy taxes on commodities and
activities that lead to negative externalities like pollution and unhealthy habits
 Taxes on cigarettes and on alcoholic beverages, also known as SIN TAXES, are
targeted to reduce the demand for these goods which may have adverse
consequences on the profitability of industries producing these products.
 may also have positive impacts on business and industry through the promotion of
economic growth and employment.
TECHNOLOGICAL DEVELOPMENTS
The high-speed transformations in ICT enabled consumers to have access to several
commodities and services globally within their fingertips.
 Amazon.com - consumers can order books
 Airbnb.com - tourists can rent private homes instead of hotel rooms for vacation
 UBER - commuters can flag down a private car as an alternative to a taxi
Companies that are slow to adapt or fail to adapt to these rapid developments of
technology are bound to EXIT from the industry.
 The rise and fall of NOKIA is a classic example of a prominent company failing to
respond immediately to the threats of its competitors with huge technological
advantages.
DEMOGRAPHIC CHANGES
 As population expands, it creates additional demand for products and services and
can enhance the profitability of business companies and several industries.
 Industries catering the needs of children and the youth may be considered as sunset
industries compared with those targeting the elderly like health care and retirement
homes.
 The demographic changes in South Korea, Taiwan, and Singapore relative to their
economic expansion have pressured them to open up their economies by allowing
the entry of additional labor services and professionals from the rest of Southeast
Asia including the Philippines.
SOCIAL CHANGES
Modifications in family structure and other social changes have impact on consumer
behavior and tastes
 For example, traffic congestion in Metro Manila getting worse many students and
young professionals have opted alternative measures to address this daily toll on
their lives.
 They have decided to temporary relocate to sites near their schools and offices. By
walking instead of commuting to their schools and offices they can save gas, fare,
and time.
 This information has encouraged a number of real estate companies to build
condominiums near prestigious universities and commercial and business districts in
Makati, Taguig, and Ortigas and rent, lease and sell their units to students and
young professionals.
CHANGES IN THE NATURAL ENVIRONMENT
We live in a planet that is affected by variations in weather, temperature, seasons,
and even geological movements. Heavy monsoon rains and strong typhoons can destroy
agricultural produce that can drastically reduce supply and affect the price of agricultural
commodities. Earthquake-prone areas and the outcomes of climate change can affect the
feasibility of a business venture because it can increase the environment risk in the industry.
ECONOMIC ANALYSIS OF PROFIT MAXIMIZATION
PROFIT
 The objective of the firm is to earn this
  the difference between revenues and costs; the gap between total revenue and
total cost
 The maximum level of profit is attained when profit is no longer increasing or when
the marginal profit is zero.
 The condition for maximum profit is when marginal revenue is equal to marginal
cost.
PROFIT MAXIMIZATION
 the short run or long run process by which a firm determines the price and output
level that returns the greatest profit. 
FACTORS LEADING TO PROFIT MAXIMIZATION
MARKET CONCENTRATION 
 refers to the number of sellers and buyers in the market.
 The more concentrated the market means the lesser producers are there in the
industry.
 The MONOPOLISTIC MARKET is considered as the most concentrated with a single
seller determining the price that would maximize the profit of the business
enterprise.
BARRIERS TO ENTRY  LIMITED INFORMATION
 refer to inherent features of the industry and various means devised in the market
to prevent the entry of potential players and competitors that want to take
advantage of the enormous profit in industry.
 These barriers are very important in monopolistic and oligopolistic industries that
give existing players substantial market power.
 2 MAIN CATEGORIES OF BARRIERS TO ENTRY
o SCALE BARRIERS
 refer to requirements for a large production plants for as feasible
operation in the industry. This in turn will require huge amounts of
capital and resources to establish a factory in the industry.
o LEGAL BARRIERS
 refer to propriety rights and their corresponding legal protection
extended to existing market players in the production and distribution
of a product or service.
 These legal protection measures prevent potential competitors in
copying their products, services, technologies, marketing strategies, and
distribution of arrangements.
PRODUCT DIFFERENTIATION 
 refers to the ability of a business firm to create a market niche through several
means of varying its products and services.
 The result of product differentiation is to enable the firm to design a new product or
service from similar products in the market and services.
 In a MONOPOLISTIC MARKET, a single producer of a unique product or service is
faced with an elastic demand curve with changes in quantity demand not as
responsive to price changes.
 In MONOPOLISTICALLY COMPETITIVE MARKETS, a typical firm selling a
differentiated product is faced with an elastic demand curve with changes in
quantity demand quite responsive to price changes.
 In COMPETITIVE MARKETS, a firm is selling a similar or undifferentiated product is
faced with a horizontal demand curve with changes in quantity demand very
responsive to price changes.
 refers to the unevenness in the distribution of information among the actors in
market.
 In MONOPOLISTIC and OLIGOPOLISTIC INDUSTRIES, existing market players can
have information like new technologies, sources of raw materials, innovative
products, and processes that are not available to other potential sellers.
 In a COMPETITIVE MARKET sufficient information is available to all not only to
existing players in the market.
THE CIRCULAR FLOW OF ECONOMIC ACTIVITY
CIRCULAR FLOW is defined as the flow of activities of household and firms in a circular INTERMEDIATE GOODS are semi-processed goods that are not ready for final use by the
direction. consumer, such as leather, cloth, and steel, which have undergone some processing before
they can be actually used.
In the circular flow, GOODS AND
SERVICES flow from the firms as FINAL GOODS are goods ready for direct consumption such as refrigerators, dresses, or
producers, to the households as pants.
consumers, in a clockwise
The figure magnifies the
direction.
production side of the circular
On the other hand, HOUSEHOLDS flow diagram in the Circular
as resources owners provide firms flow.
with resource use such as labor
GOODS flow up the production
rendered, capital lent or invested,
stages to the consumers in
land rented to producers, and entrepreneurial skills.
return for payments trickling
PHYSICAL FLOW refers to the flow of goods and resources among the households and the down the production stages in
business firms. return for the inter-stage
product flows.
The flipside to the physical flow is the MONEY PAYMENT FLOW.

Household pay and firms earn revenues in exchange for the goods and services received and
provided. RESOURCE-PRODUCTION PAYMENT FLOW

REVENUES flow counterclockwise from the households to the firms as payments for the In the flow it can be seen that
goods and services received by the former. the household provides
resources to the raw material,
Firms pay and households factor income for the use of resources provided to the former.
intermediate good and the
FACTOR INCOME PAYMENTS counter flow from the firms to the households for resources final good firms for the use in
provided by the latter. the production of goods.

The PHYSICAL FLOW continues in a clockwise direction in exchange for MONEY PAYMENT In return for the use of the
FLOW in the counterclockwise direction. resources, the three typre of
producing units make money
payments to households (broken arrows). This is now a FINANCIAL FLOW snce it involves the
INTRA-PRODUCTION PAYMENT FLOW payment of money to the resource owners.

There is also the PRODUCT FLOW up the production stages, that is, from the raw material to FINANCIAL FLOW refers to the flow of money among the households and the business firms.
the intermediate good and on the final good stage for consumption.

RAW MATERIALS are unprocessed goods like raw materials, logs, and wheat, which are
THE ECONOMY’S PRODUCING SECTORS
extracted from their sources and do not undergo any process of production.
AGRICULTURAL SECTOR INDUSTRIAL SECTOR processes raw materials from agriculture, fishery and forestry into
intermediate products which are further processed into final products.
AGRICULTURE has been defined as the science and art of cultivating plants and producing
livestock. Because more than 70% of production of the sector comes from manufacturing industries,
the industrial sector is often referred as the MANUFACTURING SECTOR.
The AGRICULTURAL SECTOR reaps the fruits of natural resources like soil, water, and forests.
SHOP/FACTORY. A FLOW SHOP use high volume specialized equipment that produces one or
In the 1970s 28% of the country’s Gross Domestic Product (GDP) has been contributed by
two similar products like an assembly shop. A JOB SHOP produces commodities in smaller
agriculture. After more than four decades, its share in the economy GDP has slid down to
batches like a machine shop.
only 11%.
BAKERY. Breads, pastries, cakes, pies, pan de sal, and other flour-based products are
Because of the low productivity of a sector as indicated by a huge proportion of the labor
processed in bakeries.
force in agriculture contributing a substantially lower proportion of GDP, a number of
initiatives have been implemented to enhance the sector’s productivity. Meat processing, fish processing, preservation of fish, fruits, and vegetables, manufactures
of vegetable and animal oils and fats, dairy products, food grain mill production, starch and
One of these initiatives is the development of AGRIBUSINESS.
starch products are all products processed in FOOD ESTABLISHMENTS.
Besides the production of grains and other commercial crops, AGRIBUSINESS includes the
Establishments engaged in MILLWORK produce woodwork including doors, window casings,
manufacture and distribution of farm supplies, implements, and equipment, production of
and baseboards.
agricultural inputs, managing farms, processing of agricultural products, storage, and
distribution of agricultural or farm produce. Distilled spirits, whiskies, brandy, gin, rum, vodka, tequila, cocktails, herbal, and sweet wine
are produced in DISTILLERY ESTABLISHMENTS.
For animal production, there are two types that can be pursued:
REFINERY ESTABLISHMENTS are engaged in the process of purifying crude substances such
1. LIVESTOCK (pigs, cows, carabaos, and goats)
as crude oil using mechanical and chemical means to convert it into final products.
2. POULTRY (chicken, ducks, and goose)
CANNERY ESTABLISHMENTS are factories where meat, fish, fruits and vegetables are canned
For forestry resources the main source of income is LOGGING.
and preserved.
In addition, some farm produce can be processed in cottage industries located near the
ABATTOIR or SLAUGHTER HOUSES are establishments that pertain to the slaughter,
farm.
dressing, or packing meat of cattle, hogs, sheep, goats, and poultry.
PORK can be processed into ham and sausages.
BREWERY entails the manufacture of malt liquors such as beer and ale through the process
FISH can be canned into sardines. of fermentation.

VEGETABLES can be pickled while FRUITS can be sweetened or dried and duck eggs can be FOUNDRY refers to an establishment that melts and mold metals into various forms.
salted.
TANNERY ESTABLISHMENTS are concerned with the tanning of animal skins and/or hides
that cater mostly to the leather industry.

INDUSTRIAL SECTOR
SERVICE SECTOR
SERVICES are products that are consumed when they are produced.

SERVICES cover a host of industries including wholesale and retail industries, transportation,
communication, and storage including warehousing, hotels and restaurants, financial
intermediation, real estate, and business activities, education, and other social services,
private services and government services.

SERVICE SECTOR produces intangibles supporting and complementing production in the

other sectors as well as among its own industries.

The role of services is to link various economic sectors as well as suppliers and consumers.

Thus, an efficient transport system can transfer agricultural products from the farm to the
various economic sectors and to their final consumers.

The biggest industry in the service sector in terms of employment is WHOLESALE AND
RETAIL trade industry which absorbs almost 20% of the labor force.

WHOLESALE AND RETAIL

This covers the millions of sari-sari store, grocery stores, ambulant vendors all over the
country, and more sophisticated shopping malls in selected urban areas in the country.

TRANSPORTATION, STORAGE AND COMMUNICATION

This industry includes land transport, transport via buses, water transport, and air transport.

PUBLIC ADMINISTRATION AND DEFENSE

Since this is part of government, there are limited private sector business opportunities here
except in supplying their supplies and equipment.
ENVIRONMENTAL SCANNING OF AN INDUSTRY
1. NATIONAL AND GLOBAL ECONOMIES
2. GOVERNMENT POLICIES AND REGULATIONS
3. TECHNOLOGICAL DEVELOPMENTS
4. DEMOGRAPHIC CHANGES
5. SOCIAL CHANGES
6. CHANGES IN THE NATURAL ENVIRONMENT