WEEK 4 The Environment of the Entrepreneurial Venture

INTRODUCTION

An entrepreneurial venture is created out of the business opportunities which the entrepreneur
should seek to exploit. These business opportunities emerge from the entrepreneurial ideas that
arise from the changes in the environment, government policy or technological advancements.

Creation of Identification of Opening of

entrepreenurial entrepreneurial entrepreneurial
ideas opportunities venture

The Entrepreneurial Process of Creating a New Venture

The entrepreneur needs to possess the necessary entrepreneurial character traits, skills, and
competencies before exploiting the business opportunities.

Entrepreneurial
Creation of Identification of character traits, Opening
entrepreneurial entrepreneurial skills, and entrepreneurial
ideas
Entrepreneurial Characteropportunities
Traits, Skills, and Competencies venure
competencies Influencing the Opening of
Business

If a prospective entrepreneur possesses the necessary character, traits, skills, and competencies,
should he/she immediately open a new business in order to exploit the business opportunity?

The answer is a big “NO”. He/she must first evaluate and analyze first the business environment.
The environment where the business venture will operate is an important factor to consider in
opening a new business.

1 of 11
 Entrepreneurial
character traits, skills
and competencies

Creation of Identification of Opening of

entrepreneurial entrepreneurial entrepreneurial
idea opportunities venture

Entrepreneurial
environment

Entrepreneurial Environment as Another Factor Influencing the Opening of Business

Remember that the business does not operate in a test tube or a cylinder but in an environment that
consists of three layers:
1. Physical Environment
2. Societal Environment
3. Industry Environment

 Time Frame: 1st Quarter Week 4

 Content Standard: The learner demonstrates understanding of concepts, underlying
principles, and processes of developing a business plan.
 Performance Standard: The learner independently or with his/her classmates presents an
acceptable detailed business plan.
 Learning Competencies: Recognize the potential market.
1.1 Identify the market problem to be solved or the market need to be met.
CS_EP11/12ENTREP-0a-1

STUDY GUIDE

PHYSICAL ENVIRONMENT
The three important elements in the physical environment that must be critically evaluated by the
entrepreneurs before opening a new business are climate, physical resources, and wildlife.
The first layer of the environment is the physical or natural environment. It is composed of the natural
elements that are inherent in the earth. It is divided into climate, physical resources, and wildlife. These
2 of 11
three natural elements of the physical environment have significant contributions and effects to the
business ventures. Prospective entrepreneurs should critically evaluate them before opening their
business.

NEW
BUSINESS The first layer of the environment is the physical or
natural environment. It is composed of the natural
1. Physical
Resources elements that are inherent in the earth. It is divided into
2. Climate climate, physical resources, and wildlife. These three
3. Wildlife natural elements of the physical environment have
significant contributions and effects to the business
ventures. Prospective entrepreneurs should critically
evaluate them before opening their business.

The Physical or Natural Environment

CLIMATE
The climate condition in a particular region in the Philippines where the business
will be established must be evaluated. The normal weather condition in Baguio
City is definitely different from that Davao City. Therefore, a business may be
feasible in Baguio City but not in Davao City.
There are areas in the Philippines where the effects of global warming are more
adverse compared to the others. Some are frequently devastated by typhoons
during the year, while others experience long periods of drought.
The entrepreneur, therefore, must consider the prevalent climatic condition of the area where he/she
intends to open the business to determine whether it can withstand or is fit to the climatic condition in the
local area.
PHYSICAL RESOURCES
The availability of raw materials is another major factor that can influence the
success or failure of the business venture. Although the climate of the place may
be conducive to the business, it may still fail if the resources are not available.
The availability or lack of raw materials will determine the cost of the products.
The entrepreneur must critically assess the availability of raw materials in the
locality before opening a new business. He/she must evaluate if the available raw
materials to be used for the proposed business are sufficient for a long-term
operation.
WILDLIFE
The wild plants and animals in the Philippine forest are continuously abused.
The trees cut for timber are not properly replaced. Wild animals are haunted
and killed. These abuses lead towards imbalance in the Philippine ecological
system where wild plants and animals are supposed to be interrelated.
In view of this, the entrepreneur must ensure that his/her business contributes
to the preservation and not the destruction of the ecological system of the
local community and our country in general. He/she must not open a business

3 of 11
venture that will destroy the wildlife reserve. After all, it is also an entrepreneur’s task to become a model
of social responsibility and environmental awareness.

ACTIVITY #1

 Observe the climatic conditions in your local community for one week. Take note also of the raw
materials that are present in your locality. Based on your observations, determine the most
appropriate business venture to open in your community. Explain your answer.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
SOCIETAL ENVIRONMENT

4 of 11
 Changes in the physical environment have a direct impact on the societal environment and the effect can
be felt later in the industry environment.

PHYSICAL SOCIETAL INDUSTRY

ENVIRONMENT CHANGES ENVIRONMENT CHANGES ENVIRONMENT

BUSINESS

Relationship Between the Environment and the Business

The societal environment is generally composed of social, political, cultural, economic, legal,
and technological forces. Studies reveal that there is a positive relationship between the
evaluation of the social environmental and the favorable operating performance of the
entrepreneurial venture. That is why, it is highly advised that the entrepreneur should critically
evaluate the effects of changes in all the forces of the societal environment. The critical
evaluation and thorough study of the environment where the business operates is technically
called environmental scanning.
NEW BUSINESS

1. Social Forces
2. Political Forces
3. Cultural Forces
The societal environment is another layer of the
4. Economic entrepreneurial environment. It is generally composed of the
Forces
5. Legal Forces political, cultural, economic, sociocultural, legal and
6. Technological
Forces technological forces. Some experts in the field of strategic
management have included demographic, ethics, and even
regulatory forces.

The Societal Environment Surrounding the

Business

SOCIAL FORCES
Social Forces are elements in society resulting from human interactions that can influence the thoughts,
behavior, attitude, actions, and even the beliefs and customs of the people.
Social Forces include the following:
1. Values
2. Traditions
3. Literacy level
4. Consumer psychology
5 of 11
 5. Time orientation
6. Lifestyle patterns
7. Professional career roles
POLITICAL FORCES
Political Forces are the various elements usually comprising of the political parties, political systems, and
other related political groups that substantially influence the political stability of a country.
Political forces include the following:

1. Trade regulations
2. Taxation
3. Government stability
4. Unemployment
5. Worker’s benefits
6. Election practices.

CULTURAL FORCES
Culture basically refers to the integrated characteristics of a group of people or ethnic group in a
particular society.
Cultural forces include the following:
1. Religion
2. Language
3. Beliefs
4. Customs
5. Education

ECONOMIC FORCES
Economic forces are factors which are primarily caused by changes or movements in the Philippine
economy that have direct or indirect effects on the entrepreneurial venture.
Economic forces or factors include the following:
1. Interest rates
2. Inflation rates
3. Fiscal policies
4. Monetary policies
5. Income
6. Exchange rates
7. Employment
8. Consumer confidence
LEGAL FORCES
Legal forces are the elements and bodies that are directly involved in the legislation and interpretation of
laws and ordinances directly affecting the business.
Legal forces include legislations on the following:

6 of 11
 1. Product control, pricing, and labeling
2. Health and safety of the workers
3. Administration of election process
4. Advertising and promotion
5. Exercise of profession
6. Education administration and fees

TECHNOLOGICAL FORCES
Technological forces basically refer to the trends and developments in computer and information
technology that have impact on business. These occur almost every day.
Technological forces may include the following:
1. Internet
2. Social Media
3. E-commerce
4. Technological advancement
5. Technological infrastructure

ACTIVITY #2

 Pair off and perform the following:

1. Draw one big circle and other small circle on a big piece of paper. Place the small circle at
the center of the big circle. Label the big circle as a “Societal Environment” and the small
circle as “My Proposed Business.”
2. Choose your proposed business. Write it in the small circle.
3. Gather news clipping that illustrate the various social forces. Identify them. Paste them at
random in the big circle.
My Proposed
Business

Societal
Environment

INDUSTRY ENVIRONMENT
The next environmental layer of the business is the industry environment. This is the environment where
the business conducts its various entrepreneurial activities. It is basically composed of an individual
person, a company, and a non-governmental organization or the government. These three environmental
layers, also called as the macro environment, have influence on the path, growth, and survival of the
business endeavor. They also define the appropriate business strategy to be adopted in order for the
entrepreneurial venture to develop, grow, and survive.

The industry environment is the external environment layer

NEW BUSINESS where the trends and changes are easily and immediately felt
1. Government
by the business. The industry environment is considered the
2. Suppliers immediate environment of the business where it conducts its
3. Customers
4. Competitors 7 of 11
5. Employees
6. Creditors
 various operational activities. Industry forces include the following: Government, Suppliers, Customers,
Competitors, Employees and Creditors.

The Industry Environment and its Forces

GOVERNMENT
Government refers to the system or institution that handles the affairs of a
particular country. Since the government usually has jurisdiction over the
major activities happening within its territory, including international trade
relations, the type of government system operating in a particular country
highly influences the business. The Philippine government is both
presidential republican and democratic. It promotes entrepreneurial
ventures through its thrusts, programs, and priorities.

SUPPLIERS
Suppliers refers to the individual persons or companies that provide the
required materials, parts, or services to the business. They play a crucial role in
the production of goods and services. They can adversely affect the production
process by delaying the delivery of the required raw materials and supplies or
services, or by providing defective materials or inefficient services.
The entrepreneur must define the criteria in the process of selecting the
supplier, such as the quality of the goods of services, terms of payment,
stability, ability to respond to urgent needs, and proximity of the location.

CUSTOMERS
The customers are the buyers of goods or services produced or rendered
by the business. The business realizes profit from its transactions with
the customers. It must constantly evaluate and study the behavior, tastes,
preferences, inclinations, and even future activities of the customers. It
must protect its customers in order to win their loyalty, and to attract
new patrons.

COMPETITORS
The competitors are forces existing in the industry environment that
produce, sell, or render products or services which are similar to those
of the business. Competitors can be classified as direct or indirect.

8 of 11
Direct competitors produce and sell similar product or services, while indirect competitors produce and
sell substitute products.
The entrepreneur must critically evaluate and study, most especially the direct competitors, and find
strategic ways to surpass them in the production and delivery of goods and services to the customers.

EMPLOYEES
The employees are the workers of the business who ae highly
responsible for the production of goods and delivery of services to the
consumers. They help ensure the quality and quantity of products or
services provide to the customers. They are the backbone of the
business.
They must possess the necessary technical and interpersonal skills in the
performance and delivery of the required services. They must be
motivated in their assigned tasks by providing them with desirable
working conditions. Their respective cultural and religious beliefs and practices must be taken into
consideration by the entrepreneur, who must ensure to minimize, if not eliminate, conflicts and problems
among the employees.

CREDITORS
The creditors refer to the banks, financial institutions, and financial
intermediaries engaged in the lending of money to the borrower usually
for a fee or charge in the form of interest. Creditors usually provide the
much-needed funds by extending credit to the business. Banks and
other types of financial institutions are the major players in the
economy in terms of credit extension. They are likewise the regulatory
arm for the flow of money in the economy. In the Philippines, banks
and other types of financial institutions are highly regulated by the
national government.
The entrepreneur must know the different financial services provided by the banks and other financial
institutions maintaining favorable financial records and business image with them provides favorable
advantage to the entrepreneur in times of financial needs.

ACTIVITY #3

 Do the following task:

Get a clean bond paper and divide it into two columns. Label the left side as the “primary
product” and the right side as the “substitute product”. Think of two products that you
consider similar, one of which is the primary product and the other the substitute product.
Write the names of the products in their respective columns. Then, describe and
differentiate them.

PRIMARY PRODUCT SUBSTITUTE PRODUCT

( Name of Product) ( Name of Product )

9 of 11
 Describe the product. Why is it considered a Describe the product. Why is it considered a
primary product? substitute product?

SUPPLEMENTARY AID

 After the business opportunity has been identified, the entrepreneur does not need to immediately
open a new business to exploit the business opportunity. He/she should satisfy the following
conditions:
a. Does he/she possess the appropriate entrepreneurial character traits, skills, and competencies
required in exploiting the opportunity?
b. Does the physical environment warrant the opening and sustenance of the business venture?
 There are two environmental scanning tools used to evaluate and analyze the different forces
existing in the societal environment, namely:
a. PESTEL Analysis
b. Environmental forces matrix
 The five forces competing within the industry are as follows:
a. Potential new entrants
b. Buyers
c. Substitute products
d. Suppliers
e. Rivalry among existing firms
 In scanning, the industry environment, the entrepreneur can use the following environmental
scanning tools:
a. SWOT model
b. Forces of competition model
c. Competitive forces matrix
 Using the Forces of Competition model and the Competitive Forces Matrix, the entrepreneur will
know whether the threats are considered high, medium, or low.

LESSON ASSESSMENT

Write TRUE if the statement is correct. Otherwise write FALSE and state your reason briefly.

________________ 1. Like all Filipinos, the entrepreneur is responsible for the misuse and
abuse of the environment.
______________________________________________________________________________

________________ 2. The entrepreneur must take into serious consideration the location of the
proposed business, its climate, and the availability of materials in the said location.
______________________________________________________________________________

10 of 11
________________ 3. The entrepreneur can immediately open a new business once he/she has
identified a business opportunity to be exploited.
______________________________________________________________________________

_________________ 4. Any business can thrive in any environment.

______________________________________________________________________________

_________________ 5. The presence and supply of raw materials in a certain locality affects the
cost of the products.
______________________________________________________________________________

_______________ 6. The societal environment of the business includes the social, political,
cultural, economic, legal, and technological forces.
______________________________________________________________________________

________________ 7. The different forces in the external do not influence or relate with each
other.
______________________________________________________________________________

________________ 8. These forces have equal importance to all entrepreneurs.

______________________________________________________________________________

________________ 9. The business operates in the industry environment.

______________________________________________________________________________

________________ 10. Entrepreneurs need not observe and evaluate the priorities of the
government.
______________________________________________________________________________

REFERENCES

Aduana, Nick L. Entrepreneurship in Philippine Setting for Senior High School: Preliminary Activities of
Entrepreneurial Venture Creation. C & E Publishing, Inc., 839 EDSA, South Triangle, Quezon City,
2016. Pp. 84-109.

11 of 11