ENVIRONMENTAL

ANALYSIS:
BUSINESS
OPPORTUNITY
IDENTIFICATION
CHAPTER 9
Motivation
Develop a passion for
learning. If you do, you
will never cease to grow.

– Anthony D’ Angelo
OBJECTIVES:
At the end of the lesson, the student
should be able to:
1. Analyze the different principles, tools,
and techniques in creating a business
2. Identify and asses small business
opportunities
3. Apply SWOT analysis as a tool in
evaluating a business opportunity
4. Apply Porter’s Five Forces of
Competitive Position Analysis can be
applied as a tool in evaluating a
business opportunity
5. Make a simple industry analysis
PRINCIPLES, TOOLS, AND TECHNIQUES

Business Organization
From a legal point of view, there are four ways to form a business:

Sole
Partnership Corporation Cooperative
Proprietorship
Business Organization
• A business is just a small portion of an
industry. It is an undertaking by a
person or a group of persons as a
juridical entity. Its main objective is to
earn profit for the owners.
• An industry is the aggregation of the
different businesses engaged in the
same line of undertaking. Example:
Celine is a business firm that is part of
the country’s shoe industry.
Business Organization
• For a person to put up a business, it is
essential that an industry analysis first be
made.
• Commonly used is a system known as
SWOT analysis, which lists the strengths,
weaknesses, opportunities, and threats
that a business faces.
Sole Proprietorship
• Simplest way to set up a business
• Owned by a single individual who is singly
responsible for running the business.
• Accountable for all the debts and
obligations related to the business
• Exclusive control and decision making as
well as gets all the profits earned but also
shoulders losses and has unlimited liability
Partnership
• An agreement in which two or more persons
combine their resources in a business with a view
of making profit.
• Partnership agreement is drawn up and profits
are divided among the partners according to the
terms of agreement. There are two types of
partnership:
• General Partnership
• Limited Partnership
Corporation
• A legal entity that is separate from its owners, the
shareholders.
• No shareholder is personally liable for the debts,
obligations, or acts of incorporation
• Directors and officers can bear liability for their
involvement with the corporation
• Normally can exist for 50 years, which is
renewable for another 50 years
• Owners have unlimited liabilities. Corporations
are burdened by heavy tax.
Cooperative
• 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
• Cooperative members have an equal say in
decision-making with one vote per member
regardless of the number of shares held
• Open and voluntary membership and surplus
earning is returned to the members
 Small, Medium, and Large-Scale Business
• Forms of business in terms of size:

1. Micro-business
Micro-business – Small business –
2. Small business capitalization
below
capitalization of
P1,500,001 to
3. Medium business P1,500,001 P15,000,000

4. Large business
Medium business Large business –
– capitalization capitalization in
15,000,001to excess of
P60,000,000 P60,000,000
• For any form of business organization, the business must be registered with the
appropriate business agencies.
• For sole proprietorship and partnerships, 100% must be owned and capitalized by
Filipinos
• For corporations, at least 60% of the outstanding capital stocks must be owned by
Filipino citizen.
Tools in Evaluating Business
The key factors that must be considered in analyzing the industry are the following:
1. Geographic Area
2. The size and outlook of the industry
3. Description of the product
4. Type of buyers
5. Regulatory Environment
6. Leading businesses in the industry
Factors that will affect the growth of the
business
• Is it limited to local area?
• Will it cover a region, the entire country, or even international market?
• What trends can be identified?
• It explains what a product is and why it's worth purchasing.
• The purpose of a product description is to supply customers with
important information about the features and benefits of the product
• Who are your target customers?
• Are there local, national laws that will restrict the business?
• Identify government regulations specific to the chosen industry
• Provide company information on the most successful businesses that you
will be up against
• Customer Loyalty, Smart Adoption of Technology, Commitment to
Employee Training, Social Responsibility, and Leadership.
The SWOT Analysis
• Analytical framework that can help a company meet its challenges and identify new markets
• It can help identify the business’s risk and rewards
• A means of identifying the internal and external forces that may affect the business
INTERNAL FACTORS

STRENGTH WEAKNESSES
(S) (W)

OPPORTUNITY THREATS
(O) (T)

EXTERNAL FACTORS
Environmental Factors
• INTERNAL FACTORS:
• Financial Resources (money, sources
of funds for investment
• Physical Resources (company’s
location, facilities, machinery, and
equipment
• Human Resources
• Access to natural resources,
trademarks, patents, and copyrights
• Current processes (employee
programs, department hierarchies,
software system, marketing program,
etc.)
• EXTERNAL FACTORS:
• Economic trends (financial trends,
banking system)
• Market trends (new products,
technology)
• National and local news (political,
environmental)
• Demographic characteristics
(population, age, gender, culture of
customers)
• Relationships with suppliers and co-
owners
• Competitive threats
EXAMPLE OF SWOT ANALYSIS:
STRENGHTS WEAKNESSES

• Government Incentives • Difficulty of organization

• Low capital requirements • Costly set-up
• Market Acceptance • Possible pollution problems
• Experienced leaders • Lack of training of workers

OPPORTUNITIES THREATS

• Project may replace imported good • Entry of competitors

available in the market • Time consuming production
• Will improve employee welfare processes
• Improved company reputation • Opposition from residents in the
community
Porter’s Five Forces of
Competitive Position Analysis
Developed by Michael E. Porter (1979) of
Harvard Business School as a framework or a
guide for assessing and evaluating the
competitive strength and position of a business
organization.

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 into.
Porter’s Five Forces of
Competitive Position Analysis

These five forces help in identifying if new

products or services are potentially
profitable.

Once the area where power lies is identified,

then areas of strength can be pinpointed and
exploited, solutions to weakness may be
proposed, and possible mistakes avoided.
Porter’s Five Forces of Competitive Position Analysis
Threat of
new
entrants

Rivalry
Bargaining among Bargaining
power of power of
suppliers existing buyers
competitors

Threat of
substitute
products
or services
Five Forces That Need
To Be Evaluated
1. Supplier power - it is important to examine how
much power the supplier has in his ability to drive
up prices.
2. Buyer power - if a supplier can enjoy the power to
drive prices up, it is also possible for buyer to drive
prices down.
3. Number of competitor - the number and capability
of competitors in the market will also impact on
the attractiveness of the market.
4. Possibility of substitution - when it is easy to
substitute products in a market, it is expected that
buyers will switch to alternatives.
5. Possibility of new entrants -when investors see
that a market is profitable, they will desire to join
the bandwagon and get a share of the profits.
 It is a significant tool for organization
to:
Importance understand the factors affecting
of Porter’s profitability in a specific industry

Five Forces can help to form decisions on whether

or not to enter a specific industry
Analysis also, for developing competitive
strategies
 • Under this theory:
➢a business becomes more attractive,
➢the grater the supplier’s power to drive
Importance of prices,
Porter’s Five ➢the less the buyer’s power to drive prices
down
Forces ➢the less the number of competitors in the
Analysis market,
➢the more differentiated the product and
service is,
➢the less the substitutability of the products
for similar goods,
➢and the more difficult it is for new entrants
to participate in the market.
DISCUSSION QUESTIONS:

1. Distinguish between a business and an industry.

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2. Why is competition an important factor that has to be studied before putting up a
business?
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3. When you decide on putting up a business, how do you choose the market that you
should cater to?
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