ADVANCING LECTURE OUTLINE

“ The concepts of Economics like scarcity, opportunity cost, trade off, demand and supply principles, and
market structures are also applied to business analysis or evaluation to seek opportunities for business
ventures. In fact, one important application of economics principles is in the form of business economics. ”

To understand this further, let us first define business and industry.

Business
- “ it is an entity or organization that is intended for commercial, industrial or any professional
activities
- its main objective is to earn profit for the owners ”

- “ A business is just a small portion of an industry ”

Industry
- It is a group of companies or businesses that carry on the same line of business activities or
undertaking

Example:
BUSINESS INDUSTRY
Ayala Land Inc., SMDC Construction and Property Development Industry
Celine, Mario D’ Boro Shoe Industry
Unilab, RiteMed Pharmaceutical Industry

FORMS OF BUSINESS ORGANIZATIONS

1. SOLE PROPRIETORSHIP
- This form of business organization consists of one person who runs business.
- “ Among all business organizations, this takes the simplest method to set-up and even to
dissolve. ”

- “ The owner has sole control over business management and gets solely the profit earned from
its operations. ”

- “ However, the sole proprietor also carries the whole responsibility for all the debts and
obligations and absorbs all the losses in the course of the business operations ”
 - “ The owner faces the risk of unlimited liability in which his personal assets might be exhausted
to pay for the business’ loans ”

2. PARTNERSHIP
- “ A partnership consists of two or more people who combine their resources and run the
business together with an aim to gain profit. ”

- “ There must be a partnership agreement and profits are divided among partners according to
the terms of agreement ”

2 types of partnership:

a. General Partnership- all partners take part in the management of the business. The
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general partners have unlimited liability wherein their personal properties might be used
just to pay for the debts of the company ”

b. Limited Partnership- These are the partners who contribute only capital and do not take
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part in the management of the business. They have limited share in the profit, but they are
also only liable to business debts to some extent only ”

3. CORPORATION
- “ It is a legal entity that is separate from the owners of the corporation or the shareholders. ”

- “ Board of Directors and the highest officers may bear liability for their involvement with the
corporation ”

- The shareholders have limited liability

- “ Corporations have unlimited commercial life for they can exist for 50 years and it is renewable
for another 50 years ”

- Among all forms of business organizations, corporations are heavily taxed and regulated by
the government.

TOOLS IN EVALUATING A BUSINESS

Generally speaking, one must be fully knowledgeable of the industry first before putting up a
business. By analyzing the industry and the business to be established, appropriate actions and
strategies will be planned and executed well which will also minimize, if not avoid, waste of resources.
 “ The following are the general factors that must be put into consideration when evaluating a certain
industry as indicated in a guide developed by North Carolina’s Small Business and Technology
Development Center : ”

✓ Geographic area
✓ Market size and market trend in the industry
“ ”

✓ Product Description
✓ Identifying and understanding the target market
“ ”

✓ Laws governing the business industry

“ ”

✓ Competitors’ analysis
“ ”

✓ Business growth

The SWOT Analysis

- It stands for Strength, Weaknesses, Opportunities and Threats

- “ It is a framework that is used to seek business opportunities and evaluate new business
ventures ”

- “ It helps to identify the company’s challenges and risks of doing business ”

- “ A helpful tool to assess the internal and external factors affecting the business ”

Internal factors that may affect the business:

✓ Financial aspect- source of capital, uses and sources of funds for short-term and long-term,
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investment funds of the company ”

✓ Human resources- consist of employees and their designated positions in the company
“ ”

✓ Physical resources- machines, equipment, facilities, location

“ ”

✓ Business processes- production process, sales and marketing strategies, supply chain, value
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chain, information and technology systems, programs for laborers and employees, job
description of each employees, logistics, etc. ”

REMEMBER!
Strengths and Weaknesses refer to the internal factors affecting the business .
“ ”

Strengths refer to the things that the company is good at, or its advantages over its
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competitors ”

Weaknesses refer to the things that the company needs to improve on .

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Internal factors are aspects that can be controlled by the managers of the company .
“ ”
External forces that may affect the business:
✓ Economic aspect- international trading, financial and economic trends in local, national and
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international scenes, inflation, interest rate, GDP, banking system, national economic status,
etc. ”

✓ Market trends- behavioral and psychographic descriptions of target market, change in taste
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and lifestyle of customers, new products and technology in the market, etc. ”

✓ Regulatory environment- political environment surrounding the business, laws governing

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business operations, local and national statutory regulations ”

✓ Demographic characteristics of target market- age, gender, financial status, culture, etc.
“ ”

✓ Competition in the market

✓ Relationship with suppliers and channel partners
“ ”

REMEMBER!
Opportunities and Threats refer to the external factors affecting the business .
“ ”

Opportunities are positive impacts of various external environments on the profitability

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of an industry”

Threats refer to undesirable impacts of external factors because they can potentially
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impair the profitability of firms

External factors are aspects that are beyond the control of the managers of the
company. ”

Big Idea:
Opportunities and Threats are external forces driven from another macroenvironment
analysis which is PESTLE.

“ SWOT Analysis is one of the most widely used business evaluation tool in any business industry. It is
helpful in determining the business parameters that must be improved on, which becomes the basis in
creating business strategies. The owners can identify the company’s strengths that they can use for their
advantage and they can also address their weaknesses in order to level the competition in the market. ”

Here is an example of SWOT Analysis:

Source: Ryan Goodrich, Business News Daily Contributor (2015)

TOWS ANALYSIS

“ After determining the strengths, weaknesses, opportunities, and threats of the company, the next step is
to match the internal factors with the external factors driven from the SWOT Analysis.

Many firms employ TOWS technique of Threats, Opportunities, Weaknesses and Strengths to establish
strategies in addressing their weaknesses and threats by maximizing their strengths and opportunities
available to them. ”
Here is a template for TOWS Matrix:

TOWS Matrix helps firms to plan and execute strategies based on the following:

• “ Maxi-maxi strategies (SO) ”

- “ Methods that could highly bring success to firms if planned and executed well for it matches
strengths of the company and opportunities in the market ”

EXAMPLE OF SO- “Maxi-maxi Strategies”

Strengths such as high brand recognition or customer loyalty could be combined with the opportunity to
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launch a new product or service ”

 • “ Mini-mini strategies (WT) ”

- “ Opposed to the maxi-maxi strategies that highlight all the good things and opportunities for
the firm this mini-mini strategies is another extreme situation that shows all the vulnerable
things about the firm. ”

- “ Strategies must be developed that would minimize the weaknesses and avoid threats . ”

EXAMPLE OF WT- “Mini-Mini Strategies”

Developing strategic alliances or a more drastic strategy could be to withdraw from a specific market
“ ”

• “ Mini-maxi strategies (WO) ”

- “ Strategies that involve methods on how to strengthen the organization’s weaknesses and
utilize the opportunities in the business environment ”

EXAMPLE OF WO- “Mini-Maxi Strategies”

An organization may have identified an opportunity to outsource some aspects of its business
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operations, overcoming the weakness of lack of specific skills within the organization ”

• “ Maxi-mini strategies (ST) ”

- “ Strategies that involve minimizing threats of the external forces by utilizing the strengths of
the internal factors of the firm ”

EXAMPLE OF ST- “Maxi-Mini Strategies”

One of the threats of a company are its competitors. The firm must learn to use its strength in
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diversifying products to ensure that they would still retain its loyal customers ”

Big Idea:
SWOT Analysis is an important tool in analyzing the business. TOWS Matrix is an
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important strategic planning tool for it focuses its attention to the areas where actions
are required. ”