Applied SENIOR

HIGH
Economics SCHOOL

Self-Learning
Module

Business Environment 1
Quarter 4
 SENIOR
HIGH
SCHOOL

EXPECTATIONS

After going through this module, you are expected to:

1. define environmental scanning;
2. differentiate internal and external environment; and
3. discuss the micro and macro environment factors.

LESSON

Business Environment
It includes all internal and external factors that affect the company’s performance
and functions. It includes employees, customers, management, supply and demand,
business regulations, and competition.

Every business organization has an internal and external environment. For

the organization to be successful, it is important to study its environment regularly.
This is to assess any developments and understand factors that can contribute to its
success.

Environmental scanning is a process used by organizations to monitor their

external and internal environments. The purpose of the scan is to identify the
opportunities and threats affecting the business. As a part of the environmental
scanning process, the organization collects the information regarding its environment
and analyzes the impact of changes in the market. Environmental analysis is a
strategic tool in assessing the level of threats or opportunities that might affect the
business. This eventually helps the management team to make better decisions.

Internal Environment

The internal environment of the organization consists of factors that are

controllable by the management. As the figure above shows, the internal environment
of an organization consists of various elements like the value system,
mission/vision/goals/objectives of the organization, structure, culture, quality of
employees, labor unions, technological capabilities, etc. These elements lie within the
organization and any changes to them can affect the overall success of the business.

External Environment

There are two elements in the external environment: micro and macro. These
environmental factors are beyond the control of the business but they still minimize
the impact if the business has an effective strategic plan.
Micro Environment Factors

1. Suppliers

Suppliers can control the success of the business when they hold power. The
supplier holds the power when they are the only or the largest supplier of the goods
in the market.

2. Resellers

Market intermediaries, middleman, or resellers have a great contribution to

the delivery of products to the ultimate consumers. For example, if the reseller has a
reputable name then this reputation can be leveraged in marketing the product.
3. Customers

A customer is an individual or business that purchases goods or services.

Customers are important because they drive revenues. Without them, businesses
have nothing to offer. Most public-facing businesses compete with other companies
to attract customers, either by aggressively advertising their products or by lowering
prices to expand their customer bases.

4. Competition

Those who sell the same or similar products and services as your organization
is called competitors. The presence of one or more competitors can reduce the prices
of goods and services as the companies attempt to gain a larger market share.

Macro Environment Factors

1. Political factors

These are about how and to what degree a government intervenes in the
economy. It includes government policy, political stability or instability in overseas
markets, foreign trade policy, tax policy, labor law, environmental law, and trade
restrictions.

2. Economic factors

Economic factors have a significant impact on how an organization does

business and also how it is profitable. These factors include economic growth,
interest rates, exchange rates, inflation, disposable income of consumers and
businesses.

3. Social Factors

These include the shared belief and attitudes of the population. These factors
are population growth, age distribution, health consciousness, career, attitudes and
so on.

4. Technological Factors

Technological factors affect the management and marketing in three ways:

new ways of producing goods and services, new ways of distributing goods and
services, and new ways of communicating with target markets.

5. Environmental Factors

These factors have become important due to the increasing scarcity of raw
materials, pollution targets, doing business as an ethical and sustainable company.
6. Legal Factors
 It includes health and safety, equal opportunities, advertising standards,
consumer rights and laws, product labeling, and product safety. It is clear that
companies need to know what is and what is not legal in order to trade successfully.

ACTIVITIES

Activity: Environmental Scanning

Directions: Think of one (1) business establishment nearby. Identify the micro and
macro environment factors that affect the business establishment.

Micro Environment Factors

1. Suppliers

2. Resellers

3. Customers

4. Competitors

Macro Environment Factors

1. Political

2. Economic

3. Social

4. Technological

5. Environmental

6. Legal

WRAP-UP
To summarize what you have learned in the lesson, answer the following questions:
1. What is environmental scanning?
2. What is the difference between the internal and external environments?
3. What are the micro and macro environment factors?
 VALUING
Reflect on this!

“You cannot get through a single day without having an impact on the world around
you. What you do makes a difference and you have to decide what kind of a
difference you want to make.”
 EXPECTATIONS

After going through this module, you are expected to:

1. understand SWOT analysis;
2. discuss the purpose of SWOT analysis; and
3. identify the SWOT of a business.

RECAP
Directions: Enumerate the micro and macro-environmental factors.

Micro-Environmental Factors Macro-Environmental Factors

 LESSON
SWOT Analysis
SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used
to evaluate a company's competitive position and to develop strategic planning. SWOT
analysis assesses internal and external factors, as well as current and future potential
(Grant, 2020).

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look

at the strengths and weaknesses of an organization or an industry. The organization
needs to keep the accuracy of the analysis by avoiding pre-conceived beliefs or gray areas
and instead focusing on real-life contexts. Companies should use it as a guide and not
necessarily as a prescription.

SWOT analysis is a technique for assessing the performance, competition, risk, and
potential of a business, as well as part of a business such as a product line or division, an
industry, or other entity.

Internal Factors: Strengths (S) and Weaknesses (W)

These are the resources and experiences readily available to the business proponents.
These factors include:

1. financial resources such as money and source of funds for investment;

2. physical resources such as the company’s location, facilities, machinery, and

equipment;

3. human resources consisting of employees;

4. access to natural resources, trademarks, patents, and copyrights; and

5. current processes, such as employee programs, sales, and distribution capabilities,

marketing programs, etc.

Strengths describe what an organization excels at and what separates it from the
competition: a strong brand, loyal customer base, a strong balance sheet, unique
technology, and more.

Weaknesses stop an organization from performing at its optimum level. There are areas
where the business needs to improve: lack of raw materials, personnel attitude, poor
location, and lack of budget for product promotion, among others.
External Factors: Opportunities (O) and Threats (T)

These are factors that affect a company, an organization, an individual, and those outside
their control. These factors include:

1. economic trends such as stock market, economic performance, and the like;

2. market trends such as new products or technology, changes in tastes and lifestyle of
society;

3. national and local laws and regulations;

4. relationship with suppliers; and

5. competitive threats.

Opportunities refer to favorable external factors that could give an organization a

competitive advantage. Examples include larger market, company expansion, and new
customer trends, among others.

Threats refer to factors that have the potential to harm an organization. For example,
changes in government policy, changes in consumer tastes and preferences, inflation, and
recession, among others.

+ -

Internal Factors S W

External Factors O T
 WRAP-UP
To summarize what you have learned in the lesson, answer the following questions:

1. What is a SWOT analysis?

2. What is the purpose of SWOT analysis?

VALUING
Reflect on this!

“Sometimes you don’t realize your strength until you come face to face with your greatest
weakness.” - Susan Gale
 SENIOR
HIGH
SCHOOL

Self-Learning
Module

3
Quarter 4

Porter’s Five Forces

Analysis
 EXPECTATIONS

After going through this module, you are expected to:

1. understand Porter’s Five Forces Analysis;
2. discuss the purpose of Porter’s Five Forces Analysis; and 3. apply Porter’s Five Forces
Analysis in the business scenario.

RECAP
Directions: Give at least two (2) examples of Strengths, Weaknesses, Opportunities, and
Threats. Write your answer in the SWOT Analysis Matrix.

S W

O T
 LESSON

Porter’s Five Forces Analysis

The five forces model was originally developed by Michael E. Porter of Harvard
Business School. Porter’s Five Forces Analysis is a framework or a guide for assessing
and evaluating the competitive strength and position of a business organization.
Porter’s theory identifies the 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.

According to Porter, the origin of profitability is identical regardless of industry. In that

light, the industry structure is what ultimately drives the competition and profitability
and not on whether an industry produces a product or service, is emerging or mature,
high-tech or low-tech, regulated or unregulated.

Porter’s Five Forces:

1. Competitive Rivalry

This force examines how intense the competition currently is in the market, which is
determined by the number of existing competitors and what each is capable of doing. Rivalry
competition is high when consumers can easily switch to a competitor offering for little cost.

2. Bargaining Power of Suppliers

This force analyzes how much power a business’ suppliers have and how much control
it has over the potential to raise its prices, which, in turn, would lower a business’s profitability.
Also, it looks at the number of suppliers available. The fewer there are, the more power they
have.

3. 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 when it is easy to switch
from one business’s products or services to another. Buying power is low when consumers
purchase products are small amounts and the seller’s product is very different from any of its
competitors.

4. Threat of New Entrants

This force examines how easy or difficult it is for the competition to join the
marketplace in the industry being examined. The easier it is a competitor to join the
marketplace, the greater the risk of a business’s market share being depleted. Barriers to
entry include absolute cost advantages, access to inputs, economies of scale, and well-
recognized brands.
5. Threat of Substitute Products or Services

This force studies how easy it is for consumers to switch from a business’s product or
service to that of a competitor. It looks at how many competitors there are, how their prices
and quality compare to the business being examined, and how much of a profit those
competitors are earning, which would determine if they can lower their costs even more.
 WRAP-UP

To summarize what you have learned in the lesson, answer the following questions:
1. What is Porter’s Five Forces Analysis?
2. What is the purpose of Porter’s Five Forces Analysis?

VALUING
Reflect on this!

“You’re a product of your environment. Surround yourself with the best.”

- Anonymous