West Visayas State University

Module in
SS 113:
Entrepreneurial Mind

1
“This learning materials should not be shared (in any form) with anyone
Without the consent of the course facilitator”
____i. Target Market 9. Data that help you determine where your potential
customers live and how far they will travel to do
business with you

Geographic Data 10. Includes the individuals or companies that are

____j. interested in a particular product or service and are
willing and able to pay for it.

How well did you do?

How did you perform in the pre-assessment test? Were you able to answer more
items correctly? Below is the answer key to your pre-test.

Answers:

1. B 2. D 3. F 4. H 5. C 6. A 7. G 8. E 9. J 10. I

A perfect 10 makes you well-known entrepreneur someday. Please continue to study

this module as a review. If you go lower than 7, studying this module is a must.
7-9 Great Entrepreneur
6-5 Average Entrepreneur
0-5 Novice Entrepreneur

Now let us begin the exploration of this Module.

Lesson 1. Identify Your Target Market

“Not because you have the money, you think you can have everything”

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Introduction:

In this module, you will be learning the importance of identifying your target, conducting
research of the market in order to meet a market need as valuable factors that would contribute to
a successful entrepreneurial pursuit.

Let me start discussing this module through these brief introductory points:
Entrepreneurs with exciting new ideas are sometimes so focused on their products or
services that they forget about the customer. Coming up with a good idea for a business in not
enough to guarantee success. Customers are the people or organization who buy the products and
services companies offer. Before establishing your new enterprise, you will have to determine who
your primary customers are and whether these customers will be willing to buy your own product
or service. Market research is the key to finding out this information. Understanding people’s want
and needs will allow you to identify business opportunities. The more you know about your
customers, the better you will be at giving them what they need and want.

As an entrepreneur, you will need

to estimate demand for your products or
service by identifying your target
customers. The target market includes
the individuals or companies that are
interested in a particular product or
service and are willing and able to pay for
it. Identifying your target market helps
you reach the people who desire your
products and service. Target customers
are the customers you would most like to
attract. For instance, a car dealer selling
moderately priced minivans would target-middle-class families with children. A car dealer offering
expensive sports cars might target single people with higher incomes.

To identify the target market for your product or service, you will need to answer the following
questions:
1. Who is my potential market? Are my customer’s individuals or companies?
2. If my customers are individuals, how old are they? How much money do they earn? Where
do they live? How do they spend their time and money?
3. If my customers are companies, what industries are they in? Where those industries are
locate?
4. What needs or wants will my product or service satisfy?

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 5. How many potential customers live in the area in which I want to operate?
6. What is the demand for my products or services?
7. Where do these potential customers currently buy the products or services, I want to sell
them?
8. What price are they willing to pay for my products or services?
9. What can I do for my customers that other companies are not already doing for them?

As an entrepreneur, you should put yourself in your customers’ shoes before your start your
business. Afterwards, you should think about your customers’ needs and viewpoints every day. By
continually evaluating your market, you will be ready to respond to changes in communicates,
consumer tastes and buying habits, and competitors’ offerings.

Market Segments
Groups of customers within a large market who share
common characteristics are known as market segment.
Market research can be used be a business to identify market
segments. Segmenting, or dividing your target market into
several small groups, can help you develop a product or service
that will meet specific customer needs and wants.

The process of market segmentation is important because

most products and services appeal to only a small portion of the
population. The leisure services market is a large market that includes many segments, such as
outdoor adventures, people who vacation frequently, couples who eat at restaurants, and more.
Targeting the entire leisure market would make sense. You would never be able to meet the needs
of the entire market. Even the restaurant segment of the leisure services market has sub-
segments. Some people like Italian food while others prefer seafood or Chinese food.

Business can make decisions based on the information gathered about market segments.
However, if the data are not analyzed correctly, the product may not meet needs of the customers,
or the business might ignore a segment of the market that would be very interested in the product.

Customer Profile
A market segment is made up of people with
common characteristics. The more you learn about
them, the better strategy you can develop for
reaching them. A very useful part of analyzing your
data is the creation of a customer profile. A
customer profile is a description of the
characteristics of the person or company that is likely
to purchase a product or service. A customer profile

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can help you understand what you need to do meet customer demand. Customers may be profiled
based on many types of data, including demographics, use-based data, and geographic data.
By analyzing these types of data, you will be able to develop a marketing strategy that
identifies those customers you can serve more effectively than your competitors can. The data can
help you determine the size of your market and how many people would be willing and able to
purchase your product or service. You can design your products and services, set prices, and direct
promotional efforts toward those customers.

Sample Customer Profile for a Sporting Goods Store

 Individual 23 to 52 years of age  Lives in Pasig City

 Participates in sports  Average household income -
 Wants good-quality sports equipment P250,000.00 per year
 Looks for good prices

Demographics
Data that describes a group of people in terms of age, marital status, family size, a group of
people in terms of age, marital status, family size, ethnicity, gender, profession, education, and
income are called demographics. Women business owners between the ages of 25 and 40 who
earn at least P300, 000.00 per year would be an example of a market segment based on
demographic data.

Psychographics
Data that describe a group of people in terms of their taste, opinions, personality traits, and
lifestyle habits are called psychographics. People who prefer to live in a downtown setting and
whose musical preference is jazz would be an example of a market segment based on
psychographic data.

Use-Based Data
Data that help you determine how often potential customers use a particular service use-
based data. If you were starting a travel agency, you would want to know how often your
potential customers travel.

Geographic Data

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 Data that help you determine where you potential customers live and how far they
will travel to do business with you are called geographic data. If you were thinking of opening a
coffee ship, it would be important for you to know that people are not willing to drive more than
one mile for coffee.

ACTIVITY PROPER 1: Identify Your Target Market

Directions: Directions: Look through magazines, newspapers, or view television for an

advertisement of a new product. Based on the type of publication and the material in the
advertisement, answer the nine questions listed in the lesson about identifying a target
market. Can you determine who the target market is for the product?

__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
_________________________________________________________________________.

Lesson 2. Research the Market

“Chinese utang pera para tayo negosyo, Pinoy utang pera para bongga birthday,
binyag,kasal, pista. Kinabukasan Nga-Nga”

Role of Market Research

For your business to succeed, you need to identify potential markets, analyze demand, and
determine how much customers are willing to pay for your products or services. To collect this
information, you will perform market research. Market research is a system for collecting,
recording, and analyzing information about customers, competitors, products, and services. Based
on the findings of market research, a business will be able to determine which marketing strategies
will be more effective and most profitable.

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 Spreadsheets and databases are used for collecting and analyzing market research data.
Market research has its limits because it can be very expensive and time-consuming, but it is
worthwhile when major decisions must be made. You will draw on primary data and secondary
data to help you identify ways in which you can meet customer needs. Market research can also
help you forecast sales and make other business decisions.

Primary data
Most market researchers collect primary
data. Information collected for the very first to fit
a specific purpose is primary data. A researcher
collects primary data to help identify and
understand the target market. There are a few
different ways to collect primary data.

 Survey

The most common type of primary market research is a questionnaire, or survey. A survey
is a list of questions you would like to ask your customers to find our demographic and
psychographic information. A survey can be conducted by mail, over the phone, on the Internet, or
in person.

Creating a good survey is important. Surveys should be kept to a page in length when read
over the phone or mailed to respondents. Longer surveys can be used if an interview is face to
face. Questions should be clear and easy to answer, and only the most important questions should
be asked.

 Observation

Market research can also involve observation. If you are considering opening a juice bar in
a shopping mall, you might want to see how many customers you could attract. You could go to
the mall and count the number of people purchasing drinks at various food outlets. An
entrepreneur interested in starting a motor cycle repair shop might count the number of
motorcycles at a busy intersection.

 Focus Groups

Another way to find out about them market is by conducting interview with a small group of
people. A focus group is an in-depth interview with a group of target customers who provide
valuable ideas on products or services. You can ask the same kinds of questions in a focus group
that you would ask in a survey, but the group setting allows for ore discussion and interaction.
Focus groups usually are led by a moderator, who asks questions about buying habits, likes and
dislikes, and interest in particular products and services. The focus group session is recorded so
that the comments can be reviewed carefully after the session.

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 Disadvantages of Primary Data

While primary data can provide the most up-to-date and useful
information, collecting it can be time-consuming and more expensive than
gathering secondary data. As an entrepreneur, you will need to determine
how much primary and secondary market research data you need to
collect.

Secondary Data

Entrepreneurs also research their target markets by using secondary data. Secondary data are
found in already-published sources. Data on population, family size, household income, economic
trends, industry forecasts, and either information can be found in secondary data resources.

Places to find secondary data include the following:

1. Publication issued by government and community organizations

2. Books about specific industries
3. Information on websites for government and businesses
4. Books about other entrepreneur who set up similar businesses
5. Trade magazines and journals
6. Newspaper articles and statistics

Six steps of Market Research

Collecting primary data can be tie-

consuming and expensive, but it is extremely
valuable. It will tell you exactly what you want
to know and uncover information you may not
find through secondary sources. Conducting
primary market research involves six steps:

1. Define the Question

In the first step in the market research process, you need to define exactly what you
need to know. Entrepreneurs have many concerns and questions about the businesses they
are planning. By determining what they need to know, they are defining the question that
will be the focused of their research.

2. Determine the Data Needed

Once you have defined the market research question, you are ready to determine
what data you need to collect to provide the answer to your question. Entrepreneurs need
to be sure that the data they collect will be helpful.

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 3. Collect the Data
Before you begin collecting data, you need to decide how you will go about
gathering the data. Should you use a survey? Should you use an observation method? Is
a focus group appropriate? The method you use will depend on what type of information
you want to gather. For example, you can find out people’s opinions in a survey or focus
group but not by observation. You should perform some secondary market research first to
familiarize yourself with your market. Demographic and psychographic data, as well as
information on economic trends and industry forecasts, will help you determine what kind of
primary data research to perform. You can then choose the best research method for the
information you want to gather.

4. Analyze the Data

Once you have collected all your primary and secondary data, you will need to
analyze and interpret the information thoroughly. The data may be used not only to find
out about your potential customers but also to forecast sales. The analysis should be in a
written format so you can refer to it later.

5. Take Action
Once you have analyzed and interpreted your data, you will need to determine how
to use the data to make a decision. You will develop a plan of action based on the
information you found in your market research.

6. Evaluate the Results

Evaluation is the last step in the market research process. It is not enough just to develop
a plan of action. Entrepreneurs must regularly evaluate the actions they take as a result of
the plan.

Technology-Driven Marketing

Customer
relationship
management (CRM) is
the goal of a new
marketing trend that
focuses on understanding
customers as individual
instead of as part of a
group. It is a business
strategy designed to
increase profitability and
customer satisfaction.
CRM uses technology to

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track customer interactions and to organize business processes in a way that will produce
customer-satisfying behaviors.

Activity No. 2 Research the Market

Directions: Come up with a new product that you think will be very useful for students in
the school. Develop a survey from at least 10 potential consumers in your place to gauge
their interest. Have your consumer complete the survey through by asking questions.
Tabulate the results and determine if the product is a good idea.

Personal Information Name:

(Optional)______________________________
Modified Sensory Evaluation Score Sheet (Applicable for HM and Education students)
Criteria 3 liked 2 Moderately liked 1 Disliked

Appearance

Aroma

Taste

Texture

General
Acceptability

Total:

Product Evaluation Score Sheet (Applicable for BSIT and BCM students)

Criteria 3 liked 2 Moderately liked 1 Disliked

Appearance

Durability

Usability

Cost

General
Acceptability

Total:

Processing Question:
1. What product did you choose?
2. If your product is not generally acceptable, what will be your alternative?
3. If your product is generally acceptable, what will you do to help promote this product?

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 Lesson 3: Know Your Competition
“Sa business pag masipag ka Malaki income mo, sa Employment kahit anong sipag
mo pareho lang kayo ng sahod ng tamad mong katrabaho.”

Impact of Competition

Because consumers are free to buy whatever they want from whomever they want, companies
compete for their business. Most new businesses face competitors—companies offering similar
or identical products and services to the same group of target customers. As the owner of a new
business, you will have to persuade customers to buy from you instead of from your competitors.
You must always watch the competitors and be sure that you are offering products that are of
equal or better quality at the same or lower prices.

When personal computers first came on the market, Apple computers were the biggest sellers.
Then IBM developed a personal computer, and soon there were many other manufacturers of
personal computers. All of the computer manufacturers work hard to persuade customers to buy
their product.

Understand the Competition

Knowing about your competition will also help you define your target market. Businesses
typically enter into areas where there is competition. To survive, they have to identify some special
customer need or want that is not being met. Customers may be happy with the products or
services, but they may be unhappy with the prices. Customers might be dissatisfied with the
quality of a product or service and would be willing to pay more for better quality. In either case, a
customer need is going unmet by a competitor, indicating a possible opportunity for entrepreneur.

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Know the Types of Competition
Competitors may be categorized as either direct or indirect competition. You will need to find
ways to identify and differentiate yourself from both types of competition.

Direct Competition
A business that makes most of its money selling the
same or similar products or services to the same market as
other businesses is direct competition. Secondary data
resources can give you information on your direct
competition. Your direct competitors may be in the same
geographic area as your business. The telephone directory
or an Internet search will help you find the number and
locations of competing businesses. Your local Chamber of Commerce will also have information on
competitors in your business field. Observation methods can help you learn more about your direct
competitors. If you start a retails business, you can visit all of the malls, shopping centers, and
retail outlets in your area.

Indirect Competition

A business that makes only a small amount of

money selling the same or similar products and services
to the same market as other business is indirect
competition. Locating your indirect competition is
more difficult that finding direct competitors. You
should first think of all the possible businesses that can
compete with you indirectly. A large department store
may stock some of the most popular products carried by
a privately owned specialty store shop. The department
store offers many other lines of merchandise as well. It makes only a small amount of money on
the same items that the specialty shop offers. This makes the department store indirect competitor
to the specialty store.

Large Retailers

When a large retailer enters a

community, it can be a source of direct and
indirect competition for many others
businesses. Large retailers like Walmart
bring lower prices and jobs to a community
but many small businesses find it difficult to
compete with them. Some of the smaller,

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 locally owned retailers often are forced out of business.

Some of the reasons that is difficult for entrepreneurs to compete with large retailers include the
following:

1. Large retailers usually are able to keep larger quantities of products in stock. They
can purchase inventory in bigger quantities because they have and large more revenues passed to
consumers in the for more revenue and larger storage areas. Bigger orders result in volume
discounts, and the s savings can be passed to consumers in the form of lower prices.

2. Large retail chains do not rely on a single product line. If one product line does poorly,
a large retail store does not go out of business because it has other successful product lines. Small
businesses have risks associate with having only one product line. If its product falls out of favor
with consumers, it has no other product lines to make up the difference.

3. Large companies usually have more resources to devote to advertising. A larger

company makes more revenue and can hire advertising professionals to create effective advertising
to attract more customers.

Competitive Analysis

Identifying and examining the

characteristics of a competing firm is called a
competitive analysis.

Analyzing the strengths and weaknesses of

your competition will help you identify
opportunities and threats against your business.
Follow these steps to begin your competitive
analysis.

1. Make a list of your competitors. Using the Internet and driving through the area in which you
plan to locate your business are good way to identify your competition. You can also talk to
potential customers to find out with whom they are currently doing business. Review trade
magazines and newspapers to see who is advertising the product or service you plan to offer.

2. Summarize the products and prices offered by your competitors. Investigate the products
or services your competition offers for sale. How are they different from yours? Examine the price
ranges of your competitors and determine how they compare two that you plan to charge. Are
your prices higher or lower?

3. List each competitor’s strengths and weaknesses. What does the competitor do that no one
else dies, or what does it do better than anyone else? Where are your competitors located?
Determine if their location is better, worse, or about the same as the planned location of your

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 business. Compare your competitors’ facilities to the planned facility for your business. Are their
facilities to the planned facility for your business? Are their facilities better, worse, or about the
same as yours? What attracts customers to your competitors’ facilities?

4. Find out the strategies and objectives of your competitors. A copy of each competitors’
annual report would have this information. In addition, looking at competitors’ websites or
advertising can give you clues about their strategies and objectives.

5. Determine the opportunities in the market. Look at your competitors’ weaknesses. How can
you use these weaknesses to your advantage? Also, determine if there is an increase in demand
for the product or service you plan to offer. What are the industry forecasts? If demand is
predicted to increase, more opportunities exist for those wanting to enter the market.

6. Identify threats to your business from the competition. What would make a customer
choose the competition over you? Examine your competitors’ strengths. How will you compete
these strengths?

Maintaining Customer Loyalty.

Getting customers to buy your products and services instead your competitors’ is
only one step in running a successful business. Once you get the customers, you must make
sure they remain loyal to you and keep coming back.

Other Strategies for Maintaining Loyalty

To maintain customer loyalty, businesses use many strategies. The main purpose of these
strategies is to keep customers happy so that they will return to the business. The strategies also
give the business a means for gathering data about their customers and their shopping and
spending habits that can help in future decision making.

Some of the most basic customer loyalty strategies businesses use include the following:
 Superior service
 More convenient hours than other businesses
 Easy return policies
 Store specific credit cards
 Personal notes or cards for birthdays or as a way to say thanks for the business

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 Frequent buyer programs

Post-Activity: Know Your Competition

Directions: a) Read the following stories of successful entrepreneurs and
answer the guide questions.

Please Watch a Short Video!!!Please Click Here!!!

Guide Questions

Direction: The following are guide questions covering this particular unit of the module.
Write your answers on your assignment notebook.

1. Who are the owners of this successful two malls in the Philippines?

2. What do you think are their techniques in choosing target market?

3. Trace the history of these two malls from its birth until they became successful?

4. Why is important to know the nature of competition in the business world as well as to
understand your competitors?

References:

Medina, Roberto G., 2014. Entrepreneurship and Small Business Management

Greene, C., 2013. Entrepreneurship

Scarborough, N., 2011. Essential of Entrepreneurship and Small Business Management, Sixth Edition
Small Enterprises Research and Development (SERDEF), Introduction to
Entrepreneurship, 2007 edition

Internet Sources:

www.gonegosyo.net

www.cengage.com/school/entrepreneurship/ideas

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 UNIT 6.
Develop the Marketing Plan

Desired Learning Outcomes

At the end of the Unit, the students must have:

1. explained the importance of marketing a business;

2. developed a marketing strategy for a business with the use of the four “Ps” of marketing:
product, price, place, promotion;
3. discussed factors to consider when pricing products and services;
4. described the basic options of channels of distribution and;
5. identified promotional strategies in marketing products and services

PRE ACTIVITY: Develop the Marketing Plan

Name: __________________________________________________Score:___________
Course/Section: ___________________________________________Date: ___________
Directions: Match the components of the business plan in Column A with their meaning in
Column B. Match each statement with the term that best defines it. Some terms may not be
used.

A B

___a. Marketing Strategy 1.Creating an image of a product to the customer’s mind

___b. Return on Investment 2.A blending of product, price, distribution, and promotion
used to reach a target market
(ROI)

___c. Cost-based pricing 3.Pricing that is determined by using the wholesale cost of
an item as the basis for the price charged

___d. Marketing Mix 4.Amount earned as a result of an investment

___e. Positioning 5.Identifies how marketing goals will be achieved

___f. Indirect Channel 6.The act of establishing a favorable relationship with

customer and the general public

____g. Advertising 7.Direct communication between a prospective buyer and a

sales representative

____h. Channels of 8.Routes that products and services take from the time they

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 distribution are produced to the time they are consumed

____i. Personal Selling 9.A paid form of communication sent out by a business
about a product or service

Public Relations 10.Uses intermediaries that move products between the

____j. manufacturer and the consumer

How well did you do?

How did you perform in the pre-assessment test? Were you able to answer more items
correctly? Below is the answer key to your pre-test.

Answers: Task 1

1. E 2. D 3. C 4. B 5. A 6. J 7. I 8. H 9. G 10. F

A perfect score of 10 is impressive. Kindly, continue to study this module as a review. If you
go lower than 7 points, studying this module is a must.

Now let us begin the exploration of this Module,

Lesson 1. Importance of a Marketing Plan

“Magtrabaho ka hanggang kaya mo pa. Magtipid habang may pera kapa. Saka mo
na lang isiping magpahinga kapag may ipon kana.”

Wha
t is
mar
keti
ng?

As
defin
ed
by
the
Amer
ican Marketing association, “Marketing is the activity, set of institutions, and processes for

93
creating, communicating, delivering, and exchanging offerings that have value for customers,
clients, partners, and society at large. “To simplify this definition, marketing is all of the
processes---planning, pricing, promoting, distributing, and selling---used to determine and satisfy
the needs of customers and the company. This definition demonstrates the importance of the
customer.

It is very important to conduct market research to discover what products or services

consumers want to buy. Using the primary and secondary data that is gathered through market
research helps entrepreneurs develop a marketing concept for the business. The marketing
concept uses the needs of customers as the primary focus during the planning, production,
distribution, and promotion of a product or service. To use the marketing concept successfully,
business must be able to:
 Identify what will satisfy the customers’ needs and wants
 Develop and market products or services that customers consider better than other choices
 Operate profitably

An important part of implementing the marketing concept is developing a marketing mix

that helps meet customer needs and enables the business to earn a profit. The marketing mix is
a blending of the product, price, distribution, and promotion used to reach a target market. For
example, once you have determined what product or service meets customers’ needs, you must
determine what product or service meets customers’ needs, you must determine the right price for
it, make it available to the customers in the right places, and then let your target market know
about it.

The Marketing Strategy

As a business owner, you will need to outline

the goals you want to accomplish through your
marketing efforts. Once you have identified your
goas, you will need to develop a marketing strategy,
which is a plan that identifies how these goals will
be achieved. In your startup marketing plan your
strategy should address:

 Product introduction or innovation

 Pricing
 Distribution
 Promotion
 Sales or market share
 Projected profitability

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 It is important that your marketing strategy be consistent with the overall goals you have
set for your business. Be sure that the strategy will actually work for you and is within the
resources you have available. Your marketing goals should be written following the SMART
guidelines: specific, measurable, attainable, realistic, and timely.

Short-Term Goals
Short-term goals are what you want your business to achieve in the next year. They can
be stated in terms of number of customers, level of sales, level of profits, or other measures of
success. If your goal is to have a positive cash flow, you may decide to price your products or
services higher.

Medium-Term Goals
Medium-term goals describe what you want your business to achieve in the next two to
five years. Although your marketing strategy will be determined largely by your short-term goals,
you will need to make sure that the strategy you are planning will make it possible for you to
achieve your medium-term goals.

Long-Term Goals
Long term goals show where your business will be, 5, 10, and even 20 years from now.
Thinking about what you want the business to do in the long term can help you think about how to
market your business today.

Write your Marketing Plan

When your goals and marketing strategy have

been determined, you will ready to write your final
marketing plan. The purpose of the marketing
plan is to define your market, identify your
customer and competitors, outline strategy for
attracting and keeping customers, and identify and
anticipate change.

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 A written marketing plan will help you determine whether it is solid and all parts are consistent.
Your written plan becomes a guiding document as you operate your business. You can always
review it later to determine if you need to change the way you are marketing your business. The
marketing plan becomes a part of your business plan. Having a marketing plan as part of your
business plan is essential when you seek financing for your business. Investors will express your
marketing plan to answer the following questions:

 What product or service will I offer?

 Who are my prospective customers?
 Is there a constant demand for this product or service?
 Can I create a demand for the product or service I want to offer?
 Can I compete effectively in price, quality, and delivery of my product or service?

To effectively answer these questions, he marketing plan for your business must include
information on the following topics:
1. Product or Service 5. Business Location
2. Target Market 6. Pricing Strategy
3. Competition 7. Promotional Strategy
4. Marketing Budget 8. Distribution Strategy

As part of your marketing plan, you should include performance standards that will help you
measure your effectiveness. Researching industry norms and past performances will help you
develop appropriate standards. After your marketing plan has been implemented, you should
compare your actual results to your performance standards to see how well you are progressing. It
is helpful to examine your performance quarterly. Questions to ask yourself include:

 Am I meeting sales forecasts?

 Is my promotional campaign reaching the target market?
 Is my company doing everything it can to meet customers’ needs?
 Is it easy for my customers to find what they want a competitive price?

ACTIVITY PROPER 1: Importance of a Marketing Plan

Essay:
1. What is acronym SMART means?
2. Why do goals need to be achievable?
3. What is an example of a measurable goal in business?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
96 ______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
 Lesson 2: Product: Identifying the Market Needs
“Huwag kang maniniwala sa Share this sa Fb Magkakapera ka,
Walang”ganun”Magtrabaho ka.”

The Marketing concept and the Product

Once you have determined what kind of business you will run, you will need to make
decisions about the products that you will sell. To select your products, think carefully about which
products and services most appeal to your target customers. If you can convince your customers
that your products satisfy their needs better than any competitors’ products, then your products
become a marketing tool for your business.

Customer-Driven Market
The marketing concept is the belief that the wants and needs of customers are the most
important consideration when developing any product or marketing effort.
Product Mix
The different products and services a business
sells are its product mix. In a consumer-driven
economy, entrepreneurs realize that sometimes they
must include products in their mix as a convenience for
customers even though those products may not be
profitable. This will give the appearance to customers
that the store has everything they need. It has been
found that often a small percentage of the product
selection makes up the majority of the sales revenue.

Product Management
Consumers buy a product because it meets their needs. However, there is much more to a
product than consumers may realize. The many aspects of a product that a business must spend
time developing and managing include its features, branding, packaging, labeling, and positioning.

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Selecting Product Features
A product includes features, while are product characteristics that will satisfy customer
needs. Features include such things as color, size, quality, hours, warranties, delivery, and
installation. You will need to consider your target market when selecting product features.

Consider Branding, Packaging, and Labelling

Making your product stand out from all the others in the marketing mix as a challenging
task. The brand is the name, symbol, or design used to identify your product. The package is
the box, container, or wrapper in which the product is placed. The label is where information
about the product is given on the package. The brand, package, and label that you choose for
your product will help differentiate it from others on the market. The Nike “swoosh” has become a
very recognizable brand. When you see Nike symbol, you know about the quality of the product
you have selected.

Position Your Products or Services

Different products and services within the same category serve different customer needs.
For example, both Hyundai and Jaguar sell automobiles, but these two product lines are positioned
very differently in the marketplace.

Positioning is creating an image for position a product in the customer’s mind. Businesses
position a product in certain market to get a desired customer response. Product features, price,
and quality may be used for position.

The Marketing Mix—Price

Set Pricing Objectives

The price is the actual amount a customer pays for a product
or service. Prices you charge must be low enough so that customers
will buy from you, not form your competitors. To earn a profit,
though, your prices need to be high enough so that revenues exceed
expenses. Before you can select a pricing strategy, you will need to
establish objectives for your pricing program. What is the most
important thing you want the price to do?

Examples of pricing objectives include:

 Maximize sales
 Discourage competition
 Establish an image
 Increase profits

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  Attract customers

Return on Investment (ROI)

When setting pricing objectives, you may want to

consider your return on investment. Investment refers to
the cost of making and marketing a product. The return
on investment (ROI) is the amount earned as a result of
the investment and is usually expressed as a percentage.
Entrepreneurs must identify the percentage return they
want from their investment. The target percentage in the
beginning may be lower that it will be as the business
grows.

Market Share

Market share is another consideration when setting pricing objectives. Market share is a
business’s percentage of the total sales generated by all companies in the same market. The total
market for product must be known in order for a market share to be determined.

Determine a Price for a Product

Once pricing objectives have been determined, the next step is to determine the possible
prices for products. There will usually be more than one price that can be charged for a product.
Pricing may be based on demand, cost or the amount of competition.

 Demand-Based Pricing - refers pricing that is determined by how much customers are
willing to pay for a product of service. Potential customers are surveyed to find out what
they would be willing to pay for the product. The highest price identified is the maximum
price that can be charged.
 Cost-Based Pricing - is determined by using the wholesale cost of an item as the basis for
the price charged. A markup price is determined by adding a percentage amount to the
wholesale cost of an item.
 Competition-Based Pricing - pricing that is determined by considering what competitors
charge for the same good or service. Once you find out what your competition charges for
an item, you must decide whether to charge the same price, slightly more, or slightly less.

Price a Service or an Idea

When setting the price for service, it is important to

consider not only the cost of any items used in providing
the service but also the amount of time and anything that
is included with the service. You may also have business
ideas that you can sell to others. You should consider the
different ways to structure payments for your ideas.

 Time-Based Pricing
The price to charge for services can be determined
by the amount of time it takes to completer the service. A plumber may charge $100 per
hour.

 Bundling

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 Services can be bundled, or combined under one charge, rather than making the customer
pay for each individual part of the service. When you go a beauty salon and have your hair
cut and styled, the price is bundled. The price you pay includes the service of the hair
stylist as well as the cost of the hair products, water, and towels that were used on your
hair.
Pricing an Idea 2 percent of the total sales of a
product developed from our idea.
 Annual minimum. The license pays
you a minimum amount each year
regardless of the amount of sales.

Pricing Strategies

It is important to set the right price for

Ideas can be priced in different ways.
You might be acting as a consultant to
another business. When consulting, you
could charge an hourly rate for your time and
the ideas you present during that time. You
might have an idea that you want to license
to another company for development.
Licensing is the process of selling our
idea to a company for the development and
launch of a new product. When licensing
your idea, there are different ways you can be
paid:
 Upfront payment. The license pays
you a fee before development or sales
begin. This may be the only amount
you receive, or it could be an amount
that is applied to future royalties.
 Royalties. The license makes
payments to you based on a
percentage of the product sales. For
example, you may be paid royalties of
your product and service. Pricing can make
or break a business. When first introducing a
product or service into the market, price
skimming and penetration pricing strategies
may be used.
 Introductory Pricing
As product is introduced into the
market, sales will be low, marketing costs will
be high, and little, if any profit will be made.
1. Price skimming – used when a
product is new and unique, starts
with a high price to recover the costs
involved in developing the product.
Then as more competitors enter the
market with similar products, the
price is dropped.
2. Penetration pricing – uses a low
introductory price with the goal of
building a strong customer base. The
low price also discourages
competition.

 Psychological Pricing

This type of psychological pricing is based on the belief that certain prices have an impact on how
customers perceive a product. This type of pricing is most often used by retail businesses.
Strategies used in psychological pricing include the following:

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1. Prestige pricing is selling at a high price in order to create a feeling of superior quality and social
status.
2. Odd/even pricing suggests that buyers are more sensitive to certain ending numbers. For example,
P99.99 sounds like a bargain compared to an even P100.00.
3. Price lining involves offering different levels of prices for a specific category of product based on
feature and quality. A jeweler might offer three price lines of diamond necklaces and display them in
different cases so that shoppers can go straight to the price level they can afford.
4. Promotion pricing is offering lower prices for a limited time to increase sales. This type of pricing is
temporary, and prices will return to normal when the promotion ends.
5. Multiple-unit pricing involves pricing items in multiples, such as 10 for $10. This type of pricing
suggests. People will buy more items that they would if the items were priced individually.

 Discount Pricing

Offers customers a reduced price. Discount pricing is used to

encourage customers to buy. Markdowns are a type of
discount pricing:

1. Cash discounts are offered to customers to encourage early

payment of invoices. When this is done, the terms of an
invoice will include the amount of the discount, the number of
days in the discount period, and when the invoice is due if the
discount is not taken.
2. Quantity discounts are reductions in price based on the purchase of a large quantity. This is also
called a volume discount. Selling a large quantity at one reduces a business’s selling expenses.
3. Trade discounts are reduction on the list price granted by a manufacturer or wholesaler to buyers in
the same trade.
4. Seasonal discounts are used for selling seasonal merchandise out of season. Barbecue grills are in
high demand in the spring and summer months but not in the fall and winter. Manufacturer offer
discounts to customers who purchase grill out season

ACTIVITY PROPER 2: Product: Identifying

The Market Need
Directions: Your plan to open a pizza delivery service near the West Visayas State
University. Your target market includes students who live in dorms and houses on and near
the main campus. You know that the price you charge is going to be critical to the success
of your business as there several restaurants in the area with which you will be competing.
Develop a psychological pricing for the pizza delivery service. Make a short reflection of the
pricing.
__________________________________________________________________________
_________________________________________________________________________.

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 Lesson 3: Distribution and Promotion Strategies
“Baka kaya tayo hindi nakakapag –ipon kasi advance tayong mag-isip kung saan
gagastusin ang sahod natin kahit sa next week pa ang sweldo.”

Distribution Strategies

Supply Chain Management -is the coordination of manufacturers, suppliers, and retailers working
together to meet a customer need for a product.

Channels of distribution -are the routes that products and service take from the time they are
consumed. Choosing the right channel of distribution for a product includes finding the most
efficient s way to ship it to desired location. Using the right distribution channels save time and
lower costs for both buyers and sellers.

Direct and Indirect Channels

 Direct channel moves the product
directly from the manufacturers to the
consumer.
 Indirect channel uses
intermediaries – people or businesses that
move products between the manufacturer and
the consumer. Agents, wholesalers, and
retailers serve as intermediaries.

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Channel Options
Entrepreneurs should examine the different options for channels of distribution and choose
the one that best meets the needs of their business. The four basic options are as follows:
 Manufacturer to Consumer. The product can be sold by the manufacturer directly to the
consumer using various methods, such as the Internet, direct mail, or television shopping
channels. There are no intermediaries involved in this option, and it is the most cost-effective.
 Manufacturer to Retailer to Consumer. A sales force can sell manufactured goods to retail
stores, and the retail stores can sell to the consumers.
 Manufacturer to Wholesales to Retailer to Consumer. To reach a large market, the
manufacturer can sell large quantities to a wholesaler, also called a distributor, who will then
store and sell smaller quantities to many retailers. Even though more intermediaries are
involved in this method, prices can be lower because the manufacturer is producing mass
quantities if the product, resulting to lower production cost.
 Manufacturer too Agent to Wholesaler to Retailer to Consumer. With this option, the
manufacturer does not get involved in selling. Selling is handled by an agent. This option is
often used in international marketing.

Distribute Goods and Services

Retail businesses, service businesses, and

manufacturing businesses will choose different
channel of distribution based on the needs of the
businesses. The needs can vary based on the size
of the market, the type of product or service, and
customer needs and wants.

 Retails Business
1. Retail businesses have many ways of selling products. As the owner of a retails business,
you can distribute products in various ways:
1.1 Offer your product or service to consumers in a convenient location and
during convenient hours.
1.2 Use catalogs, fliers, and other advertisements to reach customers who live
outside the areas.
1.3 Create a website. People with access to the Internet can visit your website
to learn about your products and services and to make online purchases.
 Service Business
Most entrepreneurs who won service business sell directly to their customers. These
businesses sell their service directly to customers. These businesses have a single, direct
channel of distribution because the production and consumption of a service happens at the
same time. For example, electrician, restaurants owners, and lawyers deal directly with the
people who purchase their services.

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 Manufacturing Businesses
Manufacturer usually don’t sell directly to
customers. Instead, they make their products
and then sell the products to other businesses,
such as retailers. The retail store then sells to
the final consumer.

Physical distribution
Physical distribution includes not only transportation but also storage and handling of
products and packaging within a channel of distribution. A product may move through several
channel members by various forms of transportation to et to the point where it will ultimately
be sold to consumers.

Transportation
There are many choices when transporting goods. Products can be moved by airplane,
pipeline, railroad, ship, truck, or a combination of methods. You must determine which method
is best and most cost efficient for your products.

Product Storage and Handling

Efficient storage allows channel members to balance supply and demand of products. However, thi

Packaging
Packaging is designed to protect the product
from the time is produced until it is consumed.
If the product is not protected during the
distribution phase, it could be damaged or
destroyed, resulting in a loss of money to channel members.

 Promotion Strategies
No matter how wonderful your products, distribution methods, and pricing, you will not
succeed as an entrepreneur if customers do not know about your business. You will have to
promote your business to make customers aware of the benefit of buying from you. Promotions
takes many forms including advertising, publicity, personal selling, and sales promotion. The
strategy created by adopting a blend of some, if not all, of these techniques is called your
promotional mix.
 Advertising is a paid form of communication sent out by a business about a product or
service.
 Online Advertising – this is a cost-effective way for businesses to get information to
potential customers through the use of online technology.

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Types of Online Advertising

1. Banner Ad – a graphic image or animation displayed within a rectangular box across the top
or down the side of a web page
2. Floating Ad – An ad that moves across the screen or floats above the page content
3. Wallpaper Add – An ad that changes the background of the page being viewed
4. Trick Banner - A banner ad that looks like a dialogue box with button, often appearing like
an error messages or an alert
5. Pop Up Ad -- A new window that opens in front of the current one, displaying an
advertisement
6. Pop Under Ad -- A new window, similar to a pop-up ad, that loads behind the current
window and does not appear until the user closes one or more active windows.
 Newspaper Advertising  Outdoor Advertising
 Telephone Directory Advertising  Transit Advertising
 Direct-Mail Advertising  Social Networking Sites
 Magazine Advertising
Publicity is a nonpaid form of communication that calls attention to your business media coverage.
Publicity may be good or bad. Good publicity can be as helpful as advertising. Publicity is free, but
staging an even or bringing in a celebrity to generate publicity usually is not.A press release,
which is a written statement meant to inform the media of an event or product, is a good way to
promote an event.

Public Relations
Public relations - is the act of establishing a favourable
relationship with customers and the general public. Public
awareness and positive public relations can be generated for
your business when you show your community that you are
involved and committed to it. Ways to support your community:
 Sponsor a community sports team.
 Make a donation to a local charity or relief effort
program.
 Get involved with the work-based program at your local high school or community college.
 Becomes active in the local chapters of the Big Brothers or Big Sisters organizations.

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  Organize community programs such as cleaning up neighborhood parks.
Self-Promotion
A business should try to keep its name visible and in the
forefront of people minds. Self-promotion is a good way to do this.
It’s simple way to generate “free” publicity. Self-promotion mat
include activities such as:
 Giving away t-shirts and hats displaying your company name
and logo.
 Distributing pens, notepads, coffee mugs, and other useful items printed with the name,
telephone number, website address, and logo of your business.

ACTIVITY PROPER 3: Distribution and

Promotion Strategies
Directions:

a) You are a home improvement contractor. What role will distribution channels play in
your business? Which form of promotion work best for you?
b) You are going to open a retails store that will offer gifts and accessories. Your
target market is 13-15-year-old girls. Describe the promotional mix you will use for
your business.

__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
_________________________________________________________________________.

References:

Medina, Roberto G., 2014. Entrepreneurship and Small Business Management

Greene, C., 2013. Entrepreneurship

Scarborough, N., 2011. Essential of Entrepreneurship and Small Business Management, Sixth
Edition

Kotler, Philip, Principles of Marketing: A Global Perspective, LPEdition

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 UNIT 7.
Global Aspects of Entrepreneurship

Desired Learning Outcomes

At the end of the Unit, the students must have:

1. Explain the importance of the “going global” mind-set for many small companies’ strategies
2. describe the principal strategies of small businesses for going global
3. explain how to build a thriving export program and;
4. discuss the major barriers to international trade and their impact on the global community
5. describe the trade agreements that will have the greatest influence on foreign trade in the
21st century.

PRE ACTIVITY: Global Aspects of Entrepreneurship

Name: _________________________________________________ Score:___________

Course/Section: __________________________________________ Date: ___________

Task 1. True or False

Directions: Choose True if the statement is correct, and False if otherwise. Encircle your answer.
1. The process of applying management concepts and techniques in TRUE FALSE
a multinational environment and adapting management practices
to different economic, political and cultural environments is called
international management.

2. Multinational corporations can be defined as firms having TRUE FALSE

operations in more than one country, international sales and a
nationality mix of managers and owners

3. Nongovernmental organizations believe that everyone benefits TRUE FALSE

from globalization, as evidenced in lower prices, greater
availability of goods, better jobs and access to technology.

4. NAFTA is a free trade agreement between the United States, TRUE FALSE
Canada and Mexico that has in essence removed all barriers to
trade and investment between the three nations

5. NAFTA is better integrated as a single market than the EU or the TRUE FALSE
allied Asian countries

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 How well did you do?

Answers
1.True 2.True 3.False 4.False 5.True

Lesson 1. Why Go Global?

Masarap tumanda kapag na may ipon, dahil masarap yung feeling na sa pagtanda mo ay pinag aagawan ka ng mga kapamilya mo dahil may pera ka,
kaysa pinagpapasahan ka nila dahil pabigat ka

Introduction:
This chapter describes the impact of globalization, especially to the small companies, and their
interdependence when it comes to trade, and how entrepreneurs discovered that the tools of global
business can be acquired, and benefits of conducting global business can be substantial.
Why Go Global?
Trade and globalization have brought enormous benefits to many countries and citizens (WTO,
2008). Trade has allowed nations to benefit from specialization and economies to produce at a
more efficient scale. It has also raised productivity and incomes, increased economic growth,
supported the spread of knowledge and new technologies, and it has enriched the range of choices
available to consumers. For small companies around the world, going global is a matter of survival,
not preference. Going global can put tremendous strain on a small company, but entrepreneurs
who take the plunge into global business can reap the following benefits:

Benefits of Accessing the Global Market

○ Offset sales declines in the domestic market. A small

company’s export sales act as a counter-cyclical balance against
flagging domestic sales.
○ Increase sales and profits. Two forces are working in tandem to
make global business increasingly attractive: income rising to levels
at which potential sales are now possible.

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 ○ Extend their products’ life cycle. Some
companies have been able to take products that
have reached the maturity stage of the product
life cycle and sell them successfully in foreign
markets.

○ Lower manufacturing costs. In industries

characterized by high levels of fixed costs,
businesses that expand into global markets can lower their manufacturing costs by
spreading those fixed costs over a larger number of units.

○ Lower the cost of their products. Many companies find that purchasing goods or raw
materials at the lowest cost requires them to shop the global marketplace.

○ Improve competitive position and enhance reputation. Going up against some of the
toughest competition in the world forces a company to hone its competitive skills.

○ Raise quality levels. One reason Japanese products have done so well worldwide is that
Japanese companies must build products to satisfy their customers at home, who demand
extremely high quality and are sticklers for detail. Businesses that compete in global
markets learn very quickly how to boost their quality levels to world-class standards.

○ Become more customer-oriented. Delving into global markets teaches business owners
about the unique tastes, customs, preferences, and habits of customers in many different
cultures. Responding to these differences imbues businesses with a degree of sensitivity
toward their customers, both domestic and foreign.

Cost of Accessing the Global Market

Understanding trade costs is essential for creating
policy interventions designed to reduce such costs.

● Fulfilment of Minority Interest. It is important

to take into consideration the interest of the local populace
because it can be conflicting to the decisions of the
countries since they mainly value their businesses and
profits and not public interests.

● Specialization Leads to Over Dependency. When a firm relies on supply of other goods
from another country due to a more focused production of a specific good, they are at risk
of a supply shortage or stoppage.

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 ● Cultural Identity Issues. Trade leads to diffusion of culture. Others get lost while others
are capable of adopting other culture

● Social Welfare Issues. It is important to maintain safety standards, minimum wages,

worker’s compensation and health benefits - all of these are social welfare issues that cost
business money.

● Environmental Issues. Implementing strict laws and regulations to keep air, land and
clean water is a costly process, so businesses decide to move their operations in poorer
countries where it is less regulated.

● Political Issues. Trade of precious commodities (e.g. gold, diamond, oil or farmland) has
caused political alliances which do not assist people in trading nations, often powerful
corporations control these commodities.

● Depletion of Natural Resources. Increase in international demand of a natural resource

can cause over-exploitation and depletion of these resources.

● Seizure of Power and Loss of Control. Rich foreign investors will eventually control a
number of local resources and possess more power and authority in a country rather than
the natives of the land.

It is important that entrepreneurs should

answer these 6 questions before
venturing into the global marketplace:

1. Is there a profitable market in which

our firm has the potential to be
successful over the long run?
2. Do we have and are we willing to
commit adequate resources of time,
people, and capital to a global
campaign?
3. Are we considering going global for the right reasons? Are domestic pressures forcing our
company to seek global opportunities?
4. Do we understand the cultural differences, history, economics, value systems, opportunities,
and risks of conducting business in the country (or countries) we are considering?
5. Is there a viable exit strategy for our company if conditions change or the new venture is
not successful?
6. Can we afford not to go global?

To these entrepreneurs and their companies, they see the world as a market opportunity. An
absence of global thinking is one of the barriers that most often limit entrepreneurs’ ability to move
beyond the domestic market, not the national boundaries. This highlights the need of learning to
think globally - being the first and most challenging obstacle an entrepreneur must overcome.

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 Global thinking is the ability to appreciate, understand, and respect the different beliefs,
values, behavior, and business practices of companies and people in different cultures and
countries.

ACTIVITY PROPER 1: Why Go Global?

Answer this following question:

a. What are the Costs of Accessing the Global Market?
b. What are benefits of Accessing the Global Market?
________________________________________________________________________________
________________________________________________________________________________
_____________________________________________________________________________.

Lesson 2. Strategies for Going Global

“Sabi nila mas importante ang Pagmamahal sa pera, sige nga subukan mong ibayad
sa ELECO yung Hugs and Kisses nyo!”

There are nine principal strategies which small companies can pursue in order to enter a
global presence: (1) creating a presence on the Web, (2) relying on trade intermediaries, (3)
outsourcing production, (4) establishing joint ventures, (5) engaging in foreign licensing
arrangements, (6) franchising, (7) using counter-trading and bartering, (8) exporting products or
services, and (9) establishing international locations

Creating a Presence on the Web

The Web gives even the smallest businesses the ability to sell its goods and services all over the
globe. With a well-designed Web site, an entrepreneur can extend its reach to customers
anywhere in the world—and without breaking the budget.

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Only after establishing themselves domestically did small businesses begin to think about selling
their products or services internationally. The Web makes that business model obsolete because it
allows small companies to maintain a low-cost global distribution channel that they can utilize from
the day they are launched.

Trade Intermediaries

Trade intermediaries are domestic agencies

that serve as distributors in foreign countries for
domestic companies of all sizes.

They rely on their networks of contacts, their

extensive knowledge of local customs and
markets, and their experience in international
trade to market products effectively and
efficiently all across the globe.

The following are examples of trade intermediaries.

● Export Management Companies Export management companies (EMCs). EMCs

provide small businesses a low-cost, efficient, independent international marketing and
export department, offering services ranging from doing market research and giving advice
on patent protection to arranging financing and handling shipping. The greatest benefits
these intermediaries offer small companies are ready access to global markets and an
extensive knowledge base on foreign trade, both of which are vital for entrepreneurs who
are inexperienced in conducting global business.

● Export Trading Companies. These are businesses that buy and sell products in a number
of countries, and they typically offer a wide range of services such as exporting, importing,
shipping, storing, distributing, and others to their clients. Unlike EMCs, which tend to focus
on exporting, ETCs usually perform both import and export trades across many countries’
borders.

● Manufacturer’s Export Agents Manufacturer’s export agents (MEAs). They act as

international sales representatives in a limited number of markets for various non-competing
domestic companies. Unlike the close, partnering relationship formed with most EMCs, the
relationship between the MEA and a small company is a short-term one, and the MEA
typically operates on a commission basis.
● Export Merchants. These are domestic wholesalers who do business in foreign markets.
They buy goods from many domestic manufacturers and then market them in foreign
markets. Unlike MEAs, export merchants often carry competing lines, which means they have
little loyalty to suppliers. Most export merchants specialize in particular industries, such as
office equipment, computers, industrial supplies, and others.

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 ● Resident Buying Offices. Another approach to exporting is to sell to a resident buying
office, a government-owned or privately owned operation of one country established in
another country for the purpose of buying goods made there.

● Foreign Distributors. Domestic small companies export their products to these

distributors, who handle all of the marketing, distribution, and service functions in the foreign
country.

The Value of Using Trade Intermediaries

Trade intermediaries can get small companies’ products into foreign markets quickly and
efficiently. The primary disadvantage of using trade intermediaries is that doing so requires
entrepreneurs to surrender control over their foreign sales. Maintaining close contact with
intermediaries and evaluating their performance regularly help to avoid major problems, however.

Joint Ventures

Joint Ventures are domestic or international enterprises involving two or more companies joining
temporarily to undertake a particular project.

Types of Joint Ventures

● Equity based - operations that benefit foreign and/or local private interests, groups of interests,
or members of the general public
● Non-equity - known as cooperative
agreements which parties seek technical service
arrangements, franchise and brand use
agreements, management contracts or rental
agreements, or one-time contracts

Why Joint Ventures Fail?

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● Define at the outset important issues such as each party’s contributions and responsibilities, the
distribution of earnings, the expected life of the relationship, and the circumstances under which
the parties can terminate the relationship.
● Understand their partner’s reasons and objectives for joining the venture.
● Select a partner that shares their company’s values and standards of conduct.
● Spell out in writing exactly how the venture will work and where decision-making authority lies.
● Select a partner whose skills are different from but compatible with those of their own company’s.
● Prepare a “prenuptial agreement” that spells out what will happen in case of a business “divorce.”

Advantages of Joint Ventures Disadvantages of Joint Ventures

● access to new markets and Problems may arise if:
distribution networks
● the objectives of the venture are unclear
● increased capacity
● the communication between partners is not great
● sharing of risks and costs (ie
● the partners expect different things from the joint
liability) with a partner
venture
● access to new knowledge and
● the level of expertise and investment isn't equally
expertise, including specialised staff
matched
● access to greater resources, for
● the work and resources aren't distributed equally
example technology and finance
● the different cultures and management styles pose
barriers to co-operation

● the leadership and support is not there in the early

stages

● the venture's contractual limitations pose a risk to a

partner's core business operations

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Foreign Licensing

Licensing is a relatively simple way for even the

most inexperienced business owner to extend his or her
reach into global markets. Licensing is ideal for
companies whose value lies in its intellectual property,
unique products or services, recognized name, or
proprietary technology. Foreign licensing enables small
businesses to enter the foreign markets with ease and
with virtually no capital investment. Although risks may
include potential loss of control over its manufacturing
and marketing processes and creating a competitor.
Securing patents, trademarks and copyright protection
may minimize these risks.

International Franchising

Franchisers that decide to expand internationally

should take the following steps:

1. Identify the country or countries that are best suited

to the franchisor's business concept
2. Generate leads for potential franchises
3. Select quality candidates
4. Structure the franchise deal

Countertrading and Bartering

● countertrade - a transaction in which a company

selling goods in a foreign country agrees to
promote investment and trade in that country
● bartering - the exchange of goods and services
for other goods and services

Exporting

Growing numbers of small companies are looking to

export as a way of gaining or maintaining a
competitive edge.

Exporting can be defined as the marketing of goods produced in one country into another.
Two types of Export:

1. Direct Exports - these represent the most basic mode of exporting made by a company,
capitalizing on in production concentrated in the home country and affording better control over

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 distribution. There are no intermediaries.
2. Indirect Exports - a process of exporting through domestically based export intermediaries.

Steps for a sound export strategy:

Step 1. Recognize That Even the Tiniest Companies and Least Experienced Entrepreneurs Have
the Potential to Export
Step 2. Analyze Your Product or Service
Step 3. Analyze Your Commitment
Step 4. Research Markets and Pick Your Target
Step 5. Develop a Distribution Strategy
Step 6. Find Your Customer
Step 7. Find Financing
Step 8. Ship Your Goods
Step 9. Collect Your Money

● letter of credit - an agreement between an exporter’s bank and the foreign buyer’s bank that
guarantees payment to the exporter for a specific shipment of goods.
● bank draft - a document the seller draws on the buyer, requiring the buyer to pay the face
amount either on sight or on a specified date.

Establishing International Locations

Establishing an office or a factory in a foreign land can

require a substantial investment reaching beyond the
budgets of many small companies. The major
advantages to companies establishing international
locations are lower production, marketing, and
distribution costs as well as the ability to develop an
intimate knowledge of local customers’ preferences,
tastes, and habits.

Importing and Outsourcing

In addition to selling their goods in foreign markets, small companies also buy goods from
distributors and manufacturers in foreign markets. Also the trend of outsourcing in order to cut
costs and remain competitive is prevalent among companies selling low-cost items as well as
luxury goods.

The following are steps for entrepreneurs considering importing goods and services or outsourcing:

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 ● Protect your company’s intellectual
● Make sure that importing or outsourcing
property
is right for your business
● Select a manufacturer
● Establish a target cost for your product
● Provide an exact model of the product
● Do your research before you leave home
you want manufactured
● Be sensitive to cultural differences
● Stay in constant contact with the
● Do your groundwork
manufacturer and try to build a long-term
relationship

ACTIVITY PROPER 2: Strategies for Going Global

Answer the following questions:

a. What are the disadvantages and advantages of joint ventures?
b. What are some examples of bartering? What are disadvantages of bartering?
__________________________________________________________________________
_________________________________________________________________________.

Lesson 3. Barriers to International Trade

“Mas mabuting kaibiganin ang business minded kesa sa mgaChismis Minded Wala
kana ngang income mababaranggay kapa.”

Numerous trade barriers—domestic and international—restrict the freedom of businesses in global

trading.

Domestic Barriers

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 Need to know: dumping - selling large quantities of goods at prices that are below cost in
foreign countries in an effort to grab market share quickly.

Three major domestic roadblocks are common: attitude, information, and financing. The biggest
barrie
Companies must be flexible, willing to make adjustments to their products and r to
services, promotional campaigns, packaging, and sales techniques. small

businesses exporting is the (1) attitude that “My company is

too small to export, (2) Lack of information about how to get
started, (3) Lack of export financing

International Barriers
Two types of international barriers:
(1) Tariff and
(2) Nontariff

Need to know: tariff - a tax, or duty, that a government imposes on goods and services imported
into that country.

● Tariff barriers. Imposing tariffs raises the price of the imported goods—making them less
attractive to consumers—and protects the domestic makers of comparable products and
services.
● Non-Tariff barriers:
○ Quota - a limit on the amount of a product imported into a country
○ Embargo - a total ban on imports of certain products into a country.

Political Barriers Cultural Barriers

Companies doing business in politically risky Differences in cultures among nations create
lands face the very real dangers of another barrier to international trade. The
government takeovers of private property; diversity of languages, business
coups intended to overthrow ruling parties; philosophies, practices, and traditions
kidnapping, bombings, and other violent make international trade more complex
acts against businesses and their than selling to the business down the
employees; and other threatening events. street.

Business Barriers Impact of Trade Barriers

Simply duplicating the practices they have
● on Employment. Domestic economy will
adopted (and have used successfully) in
produce goods and services it requires to
the domestic market and using them in
meet its demand which in turn will result in
foreign markets is not always a good idea.

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 more investment allowing
employment
● on Domestic Firms. Protectionism makes
domestic firms less competitive in the
export market, as import barriers raise
domestic prices through higher costs for
mediocre inputs. Due to this, export
products also become costlier resulting in
decrease in market share against the
international competition.
● on Consumers. Consumers pay more
with protectionism. Trade protectionism
harms consumers by giving them little or
more no access to advance foreign products and
non-domestic that offer unique products
subjected to low market share
● on Balance of Payment. Tariffs and
other barriers allow the deficit in the
balance of payment to be corrected.
● on Economic Growth. Trade barriers
affect economic growth in developing
countries, which are unable to export
goods because of high tariffs, limiting their
ability to prosper and expand their
operation

ACTIVITY PROPER 3: Barriers to International Trade

Answer this questions:

a. What are the impact of traders?
b. Give two types of international barriers and meaning.

________________________________________________________________________________
_______________________________________________________________________________.

Lesson 4. International Trade Agreements

“Time deposit kaba? Kasi habang tumatagal lumalaki ang interest ko sa iyo.Boom!”

The following trade agreements have reduced some of the barriers to free trade that had stood
for many years.

2
 The World Trade Organization (WTO)

● WTO was established in January 1995 replacing the General Agreement of Tariffs
and Trade (GATT)
● only international organization establishing rules for trade among nations
● the multilateral trading system (rules and agreements of WTO) are the result of
negotiations among its members
● the WTO’s General Agreement on Trade in Services addresses specific industries,
including banking, insurance, telecommunications and tourism
● it is involved in the resolution of trade disputes among its members

North American Free Trade Agreement (NAFTA)

● Created a free-trade area among Canada, Mexico and the United States.

Need to know: free trade area - an association of countries that have agreed to
eliminate trade barriers, both tariff and nontariff, among partner nations.

● barriers were eliminated for trade among the three countries

● forged a unified United States-Canada-Mexico market of 431 million people with a
total annual output of more than $13 trillion dollars in goods and services
● provisions called for the reduction of tariffs to zero on most goods traded among
these three nations by 2008
○ other provisions:
#tariff reductions #elimination of non-tariff barriers
#simplified border processing #tougher health and safety standards

Central American Free Trade Agreement (CAFTA) the agreement took effect on
August 2, 2005

● designed to promote free trade among the United States and six Central American
countries: Costa Rica, El Salvador, Guatemala, Honduras, Dominican Republic, and
Nicaragua

Conclusion: To remain competitive, businesses must assume a global posture. Global

effectiveness requires managers to be able to leverage workers’ skills, company resources,
and customer know-how across borders and throughout cultures across the world.

Post-Activity No. 3: Why Go Global?

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 Select a nation that interests you and write or note down its business customs and
practices. How is it differ from our country Philippine? How is it similar? Use the matrix below.

Business Customs/Practices Similarities Business Customs/Practices Differences

Note:

Business practices are any tactics or activity a business conducts to reach its objectives

The following are discussion questions which you can ponder on to maximize what you’ve learned
in this unit.

1. What are the benefits of establishing international locations? What are the disadvantages?
2. What is a tariff? What is a quota? What impact do they have on international trade?
3. What advice would you offer to an entrepreneur interested in launching a global business
effort?

References:

Christiansen, B. (2015). Handbook of Research on Global BusinessOpportunities. Hershey,

Pennsylvania, United States of America: Business Science Reference. Retrieved from
https://www.academia.edu/10012606/Handbook_of_Research_on_Global_Business_
Opportunities

Goyat, S., & Nain, A. (2016, October). STRATEGIES OF ENTERING IN FOREIGN MARKET.
International Journal of Management Research & Review, 6(10). Retrieved from

http://ijmrr.com/admin/upload_data/journal_Jyoti%20Goyat%20%203oct16mrr.pdf

Joint ventures and business partnerships. (n.d.). Retrieved from NI Business Info:

https://www.nibusinessinfo.co.uk/content/joint-venture-advantages-and-disadvantages

Scarborough, N. M. (2011). Global Aspects of Entrepreneurship. In N. M. Scarborough,

Essentials of Entrepreneurship and Small Business Management (6th ed., pp. 559 -
595). Prentice Hall Inc.University, L. S. (n.d.). MCQ Chap 01 - Chapter 01
Globalization and International Linkages. Retrieved from coursehero.com:

https://www.coursehero.com/file/13070293/MCQ-Chap-01

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 UNIT 8. RISK MANAGEMENT

At the end of the Unit, the students must have:

1. listed and explained steps involved in preparing to face risks; and
2. identified how to manage risks.

PRE ACTIVITY: Risk Management

Name: ________________________________________ Score: ___________

Course/Section: _________________________________ Date: ____________

Part I. Multiple Choice

Direction: Write the letter of the letter of your choice provided.
____1. Refers to the uncertainty about loss or injury in business.
e. Risk c. Poor management
f. Accident d. Innovative

____2. Which of these does not belong to the group?

g. Fire and allied risks c. Marine
h. General liability d. Loss of life

___3. People working in a small firm will have to worry about losses due to sickness, injury, and
death called?
e. Business insurance c. life insurance
f. Fire insurance d. Marine insurance

___4. Business firms purchase life policies for any or all of the following reasons except?
a. For use as a fringe benefit for employees
b. To protect the firm against the financial problems caused by the loss of a key person
c. To aid in transferring ownership rights.
d. To keep control the business

___5. Which does not belong to the group?

c. Avoiding the risk c. reducing the risk
d. escalating risks d. shifting the risk

___6. This type of risk involves a threat of loss with no chance of profit. Examples are the risk of
fire, robbery, and injuries to third parties.
e. Pure Risk c. Risk management
f. Speculative risk d. risk assumption
___7. A fire insurance policy may also provide coverage on allied risks except?
a. Earthquake fire c. Riot and strike fire damage
b. Explosion d. none of the choices

___8. A person who wishes to avoid dying in an airplane crash and never attempts to board
airplanes is an example of?
g. Risk taking c. Risk avoidance
h. Risk assumption d. Risk policies

___9. Is an organized strategy for protecting and conserving assets and people. It helps reduce
financial losses caused by destructive or damaging events?
e. Risk management c. Shifting risks

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 f. Dealing with risk d. Balance the risk

___10. Your business might not be directly affected by a natural disaster, you may still suffer if it
affects your suppliers, customers or general location. What type of risk in business?
a. Direct b. indirect c. Global d. Possible

How well did you do?

How do you feel about the test? Did it make you feel confident or insecure? Your
feelings will be your guide to go slow or breeze through this module.

Here is the answer key to your pre-test.

Answers: Task 1

1. A 2. D 3. C 4. D 5. B 6. A 7. D 8. C 9. A 10. B

A perfect 10 makes you well-known entrepreneur someday. Please continue to study this
module as a review. If you go lower than 7, studying this module is a must.
7-9 Great Entrepreneur
4-6 Average Entrepreneur
0-3 Novice Entrepreneur

Now let us begin the exploration of this Module.

UNIT 8. RISK MANAGEMENT

Lesson 1. Business Risks
“Don’t be afraid to take the risks, mas kabahan ka Kung
wala kang ginawa sa buhay mo”

R
isks refers to the possibility of a commercial business
making inadequate profits (or even losses) due to
uncertainties - for example: changes in tastes,
changing preferences of consumers, strikes, increased
competition, changes in government policy, obsolescence
etc. Every business organization faces various risk elements
while doing business. Business risk implies uncertainty in
profits or danger of loss and the events that could pose a

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risk due to some unforeseen events in future, which causes business to fail.
Business risks can arise due to the influence by two major risks: internal risks (risks arising
from the events taking place within the organization) and external risks (risks arising from the
events taking place outside the organization)

 Internal risks arise from factors (endogenous variables, which can be influenced) such as:
o human factors (talent management, strikes)
o technological factors (emerging technologies)
o physical factors (failure of machines, fire or theft)
o operational factors (access to credit, cost cutting, advertisement)
 External risks arise from factors (exogenous variables, which
cannot be controlled) such as:
o economic factors (market risks, pricing pressure)
o natural factors (floods, earthquakes)
o political factors (compliance demands and regulations imposed by
governments)

Risks Confronting Small Business

Various kinds of risks are confronted by the small business in its daily operations. The kinds
of risk that are potentially damaging to the firm are fire, burglary, accidents, infidelity of
employees, damage to other people's property, among others. There were instances when some
firms were not able to recover when damages had been done by unmanaged risks. Such
misfortunes should provide the SBO with sufficient reason to engage in risk management.

Major Types of Risks

Risks may be classified into two major types, namely:
1. Speculative risk, and

2. Pure risk.

Speculative Risk. This type of risk involves a chance of

either profit or loss. Engaging in entrepreneurship is an example of
speculative risk. The venture may be successful, or it may fail. If
the firm is successful and a branch is opened in another town,
operating that branch is a kind of speculative risk. Speculative risk
is dealt with the use of effective management.

Pure Risk. This type of risk involves a threat of loss with no chance of profit. Examples are
the risk of fire, robbery, and injuries to third parties. If any of these events occur, the firm loses
money. If they do not occur, the firm gains nothing. Pure risks are better confronted with the
application of risk management techniques.

What Is Risk Management

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 Risk management is an organized strategy for protecting and conserving assets and people.
It helps reduce financial losses caused by destructive or damaging events. To effectively
implement, the following must be undertaken:

1. Identify the pure risks confronting the firm;

2. Estimate the probability of financial loss in various situations that could go wrong; and
3. Decide on the most economical way to handle the possible losses.

Methods of Dealing with Risk

In deciding the most economical way of handling possible
losses, the SBO must be familiar with the different methods of
dealing with risk. The four methods of dealing with risk are the
following:
1. Avoiding the risk; 3. Assuming the risk; and
2. Reducing the risk; 4. Shifting the risk

Avoiding the Risk

Avoiding the risk is a method of dealing with risk wherein the source of risk
is eliminated. A person who wishes to avoid dying in an airplane crash and never
attempts to board airplanes is an example of risk avoidance. Although risk
avoidance is an effective way of dealing with some risks, it is not so in many
cases. Sometimes, risk avoidance is just not practical. For instance, if someone
wants to avoid the risk of fire, renting a building (instead of owning it) avoids the risk. However,
there are times when no buildings are available for rent, and even if there are, they are in the
wrong place.

Moreover, even if the person is able to avoid owning the building, he may not avoid owning
machinery and equipment which may be lost to fire.

Reducing the Risk

Risk reduction refers to the steps undertaken to lessen the likelihood of a loss. It is an
alternative to risk avoidance. Examples of risk reduction measures are
the following:

1. Installation of non-skid stairways to minimize falls;

2. Implementation of accident prevention programs;
3. Requiring truck drivers to wear seatbelts to minimize injuries from
accidents,
4. Using fire sprinkles to minimize fire loss; and
5. Requiring machine operators to wear safety glasses, gloves, and
safety shoes to reduce the risk of injury.

Risk Assumption

Some companies find that setting aside an amount periodically to cover possible losses is a
viable alternative. This practice of building a contingency fund is called self-insurance. In this
manner, the company assumes the risk and gets ready for whatever loss comes from the risks
covered. This method may be used in conjunction with the other methods. Risks that are too large
for the company to assume will be dealt with using other methods.

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 ACTIVITY PROPER 1: Business Risks

Direction: With your basic understanding supply a word in the cluster map of the reasons why
some businesses fail.

Why
businesses
fail?

Lesson 2. Insure against risks

“failures can be good only if you learn your lessons from it ”

Shifting Risks to an Insurance Company

W
hen the first three methods of handling risks cannot meet the requirements of the
company or are impractical, shifting the risks to an insurance company may be
feasible. This involves the process by which the firm, for a fee, agrees to pay another
firm a sum of money stated in a written contract when a loss occurs. The insured Party’s fee to the
insurance company for coverage against losses is called a premium.

Insurance substitutes a small known loss (the insurance premium) for a larger unknown loss
that may or may not occur. This method is most applicable to large risks that the firm cannot afford
to assume.

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Life Insurance
People working in a small firm will have to worry about
losses due to sickness, injury, and death. This is true with the
employees, the managers, and the owner/s of the firm. The
financial strain may be too much for the firm to carry if losses
happen as a result of not having such risks covered by life
insurance. If the sole owner of a small firm dies, for instance,
the surviving heirs may not be able to operate the firm
effectively if they still have to worry about expenses related to
the death of the owner. As such, it becomes mandatory that such risks are covered by life
insurance.
Types of life Insurance Policies

From the simple life insurance policy of old, life policies have evolved into several variations.
They may be classified according to the type of coverage and according to the type of benefits and
premium payments period.

Types of Life Insurance According to Coverage.

Life policies have become some sort of specialized contracts that they may now.be classified
as follows:

1. Life policies-this type of policy covers death due to any cause with some exceptions like suicide;

2. Accident policies-these cover death due to accidents. Sometimes, murder and assault are also
covered; and

3. Health policies-these are policies that cover medical expenses related to sickness and preventive
health check-ups.

Types of Life Insurance Policies According to Other Factors.

Life insurance policies may be classified according to other factors
as follows:
1. Term life insurance;
2. Whole life insurance;
3. Endowment life insurance; and
4. Other types.
Term life insurance is a kind of life policy providing protection for a
specified Period like one or two years. Benefits are paid only if the insured
peril happens (death, for instance) during the period covered.

Term insurance provides pure insurance cover, i.e., no other benefits are included like
accumulation of savings. This limited coverage lowers premium and makes term insurance more
affordable. If a small firm is cash strapped, term insurance is a good alternative.

A whole life insurance policy provides the benefits of a stipulated sum when the assured
dies .Premiums are paid each year for as long as the assured lives. The amount of Premium
depends primarily on the age of the assured at the time the insurance is purchased.

Whole life policies, unlike term policies, have cash value. This value refers to the amount
received by the assured if he gives up the insurance. The value increases over the years until the
policy is surrendered.

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 The limited payment
Policy requires that premium be paid for a stipulated
period, usually 20 to 30 years, or until a specified age such
as 60 or 65 is reached. The payments or premiums stop at
the end of the stipulated period or at the time or death of
the assured, whichever comes first. Coverage extends
beyond the stipulated Payment period until the assured dies
and the face amount of the policy is paid.
The single premium payment policy

Is a type of contract where only one premium payment is made. Modified life insurance
contracts are those in which the premiums are arranged so that they are smaller than average for
the first five or 10 years of the policy and slightly larger than average for the remaining years of the
contract. This arrangement fits the needs and the ability to pay of a young married person with a
limited income.

A variable life policy has a cash value that fluctuates according to the yields earned by a
separate fund. A minimum death benefit is guaranteed.

An adjustable life policy is one whose coverage can be increased or decrease by

changing either the premium payment or the period of coverage.

A universal life policy combines term insurance with investment. Premiums are paid at
any time in virtually any amount with the effect that the amount of insurance can be changed
easily. The interest earned on short-term investment poured into the plan increases the cash value
of the policy.

An endowment life policy is one that builds up a large cash value within a stated period
of years. The face amount of the policy is payable in the event of death before the policy expires.

Other types of life policies are group life and credit life.

Group life insurance are term life insurance issued on a master contract for members of a
group.

Credit life insurance is a contract arranged in an amount needed to pay a debt in the
event of death of the borrower.

Business Uses of Life Insurance

Business firms purchase life policies for any or all of the following reasons:

1. for use as a fringe benefit for employees;

2. to protect the firm against the financial problems caused by the loss of a key person; and
3. to aid in transferring ownership rights.

When purchased as a benefit for employees, group life insurance helps attract and maintain
employees. When a key employee dies, financial losses may come as a result. The purchase of life
insurance offers protection against such type of losses. The beneficiary of the Policy is the firm and
the key employee is the subject of insurance. Life insurance proceeds also make the transfer of
ownership interest easier because of the availability of cash at the time of death. This may also
help the family keep control of the business.

Non-Life Insurance

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 Small firms also face risks regarding the following:

1.losses on properties owned by the firm due to fire, robbery,

theft, and the like, and

2. Losses due to liability claims of third parties.

The firm may be protected against such risks through the

purchase of non-life insurance appropriate to each specific requirement. The following types of

1. Fire insurance; 3. Marine insurance; 5. Bonds; and

2. Motor car insurance; 4. General liability insurance; 6. Miscellaneous insurance
non-life insurance may be bought from reputable companies:
policies.

Life and non-life insurance companies operate throughout the Philippines maintaining distribution
network in at least all the provincial capitals.

Insurance Coverages

LIFE NON-LIFE

Loss of Life Fire and allied risks

Motor Car
Health

Marine
Retirement

Surety

General liability

Miscellaneous risks

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Fire Insurance

The risks of losses due to fire may be covered by fire insurance. The subject of fire insurance may
include properties owned by the firm such as:

1. Buildings;
2. Machinery;
3. Furniture,
4. Stocks of merchandise;
5. Raw materials; and
6. work-in-process.

A fire insurance policy may also provide coverage on allied risks such as:

1. Earthquake fire;
2. Earthquake shock;
3. Windstorm, typhoons, and flood;
4. Riot and strike damage and riot fire damage; and
5. Explosion.

Motor Car Insurance

If the firm owns motor cars like automobiles and

delivery 'vans, losses may occur due to the following:

1. Damage on the motor car itself;

2. Damage to properties of third parties; and
3. Physical injuries to third parties.

The following coverages can be purchased from insurance companies:

1. Own damage and theft insurance to cover losses on the vehicle itself
2. Third party property damages
3. Third party liability-body injury to third parties
4. Passenger liability insurance

Marine Insurance

When a small firm delivers products to its various

clients, there is always a risk that loss or damage may be
affected on the merchandise or the vehicle carrying the
goods. Sometimes, deliveries involve transporting overseas or
over long inland routes which increases the risk of loss or

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damage to the products.

The small business operator may be protected from such possible loss or damage through
the purchase of marine insurance. This type of insurance is a form of property insurance which
indemnifies the insured for loss or damage to property, and a form of liability insurance protecting
the insured against the consequences of legal liability for loss or damage to property or for personal
injury, illness, or death of another person.

Marine insurance may be classified as follows:

1. Ocean marine insurance-this is one which covers primarily sea perils of ships and cargoes, which
can be protected from the warehouse of the seller to the warehouse of the buyer.

2.Inland marine insurance-this is one which covers primarily the land or over the land(but
sometimes water)transportation perils of property shipped by railroads, motor trucks and other
means of transport.

General Liability Insurance

There are times when business firms become the

subject of liability suits arising from loss or damage
caused by any of the various aspects of business
operations. Examples of these are several incidents of
death and illness caused by food poisoning. If these
happen to customers of food shops, the owners of these
establishments could be sued. The risks of liability suits are always present in all firms including
small business.

To protect himself, the SBO should consider buying liability coverage for his specific need.
Business liability forms of insurance consist of the following:

1. Owner’s, Landlord’s, and Tenant's Liability Policy

2. Manufacturer’s and Contractor's Form
3. Comprehensive General Liability Form
4. Contractual Liability Form
5. Owner’s and Contractor's Protective Liability Insurance
6. Products and Completed Operations Liability Form
7. Products Recall Insurance
8. Personal Injury Liability Policy
9. Storekeeper Liability Policy
10. Dram shop Liability Policy

Bonds

Surety bonds guarantee the performance of certain obligations. Bonds are useful to small
firms concerning the following risks:

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1. Employee dishonesty;

2. A supplier's failure to honor a supply contract; and

3. A contractor's failure to complete a construction contract with the small business firm.

Fidelity Bond. This type of bond protects the SBO against losses suffered as the result of
dishonesty on the part of employees. It is an especially important kind of insurance to carry if the
SBO has delegated authority over the handling of large sums of money, the control of large blocks
of merchandise or other company assets, or the responsibility for receiving and shipping
merchandise.

Supply Contract Bonds. These refer to bonds that guarantee the faithful performance
of contracts for furnishing supplies and materials at an agreed price, the SBO may require this bond
from a supplier if the materials required are critical to the operations of the firm.

Performance Bond. This type of bond guarantees performance and may be required
by a small firm from a contractor who agreed to construct a building or a facility for the firm.

Miscellaneous Insurance Apart from those mentioned above, the small firm may incur
losses connected with any of the following:

1. Crime; 3. Glass;
2. Boiler and machinery; and 4. Credit.

Special kinds of insurance may be purchased to cover losses on such risks.

Crime Insurance. This type of insurance protects SBOs against losses due to its being
wrongfully taken by someone else. Crime coverage includes possible losses from burglars, robbery,
larceny, theft, forgery, embezzlement, and other dishonest acts.

Glass Insurance. The large amounts of cash outlay invested in glass used for light,
displays, and ornamentation exposes the SBO to losses. Glass insurance covers such losses.

Boiler and Machinery Insurance. This type of insurance provides protection against
loss from the accidental bursting or breaking of a great variety of apparatus.

Credit Insurance. A credit insurance policy protects the small firm against loss that may
result from the insolvency of persons to whom the SBO may extend credit within the term of
insurance.

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 ACTIVITY PROPER 2: Insure against risks

Create your own insurance company and identify the terms and conditions you want?

Name of the
company

Terms

Conditions

Unit 3. Other Risks

”Kapag napapagod at nagsasawa sa trabaho,
balikan at tandaan ang dahilan kung bakit natin ginagawa ito”

Identifying business risk

T
here are many different types of business risk. Risks can
be internal and external to your business. They can also
directly or indirectly affect your business's ability to operate.
Risks can be hazard-based (e.g. chemical spills), uncertainty-based (e.g.
natural disasters) or associated with opportunities (e.g. taking them up or
ignoring them).

The types of risk you face are specific to your business and its objectives. To effectively manage
risk you should prepare for internal and external scenarios that may directly affect your business.

134
Direct risks to your business. Some common risk categories are:

 natural disasters, such as floods, storms, bushfires and drought

 pandemic, such as coronavirus (COVID-19), human influenza, swine flu
or bird flu
 legal, such as insurance issues, resolving disputes, contractual
breaches, non-compliance with regulations, and liabilities global events,
such as pandemics and interruptions to air traffic
 technology, such as computer network failures and problems associated with using outdated
equipment
 regulatory and government policy changes, such as water restrictions, quarantine restrictions,
carbon emission restrictions and tax
 environmental, such as climate change, chemical spills and pollution
 work health and safety, such as accidents caused by materials,
equipment, or location of your work
 property and equipment, such as damage from natural disasters, burst
water pipes, robbery and vandalism
 security, such as theft, fraud, loss of intellectual property, terrorism,
extortion and online security and fraud
 economic and financial, such as global financial events, interest rate increases, cash flow
shortages, customers not paying, rapid growth and rising costs
 staffing, such as industrial relations issues, human error, conflict management and difficulty
filling vacancies
 suppliers, such as issues within their business or industry resulting in failure or interruptions to
the supply chain of products or raw materials
 market, such as changes in consumer preference and increased competition
 Utilities and services, such as failures or interruptions to the delivery of your power, water,
transport and telecommunications.
You should use this list as a starting point for thinking broadly about the types of risks that could
impact your business. You may discover that you need to consider other important areas of risk
that are not listed here.

Indirect risks to your business

People often make the mistake of overlooking things that don't directly impact their business and
are therefore unprepared to deal with change. For example, while your business might not be
directly affected by a natural disaster, you may still suffer if it affects your suppliers, customers or
general location.

Consider how these scenarios could affect your business:

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 If your suppliers are affected, you may run out of the products you sell, or the materials you
need to make products.
 If your customers are personally affected, their priorities may change and you could experience
a reduced demand for your products or services.
 If your general location is affected, you and your customers may not be able to access your
premises, or your utilities could be affected. For example, you could lose power, which could
mean you:
o will not be able to operate your business
o may need to throw out any perishable goods and replace them, which can be costly.

Managing risk in your business

The process of identifying risks, assessing risks and developing

strategies to manage risks is known as risk management. A risk
management plan is an essential part of any business as it helps you
to understand potential risks to your business and identify ways to
minimize them or recover from their impacts.

ACTIVITY PROPER 3: Other Risks

Direction: Describe the image below, relate your discussion on how businesses address the risks,
and write your answer inside the note pad below.

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 Post-Activity No. 1: Risk Management

Name: ________________________________________Score:___________
Course/Section: _________________________________Date: ___________

I. MATCHING TYPE
Directions: Kindly match the statements in column B with its answer in column A.
Write the letter of the correct answer on the space provided.

Column A Column B

___1. Major types of risks A. Kind of life policy providing protection for a specified
time like one or two years

___2. Pure risks B. One that has the cash value that fluctuates according
to the yields earned by a separate fund

___3.Risks assumption C. For use as a fringe benefit for employees

___4. Fire and Allied risks D. loses due to liability claims of third parties

___5. Term life insurance E. An insurance which covers sea perils and ship cargoes

___6. A variable life policy F. Covers employee dishonesty

___7. Reason why firms G. Risks that may be covered by non-life policies
purchase life policy

___8. Risks confronting small H. Speculative risks and pure risks

firms

___9. Ocean marine Insurance I. Threats and loss with no chance of profit

___10. Fidelity bond J. Setting aside an amount periodically to cover possible

losses

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 Post-Activity No. 2: Risk Management
PART II. PICTURE ANALYSIS
Directions: Below are the pictures of various risks and practices in business operation. Kindly
examine them carefully and explain each inside the box provided.

Explain:

Explain:

Explain:

Note: Five (5) point rubric will be used in rating your answers
Level Description Value
Outstanding Well written and very organized. Excellent grammar mechanics. Clear and 5
concise statements. Excellent effort and presentation with detail. Demonstrates
a thorough understanding of the topic.
Good Writes fairly clear. Good grammar mechanics. Good presentation and 4
organization. Sufficient effort and detail.
Fair Minimal effort. Minimal grammar mechanics. Fair presentation. Few supporting 3
details.
Poor Somewhat unclear. Shows little effort. Poor grammar mechanics. Confusing and 2
choppy, incomplete sentences. No organization of thoughts
Very Poor Lacking effort. Very poor grammar mechanics. Very unclear. Does not address 1
topic. Limited attempt.

Post-Activity No. 3: Risk Management

Modified True or False: Write True if the statement is true and if otherwise change the underlined
words to make it correct.
______1. Accident policies provides pure insurance no other benefits are included like accumulation
of savings. This limited coverage lowers premium and makes term insurance more
affordable.

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_____2. A machinery insurance policy protects the small firm against loss that may result from the
insolvency of persons to whom extend credit within the term of insurance.

_____3. Credit insurance includes possible losses from burglars, robbery, larceny, theft, forgery,
embezzlement, and other dishonest acts.

____4. Inland marine insurance covers primarily the land or over the land transportation perils of
property shipped by railroads, motor trucks and other means of transport.

____5. A person who wishes to avoid dying in an airplane crash and never attempts to board
airplanes is an example of risk management.

____6. Risk reduction refers to the steps undertaken to lessen the likelihood of a loss. The best
examples is requiring machine operators to wear safety glasses, gloves, and safety shoes to
reduce the risk of injury.

_____7. People working in a small firm will have to worry about losses due to sickness, injury, and
death. This is true with the employees, the managers, and the owner/s of the firm called
non-life insurance.

______8. Health policies are policies that cover medical expenses related to sickness and
preventive health check-ups.

______9. Example of general liability insurance is the incidents of death and illness caused by food
poisoning. If these happen to customers of food shops, the owners of these establishments
could be sued.

_____10. Whole life insurance is a kind of life policy providing protection for a specified Period like
one or two years. Benefits are paid only if the insured peril happens (death, for instance)
during the period covered.

References

Medina, Robert G. (2010), Entrepreneurship in the small business Management. Rex Book Store
Inc.
Winefreda B.Asor, (2009) .Entrepreneurship in the Philippine setting.Rex Book Store Inc.

Internet sources:
https://www.business.qld.gov.au/running-business/protecting-business/risk-
management/identifying-risk

http://www.strategicthinking.eu/10-common-business-plan-mistakes-and-how-to-avoid-them/
https://www.infoentrepreneurs.org/en/guides/manage-risk/

Please Click Here!!!

I hope you feel the same and that you will take what you have learned this year and build on it
as you continue your studies… More-Raming Salamuch.

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