Chapter 3 historically evolved since a nation’s
inception.
CHALLENGES IN THE INTERNAL
ENVIRONMENT
INTERNAL ENVIRONMENT
➔ referred as the local milieu
➔ is the setting in which an organization
locally exists.
➔ There are existing unique and interrelated
variables that directly affect any
organization or business.
Government: The Business Caretaker
● A sole legitimate institution tasked with
overseeing organizational operations in
the country.
a. Provides the needed infrastructure:
- Physically in the form of roads,
bridges, electricity & water
services
- Technologically through
information technology
infrastructure & communication
facilities
- Economically by providing
availability of loans, banking
services, low interest rates, & tax
incentives
- Socially through housing,
welfare, waste management
policies, community services &
societal responsibilities
- Politically in terms of peace,
security, stability & governance
b. Creates an atmosphere of fair & robust
competition among industry & company,
monitors & regulates monopolies &
oligopolies & eliminates unfair &
illegitimate practices.
c. Formulates business policies, implements
business operating guidelines, regulates
the conduct of business activities such as
payment of taxes, health, & safety
practices in food, manufacturing,
construction & other service industries,
ensures quality of products & services,
mandates minimum wages of employees
& their fair & just treatment
Culture: A Communal Convergence
● Culture is the communal aggregation &
convergence of the country’s philosophy,
beliefs, traditions, values, attitude,
aspirations & practices that have
● Philippines’ Culture is greatly influenced
by: Chinese, Japanese, Spanish &
American.
● Culture has been shaped by
environmental variables happening within
& outside the country. It continues to
change, mature & transform.
● Evolution has nurtured certain beliefs,
traditions & practices.
Filipino Culture
❖ Trait of hospitality
❖ Practice of bayanihan
❖ Taking care of parents, old relatives &
siblings
❖ Concern or pakikisama & utang na loob
❖ Habits of ningas kugon, mañana, and
‘Filipino time’
❖ Attitudes of crab mentality & bahala na
❖ Virtue of resiliency
❖ Idea of kanya-kanya
❖ Consciousness of ‘being politically
involved’
Stakeholders: The Business Investors
● Organizations exist because of individuals
who are willing to take risks, invest their
capital & engage in business activities in
exchange for a return called profit.
● Stakeholders are business investors. Some
are actively involved while others are
silent investors.
● Stakeholders are assets to the country.
They provide opportunities for exchange
of products & services. They initiate
business operations & compete among
themselves.
● They boost & energize economic activity,
provide employment & help the
government by paying business taxes.
● Owners of businesses are the direct
stakeholders while the employees, the
government & the community are the
indirect stakeholders. They are the entities
that benefit from the investments of the
owners.
Competitors: The Business Threat
● Competition is an economic scenario
where organizations and individuals offer
& sell their products & services.
● Competitors continuously strive to
outplay & outsmart each other, hoping to
get a larger share of the target market.
Categories of Competitors:
★ Same Products
- Companies who sell exactly the
same products or offer the same
services. They are direct
competitors. (e.g. Unilever &
P&G) Both are engaged in the
same line of business & sell the
same products.
★ Similar Products
- Companies who sell similar
products. (e.g. tea & coffee)
★ Substitute Products
- Some companies sell substitute
products. (e.g. competitors of
marketplaces are fast-food
centers) They sell primarily
cooked food, & secondly,
convenience. Instead of going to
the market to buy meat, fish &
vegetables, they go to fast- food
centers for their meals.
★ Different Products
- Companies who sell different
products but market to the same
market segments.
Competitors also differ with respect to the
strategies they adopt:
1. Complementary Competition
- Some companies appear to
compete with themselves.
- For capturing a larger market,
they produce the same products,
use different brand names &
target different market segments.
(e.g. Real Estate Company)
- They sell low-cost housing,
classes C & D & average-cost
housing to middle- income class
families.
2. Collaborative Competition
- There are companies whose
relationships are strategic &
cooperative. (e.g. oil companies
engaging in a “friendly”
competition)
3. Corrupted Competition
- Some companies produce “fake”
products.
- They compete with legitimate
businesses by boldly &
unethically transgressing the
intellectual property rights of
other companies through
plagiarism, duplication & false
branding.
- They produce & sell these
products at low prices. Ways in
identifying competitors:
How can a company then know who its
competitors are? There are different ways of
identifying them and they are the following:
1. Determining similarity in characteristics
2. Studying consumers
3. Researching company data
4. Considering corporate success
Customers: The Business Challenge
● Competitors continuously compete to
capture a bigger share of the market.
● Customers make the market. They are the
reason why companies pursue new
product developments & differentiate
their existing products & services.
● Consumer Behavior is a marketing reality
that is difficult to discern, understand, and
study with definiteness.
● Customer Delight is a condition where
customers become excited over the
products or services offered.
● Customer Intimacy refers to the
relationship between the company and the
customers.
● Customer Relationship Management is
the
emphasis of most companies. To achieve
optimum level of gain and patronage,
products should be competitively priced,
of good quality, accessible, and ideally the
best.
Suppliers: The Business Partners
● Doing business involves supplier
-customer relationship.
● By definition, suppliers refer to
individuals and companies engaged in the
delivery of raw materials, machinery,
technology, labor, expertise, skills, and
other forms of services.
● They are essentially business partners.
Without them, certain products cannot be
produced and some services cannot be
rendered.
● The supplier component is important for
the following reasons:
1. It is responsible for the quality of
the products produced and the
services rendered.
2. It affects continuity in operational
processes (e.g.production,
scheduling, and delivery)
Community: The Business Concern
● It is the intermixture of people with
different “provincial or city cultures”,
 different values, attitudes, aspirations,
traditional beliefs, standards of living,
family backgrounds, religions &
educational attainments.
● It is essentially heterogeneous but
characteristically homogeneous in its end
goal of attaining quality of life.
● In principle, it is the rationale of the
“business framework”.
Porter’s Five Forces Model
● The competitive environment is best
described & illustrated by Michael
Porter’s Five Forces Model of Industry
Competition.
● Porter is an aerospace and mechanical
engineer. Pursued his doctorate degree in
industrial economics. He was professor at
Harvard Business School. His book
‘Competitive Strategy (1990)’
enumerated five forces that determine the
intensity, profitability, and attractiveness
of an industry.
● Porter spelled out when these five forces
are high & proposed ways of reducing
these situations:
Suppliers are sources of input needed to produce
goods & services. The BARGAINING POWER
OF SUPPLIERS is high when:
a. Few large suppliers dominate the market
where they form a powerful oligopolistic
bloc;
b. There are no substitutes for the specified
input;
c. Switching costs from one supplier to
another are high; and
d. Customers of suppliers are not united but
fragmented.
To deal with this situation,
strategies may include buying out,
collaborating, & providing training on
supply chain management.
The BARGAINING POWER OF
CUSTOMERS is high when:
a. Customers buy in large volumes;
b. Their products are not unique, such that
they can be replaced or customers can
produce those products themselves;
c. Suppliers are fragmented and few; and
d. Product switching is easy.
To deal with this situation, firms
can collaborate, reach out, create loyalty,
and increase value-added incentives in
customers. They can improve supply
chain management and work hard to
move purchase decisions from price.
Factors that heighten BARRIERS TO THREAT
OF NEW ENTRANTS are:
a. Financial in nature (economies of scale,
high initial investments, fixed costs, &
cost advantage due to the learning curve);
b. Marketing advantages (brand loyalty of
customers, controlled distribution
channels, protected intellectual property
on products and services and good
supplier-customer relationships); and
c. Production and operation (access to raw
materials & scarcity and costs of qualified
labor).
To reduce the threats of new
entrants, firms can produce better
products, increase their efficiency, create
and promote their brand image, enhance
relationships with suppliers and
distributors, and pursue aggressive
marketing strategies.
THREATS OF SUBSTITUTES are present
when complementary, alternative, and similar
products are in existence and sold at lower prices.
To diminish these threats, enhance brand
loyalty of customers & increase switching costs.
COMPETITIVE RIVALRY AMONG
PLAYERS is high when:
a. There are many players with similar
strategies;
b. Rivalry is not differentiated;
c. The barriers for exit are high; and
d. The growth of a company is at the
expense of the other.
To deal with this situation,
differentiate the products & services to
avoid price competition.
Collaborate among competitors while focusing on
different segments.
Three Fundamental Generic Strategies (by
Michael Porter)
1. Cost leadership which can be achieved by
exploiting economies of scale;
2. Optimizing the learning curve
3. Stressing on operational excellence.