CHAPTER 3

THE ENVIRONMENT OF
THE ENTREPRENEURIAL
VENTURE
LESSON 1
The Physical Environment
 An entrepreneurial venture is created out of the business opportunities which the
entrepreneur should seek to exploit. These business opportunities emerge from
the entrepreneurial ideas that arise from the changes in the environment,
government policy or technological advancements.

Identification of Opening of
Creation of entrepreneurial
entrepreneurial entrepreneurial
ideas
opportunities venture

The Entrepreneurial Process of Creating a New Venture

 LESSON 1
The Physical Environment
The entrepreneur needs to possess the necessary entrepreneurial character traits, skills,
and competencies before exploiting the business opportunities.

Entrepreneurial
Identification of Opening of
Creation of entrepreneurial character traits,
entrepreneurial entrepreneurial
ideas skills, and
opportunities venture
competencies

Entrepreneurial character traits, skills and competencies

influencing the opening of business
LESSON 1
The Physical Environment
If a prospective entrepreneur possesses the necessary character traits,
skills, and competencies, should he/she immediately open a new
business in order to exploit the business opportunity?

The answer is a big “NO”. He/she must first evaluate and analyze first
the business environment. The environment where the business
venture will operate is an important factor to consider in opening a
new business.
 LESSON 1
The Physical Environment
Entrepreneurial
character traits,
skills

Creation of Identification of Opening of

entrepreneurial entrepreneurial Entrepreneurial
idea opportunities venture

Entrepreneurial
environment
Entrepreneurial environment as another factor influencing
the opening of business
Three layers of environment

1.Physical environment
2.Societal environment
3.Industry environment
PHYSICAL OR NATURAL
ENVIRONMENT

PHYSICAL THE PHYSICAL

NEW CLIMATE
RESOURCES BUSINESS
ENVIRONMENT

WILDLIFE
PHYSICAL ENVIRONMENT

The first layer of the environment is the

physical or natural environment. It is
composed of the natural elements that are
inherent in the Earth. It is divided into
CLIMATE, PHYSICAL RESOURCES,
WILDLIFE.
CLIMATE
PHYSICAL RESOURCES
WILDLIFE
 LESSON 2
THE SOCIETAL ENVIRONMENT

PHYSICAL SOCIETAL INDUSTRY

CHANGES CHANGES
ENVIRONMENT ENVIRONMENT ENVIRONMENT

BUSINESS

Relationship between the environment and the business

SOCIETAL ENVIRONMENT SURROUNDING
THE BUSINESS

TECHNOLOGICAL FORCES SOCIAL FORCES

THE SOCIETAL
NEW
LEGAL FORCES POLITICAL FORCES
BUSINESS
ENVIRONMENT

ECONOMIC FORCES CULTURAL FORCES

 SOCIAL FORCES

 Are elements in society resulting from human interactions that can influence the
thoughts, behavior, attitude, actions and even the beliefs and customs of the people.
 Social forces includes:
1. Values
2. Traditions
3. Literacy level
4. Consumer psychology
5. Time orientation
6. Lifestyle patterns
7. Professional career roles
 POLITICAL FORCES

 Are the various elements usually comprising of the political parties, political
systems, and other related political groups that substantially influence the political
stability of a country.
 Political forces include the following:
1. Trade regulations
2. Taxation
3. Government stability
4. Unemployment
5. Worker’s benefits
6. Election practices
 CULTURAL FORCES

 Basically refers to the integrated characteristics of a group of people or

ethnic group in a particular society.
 Cultural forces include the following:
1. Religion
2. Language
3. Beliefs
4. Customs
5. education
 ECONOMIC FORCES

 Are factors which are primarily caused by changes or movements in the Philippine economy that have direct or
indirect effects on the entrepreneurial venture.
 Economic forces include the following:
1. Interests rates
2. Inflation rates
3. Fiscal policies
4. Monetary policies
5. Income
6. Exchange rates
7. Employment
8. Consumer confidence
 LEGAL FORCES

 Are the elements and bodies that are directly involved in the legislation and
interpretation of laws and ordinances directly affecting the business
 Legal forces include legislations on the following:
1. Product control, pricing, and labeling
2. Health and safety of the workers
3. Administration of election process
4. Advertising and promotion
5. Exercise of profession
6. Education administration and fees
 TECHNOLOGICAL FORCES

 Basicallyrefer to the trends and developments in computer and

information technology that have impact on business.
 Technological forces may include the following:
1. Internet
2. Social media
3. E-commerce
4. Technological advancement
5. Technological infrastructure
ENVIRONMENTAL SCANNING:
DEFINITION AND SIGNIFICANCE

ENVIRONMENTAL SCANNING
Refers to the gathering, critical evaluation, and
utilization of information on events and
activities and their relationships with the
physical, societal, and industry environments.
 Importance of environmental scanning

 It clearly portrays the trends, activities, and developments happening in every

environmental layer including the interrelated relationships between the various
forces in the environment
 It identifies the expected threats and opportunities existing in the environment
 It points out the possible factors that will determine the success of the
entrepreneurial venture
 It helps define the future path of the business
 It assists in the formulation of the most appropriate entrepreneurial strategies.
SOCIETAL ENVIRONMENT SCANNING
APPROACH

 LAYERS
OF THE EXTERNAL ENVIRONMENT OR
MACROENVIRONMENT
1. PHYSICAL
2. SOCIETAL
IN SCANNING SOCIETAL, THE ENTREPRENEUR MAY USE
ANALYTICAL APPROACH
A. PESTEL analysis
B. Environmental forces matrix
3. INDUSTRY
PESTEL analysis

 Is a tabular framework of the trends and developments in the

different forces in the external environment.
 PESTEL (political, economic, sociocultural, technological,
ecological and legal forces)
 Several variations of PESTEL
 PEST (disregard ecological and legal forces)
 STEEPLE (add ethics)
 STEEPLED (add demographic)
 TEMPLATE OF PESTEL ANALYSIS

Political Economic Sociocultural Technological Ecological Legal forces

forces forces forces forces forces
Instability of High Low level of Readily Abundant raw Frequently-
the interest education available materials changes tax
Philippine rates given among Public internet and laws
government by school social media
commercial graduates
banks
ENVIRONMETAL FORCES MATRIX

 PESTEL tabular framework simply lists down the trends

and developments in the different environmental forces
that have effects on the business. It does not present the
frequency of occurrence of a particular environmental
force and the degree of its impact to the business.
TEMPLATE OF ENVIRONMENTAL FORCES
MATRIX
LEVEL OF EFFECT ON ENTREPRENEURIAL VENTURE
HIGH MODERATE LOW
HIGH HIGH MODERATE
HIGH

ENVIRONMENTAL ENVIRONMENTAL ENVIRONMENTAL

FORCE FORCE FORCE
EQUENCY OF OCCURENCE

HIGH MODERATE LOW

MODERATE

ENVIRONMENTAL ENVIRONMENTAL ENVIRONMENTAL

FORCE FORCE FORCE

MODERATE LOW LOW

ENVIRONMENTAL ENVIRONMENTAL ENVIRONMENTAL
FORCE FORCE FORCE
 LESSON 3
THE INDUSTRY ENVIRONMENT
 Is the external environmental layer where the trends and changes are easily and immediately felt by
the business. The industry environment is considered the immediate environment of the business
where it conducts its various operational activities.
 Industry forces include the following:
1. Government
2. Suppliers
3. Customers
4. Competitors
5. Employees
6. creditors
THE INDUSTRY ENVIRONMENT

SUPPLIERS
GOVERNMENT

THE INDUSTRY
NEW
BUSINESS
ENVIRONMENT
CREDITORS CUSTOMERS

EMPLOYEES COMPETITORS
THE INDUSTRY ENVIRONMENT

GOVERNEMENT
refers to the system or institution that handles the affairs of a
particular country
SUPPLIERS
refer to individual persons or companies that provide the required
materials, parts, or services to the business.
CUSTOMERS
are the buyers of goods or services produced or rendered by the
business
THE INDUSTRY ENVIRONMENT

COMPETITIORS
are the forces existing in the industry environment that produce, sell, or render
products or services which are similar to those of the business.
EMPLOYEES
are the workers of the business who are highly responsible for the production of
goods or delivery of services to the consumers.
CREDITORS
refer to banks, financial institutions, and financial intermediaries engaged in the
lending of money to the borrower usually for a fee or charge in the form of interest.
INDUSTRY ANALYSIS SCANNING
TOOLS

The different forces in the industry environment must be properly

evaluated and analyzed. They can be either act as the catalyst to the
growth of the business or become the primary cause of its failure.

ENVIRONMENTAL SCANNING TOOLS:

1. SWOT model
2. Forces of competition model
3. Competitive forces matrix
 FORCES OF COMPETITION MODEL

also known as the “five forces of competition” was popularized by

Michael Porter, a prominent figure in competitive strategy formulation.
The business must determine the intensity of competition within its
industry environment since the level of intensity is primarily dependent on
the competitive forces existing within the industry.
The long-term survival of the business is measured by its successful
efforts against competitive forces.
The five forces competing within industry are
as follows:

1. Potential new entrants

2. Buyers
3. Substitute products
4. Supplier
5. Rivalry among existing firms
THE FIVE FORCES OF COMPETITION MODEL IN THE
INDUSTRY ENVIRONMENT

Threats of
potential new
entrants

Bargaining Bargaining
Rivalry among
power of power of the
existing firms
suppliers buyer

Threats of
substitute
products