CHAPTER 3: LESSON 1

The Environment of
the
Entrepreneurial
Venture
Group 2
The Entrepreneurial Process of
Creating a Venture
Entrepreneurial Character Traits, Skills,
and Competencies Influencing
the Opening of Business
 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?
 Entrepreneurial Environment as Another
Factor Influencing the Opening of Business
 Societal
environment

Physical environment Industry Environment

THREE LAYERS OF ENVIRONMENT

Physical Environment

The first layer of the environment

• It is composed of the natural element

that are inherent in the Earth
• It is divided into climate, physical
resources, and wildlife.
The Physical or Natural Environment
Climate

The long-term average of weather, typically averaged over a

period of 30 years

The climatic condition in a particular region where the

business will be established must be evaluated such as
typhoons, long periods of drought and more
Climate

The entrepreneur must consider the prevalent condition of

the area to determine whether the business can withstand
or is fit to the climatic condition in the local area
Physical Resources

The availability of raw materials is another major factor

that can influence the success or failure of the business
venture

The availability or lack of raw materials will determine

the cost of the products
Physical Resources

The entrepreneur must critically assess the availability of raw

materials before opening a new business

He/She must evaluate if the available raw materials to be

used For the proposed business are sufficient for a long-term
operation
Wildlife

Wildlife traditionally refers to undomesticated animal

species, but has come to include all organisms that grow or
live wild in an area without being introduced by humans
Wildlife

The ecological system imbalance such as cutting trees

and hunting wild animals should be prohibited

The entrepreneur must ensure that his/her business

contributes to the preservation and not the
destruction of the ecological system
CHAPTER 3: LESSON 2

ECONOM
ICS
THESIS
Group 2
Societal Environment
 The societal environment is generally composed of social,
political, cultural, economic, legal, and technological forces.

 The thorough study of the environment where the business

operates is technically called environmental scanning.
  

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 include:
 Values
 Traditions
 Literacy level
 Consumer psychology
 Time orientation
 Lifestyle patterns
 Professional career roles
Political Forces
Are the various elements usually
comprising of political parties, political
systems, and other related political
groups that substantially influence the
political stability of a country.
Political forces:
 Trade regulations
 Taxation
 Government stability
 Unemployment
 Workers’ benefits
 Election practices
 
CULTURAL Forces
 Refers to the integrated characteristics of a group of
people or ethnic group in a particular society.
It includes:
 Religion
 Language
 Beliefs
 Customs
 Education
Economic Forces
Factors which are primarily caused by changes
or movements in the Philippine economy
that have direct or indirect effects on the
entrepreneurial venture.
 It includes:
 Interest rates
 Inflation rates
 Fiscal policies
 Monetary policies
 Income
 Exchange rates
 Employment
 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.
 It includes:
 Product control, pricing, labeling
 Health and safety of the workers
 Administration of election process
 Advertising and promotion
 Exercise of profession
 Education administration and fees
Technological Forces
The trends and developments in
computer and information
technology that have an impact
on business.
 It includes:
 Internet
 Social media
 E-commerce
 Technological advancement
 Technological infrastructure
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.
 
 PESTEL
Analysis
is a tabular framework of the trends and developments
in the different forces in the external environment.
The acronym PESTEL stands for Political, Economic,
Sociocultural, Technological, Ecological, and Legal
forces.
 Variations of PESTEL analysis:
 PEST analysis – disregards ecological and
legal forces
 STEEPLE analysis – ethics is an additional
factor
 STEEPLED – similar to STEEPLE but with the
addition of demographic factors
There are no strict rules to the presentation
and arrangement of the PESTEL tabular
framework. It can be modified based on the
priority of importance of a particular factor
in the business.
Environmental
Forces Matrix
 A modified version of the issue priority
matrix adopted by Wheelen and Hunger.
 Classifies various environmental forces into
their frequency of occurrence and level of
effect to the existing or proposed business.
 
CHAPTER 3: LESSON 1

INDUSTRY
ENVIRONMENT
GROUP 2
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.
 
GOVERNMENT
Government refers to the system or institution that
handles the affairs of a particular country. There are
different types and classification of government. A
government can be a democracy, autocracy, republic,
monarchy, or dictatorship.
 
SUPPLIERS
Supplies refers to individual persons or companies that
provides the required materials, parts, or services to the
business. They play a crucial role in the production of
goods and services. They can adversely affect the
production process by delaying the delivery of the required
raw materials and supplies or services, or by providing
defective materials or inefficient services.
 
CUSTOMERS
The customers are the buyers of the goods and services
produced or rendered by the business. The business
realizes profit from its transactions with the customers.
 
COMPETITORS
The competitors are the forces existing in the industry
environment that produce, sell, or render products or
services which are similar to those of the business.
Competitors and be classified as a direct or indirect. Direct
competitors produce and sell similar products or services,
while indirect competitors produce and sell substitute
products.
 
EMPLOYEES
The employees are the workers of the business who are
highly responsible for the production of goods or delivery
of services to the customers. They help ensure the quality
and quantity of products or services provided to the
customers. They are the backbone of the business. The
employees are selected according to their educational
background, character, experience, skills, and
competencies.
 
CREDITORS
The creditors refer to banks, financial institutions, and
financial intermediaries engaged in the lending money to
the borrower usually for a fee or charge in the form of
interest. Creditors usually provide the much-needed funds
by extending credit to the business. The entrepreneur
must know the different financial services provided by
banks and other financial institutions.
INDUSTRY ANALYSIS
SCANNING TOOLS
 Forces of
competition model

Competitive
SWOT model
forces matrix
 

FORCES OF COMPETITION
MODEL
The forces of competition model, otherwise known as the
“five forces of competition” was popularized by Michael
Porter, a prominent figure in competitive strategy
formulation. The industry environment is a competitive
environment. The business, therefore, cannot do nothing
else but to compete.
The intensity of rivalry among existing firms in the industry is
attributable to the following factors:
1. Number of the competing firms
2. Rate of industry growth
3. Characteristics of the products or services
4. Amount of fixed cost
5. Increased capacity
6. Diversity of rivals
 
FORCES OF COMPETITION MODEL
However, in the revised model, Michael Porter has added
“Other Stakeholders” as another force. This includes labor
unions, government, trade associations, and other special
interest groups. The competitive forces are all threats to
the profitability, growth, and survival of the
entrepreneurial venture.
BARRIERS TO THE FIVE
FORCES OF COMPITITION
The five forces are considered threats to the
entrepreneurial venture. Each competing force has its own
bargaining power in the industry environment. The
intensity of the threat of the five forces is highly influenced
by the level or degree of barriers affecting the particular
force. The more barriers against the force, the lesser the
intensity of the threat of such force.
 
POTENTIAL
NEW
ENTRANTS
The intensity of rivalry among existing firms in the industry is
attributable to the following factors:
1. Number of the competing firms
2. Rate of industry growth
3. Characteristics of the products or services
4. Amount of fixed cost
5. Increased capacity
6. Diversity of rivals
BUYERS
The buyer has a strong magnified bargaining power in the industry.
However, the threat of its bargaining power will be less if the following
factors exist:
1. The buyer has the potential for backward integration.
2. The cost of switching the supplier cost is minimal.
3. The buyer purchases large portions of the seller’s product or services.
4. There are several suppliers available in the market.
5. The product represents a high percentage of the buyer’s cost.
SUBSTITUTE
PRODUCTS
The substitute products can pose great threats in the industry
environment if the following factors are present:
1. The price of the substitute products is substantially lower.
2. Preferences and tastes of the customers easily change.
3. The quality of substitute products dramatically improves.
4. Switching cost is low.
5. Product differentiation is hardly noticeable.
SUPPLIERS
The intensity of the threat of the suppliers is strong if the following factors
hold true:
1. The product or service is unique.
2. The switching cost is very high.
3. Suppliers in the industry are few, but the sales volume is high.
4. Substitute products are not readily available in the market.
5. The supplier has the ability for forward integration.
RIVALRY
AMONG
EXISTING
FIRMS
 The intensity of rivalry among existing firms in the industry is attributable
to the following factors:
1. Number of the competing firms
2. Rate of industry growth
3. Characteristics of the products or services
4. Amount of fixed cost
5. Increased capacity
6. Diversity of rivals
 A picture is
worth a thousand
words