Fundamentals of Entrepreneurship

ABUS009-4-1-FEP

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 Learning Outcomes

• Analyse the nature of organisation being a

system of inter-dependency

• Understand how the environment influences

the way business work

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 ENVIRONMENT

Definition:

1. The totality of surrounding conditions.

or

2. The sum total of all the external conditions

that affect an organism, community,
material, or energy.

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 Business Environment of an organisation

The two parts of a business environment are:

a) Internal Environment
b) External Environment

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 BUSINESS ENVIRONMENT

CONTROLLABLE
ENVIRONMENT
(internal)

NON-CONTROLLABLE
ENVIRONMENT
(external)
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 CONTROLLABLE ENVIRONMENT

1. Money
2. Materials
3. Equipment
4. Labour

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 CONTROLLABLE ENVIRONMENT

1. Money
Money to finance any business can be obtained from
many sources. A business can decide where and when
to obtain this financing. A business also can plan their
expenditures in the form of budget.

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 CONTROLLABLE ENVIRONMENT

2. Materials
Production requires materials and business has the
option to choose the types and quantity of materials
they require. A business also can change their product
to suit the availability of specific materials required for
that product.

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 CONTROLLABLE ENVIRONMENT

3. Equipment
Equipments are required to assemble the materials
and to help expedite production. A business can decide
whether to use equipment or not depending on the
ability of the equipment to handle the production
compared to human.

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 CONTROLLABLE ENVIRONMENT

4. Labour
In place of equipment, a business can decide to use
human labour to handle production. In most cases,
human intervention is highly relevant when decision
making is required.

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 NON-CONTROLLABLE ENVIRONMENT

1. Political
2. Economic
3. Social
4. Technology
5. Legal
6. Environmental
7. Competition

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 NON-CONTROLLABLE ENVIRONMENT

1. Political
How changes in government policy might affect the
business.
E.g. a decision to subsidise building new houses in an
area could be good for a local brick works.

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 NON-CONTROLLABLE ENVIRONMENT

2. Economic
How the economy affects a business in terms of
taxation, government spending, general demand,
interest rates, exchange rates and global economic
factors.

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 “Oil prices at the current levels will not dampen the demand
for cars in Malaysia but if they continue to rise, demand
for bigger engine cars would be affected.”

• http://biz.thestar.com.my/news/story.asp?file=/2008/1/14/business/
19975167&sec=business

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 NON-CONTROLLABLE ENVIRONMENT

3. Social
How consumers, households and communities behave
and their beliefs. For instance, changes in attitude
towards health, or a greater number of pensioners in a
population. (Indian wedding & Petronas)

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 DEMOGRAPHIC
The shrinking family size

Divorce Single parents

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 DEMOGRAPHIC
-An effect of ethnicity

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 NON-CONTROLLABLE ENVIRONMENT

4. Technology
How the rapid pace of change in production processes
and product innovation affect a business. (Tesco video
& German VW & Adidas & virtual shopping & Office)

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 NON-CONTROLLABLE ENVIRONMENT

5. Legal
The way in which legislation in society affects the
business. E.g. changes in employment laws on working
hours.

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Employers must pay all workers equal
pay for equal work
Employers must not discriminate
against anyone for a job because of
their sex
A consumer can sue a business if it
sells them a product that is of poor
quality, is not as described and does
not fit the purpose for which it is being
sold.
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Employers must provide healthy and
safe working conditions and
employees must act in a safe and
responsible way.
Employers must not discriminate
against anyone for a job because of
their race
An agreement between the employer
and employee. It includes conditions
such as rates of pay, hours of work,
holidays, pension contributions and
the amount of notice that must be
given if the worker wants to leave or
the employer wants to make the
worker redundant. Employees taken
on for a month or more must be given
a written statement of the conditions
within two months of the date the job
starts.
Title of Slides
Classification by law:

U - General Viewing for all ages

18SG - For 18+ with non-excessive violent/
horrifying scenes
18SX - For 18+ with non-excessive sex scenes
18PA - For 18+ with political/ religious/ counter-
culture elements
18PL - For 18+ with a combination of two or more
elements

Gun policy in the United States is also highly influenced by

the Second Amendment to the United States Constitution,
which prohibits infringement of "the right of the People to keep and bear arms.
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 SOCIOCULTURAL EFFECTS
-THE HEALTH CONCERN

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 THE ORGANIC OPTION

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 • https://www.youtube.com/watch?
v=2Y5bGpWNYKc

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 THE EFFECTS OF HIGHER
EDUCATION
Greater access
to education

Get good jobs

and earn
higher income

Higher
purchasing
power

Consumption shifts
towards branded,
high quality or
luxuries
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 NON-CONTROLLABLE ENVIRONMENT

6. Environmental
The environmental system is the natural system in
which life takes place. Increasingly businesses have
become aware of the relationship between their
economic activity i.e. making goods and services for
profits and the effects that this has on the
environmental system.

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 NON-CONTROLLABLE ENVIRONMENT

7. Competition
Competitors actions affect the ability of the business to
make profits, because competitors will continually seek
to gain an advantage over each other, by differentiating
their product and service, and by seeking to provide
better value for money.

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 A FIERCE BATTLE

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 EXAMPLE
OF
MCDONALD

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 McDonald’s Global Strategy
Brief History of McDonald’s
The first McDonald's was built in 1940 by the McDonald brothers (Dick
and Mac) .

Started off as a hot dog stand in CA [1937]

The McDonald brothers realized that hamburgers were their most

profitable menu item, and changed their business to serve a limited menu.

Employing “car hops” the McDonald brothers became the first restaurant
to offer speedy service to people while they stayed in their cars.

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 McDonald’s Global Strategy

Ray Kroc discovers

McDonald’s [1954]
Kroc became the first
franchisee appointed by
Mac and Dick McDonald
in San Bernardino ,
California.

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 McDonald’s Global Strategy
In 1955 , Ray Kroc opened his first
restaurant in Des Plaines , Illinois (near
Chicago) , and the McDonald's
Corporation was created .

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 McDonald’s Global Strategy

McDonald’s has over 30,000 local restaurants in more than 120 countries
70 percent of our restaurants worldwide are owned and operated by
independent, local businessmen and businesswomen

McDonald’s serves nearly 50 million customers each day

McDonald’s has its own Hamburger University in Illinois, and the first
batch graduated in 1961

12 classes offered at Hamburger University are college accredited

In 1963, McDonald’s sold its one billionth hamburger

McDonald’s is listed on the New York, Frankfurt, Munich, Paris and Tokyo
stock exchanges

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 McDonald’s Global Strategy

The first McDonald’s Drive-Thru opened in Sierra Vista,

Arizona in 1975

Happy Meals were added to McDonald’s menu in 1979

McDonald’s launched the new worldwide Balanced Active

Lifestyles public awareness campaign in 2005

McDonald’s celebrated its 50th Anniversary on April 15,

2005

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 McDonalds Global Strategy
•1971 McDonalds really starts going global
 Asian: Tokyo Ginza District, Japan
 European: Netherland, Munich, Germany

•1967 - Canada & Puerto Rico (first restaurants outside the U.S.)

•1971 - Tokyo, Japan, Amsterdam, Netherlands & Sydney, Australia

•1979 - Rio de Janeiro, Brazil

•1990 - Moscow, Russia & China

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 McDonalds Global Strategy

McDonald’s, still the dominant player in the fast

food restaurant business, is being challenged by
Subway, a smaller company that has been
rapidly expanding since 1965.

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 McDonalds Global Strategy

Founded by Fred DeLuca in 1965.

Subway is one of the fastest growing franchises in the
world with approximately 31,949 restaurants in 91
countries as of November.

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 McDonald’s Global Strategy

Many restaurant analysts attribute Subway's fast growth to the growing

health concerns by restaurant customers, a trend that Subway has taken
advantage of in its marketing.

McDonald’s Subway
Founded 1940 1965
Industry Restaurants Fastfood
Revenue US$ 22.6 US$ 9.0305
billion (FY billion
2008 ) (FY 2008 )
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 McDonald’s Global Strategy
Subway, riding high on the marketing message of healthy
fast food, will overtake McDonald’s in American store
locations by the end of 2009, with a shocking total of more
than 32,300 outlets.
That's something few consumers could imagine before the
sandwich chain piggybacked on huge weight loss of
Jared Fogle -- who lost 245 pounds by exercising and eating
only its sandwiches, in contrast to Super Size Me
's Morgan Spurlock, who got fat and sick eating McDonald's
food.

In the process, Subway has managed to expand its business

and profits. Now, Subway has emerged as a healthy
alternative in the market place, partially because its modest
business model allows it to open businesses in smaller
locations that cannot sustain stand-alone restaurants like
McDonald's, which depend heavily on drive-through
business for its earnings.
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 PEST ANALYSIS

To analyze the current status of McDonald’s

corporation, we chose to use the PEST
method to evaluate the following categories

P Political
E Economic
S Social
T Technological

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 Political Challenges

•Health and Safety Guidelines

The director of the obesity program for the

Children's Hospital Boston, David Ludwig, claims that "fast food
consumption has been shown to increase calorie intake,
promote weight gain, and elevate risk for diabetes"
Center for Science in the Public Interest, a long-time fast food
critic over issues such as caloric content, trans fats and portion
sizes

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 Political Challenges

• Ecological/environmental issue
– Fast food industry giants such as Wendy's, Pizza Hut,
and McDonalds are some of the largest consumers of
paper products in the US. "Every year millions of
pounds of food packaging waste litter our roadways,
clog our landfills and spoil our quality of life.

• Home market pressure-groups

• International pressure-groups
– Pushing for increased regulations to make
companies more responsible

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 Political Challenges

• Wars and conflicts

  
 war between countries
where the company
operates.
 They have also become a
symbol of capitalism and
Americanism meaning
that they have now
become the target of
terrorist group and attack.
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 Economic Challenges

• McDonald’s must consider economic

challenges when expanding
internationally.
Low set up costs = rapid expansion
One of the challenge for fast food industry is that to keep
the price is low for the customer.

Franchising facilitates set ups

» McDonald’s corporation provides financing
assistance and training for new franchise owners to
manage cash flow and keep businesses profitable.

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 Social Challenges

• From the research plan McDonald’s profits

dropped from $1.977 million dollars 2000
to $893 million dollars in 2002.
• The main reason is the consumers
worries had greatly
increased with health fears of increasing
obesity
• so customers now opted for more
healthier options like subway which
offered more of a variety for health
conscious customers.

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 Social Considerations

• To ease customers concern about health issues,

McDonald’s has made changes to the following;
•McDonalds changed its image vastly by evaluating the current
menu and making changes to it from using organic products to
revising the whole menu
entirely by offering salads and vegetarian burgers.

•McDonald’s serves a range of high-quality foods that can fit into a

balanced diet. The accurate and accessible nutrition information
help guests make informed menu choices.

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 Social Considerations

• Emphasis on food safety:

Mcdonald’s suppliers have food
safety management systems in
place, including Good
Manufacturing Practices (GMP),
a verified Hazard Analysis Critical
Control Point (HACCP) plan and
crisis management, food security
and other applicable programs

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 Technological Advantages

• McDonald’s has taken advantage of

technology to streamline their processes
and improve efficiency.
Through technology enhancements such as FPI's
Help Desk Service, network and application
consolidation, and other technology
implementations, operations of the company are
greatly improved.

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 Technological Advantages

• Touch Order Allows You To Place Order At

McDonald’s Via Handset

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 Technological Advantages

• The customers can place their order

directly from their tables, dubbed as
“Touch Order”. It’s the first self-ordering
system in the world to use RFID*
Technology
Spotlight:
McDonald's tests
Speedpass
cashless payment
system

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 Technological Advantages

• McDonald’s has also

implemented
technology to
improve supply
chain management,
and allows
customers to access
this information to
make more informed
decisions about
what they eat.
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 Recommendations for
McDonald’s
• More Healthy Choices
• McDonald’s should develop menu choices that are
healthy and socially acceptable.
– It is possible to develop a menu that people will enjoy
and that also fits into the original “Speedy Service” model
the company introduced in the 1950’s.

– Use local food sources where possible.

» Using local sources decreases the time to market,
and also decreases the use of fuel to transport
goods.

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 Recommendations

• Locally focused menu choices

– McDonald’s in India has specific menu items

– For the vegetarian market;

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 Recommendations

• Increase presence in Asian countries

•McDonald's has most certainly had a profound effect on China.

•When the first McDonald's opened in Beijing more than a dozen years
ago, 40,000 people lined up to observe a Big Mac and get their picture
taken with the infamous Ronald McDonald.

•McDonald's is growing faster in China than in the United States.

•McDonald’s owns & operates more than 600 stores across 105 cities in
China.

•More than 100 more McDonald's stores will be added annually to

Chinese cities within the coming years.

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 Recommendations

• While offering the basic burger and fries,

McDonald’s in China also offers:
– Szechuan-style spicy chicken wings
– Seafood Soup
– Rice
– Oriental Sauces
– Taro and Red Bean Dessert

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 COMPETITIVE ANALYSIS
Porter’s Five Forces
Porter’s Five Forces

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 Michael Porter’s Biography

- Is the leading authority on competitive

strategy
- Professor Porter is generally recognized as the
father of the modern strategy
- He is the Bishop William Lawrence University
Professor, based at Harvard Business School
- He is the author of 18 books and over 125
articles.

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 Business Environment

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 Porter's Five Forces

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 Porter's Five Forces Analysis is an important tool for assessing the
potential for profitability in an industry. With a little adaptation,
it is also useful as a way of assessing the balance of power in more
general situations.

It works by looking at the strength of five important forces that affect

competition:

Supplier Power: The power of suppliers to drive up the prices of your inputs.

Buyer Power: The power of your customers to drive down your prices.

Competitive Rivalry: The strength of competition in the industry.

The Threat of Substitution: The extent to which different products and

services can be used in place of your own.

The Threat of New Entry: The ease with which new competitors can enter the
market if they see that you are making good profits (and then drive your prices
down).

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 COMPETITIONS
Porter’s Five Forces

Use Porter’s Five-

Forces Model to
evaluate Harley-
Davidson’s business
competitiveness.

Harley-Davidson Motor Company

sells heavyweight (over 750 cc)
motorcycles designed for cruising on
the highway.

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 Porter’s Five Forces

1. Inter-Company Rivalry

2. Threats of New Entrants

3. Threats of Substitutes

4. Bargaining Power of Suppliers

5. Bargaining Power of Buyers

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 Porter’s Five Forces

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 Business Environment
Porter’s Five Forces

Rivalry Among Existing Competitors

HIGH

• Number of competitors increases

• Competitors become more equal in size and
capability
• Demand for the industry’s products declines
• Price cutting becomes common
• Consumers can switch brands easily

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 Business Environment
Porter’s Five Forces

Threat of New Entrants

Creating Barriers to Entry.....

• Gain Economies of scale

• Gain Technology and specialised know-how
• Establish strong customer loyalty
• Develop adequate distribution channels
• Secure access to raw materials
• Possession of Patents

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 Business Environment
Porter’s Five Forces

Threat of Substitutes

Threat increases when.....

• Relative price of substitutes decline

• Consumers’ switching costs decrease

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 Business Environment
Porter’s Five Forces

Bargaining Power of Buyers

Bargaining power increases when.....
• Buyers are concentrated (eg. Consumers’ Association)
• Buyers buy in volume
• Products are undifferentiated
• Buyers are well informed about sellers’
products, prices, and costs

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 Business Environment
Porter’s Five Forces

Bargaining Power of Suppliers

Bargaining power increases when.....

• There is a small number of suppliers

• There are only a few good substitute materials
• The cost of switching raw materials is costly

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 Business Environment

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 Question and Answer Session

Q&A

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