LOGO MPU2222

Introduction to
Entrepreneurship

2. Business Environment
Assessment

Mohd Hanis bin A Aziz

Contents

2.1 Components of business environment

2.2 Macro environmental influence

2.3 Micro environmental influence

2.4 Identification of business opportunity

2.5 Evaluation of business opportunity

MPU2222 / Introduction to
Entrepreneurship
 Revisit on last chapter

 Definition of Entrepreneurship
 Definition of Entrepreneurs
• Theories & Concepts
 Important of Entrepreneurship to….
 Entrepreneurial Characteristics
 Entrepreneurship Development in
Malaysia

MPU2222 / Introduction to
Entrepreneurship
At the end of the topic, students should
be able to:
 Explain the components of Business
environment
 List out the major component of macro
environment
 Describe the major component of micro
environment
 Explain the major factors of internal
elements

MPU2222 / Introduction to
Entrepreneurship
 2.1 Components of business environment

BUSINESS ENVIRONMENT

“A wide range of forces that can affect

business performance”

Divided into 3 – MACRO, MICRO, &

INTERNAL Environment

MPU2222 / Introduction to
Entrepreneurship
www.themegallery.com
 2.2 Macro environmental influence

What is Macro environment?

 Macro environment consists of forces

that typically influence the business’s
external task environment and
business itself

www.themegallery.com
 6 Components: PESTEL
 Political
 Economy
 Socio-Cultural
 Technology
 Environmental
 Legal
MPU2222 / Introduction to
Entrepreneurship
 Political Environment
 Firms need to understand the relationship between
governmental strategy or development plans and the firm.
◦ The extent to which government and its bureaucracy
supports and contributes resources to the firm - MITI
◦ The extent to which the political system is stable or to
undergo significant change.
 Some of the variables
◦ Govt. regulations and deregulations
◦ Changes in tax laws
◦ Special tariff
◦ Changes in patent laws
◦ Environmental protection laws
◦ Anti corruption legislation
◦ Political condition

MPU2222 / Introduction to
Entrepreneurship
Cont.

Examples:

 Trade barriers and tariffs

 Political risks
 Trade Agreement
 Taxation
 Acts and Regulation

MPU2222 / Introduction to
Entrepreneurship
 Economic Environment
The firm analysis should centre on those aspects of the economic system that
directly impact the type of project being considered. Grouped into 3 categories:
a) Current economic conditions
◦ Current level of inflation  affect how quickly costs rise.
◦ Current level of unemployment  influence type of labors entrepreneur’s
need.
◦ Current rise of interest rate  now expensive to borrow money.
b) Economic Cycles
◦ Economic activity is not static – has up and down.
◦ 4 level of economic cycle:
1) Growth/Prosperity
2) Recession
3) Depression
4) Recovery
c) Structural Changes
◦ Knowing whether changes in the economy are temporary or long-term
changes.
◦ Example: Malaysia shifted from agricultural-based economy  industrial-
based economy, then  service-based economy. It affect how people
worked, where people work, and type of education needed to do the work.
Cont.
 Social & Cultural Environments
 Influences in society & its cultures that change people’s attitudes,
beliefs, norms, customs, and lifestyles.

 Demographic issues e.g. population size & distribution, age

distribution, education levels, income levels, etc. affect how business’
marketing & advertising.
 Examples

◦ Social interest in health & fitness  led to home fitness,

nutritional supplements industries.
◦ Concern about smoking  led to regulatory & legal
backlash against tobacco companies.
◦ Increase in school children kidnapping cases  led to
mandatory recruitment of security guard in schools.

www.themegallery.com
 Technology Environment
 Rapid changes of technology can have impact on
the organizations
 Advances in IT affect all aspects of business
from overall strategic position, to marketing
methods, design, production and distribution.
 Technology change takes 2 forms:
1) Breakthrough Invention
- refers to creation of something new that is
different from existing technology or product
that will create new platform for future research.
2) Process Innovation
- refers to small changes in design, product
formulation and manufacturing, materials and
distribution.
www.themegallery.com
 Environmental
 Key environmental issues affecting
businesses include industrial waste,
sustainable development of raw
materials, and water and air
emissions.
 Environmental factors are:
 Geographical location
 The climate and weather
 Waste disposal
 etc

www.themegallery.com
 Legal
 Legislative changes take place from
time to time.
 Malaysian legislation related to
businesses
 Companies act
 Taxation
 Employment act
 Industrial Relation Act
 Intellectual Property Rights
 etc

www.themegallery.com
 2.3 Micro environmental influence
 Can also equally related to stakeholders
element including (6 elements)
 Customers
 Competitors
 Suppliers
 Financial Institutions
 Government Agencies
 Non-Government Organization (NGOs)

www.themegallery.com
 Customers
 Refers to people and other organizations in
the environment who acquire goods or
services from the business organization.
 Customers represent uncertainty – taste
can change dissatisfy with organization’s
product/services.

www.themegallery.com
 Competitors
 Refers to other organizations in the same
industry or another type of business that
provide goods/services to the same set of
customers.
 Competitors compete each other to gain
market share.
 E.g. Celcom  DiGi, Maxis, UMobile
Proton  Perodua, NAZA.

www.themegallery.com
 Suppliers
 Refers to other organizations which
provide/supply equipments, supplies,
component parts, and raw materials.
 Powerful suppliers can raise their prices
and therefore reduce profitability levels of
purchasing organizations.
 E.g. Chicken suppliers, APM Automotive

www.themegallery.com
 Financial Institutions
 Refers to institutions that provide financial
services for its clients or members.
 E.g. banks, insurance companies, stock
brokerages, cooperatives.
 Financial institutions are major source of
debt financing for small business.
 E.g. Micro Credits offer by BSN

www.themegallery.com
 Government Agencies
 Refers to policies and legislations on
business and investment as regulated by
the government.
 E.g. 10th Malaysian Plan (2010-2015); 3rd
Industrial Master Plan (2006–2020)
 E.g. Min. of Int’l Trade & Industry (MITI) –
responsible to plan, legislate, and
implement international trade and
industrial policies.

www.themegallery.com
 Non-Government Organizations (NGO)
 Refers to non-profit non-government
organizations which can influence the
business decision.
 Such as consumers societies, political
organization, religious group, business
society, environmental activist.
 They influence business through
campaigns, boycott, distribute info to
consumers, pressure government decision.

www.themegallery.com
 The Internal Environment
Composed of the elements within the firm,
including current employees, management,
and especially corporate culture, which has
influence business decision and activities.
 3 Components:
 Organization Structure
 Culture
 Resource

www.themegallery.com
 Structure
 Refers to the hierarchical arrangement of
tasks and people which determines:
- how information flows within firm
- which department are responsible for
which activities.
- where the decision making power rest.
 “Average span of control” determines
whether structure is tall or flat.

www.themegallery.com
 Tall Organization Flat Organization
Structure Structure
• Has overall narrow span
• Has wide span, horizontally
and more hierarchical
dispersed, and few
levels
hierarchical
www.themegallery.com
 Culture
 Refers to a pattern of shared basic
assumptions the firm learned as it solved
its problems of external adaptation and
internal integration that has worked well
enough to be considered valid.
 Theories -

www.themegallery.com
 14
components
that makes
firm’s
cultures

www.themegallery.com
 Resources
 Refers to people, information, facilities,
infrastructure, machinery, equipment,
supplies, and finances at a firm’s disposal.
 The availability of resource and the way
entrepreneur values the human and non-
human resource impact the firm’s
environment.

www.themegallery.com
2.4 Identification of business opportunity

1 2 3

The product is
available in the
Customers need
market, but
a product that
does not fully Business
can help to
meet the opportunities
solve specific
customers’
problems
demands and
preferences

www.themegallery.com
Business is all about selling
a product or service

• Every time something happens,

positive or negative, I ask myself,
WHERE is the OPPORTUNITY here?

• How do you spot an opportunity?

Keep your eyes open all of the time
Business Idea and Opportunity
 A business idea starts with an opportunity.
 A business opportunity exists when there is
demand for goods and services to meet the
needs and wants of community.
 Changes in the environment create
opportunities; cultural, social, legal,
economy, political,& technology (C-SLEPT).
Illustrations – Environment changes

 Good economic condition

 ↑ demand luxury cars, homes
 Increase number of working couples
 ↑ demand maids, babysitter
 Introduction of ICT
 ↑ demand computers, repairs,
knowledge, spare parts
 2.5 Evaluation of business opportunity

Process of Identifying, Evaluating and Selecting

Business Opportunity

Step 1 Step 2 Step 3 Step 4

Identifying Environmental Selecting the

scanning, self-
customers’ evaluation, and the Screening of best of
needs and community’s values business business
wants and norms opportunites opportunities
Step 1: Identification of NEEDS &
WANTS of consumers
 Need – is something basic in life such as food, drink,
clothing and shelter.
 Want – is extension of need; craving for better than the
basic need.
 Need for food: Rice
 Want for food: Chicken Rice (Chicken Rice Shop)
 Need for shelter: Renting a flat with 10 housemates
 Want for shelter: Renting a condo
 The better the economy of people, the more business
opportunities available for the entrepreneurs.
 Human NEEDS and WANTS are unlimited.
 Next, translate the NEEDS and WANTS into
PRODUCTS or SERVICES.
 PRODUCTS – are physical forms e.g. car,
handphone, books.
 SERVICES – non-physical form, intangible
product e.g. cab service, telco network,
training.
Step 2: Environmental Scanning,
Self Analysis & Community Values
3 factors to be considered:
1) Environmental Scanning
- help identify business opportunities.
- 2 approaches:
i) Macro scanning
e.g. population, ethnics, average
income,
ii) Micro scanning
e.g. family size, Malay delicacies,
individual income.
 Cont.
2) Self Evaluation
- to see what is available in oneself:
i) Experience
- match business with experience
e.g. engineer work with Public Work
Dept (JKR) will become a Civil Engineer.

ii) Knowledge & Skill

- do business on what he really
knows what to do e.g. Contractor must
not only knows how to manage his
business but also how to construct the
buildings.
 Cont.
2) Self Evaluation (cont.)
- to see what is available in oneself:
iii)Financial situation
- business that is planned to be
implemented must match with financial ability.
E.g. Land owner can do housing business.
iv) Interest
- select business based on his interest
e.g. a person with gardening hobby can
open nursery.
v) Networking
- good networking generate business
opportunity e.g. trading
 Cont.

3) Values/Norms of the Community

- business opportunities need to be
coordinated with the religious’ and society’s
values or norms.
- Values and Norms = what is perceived as
useful and beneficial to the community.
- E.g. Incinerator in Kuala Langat, Nuclear-
powered electricity generator, poultry farm
nearby residential areas.
Step 3: Screening of Business
Opportunities
 Legality:
- ensuring the business opportunity is a legal one.
- E.g. selling pirate DVD, imitate product e.g. Crocs.
 Degree of competition;
- choose business that is not monopolized.
- E.g. supplying Sugar
 Capital requirements:
- to identify sufficient funds to finance the business.
- E.g. own money, debt financing, FDI.
 Risks involved:
- expecting the potential uncertainties & considering the
percentage of success & failure.
- E.g. sell 2nd hand cars
 2 Types of Risks:

1) Business Risks:

Types of
Description Examples
Business Risks

Risk that can be Insurance scheme that cover

Transferable
transferred to fire, stolen stocks and accident
Risks
another party. at work.

Cannot fully control the

Risk that can be situation involving market
Controllable
somewhat controlled expectations, labor turnover,
Risks
by an entrepreneur. product quality & machine
breakdown.

Risk that cannot be

Uncontrollable Economic downturn, natural
controlled by an
Risks disaster e.g tsunami.
entrepreneur.
 Cont. 2) Financial Risks:

Types of
Description Examples
Financial Risks

Low liquidity – problem of setting

Lack of stocks, too much cash
Liquidity level short term debt; Too high
in hand
liquidity – overspending.

Finance business through

Risk due to non-servicing of
Loan bank’s loan – still have to pay
financial loan.
bank monthly despite no profit.

Buy on installment - potential

Risk when company give credit to be bad debt if not able to
Credit
facility to customers. recover from customer for a
long period of time.
Import/Export business – RM
Risk due to increase or
Foreign foreign product expensive;
decrease of foreign currency
exchange RM our product becomes
rate.
cheap => Profit Margin
 Seeing Opportunities
• Simply understand that there is little difference

between obstacle & opportunity

– able to turn both to their advantage
• The opportunities for potential entrepreneurs are
unlimited.

Technology is perhaps the

most dramatic force
shaping the marketing
environment.
Here, a herder makes a
call on his cell phone
Step 4: Selecting a business
opportunity and preparing a business
plan

 After fulfill step 1 to 3,

it is time for the entrepreneur to
select a business opportunity.
 Then to prepare the business plan.