The Business

Environment
OBJECTIVES

• Know the business condition in the external

environment;
• Understand the importance of segmenting the
market
• Analyze the conditions prevailing in the external
and internal environment;
• Give and enumerate the forces that affects the
firms competitiveness
• Develop strategic actions to combat the forces
that affect competitiveness:
• Develop action plans that will give average
return on investments.
Karen Mae Pabalate
BSHM-3
The business environment is composed of different factors that affect the industry and the firms
within it.
There are two main components of the business environment

The General environmental

• The general environmental focus is seeing the industry in the future and how it will affect present and future
operations. The general business landscape is wide and open for exploration, and seeing the business
condition miles ahead is an important factor in the survival of business.

The Industry Environment

• It refers to the analyses of the firm's conditions of profitability within the industry. The analyses will
generate data on the firm's capability to compete within the business industrial community on its products
and services based on the programmed vision and mission.
The Competitor

Analyses of the competitors are focused on predicting the

dynamics of
competition that are related to their operational actions,
responses and
intentions. Seeing how the competitors operate will give
insights on what strategies will most likely overcome the
market competitions.
 ANALYSIS OF THE EXTERNAL ENVIRONMENT

The environment of business in the world's landscape is highly turbulent,

complex and uncertain. The firm must have the complete data and
information by which to base their forecast and program of operation in
order to stay afloat in their business operation. An important objective is
to study the general environment in terms of the corporate opportunities
and threats. Opportunities are conditions in the general
environment that make the company competitive while threats are
conditions that hinder the company to overcome strategic competencies
of the various competitors.
 External environment analyses include four important activities:
Scanning
• Scanning is generally important in highly volatile business environment. It is important to analyse the data
carefully as the source of information is usually incomplete and unconnected.
Monitoring
• It is the process of carefully observing the changes in the environment and seeing the effects from the scanning
of information. Monitoring the changes in technological innovations is important as today's business changes
so rapidly with new technology in the production of products and services.
Forecasting
• Forecasting is the result of scanning and monitoring. Forecasts are derived from results of the analysis of the
changes in the environment. Forecasting is the process of developing projections of what might happen and
how quickly the company developed strategies to be competitive in the changing business landscape.
Assessing
• It is the process of determining the timing and significance of the effects of the environmental changes and
trends on the strategic management of the company.
 SEGMENTATION OF THE GENERAL ENVIRONMENT

The general environment is composed of segments that are external to

the firm. The degree of impact varies in different industry and the firm
has to scan, monitor, forecast and assess the levels and degrees of its
effect on the company's operational profitability.
The company must be able to recognize the environmental changes,
trends, opportunities and threats and apply the firm's core competencies
to take advantage of the changing environment.
There are six segments that affect the operation of the firm:
1. The Demographic Segment
• It is concerned with the population's size, age structure, geographic distribution system,
ethnic groups and economic index. For strategic competencies the demographic segments
should be analyzed on the global basis as it has potential effects across countries.
Globalization becomes the workings not only of big corporations but also small companies
with borderless operations.
a. Population Size
• The world’s population is still in the rise except in the United States and in some European
countries where couples are averaging with two children. India and China have the biggest
population index; but by the year 2050, the growth in population is expected to narrow
down as population control begins to take effect. Countries are beginning to realize that
the land area to produce food is not enough to feed the growing population. The
population growth and decline are challenges for corporate strategy to maintain the
production of goods at levels that will supply the needs of the population in the years to
come.
Age Structure

There are more babies born in developing countries like the Philippines.
The growth rate in population is still between 2.5 percent to more than 3
percent driving growth to 100 million people in 2014. The middle-age groups
dominate the population of most countries and these are challenges to the
corporate business to provide them not only their basic needs but also some
of their wants. While in some countries, the population life span increases due
to advancement in medical care and better lifestyle, the challenges are
focused on providing senior citizens with lower-priced products.

Geographic Distribution

The development of more urban canters and the migration of people from the rural areas to urban centers
are both opportunities for corporate strategies. The employment opportunities for most people in the urban
areas are signals for increase production of more goods and services. The growth of communication
linkages due to increase in speed of technology in the computer age would enable the people to work at
home. The worlds become a touch of the finger and movement becomes lesser.
 
Segmentation o f
the General
Enviro nment
PRESENTATION BY: CLAIRE ANN PINILI
BSHM - III
STRATEGIC MANAGEMENT IN TOURISM AND
HOSPITALITY
d. The Ethnic
Mix
In the Philippine business community, some Muslim businessman dominates the
retail trade in some small shopping centers. The educated ethnic group begins to
move from their mountain residence to the more populated centers to a make
living. Workforce diversity is a sociological issue. The migration of Filipinos to work
abroad is a corporate challenge for a more effective management system that will
integrate the heterogeneous talents of mix group of workers. Technical Filipino
workers abroad areadmired for their talents and dedication at work.

TIMMERMA
N
INDUSTRI
e. Income
Distribution
The income distribution across populations is of interest to firms as it is the
determinant of purchasing power for products and services. The living
standards of most people in the world have increased overtime due to dual
career of husband and wife, and this affected their buying habits for more goods
and services. Of interest to the firms are the average income of households and
individuals. The economic condition of the population determines the
development of business opportunities for the firms.

TIMMERMA
N
INDUSTRI
 THE ECONOMIC SEGMENT
This segment refers to the nature and direction
of
the economy in which f i rm competes or
a
compete. Firms may seek to
relatively generally stable compete
economies with strongin growt
W ith an h
potential globalization
interconnectedness of nations, f i rms d the
scan,
.
monitor, must and assess the
forecast,
host nation and the health
health ofofthe economies thei
outside their host nation. r

ECONOMIC SEGMENT
I N F L A T I O N RA TES
INTEREST RA TES
T R A D E DEFICITS OR S U R P L U S E S
 THE POLITICAL/LEGAL SEGMENT

This segment represents how organizations and

governments mutually try to influence each other,
and how f i rms try to understand these
influences ( current and projected) on their strategic
actions.

P O LI TI C A L/ LEG A L S EG M EN T
A NT I T R U S T L A W S
TAXATION LAWS
DEREGULATION PHILOSOPHIES
L A B O R T R A I NI N G L A W S
ED UC ATI ONA L PHILOSOPHIES A N D
POLICIES
 THE SOCIAL
AND CULTURAL
SEGMENTS

The sociocultural segment is concerned with a society’s attitudes and

cultural values. Because attitudes and values form the cornerstone of a
society, they often drive demographic, economic, political/legal, and
technological conditions and changes.

SOCIOCULTURAL SEGMENT:
W O M E N IN T H E W O R K F O R C E
DIVERSITY A T T I T U D E S A B O U T T H E Q U A L I T Y O F W O R K LIFE
SHIFTS IN W O R K A N D C A R E E R P R E F E R E N C E S
 THE WORLD
BUSINESS
SEGMENT
The globalization of the business market creates both opportunities and
challenges. The present scenario in trade and commerce is the creation of a
borderless flow of products and services. This segment includes relevant new
global markets, existing markets that are changing, important international
political events, and critical cultural and institutional characteristics of global
markets.
The nation's development of industries and creation of investments for the
production of goods are challenges not only for the firm but also for the
government.
GLOBAL SEGMENT:
I M P O R T A N T P OL I T I C A L E V E N T S
CRITICAL G L O B A L M A R K E T S
 ANALYSIS OF THE INDUSTRY
ENVIRONMMENT
An INDUSTRY is a group of firms that produce
similar products or offer similar services that are
close substitutes.

Compared with the general environment, the

industry environment has a more direct effect
on the firm’s:

S T R A T EG I C C O M P E T I T I V E N E S S
A B IL IT Y T O E A R N A B O V E - A V E R A G E
RETU RN S
An industry’s profit
potential is a function of
the five forces of
competition:
■ The threats posed by new
entrants
■ The power of suppliers
■ The buyers' bargaining power
■ The threat of substitute
product
■ The power of competition

Strategies are chosen, in part, because of the

influence of an industry’s characteristics.
1. The threats posed by new
entrants

The threat of new

entrants is the risk a new
competitor creates for
current companies within
an industry. This occurs
when a new company begins
selling a similar product or
service as an existing
company.
 The threat of new entrants could be avoided with the following
strategies:

Economies of scale are cost Product Differentiation It

advantages companies experience is the customer's
when production becomes efficient, as perception that the product
costs can be spread over a larger entering the market first is
amount of goods. A business's size is unique and thus captures
related to whether it can achieve an customer's loyalty and
economy of scale—larger companies will patronage.
have more cost savings and higher
The Five Forces that Affect Firm's Competiveness

Presented by Angelica Repe

c. Capital Requirements
is needed for the firm to enter a new market. Investments in terms of resources,
manpower skills, and new technology needed huge investments and the risk of
overcoming those in the market is great. The market opportunity may be attractive but
the risk is greater as it will require a new system of marketing, promotional strategies,
and newness in product features and innovation. To compete with an existing industry,
some organization buy out existing firms and develop new strategies to compete
competitively by introducing system and more efficient manufacturing and marketing
strategy.
d. Access to Distribution Channel
Access to Distribution channel is the path used to get a product from the
manufacturer or creator to the end user. In other words, how the customer
gets their product after purchase, which often include intermediaries.
Distribution channels can be long or short, direct or indirect. In general, the
more complex, the higher the cost to both the business and consumers.

e. Government Regulations
The Government policy on licensing and permit requirement can also control new
entrants to an industry. This could be true in industry where franchising regulations
is required like operating transport business especially in saturated routes.
The government regulations on quality service and the capital requirements would
discourage new entrants. For new entrants to enter this market, they need to buy
existing lines, franchise and improve their facilities and service which will require
huge investment.
2. The Power of the Suppliers
The suppliers of material inputs in the production of goods are determinants of quality products. Suppliers can
exert power to the industry to increase their prices that will affect the firm's profitability. Increase in material
inputs would mean adjustments in price that will affect the competitiveness of the firm.

The power of the supplier is powerful under the following:

a. When it is dominated by a few large companies
b. When they are more concentrated than the industry it sells
c. When there is no substitute available
d. When the industry is not a significant customer for the supplier
e. When the supplier's goods are critical to the firm's success
f. When it poses threat to integrate forward into the buyers' industry
3. The Buyers' Bargaining Power

The firm's objective is to maximize returns on their invested capital as business operates for the desired profit.
On the other hand, buyers would like to maximize the value of their hard earn money by bargaining for the
lowest price possible. To maintain the equitable balance, the firm has to adjust to the buyer's bargaining power
and satisfy customer needs as substitute products could be available in the market.

The consumers group has bargaining power under the following:

• When they purchase a large volume of the firm's output
• When there are available substitute of similar quality
• When the sales is a significant portion of the firm's sales volume
• When the buyer or dealer can be a threat for backward intergration
4. The Threat of Substitute Product
The industrial world is full of innovations and firms seek new opportunities. There are many firms looking for
new products to make business by studying substitutes for existing products in the market. Firms that do not
innovate will lose their market as innovation is the byword of the industry. Consumers are looking for new and
innovative products and their level of satisfaction is limitless.

The consumers group has bargaining power under the following:

a. When the substitute product is priced lower

b. When the quality is better than the existing product
c. When the product is immediately availabe in the market
d. When service is available
5. The Power of Competition
The actions taken by one company invite counter reaction by the other frim, competitive response is an active
reaction that forces the company to make innovations. Competitive rivalry intensifies when a firm is
challenged by a competitor's actions and an opportunity to improve its market position is recognized. Firms
differ in resources and capabilities, and seek to differentiate themselves from their competitors as they rarely
homogeneously. The visible competitive strategy is on price, quality, innovation and service.

Factors that intensify the power of competition

• The presence of balance competitors
• The slow industrial growth in some sectors
• Higher fixed cost of some firms
• High storage cost of some products
• Low product differentiation and switching cost
 Industrial Analyses and Strategic Actions

The five forces of competition are guidelines for firms to develop insights required to determine the firm's attractiveness in
terms of its potential to earn adequate return on their investments. The environment of business conditions that interplay in
the competitiveness of the firm must be analyzed in terms in data available to the firm Globalization and the international
market for product and services have changed greatly the landscape of business. Firms compete not only with multinational
corporations but also with new entrants and small players. The country's barriers no longer restrict structures as well as the
well-established firms.

Implications for strategic analyses

• Firms supply and service the same kind of customers
• The strength of the five industry forces affecting the firm
• The similarities of strategies develop greater rivarly among firms
 Analysis of the Industry Competition

The competitors' environment is the final stage in the analysis as it directly affects the firm's position in the
industry. The intense rivalry creates a strong need to understand the moves of the competitors. The firm must
be able to develop counteraction and strategy in order to remain afloat in the industry. Critical to an effective
analysis of the competitor's moves is the gathering of data and information that can help the firm understand its
competitor's intention and actions.

The firm must be able to seek the following information:

• The competitors' future objectives

• The competitors' current strategic actions
• The competitors' assumptions about the industry
• The competitors' strength and capabilities or their weaknesses
• The Government policy for the global market