CHAPTER 3:CHALLENGES IN

THE INTERNAL
ENVIRONMENT
Learning Outcomes Particularly at the end of this chapter, the
students should be able to:
1. Assess the internal environment;
2. Identify the role of the government as the business caretaker;
3. Appreciate the role of culture as a venue of communal
convergence;
4. Classify and compare the types of competitors;
5. Relate consumer behavior to specific consumer outcomes;
6. Appreciate the importance of suppliers in any business
transaction; and
7. Explain Porter's Five Forces Model.
While the external environment plays an essential role in the
survival and competitiveness of an organization, the internal
environment presents a more direct impact on how
organizations should conduct themselves toward success.
There are different challenges within the internal
environment of an organization. Thus, this chapter discusses
the constructs within the internal environment itself and the
relevance and application of Porter's Five Forces Model.
The Internal Environment

The internal environment is the setting in which an organization

locally exists. As one studies the local environment, there are
existing unique and interrelated variables that directly affect any
organization or business. Understanding these variables is essential if
one has to conduct his organization successfully. These areas are
government, culture, the stakeholders, competitors, suppliers,
customers, and the community.
Government: The Business Caretaker
The government is the sole legitimate institution tasked with overseeing
organizational operations in the country. In implementing these administrative
functions and responsibilities, the government undertakes the following:
1. Provides the needed infrastructure-
• Physically in the form of roads, bridges, electricity, and water services;
• Technologically through information technology infrastructure and
communication facilities;
• Economically by providing availability of loans, banking services, low
interest rates, and tax incentives;
• Socially through housing, welfare, waste management policies, community
services, and societal responsibilities; and
• Politically in terms of peace, security, stability, and governance.
2. Creates an atmosphere of fair and robust competition among industry and
company players, monitors and regulates monopolies and oligopolies, and
eliminates unfair and illegitimate practices.
3. Formulates business policies, implements business operating guidelines,
and regulates the conduct of business activities such as payment of taxes,
health and safety practices in food, manufacturing, construction, and other
service industries, ensures quality of products and services, and mandates
minimum wages of employees, and their fair and just treatment.
Culture: A Communal Convergence

As mentioned previously, a nation's culture is the communal aggregation and

convergence of the country's philosophy, beliefs, traditions, values, attitudes,
aspirations, and practices that have historically evolved since a nation's
inception. The Philippines has its own culture-A culture that was greatly
influenced by diverse cultures: Chinese, Japanese, Spanish, and American.
Through many years of national growth and development, this culture has been
shaped by environmental variables happening within and outside the country
and until today, continues to change, mature, and transform. Such evolution has
nurtured in the Filipino certain distinct beliefs, traditions, and practices, which
are either a pride to the country or otherwise. Worth mentioning are the
following:
1. The trait of hospitality. Filipinos are generally warm people. They are cordial, friendly, and
accommodating. Their doors are open to relatives and friends, most especially during town
celebrations called "fiestas."
2. The practice of bayanihan, Filipinas, most especially those in the provinces, are generally
helpful. This practice creates an atmosphere of unity and concern among the townspeople
3. Filipinos generally take care of their parents, old relatives, and siblings. They work hard to
send their brothers and sisters to school. Because of this priority, some set aside their own
personal lives. In addition to this, most Filipinos take care of their aging grandparents and
parents. They do not send them to homes for the aged, which is the usual practice in
developed countries
4. Pakikisama and utang na loob. Many Filipinos prioritize friendship to the point of
sometimes sacrificing principles. Some develop bad habits like smoking, drinking, taking
drugs, and breaking laws due to pakikisama. Furthermore, they tend to remember the good
things done to them by people in the past, wishing that someday they can repay them. These
nagging feelings of indebtedness can be abused.
5. The habits of ningas kugon, mañana, and ‘Filipino time’. Some Filipinos excitedly begin
something without finishing what they have started. This explains why a celebrated and urgent
political, social, or economic issue dies a natural death. Filipinos sometimes tend to procrastinate
tasks and responsibilities. They seem to work better when they cram. They are generally late when it
comes to meetings and appointments, something of an "easy life" attitude.
6. The attitudes of crab mentality and bahala na. Some Filipinos are not happy with the good
fortunes of others. They have a subconscious tendency to bring down their own fellow citizens. This
is prevalent here and among Filipinos overseas. Moreover, some Filipinos leave their life to the
natural course of events. There seems to be no sense of urgency.
7. The virtue of resiliency. The Filipinos are a flexible people. Despite the difficulties in their
personal and social lives, they can easily adjust and bounce back. They are born survivors.
8. The idea of kanya-kanya. Filipinos, on the other hand, tend to be individualistic. At times,
they are selfish and are indifferent to the plight of others.
9. The consciousness of being politically involved. As often noted, Filipinos are highly
politicized. They are up-to-date with the latest political issues. The ordinary Filipino in barbershops,
the vendors along the walkways, and the drivers on the streets generally talk about politics. The
ordinary Filipino housewife is not exempted. Somehow, everyone has his own political views,
leanings, and biases.
One can see that culture plays an important role in the growth of any
country. In a sense, the positive values that are characteristic of
Filipinos have helped the nation to move forward toward development.
On the other hand, the negative values of the Filipinos have, to a certain
extent, retarded the progress of the Philippines. It is hoped that positive
Filipino values be further reinforced and enhanced while negative
Filipino values be restrained, if not eliminated.
Stakeholders: The Business Investors
Organizations exist because there are individuals who are willing to take risks,
invest their capital, and engage in business activities in exchange for a return.
This return on their investments is profit. Stakeholders are business investors.
Some are actively involved in the conduct of their business while others prefer
to be silent investors. Stakeholders are assets to the country. They provide
opportunities for exchange of products and services. They initiate business
operations and compete among themselves. They boost and energize economic
activity, provide employment to the community, and help the government by
paying business taxes. Without them, a country is paralyzed. While owners of
businesses are the direct stakeholders, others are indirect stakeholders. These are
Individuals or entities that stand to benefit from the investments of the owners.
They are the employees, the government, and the community.
Competitors: The Business Threats
There are various forms of competition as well as several types of competitors. Competition is
an economic scenario where nations, communities, organizations, companies and individuals
offer and sell their products and services.
Competitors continuously strive to outplay and outsmart each other, hoping to get a larger share
of the target market. They fall in different categories.
1. Same Products. They are companies who sell exactly the same products or offer the same
services. They are direct competitors. Examples are Unilever and Procter & Gamble, Both
are engaged in the same line of business and they sell the same products.
2. Similar Products. They are companies who sell similar products. Tea and coffee are similar
products.
3. Substitute Products. Some companies sell substitute products. For example, the competitors
of marketplaces are fast-food centers who sell primarily cooked food, and secondly,
convenience. Instead of going to the market to buy meat, fish, and vegetables,
4. Different Products. Still, there are companies who sell different products but market to the
same market segments.
Competitors also differ with respect to the strategies they adopt .
1. Complementary Competition. Some companies appear to compete with themselves.
For capturing a larger market, they produce the same products, use different brand
names, and target different market segments. An example is a real estate company
that sells low-cost housing to target markets, classes C and D; and average-cost
housing to middle-income class families.
2. Collaborative Competition. Similarly, there are companies whose relationships
among each other are strategic and cooperative. Examples are the oil companies in the
country. They are in "friendly" competition.
3. Corrupted Competition. Lastly, some companies produce "fake" products. They
compete with legitimate businesses by boldly and unethically transgressing the
intellectual property rights of other companies through plagiarism, duplication, and
false branding. They produce and sell these products at low prices.
How can a company then know who its competitors are? There are
different ways of identifying them and they are the following:
1. Determining similarity in characteristics. One way of identifying competitors is by
determining similarity in the products and services offered, the specific technologies
applied, and the strategies employed, whether marketing, financial, and managerial.
2. Studying consumers. Observing and studying consumers in terms of demographic variables
can also help identify competitors: sex, civil status, age, educational attainment, monthly
income, employment, and psychographic variables like needs, wants, attitudes, perceptions,
purchase patterns, and buying behavior.
3. Researching company data. Competitors can also be identified through hard company data:
capitalization outlay, number of customers, distribution outlets, employees, financial
strength, number of years in operation, and company growth.
4. Considering corporate success. Lastly, some competitors look at the degree of success of
other companies by studying their sales volume and amount of sales, market leadership, and
goodwill.
Porter’s Five Forces