Chapter 3: Industry and Environmental Analysis: Business Opportunity Identification

Lesson 3.1: Principles, Tools, and Techniques

A business is just a small portion of an industry.

An industry is the aggregation of the different businesses engaged in the same line of undertaking.

BUSINESS ORGANIZATION

1. Sole Proprietorship – owned by a single individual. Simplest way to set up a business. (100% owned by
Filipino)

2. Partnership – two or more persons combine their resources in a business with a view of making a profit.
(100% owned by Filipino)

a. General Partnership – all owners share the management of the business and each is personally
responsible for and must assume the consequences of the actions of the other partners. They have unlimited
liability which means loan payments will extend to their personal property.

b. Limited Partnership – some members are general partners who control and manage the business and may
be entitled to a greater share of the profit while other partners are limited and contribute only capital, take no
part in control or management, and are liable for debts to a specific extent only.

3. Corporation – separate from its owners, the shareholders. No shareholders is personally liable for the
debts, obligations or acts of the corporation. Can exist for only 50 years and are burdened by heavy taxes. (at
least 60% owned by Filipino)

4. Cooperative – organized by people with similar needs to provide themselves with goods or services or to
jointly use available resources to improve their income. They have equal say in decision-making.

BUSINESS SCALE

Micro business – below P1,500,001

Small business – P1,500,001 to P15,000,000
Medium business – P15,000,001 to P60,000,000
Large business – P60,000,000 and above

LESSON 3.2: TOOLS IN EVALUATING A BUSINESS

1. The geographic area which your business will cater to.

2. The size and the outlook of the industry.

3. Description of the product.

4. The buyers have to be identified.

5. The regulatory environment.

6. The need to identify the leading businesses in the industry.

7. Factors that will affect the growth of the business.

THE SWOT ANALYSIS

Created in the 1960s by business gurus, Edmund P. Learned, C. Roland Christensen, Kenneth Andrews, and
William D. Book in their book, Business Policy, Text and Cases (Irwin 1969)
SWOT is a analytical framework that can help a company meet its challenges and identify new markets.

S and W refers to internal factors. O and T are external factors.

Example template:

STRENGTHS – government incentives, low capital requirements, market acceptance, experienced leaders

WEAKNESSES – difficulty of organization, costly set-up, possible pollution problems, lack of training of
workers

OPPORTUNITIES – project may replace imported good available in the market, will improve employee
welfare, improved company reputation

THREATS – entry of competitors, time consuming production processes, opposition from residents in the
community

PORTER’S FIVE FORCES OF COMPETITIVE POSITION ANALYSIS

Bargaining Threat of
power of new
suppliers entrants
Rivalry among
existing
competitors

Threat of
Bargaining
substitute
power of
products or
buyers
services

1. Supplier Power – it is important to assess how much power the supplier has in his ability to drive up prices.

2. Buyer Power – if a supplier can enjoy the power to drive prices up, it is also possible for a buyer to drive
prices down.

3. Number of Competitors – the number and capability of competitors in the market will also impact on the
attractiveness of the market.

4. Possibility of new entrants – when investors see that a market is profitable, they will desire to join the
bandwagon and get a share of the profits.

FACTORS ON INDUSTRY ANALYSIS

Competition – who are the major businesses in the industry?

Customers – who will you sell your products?

Suppliers – every retail business needs suppliers from whom one can source raw materials, intermediate
products, or even the finished goods one intends to resell.
a. Manufacturer – cheapest source.
b. Distributors – wholesalers.
c. Imports – from other countries.

Substitutes – used in place of another.

GUIDE TO INDUSTRY ANALYSIS

Developed by North Carolina’s Small Business and Technology Development Center (SBTDC)

1. Geographic Area – identify whether local, regional, nationwide, or international

2. Industry (as to size) – worth in pesos and numbers of firms, trends, and developments and future outlook

3. Product – physical attributes and characteristics, and its uses.

4. Buyers – describe the target customers

5. Regulatory Environment – government laws and regulations

6. Company Information – list of the most successful businesses in the industry

7. A brief history of the industry – when and how it started

8. Factors that affect growth of the industry – from rural to urban places

9. Trends in sales over recent years – show actual sales in the industry, which are standard practices
prevalent among the firms

11. The types of marketing strategies prevalent in the industry

12. Competitor Information – information of competitors

LESSON 3.4 : ENVIRONMENTAL ANALYSIS

Economic Forces - income of the people (target market), economic conditions such as inflation, recession,
prosperity, demand, and supply in the market.

Physical Environment – population size, the place where business will be located, land distribution, climate
and in today’s global warming situation

Cultures and Lifestyles – cultural practices

Competition – the degree of competition in the market and the extent and strength of competition are all vital
in determining the success or failure of a business.

LESSON 3.5 : CIRCULAR FLOW OF ECONOMIC ACTIVITY

Business revenues

Goods and services

FIRMS HOUSEHOLDS
(producers) (consumers)

Resources

Factor Income Payments

Circular Flow – the flow of activities of household and firms in a circular direction
Goods and services flow from the firms as producers, to the households as consumers, in a clockwise
direction. Households as resource, owners provide firms as producers with resource used. It is the use of
these resource that enables the firms to produce the goods and services delivered to the households.

The flipside to the physical flow is the money payment flow. Household pay and firms earn revenues in
exchange for the goods and services received and provided respectively.

For as long as households are willing to consume, producers continue to produce goods and services for the
households.

THE GOVERNMENT SECTOR AND THE GLOBAL ECONOMY

Two other relevant units in the flow: the government and foreign countries.

The government is important b/c it makes purchase of economic resources. Foreign countries sells good to
oter countries, exports.

LESSON 3..6 : THE ECONOMY’S PRODUCING SECTORS

3 Main producing sectors:

1. Agriculture, Fishery, and Forestry – reaps the fruit of natural resources like the soil, water, and forests.
Vulnerable on climate change.

2. Industrial Sectors – includes manufacturing, construction, electricity, gas and water, mining and quarrying

3. Service – includes trade, transportation, communication and storage, banking and finance, public service
(government), real estate, and private services

LESSON 3.7 : COMPETITIVENESS AND EFFICIENCY

GLOBAL COMPETITIVENESS INDEX

Basic Requirements Index Efficiency Enhances Subindex Innovation and Sophistication

Pillar 1. Institutions
Pillar 2. Infastructure
Pillar 3. Macroeconomic
Environment
Pillar: Health and Primary
Education
Key for factor-driven
economies
factors subindex
Pillar 5. Higher Education and
Training Pillar 11. Business
Pillar 6. Goods market efficiency sophistication
Pillar 7. Labor Market efficiency Pillar 12. Innovation
Pillar 8. Financial market development
Pillar 9. Technological readiness
Pillar 10. Market Size Key for innovation-drivem
economies
Key for efficiency-driven
economies

Sectoral Shares Output (2013)

Service – 63%
Agricultural – 10%
Industrial – 27%
Sectoral Shares Employment (2013)

Service – 53%
Agricultural – 31%
Industrial – 16%

Sectoral Productivity (2008)

Service – 40,000
Agricultural – 20,000
Industry – 90,000

Contribution of Local Production to Local Consumption in percent (2008)

Rice – 84.7%
Corn – 99.7%
Fish – 100%
Chicken – 94.8%
Pork – 99.7%

Manufacturing

In spite of the liberalization of foreign investment and trade, the manufacturing industry is hardly competitive
even in the ASEAN region due to limitations of size and structural support.

Trade and Transport

In spite of being a top grosser (34%) of the biggest sector that is service, the trade industry supported by the
transport industry is also handicapped by the limited size of its establishments.

International Trade

Assembled electronic products top the country’s exports (40%) dominated by manufacturers reflective of the
country’s waning agricultural sector. (PSA, Foreign Trade Statistics 2013)

Small Business Opportunities

Small farmers and fisherman can tap urban consumer markets and distribution centers with cooperative to
minimize the limitations of size and inadequate farm-to-market facilities