The-Physical-Societal-Industry-Environment PDF

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(Source: “Entrepreneurship in Philippine Setting for Senior High School”
by Nick L. Aduana)...

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THE SOURCES OF ENTREPRENEURIAL IDEAS 1. CHANGES IN THE ENVIRONMENT  Entrepreneurial ideas arise from the changes that happen in the external environment with entrepreneurial implications. The term external environment in this lesson refers to the physical environment, societal environment, and the industry environment where the business operates. i. The Physical Environment a.Climate b.Natural Resources c. Wildlife ii. The Societal Environment a.Economic Forces b.Sociocultural Forces c. Political Forces d.Technological Environment iii. The Industry Environment a.Government b.Competitors c. Suppliers d.Customers e.Creditors f. Employees 2. TECHNOLOGICAL DISCOVERY AND ADVANCEMENT  Discovery and advancement in the use of technology are another good source of entrepreneurial ideas and opportunities. A person with entrepreneurial interest looks at the possibility of business opportunities in any new discovery or advancement in technology. 3. GOVERNMENT’S THRUST, PROGRAMS, AND POLICIES  The priorities, projects, programs and policies of the government are also good sources of entrepreneurial ideas. The term government in this lesson refers to the local government (municipal, city, or provincial) or the national government and its branches. The programs and agenda of the Philippine government intuitively address the needs of the Filipino people. Whenever there are changes in the policies and programs of the government, new entrepreneurial ideas are likely born. 4. PEOPLE’S INTEREST  The interests, hobbies, and preferences of the people are a rich source of entrepreneurial ideas. An entrepreneur must be keen in identifying the cycle of interests and trends of his/her target market since these tend to continuously change. The business venture should be adaptive to the interests and hobbies of the people to protect and sustain the business. 5. PAST EXPERIENCES  Past experiences and exposures are also a good source of entrepreneurial ideas. The expertise and skills developed by a person who has worked in a particular field may lead to the opening of a related business enterprise.

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THE PHYSICAL ENVIRONMENT  The first layer of the environment is the physical or natural environment. It is composed of the natural elements that are inherent in the Earth. It is divided into climate, physical resources, and wildlife. These three natural elements of the physical environment have significant contributions and effects to the business venture. Prospective entrepreneurs should critically evaluate them before opening their businesses. I.

Climate  The climatic condition in a particular region in the Philippines where the business will be established must be evaluated. The entrepreneur must consider the prevalent climatic condition of the area where he/she intends to open the business to determine whether it can withstand or is fit to the climatic condition in the local area.

II.

Physical / Natural Resources  The availability of raw materials is another major factor that can influence the success or failure of the business venture. Its availability or lack will determine the cost of the products. Products that are made from rare taw materials will definitely cost more than those that are made from common ones. Wildlife  Since the wild plants and animals in the Philippine forests are continuously abused, these abuses lead towards the imbalance of the Philippine ecological system where wild plants and animals are supposed to be interrelated.  The entrepreneur must ensure that his/her business contributes to the preservation and not the destruction of the ecological system of the local community and our country in general.  The entrepreneur must not open a business that will destroy the wildlife reserve. After all, it is also an entrepreneur’s task to become a model of social responsibility and environmental awareness.

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THE SOCIETAL ENVIRONMENT  The societal environment is generally composed of social, political, cultural, economic, legal, and technological forces. The critical evaluation and thorough study of the environment where the business operates is technically called environmental scanning. I.

Social Forces Social forces are elements in the society resulting from human interactions that can influence the thoughts, behaviour, attitude, actions, and even the beliefs and customs of the people. It includes the following: 1. Values 2. Traditions 3. Literacy Level 4. Consumer Psychology 5. Time Orientation 6. Lifestyle Patterns 7. Professional Career Roles Social forces are basically the products of the actions of the people on the important events that happen at any given time. The people, therefore, are most active participants in what happens in the society. 2

II.

Political Forces Political forces are the various elements usually comprising of the political parties, political systems, and other related political groups that substantially influence the political stability of a country. They include the following: 1. Trade Regulations 2. Taxation 3. Government Stability 4. Unemployment 5. Workers’ Benefits 6. Election Practices

III.

Cultural Forces Culture basically refers to the interchanged characteristics of a group of people or ethnic group in a particular society. It includes the following: 1. Religion 2. Language 3. Beliefs 4. Customs 5. Education In the Philippines, cultural forces have significant influence on any entrepreneurial endeavour because of our cultural diversity. The entrepreneur must evaluate the prevailing culture of the local community where the proposed venture will be established.

IV.

Economic Forces Economic forces are factors which are primarily caused by changes or movements in the Philippine economy that have direct or indirect effects on the entrepreneurial venture. These factors include the following: 1. Interest Rates 2. Inflation Rates 3. Fiscal Policies 4. Monetary Policies 5. Income 6. Exchange Rates 7. Employment 8. Consumer Confidence

V.

Legal Forces Legal forces are the elements and bodies that are directly involved in the legislation and interpretation of laws and ordinances directly affecting the business. These include legislations on the following: 1. Product Control, Pricing, and Labelling 2. Health and Safety of the Workers 3. Administration of Election Process 4. Advertising and Promotion 5. Exercise of Profession 6. Education Administration Fees

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VI.

Technological Forces Technological Forces basically refer to the trends and developments in computer and information technology that have impact on business which occur almost every day. These forces may include the following: 1. Internet 2. Social Media 3. E-Commerce 4. Technological Advancement 5. Technological Infrastructure

Environmental Scanning  It is considered the most appropriate measure to determine the trends and developments in the various forces existing in the business environment.  Refers to the gathering, critical evaluation, and utilization of information on events and activities and their relationships with the physical, societal, and industry environments.  Importance: 1. Clearly portrays the trends, activities, and developments happening in every environmental layer including the interrelated relationships between the various forces in the environment. 2. Identifies the expected threats and opportunities existing in the environment. 3. Points out the possible factors that will determine the success of the entrepreneurial venture. 4. Helps define the future path of the business. 5. Assists in the formulation of the most appropriate entrepreneurial strategies. PESTEL Analysis – is a tabular framework of the trends and developments in the different forces in the external environment. The acronym PESTEL stands for Political, Economic, Sociocultural, Technological, Ecological, and Legal Forces. There are several variations of PESTEL analysis. These include the following: a. PEST Analysis which disregards the ecological and legal forces, b. STEEPLE Analysis to which ethics is an additional factor, and c. STEEPLED Analysis which is similar to STEEPLE but with the addition of demographic factors. The PESTEL analysis is the most widely accepted and commonly used environmental scanning today. Though it is not a perfect tool to scan the trends and developments in the external environment, it is still considered the most appropriate tool because of its features. It is highly emphasized that the evaluation of trends and developments existing in the external environment is viewed from the perspective of the business and not from other businesses in different industries. There are no strict rules as to the presentation and arrangement of the PESTEL tabular framework. The framework may be modified based on the priority and importance of a particular factor for the business.

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Template of PESTEL Analysis Political Forces Instability of the Philippine government

Economic Forces High interest rates given by commercial banks

Sociocultural Forces Low level of education among public school graduates

Technological Forces Readily available Internet and social media

Ecological Forces Abundant raw materials

Legal Forces Frequentlychanged tax laws

THE INDUSTRY ENVIRONMENT  The industry environment is the external environment environmental layer where the trends and changes are easily and immediately felt by the business. Industry forces include the following: I.

Government Government refers to the system or institution that handles the affairs of a particular country. The Philippine government is both presidential republican and democratic. It promotes entrepreneurial ventures through its thrusts, programs, and priorities.

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Suppliers Suppliers refer to the individual persons or companies that provide the required materials, parts, or services to the business. 5

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Customers The customers are the buyer of goods or services produced or rendered by the business.

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Competitors The competitors are the forces existing in the industry environment that produce, sell, or render products or services which are similar to those of the business. The two (2) classifications of competitors are: a. Direct Competitors – produce and sell similar products or services. b. Indirect Competitors – produce and sell substitute products.

V.

Employees The employees are the workers of the business who are highly responsible for the production of goods or delivery of services to the customers. They are the backbone of the business. The employees are selected according to their educational background, character, experience, skills, and competencies. Their aspirations and priorities must be in line with those of the business. They must be motivated in their assigned tasks by providing them with desirable working conditions. Their respective cultural and religious beliefs and practices must be taken into consideration by the entrepreneur.

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Creditors The creditors refer to banks, financial institutions, and financial intermediaries engaged in the lending of money to the borrower usually for a fee or charge in the form of interest.

Industry Analysis Scanning Tools 1. SWOT Analysis [to be discussed separately in the next lesson] S – Strengths W – Weaknesses O – Opportunities T – Threats 2. Forces of Competition Model  Otherwise known as the “five forces of competition,” was popularized by Michael Porter, a prominent figure in strategy formulation. The industry environment is a competitive environment. The business, therefore, cannot do anything else but to compete. The five forces of competing within the industry are as follows: a.Potential New Entrants b.Buyers c. Substitute Products d.Supplier e.Rivalry Among Existing Firms However, in the revised model, Michael Porter has added “Other Stakeholders as another force.

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Threats of Potential New Entrants

Bargaining Power of the Suppliers

Rivalry among Existing Firms

Bargaining Power of the Buyer

Threats of Substitute Products Barriers to the Five Forces of Competition  The five forces are considered threats to the entrepreneurial venture. Each competing force has its own bargaining power in the industry environment. However, the intensity of the threat of the five forces is highly influenced by the level or degree of barriers affecting the particular force.  Potential New Entrants o New Entrant refers to one competitive force in the industry. It is a threat to the business. The intensity of its threat will be affected by the presence of the following barriers: 1. Strict government policy 2. Substantial capital requirement 3. Economies of scale 4. High cost of product differentiation 5. High switching cost 6. Difficulty in accessing distribution channels  Buyers o The buyer has a strong and magnified bargaining power in the industry. However, the threat of its bargaining power will be less if the following factors exist: 1. The buyer has the potential for backward integration. 2. The cost of switching the supplier cost is minimal. 3. The buyer purchases large portions of the seller’s products or services. 4. There are several suppliers available in the market. 5. The product represents a high percentage of the buyer’s cost.  Suppliers 7

The intensity of the threat of the suppliers is strong if the following factors hold true: 1. The product or service is unique. 2. The switching cost is very high. 3. Suppliers in the industry are few, but the sales volume is high. 4. Substitute products are not readily available in the market. 5. The supplier has the ability for forward integration. Rivalry Among Existing Firms o The intensity of rivalry among existing firms in the industry is attributable to the following factors: 1. Number of competing firms 2. Rate of industry growth 3. Characteristics of the products or services 4. Amount of fixed cost 5. Increased capacity 6. Diversity of rivals Substitute Products o The substitute products can pose great threats in the industry environment if the following factors are present: 1. The price of the substitute product is substantially lower. 2. Preferences and tastes of customers easily change. 3. The quality of substitute products dramatically improves. 4. Switching cost is low. 5. Product differentiation is hardly noticeable. o

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