INDUSTRY AND ENVIRONMENTAL

ANALYSIS: BUSINESS CHAPTER 3

OPPORTUNITY IDENTIFICATION
 LEARNING COMPETENCIES

Identify and explain different principles,

tools, and techniques in creating a business.
ABM_AE12-11a-d-9
What is the
difference
between
business and
industry?
A business is just a small portion of
an industry. It is an undertaking by a
person or a group of persons who are
partners, or of stockholders who own
a juridical entity known as a
corporation. Its main objective is to
earn profit for the owners.
An industry, on the other hand, is the
aggregation of the different
businesses engaged in the same line
of undertaking.
EXAMPLE
Celine is a business firm that
is part of the country’s shoe
industry.
 For a person to put up a
business, it is essential that an
industry analysis first be
made. Commonly used is a
system known as the SWOT
analysis, which lists the
strengths, weaknesses,
opportunities, and threats that
the business faces.
FORMS OF BUSINESS
ORGANIZATION
 SOLE PROPRIETORSHIP

Business Owned by One Person

ADVANTAGES OF SOLE
PROPRIETORSHIP
Easy to start business.
Owner makes all the decisions and is own
boss.
Owner receives all profits.
No business income taxes.
Psychological—sense of freedom.
DISADVANTAGES OF A SOLE
PROPRIETORSHIP
Capital is limited to what the owner can supply
or borrow.
Unlimited liability - Owner is liable
(responsible) for all debts, even losing personal
property if business fails.
Long hours and hard work necessary and owner
may have limited skills.
Limited life - Life of the business depends upon
owner; it ends if owner quits or dies.
 PARTNERSHIP
Business owned and
managed by a small group,
often not more than two or
three people, who become
partners.
TYPES OF PARTNERSHIPS
General Partnership – all partners
responsible for the management and
financial obligations of the business.

Limited Partnership – at least one

partner not active in daily running of
the business.
ADVANTAGES OF A
PARTNERSHIP
Fairly easy to start the business.
Easier management – each partner brings
ideas and expertise to the business.
Special taxes on partnership.
More sources of capital available.
More business skills available – usually can
attract top talent into the business.
DISADVANTAGES OF A
PARTNERSHIP
Each partner liable for business debts made by
all partners, even to losing personal property if
business fails (unless partnership is limited
liability partnership).
Each partner can make decisions, more than one
boss – potential conflicts.
Limited Life - Partnership ends of a partner quits
or dies.
Each partner shares the profit.
 CORPORATION
Business owned by a number of
people (called stockholders or
shareholders)and operated under
written permission from the state
in which it is located. Charter is
granted giving business
permission to incorporate.
STOCK
Stockholders or shareholders – investors
who become owners of the corporation.
Common stock – basic ownership – one vote
for each share of stock owned.
Preferred stock – non-voting ownership, but
get dividends first.
Dividends – Money representing a portion
of the corporate profits.
ADVANTAGES OF A
CORPORATION
More sources of capital available – stocks and
bonds.
Specialized managerial skills available.
Limited liability - Owners liable only up to the
amount of their investment.
Ownership can be easily transferred through
the sale of stock; business not affected by
change of ownership.
Unlimited life.
DISADVANTAGES OF A
CORPORATION
Difficult and more expensive to start the
corporation.
Owners do not have control of decisions made each
day, unless they are officers of the company.
Business activities of the corporation limited to those
stated in the certificate of incorporation.
Very detailed record keeping and corporation
required to pay income tax on profits.
More government regulation.
 FRANCHISE
Written contract granting
permission to sell someone else’s
product or service in a prescribed
manner over a certain period of
time and in a specified territory.
 COOPERATIVE
Business owned by the members it serves and
is managed in their interest.

Cooperative members have an equal say in

decision-making with one vote per member
regardless of number of shares held, there is
open and voluntary membership and surplus
earning is returned to the members according
to the amount of their patronage.
SMALL, MEDIUM, AND LARGE SCALE
BUSINESSES
 In the Philippines, total assets for micro business are
worth below P 1,500,001. For small business, total assets
are from P 1,500,001 to P15,000,000. Medium business
has total assets from P1,500,001 to P60,000,000. Any
business with assets in excess of P 60,000,000 is
considered large scale.

 For any form of business organization, the business must

be registered with the appropriate government
agencies. In the case of sole proprietorships and
partnerships, 100% must be own by Filipinos. For
corporations, atleast 60%.
 TOOLS IN EVALUATING A BUSINESS
The key factors that must be considered in analysing the industry
are the following:
1. Geographic area. Local? Regional? Or International?
2. Size and outlook of industry.
3. Description of the product.
4. Target costumers.
5. Regulatory environment, law that can affect or restrict the
business.
6. Identifying the lead industry and business to compete with.
7. Factors that will affect the growth of industry
THE SWOT ANALYSIS
Analysing a company’s:
•STRENGTHS
•WEAKNESSES
•OPPORTUNITIES
•THREATS
SWOT, which stands for Strengths,
Weakness, Opportunities, and Threats, is
an analytical framework that can help a
company meet its challenges and
identify new markets.
The framework can help identify the
business’s risks and rewards. It is also a
means of identifying the internal and
external forces that may affect the
business. It is very helpful in assessing
new ventures.
SWOT ACTUALLY REFER TO THE INTERNAL
FACTORS, AND THESE ARE THE RESOURCES AND
EXPERIENCES READILY AVAILABLE TO THE
BUSINESS PROPONENT.
USUALLY INCLUDED AS INTERNAL FACTORS ARE:
1. financial resources such as money and sources funds for
investment;
2. physical resources, such as the company’s location, facilities,
machinery, and equipment
3. human resource consisting of employees;
4. access to natural resources, trademarks, patents, and
copyrights; and
5. current processes, such as employee programs, department
hierarchies and software systems, sales and distribution
capabilities, marketing programs, etc.
SWOT ANALYSIS IS…
… A strategic planning tool that
separates influences on a
business’s future success into
internal and external factors
SWOT ANALYSIS ALLOWS BUSINESSES TO…
-Define realistic goals
-Improve capability
-Overcome weaknesses with
strengths
-Identify threats than can be
turned into opportunities
A SWOT MATRIX…
…separates and compares internal
and external influencers:

INTERNAL: strengths, weaknesses

External: opportunities, threats

A STRENGTH CAN BE A COMPETITIVE ADVANTAGE
LIKE…
-Superior product
quality
-Lowest price
-Best expertise
-Location
A WEAKNESS CAN BE A DISADVANTAGE SUCH AS…

-A tired brand
-Inferior location
-High overheads
AN OPPORTUNITY CAN BE…
-A regulatory or tax change
-A high-profile event
(marketing opportunity)
-An untapped market
-A gap left by a failed
competitor
 A THREAT CAN BE…
-Unfavourable regulation
changes
-A new entrant into the market
-Problems with the economy
-Market shrinkage
STRATEGIES THAT CAN COME FROM SWOT ANALYSIS…

S-O
W-O
S-T
W-T
MATCHING STRENGTHS TO OPPORTUNITIES
Otherwise known as:
S-O or Maxi-Maxi strategy

Using a strength to
maximise an opportunity
MATCHING WEAKNESSES TO OPPORTUNITIES
Otherwise known as:
W-O or Mini-Maxi strategy

Improving capability to
maximise an opportunity
MATCHING STRENGTHS TO THREATS
Otherwise known as:
S-T or Maxi-Mini strategy

Minimising a threat with a

strength
MATCHING WEAKNESSES TO THREATS
Otherwise known as:
W-T or Mini-Mini strategy

Minimising weaknesses and

threats at same time

(often last choice)

PORTER’S FIVE FORCES OF COMPETITIVE
POSITION ANALYSIS
Developed by Michael E. Porter of Harvard
Business School as framework for assessing
and evaluating the competitive strength and
position of business organization.
These five forces help in identifying if new
products or services are potentially
profitable.
PORTER’S FIVE FORCES OF COMPETITIVE
POSITION ANALYSIS
1. SUPPLIER POWER – The power of the
supplier to drive up the prices.
2. BUYER POWER – The buyer’s power to
switch between suppliers gives the buyer
power to drive down the price.
PORTER’S FIVE FORCES OF COMPETITIVE
POSITION ANALYSIS
3. NUMBER OF COMPETITORS – The
number and capability of competitors in
the market
4. POSSIBILITY OF SUBSTITUTION – When
the product is easy to be substituted
buyers are easy to switch alternatives.
PORTER’S FIVE FORCES OF COMPETITIVE
POSITION ANALYSIS

5. POSSIBILITY OF NEW ENTRANTS –

The desire of the investors to join
profitable markets.