ENTREPRENEURSHIP STUDY NOTES, Study notes of English

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Entrepreneurship

Quarter 1 – Module 3 :

The Environment of the

Entrepreneurial Venture

I. Recognize a Potential Market:

1.1. Analyze the market need

1.2. Determine the possible

product/s or service/s that

will meet the need

LEARNING COMPETENCY:

An entrepreneurial venture is created out of the business opportunities which the entrepreneur should seek to exploit. These business opportunities emerge from the entrepreneurial ideas that arise from the changes in the environment, government policy, or technological advancements. Figure 3.1.1. The Entrepreneurial Process of Creating a New Venture The entrepreneur needs to possess the necessary entrepreneurial character traits, skills, and competencies before exploiting the business opportunities. Figure 3.1.2. Entrepreneurial Character Traits, Skills, and Competencies Influencing the Opening of Business Hi! I am Teacher Mae! I wish to congratulate you! Please check your answers at the answer key section. If you got a perfect score of 5, you may skip the module but if you got 4 or lower, I suggest that you take the learning module seriously. ☺ REVIEW Creation of Entrepreneurial ideas Opening of entrepreneurial venture Identification of entrepreneurial opportunities Creation of Entrepreneur ial ideas Opening of entrepreneur ial venture Identification of entrepreneurial opportunities Entrepreneurial character traits, skills, and competencies

Directions: Study the picture and answer the questions that follow. http://www.peanutbrowas.com/blog/checking-the-life-size-last-supper-at-the-national-shrine-of-st- joseph-parish

1. List down all the possible business opportunities that you can identify based on the picture above. Write all the ideas that come into your head. There are no right or wrong answers.

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2. From the different possible business opportunities that you have identified, pick out: a. most creative, c. most costly, and b. most difficult, d. most common.

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If a prospective entrepreneur possesses the necessary character traits, skills, and competencies, should he/she immediately open a new business in order to exploit the business opportunity? The answer is “NO.” He/She must first evaluate and analyze first the business environment. The environment where business venture will operate is an important factor to consider in opening a new business. ACTIVITY 1 This is the National Shrine of St. Joseph Parish located at Centro, Mandaue City. Beside the church is a school (Academia de San Jose) and across it is the Mandaue City Plaza.

KEEP THIS IN MIND

Climate The climatic condition in a particular region in the Philippines where the business will be established must be evaluated. The normal weather condition in Baguio City is definitely different from that of Mandaue City. Therefore, a business may be feasible in Baguio City but not in Mandaue City. There are areas in the Philippines where the effects of global warming are more adverse compared to others. Some are frequently devastated by typhoons during the year, while others experience long periods of drought. The entrepreneur, therefore, 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 it fit to the climatic condition in the local area. Physical Resources The availability of raw material is another major factor that can influence the success or failure of the business venture. Although the climate of the place may be conducive to the business, it may still fail if the resources are not available. The availability of lack of raw materials will determine the cost of the products. Products that are made from rare raw materials will definitely cost more than those that are made from common ones. The entrepreneur must critically assess the availability of raw materials in the locality before opening a new business. He/She must evaluate if the available raw materials to be used for the proposed business are sufficient for a long-term operation. Wildlife The wild plants and animals in the Philippine forests are continuously abused. The trees cut for timber are not properly replaced. Wild animals are hunted and killed. These abuses lead towards imbalance in the Philippine ecological system where wild plants and animals are supposed to be interrelated. In view of this, 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. He/She must not open a business venture 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.

I. Enumerate and explain the elements of the physical environment. II. Perform the following:

1. Get a picture that generally describes your local community. It may show a heap of garbage, a dirty canal, a busy city street, rice paddies, farm animals, farmers, employees, and buildings, among others, then paste it in a short bond paper.
2. List down all the possible business opportunities that you can identify in your community based on the picture that you provided. Write all the ideas that come into your head.
3. Form groups of five members each, preferably from the same neighborhood. Observe the climatic conditions in your local community for one week. Take note also of the raw materials that are present in your locality. Based on your observations, determine the most appropriate business venture to open in your community. Explain your answer. ( Note : The student may opt to have it individually.) Instructions: Write TRUE if the statement is correct, otherwise write FALSE. ______1. The societal environment of the business includes the social, political, cultural, economic, legal, and technological forces. ______2. The different forces in the external environment do not influence or relate with each other. ______3. These forces have equal importance to all entrepreneurs. ______4. Environmental scanning is conducted only when a new business is opened. ______5. Demographic, ethics, and even regulatory forces may be included in looking into the societal environment. ACTIVITY 2 EXPLORE!

Social forces are basically the products of the actions of the people on the important events that happen at any give time. It is a must, therefore, for the entrepreneur to critically evaluate the changes in the social forces that cause substantial changes in the behavior, principles, beliefs, and practices of the people. 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. In the Philippines, the political forces of the macro- environmental have major and essential influence on business. Even foreign investors are very watchful of the political atmosphere in the country and the moves of the Philippine government. Political forces include the following:

1. Trade regulations 4. Unemployment
2. Taxation 5. Worker’s benefits
3. Government stability 6. Election practices Future legislation may have adverse effects on the proposed business. For example, the government’s move against smoking for health reasons may adversely affect the tobacco industry. Cultural Forces Culture basically refers to the integrated characteristics of a group of people or ethnic group in a particular society. Cultural forces include the following:
4. Religion 4. Customs
5. Language 5. Education
6. Beliefs In the Philippines, cultural forces have significant influence on any entrepreneurial endeavor because of our cultural diversity. The presence of the different ethnic groups with different languages in the various islands of the Philippines is a clear manifestation of the existence of cultural diversity. 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. Economic forces or factors include the following:
7. Interest rates 5. Income
8. Inflation rates 6. Exchange rates
9. Fiscal policies 7. Employment

4. Monetary policies 8. Consumer confidence Let us use interest rate to illustrate the relationship of economic forces to the practice of entrepreneurship. Interest rate is the amount of interest that the lender (e.g., banks, financial institutions, financial intermediaries) charges to the borrower for certain amount within a specified period of time. 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. Legal forces include legislations on the following:
5. Product control, pricing, and labeling
6. Health and safety of the workers
7. Administration of election process
8. Advertising and promotion
9. Exercise of profession
10. Education administration and fees In the Philippines, the legal system has been formally established in the different levels of the government. The judiciary system in the Philippines starts generally at the barangay level. The entrepreneur, therefore, must determine what is legally permitted at the barangay level. Non-observance of the local and national legislations may lead to a problematic business situation in the future. Technological Forces Technological forces basically refer to the trends and developments in computer and information technology that have impact on business. These occur almost every day. Technological forces may include the following:
11. Internet 4. Technological movement
12. Social media 5. Technological infrastructure
13. E-commerce The different technological inventions have dramatic effects on the demand for the product and the existence of a particular business. A new product launched in the market may become obsolete over a very short period, or the business may be phased out unexpectedly once the rapid changes in computer and information technology are not critically evaluated and addressed accordingly.

The next environmental layer of the business is the industry environment. This is the environment where the business conducts its various entrepreneurial activities. It is basically composed of an individual person, a company, and a non-governmental organization or the government.

INDUSTRY ENVIRONMENT

The industry environment is the external environmental layer where the trends and changes are easily and immediately felt by the business. The industry environment is considered the immediate environment of the business where it conducts its various operational activities. Industry forces include the following:

1. Government 4. Competitors
2. Suppliers 5. Employees
3. Customers 6. Creditors Government Government refers to the system or institution that handles the affairs of a particular country. Since the government has jurisdiction over the major activities happening within its territory, including international trade relations, the type of government system operating in a particular country highly influences the business. There are different types and classifications of government. The Philippine government is both presidential republican and democratic. It promotes entrepreneurial ventures through its thrusts, programs, and priorities. https://www.imoney.ph/articles/how-much-do-philippine-politicians-earn/

KEEP THIS IN MIND

Suppliers Suppliers refer to individual persons or companies that provide the required materials, parts, or services to the business. They can adversely affect the production process by delaying the delivery of the required raw materials and supplies or services, or by providing defective materials or inefficient services. https://www.sysaid.com/blog/entry/supplier-management-is-more-than-just-negotiating-contracts Customers The customers are the buyers of goods or services produced or rendered by the business. The business realizes profit from its transactions with the customers. It must constantly evaluate and study the behavior, tastes, preferences, inclinations, and even future activities of customers. It must protect its customers in order to win their loyalty, and to attract new patrons. 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. Competitors can be classified as direc t or indirect.

• Direct competitors produce and sell similar products or services. For example, Coca-Cola Bottling Company is a direct competitor of Pepsi Cola Philippines.
• Indirect competitors produce and sell substitute products. For example, companies that manufacture and sell fruit juices are indirect competitors of Coca- Cola and Pepsi Cola. The entrepreneur must critically evaluate and study, most especially the direct competitors, and find strategic ways to surpass them in the production and delivery of goods or services to the customers. https://youinc.com/content/leadership/gro w-your-business-by-learning-from-your- competitors

1. SWOT model
2. Forces of competition model
3. Competitive forces matrix Forces of Competition Model The forces of competition model, otherwise known as the “five forces of competition,” was popularized by Michael Porter, a prominent figure in competitive strategy formulation. The industry environment is a competitive environment. The business, therefore, cannot do nothing else but to compete. The business must determine the intensity of competition within its industry environment since the level of intensity is primarily dependent on the forces existing within the industry. This long-term survival of the business is measured by its successful efforts against competitive forces. The five forces competing within the industry are as follows:
4. Potential new entrants 4. Supplier
5. Buyers 5. Rivalry among existing firms
6. Substitute products Figure 3.3.2. The Five Forces of Competition Model in the Industry Environment The threats of substitute products should be considered. For example, consumers consider margarine as a substitute for butter. In case the price of butter increases because the cost raw materials increases, the consumers will gradually switch to margarine. The presence of margarine as a substitute product for butter poses a threat to the profitability of the latter. Threats of potential new entrants Rivalry among existing firms Bargaining power of the buyer Bargaining power of suppliers Threats of substitute products

Competitive Forces Matrix After all the competitive forces have been identified, the entrepreneur can plot them using the competitive forces matrix, by which the entrepreneur can view the total perspective of the competition within the industry where the business operates. The possible effects and the intensity of the threat of the competitive forces can be high, moderate, or low. The possible barriers to the competitive forces are the primary determining factors that measure whether the degree of the threat is high or low. The relationship between the possible barriers and the threats is inversely related. That is if the potential barriers to the competitive forces are high, then the possible threats are considered low. Thus, a weak competing forces in the industry may ot adversely affect the business. For example, one possible barrier to potential new entrants is the level of capital requirements. If the nature of the business requires a huge capital base, new entrants are discouraged to join. In this case the barrier, which is financial capital base, is considered high. The threat the to the growth business is measured low. The competitive forces matrix is shown in Table 3.3.2.

• Buyers The buyers 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: a. The buyer has the potential for backward integration. b. The cost of switching the supplier cost is minimal. c. The buyer purchases large portions of the seller’s product or services. d. There are several suppliers available in the market. e. The product represents a high percentage of the buyer’s cost.
• Suppliers The intensity of the threat of the suppliers is strong if the following factors hold true: a. The product or service is unique. b. The switching cost is very high. c. Suppliers in the industry are few, but sales volume is high. d. Substitute products are not readily available in the market. e. The supplier has the ability for forward integration.
• Rivalry among Existing Firms The intensity of rivalry among existing firms in the industry is attributable to the following factors: a. Number of competing firms b. Rate of industry growth c. Characteristics of the products or services d. Amount fixed cost e. Increased capacity f. Diversity of rivals
• Substitute Products The substitute products can pose great threats in the industry environment if the following factors are present: a. The price of the substitute product is substantially lower. b. Preferences and tastes of customers easily change. c. The quality of substitute products dramatically improves. d. Switching cost is low. e. Product differentiation is hardly noticeable.

Do the following tasks:

1. Discuss the three environmental layers of the external or macro environment of the entrepreneurial venture.
2. Identify the different forces existing in the industry environment.
3. Analyze and describe the industry environment using the forces of competition model. I. Get a clean bond paper and divide it into two columns. Label the left side as the “Primary Product” and the right side as the “Substitute Product.” Think of two products that you consider similar, one of which is the primary product and the other the substitute product. Write the names of the products in their respective columns. Then, describe and differentiate them. II. From groups of five members each, preferably from the same neighborhood. Select one existing business in your locality that produces or manufactures a finished product. For example, it can be a furniture shop, a toy shop, or a detergent soap manufacturer. Make a simple industry analysis using the Competitive Forces Matrix. Primary Product (Name of Product) Substitute Product (Name of Product) Describe the product. Why is it considered a primary product? Describe the product. Why is it considered as a substitute product? ACTIVITY 4 APPLICATION