THE FIRM AND ITS

ENVIRONMENT
JOANNE R. DALISAY, MBA, LPT
OBJECTIVE:
To identify the various forces of the firm’s environment;

To recognize the environmental forces affecting the firm using

the PESTE and SWOT frameworks;

To distinguish the local and international business environment;

To have an appreciation of the role of business in relation to the

economy and its different phases of economic development;

To differentiate the various forms of business organizations.

ENVIRONMENTAL SCANNING

Environmental change - the rate at which a

company’s general and specific environment
changes
Stable Environment – the rate of environmental
change is slow
Dynamic Environment – the rate of environment
change is fast
ENVIRONMENTAL SCANNING
• Environmental Scanning – refers to activities intended to
obtain information about events and trends that take place
outside and inside the organization, which can put pressure
to management in making a decision for the organization
• Internal Analysis – analysis of internal environment is the
first step in identifying strengths and weaknesses of an
organization
• External Analysis – describes the acquisition and use of
information gleaned from sources external to the company.
 TECHNOLOGICAL

POLITICAL- ECOLOGICAL
LEGAL

SOCIO-
ECONOMICAL COMPANY CULTURAL
 POLITICAL-LEGAL
POLITICAL factors portray the
practices and dealings of
government bodies that can
govern and regulate the decisions
and behavior of firms.
 POLITICAL-LEGAL

LEGAL environment identifies

what organizations can and cannot
do at a particular point in time.
Examples:
Labor laws
Taxation policy
Trade regulations
Governmental stability
Deregulation of industries
Privatization of government
organizations
Examples:
unemployment laws
health and safety
product safety
advertising regulations
product labeling
POLITICAL STRATEGIES
• Negotiation – a process by which 2 or more individuals
or groups with both common and contradictory goals,
present and talk about proposals in an effort to arrive at
an agreement.
• Lobbying – a process that has an aim to persuade
government decisions by providing administrators with
information on the projected consequences of legislation
or regulatory rulings.
POLITICAL STRATEGIES
• Alliance – a shared attempt of 2 or more
organizations, groups or individuals to realize
common goals on a particular matter.
• Representation – process involving membership in
an external organization that provides the well-being
of the member’s organization or group.
• Socialization – practice where people discover the
values held by an organization and the broader
society.
ECONOMIC FACTORS

ECONOMICS

Macroeconomics Microeconomics
 ECONOMIC FACTORS
Balance of Trends Changes in
stock market
payments in GDP valuation

The state if the Consumer Inflation

business cycle price index rate

Distribution of Growth in
Levels of Currency
income within spending
the population employment exchange rates
power

Rate of people
Governmental Interest Price stability
in a
monetary and (inflation &
fiscal policies rates pensionable
deflation)
age
 SOCIO-CULTURAL FACTORS
Changes in Increase in
More women in
population temporary
the workforce
demographics workers

Rising Greater concern

More number
educational for wellness and
of single parent
levels fitness

Enhance Enlarge number

Better concern
number of older of dual income
for environment
citizens parents
 TECHNOLOGICAL FACTORS
Internet’s becoming Emergence of
the backbone of biotechnology as a key
E-commerce information-intensive component of the
industries economy

Convergence of
Social media like
personal computer
facebook,
and telephone
Instagram, twitter
technologies

Nanotechnology
Level of or the science of
automation unimaginably
small electronics
 ECOLOGICAL FACTORS
Waste Weather and
disposal climate

Energy Pollution
consumption monitoring
THE SPECIFIC ENVIRONMENT

• Suppliers
• Distributors
• Customers
• Competitors
• Advocacy Groups
• Industry Regulation
SWOT
ANALYSIS
SWOT
ANALYSIS
KEY
QUESTIONS
CAPITALIZE
IMPROVE
 TAKE
ADVANTAGE
MITIGATE
CASE STUDY
In the mid-1990s, Dell Computer used a SWOT analysis to create a
strong business strategy that has helped it become a very strong
competitor in its industry value chain. Dell identified its strengths in
selling directly to customers and in designing its computers and other
products to reduce manufacturing costs. It acknowledged the
weakness of having no relationships with local computer dealers. Dell
faced threats from competitors such as Compaq and IBM, both of
which had much stronger brand names and reputations for quality at
that time. Dell identified an opportunity by noting that its customers
were becoming more knowledgeable about computers and could
specify exactly what they wanted without having Dell salespersons
answer questions or develop configurations for them. It also saw the
internet as potential marketing tool.
 STRENGTH WEAKNESS

OPPORTUNITIES THREATS
 STRENGTH
Sell directly to WEAKNESS
consumers No strong relationships
Keep costs below with computer retailers
competitors

OPPORTUNITIES
THREATS
Consumer desire for
one-stop shopping Competitors have
stronger brand names
Consumers know what
they want to buy Competitors have strong
relationships with
Internet could be a computer retailers
powerful marketing too
 INTERNATIONAL BUSINESS ENVIRONMENT

Individualism Masculinity
Power Uncertainty Time
vs. vs.
distance avoidance orientation
collectivism Femininity
a form of legal organization in which the owner maintains
sole and complete control over the business and is
personally liable for business debts. The legal requirements
for establishing a sole proprietorship consist of obtaining the
necessary local business licenses and permits. In a sole
proprietorship, income and losses “pass through” to the
owner and are taxed at the owner’s personal income tax
rate. The biggest drawback, however, is the unlimited
personal liability for any and all debts of the business.
a form of legal organization in which two or more
business owners share the management and risk of
the business.
Even though a partnership is possible without a
written agreement, the potential and inevitable
problems that arise in any partnership make a written
partnership agreement drafted by legal counsel a
highly recommended thing to do.
a legal organization formed by general partner(s) and
limited partner(s).
The general partners actually operate and manage the
business.
They are the ones who have unlimited liability.
At least one general partner is necessary in an LLP, but
any number of limited partners are allowed.
At least one general partner is necessary in an LLP, but
any number of limited partners are allowed.
These partners are usually passive investors, although
they can make management suggestions to the general
partners.
They also have the right to inspect the business and
make copies of business records.
The limited partners are entitled to a share of the
business’s profits as agreed to in the partnership
agreement, and their risk is limited to the amount of
their investment in the LLP.
a legal business entity that is separate from its owners
and managers.
Many entrepreneurial ventures are organized as a
closely held corporation which, very simply, is a
corporation owned by a limited number of people who
do not trade the stock publicly. Whereas the sole
proprietorship and partnership forms of organization do
not exist separately from the entrepreneur, the
corporation does..
The corporation functions as a distinct legal entity and,
as such, can make contracts, engage in business
activities, own property, sue and be sued, and of
course, pay taxes. A corporation must operate in
accordance with its charter and the laws of the state in
which it operates.
 Structure Ownership Tax Treatment Liability Advantages Drawbacks
Requirement
Sole 1 Income and losses Unlimited -Low start-up costs -Unlimited personal liability
proprietorsh “pass through” to personal liability -Freedom from most -Personal finances at risk
ip owner and are taxed regulations -Miss out on many business
at personal rate -Owner has direct tax deductions
control -Total responsibility
-All profits go to -May be more difficult to
owner raise financing
-Easy to exit business
General 2 or more Income and losses Unlimited -Ease of formation -Unlimited personal liability
partnership “pass through” to personal liability -Pooled talent -Divided authority and
partners & are taxed -Pooled resources decisions
at personal rate; -Somewhat easier -Potential for conflict
flexibility in profit- access to financing -Continuity of transfer of
loss allocations to -Some tax benefits ownership
partners
Limited 2 or more Income and losses Limited, Good way to acquire -Cost and complexity of
liability “pass through” to although one capital from limited forming can be high
partnership partner & are taxed partner must partners -Limited partners cannot
(LLP) at personal rate; retain unlimited participate in management
flexibility in profit- liability of business without losing
loss allocations to liability protection
Structure Ownership Tax Treatment Liability Advantages Drawbacks
Requirements
C corporation Unlimited number Dividend income is taxed at Limited -Limited liability -Expensive to set up
of shareholders; no corporate and personal -Transferable -Closely regulated
limits on types of shareholder levels; losses ownership -Continuous -Double taxation
stock or voting and deductions are existence -Extensive record
arrangements corporate -Easier access to keeping
resources -Charter restrictions

S corporation Up to 75 Income and losses “pass Limited -Easy to set up -Must meet certain
shareholders; no through” to partners and -Enjoy limited liability requirements
limits on types of are taxed at personal rate; protection and tax
stock or voting flexibility in profit-loss benefits of partnership -May limit future
arrangements allocation to partners -Can have a tax exempt financing options
entity as a shareholder

Limited 2 or more Income and losses “pass Limited -Greater flexibility Not -Cost of switching
liability through” to partners and constrained by from one form to
company are taxed at personal rate; regulations on C and S this can be high
(LLC) flexibility in profit-loss corporations -Need legal and
allocations to partners -Taxed as partnership, financial advice in
not as corporation forming operating
agreement