Module 3

Business and its Environment

Objectives: At the end of this lesson, you will
be able to:
• Discuss the meaning and nature of business;
• Identify the various kinds of business;
• Analyze various forces/elements influencing
local and international business
environment using PEST and SWOT
strategies.
Kinds of Business
Commerce
Business firms, which are engaged in buying and selling of goods
and services, are classified as commerce. Also included in this
category are trading, merchandising, and marketing. Examples of
commerce as a kind of business are supermarkets, dry good stores,
sari-sari stores, etc.
Industry
Industries are those, which are mainly engaged in production. Goods
produced, which are intended for ultimate consumption, are called
consumer goods, while goods intended for use of business and
industry are called producer’s goods.
Industry business may
be further classified
into:
Genetic Industries
are those involved in agriculture, forestry, and fish culture.
Extractive industries
are those involved in the extraction of goods from natural resources,
which include mining, lumbering, hunting, and fishing.
Manufacturing industries
convert raw materials into finished products. Examples are firms
engaged in the manufacture of drugs, plastics, food, liquors, tools,
office supplies, etc.
Construction industries
are those engaged in building infrastructures like airports, seaports,
and highways and dwelling units.
Services
A service business is one, which sells service to the buyer.
Service firms may be
classified as:
Recreation
movie houses, television and radio stations, theaters, resorts, etc.
Personal
restaurants, barber shops, transportation, hotels, tailoring shops, etc.
Finance
banks, insurance companies, investment houses, financing
institution, credit unions, etc.
The Direct Action
Components of the
External Environment
Consumers/Customers
Customer’s patronage is very vital to the existence of the business
firm. The manager must continuously strive to keep old customers
and attract new ones. It is not easy to deal with many customers
because they are different in many ways. A customer could be an
individual, an institution like school, government agency, a business
firm, or a social club.
Suppliers
Business firms achieve their objectives through a combination of
activities. First and foremost is the transformation of production
inputs like raw materials, services, energy, equipment, and labor into
usable products or services. Suppliers provide these inputs. As such,
business firms must maintain good relationship with suppliers if
they want on-time delivery of inputs.
Labor Supply
The services of manager and employees are indispensable
requirements of business operations. These services are in a way
procured through recruitment and hiring by the human resource
specialists of business firms. As the need for worker skills and
experiences vary, different means are used in locating qualified
workers.
Competitors
In determining the appropriate marketing strategy, the manager of a
business firm will have to consider not only the target customers,
but also the competitors. Competitors may be either direct or
indirect. Nescafe and Great Taste Coffee are direct competitors, and
so are Pepsi and Coke. But Pepsi and Nescafe are indirect
competitors. Each of them offers a “drink” but they are not alike,
thus, indirect.
Financial Institutions
Business firms are concerned with maintaining or expanding their
operations. In either case, the company will need funds. The
expansion option could be opening of new branch, adding a new
product, purchasing a lot/land, or new equipment. Any of these
moves will require financing through borrowing money on a short
term or long-term basis through the help of these financial
institution.
Government Agencies
In many ways, business organizations are affected by the changes in
the government policies. From enactment of laws to granting
permits, the viability of business firms could be enhanced or limited
by actions of government agencies.
The Indirect Action
Components of the
External Environment
Technological Variables
Technology has become widely recognized as an important ingredient
in the success of business firms and manager who does not consider
the technological variable in his strategy faces the risk of losing out to
competitors. Technology refers to the tools and ideas that may be used
by an organization to pursue its goals. Take the case of Nokia, in late
1990’s and early 2000’s, Nokia became the best-selling mobile phone
brand in the world with its soaring $4 billion operating profits. Nokia
became complacent when they reached their full potential, top
managers lacked technical competence which influenced how they
could assess technological limitations during goal setting.
Economic Variables
The economy is a very important element in business pursuits. Even
if the company has the edge in technology and financial capability
over its competitors, it may not be so successful if the economy does
not allow it. When managers make business decision, economic
conditions must be taken into consideration. This concern will touch
on the health of the economy in terms of inflation, income levels,
gross domestic product, employment, and job outlook. Because of
the importance of the economic variables, business managers are
required to devote time and resources to forecasting the economy
and to anticipate changes in important concerns like prices.
Socio-cultural Variable
Business organizations can only flourish if they consider society’s custom and values
in the planning and implementation of their activities. This means societal and
cultural changes can have an impact in the organization based on how the target
audience’s attitudes and moods shift over time. Socio-cultural factors can involve
social attitudes, beliefs, education, legal structure and political ideology. One of the
major socio-cultural factors influencing businesses and business decisions is
changing consumer preferences. What was popular and fashionable 20 years ago
may not be popular today or 10 years down the road. Different styles and priorities
can undermine long successful products and services. For example, a clothing
company must constantly be aware of
changing preferences when creating new products or it will quickly become
outdated.
Political-Legal Variables
These consist of law and regulations promulgated and implemented
at the local, national, and international levels.
International Variables
This element includes changes occurring in various parts of the
world which may affect business organizations in various ways or
degrees. For instance, a foreign government may ban the entry of
products coming from the country like Philippines. If that is the
case, some of the Filipino exporters may be affected.