Transcript UNDERSTANDING THE BUSINESS ENVIRONMENT

Chapter 3:
UNDERSTANDING THE BUSINESS ENVIRONMENT
Components of Business Environment
Macro Environment Influence
Micro Environment Influence
Internal Environment of the Organization
Types of Business and Supporting Industries
Identifying Business Opportunities
Evaluating Business Opportunities
Components of Business Environment
 Environmental scanning can lead to an idea that can
be converted into a business opportunity.
 Two approaches in scanning the environment:
a. macro perspectives
b. micro perspective.
Components of Business Environment
• Example: the agricultural sector
Agricultural Sector
Forestry
• Veneer plywood
•Logging
•Furniture
• Sawn timber
Fishing
• Fishing equipment
• Deep-sea fishing
• Fishing processing
• Wholesales/distribution
Plantation
• Clearing plantation
• Planting
• Processing
• Wholesales/supplies
Poultry
• Poultry farming
• Processing
• Wholesales/supplies
Components of Business Environment
 Macro perspective; agricultural sector offer business
opportunities in forestry, fishing, plantation and poultry
industries.
 Micro perspective; each industry offer specific
business opportunities. Eg. Poultry?
Macro Environment Influence
• Factors in macro environment
a. socio-cultural
b. political and legislation
c. economy
d. technology
Macro Environment Influence
 Socio-cultural factors. Demographic and cultural trends.
- demographics: ethnic group, age, gender,
geographic location, distribution of income.
- social trends: lifestyle, tastes and preferences.
 Political and legislation. Policy, legislation & regulations.
- trade barriers, political risks, trade agreement,
taxation, government spending.
Macro Environment Influence
 Economy. Current state of the economy, labour market,
interest rates, currency value/foreign exchange rate, overeseas
opportunities, etc.
 Technology. Technology changes takes 2 forms; pure
invention or process invention.
- pure invention: semiconductors.
- process invention: small changes in design, product
formulation, manufacturing, materials and distribution.
Micro Environment Influence
• Factors in micro environment
a. Consumers
b. Competitors
c. Suppliers
d. Financial institutions
e. Government agencies
f. Non-government organizations
Micro Environment Influence
a. Consumers. Main target group. Maybe
individuals, or groups of people, or industrial
buyers (dealers, agents, wholesalers, retailers.
b. Competitors. Businesses that fulfill the same
customer needs or have the potential to serve those
customers. Can be identified through customers’
input or business directories.
Micro Environment Influence
c. Suppliers. Influence the price and quality of products
supplied.
d. Financial institutions. Provide loans. Influence loan amount,
duration and interest/dividend rates
e. Government agencies. Provide various incentives, training,
other types of support.
d. Non-government organizations. Chambers of commerce,
consumer groups, religious groups, environmental groups.
Internal Environment of the Organization
 Resources. Skills, ideas, knowledge and experiences, financial,
human resources, technology, reputation (image).
 Structure. Structure and strategy must fit.
 Culture. Inculcate positive corporate culture. How?
Types of Business and Supporting Industries
The output of an industry may require input from other industries.
This form industrial linkages among industries from the same
sector or other sectors.
Backward linkage
• Component industry
• Transportation
• Tyre industry
• Cleaning service
• Supplier of equipment
& office supplies
National Car
Project
Forward linkage
• Car distribution
• Service workshop
• Supplier of spare parts
• Car rental service
• Taxi company
Identifying Business Opportunities
• Four major steps in identifying, evaluating and selecting a
business opportunity.
1. Identifying the needs and wants of customers
2. Scanning the environment and evaluating of self and
the community.
3. Screening of business opportunities.
4. Selecting a business opportunity and preparing a
business plan.
Evaluating Business Opportunities
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Experience
Knowledge and skill
Financial situation
Interest
Networking
Values/Norms of the community
Evaluating Business Opportunities
• Experience. Many entrepreneurs involved in businesses
that are suited to their own experience.
• Knowledge and skill. To establish whether that someone
really knows what to do.
• Financial situation. Financially able. Access to sources of
fund. Financially viable.
Evaluating Business Opportunities
• Interest. Interest give more confidence and a sense of
responsibility.
• Networking. Establish network to expedite business
processes.
• Values/Norms of the community. Business opportunities
must be coordinated with the values or norms of the
community.
Screening Business Opportunities
• Legality.
• Monopolistic power and level of competition.
• Capital requirements.
• Risks.
Screening Business Opportunities
• Legality. Ensure business opportunity is legal.
• Monopolistic power and level of competition. Business
opportunity is not monopolized. Rank the level of competition.
• Capital requirements. Business opportunity chosen must be
appropriate for the financial resources available in order to avoid
financial problems in the future.
• Risks. Evaluate risks. Level of risk depends on three factors;
difficulty or ease to enter a business, size of capital and profit
margin.
Changing Environmental Trend
Economic trends
Resulting new business, product and
service opportunities
• Teenagers with more cash
and disposal income
• Designer cloths, compact discs,
DVD players, games and
consoles, handheld computers.
Changing Environmental Trend
Social trends
• Increased interest in
fitness
Resulting new business, product and
service opportunities
Fitness centers, in-house exercise
equipment, weight-loss centers, health
food stores.
Changing Environmental Trend
Technological trends
Resulting new business, product and
service opportunities
• Advances in biotechnology • Biotech related pharmaceutical
products, food products, veterinary
products, information services.
Changing Environmental Trend
Political and Regulatory trends
• Increased EPA and OSHA standards
Resulting new business, product and
service opportunities
• Consulting companies, software to
monitor compliance, products to help
ensure compliance.
NEW PRODUCT COMMERCIALISATION?