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 Fishing Plantation Poultry

• Veneer plywood•Logging•Furniture• Sawn timber

• Fishing equipment• Deep-sea fishing• Fishing processing• Wholesales/distribution

• Clearing plantation• Planting• Processing• Wholesales/supplies

• 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 environmenta. socio-culturalb. political and legislationc. economyd. 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 environmenta. Consumersb. Competitorsc. Suppliersd. Financial institutionse. Government agenciesf. 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.

National Car Project

Forward linkage• Car distribution• Service workshop• Supplier of spare parts• Car rental service• Taxi company

Backward linkage• Component industry• Transportation• Tyre industry• Cleaning service• Supplier of equipment & office supplies

Identifying Business Opportunities

• Four major steps in identifying, evaluating and selecting a business opportunity.

1. Identifying the needs and wants of customers2. 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

• 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

• Teenagers with more cash and disposal income

• Designer cloths, compact discs, DVD players, games and consoles, handheld computers.

Resulting new business, product and service opportunities

Changing Environmental Trend

Social trends

• Increased interest in fitness

Fitness centers, in-house exercise equipment, weight-loss centers, health food stores.

Resulting new business, product and service opportunities

Changing Environmental Trend

Technological trends

• Advances in biotechnology • Biotech related pharmaceutical products, food products, veterinary products, information services.

Resulting new business, product and service opportunities

Changing Environmental Trend

Political and Regulatory trends

• Increased EPA and OSHA standards • Consulting companies, software to monitor compliance, products to help ensure compliance.

Resulting new business, product and service opportunities

NEW PRODUCT COMMERCIALISATION?