Chapter 2: The Firm and Its Environment

A) Environmental forces and environmental scanning

1. Political-Legal Factors
- Dealings with government agencies, it can govern and regulate the decisions and
behavior of firms.
Examples:
-unemployment laws -health & safety
-product safety -advertising regulations
-product labeling -labor laws
-taxation policy -trade regulations
-governmental stability -deregulation
-privatization of government organizations

2. Economic Factors
- The character and direction of the economic system within which the firm operates. It
affects the overall health and welfare of a country or the world.
Examples:
-balance of payments -trends in GDP
-the state of the business cycle -inflation rate
-interest rates -growth in spending power
-levels of employment -rate of people in a
-consumer price index pensionable age
-distribution of income within the population

3. Socio-cultural Factors
- It consists of demographic characteristics, general behavior, attitudes, beliefs, customs,
lifestyles and values that describe the society in which the firm operates.
Examples:
-changes in population demographics
 -rising educational levels
-enhance number of older citizens
-enlarge number of dual income parents
-more number of single parent
-more women in the workforce

4. Technological Factors
- It changed the lifestyle and buying patterns of consumers. It represents both potential
threats and opportunities for established products.
Examples:
-E commerce
-social media like Facebook, Instagram
-level of automation
-convergence of personal computer & telephone tech
-Internet’s becoming the backbone of information
-emergence of biotech as a key component of economy
B.) The local and the international business environment of the firm

1. Local
 communication is easier because they speak the same language
 access to materials are limited
 access to labor are limited
 same culture so it is easier
 follow stricker regulations on employee wages
 can predict customer preferences
2. International
 different set of regulations
 access to raw materials are easier and cheaply procure
 differences in attitudes, beliefs, morality, superstition and perception
 follow laws of home country and global regulations that apply
 requires time and effort
 there’s a challenge for target market preferences
C.) Forms of business organizations
1. Single Proprietorship
- is a business with a single natural owner who manages the business on his own or
employs employees.
-the simplest and most common way to set up a business.

2. Partnership
- is a business with two or more individuals who combine their resources and manages
the business.
3 types of partnership:
1. General Partnership
-all owners share in operating the firm and in assuming liability for the debts of
the business. He has unlimited liability and active in managing the business.
2. Limited Partnership
-the owner makes investments in the business but does not actively participate in
its management and his liability for losses does not extend up to his contribution
in the business.
3. Limited Liability Partnership
-all the partners have limited liability of the debts.

3. Corporation
- is owned by multiple shareholders and is overseen by a board of directors elected by
the shareholders. Separated in terms of personality from its owners and can borrow
money either into contracts, pay taxes and be sued.
- shareholders gain from the profit through dividend or appreciation of stocks but are
not responsible for the company’s debts.