Business Enterprise Simulation Quarter 3 – Module 2 –

Lesson 1: Analyzing the Market

This module was designed and written with you in mind. It is here to help you
master the introduction to Business Enterprise Simulation. This module is crafted to
allow you to use it in many different learning situations with the language used
recognizing the diverse vocabulary level of students. The discussion of the topics is
arranged to help you follow and understand the flow of the lessons.
After going through this module, you are expected to:
 Use appropriate analysis framework and methodology in choosing a product,
which is feasible in terms of the market, operations and financials;
 Identify own strengths, weaknesses, opportunities, and threats;
 Apply learnings about SWOT analysis and Porter’s Five Forces analysis into own
business idea.

Lesson 1 Analyzing the Market through Business Analysis Frameworks

To make sure that the business idea that you want to establish and utilize is
viable and achievable, you have to study the idea further to make sure that it will be
feasible in terms of the market, operations, and financials. You can utilize different
business frameworks and methodologies in analyzing your business ideas and
opportunities. In this module, you will learn about environmental scanning and some
business frameworks and how these can be useful in planning and managing your
business.
What’s New?
To be able to appreciate and develop yourself, you should be aware of your own
strengths and weaknesses. You should also be aware of the opportunities that are
within your reach as well as the threats that could be hindrances to your
success.
Activity 1:Appreciate and Develop your Strength
Write at least three (3) each of your strengths and weaknesses. Identify at least
three (3) opportunities for you as an ABM student and three (3) potential threats that
could be a hurdle for you in achieving your goals.
My strengths are: 1.

2.

3.

My weaknesses are: 1.

2.
3.

The opportunities that I 1.

have as student are:
2.

3.

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The threats that I face 1.
are: 2.

3.

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Environmental Scanning: An Introduction
It is essential to conduct environmental scanning to identify the needs and
wants of people, the niche for your business mission, and to give attention to the
trends and issues. This may also serve as an evaluation of the type of the
entrepreneurial activity appropriate in the community.
Bautista (2014) defined environmental scanning as the process of gathering,
analyzing, and dispensing information for tactical or strategic purposes. The
environmental scanning process entails obtaining both factual and subjective
information on the business environments in which a company is operating (Bautista,
2014).
Environment in the community can be viewed according to its technological,
political, economic, and social aspects. For instance, in the past, people in the
community used personal computers but the transmission of development in terms of
technology was interrupted because people were not satisfied with what they have
today. They still look for the changes in their life and the corresponding in their
environment.
As a future entrepreneur, you must be well-versed in this kind of advancement
and progression of your environment particularly in technology so as to secure the
success of your future business. Always think of something new, something novel,
authentic, reinvent the existing ones, and create your new version of goods/products
and services.

The SWOT Analysis

The SWOT analysis was created in the 1960s by business gurus, Edmund P.
Learned, C. Roland Christensen, Kenneth Andrews, and William D. Book in their book
titled, “Business Policy, Text and Cases.”

SWOT, which stands for Strengths, Weaknesses, Opportunities, and Threats,

analysis is an analytical framework that can help a company meet its challenges and
identify new markets. This framework can help identify the business’s risks and
rewards. It is also a means of identifying the internal and external forces that may
affect the business. It is helpful in assessing new business ventures.

Strengths and Weaknesses: These refer to the internal factors, and these are the
resources and experiences readily available to the business proponent.
 Financial resources such as money and sources of funds for investment;
 Physical resources, such as the company’s location, facilities, machinery, and
equipment;
 Human resources consisting of employees;
 Access to natural resources, trademark, patents, and copyrights; and
 Current processes, such as employee programs, department hierarchies, and
software systems, sales and distribution capabilities, marketing programs, etc.

Opportunities and Threats: These are the external forces that affect a
company, an organization, an individual, and those outside their control.
 Economic trends including local, national, and international financial trends,
developments in the country’s stock market, reforms in the banking system,
growth in the Gross Domestic Product (GDP);
 Market trends such as new products or technology or evolving buyer’s profiles,
including changes in tastes and lifestyle behavior;
 National and local laws and statutes as well as political, environmental, and
economic regulations;
 Demographic characteristics of the target market such as the age, the gender, the
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 culture of the customers;
 Relationships with suppliers and co-owners; and competitive ideas

Before an owner can plan for its business’ future, he/she must first evaluate
the business by identifying and analyzing internal and external resources and threats.
The SWOT Analysis is a tool that can help a proponent by enabling him/her to
identify and assess the internal and external forces that can affect the business.
When used properly, this can serve as a guide for the company to attain
success. It is a guide to prepare for a new venture, design business strategies, and
identify areas of change and reform. The owner can anticipate problems, including
possible solutions and take advantage of identified opportunities. The owner can
maximize its strengths and attempt to cut out its weaknesses.
When drafting a SWOT analysis, individuals typically create a table split into
four columns to list each impacting element side by side for comparison. Strengths
and weaknesses won't typically match listed opportunities and threats verbatim,
although they should correlate, since they are ultimately tied together (Schooley,
2019).

Figure 2.1. SWOT Analysis

Schooley (2019) cited Billy Bauer, managing director of Royce Leather, and
noted that pairing external threats with internal weaknesses can highlight the most
serious issues a company faces. "Once you've identified your risks, you can then
decide whether it is most appropriate to eliminate the internal weakness by assigning
company resources to fix the problems, or to reduce the external threat by abandoning
the threatened area of business and meeting it after strengthening your business,"
said Bauer (Schooley, 2019).

After you create your SWOT framework and fill out your SWOT analysis, you
will need to come up with some recommendations and strategies based on the results.
These strategies should focus on leveraging strengths and opportunities to overcome
weaknesses and threats. Bear in mind these simple rules for successful SWOT
analysis:
 Be realistic about the strengths and weaknesses of your business when
conducting SWOT analysis.
 SWOT analysis should distinguish between where your business is today, and
where it could be in the future.
 SWOT should always be specific. Avoid any gray areas.
 Always apply SWOT in relation to your competition, i.e., better than or worse
than your competition.
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  Keep your SWOT short and simple. Avoid complexity and over analysis.
 SWOT is subjective.

Porter’s Five Forces of Competitive Analysis

The Five Forces of Competitive Analysis was developed in 1979 by Michael E.
Porter of Harvard Business School as a framework or a guide for assessing and
evaluating the competitive strength and position of a business organization.

Under Porter’s theory, he identifies five forces that determine the

competitiveness and attractiveness of a market and which seek to locate the power in
a business situation, its current competitive position, and the strength of a position
that an organization may enter into. These five forces help in identifying if new
products or services are potentially profitable. Once the area where power lies is
identified, then areas of strength can be pinpointed and exploited, solutions to
weaknesses may be proposed, and possible mistakes avoided.

The Five Forces

1. Supplier Power – it is important to assess how much power the supplier has in his
ability to drive up prices. A supplier enjoys this power if there are a few
suppliers of an essential input and they therefore control the supply of that
input. Another source of power is how unique the product or service is. The
more unique the product, the easier it is for the supplier to drive up the price.
In the same manner, a supplier who has relatively bigger size and strength in
the market enjoys the power of driving up prices. The magnitude of the cost of
switching from one supplier to another is likewise a factor such that when the
cost of switching is high, buyers of suppliers would prefer to stick out with one
supplier, thus giving the supplier the power of raising prices.
2. Buyer Power – if a supplier can enjoy the power to drive prices up, it is also
possible for a buyer to drive prices down. An assessment needs to be made on
how easy it is for buyers to drive prices down. The small the number of buyers
in the market, the greater is the power enjoyed by the buyer. Likewise, the more
important an individual buyer is to the organization, the greater his power is.
The buyer’s cost of switching from one supplier to another is also a determinant
of the extent of the buyer’s power to bring prices down. If cost is minimal, then
it will be easy for the buyer to switch to another supplier and bargain on lower
prices of the input.
3. Number of Competitors/ Competitive Rivalry – the number and capability of
competitors in the market will also impact on the attractiveness of the market.
If competitors are numerous and offer basically similar products and services,
the market will be less attractive. Low capability of competitors to meet the
market’s current needs will serve as an attractive opportunity for the firm.
4. Possibility of Substitution – when it is easy to substitute products in a market,
it is expected that buyers will switch to alternatives in case of price increases.
The suppliers will enjoy less power to drive prices up and the market will be less
attractive.
5. Possibility of New Entrants – when investors see that a market is profitable,
they will desire to join the bandwagon and get a share of the profits. But when
new investors enter a market, the share of the participants in the market will be
divided among more people and will therefore decline, thus, eroding profits.
However, if barriers to entry prevent new participants from entering the market,
profits will be maintained among the existing participants.

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Figure 2.2. Porter’s Five Forces of Competitive Analysis Framework

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The Importance of Porter’s Five Forces Analysis

It is a significant tool for organizations to understand the factors affecting

profitability in a specific industry and can help to form decisions on whether or not to
enter a specific industry, whether or not to increase capacity in a specific industry,
and also for developing competitive strategies.

Under this theory, a business becomes more attractive, the greater the
supplier’s power to drive prices up, the less the buyer’s power to drive prices down, the
less the number of competitors in the market, the more differentiated the product or
service is, the less the substitutability of the products for similar goods, and the more
difficult it is for new entrants to participate in the market.

Activity 2: Applying SWOT Analysis

Think of a company or business within your community. Identify five each of its
strengths, weaknesses, opportunities, and threats.
Name of Business:

Type of Business/ Sector:

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

Independent Activity 3: Porter’s Five Forces

How can the five forces cited by Porter affect the success or failure of the
business you have chosen?

Supplier Power

Buyer Power

Number of Competitors

Possibility of
Substitution

Possibility of New
Entrants

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Independent Activity 4: Classify It
Identify and classify the following factors as to whether they are considered as
STRENGTH, a WEAKNESS, an OPPORTUNITY, or a THREAT.

1. Costly set-up
2. Entry of new competitors
3. Skilled and experienced leaders
4. Government incentives
5. Lack of training for workers

Independent Activity 5: Find the Force

Analyze the following situations and identify which among the Porter’s five forces
is being illustrated.

1. Having too many competitors in the dishwashing liquid business, Julio

decided to make a better marketing strategy for his own shop.
2. Aubrey, a coffee shop owner, noticed that a milk tea shop opened
in the community and many of her regular customers have been
patronizing the new shop.

3. Since Mark has only one supplier for his computer parts business, he
has to follow the price that his supplier dictates.
4. Aiko noticed that many of her buyers complain about her current prices
so she decided to mark down her K-pop merchandise.
5. Because of the high demand for facemasks, many new sellers of the said
products emerge and gives new competition for the current
sellers of facemasks.

Independent Activity 6: Know the Rules

The following are statements related to the rules that one must make to have a
successful SWOT analysis. Write SWAK if the statement is correct and write WHACK if
the statement is incorrect.

1. SWOT analysis is objective.

2. Avoid complexity and over analysis.
3. Gray areas are acceptable in SWOT analysis.
4. Be realistic about the strengths and weaknesses of your business
when conducting SWOT analysis.
5. SWOT analysis should distinguish between where your business
in the past and where it is today.

Group Activity : Analyzing your Business Idea: SWOT Analysis

Identify and list down at least three (3) of the strengths, weaknesses,
opportunities and threats related to your chosen business idea from the activity you
had in the first module. This will help you make sound business strategies and tactics
for your business plan.

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