CHAPTER 1

CONCEPTUAL FRAMEWORK OF A BUSINESS

Learning objectives
 The students at the end of discussion will be able to
 Define the Regulatory Governance
 Explain the legal framework for Regulatory Governance
 Discuss the Importance of Regulatory Quality
 Apply the Regulatory Environment of Business Entities
 Discuss the Key Regulatory Agencies in the Philippines

GOVERNANCE
 Encompasses the system by which an organization is controlled and operates,
and the mechanisms by which it, and its people, are held to account.
 Governance ensures everyone in an organization follows appropriate and
transparent decision-making processes and that the interests of all stakeholders

Key actors in Governance

a) State
b) Civil Society
c) Private Sector

Regulation
 Specific set of commands
 Regulation is broadly defined as imposition of rules by government, backed by
the use of penalties that are intended specifically to modify the economic
behavior of individuals and firms in the private sector.

Regulatory Governance
 Regulatory governance is perceived as a new form of governance away from
command-and-control type regimes towards other modes of collaboration
across a variety of policy actors
 State of governance is the facilitative or enabling aspect of regulation -- the
national and local government formulates policies and lays down the local
government formulates policies and lays down the ground rules for the
 operations of individuals and groups, most especially the business sector, to
promote order and public safety

IMPORTANCE OF REGULATORY GOVERNANCE

 Good regulatory governance is needed to promote effective competition in the
companies being regulated.
 As well as facilitating the on-going process of change and providing the public
with an efficient supply of services, at reasonable prices.

REGULATORY INSTRUMENTS:
 Economic regulation - applies to markets which are insufficiently competitive
 Social regulation - deals more on the promotion of public deals more on the
promotion of public welfare, health and safety.

LEGAL FRAMEWORK FOR REGULATORY GOVERNANCE

 1987 Constitution
 The state shall promote a just and dynamic social order that will ensure the
prosperity and independence of the nation and free the people from poverty
through policies that provide adequate social services, promote full
employment, a rising standard of living, and an improved quality of life for all.
(Article II, Section 9)
 Spirit of free enterprise -- Section 20:
 “The State recognizes the indispensable role of the private sector, encourages
private enterprise, and provides incentives to needed investments.

Limitations:
 A disadvantage of private sector jobs is the insecurity inherent to the sector.
 Failure to acquire project financing, company acquisitions or low business
performance all can act against an employee

The Regulatory Powers of Local Governments

1. reclassify agricultural lands,
2. enforce environmental laws and the Building Code,
3. process and approve subdivision plans,
4. inspect food products and regulate the operation of tricycles.
5. LGUs may also regulate the provision of health, social welfare, agriculture,
public works, & other services devolved to them.
6. tax and to impose levies, fees and charges

In terms of economic concerns, LGUs issue business licenses and permits to

establishments or enterprises before the firms can operate in their respective
local jurisdictions. The collection of business taxes can also be viewed as a
form of social regulation

REGULATORY QUALITY 
  Captures perceptions of the ability of the government to formulate and
implement sound policies and regulations that permit and promote private
sector development.

IMPORTANCE OF REGULATORY QUALITY 

Good regulatory quality helps fulfill several policy objectives of the New
Economic Model that include:
 removal of barriers and reduction in the cost of doing business,
 improvement in decision-making for policy implementation, and
 improvement in economic efficiency through enabling fair competition.

REGULATORY ENVIRONMENT OF BUSINESS ENTITIES

 External Environment is a set of all the exogenous forces that have the potential
to affect the organization's performance, profitability, and functionality.
 Internal Environment refers to all the inlying forces and conditions present
within the company, which can affect the company's working.

EXTERNAL AUDIT
 The purpose of an external audit is to develop a finite list of opportunities that
could benefit a firm and threats that should be avoided.
 The process of performing an external audit must involve as many managers
and employees as possible.
 As emphasized in earlier chapters, involvement in the strategic-management
process can lead to understanding and commitment from organizational
members.
 Individuals appreciate having the opportunity to contribute ideas and to gain a
better understanding of their firms’ industry, competitors, and markets.
THE INDUSTRIAL ORGANIZATION (I/O) VIEW
 The Industrial Organization (I/O) approach to competitive advantage advocates
that external (industry) factors are more important than internal factors in a firm
achieving competitive advantage.

EXTERNAL ASSESSMENT
P- OLITICAL
E- ENVIRONMENTAL
S- OCIO-CULTURAL
T- ECHNOLOGICAL
L- EGAL
E- CONOMICAL