Arowwai Industries

THE FIRM AND

ITS
ENVIRONMENT

 THE MODULE IS COMPOSED

OF TWO LESSONS:
LESSON 1- THE BUSINESS
ENVIRONMENT
LESSON 2 – THE BUSINESS
AND ITS ECONOMIC ROLES

After going through this module, you are expected to:

1. describe the local and international environment of the
business firm;
2.analyze the various forces/elements influencing local and
international business using PEST and SWOT analyses.
3. differentiate the various forms of business organizations.
4. analyze the roles and economic forms of business
organizations.
5.discuss the role of business in relation to the economy and
society.
Arowwai Industries

WHAT’S IN

How does
COVID-19
pandemic affect
your life and
your family?
Arowwai Industries

EXPANDING A
BUSINESS:
ENVIRONMENTAL What’s New?
CONSIDERATIONS
 CHARLOTTE’S DESIGNER AND TAILORING SHOP WENT BEYOND THE
Arowwai Industries EXPECTATION OF THE OWNER, REGINA, ONE OF CHARLOTTE’S FRIENDS,
WAS INSTRUMENTAL TO THE FIRM’S STRONG PERFORMANCE. SHE
ADVERTISED CHARLOTTE’S SERVICES THROUGH HER INTERNET BLOG
SITE. MOTHERS RESIDING AS FAR AS INDONESIA, MALAYSIA, THAILAND,
AND SINGAPORE WERE REQUESTING THAT CHARLOTTE DESIGN AND
SEW DRESSES FOR THEIR TWO TO FOUR-YEAR-OLD DAUGHTERS.
WITH HER PLANS FOR THE SECOND YEAR UNDERWAY AND THE
PROSPECTS OF AN INCREASING LOCAL AND FOREIGN CUSTOMER BASE,
CHARLOTTE IS REALLY EXCITED TO CONTINUE HER BUSINESS. SHE IS
PLANNING TO INVEST IN MORE SEWING MACHINES THAT WOULD
ENABLE HER AND HER ASSISTANTS TO SEW DIFFERENT TYPES OF
APPAREL SIMULTANEOUSLY. THIS COULD TRANSLATE TO AN INCREASE
IN THE COMPANY’S REVENUE.
01 02
What factors favor What factors could
the expansion of negatively impact
Charlotte’s business? Charlotte’s business?
Let us now find out if your
answers are correct!
Arowwai Industries
BUSINESS
ENVIRONMENT
DEFINED

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The environment of a firm can be defined as the

sum of all the elements and forces present in its
immediate and remote surrounding which have
a potential impact on its ability to achieve its
objectives.It is a combination of internal and
external factors that influence a company's
operating situation.
Arowwai Industries
The environment of a firm can be viewed in
terms of its different aspects i.e., the
economic, the legal political, the
technological, and the social cultural and
demographic aspects or dimensions. The
firm’s environment can also be viewed as
against its more distant or remote
environments.

The course of the business’ daily operations is

affected by forces or elements in the firm’s
environment that present opportunities or
obstacles as perceived by a manager. The
environment of an organization can be
distinguished into three levels: the general
environment, the operating environment, and the
internal environment.
Arowwai Industries

THE COURSE OF THE BUSINESS’S

67% 76% 50%
DAILY OPERATIONS IS AFFECTED BY
FORCES OR ELEMENTS IN THE FIRM’S
ENVIRONMENT THAT PRESENT
OPPORTUNITIES AND OBSTACLES AS
PERCEIVED BY A MANAGER. THE
ENVIRONMENT OF AN
ORGANIZATION CAN BE
DISTINGUISHED INTO THREE LEVELS:
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 01 02 03

GENERAL OPERATING INTERNAL

ENVIRONMENT ENVIRONMENT ENVIRONMENT
(Macro (Micro
Environment) Environment)
Arowwai Industries

A. Political/legal element – is related to

government affairs and laws or regulations. It
includes factors such as form of government,
industry regulations, passage of laws and politics.

B. Economic element – is related to the use and

allocation of scarce resources in the economy to
create and distribute wealth. It includes factors
such as interest rates, price levels or inflation, stock
1.GENERAL ENVIRONMENT market fluctuations, exchange rates, incomes,
(MACRO ENVIRONMENT) – THE business cycles and phase of economic
GENERAL ENVIRONMENT IS development.
THE ORGANIZATION’S
EXTERNAL ENVIRONMENT C. Social element – is related to societal
characteristics. It includes demographics and values
THAT MAY AFFECT THE
of people in society.
ORGANIZATION, USUALLY IN D. Technological element – is related to new tools,
THE LONG RUN. IT INCLUDES ideas and approaches used to produce goods and
CONDITIONS THAT ARE services.It includes new procedures and
BROADLY CLASSIFIED AS: equipment.
 2.OPERATING ENVIRONMENT (MICRO ENVIRONMENT)- THE OPERATING ENVIRONMENT
Arowwai Industries
INDICATES THE ELEMENTS OF THE EXTERNAL ENVIRONMENT THAT HAS DIRECT AND
IMMEDIATE IMPACT ON THE ORGANIZATION. IT INCLUDES FORCES OR ELEMENTS
SUCH AS CUSTOMERS, SUPPLIERS, COMPETITORS, AND PRESSURE GROUPS.

A. Customer element – is related to

individuals and interties who buy goods
and services produced by the
organization.
B Supplier element – is related to individuals
and entities who provide goods and services
needed by the organization in the production of
its outputs.
C. Competitor element – is related to those whom the
organization monitors and responds to in the battle
for resources and markets.
D. Pressure group element – is related to special interest
groups which persist in influencing the actions of
organizations through their campaigns and programs.
Arowwai Industries

These elements in the operating environment affect a

manager through the degree of change and complexity
NOTE: of each element represents. Likewise, they are also
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organization’s stakeholders. Depending on their
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specific interests, stakeholders are affected byvelitthe

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organization’s decisions and

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better able to cope with change and complexity by
establishing relationships with these stakeholders.
Arowwai Industries

1.INTERNAL ENVIRONMENT –

The internal environment is the level of the

environment that is within the organization. It
includes organizational structure, culture and
resources.Resources include production technology
and physical facilities.

Among the elements of the internal environment, corporate

culture is important for managers. Corporate culture consists of
values and beliefs that organization members have regarding
those that relate to the function of the organization. Corporate
culture is manifested in status symbols, tradition, history, and
physical environment of the organization.Managers help
determine and shape corporate culture.
 WAYS TO SCAN THE BUSINESS
ENVIRONMENT: PEST AND SWOT
ANALYSES

The PEST/ PESTEL Analysis

PEST is an acronym for Political, Economic, Social

and Technological. This analysis is used to assess
these four external factors in relation to your
business situation.

PESTEL refers to Political, Economic, Social,

Technological, Environmental, Legal factors.

PEST /PESTLE analysis gives you an

overview of the whole situation your
business might be in. Precisely, it is a bird’s
eye view of the stimulus and the scenarios
that surround your trade and you business.
  What is the political situation of the
Arowwai Industries
country and how can it affect the industry?
 What are the prevalent economic factors?
 How much importance does culture has
in the market and what are its
67% 76% 50% determinants?
 What technological innovations are likely
to pop up and affect the market structure?
 Are there any current legislations that
regulate the industry or can there be any
89% 60% 94% change in the legislations for the industry?
 What are the environmental concerns for
the industry?
 Arowwai Industries

PEST/PESTEL analysis helps

a manager determine the
impact of environmental
factors of conditions to the
long-term performance
and activities of the
business. The outcome of
this analysis is best used
with another analytical
business tool called the
SWOT analysis.
 THE SWOT
Arowwai Industries
ANALYSIS
In analyzing environmental
SWOT is an acronym for Strengths,
Weaknesses, Opportunities and factors or conditions internal
Threats. When this tool is used to to the firm, they can either be
analyze environmental factors or perceived as strength or a
conditions external to the firm,
weakness by the manager.
they can either be perceived as an
opportunity or a threat by the Strength is any kind of
manager. It is an opportunity if it is resource or capability which
a development that is favorable to gives the organization an
the operations of the company and
will most likely improve its
advantage over other
performance and prospects. It is a organizations in offering their
threat if it is an unfavorable service or goods. Weakness
development in any element in the
is a lack of resource or
general environment which can
slow down the performance of the
capability which makes the
company. organization vulnerable to
competition.
 YOU CAN USE SWOT ANALYSIS TO MAKE THE
Arowwai Industries MOST OF WHAT YOU'VE GOT, TO YOUR
ORGANIZATION'S BEST ADVANTAGE. AND YOU
CAN REDUCE THE CHANCES OF FAILURE, BY
UNDERSTANDING WHAT YOU'RE LACKING, AND
ELIMINATING HAZARDS THAT WOULD
OTHERWISE CATCH YOU UNAWARE.

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