2.

3 Environmental
Analysis
A. Macroenvironment: PEST
The external environment, which includes the government, economic conditions, social,
and other factors that generally affect all organizations, is also called the macroenvironment.
PEST acronym may be defined as Political, Economic, Social, and Technical variables in the said
environment.
The analysis of the external environment gives rise to opportunities and threats for the
enterprise. The PEST variables may be employed as a checklist for opportunities and threats
from the macroenvironment that a firm has little or no control of.
Opportunities are external possibilities or chances that may occur and benefit the
business. Such occurrence may or may not happen. Some occurrence include:
1. Possibility of getting business offers from the external communities;
2. Sudden shifts in customer’s tastes, which favour the entrepreneur’s product; and
3. Changes in market trends due to developments such as a additional grade levels in the
school community.
 Threats are undesirable occurrences in the market and are
disadvantageous to the business and may include the following:
◦ Entry of low cost companies into the market
◦ A rise in the sale of substitute goods
◦ Costly regulatory requirement
◦ Growing bargaining power of customers and the suppliers
◦ Changing customer/buyer needs and tastes
◦ Changes in demographics
B. Microenvironmental: Porter Model
Strengths and weaknesses refer to the presence or absence of internal
resources in a given enterprise. Internal resources may include management,
manpower, money, materials and machinery, including technology.
The microenvironment or the competitive environment defined in the
Porter Model is composed of the five forces: competitors, new entrants,
suppliers, buyers, and substitutes.
New entrants, substitutes, and complements enter rival firms in an existing
industry, as do suppliers and customers.
Information for the five forces in the Porter model is gathered for a given
location in a specific industry sector or subsector. For example, a retail store in
a residential community will require data for the salon service sector in the
given community where the outlet is located.
 There is a continuous flow of incoming suppliers and/or outgoing rivals. For the completion of
records of the Porter model, the vibrant nature of the competitive environment must be considered.
The Porter model may be simplified for the Business Enterprise Simulation course and may just state
a listing of strengths and weaknesses, which may include:
Strengths
 High quality products
 Affordable but profitable prices
 Ability of the product to meet the customer’s tastes
 Efficiency and effectiveness in serving customers
 Ability to attract customers
 Good business location
 Good and well-trained marketing staff
 High entrepreneurial spirit
Weaknesses
◦ Being new in the market and having a weak market image
◦ Weak distribution image
◦ Below the average marketing skills
◦ High overall unit costs relative to competitors
◦ Narrow product line
◦ Inaccessible location to customers
SWOT ANALYSIS
The data derived from the PEST and Porter model are utilized to identify the strengths, weaknesses,
opportunities and threats of a given enterprise.

Strengths Weaknesses Opportunities Threats

Good business Below average Increase in Rise in sale of

location marketing skills consumption patterns substitute goods

High quality products Narrow product line Increasing disposable Change in tastes and
income preferences
Strategy Formation
The strategies that may be applicable for enterprise start-ups
include:
1. Market penetration: increasing market share for the products
and services in existing markets through marketing efforts
2. Market development: introducing products and services in new
geographic areas
3. Product or service development: increasing sales by modifying or
improving products or services
Simulation Activity 4: Environmental
Anallysis
1. The enterprise groups meet to complete the
environmental analysis components – macroenvironment:
PEST and microenvironment: Porter