Chapter 2.

The Firm and its

Environment
DEPARTMENT OF AGRICULTURAL ECONOMICS AND AGRIBUSINESS
MANAGEMENT
Firm
 A business unit producing goods and services for profit.
 Any organization engaged in the production of goods and services to
generate revenue (with preference to profit maximization).

Business
 Allprofit-seeking activities that provide goods and services to
generate revenue (with preference to profit maximization).
 A genericterm used to denote any economic activity that is
undertaken in order to make profit.
Environmental Scanning
 The activity of analyzing various areas affecting a business
enterprise
 The considering of events and trends that present either
threats or opportunities for the organization.
 A necessity in generating business ideas or in screening
identified business ideas
 Information gathered are used in SWOT analysis
Elements of a Business Environment
1. Internal
2. External
Internal Environmental Factors

 Has a direct impact on the business.

 Generallycontrollable because the company has
control over these factors.
Internal Environmental Factors
a. Resources
 Tangible resources – e.g. financial resources and
physical assets
 Intangible resources – e.g. include reputational assets
(brands, image, etc.) and technological assets
(proprietary technology and know-how).
 Human Resources or Human Capital – e.g. skills,
knowledge, reasoning, decision-making abilities.
Internal Environmental Factors

b. Capabilities
 Refer to a firm’s capacity for undertaking a
particular productive activity.
 The interest is not in capabilities per se, but in
capabilities relative to other firms.
Internal Environmental Factors

c. Culture
 Collection of values and norms shared by people
and groups in an organization and helps in
achieving the organizational goals.
External Environment Factors

 Has an indirect influence on the business.

 The factors are uncontrollable by the business.
External Environment Factors
i. Macro-environment or PEST Analysis
 Consists of nonspecific aspects in the
organization's surroundings that have the potential
to affect the organization's strategies.
 A part of firm’s environmental scanning to better
understand the threats and opportunities.
Political Factors

 Include government regulations and legal issues.

 Government regulations and legal factors are
assessed in terms of their ability to affect the
business environment and trade markets.
 The main issues addressed in this section include
political stability, tax guidelines, trade regulations,
safety regulations, and employment laws.
Economic Factors

 Issues that are bound to have an impact on the company.

This would include factors like inflation, interest rates,
economic growth, the unemployment rate and policies, and
the business cycle followed in the country.
 E.g. economic growth, interest rates, exchange rates,
inflation rate, unemployment rate, etc.
Social Factors
 Socio-economicenvironment of the firm’s market via elements like
customer demographics, cultural limitations, lifestyle attitude, and
education.
 Business can understand how consumer needs are shaped and what
brings them to the market for a purchase.
 These factors affect customer needs and the size of potential markets.
 E.g. health consciousness, population growth rate, age distribution,
career attitudes, emphasis on safety, education levels, income levels
etc.
Technological Factors

 Include technological advancements, lifecycle of technologies,

the role of the Internet, and the spending on technology research
by the government.
 E.g. R&D activity, automation, rate of technological change, new
or improved distribution channels, improved communication and
knowledge transfer etc.
 New technologies create new products and new processes.
 Technology can reduce costs, improve quality and lead to
innovation.
International Business Environment

 The environment in different sovereign countries,

with factors exogenous to the home environment of
the organization, influencing decision-making on
resource use and capabilities.
 Includes the social, political, economic, regulatory,
tax, cultural, legal, and technological environments .
SWOT Analysis
 An assessment of the positive and negative issues
on the internal and external environment of the
firm
 Used to further screen project ideas or search for
previously unidentified ones
SWOT Analysis

Strengths
 Positive characteristics that the organization can
exploit to achieve its goals.
 Within the control of the entrepreneur.
SWOT Analysis

Weaknesses
 Negative internal characteristics that might inhibit
or restrict the organization’s performance.
 Within the control of entrepreneur.
 Theyare “lack” or “missing” weak points and
should be eliminated.
SWOT Analysis

Opportunities
 Arepositive characteristics of the external
environment that have the potential to help the
organization achieve or exceed its goals.
 Beyond the control of the entrepreneur 
SWOT Analysis

Threats
 Arenegative characteristics of the external
environment that may prevent the organization
from achieving its goals.
 Beyond the control of the entrepreneur.
4-QUADRANT SWOT FORMAT
Strengths
Positive factors in the firm’s
internal environment that it could
capitalize on
Opportunities
Factors in the firm’s external
environment that it could take
advantage of
Weaknesses
Negative factors in a firm’s
internal environment that would
hamper its operations
Threats
Factors in the firm’s external
environment that would
adversely affect its operations
Strengths of a product/service
 Cheap and abundant raw materials
 Sufficient funds
 Availability of technology
 Presence of skilled workers
 Management and technical expertise of the
entrepreneur
 Good quality/service
 Ease of production
Opportunities of a product/service
 Big demand for the product/service
 Favorable government policy/support
 Scarcity of the product or service
 Poor quality of existing product
 Absence of product/service
 Possibilities of good profits
Weaknesses of a product/services
 High price
 Poor quality/service
 Weak management
 Lack of skilled workers
 Irregular supply
 Unattractive design
 High cost of production
Threats
 Shortage of raw materials at a given time
 Entry of many competitors
 Increasing costs of production
 Expectation of unfavorable government laws, such as taxes
 Deteriorating peace and order
 Emergence of unfair demands of workers through labor union
activities
SWOT Matrix

 Developing a competitive advantage by identifying

a fit between the firm's strengths and upcoming
opportunities.
 In some cases, the firm can overcome a weakness
in order to prepare itself to pursue a compelling
opportunity.
SWOT Analysis

S-O strategies
 Pursue opportunities that are a good fit to the
company's strengths.
S-T strategies
 Identify ways that the firm can use its strengths to
reduce its vulnerability to external threats.
SWOT Analysis

W-O strategies
 Overcome weaknesses to pursue opportunities.
W-T strategies
 Establish a defensive plan to prevent the firm's
weaknesses from making it highly susceptible to
external threats.
Phases of
Agricultural Development
Economic
Development
Industrial Development

Electronic Development

Nuclear Development
FORMS OF
BUSINESS
ORGANIZATION
Forms of Business Organizations

 Sole Proprietorship
 Partnership
 Corporation
 Cooperatives
Source/References:
Boundless. “Overview of the International Business Environment.” Boundless Finance. Boundless,
26 May. 2016. Retrieved 03 Jun. 2016
from https://www.boundless.com/finance/textbooks/boundless-finance
The End!!!