CHAPTER 3

INDUSTRY AND
ENVIRONMENTAL ANALYSIS:
BUSINESS OPPORTUNITY
IDENTIFICATION
CHAPTER 3

Introduction
 TOPICS

3.1 PRINCIPLES, TOOLS AND TECHNIQUES

3.2 TOOLS IN EVALUATING A BUSINESS
3.3 ANALYSIS
3.4 INDUSTRY ENVIRONMENTAL
ANALYSIS
3.5 THE CIRCULAR FLOW OF ECONOMIC
ACTIVITY
 INDUSTRY

Industry is aggregation of the

different businesses engaged in
the same line of undertaking.
 BUSINESS

A business is just a small portion of

an industry. Its main objective is to
earn profit for the owners.
 Sole Proprietorship

Types of Business Partnerships

(Limited/Gen)

Organization
Corporations

Cooperative
SOLE PROPRIETORSHIP
 SOLE PROPRIETORSHIP
Advantages of sole Economic Weakness of sole
proprietorships proprietorship:

• Ease of start up • Unlimited Liability: you have total

• Ease of Management responsibility for all debts and liabilities of

• You keep all profits the company

• Psychological advantages • Difficulty in raising financial capital

• Ease of exit • Limited size and efficiency

• Limited managerial experience

• Limited Life
PARTNERSHIP
 PARTNERSHIP
Two Major Types of Partnerships:

• General Partnership: (most common type) all partners are responsible

for management and the financial responsibilities of the partnership.
• Limited Partnership: at least one partner is not active in the day to day
running of the business. They have limited liability.

Articles of Partnership: contract between partners spelling out the rules

of partnership.
-Dividing profit -Admitting new partners
-Dividing responsibility -Buying out partners
 PARTNERSHIP
Advantages: Disadvantages:
• Ease of establishment
• Unlimited liability
• Ease of Management: each
• Limited partner is only
partner has different things to offer
responsible for his initial
• No special business taxes
investment. He has limited
• Easier to raise financial capital
liability.
• Larger than sole proprietorship

• Easier to attract qualified • Limited Life

workers • Conflict between partners

 COOPERATIVE
• A cooperative is a business
voluntarily owned and controlled
by the people using its services.
• It may be operated on a non-
profit basis.
CORPORATION
 CORPORATION

Set-up:
• Incorporate: to form a corporation.
• Charter: a document granted by the government giving a
corporation the right to do business
• Stock: shares of ownership in the corporation
• Stockholders (shareholders): owners of stock.

Reasons to own stock:

Dividends: share of corporate profits paid to stockholders
Speculation: buy in hope that price of stock will increase.
 CORPORATION
Ownership:
Common Stock
• A basic share of ownership in a corporation
• Have voting rights in the management of the company
• In reality they turn over voting rights to someone else with a proxy: giving someone else the right
to vote your share of stock.

Preferred Stock
• Non-voting shares of ownership
• Guaranteed dividend
• Liquidation Benefit - if corporation goes out of business they are ahead of common stockholders
in getting back money.

Board of Directors: duty to direct the corporations business by setting board policies and goals

Elected by Common Stockholders

• Hires a professional management team to run day to day activities. (CEO, CFO….)
 CORPORATION
Advantages: Disadvantages:

•Ease of raising financial capital (main

advantage) •Start up expenses are high.
–Selling stock to investors
–Selling bonds: a written promise to • Stockholders (owners) have a
repay a loan on a specific date
–Principal: the amount borrowed limited say in the management of
–Interest: the price paid for the use of
the company
another’s money
–Borrowing money from banks.
•Profits are taxed
•Ability to hire
•Limited liability • Corporations are subject to more
•Unlimited life
•Ease of transferring ownership:. government regulations than sole
Buying and selling stock is easy and is
done millions of times a day proprietors or partners
 COOPERATIVE
• A cooperative is a business
voluntarily owned and
controlled by the people using
its services.
• It may be operated on a non-
profit basis.
 COOPERATIVE

Advantages of a cooperative: Disadvantages of a cooperative:

•Allows members to pool their •Access to capital

financial resources and
conduct business activities •Cost of member and public
they could not independently education
perform as efficiently
•Investment in democratic process
•Allows members to respond to •Limit in scope of operations
firms that follow monopolistic
practices •Co-ops are only as good

as their members ask them

•Provides members with access
to be.
to goods and services needed
 Key Factors in
Analyzing an Industry
Geographic location
Size and outlook of the industry
Description of the product
Target customers
Government regulations
Identification of leading businesses in
the industry
 Key Factors in
Analyzing an Industry
A brief history of the Industry
Factors that will affect the growth of the
business
Trends in sales in the recent year
Current operational/management trends
within the Industry
Types of marketing strategies
Competitor information
 Porter’s Five Forces of
Competitive Position Analysis
 INDUSTRY ANALYSIS

Factors Affecting Industry Analysis:

1. Competition
2. Customers
3. Suppliers
4. Substitutes
 COMPETITION
• Who are the major businesses in the
industry to your proposed business
location?
• Are there existing business
competitors close to your proposed
business?
• What is the market share of each
these businesses?
 CUSTOMERS
• Who will you sell your product to?
• Who exactly will buy your products?
• What income groups?
• What age brackets?
• What gender?
• What type of people will you cater to,
based on their preferences, lifestyles, and
buying habits?
 SUPPLIERS
• Will you buy directly from the local
manufacturer or from distributors?
• Will you get your source of goods through
imports?
• Will you go to nearby countries to buy
their goods or raw materials?
 SUBSTITUTES
• Do you have goods that can satisfy the
same needs of a consumer that can
substitute for your products?
• How is your product differentiated from
the products of your competitors with
same industry?
 ENVIRONMENTAL ANALYSIS

Factors Affecting Environmental

Analysis:
1. Economic forces
2. Physical environment
3. Political factors
4. Cultures & lifestyle
5. Competition
 1. ECONOMIC FORCES

• Income of the people

• Inflation
• Recession
• Prosperity
• Supply and Demand
 2. PHYSICAL ENVIRONMENT

• Population size
• Geography of the place
• Land distribution
• Climate
• Is the area prone to
flood/earthquake?
 3. POLITICAL FACTORS

• Type of government
• Stability and strength of
the government
• Good leadership
 4. CULTURES & LIFESTYLES

• Cultural practices such as

fiestas and Christmas season
• Trends in consumption
patterns
 5. COMPETITION

• Degree of competition in
the market

• Extent and strength of

competition
The Circular Flow of Economy