PRELIMINARY

ACTIVITIES OF
ENTREPRENEURIAL
VENTURE
CREATION
UNIT 2
THE ENVIRONMENT OF
THE
ENTREPRENEURIAL
VENTURE
Chapter 3
 At the end of this chapter, student should be able to:

• describe the physical environment of the venture;

• discuss the societal environment of the venture; and
• describe the industry environment of the venture.
 The Environment of the
Entrepreneurial
Venture

• The Physical Environment

• The Societal Environment
• The Industry Environment
 Nature and Concept
• An entrepreneurial venture is created out of the
business opportunities which the entrepreneur
should seek to exploit. These business
opportunities emerge from the entrepreneurial
ideas that arise from the changes in the
environment, government policy, or
technological advances.
 The Physical Environment
The Entrepreneurial Process of Creating a
New Venture
Opening of
entrepreneuria
Identification l venture
of
entrepreneuria
Creation of l opportunities
entrepreneurial
ideas
 Entrepreneurial Character Traits,
Skills, and Competencies
Influencing the Opening of Business

Entrepreneurial
Creation of Identification of Opening of
character traits,
entrepreneurial entrepreneurial entrepreneurial
skills and
ideas opportunities venture
competencies
 The Physical Environment
• Climate
– an entrepreneur must consider the prevalent climatic
condition of the area where he/she intends to open the
business to determine whether it can withstand or it is
fit to the climatic condition in the local area
• Physical Resources
o The entrepreneur must critically assess the
availability of natural raw materials in the locality
before opening a new business – must be sufficient
for a long-term operation
o The availability or lack of raw materials will
determine the cost of the products
• Wildlife
o Entrepreneur must ensure that his/her business
contributes to the preservation and not the
destruction of the ecological system of the local
community and our country in general.
The Societal Environment
 Social Forces

Elements in the society resulting from human interactions that can

influence the though, behaviour, attitude, actions and even beliefs
and customs of the people.

Values, Traditions, Literacy level, Consumer psychology, Time

Orientation, Lifestyle patterns, Professional career roles
 Political Forces

Composed of the political parties, political systems, and other related

political groups that substantially influence the political stability of
the country.

Trade regulations, Taxation, Government stability

Unemployment, Worker’s benefits, Election practices
 Cultural Forces

Refers to the integrated characteristics of a group of people or ethnic

group in a particular society

Religion, Language, Beliefs, Customs, Education

 Economic Forces

Factors that are primarily caused by the changes or movement in the

Philippine economy that has direct or indirect effects on the
entrepreneurial venture.

Interest rates, Inflation rates, Fiscal policies, Monetary policies

Income, Exchange rate, Employment, Consumer confidence
 Legal Forces

The elements and bodies that are directly involved in the legislation and
interpretation of laws and ordinances

Product control, pricing and labelling, Health and safety of the

workers, Administration of election process
Advertising and promotion, Exercise of profession
Education administration and fees
 Technological
Forces
Refers to the trends and developments in computer and information
technology

Internet, Social Media, E-commerce,

Technological advancement, Technological infrastructure
 ENVIRONMENTAL SCANNING: Definition and
Significance

• The process of gathering critical evaluation, and

utilization of information on events and activities
and their relationship with the Physical, Societal and
industry environment
 Types of Environmental Scanning

1. Ad hoc environmental scanning

- applicable to crisis situation . Done to determine whether a
problem is internal or external.
2. Regular scanning
- done at least once a year or at regular intervals
3. Continuous scanning
- -continuous collection of data on a broad range of
environmental factors.
 Environmental scanning is
very important for the
following reasons:

Portrays trends,
Points out possible
activities and Identifies the expected
factors that will
developments threats and
determine success of the
happening in the opportunities existing
venture
environment

Assists in the
formulation of the most
Helps define the future
appropriate
path of the business
entrepreneurial
strategies
Societal Environmental Scanning Approach

In scanning the societal environment, the entrepreneur may use the

following analytical approaches:

1. PESTEL Analysis
2. Environmental Forces Matrix
 PESTEL Analysis
• The PESTEL Analysis is the most widely accepted
and commonly used environmental scanning tool
today. Though is not a perfect tool to scan the trends
and developments in the external environment, it is
still considered the most appropriate tool because of
its features.
 PESTEL Analysis

• a tabular framework of the trends and developments in the different forces in the
external environment.

• There are several variations of PESTEL analysis. These includes the following:
1. PEST Analysis
2. STEEPLE Analysis (ethics is an additional factor)
3. STEEPLED (similar to STEEPLE but with the addition of
demographic factors)
 Environmental Forces Matrix
• it broadly classifies the various environmental
forces into their frequency of occurrence and level
of effect to the existing or proposed business.
 Level of Effect on Entrepreneurial Venture

High Moderate Low

High Environmental Force Moderate Environmental

High

High Environmental Force

Force
Frequency of Occurrence

Moderate

High Environmental Force Moderate Environmental Force Low Environmental Force

Moderate Environmental Force Low Environmental Force

Low

Low Environmental Force

Template of Environmental Forces Matrix

 Level of Effect on Entrepreneurial Venture

High Moderate Low

High
Frequency of Occurrence

Moderate

Interest Expense
Low

(moderate environmental force)

Placement of Interest Expense in the Matrix

 The Industry Environment
• The external environmental layer where the trends
and changes are easily and immediately felt by the
business

• Government
• Suppliers
• Customers
• Competitors
• Employees
• Creditors
 Government

Refers to the system or institution that handles the affair of a particular

country, and has the jurisdiction over the major activities happening
within its territory, including international trade relations, the type
of government system operating in a particular country highly
influences the business.
 Suppliers

Refers to the individual persons or companies that provide the required

materials, parts or service to the business.

They play a crucial role in the production of goods or services - they can
delay the delivery of the required raw materials and supplies or
services.
 Customers

Buyers of goods or services produced or rendered by the business

It must protect its customers in order to win their loyalty, and to attract
new patrons
 Competitors
The forces in the industry environment that produce, sell, or render
products or services which are similar to those of the business

Competitors can be classified as direct and indirect

Direct – produce and sell similar products or services

Indirect – produce and sell substitute products
 Employees
Are the workers of the business who are highly responsible for the
production of goods or delivery of services to the customers

They help ensure the quality and quantity of products or services

provided to the customers

They are the backbone of the business

 Creditors

Refer to the bank, financial institutions, and financial

intermediaries engaged in the lending of money to the borrower
usually for a fee or charge in the form of interest
 Industry Analysis
Scanning Tools
• Different industry forces must be properly evaluated
and analysed. They can act as catalyst to the growth of
the business or become the primary cause of its failure.

• Environmental Scanning Tools:

– SWOT Model
– Forces of Competition Model
– Competitive Forces Model
 SWOT Analysis
• It is a compilation of your company's strengths,
weaknesses, opportunities and threats. The primary
objective of a SWOT analysis is to help
organizations develop a full awareness of all the
factors involved in making a business decision.
 Forces of Competition Model
• Also known as “Five Forces of Competition”
• Popularized by Michael Eugene Porter

• The Five Forces Competing within the Industry are as

follows:
– Potential new entrants
– Buyers
– Substitute products
– Supplier
– Rivalry among existing firms
 Barriers to the Five Forces
of Competition
The five forces are considered threats to the
entrepreneurial venture. Each competing forces has its
own bargaining power in the industry environment.
However, the intensity of the threat of the five forces is
highly influenced by the level or degree of barriers
affecting the particular force.
Potential New
Entrants
• New entrants refers to the one competitive force in the industry. It is a
threat to the business. The intensity of its threat will be affected by the
presence of the following barriers:

strict government policy, substantial capital requirements,

economies of scale, high cost of product differentiation, high
switching cost, difficulty in accessing distribution channels.
Bargaining Power
of Buyers

• The threat that buyers may force down prices, bargain or higher
quality or more services, and play competitors against each
other.
Bargaining Power of
Suppliers

• The threat that suppliers may raise prices or reduce the

quality of purchased goods and services
Rivalry Among
Existing Firms
• The threat that customers will switch their business to competitors
within the industry

Numerous or equally balanced competitors, Slow

industry growth, High fixed or storage cost, Capacity
augmented in large increments, High exit barriers
Substitute Products
and Services
• The threat of limiting the potential returns of an industry by placing
a ceiling on the prices that firms in that industry can profitably
charge without losing too many customers to substitute products.

• Products and services outside the industry that serve the same
customer needs as the industry’s products and services.