Chapter 3: UNDERSTANDING THE BUSINESS ENVIRONMENT

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Chapter 3UNDERSTANDING THE BUSINESS ENVIRONMENT

• Components of Business Environment
• Macro Environment Influence
• Micro Environment Influence
• Internal Environment of the Organization
• Types of Business and Supporting Industries
• Identifying Business Opportunities
• Evaluating Business Opportunities

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Components of Business Environment

• Environmental scanning can lead to an idea that
  can be converted into a business opportunity.
• Two approaches in scanning the environment
• a. macro perspectives
• b. micro perspective.

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Components of Business Environment

• Example the agricultural sector

Agricultural Sector
Forestry
Fishing
Plantation
Poultry

• Veneer plywood
• Logging
• Furniture
• Sawn timber

• Fishing equipment
• Deep-sea fishing
• Fishing processing
• Wholesales/distribution

• Clearing plantation
• Planting
• Processing
• Wholesales/supplies

• Poultry farming
• Processing
• Wholesales/supplies

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Components of Business Environment

• Macro perspective agricultural sector offer
  business opportunities in forestry, fishing,
  plantation and poultry industries.
• Micro perspective each industry offer specific
  business opportunities. Eg. Poultry?

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Macro Environment Influence

• Factors in macro environment
• a. socio-cultural
• b. political and legislation
• c. economy
• d. technology

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Macro Environment Influence

• Socio-cultural factors. Demographic and cultural
  trends.
• - demographics ethnic group, age, gender,
  geographic location, distribution of income.
• - social trends lifestyle, tastes and
  preferences.
• Political and legislation. Policy, legislation
  regulations.
• - trade barriers, political risks, trade
  agreement, taxation, government
  spending.

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Macro Environment Influence

• Economy. Current state of the economy, labour
  market, interest rates, currency value/foreign
  exchange rate, overeseas opportunities, etc.
• Technology. Technology changes takes 2 forms
  pure invention or process invention.
• pure invention semiconductors.
• process invention small changes in design,
  product formulation, manufacturing, materials and
  distribution.

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Micro Environment Influence

• Factors in micro environment
• a. Consumers
• b. Competitors
• c. Suppliers
• d. Financial institutions
• e. Government agencies
• f. Non-government organizations

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Micro Environment Influence

• Consumers. Main target group. Maybe individuals,
  or groups of people, or industrial buyers
  (dealers, agents, wholesalers, retailers.
• Competitors. Businesses that fulfill the same
  customer needs or have the potential to serve
  those customers. Can be identified through
  customers input or business directories.

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Micro Environment Influence
c. Suppliers. Influence the price and quality of
products supplied. d. Financial institutions.
Provide loans. Influence loan amount, duration
and interest/dividend rates e. Government
agencies. Provide various incentives, training,
other types of support. d. Non-government
organizations. Chambers of commerce, consumer
groups, religious groups, environmental groups.
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Internal Environment of the Organization

• Resources. Skills, ideas, knowledge and
  experiences, financial, human resources,
  technology, reputation (image).
• Structure. Structure and strategy must fit.
• Culture. Inculcate positive corporate culture.
  How?

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Types of Business and Supporting Industries

• The output of an industry may require input from
  other industries.
• This form industrial linkages among industries
  from the same sector or other sectors.

• Forward linkage
• Car distribution
• Service workshop
• Supplier of spare parts
• Car rental service
• Taxi company

• Backward linkage
• Component industry
• Transportation
• Tyre industry
• Cleaning service
• Supplier of equipment
• office supplies

National Car Project
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Identifying Business Opportunities

• Four major steps in identifying, evaluating and
  selecting a business opportunity.
• 1. Identifying the needs and wants of customers
• 2. Scanning the environment and evaluating of
  self and the community.
• 3. Screening of business opportunities.
• 4. Selecting a business opportunity and
  preparing a business plan.

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Evaluating Business Opportunities

• Experience
• Knowledge and skill
• Financial situation
• Interest
• Networking
• Values/Norms of the community

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Evaluating Business Opportunities

• Experience. Many entrepreneurs involved in
  businesses
• that are suited to their own experience.
• Knowledge and skill. To establish whether that
  someone really knows what to do.
• Financial situation. Financially able. Access to
  sources of fund. Financially viable.

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Evaluating Business Opportunities

• Interest. Interest give more confidence and a
  sense of responsibility.
• Networking. Establish network to expedite
  business processes.
• Values/Norms of the community. Business
  opportunities must be coordinated with the values
  or norms of the community.

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Screening Business Opportunities

• Legality.
• Monopolistic power and level of competition.
• Capital requirements.
• Risks.

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Screening Business Opportunities

• Legality. Ensure business opportunity is legal.
• Monopolistic power and level of competition.
  Business opportunity is not monopolized. Rank
  the level of competition.
• Capital requirements. Business opportunity
  chosen must be appropriate for the financial
  resources available in order to avoid financial
  problems in the future.
• Risks. Evaluate risks. Level of risk depends on
  three factors difficulty or ease to enter a
  business, size of capital and profit margin.

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Changing Environmental Trend

• Economic trends
• Teenagers with more cash
• and disposal income

Resulting new business, product and service
opportunities

• Designer cloths, compact discs, DVD players,
  games and consoles, handheld computers.

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Changing Environmental Trend
Resulting new business, product and service
opportunities

• Social trends
• Increased interest in
• fitness

Fitness centers, in-house exercise equipment,
weight-loss centers, health food stores.
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Changing Environmental Trend
Resulting new business, product and service
opportunities

• Technological trends
• Advances in biotechnology

• Biotech related pharmaceutical
• products, food products, veterinary
• products, information services.

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Changing Environmental Trend
Resulting new business, product and service
opportunities

• Political and Regulatory trends
• Increased EPA and OSHA standards

• Consulting companies, software to monitor
  compliance, products to help ensure compliance.

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NEW PRODUCT COMMERCIALISATION?