Unit 2 The Firm and Its Environment

UNIT 2:
THE FIRM AND ITS

ENVIRONMENT
BUSINESS ENVIRONMENT
Business environment may be defined as the
"total surroundings, which have a direct or
indirect bearing on the functioning of business."
It may also be defined as the set of external

factors such as economic factors, social factors,
political and legal factors, demographic factors,
technical factors which are uncontrollable in
nature and affects the business decisions of firm.
TIMMERMAN INDUSTRIES
THE ENVIRONMENTAL FORCES
Sociocultural Environment
Sociocultural environment or social
and cultural forces refer to the
structure and dynamics of
individuals and groups and their
behaviors, beliefs, thought patterns
and lifestyles, interpersonal
relationship, poverty, life expectancy
rate, literacy, etc.
Political Environment
This includes the political form, the
government policies, and attitude
towards the business community.
All these aspects have a substantial
alignment with the strategies
adopted by business firms.
Technological Environment
As most would say, "you cannot
stop the advancement in
technology, but you can learn
to adapt to its changes."
It includes the methods,

techniques, and approaches
adopted for product goods and
services and its distribution.
Legal Environment
This refers to the set of laws,
regulations, and legalities that
affect the business operations.
Every business organization has
to follow and obey within the
framework and requirements of
the law.
Competition
"Know thy competitors" is the
rule of the thumb in the
industry.
Knowing who the players in
the similar industry would give
the firm a good vantage point.
Economic Environment
This refers to economic growth,
interest rates, foreign exchange
rates, inflation rates, unemployment
rates, globalization of the company,
etc. All these help in improving the
pace of economic growth and is vital
to all business activities.
PEST and SWOT
Analyzes Framework
Analysis and evaluation are necessary for
learning the internal and external factors that
can affect the business operation to be able
to come up with the excellent strategies to
survive the competition in the industry
SWOT and PEST Analysis are the two common

analyzes framework being used in
businesses.
Threats
SWOT Analysis
simply means Strengths, Weaknesses, Opportunities, and Threats was first
tested by Albert Humprey (1926-2005), American business and
management consultant while doing a research project at the Stanford
Research Institute in the 1960s and 1970s. SWOT examines four elements:
The advantages or the internal attributes that suppport a

Strengths positive result, or edge that you have over the competitors.
This disadvantages or internal characteristics that works
Weaknesses against the successful outcome compared to the competitors.
Current external factors or trends that can be used to be
Opportunities taken advantage.
Current external factors which may cause a problem to
Threats cause a negative impact and can jeopardize the business.
SWOT Analysis Framework
Favourable Unfavourable
Internal
External
PEST Analysis
PEST Analysis refers to Political, Economic, Social, and Technological that
describes a framework of macro-environmental or the uncontrollable
external factors used in doing environmental scanning for market research
as part of strategic management. It is said to be created by Francis Aguilar,
a Harvard professor, to which he used PEST Analysis as a scanning tool.
The laws, global issues, legislations, regulations, which may
Political have a direct effect on the business.
Taxes, interest rates, inflation, the stock markets, and consumers
Economic confidence have to be taken into account.
Changes in lifestyle and buying trends, media, major events,
Social ethics, advertising, and publicity factors.
Innovations, access to technology, licensing, manufacturing,
Technological research funding, global communications.
PEST Analysis Framework
FORMS OF
BUSINESS
ORGANIZATION
Business can be organized in
one of many ways and
whichever the owner choose
will affect the company's as
well as the owner's legal
liability income tax treatment,
financial concerns and even
personal concerns.
Proprietorship, Partnership
and Corporation.
FORMS OF BUSINESS ORGANIZATION
SOLE
PROPRIETORSHIP
is a business with only one
owner who operate the entire
business all by himself or
employ employees.
It is the simplest and most

numerous form of business
organization; it does not
preclude the owner from using
a business name that is
different from the owner's name.
PARTNERSHIP
is a business being managed and
owned by two or more individuals. There
are three classifications of partnership:
1. GENERAL PARTNERSHIP (GP) - partners share
personal liability for business debts and can
make a decision that affects the whole
business.
2. LIMITED PARTNERSHIP (LP) - one partner is

responsible for decision-making and can be
held personally liable for the business debts
and to each partner's investment.
3. LIMITED LIABILITY PARTNERSHIP (LLP) -

protect each partner's personal assets and
debts or liability incurred by the other partners.
CORPORATION
is owned by multiple
shareholders and is overseen
by a board of directors who
were elected by the
shareholder.
This is considered a limited

liability entity and is distinct
from its owners because it can
borrow money, enter into
contracts, pay taxes, and be
sued.
THANK YOU
FOR YOUR ATTENTION
Prepared by:
Mrs. Anais B. Adobas

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UNIT 2:

THE FIRM AND ITS

It may also be defined as the set of external

It includes the methods,

SWOT and PEST Analysis are the two common

The advantages or the internal attributes that suppport a

It is the simplest and most

2. LIMITED PARTNERSHIP (LP) - one partner is

3. LIMITED LIABILITY PARTNERSHIP (LLP) -

This is considered a limited

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