CHAPTER 2
THE FIRM AND
ITS
MS. ANGELINE S.
ENVIRONMEN
GREGORIO, LPT.
CHAPTER 2: THE FIRM
AND ITS
ENVIRONMENT
• Environmental Forces that
Affect Local and International
Business
• The Phases of Economic
Development and its Impact
to Business Environment
• Forms of Business
Organization
OBJECTIVES:
• Identify various forces/elements of
the firm’s environment.
• summarize these forces using the
PEST and SWOT analysis.
• Describe the local and
international business
environment of a firm .
• Explain the role of business in
relation to the economy.
• Discuss the different phases of
economic development.
• Differentiate the various forms of
business organizations.
CHAPTER 2:
LESSON 1
Environmental
Forces that Affect
Local and
International
VOCABULARY
These are factors that affect the operation of the
ENVIRONMENTAL FORCES business be it internal factors (within the business) or external factors
(outside
forces)
INTERNATIONAL BUSINESS Business activities are carried outside the country.
A business operating in their own country and are affected by the
DOMESTIC/LOCAL BUSINESS
economic, legal and cultural factors specific to that domestic
environment, or nation.
A method used to analyze strategic plan of action and helps
ENVIRONMENTAL SCANNING organizations to gain knowledge of possible influences from the
outside environment that affect the business.
INTERNAL ENVIRONMENT Factors that occur within the premises of an organization and direct
affect the different functional areas in the organization.
VOCABULARY
EXTERNAL ENVIRONMENT Are those that exist outside the firm and often regarded as
uncontrollable factors.
SWOT ANALYSIS the oldest popular method used for environmental scanning.
WHAT ARE THESE
ENVIRONMENTAL
INTERNAL FACTORS
FACTORS?
• Value System. It denotes the culture and norms of the business. This is the
regulatory framework of a business which every employee must abide and
act within the context.
• Missions and Objectives. Different priorities, policies, and philosophies of a
business are guided by the mission and vision of a business.
• Financial Factors. These are the factors like financial policies,
financial position and capital structure which also affect a business
performance and its strategies.
• Internal Relationship. Factors like the amount of support the top
management enjoys from its shareholders, employees and the board of
directors also affects the smooth functioning of a business.
EXTERNAL FACTORS
include those factors which exist outside the firm and often regarded
as uncontrollable. These can be characterized as micro and macro
environment.
MICRO ENVIRONMENT includes the following factors:
• Suppliers are those people who are responsible for supplying
necessary inputs to the organization and ensure the smooth flow of
production.
• Competitors are the close challengers of the business. It also refers to
the numbers of similar competitive product brand, size, and market
capitalizations. And in order to survive the competition, one has to
keep a close look in the market and formulate policies and strategies
to produce innovative output.
• Marketing Intermediaries aid the company in promoting, selling and
Distributing goods and services to its consumers. Therefore, marketing
intermediaries are vital link between business and the consumers.
MACRO ENVIRONMENT includes the following factors:
• Economic Factors include economic conditions such as growth rate,
inflation, restrictive trade practices and others which have considerable
impact on the business.
• Social Factors include the society together with its preferences,
priorities, pattern of beliefs, purchasing power, educational background and
others.
• Demographic Factors refer to the study of people, such as their age,
sex, marital status, occupation, family size etc. Since demography is
uncontrollable because you cannot control the sex, age, marital status in the
environment, this enabling you to predict future trends and
• consumptions
Political Factors of your product.
include government policies, laws and legalities. This, in a
way, affects the business operation. For instance, the government
restricted the importation of a particular substance and as a result this action
• will delay the production
Technological Factors. of your product.
Technology sets challenges to dealer. It affects the
kind of product that a dealer is offering. You cannot stop the advancement of
technology, but you can learn to adapt to its changes and maximize it for the
advancement of the organization.
ORGANIZATIONAL ENVIRONMENTAL SCANNING
Environmental scanning helps organizations to gain knowledge of possible
influences from outside environments and how it can strategically affect
the business. It is also a method of analyzing relevant gathered
information and use them to determine strategic and planned action on the
business environment.
ACTIVITY: Direction: Group the following words below accordingly whether it belongs
to internal factors or external factors.
1.Missions & Objectives INTERNAL FACTORS EXTERNAL FACTORS
2.Technological Factors
3.Marketing
Intermediaries
4.Social Factors
5.Staff/Employees
6.Financial Factors
7.Political Factors
8.Internal Relationship
9.Economic Factors
10.Demographic Factors
11.Value System
12.Suppliers
13.Policies &
Procedures
