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Applied Economics

CHAPTER 3
Industry and
Environmental Analysis:
Business Opportunity
Identification
LESSON 3.3
Industry Analysis
Chapter Learning Objectives
• To identify principles and tools in creating a
business
• To apply SWOT analysis as a tool in evaluating
a business opportunity
• To understand that Porter’s Five Forces of
Competitive Position Analysis can be applied as
a tool in evaluating a business opportunity
• To analyze the activities in the circular flow of
economic activity in an effort to relate the
concept to the putting up of a business
Chapter Learning Objectives
• To make a simple industry analysis
• To identify the factors which are taken into
account in an environmental analysis
• To describe the economy’s three main producing
sectors and show how important they are in
making a choice of what business to establish
• To state the importance of competitiveness and
efficiency in the economy
Chapter Learning Objectives
• To explain the value of international trade in
how one can set up a business
• To show the role tourism plays in the economy
and how it can be utilized as business
opportunity
• To identify and assess small business
opportunities
Terms to Remember in
Chapter 3
• Business • Cooperative
• Industry • Micro business
• Competition • Small scale business
• Target market • Medium scale business
• Suppliers • Large scale business
• Distributors • SWOT Analysis
• Exports • Porter’s Five Forces of
• Imports Competitive Position
• Sole proprietorship Analysis
• Partnership • The Circular Flow of
Economic Activity
• Corporation
• Physical flow
Terms to Remember in
Chapter 3
• Financial flow • Service sector
• Household • ASEAN
• Business firm • Infrastructure
• Raw materials • Liberalization Policies
• Intermediate goods • Policy
• Final goods • Productivity/Efficiency
• Industry analysis • Technology
• Environmental analysis • Tourist
• Agriculture, Fishery and • Tourism
Forestry sector
• Industrial sector
Important Factors in Industry Analysis

What are the IMPORTANT FACTORS


to consider in an industry analysis?

• Competition
• Customers
• Suppliers
• Substitutes
Factors that Affect Market Competition
What important questions must be
answered to help analyze the
COMPETITION?

• Who are the major players in the industry?


• Have they been long existing or still new entrants?
• What is the market share of each of these businesses?
Factors that Affect Market Competition
What important questions must be
answered to help analyze the
CUSTOMERS?

• Who will you sell your product to?


• Who exactly will buy your products? What income
groups? What age brackets? What gender? What
career groups?
• What type of people will you cater to, based on their
preferences, lifestyles, and buying habits?
Factors that Affect Market Competition
What are the important things to
consider in choosing
SUPPLIERS?

• Look for suppliers who are reliable in terms of the quality of


what they supply.
• Suppliers should be dependable in coming up with the
things you order from them.
• Using modern technology, look at reviews made by other
retailers to have an idea on who the reliable suppliers are.
• Inquire for prices in order to find suppliers who offer the
cheapest possible prices.
Factors that Affect Market Competition
From where can you source raw
materials, intermediate products, or
even finished goods to be resold?
• Manufacturers
They are the cheapest sources since there are no middlemen involved.
However, this is only recommended if the suppliers’ location is convenient and
will not involve expensive delivery costs.
• Distributors
They are wholesalers or brokers who buy in big quantities from manufacturers,
add a mark-up to their purchase price, and sell to retailers.
• Imports
Some businessmen go to nearby countries to buy their goods or raw materials
there.
Factors that Affect Market Competition

What are SUBSTITUTES?

 These are goods that can be used in place of another.


 These are goods that may, even if partly, satisfy the
same needs of a consumer such that the consumer
may use these instead of another.
 It is important to note that some goods are close
substitutes of another while others are not.
Factors that Affect Market Competition
Why do manufacturers try to
differentiate their products from
their competitors?

 They do this so that the customers will develop


product loyalty for their brand. You see, the more
differentiated a product is, the greater the edge of its
manufacturer because this can convince the
customers to buy their product instead of that of the
competition.
A Guide to Industry Analysis
Here are the key factors to consider
in analyzing your industry identified
by the SBTDC.
1. Geographic Area – identify the area whether local, regional,
nationwide, or international
2. Industry (as to size) – worth in pesos and number of firms,
trends, and developments and future outlook
3. Product – describe the product as to physical attributes and
characteristics, and its uses
4. Buyers – describe target customers as to age, income group,
geographical location, and occupations; include consumer
demographics such as population/ household size, sex, race,
ethnicity, family status, housing status, etc.; may also include
psychographics such as lifestyle information, tastes,
preferences, and buying habits
A Guide to Industry Analysis
Here are the key factors to be
considered in analyzing your
industry identified by the SBTDC.

5. Regulatory Environment – should include government laws


and regulations that apply to the business
6. Company Information – make a list of the most successful
businesses in the industry
7. A brief history of the industry – when it started and how it
developed
8. Factors that affect growth of the industry – such as migration
of population from rural to urban areas
9. Trends in sales over recent years – show actual sales in the
industry over the past five years
A Guide to Industry Analysis
Here are the key factors to be
considered in analyzing your
industry identified by the SBTDC.

10. Current operational/management trends within the industry,


which are standard practices prevalent among the firms
11. The types of marketing strategies prevalent within the industry
12. Competitor information – include the location of competitors
and how long they have been in business and their market
share