Applied Econ

1. • Due to health crisis brought by covid 19, a lot of small
and medium enterprises closed down already for they
have already incurred much losses for the past few
months. However, there are still businesses that flourish
amidst the pandemic.
• For example, Puregold’s stock value rose significantly
for couple of months while other industries had difficulty
coping up with the pandemic.
• If you are going to put up a business during these trying
times, what would it be and why? Why do you think this
industry is attractive in the market even during
pandemic?”

2. The activity aims to let you realize that firms
always analyze the industry first before
putting up a business. Different firms use
different tools in assessing the business
environment and to see the rewards,
challenges and even attractiveness in the
industry where the business belongs.”

3. •Business
- “it is an entity or organization that is intended for
commercial, industrial or any professional activities
-its main objective is to earn profit for the owners”
- “A business is just a small portion of an industry”
•Industry
-It is a group of companies or businesses that
carry on the same line of business activities
undertaking

5. FORMS OF BUSINESS ORGANIZATIONS
1.SOLE PROPRIETORSHIP
-This form of business organization consists of one person who runs
business.
- “Among all business organizations, this takes the simplest method to set-
up and even to dissolve
- “The owner has sole control over business management and gets solely
the profit earned from its operations.”
- “However, the sole proprietor also carries the whole responsibility for all
the debts and obligations and absorbs all the losses in the course of the
business operations”
- “The owner faces the risk of unlimited liability in which his personal assets
might be exhausted to pay for the business’ loans”

6. FORMS OF BUSINESS ORGANIZATIONS
2.PARTNERSHIP
- “A partnership consists of two or more people who combine
their resources and run the business together with an aim to gain
profit.”
- “There must be a partnership agreement and profits are divided
among partners according to the terms of the agreement”

7. FORMS OF BUSINESS ORGANIZATIONS
2 types of partnership:
a. General Partnership- “all partners take part in the management
of the business. The general partners have unlimited liability
wherein their personal properties might be used just to pay for
the debts of the company”
b. Limited Partnership- “These are the partners who contribute
only capital and do not take part in the management of the
business. They have limited share in the profit, but they are also
only liable to business debts to some extent only

8. FORMS OF BUSINESS ORGANIZATIONS
3. CORPORATION
- “It is a legal entity that is separate from the owners of the
corporation or the shareholders.”
- “Board of Directors and the highest officers may bear liability for
their involvement with the corporation”
- The shareholders have limited liability
- “Corporations have unlimited commercial life for they can exist
for 50 years and it is renewable for another 50 years”
- Among all forms of business organizations, corporations are
heavily taxed and regulated by the government.

9. TOOLS IN EVALUATING A BUSINESS
•Generally speaking, one must be fully
knowledgeable of the industry first before
putting up a business. By analyzing the
industry and the business to be established,
appropriate actions and strategies will be
planned and executed well which will also
minimize, if not avoid, waste of resources.

10. TOOLS IN EVALUATING A BUSINESS
The SWOT Analysis
-It stands for Sstrengths Weaknesses, Opportunities ,and Threats
- “It is a framework that is used to seek business opportunities
and evaluate new business ventures”
- “It helps to identify the company’s challenges and risks of doing
business”
- “A helpful tool to assess the internal and external factors
affecting the business

11. TOOLS IN EVALUATING A BUSINESS
The SWOT Analysis
Internal factors that may affect the business:
• Financial aspect- source of capital, uses and sources of funds for
short-term and long-term, investment funds of the company”
• Human resources- consist of employees and their designated
positions in the company”
• Physical resources- machines, equipment, facilities, location”
• Business processes- production process, sales and marketing
strategies, supply chain, value chain, information and technology
systems, programs for laborers and employees, job description of
each employees, logistics, etc.”

12. TOOLS IN EVALUATING A BUSINESS
The SWOT Analysis
• REMEMBER!
• “Strengths and Weaknesses refer to the internal factors affecting
the business”.
• “Strengths refer to the things that the company is good at, or its
advantages over its competitors”
• “Weaknesses refer to the things that the company needs to improvee
• “Internal factors are aspects that can be controlled by the managers
of the company”.

13. TOOLS IN EVALUATING A BUSINESS
The SWOT Analysis
External forces that may affect the business:
• Economic aspect- international trading, financial and economic trends in local,
national, and international scenes, inflation, interest rate, GDP, banking system,
national economic status, etc.”
• Market trends- behavioral and psychographic descriptions of the target market,
change in taste and lifestyle of customers, new products and technology in the
market, etc.”
• Regulatory environment- political environment surrounding the business, laws
governing business operations, local and national statutory regulations”
• Demographic characteristics of the target market- age, gender, financial status,
culture, etc.”

14. TOOLS IN EVALUATING A BUSINESS
The SWOT Analysis
• REMEMBER!
• “Opportunities and Threats refer to the external factors affecting the
business”.
• “Opportunities are positive impacts of various external environments on
the profitability of an industry”
• “Threats refer to undesirable impacts of external factors because they can
potentially impair the profitability of firms
• External factors are aspects that are beyond the control of the managers
of the company.”

15. TOOLS IN EVALUATING A BUSINESS
The SWOT Analysis
• SWOT Analysis is one of the most widely used business
evaluation tool in any business industry. It is helpful in
determining the business parameters that must be improved on,
which becomes the basis in creating business strategies. The
owners can identify the company’s strengths that they can use
for their advantage and they can also address their weaknesses
in order to level the competition in the market.”

17. TOOLS IN EVALUATING A BUSINESS
• TOWS ANALYSIS
After determining the strengths, weaknesses, opportunities,
and threats of the company, the next step is to match the
internal factors with the external factors driven from the
SWOT Analysis.
Many firms employ TOWS technique of Threats,
Opportunities, Weaknesses, and Strengths to establish
strategies in addressing their weaknesses and threats by
maximizing their strengths and opportunities available to
them.”

19. TOWS Matrix helps firms to plan and
execute strategies based on the
following:
• Maxi-maxi strategies (SO)”
- “Methods that could highly bring
success to firms if planned and
executed well for it matches strengths
of the company and opportunities in
the market”
EXAMPLE OF SO- “Maxi-maxi Strategies”
Strengths such as high brand recognition
or customer loyalty could be combined
with the opportunity to launch a new
product or service

20. TOWS Matrix helps firms to plan and
execute strategies based on the
following:
• Mini-mini strategies (WT)”
- “Opposed to the maxi-maxi strategies that
highlight all the good things and opportunities
for the firm this mini-mini strategies is another
extreme situation that shows all the vulnerable
things about the firm.”
- “Strategies must be developed that would
minimize the weaknesses and avoid threats”.
EXAMPLE OF WT- “Mini-Mini Strategies”
• “Developing strategic alliances or a more drastic
strategy could be to withdraw from a specific
market”

21. TOWS Matrix helps firms to plan
and execute strategies based on the
following:
• Mini-maxi strategies (WO)”
- “Strategies that involve methods on how
to strengthen the organization’s
weaknesses and utilize the opportunities
in the business environment
• EXAMPLE OF WO- “Mini-Maxi Strategies”
• “An organization may have identified an
opportunity to outsource some aspects of
its business operations, overcoming the
weakness of lack of specific skills within the
organization

22. TOWS Matrix helps firms to plan
and execute strategies based on the
following:
• Maxi-mini strategies (ST)”
- “Strategies that involve minimizing
threats of the external forces by utilizing
the strengths of the internal factors of the
firm”
• EXAMPLE OF ST- “Maxi-Mini Strategies”
One of the threats of a company are its
competitors. The firm must learn to use its
strength in diversifying products to ensure
that they would still retain its loyal customers”

23. PORTER’S FIVE
FORCES OF
COMPETITIVE
POSITION ANALYSIS

24. PORTER’S FIVE FORCES OF
COMPETITIVE POSITION ANALYSIS
• This is another tool in evaluating business opportunities.
• It was developed in 1979 by Michael E. Porter as a
guide for assessing the competitive strength and
position of a business organization.
• The stronger the forces of competition have bearing
in the industry, the lower its profitability and the less
attractive the industry for business enterprises;
these forces have to be controlled to enhance the
industry’s profitability.”

25. 1. COMPETITION AMONG EXISTING
FIRMS
•The number and capability of
competitors have an impact on the
attractiveness of the market.”
•“The more competitors offering
similar products, the less attractive
the market is”.

26. 1. COMPETITION AMONG EXISTING
FIRMS
•“If there is the low capability of
competitors to meet the needs of the
market, then there’s an opportunity
for the firm to penetrate the market”

27. 1. COMPETITION AMONG EXISTING
FIRMS
• With regard to different market structures, the following
competitive behavior exists in the industry”:

28. 2. “BARGAINING POWER OF BUYERS”
•“The power of the buyers to drive
prices down”
•“The customers negotiate with
sellers or suppliers in order to
maximize utility”

29. 2. “BARGAINING POWER OF BUYERS”

30. 2. “BARGAINING POWER OF BUYERS”
•“Firms must evaluate how easy it is for
customers to drive down the price

31. 2. “BARGAINING POWER OF BUYERS”
•The buyer’s cost of switching from one
supplier to another is also a determinant of
the buyer’s power to demand discounts (if
cost is minimal, then it will be easy for the
buyers to switch to another supplier and
bargain on lower prices of the input).”
•Firms can mitigate the bargaining power of
the buyers by selling differentiated products

32. 3. “BARGAINING POWER OF SUPPLIERS”
•The more unique the product or service,
the higher the supplier power is
•The supplier enjoys higher power if there
are a few sellers of an essential input
which lets them control the supply and
therefore, the price, of that input.

33. 3. “BARGAINING POWER OF SUPPLIERS”
• “A supplier which has bigger size and
strength in the market can also drive the
prices up”
• “If the cost of switching is high, buyers
of that supplier would prefer to stay with
only one supplier, thus, giving the
supplier the power to raise the price”

34. 3. “BARGAINING POWER OF SUPPLIERS”
• “Businesses can mitigate bargaining
power of suppliers through”:
• Diversifying sources through vertical
integration
•“Vertical Integration – the mother
company can form subsidiary firms that will
supply all the raw materials for the
conglomerate”
• Subcontracting services

35. 4. THREAT OF NEW ENTRANTS
• “A profitable market is attractive for
investors that is why they always try to get
a market share”
• “When new firms enter the market, the
market share and profit will be divided to
the participants in the market, therefore,
declining the profits that participating firms
will get. That is the reason why firms must
assess the threat of new entrants in the
market”

36. 4. THREAT OF NEW ENTRANTS
• “If there are barriers to entry, it will
prevent potential competitors to enter
the market. Profit will then be
maintained among the existing
participants in the market”

37. 4. THREAT OF NEW ENTRANTS

38. 4. THREAT OF NEW ENTRANTS
• “Businesses mitigate arrival of
competitive potential entrants through”:
• “Research and development – to
improve and differentiate product”
• “Expand production and lower the
price”

39. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• “Threats in the profitability due to the
emergence and availability of substitute
goods in the market”.
• - “If it is easy to substitute goods in a
market, buyers will then easily switch to
the alternative goods in the event of
price increase”

40. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• - “The suppliers will enjoy less power to
drive prices up and the market will be
less attractive”
• - “Substitute goods can be measured
through their elasticity”

41. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• Cross elasticity of demand – responsiveness of the
demand for a substitute good due to a change in the
price of the product.
▪ “Inelastic – (low elastic) not responsive”
▪ “Elastic – responsive”
▪“Perfectly Elastic – “(highly elastic) very responsive”

42. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• “Inelastic – (low elastic) not responsive”
• a product is considered to be inelastic if the
quantity demand of the product changes very
little when its price fluctuates.
• Price decreases also do not affect the quantity
demanded; most of those who need insulin
aren't holding out for a lower price and are
already making purchases.

43. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• “Elastic – responsive”
• A product is considered to be
elastic if the quantity demand
of the product changes more
than proportionally when its
price increases or decreases.

44. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• Spa days, for example, they aren’t necessarily
good, and an increase in the price of trips to
the spa will lead to a greater proportion
decline in the demand for such services.
• Conversely, a decrease in the price will lead
to a greater than proportional increase in
demand for spa treatments.

45. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• “Perfectly Elastic – “(highly elastic) very
responsive”
• A perfectly elastic demand is an economic
situation where there is a direct relation
between the supply or demand and pricing. In
this case, a slight change in price will often
result in a significant change in demand.

46. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• “Perfectly Elastic – “(highly elastic) very
responsive”
• For instance, a small price increment might
cause demand for products and services to
drop to zero, while a small decline in price may
cause demand to rise to infinity.

47. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• “Perfectly Elastic – “(highly elastic) very
responsive”
• A good example of perfectly elastic demand is in
the housing sector.

48. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• Property owners are oftentimes forced to
maintain a given rent charge in a bid to
attract and retain tenants.
• Given that the sector in most countries is
filled with options, a slight increase in rental
fees can cause tenants to move in search of
cheaper alternatives.

49. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• “Businesses can mitigate threats
of substitute goods through”:
• “Lower cross elasticity by
product differentiation”

50. 5. “THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
• The availability of a substitute for a product
affects its elasticity. If there are no good
substitutes and the product is necessary,
demand won’t change when the price goes
up, making it inelastic.

52. ACTIVITY