THE SOURCES OF ENTREPRENEURIAL IDEAS ideas.
The expertise and skills
developed by a person who has
worked in a particular field may lead
1. CHANGES IN THE ENVIRONMENT to the opening of a related business
Entrepreneurial ideas arise from the enterprise.
changes that happen in the external
environment with entrepreneurial
implications. The term external THE PHYSICAL ENVIRONMENT
environment in this lesson refers to The first layer of the environment is the
the physical environment, societal physical or natural environment. It is
environment, and the industry composed of the natural elements that are
environment where the business inherent in the Earth. It is divided into
operates. climate, physical resources, and wildlife.
i. The Physical Environment These three natural elements of the physical
a. Climate environment have significant contributions
b.Natural Resources and effects to the business venture.
c. Wildlife Prospective entrepreneurs should critically
ii. The Societal Environment evaluate them before opening their
a. Economic Forces businesses.
b.Sociocultural Forces
c. Political Forces I. Climate
d.Technological Environment The climatic condition in a particular
iii. The Industry Environment region in the Philippines where the
a. Government business will be established must be
b.Competitors evaluated. The entrepreneur must
c. Suppliers consider the prevalent climatic
d.Customers condition of the area where he/she
e. Creditors intends to open the business to
f. Employees determine whether it can withstand
2. TECHNOLOGICAL DISCOVERY AND or is fit to the climatic condition in the
ADVANCEMENT local area.
Discovery and advancement in the
use of technology are another good II. Physical / Natural Resources
source of entrepreneurial ideas and The availability of raw materials is
opportunities. A person with another major factor that can
entrepreneurial interest looks at the influence the success or failure of the
possibility of business opportunities business venture. Its availability or
in any new discovery or advancement lack will determine the cost of the
in technology. products. Products that are made
3. GOVERNMENT’S THRUST, PROGRAMS, from rare taw materials will definitely
AND POLICIES cost more than those that are made
The priorities, projects, programs and from common ones.
policies of the government are also III. Wildlife
good sources of entrepreneurial ideas. Since the wild plants and animals in
The term government in this lesson the Philippine forests are
refers to the local government continuously abused, these abuses
(municipal, city, or provincial) or the lead towards the imbalance of the
national government and its Philippine ecological system where
branches. The programs and agenda wild plants and animals are supposed
of the Philippine government to be interrelated.
intuitively address the needs of the The entrepreneur must ensure that
Filipino people. Whenever there are his/her business contributes to the
changes in the policies and programs preservation and not the destruction
of the government, new of the ecological system of the local
entrepreneurial ideas are likely born. community and our country in
4. PEOPLE’S INTEREST general.
The interests, hobbies, and The entrepreneur must not open a
preferences of the people are a rich business that will destroy the wildlife
source of entrepreneurial ideas. An reserve. After all, it is also an
entrepreneur must be keen in entrepreneur’s task to become a
identifying the cycle of interests and model of social responsibility and
trends of his/her target market since environmental awareness.
these tend to continuously change.
The business venture should be THE SOCIETAL ENVIRONMENT
adaptive to the interests and hobbies The societal environment is generally
of the people to protect and sustain composed of social, political, cultural,
the business. economic, legal, and technological forces. The
5. PAST EXPERIENCES critical evaluation and thorough study of the
Past experiences and exposures are environment where the business operates is
also a good source of entrepreneurial technically called environmental scanning.
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interpretation of laws and ordinances directly
I. Social Forces affecting the business. These include
Social forces are elements in the society legislations on the following:
resulting from human interactions that can 1. Product Control, Pricing, and
influence the thoughts, behaviour, attitude, Labelling
actions, and even the beliefs and customs of 2. Health and Safety of the Workers
the people. It includes the following: 3. Administration of Election Process
1. Values 4. Advertising and Promotion
2. Traditions 5. Exercise of Profession
3. Literacy Level 6. Education Administration Fees
4. Consumer Psychology
5. Time Orientation VI. Technological Forces
6. Lifestyle Patterns Technological Forces basically refer to the
7. Professional Career Roles trends and developments in computer and
Social forces are basically the products of the information technology that have impact on
actions of the people on the important events business which occur almost every day. These
that happen at any given time. The people, forces may include the following:
therefore, are most active participants in 1. Internet
what happens in the society. 2. Social Media
3. E-Commerce
II. Political Forces 4. Technological Advancement
Political forces are the various elements 5. Technological Infrastructure
usually comprising of the political parties,
political systems, and other related political Environmental Scanning
groups that substantially influence the It is considered the most appropriate
political stability of a country. They include measure to determine the trends and
the following: developments in the various forces existing in
1. Trade Regulations the business environment.
2. Taxation Refers to the gathering, critical evaluation,
3. Government Stability and utilization of information on events and
4. Unemployment activities and their relationships with the
5. Workers’ Benefits physical, societal, and industry environments.
6. Election Practices Importance:
1. Clearly portrays the trends, activities,
III. Cultural Forces and developments happening in every
Culture basically refers to the interchanged environmental layer including the
characteristics of a group of people or ethnic interrelated relationships between
group in a particular society. It includes the the various forces in the environment.
following: 2. Identifies the expected threats and
1. Religion opportunities existing in the
2. Language environment.
3. Beliefs 3. Points out the possible factors that
4. Customs will determine the success of the
5. Education entrepreneurial venture.
In the Philippines, cultural forces have 4. Helps define the future path of the
significant influence on any entrepreneurial business.
endeavour because of our cultural diversity. 5. Assists in the formulation of the most
The entrepreneur must evaluate the appropriate entrepreneurial
prevailing culture of the local community strategies.
where the proposed venture will be
established. PESTEL Analysis – is a tabular framework of
the trends and developments in the different
IV. Economic Forces forces in the external environment. The
Economic forces are factors which are acronym PESTEL stands for Political,
primarily caused by changes or movements in Economic, Sociocultural, Technological,
the Philippine economy that have direct or Ecological, and Legal Forces. There are
indirect effects on the entrepreneurial several variations of PESTEL analysis. These
venture. These factors include the following: include the following:
1. Interest Rates a. PEST Analysis which disregards the
2. Inflation Rates ecological and legal forces,
3. Fiscal Policies b. STEEPLE Analysis to which ethics is
4. Monetary Policies an additional factor, and
5. Income c. STEEPLED Analysis which is similar
6. Exchange Rates to STEEPLE but with the addition of
7. Employment demographic factors.
8. Consumer Confidence The PESTEL analysis is the most widely
accepted and commonly used environmental
V. Legal Forces scanning today. Though it is not a perfect tool
Legal forces are the elements and bodies that to scan the trends and developments in the
are directly involved in the legislation and external environment, it is still considered the
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most appropriate tool because of its features. and democratic. It promotes entrepreneurial
It is highly emphasized that the evaluation of ventures through its thrusts, programs, and
trends and developments existing in the priorities.
external environment is viewed from the
perspective of the business and not from II. Suppliers
other businesses in different industries. Suppliers refer to the individual persons or
There are no strict rules as to the companies that provide the required
presentation and arrangement of the PESTEL materials, parts, or services to the business.
tabular framework. The framework may be
modified based on the priority and III. Customers
importance of a particular factor for the The customers are the buyer of goods or
business. services produced or rendered by the
business.
IV. Competitors
The competitors are
the forces existing in
the industry
environment that
produce, sell, or
render products or
services which are
similar to those of
the business. The
two (2)
classifications of
competitors are:
a. Direct
Competitors
– produce
and sell
similar
products or
services.
b. Indirect
Photo Competitors
Source: www.professionalacademy.com – produce and sell substitute
products.
Template of PESTEL Analysis V. Employees
The employees are the workers of the
Politi Econ Socioc Techno Ecolo Legal business who are highly responsible for the
cal omic ultural logical gical Force production of goods or delivery of services to
Force Force Forces Forces Forc s the customers. They are the backbone of the
s s es business. The employees are selected
Instab High Low Readily Abun Frequ according to their educational background,
ility of intere level of availabl dant ently- character, experience, skills, and
the st educati e raw chang competencies. Their aspirations and
Philip rates on Internet mater ed tax priorities must be in line with those of the
pine given among and ials laws business. They must be motivated in their
gover by public social assigned tasks by providing them with
nment comm school media desirable working conditions. Their
ercial graduat respective cultural and religious beliefs and
banks es practices must be taken into consideration by
the entrepreneur.
VI. Creditors
The creditors refer to banks, financial
THE INDUSTRY ENVIRONMENT institutions, and financial intermediaries
The industry environment is the external engaged in the lending of money to the
environment environmental layer where the borrower usually for a fee or charge in the
trends and changes are easily and form of interest.
immediately felt by the business. Industry
forces include the following:
Industry Analysis Scanning Tools
I. Government
Government refers to the system or 1. SWOT Analysis [to be discussed separately
institution that handles the affairs of a in the next lesson]
particular country. The Philippine S – Strengths
government is both presidential republican W – Weaknesses
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O – Opportunities 4. High cost of product
T – Threats differentiation
5. High switching cost
2. Forces of Competition Model 6. Difficulty in accessing
Otherwise known as the “five forces distribution channels
of competition,” was popularized by
Michael Porter, a prominent figure in
strategy formulation. The industry Buyers
environment is a competitive o The buyer has a strong and
environment. The business, therefore, magnified bargaining power
cannot do anything else but to in the industry. However, the
compete. The five forces of competing threat of its bargaining power
within the industry are as follows: will be less if the following
a. Potential New Entrants factors exist:
b.Buyers 1. The buyer has the
c. Substitute Products potential for backward
d.Supplier integration.
e. Rivalry Among Existing Firms 2. The cost of switching
However, in the revised model, the supplier cost is
Michael Porter has added “Other minimal.
Stakeholders as another force. 3. The buyer purchases
large portions of the
seller’s products or
services.
4. There are several
Threats of suppliers available in
the market.
Potential New 5. The product
Entrants represents a high
percentage of the
buyer’s cost.
Suppliers
o The intensity of the threat of
Bargaining Bargaining the suppliers is strong if the
Power of the Rivalry among Power of the following factors hold true:
Suppliers 1. The product or service
Existing Firms Buyer is unique.
2. The switching cost is
very high.
3. Suppliers in the
industry are few, but
the sales volume is
Threats of high.
4. Substitute products
Substitute are not readily
Products available in the
market.
5. The supplier has the
Barriers to the Five Forces of Competition ability for forward
The five forces are considered threats to the integration.
entrepreneurial venture. Each competing Rivalry Among Existing Firms
force has its own bargaining power in the o The intensity of rivalry among
industry environment. However, the intensity existing firms in the industry
of the threat of the five forces is highly is attributable to the following
influenced by the level or degree of barriers factors:
affecting the particular force. 1. Number of competing
Potential New Entrants firms
o New Entrant refers to one 2. Rate of industry
competitive force in the growth
industry. It is a threat to the 3. Characteristics of the
business. The intensity of its products or services
threat will be affected by the 4. Amount of fixed cost
presence of the following 5. Increased capacity
barriers: 6. Diversity of rivals
1. Strict government Substitute Products
policy o The substitute products can
2. Substantial capital pose great threats in the
requirement industry environment if the
3. Economies of scale following factors are present:
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1. The price of the
substitute product is
substantially lower.
2. Preferences and tastes
of customers easily
change.
3. The quality of
substitute products
dramatically
improves.
4. Switching cost is low.
5. Product differentiation
is hardly noticeable.
