Applied Economics-4th-quarter.pptx

2. APPLIED ECONOMICS

4. LEARNING OBJECTIVES After going through this lesson, you are expected to: • Analyze different principles, tools, and techniques in creating a business

5. Business

6. Business may be defined as any activity which leads to the creation of utility, in the form of goods and services to satisfy human wants. The main objective of business activities is to create exchange as well as possess wealth in the form of physical output and useful services. Business, no doubt, is an economic activity with the object of earning an income, i.e., Profit and thereby, accumulating wealth or purchasing power.

7. Juan is planning to put up a business in their village since he saved up few of his salary over the years of working which yielded more than he expected. Since he already has acquired the discipline to manage his finances, he wanted to open a business and make sure that this savings would be put to good use and ensure that his money will grow. He had a hard time thinking which business idea suit him and is feasible in his area. He did not know where to start and he was tired of thinking of what is the best idea for business. What is the best way should Juan do in this situation?

8. According to Richard Lannon (2016), “there are many tools and techniques that can be applied to a strategic analysis. The challenge is selecting the best approach, tools, and techniques to use given the business problem or opportunity.”

11. VMOST Analysis PESTEL Analysis TOWS Analysis Porter’s Five Forces SWOT Analysis

12. VMOST stands for Vision, Mission, Objectives, Strategy, and Tactical. VMOST is a tool that can help you determine whether your business activities are in line with your plan and strategies . Because alignment is crucial to the success of a strategy, so this can be a useful process to go through. VMOST Analysis

13. This Guideline in using VMOST analysis consists of 4 Steps. In each of these Steps, it proposes to define certain Factors related to the Company (Consuunt, n.d.). 1. Vision & Mission: Vision: How you see the Market, and its Future. Mission: The Role that the Company plays in it. 2. Objectives: The Goals to be Achieved (and When). They should be Defined and Measurable 3. Strategy: What Methodology will be used to achieve those Goals. It will vary depending on the project. 4. Tactics: What Actions will be used to comply with that Strategy.

14. Here is another example from Consuunt (n.d.): Vision & Mission • Your Vision: High-quality Food is very expensive and must be accessible to everyone. • Your Mission: To offer high quality food in an affordable and attractive way for everyone. Objectives • Have the Restaurant Open and fully operational before 6 months. • Have a 10% Profit Margin. • 20% of your Clients must be Loyal Clients. Strategy • Customer Satisfaction is at the center of everything. • You’ll focus on a Total Quality approach. Tactics • You’ll implement a Continuous Learning process to find what your Customers value the most. • You’ll use recipes that people know but employing good products. • You’ll check Social media to track How your Customers perceive your Restaurant..

16. The SWOT analysis was created in the 1960’s by business gurus, Edmund P. Learned, C. Roland Christensen, Kenneth Andrews, and William D. Brook in their book, “Business Policy, Text and Cases” (Sathyabama, n.d.). SWOT Analysis

17. Strengths, Weaknesses, Opportunities, and Threats, is an analytical framework that can help a company meet its challenges and identify new markets. The framework can help identify the business’s risks and rewards. It is also a means of identifying the internal and external forces that may affect the business. It is very helpful in SWOT Analysis

18. Internal forces: 1. Financial resources such as money and sources of funds for investment; 2. Physical resources, such as the company’s location, facilities, machinery, and equipment 3. Human resources consisting of employees 4. Access to natural resources, trademarks, patents, and copyrights 5. Current processes, such as employee programs, department hierarchies and software systems, sales and distribution capabilities, marketing programs, etc.

19. External forces: 1. Economic trends including local, national and international financial trends, developments in the country’s stock market, reforms in the banking system, growth of the Gross Domestic Product 2. Market trends, such as new products or technology or evolving buyers’ profiles, including changes in tastes and lifestyle behaviour 3. National and local laws and statutes as well as political, environmental, and economic regulations 4. Demographic characteristics of the target market such as the age, the gender, the culture of the customers 5. Relationships with suppliers and co-owners 6. Competitive threats.

20. The SWOT analysis is a tool that can help a proponent by enabling him/her to identify and assess the internal and external forces that can affect the business. When used properly and regularly, this can serve as guide for the company to attain success. It is a guide to prepare for a new venture, design business strategies, and identify areas of change and reform. When used properly, the business owner can anticipate problems, including possible solutions and take advantage of identified opportunities. The owner can maximize its strengths and attempt to cut out its weaknesses (Dinio & Villasis SWOT Analysis

24. TOWS Analysis is a variant of the classic business tool, SWOT Analysis created by Heinz Weihrich. TOWS Analysis

25. TOWS analysis first matches internal factors to external factors to help identify relevant strategic options that an organization could pursue. By combining the external environment’s opportunities and threats with the internal organization’s strengths and weaknesses, we can come up with four basic strategies. It can help an organization to see how it can take advantage of opportunities, reduce threats, overcome weaknesses and exploit any strengths. TOWS Analysis

26. The four TOWS strategies are: 1. Strengths/Opportunities (SO)/ Maxi-Maxi Strategy: Consider all strengths one by one listed in the SWOT Analysis with each opportunity to determine how each internal strength can help you capitalize on each external opportunity. 2. Strength/Threats (ST)/ Maxi-Mini Strategy: Consider all strengths one by one listed in the SWOT Analysis with each threat to determine how each internal strength can help you avoid every external threat.

27. 3. Weaknesses/Opportunities (WO)/ Mini-Maxi Strategy: Consider all weaknesses one by one listed in the SWOT Analysis with each opportunity to determine how each internal weakness can be eliminated by using each external opportunity. 4. Weaknesses/Threats (WT)/ Mini-Mini Strategy: Consider all weaknesses one by one listed in the SWOT Analysis with each threat to determine both can be avoided.

30. Activity #2

31. Activity #2

33. Porter’s Five Forces is a framework to analyze the potential profitability of a marketplace. It was invented by Michael Porter in 1979 and has been used consistency by thousands of companies across the world since originally being published (GetLucidity, n.d.). Five Forces looks at five key areas in a market that impact your price and profitability. The forces analyzed are: Porter’s Five Forces

34. Porter’s Five Forces 1. Bargaining power of Buyers 2. Bargaining power of Suppliers 3. Threat of Substitutes 4. Threat of New Entrants 5. Competitive Rivalry

35. • Number of buyers and market size • Value of each buyer • Ease of switching to competitor • Number of options for buyers • Alternative options for buyers • Sensitivity to price points • How key is product or service to buyer 1. Bargaining power of Buyers

36. • Number of suppliers in market • Size of suppliers in market • Risk of supplier moving into your market • Cost point of suppliers • Substitution options for the supplier product or service • Ease to move between suppliers • Differentiation of suppliers offering • How big a customer you are to the suppliers 2. Bargaining power of Suppliers

37. • Current substitute products on offer • Reasons for buyer churn • Price of substitute vs product or service • Quality of substitute vs product or service • Cost of switching • Usage trends • External trends 3. Threat of Substitutes

38. • Brand reputation • Customer loyalty • Your differentiation • Market growth rate • Entry capital requirements • Economies of scale •Logistics and distribution networks • Skills requirements • Ease of access to technology • Input requirements • Operational margins • Industry knowledge requirements • Government regulation • Ease for customers to move provider 4. Threat of New Entrants

39. • Range of products and services offered • Brand loyalty • Number of competitors in market • Ease of switching between providers • Market growth rate • Industry lifecycle point 5. Competitive Rivalry

41. PESTLE analysis is a strategic management tool that businesses use to identify macro- economic factors that it needs to consider. The word ‘PESTLE’ stands for the six factors – Political, Economic, Social, Technological, Legal, and Environmental. Together, they form the basis for identifying key issues that may impact the strategic direction of the company (Boyce 2021). PESTEL Analysis

42. These factors are all about how and to what degree a government intervenes in the economy or a certain industry. Basically, all the influences that a government has on your business could be classified here. This can include government policy, political stability or instability, corruption, foreign trade policy, tax policy, labor laws, environmental law and trade restrictions. Here are the guide questions: • What government policies or political groups could be beneficial or detrimental to our success? Political

43. Economic Economic factors are determinants of a certain economy’s performance. Factors include economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers and unemployment rates. Here are the guide questions: • What economic factors will impact on us moving forward? • Does the current economic performance affect us? • How does each economic factor impact our pricing, revenues, and costs?

44. This dimension of the general environment represents the demographic characteristics, norms, customs and values of the population within which the organization operates. This includes population trends such as the population growth rate, age distribution, income distribution, career attitudes, safety emphasis, health consciousness, lifestyle attitudes and cultural barriers. These factors are especially important for marketers when targeting certain customers. In addition, it also says something about the local workforce and its willingness to work under certain conditions. Here are the guide questions: • How do our consumer’s values and beliefs impact on their buying habits? • How does human behavior or cultural trends play a role in our Social

45. Technological These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to technology incentives, the level of innovation, automation, research and development (R&D) activity, technological change and the amount of technological awareness that a market possesses. These factors may influence decisions to enter or not enter certain industries, to launch or not launch certain products or to outsource production activities abroad. By knowing what is going on technology-wise, you may be able to prevent your company from spending a lot of money on developing a technology that would become obsolete very soon due to disruptive technological changes elsewhere. Here are the guide questions: • What innovations and technological advancements are available or on the horizon? • How might they affect our operations?

46. Although these factors may have some overlap with the political factors, they include more specific laws such as discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright and patent laws, and health and safety laws. It is clear that companies need to know what is and what is not legal in order to trade successfully and ethically. If an organization trades globally this becomes especially tricky since each country has its own set of rules and regulations. Here are the guide questions: • How does our physical environment affect us and vice versa? • What are the effects of climate, weather or geographical location? Legal

47. Environmental Environmental factors have come to the forefront only relatively recently. They have become important due to the increasing scarcity of raw materials, pollution targets and carbon footprint targets set by governments. These factors include ecological and environmental aspects such as weather, climate, environmental offsets and climate change which may especially affect industries such as tourism, farming, agriculture and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer. This has led to many companies getting more and more involved in practices such as corporate social responsibility (CSR) and sustainability. Here are the guide questions: • What regulations and laws apply to our business? • Do they help or hinder our business? • Do we understand the laws across all our markets?

50. Activity #3

53. LEARNING OBJECTIVES After going through this lesson, you are expected to: • Apply business principles, tools, and techniques in participating various types of industries in the locality

58. The Philippines has predominantly always been an agrarian economy. Being a tropical country, the Philippines holds a massive agrarian land mass, extending to 9.7 million hectares of fertile soil suitable for crops like rice, coconut, pineapple, mango, paddy, sugarcane, corn, maize, cassava, coffee, tea, bamboo, banana, and cacao. Moreover, the country also produces healthy poultry and livestock (Business Setup, n.d.). Agriculture

62. Manufacturing Industry This refers to the processing of raw materials (ex. Ore, wood, and foodstuff) into finished products and into something more useful through the use of tools and process that allows individuals and business to add value to the products, selling them at a higher price in the market thus, marketing manufacturing a profitable endeavor.

63. Manufacturing Industry The gross value added generated from the manufacturing industry in the Philippines amounted to approximately 3.7 trillion Philippine pesos in 2022. Among the industries within this sector, the manufacturing of food products contributed the highest share of the gross value added which reached around 1.8 trillion Philippine pesos.

66. Retail or Merchandising These consist of establishments that purchase products from other businesses or manufacturers and sell them to customers. Merchandising companies usually have merchandising inventories in their current assets account. They usually generate profit by providing markup prices on their goods available for sale (Abrugar, 2011).

67. Retail or Merchandising The retail industry in the Philippines is a combination of various products varying from food and beverages to electronics and appliances, furniture, and several household products. Food and beverages have been one of the leading product segments in the market, which has been in high demand in the country.

69. Tourism industry in the Philippines is very well known since our country has a very rich biodiversity of tourist attraction. From beaches, heritage towns, monuments, mountains, resorts, rainforest, island and diving spots. Since our country is endowed with rich natural resources, the Philippines can promote more nature-based tourism. Tourism provides significant economic benefits, particularly for small islands and provinces. Being an archipelago, the Philippines relies heavily on tourism for its livelihood. Tourism

72. The exchange of products and services between countries is referred to as international trade. It refers to the export and import of commodities and services in basic terms. Products and services are sold out of the country, while goods and services are imported into the country. Since the Philippines is very rich in natural resources the country exports more products, which also means more production, jobs and revenue are generated for the country. International Trade (Exports and Imports)

74. A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers (Hayes, 2021). Banking / Financial institutions

76. Ever since the last decade, Business Process Outsourcing or BPOs have been one of the fast-paced and rapidly expanding industries in the Philippines. BPOs have emerged as the top contributors to the Filipino economy. The Information Technology and Business Process Association of the Philippines (IBPAP) has forecasted that the BPO industry is bound to generate a revenue of 40 billion USD, produce 7.6 million direct and indirect jobs within the sector, and account for 15% of the aggregate global outsourcing market. Thus, making the BPO industry a flourishing sector to invest into (Business Set up n.d.). Outsourcing

78. The Department of Trade and Industry (DTI) has recently stated that the Filipino Government is opening up the construction industry to foreign investors with the idea that these investors can potentially become local contractors by providing them construction permits. Thus, this is an ideal time for foreign direct investors to invest in the construction sector. The PSA has reported a growth of 16.1% towards the end of 2018. Taking part in the infrastructural development of the country will ensure its rise into becoming an infrastructure hotspot for Filipino engineers as well as foreign investors (Business Set up, n.d.). Construction

79. The construction industry is a key sector within the Philippine economy, contributing a gross value added of about 336 billion Philippine pesos during the fourth quarter of 2020. In terms of capital formation, which refers to the total construction expenditures by private and public firms, the sector reported significant contractions in 2020, largely due to the disruptions caused by the global coronavirus (COVID-19) pandemic. Construction

80. The Philippine government’s flagship infrastructure project labeled the" Build Build Build" program was also greatly affected by the lockdown restrictions due to the COVID-19 pandemic. The program was introduced based on the administration's intent to propel the country in achieving more developed and connected life among Filipinos and generate new jobs. However, government figures revealed that only several projects have been completed in 2021 while 31 others have yet to be completed in 2022. Construction

81. One of the big tickets in the government's infrastructure development plan is the Metro Manila Subway Project which would be managed by the Department of Transportation (DOTr), with an average cost of around 357 billion Philippine pesos. Its targeted completion year was projected in 2025 and the excavation for the project was forecast to start on the fourth quarter of 2021. Other high-valued tickets in the pipeline were the North-South Commuter railway extensions (PNR North 2, PNR South commuter), PNR South long haul, Bataan-Cavite interlink bridge, Panay- Guimaras Negros bridge, Taguig integrated terminal exchange and the New Manila International Airport. Construction

83. 1. The owner of XYZ Mercantile is having a bad time in the market during this pandemic since there are only a few people coming in the store lately. He suspected that some factors might be because of the rise of the buying power of the consumers which enable them to bargain more to the sellers. In which some of his competitors might have offered discounts to their customers to gain more sales. What do you think is the best analysis to reevaluate the company’s status on the market over his competitors? Support your answer.

84. Answer: The best analysis to use in this situation is the TOWS and Porter’s Five Forces. TOWS analysis can be very helpful to use especially when we are talking about a business that is already standing and which needs to evaluate its currents status in the market by identifying the current threats and opportunities the company might have to avoid weaknesses. Porter’s Five Forces is also important since it will identify the bargaining power of buyer and the supplier which is a big factor in the market and especially the threat of substitutes as well.

85. 2. Maria is planning to open up a food-stop shop near the bus stop. Since their house is near the bus stop, she thought that it will be an advantage to open the shop since there are no rental to pay since the shop, she is planning to open is just an extension of the front of their house. But she is a bit reluctant to this idea since there are already few shops in the locality which would make them as her competitors. What do you think is the type of analysis best suited to her situation?

86. Answer: The best analysis to use in this situation is the SWOT & TOWS analysis. Considering the situation of Maria, SWOT analysis is best suited since we can lay down all the strength and opportunities of her business idea and identify all of the weaknesses and threats she might come across when she will start to operate. TOWS analysis might be very helpful in her situations since in the statement a few strengths are already mentioned and few threats as well. All he need is to apply the TOWS analysis in order for her to maximize all his strength and to capitalize all of her opportunities since her location is favorable. And to consider all of her internal strength which will help avoid the external threats.

87. 3. Ivan is an IT graduate, who lately resigned from his work to open up a computer shop which would cater computer servicing and selling of computer equipments, accessories and computer set as well. He planned this idea since he was still a student in which his mission is to cater the computer needs within their locality since there are no one yet to open a computer shop in their rural area. He thought one of the problems that might arise from his plan is that computer equipments and computer set are bit pricey and technologically the people in the locality is not yet well exposed to these technologies. He wanted to make sure that this idea of his is profitable enough. What do you think is the best analysis to prepare to help assess the marketability of the of his plan?

88. Answer: The best analysis to use in this situation is the VMOST, PESTLE, and SWOT analysis. VMOST analysis will become very important in this situation since Ivan needs to lay down his mission and vision first to align it to his main objectives. If his mission is to cater the computer needs within their locality, he needs to make it where people can afford financially. And to identify that, we also need the PESTLE analysis since this enables us to identify the current economic status of the area if the people within their area can afford to buy his products. SWOT analysis might be useful also in this situation since it is important for us to identify the current strength and weaknesses and the future opportunities it might have and its weaknesses that might be avoided.

89. Case Analysis Direction: Prepare either a VMOST, PESTLE / SWOT / TOWS analysis / Porter’s Five Forces on the following situation given below. You can choose either 1 to 3 types of analysis to help in your explanation. Explain thoroughly why you have chosen the tools you used and support your answer.

90. Pedro is now planning to open up a business establishment concentrating on aquaculture called the PASL (Pedro’s Aquaculture of Shrimp Livelihood). His mission is to provide fresh shrimps for consumer consumption which can also serve as a livelihood within the area where it is to be placed since he will hire people to operate the farm and he will buy shrimp / prawns seeds to be cultured in his farm in which the people within the area will provide. Pedro’s idea is good, but he needs further study on the different aspects of the plan to evaluate the advantages and disadvantages he might have in this business venture. What do you think is the type of analysis best suited to his situation that will help him produce more positive advantages and avoid and minimize disadvantages?

94. LEARNING OBJECTIVES After going through this lesson, you are expected to: • Explain the effects of various socio-economic factors affecting business and industry

96. is the social science that studies how economic activity affects and is shaped by social processes. In general, it analyzes how modern societies progress, stagnate or regress because of their local or regional economy, or the global economy (Wikipedia, n.d.). SOCIO-ECONOMICS

97. is the social science that studies how economic activity affects and is shaped by social processes. In general, it analyzes how modern societies progress, stagnate or regress because of their local or regional economy, or the global economy (Wikipedia, n.d.). is also sometimes used as an umbrella term for various areas of inquiry. The term “social economics” may refer broadly to the “use of economics in the study of society” according to Eatwell, Milgate, & Newman, (1987). Socio-economics

98. How do socio-economic factors affect businesses?

99. All business analysis must take into account socioeconomic factors. These factors are taken into consideration when a corporation makes financial decisions in which money, goods, and services are all involved in these elements. They have a micro-level impact on firms, but they have a much larger impact on the overall economy on a macro-level. A company’s operations, such as the value of its assets, consumer demand, and even taxes, will all be influenced by the economy, whether it be a local or global economy. It is also important to note that these various socioeconomic factors have different effects on various sectors in the business industry: Consumers, Suppliers and Investors, Government, households, and International Trade. All of these socioeconomic factors are taken into account before making financial decisions especially in terms of buying and selling of consumers, sellers, and businesses to avoid mistakes. How do socio-economic factors affect businesses?

100. Why do we need to understand these socio-economic factors?

101. Understanding the socioeconomic factors affecting business will help you make better decisions about the future and direction of your business. Why do we need to understand these socio-economic factors?

102. Socioeconomic Factors and its effects in Business and industry

103. Employment The first socioeconomic factor is employment. Your employment is your job. What you do for a living? What is the level of employment in a community. It is very evident that the higher rate of employment would mean higher purchasing power of the people. If the level of employment is lower then it would mean few numbers of consumers or buyers will buy your product or services.

104. Education Education is the knowledge, skill, and understanding that one gets from attending school, college, or university. Education provides every person in a society the required skills and knowledge for employment in different jobs. The higher the education a person have will also have a higher chance of getting a good job with a better salary, thus increasing the purchasing power and will be an advantage to business and industry.

105. Income Income is defined as the amount of money a person earned from his / her employment, business, or investments. A consumer spending depends on his/her available disposable income. For example, when a consumer receives luxurious items, he/she wants and not necessarily need. On the other hand, when the consumer’s income becomes scarce, he / she tends to spend on what is only essential.

106. Interest Rates “Interest rates are everywhere, and they are set by a variety of individuals. For good reason, banking institutions are fascinated with knowing what the current state of interest rates in the economy is. It's how they make their financing decisions. It's also useful information for a company that uses debt capital to finance large-scale projects”, according to LaMarco (2018).

107. Exchange Rates This is a slightly more nuanced topic than that of interest rates. At the heart of it, exchange rates are a critical consideration for every company that imports or exports a variety of goods and services. When exchange rates fluctuate, it has an impact on a company’s ability to pay its international suppliers in a satisfactory manner. This might have an impact on the company’s profit margin as well as the quantity of resources it needs to stay afloat.

108. Inflation and Recession Inflation is the rate at which prices of products in the economy are increasing. Rising cost are likely to force businesses to raise prices on other products and services to keep the pace with inflation and maintain profits. Inflation can reduce purchasing power of consumers unless employers increase wages based on the level of inflation. Recession is a much more serious problem than inflation. When an economy experiences a recession, people' attitudes toward their purchase decisions are likely to shift. This may compel businesses to lower their prices in order to stay afloat. A period of negative growth is defined as a recession. In this condition, the economy's overall levels of activity are declining. Rising unemployment, asset price declines, and commodity price declines all contribute to poor consumer confidence in the economy during a recession.

109. How can we overcome these socioeconomic factors

110. How can we overcome these socioeconomic factors

114. Activity # 5

120. LEARNING OBJECTIVES After going through this lesson, you are expected to: • Evaluate the viability and impacts of business on the community

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