APPLIED ECONOMICS

Name: ____________________________________________________________ Grade Level: _________________

LEARNING COMPETENCY
Apply business principles, tools, and techniques in participating in various types of industries in the locality
Subject Matter: Different Principles, Tools, and Techniques in Creating a Business
In this lesson, the learners shall be able to apply business principles, tools, and techniques in participating in various
types of industries in the locality. This will also test their critical think ability as they answer all the activities given as they
go deeper to the lesson.
Different mind enhancers are also being provided to boost higher order thinking skills.
Motivational Question:
Directions: Answer what is being asked. Write your answer on the space provided after the question.
1. How does different principles, tools and techniques improves your business?
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2. Do you think that it is important to always consider your consumers before creating a business?
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What is Industry Analysis?

Industry analysis is a market assessment tool used by businesses and analysts to understand the competitive dynamics of
an industry. It helps them get a sense of what is happening in an industry, e.g., demand-supply statistics, degree of
competition within the industry, state of competition of the industry with other emerging industries, future prospects of
the industry taking into account technological changes, credit system within the industry, and the influence of external
factors on the industry
Industry analysis, for an entrepreneur or a company, is a method that helps to understand a company’s position relative to
other participants in the industry. It helps them to identify both the opportunities and threats coming their way and gives
them a strong idea of the present and future scenario of the industry. The key to surviving in this ever changing business
environment is to understand the differences between yourself and your competitors in the industry and use it to your full
advantage.
Types of industry analysis
There are three commonly used and important methods of performing industry analysis. The three methods are:
1. Competitive Forces Model (Porter’s 5 Forces)
2. Broad Factors Analysis (PEST Analysis)
3. SWOT Analysis
1. Competitive Forces Model (Porter’s 5 Forces)
One of the most famous models ever developed for industry analysis, famously known as Porter’s 5 Forces, was
introduced by Michael Porter in his 1980 book “Competitive Strategy: Techniques for Analyzing Industries and
Competitors.”

According to Porter, analysis of the five forces gives an accurate impression of the industry and makes analysis
easier.

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a. Intensity of industry rivalry. The number of participants in the industry and their respective market shares are a direct
representation of the competitiveness of the industry. These are directly affected by all the factors mentioned above. Lack
of differentiation in products tends to add to the intensity of competition. High exit costs such as high fixed assets,
government restrictions, labor unions, etc. also make the competitors fight the battle a little harder.
b. Threat of potential entrants. This indicates the ease with which new firms can enter the market of a particular industry.
If it is easy to enter an industry, companies face the constant risk of new competitors. If the entry is difficult, whichever
company enjoys little competitive advantage reaps the benefits for a longer period. Also, under difficult entry
circumstances, companies face a constant set of competitors.
c. Bargaining power of suppliers. This refers to the bargaining power of suppliers. If the industry relies on a small number
of suppliers, they enjoy a considerable amount of bargaining power. This can particularly affect small businesses because
it directly influences the quality and the price of the final product.
d. Bargaining power of buyers. The complete opposite happens when the bargaining power lies with the customers. If
consumers/buyers enjoy market power, they are in a position to negotiate lower prices, better quality, or additional
services and discounts. This is the case in an industry with more competitors but with a single buyer constituting a large
share of the industry’s sales.
e. Threat of substitute goods/services. The industry is always competing with another industry producing a similar
substitute product. Hence, all firms in an industry have potential competitors from other industries. This takes a toll on
their profitability because they are unable to charge exorbitant prices. Substitutes can take two forms – products with the
same function/quality but lesser price, or products of the same price but of better quality or providing more utility.
2. Broad Factors Analysis (PEST Analysis)
Broad Factors Analysis, commonly called the PEST Analysis, is a key component of external analysis. A Broad Factors
Analysis assesses and summarizes the four macro-environmental factors — political, economic, socio-demographic
(social), and technological.
These factors have significant impacts on a business’s operating environment, posing opportunities and threats to the
company and all of its competitors.
Broad Factors Analysis is widely
used in strategic analysis and
planning because it helps companies
determine the risks and opportunities in
the marketplace. That, in turn,
becomes an important consideration
when companies are developing
corporate and business strategies.

a. Political Factors. Political

factors are factors within the regulatory environment of a particular industry or business.
Examples of political factors include:
 Barriers to international trade  Employment laws
 Changes in government regulation  Country-specific political risk
 Tax policy
Political factors in the macro-environment can constrain the operations of organizations and introduce opportunities and
threats to companies. When a company chooses which industries to enter or which countries to expand their operations
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 into, it might want to consider the complication of government regulatory policies in that specific industry or country and
the associated risks.
b. Economic Factors. Economic factors are things that influence the macro economy, such as:
 Interest rates  Inflation
 Foreign exchange rates  Gross Domestic Product (GDP) growth rates
Each of these factors can have various impacts on businesses. For example, interest rates affect the cost of capital and a
company’s ability to raise funds or invest in new assets. Low exchange rates reduce threats from foreign competitors and
create overseas opportunities. When inflation happens, it destabilizes the economy and makes the future less predictable
for companies. Lastly, the high growth rate of an economy increases customer expenditures and eases competitive
pressures.
c. Socio-Demographic (Social) Factors. Socio-demographic factors are short for social and demographic factors, which
concern population demographics and the characteristics of a company’s target customers.
Examples of social-demographic factors include:

 Population growth  Nature and the environment

 Education level  Age cohort changes
 Health consciousness and trends
Changing social morals and values can impact the business of an entire industry because they shift consumer preferences
and demand for products/services. For example, if a majority of the popularity perceives smoking as an activity that is
harmful to physical health, then demand for cigarettes and tobacco could significantly decline and, thus, impact the
profitability of those businesses.
d. Technological Factors. Technological factors have become increasingly important for many businesses in recent
years due to the prevalence of information technology and mobile devices.
Some examples of technological factors include:
 Research & development (R&D) investment  Emerging technologies
 Scientific advances  Diffusion of technologies
These technological factors affect the height of the barrier to entry of an industry and reshape the industry structure.
NOTE: Broad Factors Analysis helps a company arrive at an understanding of the net potential impact of these factors
on a business, and the overall attractiveness, opportunities, and threats that exist for the company in a given market.
3. SWOT Analysis
SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and Threats.  It can be a great way of summarizing
various industry forces and determining their
implications for the business in question.
SWOT Analysis is one of the most commonly used
tools to assess the internal and external environments
of a company and is part of a company’s strategic
planning process. In addition, a SWOT analysis can be
done for a product, place, industry, or person. A
SWOT analysis helps with both strategic planning and
decision-making, as it introduces opportunities to the
company as a forward-looking bridge to generating
strategic alternatives.
SWOT is an acronym for Strengths, Weaknesses, 
Opportunities, and Threats.
SWOT Analysis – Internal and External Factors
A SWOT analysis is divided into two main categories: internal factors and external factors.

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It s important to point out that strengths and weaknesses are current or backward-looking, and opportunities and threats
are forward-looking. By performing a SWOT analysis, we will be able to build a bridge between what the company has
accomplished to date and the strategic alternatives that are going to be generated.
Internal: Internal factors are the strengths and weaknesses of the company. Strengths are the characteristics that give
the business its competitive advantage, while weaknesses are characteristics that a company needs to overcome in order
to improve its performance.
Examples of internal factors include:

 Company culture  Market share

 Company image  Financial resources
 Operational efficiency  Key staff
 Operational capacity  Organizational structure
 Brand awareness
External:
External factors are the opportunities and threats to the company. Opportunities are elements that the company sees in
the external environment that it could pursue in the future to generate value. Threats are elements in the external
environment that could prevent the company from achieving its goal or its mission or creating value.
Changes in the external environment may be due to:
 Societal changes  Government regulations
 Customers  Suppliers
 Competitors  Partners
 Economic environment  Market trends
NOTE: Importance of Industry Analysis
Industry analysis, as a form of market assessment, is crucial because it helps a business understand market conditions. It
helps them forecast demand and supply and, consequently, financial returns from the business. It indicates the
competitiveness of the industry and costs associated with entering and exiting the industry. It is very important when
planning a small business. Analysis helps to identify which stage an industry is currently in; whether it is still growing
and there is scope to reap benefits, or has it reached its saturation point.

With a very detailed study of the industry, entrepreneurs can get a stronghold on the operations of the industry and may
discover untapped opportunities. It is also important to understand that industry analysis is somewhat subjective and does
not always guarantee success. It may happen that incorrect interpretation of data leads entrepreneurs to a wrong path or
into making wrong decisions. Hence, it becomes important to collect data carefully

A. Directions: Conducting a SWOT Analysis. Imagine that you have a manufacturing company of shoes,
considering the principles, tools, and techniques that you used. To conduct a SWOT analysis,
identify the strengths, weaknesses, opportunities, and threats to your company.
Strengths:
Consider strengths from an internal and consumer perspective.
 What advantages does your company have?
 What unique resources that you have that others do not?
 What is your company’s Unique Selling Proposition?
 What positive consumer perception does your company have?
 What low-cost resources do you have access to that others do not?
Weaknesses:
Consider weaknesses from an internal and consumer perspective.
 What does your company not do well?
 What weaknesses do consumers see in your company?
 What factors contribute to a weaker brand image?
Opportunities:
Consider opportunities from an external perspective.
 What good opportunities are available in the market place?
 What are some trends that your company can capitalize on?
 Are there any changes in technology or markets that your company can take advantage of?

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  Are there any changes in lifestyle, social patterns, etc., that your company can take advantage of?
Threats:
Consider threats from an external perspective.
 What obstacles does your company face?
 What are your competitors doing better than you?
 Is a change in technology threatening the position of your company?
 What threats do your weaknesses put you at risk of?
 Do changes in lifestyle, social patterns, etc., pose a threat to your company?
B. Directions: Interview an owner of Sari-sari store in your zone or barangay on what are the principles, tools and
techniques that they used for the success of their business. List down principles, tools, and techniques.

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