TOPIC 9

Economic Analysis of Profit Maximization

Factors leading to Profit

Minimal Profit Medium Profit High Profit
Maximization

MARKET
Many Sellers Few Sellers One Seller
CONCENTRATION

Some Scale Scale and Legal

MARKET ENTRY No Barriers to Entry Barriers/Contestable Barriers; Government
Market Barriers

PRODUCT Some Degree of Product Highly Differentiated

Homogenous Good
DIFFERENTIATION Differentiation Product

Perfect Information Very Limited

INFORMATION Limited Information
for all participants Information

MARKET POWER No Market Power Limited Market Power High Market Power

Oligopoly and Monopolistic

MARKET STRUCTURE Perfect Competition Monopoly
Competition

• Market Concentration – refers to number of sellers and buyers in the market

• Barriers to Entry – prevent the entry of potential players and competitors who wants to take
advantage

• Product Differentiation – varying products and services

• Limited Information – unevenness in the distribution of information

TOPIC 10

PORTER’S FIVE FORCES OF COMPETITION POSITION

According to Michael Porter (1979), the stronger the forces of competition in the industry, the lower its
profitability and the less attractive the industry for business enterprises.

• Competition among Existing Firms in the Industry

  Competitive rivalry

 Quality differences

 Customer loyalty

 Costs of leaving the market

• Bargaining Power of Customers

 Number of customers

 Size of each order

 Differences between competitors

 Price sensitivity

 Ability to substitute

 Cost of changing

• Bargaining Power of Suppliers

 Number of suppliers

 Size of suppliers

 Uniqueness of service

 Cost of changing

• Threats of Potential Entrants

 Time and cost of entry

 Specialist knowledge

 Economies of scale

 Cost advantages

 Technology protection

 Barriers to entry

• Threats of Substitute Goods

 Substitute performance

 Cost of change

TOPIC 11
Environmental Scanning in Industry Analysis

• National and Global Economies – A rapidly growing economy will have a positive effects on
various industries and sectors. Since industries are linked with one another a rapid growth
experiences in one industry will have favorable ripple effects on other industries.
Vibrant economy:
 Potentially profitable
 Positive effects on industries and sectors
 Stable inflation, wage, and interest rates
 Sources of demand have sufficient purchasing power
 Attracting investors
Lethargic economy:
 Very low economic growth
 Huge unemployment
 Purchasing power is constrained
 Reduction in the demand
 Interest rates went up and imports became more expensive
• Government Policies and Regulations
 Considered a parameter to be managed in any business venture
 Exercise control over commercial ventures
 Stabilize the economy and promote its growth
 Impose heavy taxes on commodities and activities that lead to negative externalities
 Regulates protection of the interest of labourers
 Builds infrastructures
 Provide subsidiaries

• Technological Developments
 Altered consumer behavior
 Created new products and services
 Enhanced the process of production and distribution
 Easy access to several commodities on a global scale
 Intensified competition
• Demographics and Social Changes
Demographics:
 As population expands, it creates additional demand
 Lower birth rates are not manifesting as an aging population
 Industries target health care and retirement homes
 Labor services have been sourced
 Creates shortages in professional man power
Social:
 Modifications in family structure and other social changes have impact on consumer
behaviour and tastes
 Relocation of students to near schools encouraged real estates to build condominiums
 Instead of home cooking, restaurants have emerged nearby
 House cleaning and laundry replaced traditional ways of housework
 • Changes in the Natural Environment
 Extreme fluctuations in the physical environment can have adverse effects on the
production of certain sectors
 Destroyed agricultural produce drastically reduced supply and affect the price of
commodities
 Floods affected foreign based manufacturing companies
 Affect feasibility of ventures because of a risky environment
TOPIC 12

SWOT ANALYSIS

It is a useful tool for understanding and making decisions for ALL sorts of situations in the business and
organization.
Why do we need to know the SWOT of the businesses?

• Improve operations

• Maximize resources

• Discover opportunities

• Deals with risks

• Competitive positioning

Business Climate:

Government’s implementation of:

• Macroeconomics Policies

• Government regulations

• Institutional support

TOPIC 13
Business Opportunities in Various Economic Sectors

1. Agricultural Sector and Agribusiness – Farming, Fishing, Forestry, Animals

 Philippines’ Competitive Advantage
 Uses Natural resources
 Easy to enter
 Mostly small firms
 Small capital and few fixed assets needed

2. Industrial Sector and Manufacturing Industries - Turning raw materials into finished
products.
 Innovative and Creative
 Enhance the product
 Difficult to enter
 Mostly large firms
 Large capital and fixed assets needed

3. Service Sector and Retail Services - Provide goods and services

 Strongest and fast growing
 Easy to enter
 Small/Large Firms
 Small capital and few fixed assets needed

4. International trade - Exchange of goods between countries. (Import and Export)

 Necessary for globalization growth
 Distribute products
 Difficult to enter
 Small/Large Firms
 Large capital and few fixed assets needed

Types of International trade

 Inter-Firm – traded goods are of different kind
 Intra-industry - traded goods are similar
 Intra-firm – subsidiaries of Multinational Companies
 Inter-industry – traded goods are not manufactured in either country
TOPIC 14
SOCIO-ECONOMIC IMPACT STUDY
Socio-economic impact study identify and assess the effects of its operations on various sectors.
A framework of analysis anchored on the flow of its productive and distributive activities.

Externalities are the benefits reaped and costs incurred by parties outside the transactions
between the firms and suppliers

Tracing the Impacts through the Sourcing of Inputs of a Business Firm

2 Main categories of inputs in the Production process

 Intermediate
 Internal VS External
 Independent supplier VS Subsidiary of conglomerate
 Raw materials VS semi-process products
 Market Power
 Factor Inputs
 Sourcing for LABOR services
 Within the Community vs. Outside the Community
 Direct Employment vs. Subcontracting
 Minimum Wage vs. Market Rate
 Organized vs. Non-organized
 Human Resources Development
 Temporal and Spatial Working Conditions
 Sourcing of Funds for CAPITAL Formation
 Own Savings vs. Capital Market
 Foreign Borrowing vs. Foreign Direct Investment
 Market Determined vs. Regulated Rates of Return
 Sourcing for LAND Inputs
 Land Intensity of Business
 Location of Business and Opportunity Cost of Land Use
 Sourcing For MANAGERS AND PROFESSIONALS
 Insiders vs. Outsiders
 In-house vs. Outsourced Training
 TECHNOLOGY
o Payment of Taxes
Tracing the Impacts through the Distribution of Outputs of a Firm

 Output as Intermediate Inputs

 Contribution on Industrial Integration
 Contributions to Productivity of Other Industries
 Output as Final Demand
 Personal Consumption
 Investment
 Government Consumption
 Exports

Accounting for Spill-over Effects of a Business Firm

 Viability of a Business Enterprise
 Externalities (Positive or Negative)

Recommendations on Managing the Impacts of a Business Enterprise

 Improve the productivity of firms’ workers
 Source raw materials, labor, and capital inputs from the community where they
operate
 Use environment friendly alternatives in the production process and distribution
procedures
 Be socially responsible as commercial enterprises
 Participate in the production of intermediate goods
 Enhance the productivity of the services sector
 Carry out measures to protect consumers