MACROENVIRONMENTAL ANALYSIS

After in depth understanding of the macroenvironment analysis it's time for you to apply what you have learned.

ANSWER THESE QUESTIONS:

1. If you are to make a law that is favorable to "business and investment", what would that be? Explain.

2. Research for a new regulation in the Philippines and explain its impact to the business environment.

3. Research for a business in the Philippines that responds to climate change. Elaborate how this business respond to climate change.

4. In your opinion which is better to our economy high exchange rate for peso or low exchange rate for peso.

5. In your opinion why do the government collect demographics every now and then, cite an example to support your answer.

***TO MY TUTOR: PLEASE READ BELOW FOR REFERENCE...

THIS IS OUR COMPLETE TOPIC (In relation to the task above):

Maximization of profit is the main concern in economics however a lot of factors affects the success of a business. Business or entrepreneurs that has a good understanding of all of these factors can take actions to minimize the negative effect and to take advantage of potential opportunities. These factors are classified as macroenvironment and microenvironment factors

Macroenvironment factors are those events which firm in industries have no control over. On the other hand,micro environment factors are those eventd that impacts only a certain industry.

Tools in the macroenvironment analysis and business opportunity identification;

A. PESTLE - (Political, economic, social technological, legal and environmental)

It summarizes the macroenvironment forces.

1. Political-pertains to govemment rules law, fiscal policy changes that influence an industry or organization. Some government regulations directly restrict an industry or a business operation.

Common political forces that influence an industry includes tax reforms and other fiscal policies, trade agreements, political stability, and new government regulations:

> Tax reform-refers to the revision on the implementation and collection of taxes. An example of this would be the TRAIN (Tax reform for Acceleration and Inclusion) Law, which restructured the personal income tax table in our country. Among the changes in the initial package of the tax reform was the higher minimum income exception, higher excise tax on petroleum products and automobiles, and expansion of the value-added tax base. Another example of tax reform in our country is the implementation of the sin taxes. Sin tax- is an example of excise tax imposed on goods considered as vices such as alcohol and tobacco.

> Government spending-collection of tax is the main source of government revenue. Fiscal policy involves the government to influence aggregate demand in the

economy. It involves changing:

Level of government spending

Levels of taxation

The purpose of which is to:

a. To increase demand and economic growth, the government will cut tax and increase spending (leading to a higher budget deficit)

b. To reduce demand and reduce inflation, the government can increase tax rates and cut spending (leading to a smaller budget deficit).

Budget surplus arises when the government tax revenue is greater than government spending. On the other hand, if the spending exceeds government revenue the Nations running into budget deficit borrow money from global financial

High sovereign debts discourage entry of foreign investors and a decline in foreign direct investments (FDIs) reduces domestic business opportunities.

> Political stability-is the durability and integrity of a current government regime. The strength and effectiveness of the government in upholding its sovereignty and implementing the rule of law is another variable that affects the business sector. Much of the ability of a political system to sustain itself relies on how leaders respond solutions they create or else the fallout from these events results in destruction of hierarchies and government agencies. Revolutions, terrorism and public violence are associated with failed political stability. A pro-business government is naturally preferred by both local and foreign investors.

> New government regulations-procedures in all government agencies have a positive and negative impact on business. Example: improved processing time for government transactions in other word ease of doing business has a positive impact on the business. Remember that there is cost associated with delays and reduce overhead cost. Another example-government regulation that aims to relax foreign ownership limits from its current 40% will make the country more attractive to foreign investors

2. Economic factor

The overall economic state of a country is another factor that influence the success of local industries. Economic indicators include GDP growth. Inflation, Interest rate, and Forex.

> GDP (Gross Domestic Product)-

The gross domestic product (GDP) measures of national income and output for a given country's economy. The gross domestic product (GDP) is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time.

A measure of the value of the total production in a country, usually in a given year. Gross domestic product is calculated by adding together total consumers spending, total government spending, total business spending, and the value of net exports. GDP is considered as one of the leader indicators of the health of a nation's economy. It is often used as a way to measure a country's standard of living

A stable economy drives investments and business, both of which lead to higher employment

> Inflation is the loss in the value of money.

Inflation affects households and firms differently. Wages do not normally increase as often or as much as the prices do. This proportionate rate of increase in wage and prices effectively translates into higher cost of living. Given no corresponding increase in income, household can buy less quantity of goods and services.

Functions of money:

Money as the Medium of Exchange - Money came into use to remove the inconveniences of barter as money has separated the act of purchase from sale. Medium of exchange is the basic or primary function of money.

People exchange goods and services through the medium of money. Money acts as a medium of exchange or as a medium of payments.

Money as a Unit of Account or Measure of Value - Without a common unit, exchange of goods becomes very difficult. Values of all goods and services can be expressed easily in a single unit called money. Without a measure of value, there can be no pricing process. Without a pricing process organized marketing and production is not possible. Thus, the use of money as a measure of value is the basis of specialized production.

Money as the Standard of Deferred Payments- Deferred payments are payments which are made some time in the future. Debts are usually expressed in terms of the money of account Loans are taken and repaid in terms of money. The use of money as the standard of deterred or delayed payments immensely simplifies borrowing and lending operations because money generally maintains a constant value through time.

Money as a Store of Value -Wealth can be stored in terms of money for future use. It serves as a store value of goods in liquid form.

~ Interest rates

Interest rates affects both consumers and producers. A higher interest rates means a higher cost of borrowing. A higher cost of borrowing discourages firms to take out loans to fund business needs and new project.

~ Forex

Exchange rates affects business differently. Industries with heavy reliance on imports need to pay in foreign currency so they would naturally prefer a stronger peso.

Peso exchange rate is the value of peso in terms of another currency. The Philippines has a floating exchange rate. This means that the value of the peso is determined by supply of and the demand for peso in the market. A high demand for peso makes it more valuable and causes peso to appreciate. In contrast, a fall in the demand for peso leads to a depreciation of the domestic currency.

3. Social factor

Examines the importance of culture, population and other social determinants to the business environment.

~ Demography- the study of the population and its attributes. Demographic data include gender and age composition of the population, growth rate, mortality rate, income levels. Knowledge of the demographic data of the Philippines aids industries in gauging the size and other characteristics of their target segments.

~ Lifestyle and trends- this was seen as an opportunity by entrepreneurs who came up with the idea that caters to the current lifestyle and trend of Filipino customers. Example: healthy lifestyle- emergence of diet food delivery, healthy meals, organic products,

personalized exercises.

~ Trend- rise of social media.

~ Religion- beliefs, customs, and religion are other social factors that may affect the macroenvironment of industries. Religion drives demand through consumers preferences.

4. Technological factor-forces driven by advances in technology. The rapid developments in technology particularly in (ICT) information and communication technology have affected many business and industries in several ways. It has altered the behavior of consumers, created new products and services, and has significantly enhance the process of production and distribution. These changes have intensified the competition within the industry. Technological developments have threatened existing players in the industry as these innovations provide alternative and probably cheaper goods and services.

5. Legal factor-this covers the new regulations and government mandates that influence the operation of the business.

In regulating business transactions, the government can impose heavy taxes on commodities and activities that lead to negative externalities like pollution and unhealthy habits. Regulations that protect the interest of laborers like minimum wage and improved working condition may increase the operating cost of firms within covered industries.

6. Environmental factor- changes in the natural environment affects all sectors. Environmental analysis includes analysis of local environment regulations, resource

constraints, and global environmental issues.

~ Resource constraints- land as input to production is fixed. As population grows, more people share available resources. More people also move to urban areas, making cities highly congested. An increase in city dwellers paved way for real estate business to push for high rise living. (vertical expansion).

~ Environmental regulations- DENR (Department of Environment and Natural Resources) It is the government agency tasked to look after the natural resources of the Philippines. DENR is responsible for creating and implementing laws that serve to protect the

environment.

~ Climate change- the most pressing environmental issue across the world.

ELABORATE:

To understand the effects of inflation, consider the following example of the purchasing power of peso in 1979 as compared to today.

During the observation period from 1979 to 2019, the average inflation rate was 8.6% per year. Overall, the price increase was 2,312.82 %. An item that cost 100 Peso in 1979 was so charged 2,412.82 Peso in the beginning of 2020

According to the Bureau of Labor Statistics consumer price index, prices in 2020 are more than 550% higher than prices in 1971.In other words, $100 in 1971 is equivalent in purchasing power to about $650 today.

*The obvious consequence of inflation is that it makes it more difficult for people to afford the basic necessities. This causes families to struggle as they attempt to keep up with the price of everything

In addressing inflationary pressures, the government through the Monetary Board of the Bangko Sentral ng Pilipinas may pursue a tight monetary policy that may increase interest rates. For example, the BSP can raise interest rates to curb inflation. Increasing interest rates effectively lower consumer demand of goods, which leads to slow down of the economy. The government and the central bank work together to drive economic growth while at the same time keeping inflation rates at a manageable level.

Higher interest rates curb consumption and investments which cause aggregate demand to decline. Lower aggregate demand leads to a slowdown in economic growth. A fall in output will force firms to produce less goods and services and will require less input. A fall in labor input requirement means fewer workers needed leading to an increase in un employment.

Demographics are collected by various government agencies, such as PSA (Philippines Statistics Authority). It functions as the central statistical authority of the country. It collects and compiles the economic, social, demographic, and general conditions of Filipinos. Keeping track of the changes in the different population attributes helps not only the business but the government as well in making informed decisions. Demographics are important not only to business but also the government.

Knowledge of the beliefs and religion practiced by social group allows companies to fine-tune their products and ensures that their products will be received positively.

Responsible and environment-friendly ways of doing business are critical in the preservation of natural resource and in fighting climate change.

Some notable environmental regulations are: Clean Air Act-this act aims to minimize air pollution by monitoring smoke belching vehicles, industrial plants, and wood or coal burning. Additionally, smoking in closed public space is prohibited under the same act.

Clean Water Act- monitors and regulates domestic and industrial wastewater discharge to bodies of water in the country. A joint responsibility of several government agencies such as the Department of Public Works and Highways, Department of Health, DENR, and the Local

Government Units.

Climate change Act aims to evaluate government programs to ensure that policies consider the effects of climate change and new developments are sustainable. Under the same act the same act the Department of Education was mandated to include climate change discussions in the primary and secondary levels.

Climate change can hardly be mitigated. In response to climate change, businesses are encouraged and sometimes mandated to use products and processes that do not harm the environment.

The government's programs, economic plans are equally important in improving the business environment in the Philippines. The government strive for balance budget programs that promotes development in the country.

You have just learned the macroenvironment factors through the PESTLE analysis. Each specific factors impacts the industry in different ways. There are potential profitable opportunities that can be taken advantage of. The government plays a large part in creating an environment conducive to business and investments. DONE.