Engr. Ped Salvador, Ph.D.

May 6, 2016

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 Business decisions are influenced by two sets of factors
Internal factors (The Internal Environment
External Factors( The External Environment)

 Business Environment presents two challenges to the

enterprise
The challenge to combat the environmental threats
Exploit the business opportunities

 EnvironmentalScanning is one of the first steps in

Strategic Management

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Refers to the study and interpretation of the
political, economic, social and technological
events and trends which influence a
business, an industry or even a total
market.

Wikipedia

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 The process of collecting, analyzing,
and distributing information for
tactical and strategic purposes

A corporation uses this tool to avoid

strategic surprise and to ensure its long-
term health

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 Often refers only to the environment that is
external to the organization
(also called the macro-environment)

 Good strategic planning requires information

both on internal and external organizational
factors.

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Factors affecting Environmental Scanning

External Internal
Environment Environment

Infrastructure
Events
HR
Trends
Hardware
Issues
Abilities
Expectations
Structure

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 One cycle in the strategic planning process

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P
O
R
T
E
R’
S

F
I
V
E

F
O
R
C
E Source: Porter, Michael. Competitive Strategy. New
York
S
PEST-A scan of the external macro-environment in
which the firm operates can be expressed in terms of the
following factors:

Political
Economic
Social
Technological

The acronym PEST (or sometimes rearranged as

"STEP") is used to describe a framework for the analysis
of these macro environmental factors.

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 Micro
Environment

Macro
Environment

. PEST analysis: An
environmental scan
for business

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Political Factors :-Political factors include
government regulations and legal issues and
define both formal and informal rules under
which the firm must operate. Some examples
include:

 tax policy
 employment laws
 environmental regulations
 trade restrictions and tariffs
 political stability

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Economic Factors :-Economic factors affect
the purchasing power of potential customers
and the firm's cost of capital. The following
are examples of factors in the macro
economy:

 economic growth
 interest rates
 exchange rates
 inflation rate

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Social Factors-Social factors include the
demographic and cultural aspects of the
external macro-environment. These factors
affect customer needs and the size of
potential markets. Some social factors
include:

 health consciousness
 population growth rate
 age distribution
 emphasis on safety

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Technological Factors :-Technological
factors can lower barriers to entry,
reduce minimum efficient production
levels, and influence outsourcing
decisions. Some technological factors
include:

 R&D activity
 Automation
 technology incentives
 rate of technological change

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Macro environmental and industry scanning are
useful as they reveal current conditions of
market.

It help managers to predict the future

characteristics of the organizational
environment and hence make decisions today
that will help the firm deal with the
environment of tomorrow.

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Engr. Ped Salvador,Ph.D.
November 10, 2011

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 Internal Security
-Security concerns is still a continuing constraint in
Philippine development
-Internal security remains a weak spot, persistently
highlighted by foreign embassies in travel advisories,
with law enforcement hobbled by corruption, lack of
police resources, and easy availability of guns on the
street.
-Recent report of another coup d etat due to military
discontentment of latest ambush on young soldiers

President Image
-President Benigno Aquino III is seen to finish his
electoral term due to people majority mandate and
popularity ratings despite criticisms for lack of
drive.

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 South China Sea
-Tensions has arises since the middle of the year, after
a number of incidents with Chinese ships in waters
claimed by both countries off the Philippine coast. But
the issue of sovereignty, and therefore ownership of the
minerals and gas beneath the seabed, remains
unresolved.

 Middle East Countries and North African Politics

- Turning to Democratic rule will transform the area to
a more open business and economic activities.
-OFW workers has lot of chances to seize the
opportunities and acquire all its benefits.

Source: Philippine Daily Inquirer, ABS CBN News

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 Gross Domestic Product
Source: Business Monitor International

Year GDP ANALYSIS

2010 7.6% -Highest in the last two

decades
2011 5.0% -Resurgent growth in capital
formation
2012 4.5% -Authorities continue to tighten
liquidity

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Source: Asian Development Bank

Year GDP Analysis

2011 4.7% -Subdued government spending

and exports
-Government more cautious
amidst anti-corruption drive
2012 5.1% -Brighter prospects for
investments, a major GDP
contributor
-Increased investments as supported
by upgrades in sovereign credit
ratings
-Higher outlays on infrastructures
as supported by PPP
-Resilient consumer spending

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Philippine economy continued to decelerate, posting a 3.4 percent
growth during the second quarter of 2011 which is less than half
the booming 8.9 percent growth in 2010.

NET PRIMARY INCOME (NPI) - 2.8 per cent drop

GROSS NATIONAL INCOME (GNI) - from 9. 2 per cent (2010)
declined to 1.9 percent (lowest growth for the last 4 years)

GDP grew by 0.6 percent while GNI grew by a slower pace of 0.4
percent in the second quarter of 2011.

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FACTOR/INDICATORS:

1. slow down in manufacturing performance and ever-resilient service sectors brought by

European debt crisis and fragile recovery of trade.

2. political turmoil in the Middle East and North Africa, economic uncertaintain in westen
countries.

3. rebound of sugarcane, corn, and palay, agriculture, hunting,forestry and fishery sector
posted 2.2 percent growth in the second quarter from 1.8 percent in the first quarter of 2011.

4. industry declined by 3.0 percent from a 3.1 percent gain in the previous quarter. the strong
performance of the manufacturing sector ably supported by mining & quarrying was
negated by the huge contraction of construction and the decline of electricity, gas & water.

5. services sector posted a 2.4 percent growth for the second quarter of 2011 from 1.3
percent in
the previous quarter, as all subsectors recorded positive growth.

With projected population reaching 95.6 million, per capita GDP grew by 1.5 percent but per
capita
GNI stood still while per capita HFCE grew by 3.5 percent.

http://www.nscb.gov.ph/sna/2011/2nd2011/2011qpr2.asp

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Source: Glouble Sourced Patterns-N.Y.

Year GDP Analysis

2011 4.8% -Government spending

compression
-Surge in world oil prices
2012 5.5% -Prolonged weakness of global
economy
-Political unrests in M.E. and North
Africa and disaster in Japan

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Source: Philippine Daily Inquirer
Year WEF-GCI Ranking(142 countries)
2010-2011 85
2011-2012 75

-Philippines climbed by 10 spots due to significant gains in

macroeconomic environment, technological readiness and
good market efficiency
-Highest since 1994 and was also among the highest jumps
among 142 economies surveyed. A reversal from a 4-year
trend.
-Philippines though has lowest scores in the area of
infrastructure that includes quality of roads, ports, railroads
and electricity supply

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 Year % Inflation
2011 4.89%
2012 4.30%

-The global financial crisis had a minimal effect on the

Philippines’ banking sector, due to its limited exposure.

-Taking advantage of investor interest in emerging markets

before the current global turmoil, the Philippines made a
number of debt swaps and global peso bond issues to
lengthen average maturities, reduce currency exposure and
interest costs, and deepen domestic markets.

-Reflecting that improved fiscal management, with the deficit

set to fall below 3 percent of gross domestic product this
year, Fitch in June 2011 raised its rating on the Philippines to
just one notch below investment grade.

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Source:
 Monetary authorities see the country’s merchandise
exports expanding by nine percent to 10 percent this
year and by 12 percent next year after surging by 33.8
percent last year.

 Imports, on the other hand, would grow by 17 percent

to 18 percent this year and by 18 percent next year
after jumping 26.9 percent last year.

 The BSP official said strong domestic demand and rising

capital formation would continue to be a steady source
of economic growth this year and next year.
Source: The Philippine Star

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Inflation rate refers to the
percentage rate of change of the
price level over time.
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 Year Budget Deficit
2010 3.2% of GDP
2011 2.6% of GDP

-The government's strength has been on economic

management, Including reducing the budget deficit by
improving revenue collection and controlling spending, but
the worsening outlook for the global economy will hit the
Philippines.
-The continuous reduction of budget deficit would provide a
starting point for a gradual improvement in a number of
policy areas with increased expenditure on infrastructures,
health care and social welfare.
Source: ABS CBN News, Reuters, The Philippine Star

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Source: GMA News TV

YEAR OFW Remittances Value

2010 7.8% $18.76B
2011 4.5%

-The Philippine Overseas Employment Administration’s

(POEA) latest overseas employment statistics showed
that the number of deployed new hires in 2008, which
was pegged at 377,000, slightly dropped to 349,000
in 2009 and to 342,000 in 2010.
- The amount of remittances from overseas Filipino
workers (OFWs) would likely become stagnant in the
coming years as deployment of new hires drops.
-Risk on prolonged backlash against migrant workers in
the developed countries as unemployment remains high

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 The POEA halts the deployment of OFW’s recently in 41 countries
because of their failure to comply with the requirements that are
stated in Republic Act 10022 or the Amended Migrant Workers
and Overseas Filipinos Act of 1995.
- Under Republic Act 10022, the DFA is required to certify host
countries if they have labor laws, multilateral conventions,
bilateral agreements with the Philippines, or other concrete
measures to protect the rights of OFWs.
-POEA certified 76 compliant countries which are mostly from
Europe and America. The recent list of compliant counties makes
the total number of compliant countries to 125.
Source:http://www.ofwguide.com/article_item-1627/POEA-
Bans-OFW-Deployment-in-41-Countries.html#ixzz1cyKcj1St

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 Source: NSO

Year Labor Force

2010 38.9 M
2015 43.6 M

-Export of labor will continue

-11 M are living abroad and still growing
-1 M continue to leave yearly to boost remittances
-Filipinos English language skills remain to be a
competitive advantage

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Year % Unemployment
2010 7.9%
2011 7.3%

-Job creation remains lackluster.

-Continuous policy and governance reforms are needed
to boost jobs.

Source: NSO

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 Unemployment rate is defined as the
level of unemployment divided by the
labor force.
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Source: NSO
Population Growth
Year Population % Growth
2010 99.9 M
2011 101.8 M
2012 103.8 M

-A modest decline in population growth rate is

forecasted from 2.3% to 1.9% as incomes rise and
female participation in the workforce increases.
-A continuous debate on Reproductive Health,
Responsible Parenthood and Population Bill is
undergoing in the House of Representatives

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New technologies to improve efficiency and maximize sales and
customer service such as…
-Magicgate Software has developed new tools that can supply
topography videos, interactive site maps, automated reservation,
online form generation, customized area maps, vectorized site
plans. The software is very useful to estate development projects.

-Real Estate Management ERP that will handle and process such
operations like…
* Broker Management
* Inventory Management
* Billing, Collection, Recovery
* Customer Inquiry, Customer Service
* Project management


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 Use of Prefab Technology in Construction of
Housing
-Reduction in construction cost by 15-30 percent
compared to conventional materials/systems.
- Not labor-intensive and less construction time. If
prefabricated components are used, only three to
four people are needed to construct a 30 square
meter house in 2-3 weeks are used.
-Durable and can withstand earthquakes and
typhoons.
-No maintenance and no painting required.
-No heavy machinery required.
-Very flexible.

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 Confidence has returned to the Philippines property sector in
2011, as foreign investment and improved infrastructure
underpinned real growth in rental rates and yields.

 Despite issues with oversupply in several areas, office space

rental increased by about 10% in 2011. As a result, conditions
are positive in all commercial sectors: office, retail and hotel,
as well as in residential property.

 Residential housing remains in short supply, with the Manila

Times reporting in July 2011 that there is a shortage of 3M
homes. However, the residential market is suffering from
increasingly stringent residential property loan rules brought
in after a fraud incident concerning 'ghost borrowers'.

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 A survey done by Global Investor Sentiment Survey released by
Colliers International, property investors are still optimistic about
the property possibilities in the Philippines due to the strong
demand for Manila office spaces and residential units.

- in Metro Manila, about a million square meters of new office

space is expected to complete by 2013. While pre-selling of
high-rise condominiums increased to 90 projects which
translates to more than 25,000 additional units.

-the number of residential units across major CBD’s is expected

to reach more than 60,000 units in 2013 at an average growth of
15 percent annually.

- These two segments are driving the growth in the industry.

Source: Philippine Real Estate Blog

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 Some of the key opportunities in the real estate market are:
-The government is trying to resolve the conflict in the South
China Sea and end 40 years of insurgency from the rebel
group the Moro Islamic Liberation Front (MILF) by offering the
prospect of autonomy. A more settled region will improve the
perception of the country in the eyes of foreign investors.

-The Philippines is one of the fastest urbanizing countries in

East Asia. With an English-speaking and relatively low-cost
workforce, it is ideally placed to participate in high-demand
services such as business process outsourcing.

 CREBA is pursuing a direction of alliance with DOT since the

more the tourists the better chances of getting real estate
investors (20th CREBA National Convention)

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 The industry is driven by the continued growth of OFW
remittances, which supports private and household
expenditures, the growth coming from the offshoring
and outsourcing in the Philippines, and the current
regime of low interest rates.

 Many residents in cities in the Philippines continue to

experience poverty, environmental degradation and
living in slums or other inadequate housing
arrangements. Economic development has created
rural-to-urban migration.

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 2012 is foreseen to characterize considerable downside risk
due to continuous economic troubles in the United States,
Europe and Japan.

 Weaker than expected economic growth in industrial

countries would hurt the prospects for export of goods and
services, inflows of remittances and investment.

 A lack of progress on the government reform efforts,

including public-private partnerships would erode investor
sentiment.

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 Continued political unrest in the Middle East and North Africa
causing a reduction in overseas remittances, economic difficulties in
the US and the eurozone and commodity price fluctuations pose
risks to private consumption growth.

 The country opened up the market for real estate investment trusts
(REITs) after passing the Act Providing the Legal Framework for Real
Estate Investment Trusts and for Other Purposes in February 2010. It
allowed investors to benefit directly from a property’s income rather
than investing only in the developer. However, in July 2011, the tax
agency added 12% value added tax (VAT) on the transfer of REIT
assets and the Bureau of Internal Revenue (BIR) added 30% income
tax, severely reducing its attractiveness to developers.

- Despite President Benigno Aquino III's pro-foreign direct

investment (FDI) policies, the changes in the law affecting REITs
mean developers that had planned to set trusts up have stopped. In
August 2011, mall developer SM Prime Holdings dropped its plans
to raise US$500mn via a REIT and Ayala Land dropped its plans to
raise US$400mn following the tax rises by the BIR and the tax
agency.
 Source: BMI Philippine Real Estate Q4 2011Report

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 The region has been remarkably resilient to the global economic
slowdown. While regional growth slowed as the economies of
their large trading partners (notably the United States
and Europe) went through a recession, the slowdown was in most
cases moderate and the recovery in 2010 and 2011 has been
very strong.

 Domestic insurgencies, terrorism and security issues negatively

impact the Philippines’ ability to attract much needed foreign
investment.

 The global economic slowdown led to a decline in

demand for exports from the Philippines, reduced domestic
consumption, slowed remittance inflows, and resulted in real
GDP growth of less than 1% in 2009. A strong rebound of 7.3%
growth began in 2010, followed by more moderate growth of
about 5% in 2011, which is expected to continue in 2012.

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 A poor investment climate has resulted in inadequate
infrastructure. This will be a long-term drag on economic
growth until remedied.

 With one of the highest population growth rates in Asia, the

Philippines still struggles with poverty.

 The Philippines has worked to reduce its still relatively high

government debt. These fiscal consolidation efforts have
prompted sovereign credit rating upgrades.

 President Benigno Aquino III will continue to handle office

under a strong public mandate to implement economic and
political reforms.

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Thank You!

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