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Environmental Scanning

Engr. Ped Salvador, Ph.D.May 6, 2016

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

Business Environment presents two challenges to the enterpriseThe challenge to combat the environmental threatsExploit the business opportunities

Environmental Scanning is one of the first steps in Strategic Management

Introduction

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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

Environmental Scanning

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What is environmental scanning? Definition:

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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What is environmental scanning?Other characteristics:

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 Environment

Internal Environment

EventsTrendsIssues

Expectations

Infrastructure

HRHardwareAbilities

Structure

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Tools of environmental scanning?SWOT ANALYSIS: One cycle in the strategic planning process

PORTER’S

FIVE

FORCES

Source: Porter, Michael. Competitive Strategy. New York

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PEST-A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:

PoliticalEconomicSocialTechnological

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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. PEST analysis: An environmental scan

for business

Micro Environment

Macro Environment

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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 policyemployment lawsenvironmental regulations trade restrictions and tariffspolitical 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 FactorsSocial factors include the demographic and cultural aspects of the external macroenvironment. 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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Why ?????????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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Philippine Real EstateEnvironmental Scanning

Using PEST ModelEngr. 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.

Political Factors

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South China Sea-Tensions has arised 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

Political Factors

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Gross Domestic ProductSource: 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

Economic Factors

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Source: Asian Development Bank

Year GDP Analysis

2011 4.7% -Subdued government spendingand 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

Gross Domestic Product

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Gross Domestic ProductSource: NSCB

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 dropGROSS 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

Gross Domestic Product

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Source: Philippine Daily Inquirer Year WEF-GCI Ranking(142 countries)2010-2011 852011-2012 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

Philippine Competitiveness

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Year % Inflation2011 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.

Source:

Fiscal and Monetary Management

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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

Fiscal and Monetary Management

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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 Deficit2010 3.2% of GDP2011 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

Budget Deficit

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Source: GMA News TV

YEAR OFW Remittances Value2010 7.8% $18.76B2011 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

Overseas OFW Remittances

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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 Force2010 38.9 M2015 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

Labor Force Statistics

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Year % Unemployment2010 7.9%2011 7.3%

-Job creation remains lackluster.-Continuous policy and governance reforms are needed

to boost jobs.

Source: NSO

Unemployment Rate

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 Unemployment rate is defined as the level of unemployment divided by the labor force.

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Source: NSOPopulation Growth

Year Population % Growth2010 99.9 M2011 101.8 M2012 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

Social Factors

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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

 

Technological Factors

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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.

Technology Factors

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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'.

Real Estate Industry OutlookSource: BMI International October 2011

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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

Real Estate Industry Outlook

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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)

Real Estate Industry Outlook

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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.

Real Estate Industry Outlook

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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.

Risks Management

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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

Risks Management

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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 Statesand 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 indemand 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.

Summary

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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 officeunder a strong public mandate to implement economic andpolitical reforms.

Summary

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Thank You!

End