RIZAL TECHNOLOGICAL UNIVERSITY

Boni Avenue, Mandaluyong City

COLLEGE OF ENGINEERING AND IINDUSTRIAL TECHNOLOGY

INDUSTRIAL
ORGANIZATION &
MANAGEMENT
CHAPTER 3 & 4
(GROUP 1)

SUBMITTED BY: SUBMITTED TO:

ALFONSO, HANNAH PROF. REBECCA GAGAN

AQUINO, JOSHUA
BANTUGON, ROSE
BRICIA, JAMES BRYAN BSIE - CEIT 06- 301A
CHAVEZ, MARK CARSTEN
DAFANG, RINA ELIZL
DELIS, ARAJEAN
SALINAS, EMIL JHON
SANTOS, BIANCA (LEADER)
TAPIL, JENEVIEVE
 CHAPTER 3

THE FIRM’S AND ITS ENVIRONMENT

A FIRM IS A COMMERCIAL ENTERPRISE, A COMPANY THAT BUYS AND SELLS

PRODUCTS AND/OR SERVICES TO CONSUMERS WITH THE AIM OF MAKING A
PROFIT.

THE ENVIRONMENT OF THE FIRM IS THE SUM OF ALL THE ELEMENTS

FORCES PRESENT IN ITS IMMEDIATE AND REMOTE SURROUNDINGS
HAVE A POTENTIAL IMPACT ON ITS ABILITY TO ACHIEVE
IT’S OBJECTIVES.

TWO FACTORS OF FIRM’S ENVIRONMENT:

1. INTERNAL ENVIRONMENTS – FACTOR WITHIN THE ORGANIZATION THAT

IMPACT THE APPROACH AND SUCCESS OF YOUR OPERATIONS.
2. EXTERNAL ENVIRONMENT – FACTOR OUTSIDE YOUR COMPANY DOORS
THAT YOU TYPICALLY DON’T MUCH HAVE CONTROL OVER.

ASPECTS OF ENVIRONMENT

 THE ECONOMIC ASPECT - BUSINESS ENTERPRISES BEING ECONOMIC

INSTITUTIONS, ARE DIRECTLY INFLUENCED BY MANY ECONOMIC FORCES
IN ITS ENVIRONMENT WHICH DETERMINE THE STATE OF COMPETITIVE
ENVIRONMENT IN WHICH A FIRM OPERATES.

EXAMPLES OF MACROECONOMIC FACTORS

 RATE OF GROWTH OF THE ECONOMY
 THE LEVELS OF INVESTMENTS
 THE LEVELS OF GOVERNMENT AND CONSUMER SPENDING
 INFLATION RATE
 UNEMPLOYMENT

 THE LEGAL POLITICAL ASPECT- BUSINESS FIRMS CANNOT IGNORE THE

LEGAL- POLITICAL ASPECT IN THEIR ENVIRONMENT.

DIRECTLY AND INDIRECTLY IMPACTS ON THE OPERATIONS OF

BUSINESS FIRMS:
 LAWS (INTERNATIONAL AND LOCAL)
 ORDINANCES
 REGULATIONS (WAGE, EMPLOYMENT LAWS, REGULATIONS ON
ADVERTISING, WASTE DISPOSAL, TAXATION, FRANCHISES, PERMITS,
PRICE CONTROLS, ETC.)
  TECHNOLOGICAL ASPECT- TECHNOLOGICAL DEVELOPMENTS
CONTINUOUSLY OCCUR THROUGHOUT THE WORLD. IT WERE
EXTERNALLY GENERATED CHANGES IN TECHNOLOGIES AND PROCESSES
WHICH ARE USED (OR MAY BE USED) BY THE COMPANY OR ITS
COMPETITORS.

E-COMMERCE IS THE LATEST BUZZ WORD IN ORGANIZATIONS

MANAGEMENT.
B2B OR BUSINESS TO BUSINESS TRANSACTIONS ARE REPORTED TO BE
THE FASTEST GROWING AREA IN BUSINESS TRANSACTED THROUGH
THE INTERNET.

E-COMMERCE OR ELECTRONIC COMMERCE IS A TERM FOR ANY

TYPE OF BUSINESS OR COMMERCIAL TRANSACTION,
THAT INVOLVES THE TRANSFER OF INFORMATION ACROSS
THE INTERNET. IT ALLOWS CONSUMER TO ELECTRONICALLY
EXCHANGE GOODS AND SERVICES WITH NO BARRIERS OF
TIME OR DISTANCE.

 SOCIAL-CULTURAL AND DEMOGRAPHIC ASPECTS

 THE SOCIO-CULTURAL ASPECT LINK TO FACTORS THAT AFFECT
SOCIETY’S BASIC VALUES, PREFERENCES AND BEHAVIOR.THE BASIS
FOR THESE FACTORS IS FORMED BY THE FACT THAT PEOPLE ARE
PART OF A SOCIETY AND CULTURAL GROUP THAT SHAPE THEIR
BELIEFS AND VALUES.
 DEMOGRAPHIC ASPECT RELATE TO PEOPLE. PEOPLE ARE
CONTINUOUSLY BEING ABSORBED BY BUSINESS FIRMS AS
WORKERS AND AS MANAGERS. THIS INCLUDES SIZE, DENSITY, AGE,
GENDER, OCCUPATION AND OTHER STATICTICS.
 IT CAN INFLUENCE THE KINDS OF PRODUCTS AND SERVICES WHICH
WILL BE SOLD AND THE METHODS OF SELLING THEM.
 CHANGES IN THE SOCIAL-CULTURAL AND DEMOGRAPHIC
ASPECTS ARE OFTEN LESS VISIBLE OR PERCEPTIBLE THAN
CHANGES IN THE OTHER ENVIRONMENTAL ASPECTS

INTERMEDIATE AND REMOTE ENVIRONMENTS

THREE LEVELS
1. INDUSTRY
2. COUNTRY ENVIRONMENT
3. GLOBAL ENVIRONMENT

THE INDUSTRY ENVIRONMENT

- CUSTOMERS
- COMPETITORS
- SUPPLIERS
- OTHER ENTITIE

CUSTOMERS

- TYPES
- LOCATION
- BUYING HABITS
- SIZE
- NEEDS

COMPETITORS
- DIFFERENT BUSINESS, OR INDUSTRIES, VARY IN THEIR COMPETITIVE
STRUCTURE
- LARGE COMPETITORS ATTEMPT LARGE MARKET COVERAGE AND CAN AFFORD
EXPENSIVE FORMS OF PROMOTIONS OR ADVERTISING, OR MULTIPLE SERVICE
LOCATIONS, OR EXTEND CREDIT. SMALLER FIRMS OFTEN HAVE MORE LIMITED
MARKET COVERAGE AND OFTEN EMPHASIZE SUCH COMPETITIVE WEAPONS AS
UNIQUE PRODUCTS OR MORE PERSONALIZED SERVICE TO THE CUSTOMER.

SUPPLIERS
- SUPPLIERS ARE ANOTHER IMPORTANT ELEMENT IN A FIRM'S IMMEDIATE
ENVIRONMENT. SOME FIRMS ARE LARGE RELATIVE TO THEIR SUPPLIERS AND
HENCE CAN EXTRACT PRICE AND OTHER CONCESSIONS FROM THEM. IN OTHER
CASES, THE SITUATION IS THE REVERSE WHERE MANY SMALL FIRMS BUY FROM
A FEW LARGE SUPPLIERS.

OTHER ENTITIES
- THE ENTITIES IN THE FIRM'S IMMEDIATE ENVIRONMENT ARE OF CONTINUING
INTEREST TO IT SINCE THE BEHAVIOR OF SUCH ENTITIES GENERALLY HAVE A
MORE DIRECT IMPACT ON THE ACTIVITIES OF A FIRM.

THE COUNTRY ENVIRONMENT

CHARACTERISTICS
1. LOW PER CAPITA INCOME OF THE POPULATION
2. PREPONDERANCE OF AGRICULTURE AND SERVICES, VIS-Á-VIS INDUSTRY, AS A
SOURCE OF EMPLOYMENT

LIMITED SOURCES OF FINANCING

-UNIVERSAL BANKS AND COMMERCIAL BANKS PROVIDE A SIGNIFICANT
PORTION OF FUNDS FOR BUSINESS ENTERPRISES IN THIS COUNTRY.
LOAN PORTFOLIO OF THE FINANCIAL SYSTEM

Thrift Banks
3% 10% Universal Banks
16%
Commercial Banks

71%

LOANS OUTSTANDING OF COMMERCIAL BANKS BY PURPOSE (AS OF

DECEMBER 2006)
 AS OF THE END OF DECEMBER 2006, TOTAL OUTSTANDING LOANS
GRANTED BY THIS SECTOR WAS DISTRIBUTED BY PURPOSE OF THE LOAN.

REGIONAL DISTRIBUTION OF LOAN PORTFOLIO (IN BILLION PESO)

 IN TERMS OF GEOGRAPHIC DISTRIBUTION, THE BULK OF LOANS OF
COMMERCIAL BANKS ARE GRANTED IN THE NATIONAL CAPITAL REGION
(SEE NEXT TABLE) SUGGESTING THAT BUSINESS FIRMS ARE
CONCENTRATED IN THIS REGION.
  THE STOCKMARKET AS A SOURCE OF FUNDS IS STILL RELATIVELY
UNDERDEVELOPED. THERE ARE ONLY 241 LISTED COMPANIES IN THE
PHILIPPINE STOCK EXCHANGE AS OF MAY 1, 2007 OUT OF TOTAL OF 182,
834 REGISTERED CORPORATIONS AT THE SECURITIES AND EXCHANGE
COMMISION AS OF JUNE 30, 2007.

REGIONAL DISTRIBUTION OF LOAN PORTFOLIO (IN BILLION PESO)

 AS THE RESULT OF THIS, BANKS PROVIDE THE MAJOR PART OF THE FUNDS
NEEDED BY THE FIRMS. SMALLER FIRMS AVAIL OF TRADE CREDITS AND
OTHER INFORMAL CREDIT SOURCES. TRADE AND INFORMAL CREDIT
SOURCES HOWEVER HAVE HIGH COST, APPROXIMATELY TWO TO THREE
TIMES MORE THAN THE INTEREST RATES CHARGED BY BANKS.

REGIONAL DISTRIBUTION OF LOAN PORTFOLIO (IN BILLION PESO)

HIGH TECHNOLOGICAL DEPENDENCE ON INDUSTRIALIZED COUNTRIES

 THE MORE INDUSTRIALIZED COUNTRIES HAVE A CONSIDERABLE
TECHNOLOGICAL LEAD OVER DEVELOPING COUNTRIES WHICH IS
MAINTAINED THROUGH THEIR LARGE AND CONTINUING INVESTMENTS IN
SCIENCE AND TECHNOLOGY. AS A RESULT, MANY MANUFACTURED
PRODUCTS IN THE LESS DEVELOPED COUNTRIES, INCLUDING THE
PHILIPPINES, ARE DOMESTICALLY MANUFACTURED AND SOLD BY
MULTINATIONAL CORPORATIONS OR BY DOMESTIC FIRMS UNDER
LICENSE OR JOINT VENTURE AGREEMENTS WITH A FOREIGN ENTITY.
HIGH TECHNOLOGICAL DEPENDENCE ON INDUSTRIALIZED COUNTRIES
 THIS HEAVY INDEPENDENCE ON FOREIGN TECHNOLOGY, NOT ONLY IN
THE PHILIPPINES BUT ALSO AMONG ALL THE DEVELOPING COUNTRIES IN
ASEAN, HAS LEAD TO A CRITICISM OF INDUSTRIAL DEVELOPMENT IN THE
REGION AS REPRESENTING “ERSATZ (I.E., IMITATION) CAPITALISM”.
CRITICS HAVE OBSERVED THAT AS LONG AS INDUSTRY IN THE REGION IS
TECHNOLOGICALLY DEPENDENT ON THE ADVANCED COUNTRIES, THE
MANUFACTURING SECTOR IN THESE COUNTRIES CANNOT ACHIEVE
EXPORT COMPETITIVENESS. THEY ADVOCATE A HEAVIER INVESTMENT IN
SCIENCE AND TECHNOLOGY TO ENABLE MANUFACTURED PRODUCTS IN
THE REGION TO BE COMPETITIVE, QUALITY WISE, WITH THOSE FROM THE
ADVANCED COUNTRIES.

HIGH TECHNOLOGICAL DEPENDENCE ON INDUSTRIALIZED COUNTRIES

 ALTHOUGH MOST FILIPINO FIRMS ARE NOT YET IN A POSITION TO MAKE
THE LARGE INVESTMENTS IN RESEARCH AND DEVELOPMENT TO DEVELOP
PRODUCT AND PROCESS INNOVATIONS IN THE MORE TECHNOLOGICALLY
COMPLEX INDUSTRIES, FILIPINO FIRMS APPEAR ALREADY CAPABLE OF
MAKING INNOVATIONS IN THE DESIGNS OF SIMPLER PRODUCTS,
ESPECIALLY THOSE CHARACTERIZED BY A STYLE OR FASHION
COMPONENT SUCH AS GARMENTS, FOOTWEAR AND FURNITURE.
MOREOVER, THE INABILITY OF PHILIPPINE FIRMS TO FINANCE THE LARGE
AND RISKY RESEARCH AND DEVELOPMENT NEEDED TO DEVELOP “HIGH”
TECHNOLOGY PRODUCTS SUCH AS ELECTRONICS, SYNTHETICS
MATERIALS, ENERGY ETC. DOES NOT MEAN THAT OUR MANUFACTURING
INDUSTRIES TO MASTER AND IMPROVE UPON THE LOW LEVEL
TECHNOLOGIES THEY NOW BUY FROM THE ADVANCED COUNTRIES, AS
THE EXPERIENCE OF JAPAN AND TAIWAN AFTER WORLD WAR II WOULD
SUGGEST.

THE GLOBAL ENVIRONMENT

 IN EARLY DAYS, EVENTS OCCURRING IN OTHER PARTS OF THE WORLD
WERE PROBABLY OF LESS CONCERN TO A BUSINESSMAN IN THE
PHILIPPINES BECAUSE THEIR IMPACT ON HIS BUSINESS, IF AY, WOULD BE
NEITHER SIGNIFICANT NOR IMMEDIATE. THIS HAS BECOME LESS AND
LESS SO AS A RESULT OF THE GROWING COMPETITION AND
INTERDEPENDENCE AMONG THE COUNTRIES IN THE WORLD WHICH WAS
POINTED OUT IN THE FIRST CHAPTER. AND EXAMPLE IS THE OIL BOYCOTT
BY THE ARAB COUNTRIES AND THE TENFOLD INCREASE OF OIL PRICES IN
THE 70’S. THIS EVENT AFFECTED THE PHILIPPINES, AS VIRTUALLY EVERY
OTHER COUNTRY IN THE WORLD, IN A PROFOUND WAY. SIMILARLY, A
RECESSION IN THE MAJOR INDUSTRIAL COUNTRIES COULD HAVE SERIOUS
 EFFECTS ON OUR EXPORT REVENUES AND TRIGGER MANY
REPERCUSSIONS IN PROTECTIONIST LEGISLATION IN OUR MAJOR EXPORT
MARKETS. THOUGH MORE DISTANT AND PERHAPS LESS DIRECT IN THEIR
IMPACT, EVENTS TAKING PLACE IN THE ENVIRONMENT BEYOND OUR
NATIONAL BOUNDARIES HAVE INCREASINGLY BECOME A MATTER OF
SERIOUS CONCERN EVEN TO FIRMS WHICH HAVE NO DIRECT
TRANSACTIONS WITH PARTIES OUTSIDE THE COUNTRY.

 THE ASIAN FINANCIAL CRISIS CAUGHT MANY FIRMS BY SURPRISE IN 1997.

MANY OF THESE FIRMS BELONG TO THE PROPERTY AND CONSTRUCTION
SECTORS THAT BORROWED FUNDS FROM FOREIGN FINANCIAL
INSTITUTIONS. WHEN THE ASIAN FINANCIAL CRISIS BROKE OUT, THE
PHILIPPINE CURRENCY DEPRECIATED AGAINST THE US DOLLAR FROM AN
AVERAGE EXCHANGE RATE OF P25 TO US$1 TO ABOUT P45 TO $1. FOREIGN
LOANS BORROWED BY PHILIPPINE FIRMS REQUIRE MORE FUNDS FOR
DEBT SERVICING AND AMORTIZATION. GIVEN NO CORRESPONDING
INCREASES IN REVENUES, AND CASH IN-FLOWS, MANY FIRMS DEFAULTED
IN THE PAYMENT OF THEIR FOREIGN AND LOCAL CURRENCY
DENOMINATED LOANS.

US SUB-PRIME CRISIS

 THE US SUB-PRIME CRISIS WHICH ADVERSELY AFFECTED THE US

STOCKMARKET IN JULY 2007 ALSO AFFECTED THE PHILIPPINE STOCK
MARKET. “SUB-PRIME” GENERALLY REFERS TO THOSE MORTGAGES
TARGETED AT CONSUMERS WITH IMPAIRED OR LOW CREDIT RATINGS
WHO MAY FIND IT DIFFICULT TO OBTAIN LOANS FROM TRADITIONAL
SOURCES. TABLE 3-8 SHOWS THAT FOR THE PERIOD OF JULY 18, 2007 TO
JULY 31, 2007, WHEN THE US SUB-PRIME CRISIS PEAKED, THE PHILIPPINE
STOCK EXCHANGE (PSE) INDEX DECLINED AND FOLLOWED THE
DIRECTIONAL CHANGE OF THE US DOW JONES INDUSTRIAL INDEX.
THE FIRM AND ITS ENVIRONMENT
 IN GENERAL, NATIONAL ECONOMIES ARE TODAY MORE CLOSELY
INTERLINKED THAN PREVIOUSLY BECAUSE OF GLOBALIZATION AND THE
WORLD TRADE ORGANIZATION (WTO). BECAUSE OF THIS, FRIEDMAN
OBSERVED IN HIS BEST SELLING BOOK THAT PRODUCTS NOW TEND TO BE
PRODUCED IN COUNTRIES WHERE THEY CAN BE MOST CHEAPLY
PRODUCED.

ANALYZING FOREIGN COUNTRY BUSINESS ENVIRONMENT

 SELECTING A FOREIGN COUNTRY AS THE MARKET FOR A FIRM’S PRODUCT
OR SERVICES REQUIRES AN ANALYSIS OF THE BUSINESS ENVIRONMENT IN
THE FOREIGN COUNTRY

 THE ECONOMIC ASPECTS

 FOREIGN COUNTRY
 INFLATION RATES
 POPULATION DATA
 UNEMPLOYMENT RATES
 EXCHANGE RATE
 SIZE OF FOREIGN DEBTS
 BALANCE OF TRADE POSITION
 GROSS DOMESTIC POSITION
 CAPITAL MARKETS

IF A COUNTRY IMPORTS MOST OF ITS RAW MATERIAL INPUTS FOR

PRODUCTION PLUCTUATIONS IN THE EXCHANGE RATE CAN HAVE A CRITICAL
IMPACT ON THE PRICE OF THESE GOODS.
WHEN DOMESTIC PRICE LEVEL INCREASE, THE PURCHASING POWER OF
POTENTIAL CUSTOMERS MAY BE ADVERSELY AFFECTED.
HIGH UNEMPLOYMENT RATES MAY ALSO LIMIT THE MARKET FOR CERTAIN
PRODUCTS OR SERVICES SUCH AS VEHICLES AND MEDICAL SERVICES.
A LARGE POPULATION IS NOT NECESSARILY GOOD FOR BUSINESS PER
CAPITAL INCOME OF THE COUNTRY IS THE BETTER INDICATOR OF THE MARKET
POTENTIAL.
EX. USA
- LESS POPULATION
- HIGHER PER CAPITA INCOME
CHINA
-HIGHER POPULATION
-LOWER PER CAPITA INCOME

 LEGAL POLITICAL ASPECTS

 THE POLITICAL SYSTEM AND FORM OF GOVERNMENT IN A FOREIGN
COUNTRY CAN HAVE IMPACT ON THE OPERATIONS OF FIRMS.
  POLICIES ON TAXATION
 WAGE LEGISLATION
 GOVERNMENT EXPENDITURES PLANS
 INVESTMENT INCENTIVES
 INTENSITY OF COMPETITION
 SUBSIDIES

THESE CAN BE INFLUENCED BY THE POLITICAL STRUCTURE AND CULTURE

OF A COUNTRY.

THERE IS SOME GROUND RULE IN RUSSIA FOR A SAFE SUCCESS OF FOREIGN

FIRMS:
 AVOID INDUSTRIES THE GOVERNMENT CONSIDERED STRATEGIC SUCH AS
NATURAL RESOURCES
 AVOID THE WRONG SORT OF PARTNER
 STEER CLEAR OF THE “OLIGARCHS”
 MAKE THE RIGHT FRIENDS IN THE LOCAL GOVERNMENT

IN FRANCE, THE 35 HOURS PER WEEK REGULATION IS INTRODUCED IN 2000-02

HAS GENERATED A CONSTANT STREAM OF LABOR-COURT RULINGS.
IN SOME COUNTRIES, PRISONS ARE INCREASINGLY PRIVATIZED SUCH AS;
AUSTRALIA, BRITAIN, AND AMERICA.

 TECHNOLOGICAL ASPECTS
 THE STATE OF INFORMATION TECHNOLOGY (IT) DEVELOPMENT AND
E-COMMERSE DEVELOPMENT IN A FOREIGN MARKET SHOULD BE
CONSIDERED IN ORDER TO DETERMINE THE AVAILABILITY OF PERSONNEL
THAT WILL PROVIDE SKILLS NECESSARY FOR EFFICIENT OPERATIONS AS
WELL AS THE INFRASTRUCTURE NEEDED FOR COMPUTER AND INTERNET
TECHNOLOGIES.

 INFRASTRUCTURE DEVELOPMENT
INFRASTRUCTURE DEVELOPMENT IMPACT ON OPERATIONS
PARTICULARLY ON MARKETINGAND PRODUCTION. THESE INCLUDE ROAD
NETWORKS, RAIL SYSTEM, AIRPORTS, LAND TRANSPORTATION SYSTEM,
SHIPPING, ETC.

 FORT DAUPHIN, ALSO KNOWN AS TOLAGNARO, A TOWN IN SOUTHERN

MADAGASCAR (AFRICA) IS ACCESSIBLE ONLY BY AIRCRAFT OR BY THE
WAY OF DIRT ROADS

 GEOGRAPHIC INFLUENCE
THESE INCLUDE THE CLIMATE (SEASONS), NATURAL RESOURCES,
LOCATION OF COUNTRY AND POPULATION ON CONCENTRATION.
  SOCIAL CULTURAL AND DEMOGRAPHIC ASPECTS
SOCIAL, CULTURAL AND DEMOGRAPHIC VARIABLES CAN
INFLUENCE THE PRODUCTS AND SERVICES THAT A FIRM INTENDS TO SELL
IN A FOREIGN COUNTRY.

SUMMARY:
THE FIRMS ABILITY TO INFLUENCE ITS ENVIRONMENT IS PARTLY A FUNCTION
OF ITS SIZE. IN FACT SOME OF THE COMPANIES ARE SO LARGE THAT THEIR
ACTIONS HAVE A SIGNIFICANT IMPACT ON THEIR SURROUNDINGS REGARDLESS
OF WHETHER THEY INTEND IT OR NOT.

TECHNOLOGICAL ENVIRONMENT- TECHNOLOGY IS UNDERSTOOD AS THE

SYSTEMATIC APPLICATION OF SCIENTIFIC OR OTHER ORGANIZED KNOWLEDGE
TO PRACTICAL TASKS. TECHNOLOGY CHANGES FAST AND TO KEEP
PACE WITH IT, BUSINESSMEN SHOULD BE EVER ALERT TO ADOPT CHANGED
TECHNOLOGY IN THEIR BUSINESSES.

ECONOMIC ENVIRONMENT -THERE IS CLOSE RELATIONSHIP BETWEEN

BUSINESS AND ITS ECONOMIC ENVIRONMENT. BUSINESS OBTAINS ALL ITS
NEEDED INPUTS FROM THE ECONOMIC ENVIRONMENT AND IT ABSORBS THE
OUTPUT OF BUSINESS UNITS.

POLITICAL ENVIRONMENT - IT REFERS TO THE INFLUENCE EXERTED BY THE

THREE POLITICAL INSTITUTIONS VIZ., LEGISLATURE EXECUTIVE AND THE
JUDICIARY IN SHAPING, DIRECTING, DEVELOPING AND CONTROLLING
BUSINESS ACTIVITIES. A STABLE AND DYNAMIC POLITICAL ENVIRONMENT IS
INDISPENSABLE FOR BUSINESS GROWTH.

NATURAL ENVIRONMENT-BUSINESS, AN ECONOMIC PURSUIT OF MAN,

CONTINUES TO BE DICTATED BY NATURE. TO WHAT EXTEND BUSINESS
DEPENDS ON NATURE AND WHAT IS THE RELATIONSHIP BETWEEN THE
TWO CONSTITUTES AN INTERESTING STUDY.

GLOBAL OR INTERNATIONAL ENVIRONMENT -THANKS TO LIBERALIZATION,

INDIAN COMPANIES ARE FORCES TO VIEW BUSINESS ISSUES FROM A GLOBAL
PERSPECTIVE. BUSINESS RESPONSES AND MANAGERIAL PRACTICES MUST BE
FINE-TUNED TO SURVIVE IN THE GLOBAL ENVIRONMENT.

SOCIAL AND CULTURE ENVIRONMENT IT REFERS TO PEOPLE’S ATTITUDE TO

WORK AND WEALTH; ROLE OF FAMILY, MARRIAGE, RELIGION AND EDUCATION;
ETHICAL ISSUES AND SOCIAL RESPONSIVENESS OF BUSINESS.
 CHAPTER 4
FORMS OF BUSINESS ORGANIZATION IN THE PHILIPPINES

CORPORATION

FORMATION/CREATION
-A CORPORATION MAY BE FORMED BY NOT LESS THAN 5 NOR MORE THAN
15 PERSONS.

-CORPORATE EXISTENCE BEGINS FROM DATE OF ISSUANCE OF

CERTIFICATION OF INCORPORATION BY SEC.

DISSOLUTION
-EXIST FOR A PERIOD OF 50 YRS.

DEGREE OF CONTROL BY OWNERS

-CORPORATE BOOKS, RECORDS AND FINANCIAL STATEMENTS ARE
SUBJECTED TO INSPECTION BY STOCKHOLDERS

DEGREE OF FORMALITY
-EXISTENCE OF FORMAL RECORDS SUCH AS ARTICLES OF CORPORATION
AND BY-LAWS.
-ELECTION OF BOARD MEMBERS.

ADMINISTRATION
-ADMINISTERED AND GOVERNED BY THE BOARD OF DIRECTORS

PROFIT DISTRIBUTION
-CASH DIVIDEND IS DECLARED BY THE BOARD OF DIRECTORS.
-AMOUNTS RECEIVED BY STOCKHOLDERS DEPEND ON THE NUMBER OF
SHARES OWNED.

TAXATION
-SEC. 24 OF THE NATIONAL INTERNAL REVENUE CODE AS AMENDED BY
EXECUTIVE ORDER NO. 37 PROVIDES THAT A TAX OF 35% IS IMPOSED
UPON THE TAXABLE INCOME

ADVANTAGES OF THE CORPORATION

• GREATER FORMALITY IN THE CONDUCT OF BUSINESS AFFAIRS.
• FIXED TAX RATE AT 35% ON NET TAXABLE INCOME.
• LIMITED LIABILITY OF OWNERS
• EASY TRANSFER OF OWNERSHIP
DISADVANTAGES OF THE CORPORATION
• WHEN SETTING UP A CORPORATION, QUITE NUMBER OF DOCUMENTS
MUST BE PREPARED.
• 35% TAX RATE IS RELATIVELY HIGH.
• DOUBLE TAXATION.
PARTNERSHIP
TWO OR MORE PERSONS BIND THEMSELVES TO CONTRIBUTE MONEY,
PROPERTY OR INDUSTRY TO A COMMON FUND,WITH THW INTENTION OF
DIVIDING THE PTOFITS THEMSELVES.LIKE A CORPORATION, A PARTNERSHIP
DULY FORMED UNDER THE LAW IS A JURIDICAL PERSON – SEPARATE AND
DISTINCT FROM EACH OF THE PARTNERS.THE PARTNERS INCLUDING THE
INDUSTRIAL PARTNER ARE LIABLE PRO RATA TO CREDITORS OF THE
PARTNERSHIP FOR ITS CONTRACTUAL DEBTS.

IN PARTNERSHIP, WHEN CAPITAL IS TO BE INCREASED PR DECREASED,

THE PARTNERS MERELY HAVE TO AGREE ON THE TERMS, WHEREAS IN A
CORPORATION, THE SEC MUST FIRST APPROVE THE PROPOSED CHANGES.WHEN
THE NUMBER OF OWNERS IS LARGE, THE CORPORATE FORM MAY BECOME
MORE ATTRACTIVE SINCE THE SIZE OF A CORPORATION’S BOARD OF DIRECTORS
IS INDEPENDENT OF THE NUMBER OF STOCKHOLDERS.

ADVANTAGES OF PARTNERSHIP FORM

-THE PARTNERSHIP FORM IS APPROPRIATE FOR A SMALL NUMBER OF PEOPLE
WHO WANT TO CONTRIBUTE CAPITAL OR SERVICES TO A BUSINESS
-IT IS ALSO THE LEGALLY PRESCRIBED FORM OF ORGANIZATION FOR
BUSINESSES THAT PROVIDE PROFESSIONAL SERVICES, E.G. AN ACCOUNTING OR
A LAW FIRM

DISADVANTAGES OF PARTNERSHIP FORM

-CORPORATE FORM IS MORE FLEXIBLE THAN A PARTNERSHIP IN TERMS OF
ENTRY AND EXIT OF OWNERS
-PARTNERSHIP HAS AN UNLIMITED LIFE ONLY FOR AS LONG AS THERE IS NO
CHANGE IN THE RELATIONS OF THE PARTNERS
OWNERS IN PARTNERSHIP ARE CLASSIFIED AS FOLLOWS

 GENERAL PARTNER-LIABILITY EXTENDS TO HIS SEPARATE PROPERTY

 LIMITED PARTNER-LIABILITY IS LIMITED TO HIS CAPITAL CONTRIBUTION
 MANAGING PARTNER-MANAGES THE AFFAIRS OF THE PARTNERSHIP
 INDUSTRIAL PARTNER- CONTRIBUTES SERVICES ONLY
SOLE PROPRIETORSHIP
A SOLE PROPRIETORSHIP FORM OF A BUSINESS ORGANIZATION IS ONE
WHERE THERE IS ONLY ONE OWNER. THUS, ALL PROFITS ACCRUE TO THE
OWNER. HOWEVER, THE OWNER DOES NOT ENJOY LIMITED LIABILITYAS DO THE
STOCKHOLDERS OF A CORPORATION.
AS MANAGER OF THE FIRM, THE PROPRIETORSHIP CANNOT PAY HIMSELF
SALARIES AND DEDUCT THESE AS EXPENSES IN THE INCOME STATEMENT
WHATEVER FUNDS HE DRAWS ARE TREATED AS WITHDRAWAL OF CAPITAL IN
THE FINANCIAL STATEMENTS.

ADVANTAGES
 LESS REGULATIONS BY GOVERNMENT IN OPERATING DECISIONS
 LESS CONFLICT AND DISAGREEMENTS IN MANNER OF MANAGEMENT
 EASIER TO INCREASE OR DECREASE CAPITAL; HENCE, GREATEST
FLEXIBILITY IN DECISION MAKING
 BEST SUITED FOR SMALL BUSINESSES
 TAX RATE IS LOWER THAN THAT OF THE CORPORATE FORM OR
PARTNERSHIP FORM WHEN NET TAXABLE INCOME IS LESS THAN PHP
500,000.00

DISADVANTAGES
 UNLIMITED LIABILITY OF OWNER
 LIMITED CAPITAL
 LIMITED MANAGEMENT EXPERTISE ESPECIALLY IF THERE ARE NO OTHER
PROFESSIONAL MANAGERS

EVOLUTION IN THE FORM OF A BUSINESS ORGANIZATION

IT CAN BE GENERALIZED THAT IN THE LONG RUN, AS THE BUSINESS GROWS IN
SIZE AND REQUIRES A LARGER NUMBER OF OWNERS TO PROVIDE THE
NECESSARY CAPITAL, A SOLE PROPRIETORSHIP IS TRANSFORMED INTO A
PARTNERSHIP OR A CORPORATION. THERE COULD BE OTHER REASONS,
THOUGH, FOR A CHANGE IN THE FORM OF THE BUSINESS ORGANIZATION
THROUGH TIME. IN ANY CASE, THE CHOICE OF THE FORM OF THE BUSINESS
ORGANIZATION REQUIRES AN EVALUATION OF THE ADVANTAGES AND
DISADVANTAGES OF EACH ALTERNATIVE AT ANY POINT IN THE LIFE OF THE
BUSINESS FIRM.

COOPERTIVES
THE INTERNATIONAL LABOUR OFFICE (ILO) DEFINES COOPERATIVE AS,
"A COOPERATIVE IS AN ASSOCIATION OF PERSONS WHO HAVE VOLUNTARILY
JOINED TOGETHER TO ACHIEVE A COMMON END THROUGH THE FORMATION OF
A DEMOCRATICALLY CONTROLLED ORGANIZATION, MAKING EQUITABLE
CONTRIBUTIONS TO THE CAPITAL REQUIRED AND ACCEPTING A FAIR SHARE OF
THE RISKS AND BENEFITS OF THE UNDERTAKING WHICH THE MEMBERS
ACTIVELY PARTICIPATE."
FORMS OF COOPERATIVE
 CREDIT COOPERATIVES
 PRODUCERS COOPERATIVES
 CONSUMER COOPERATIVES
 SERVICE COOPERATIVES
 MARKETING COOPERATIVES

CREDIT COOPERATIVES
- THESE ARE USUALLY IN THE FORM OF CREDIT UNION TO PROMOTE SAVING
AND THRIFT AMONG MEMBERS AND ACCUMULATE FUNDS TO BE LENT TO
MEMBERS IN THE FORM OF LOANS.

PRODUCERS COOPERATIVES
- THESE ARE FORMED TO UNDERTAKE THE COOPERATIVE OR JOINT
PRODUCTION OF AGRICULTURAL OF INDUSTRIAL PRODUCTS.

CONSUMER COOPERATIVES
- THESE ARE ESTABLISHED PRIMARILY TO PROCURE GOODS FOR RESALE TO
MEMBERS.

SERVICE COOPERATIVES
- THESE ARE ENGAGED IN THE PROVISION OF SERVICES WHICH MEMBERS AVAIL
OF.

MARKETING COOPERATIVES
- THESE ARE ORGANIZED PRIMARILY TO CENTRALIZE THE PURCHASING OF
INPUTS NEEDED BY PRODUCER MEMBERS AS WELL AS SELLING OF THE
PRODUCE OF MEMBERS.

REPUBLIC ACT 6938 COOPERATIVE CODE

- THE LEGAL INCENTIVES AVAILABLE TO COOPERATIVES HAVE BEEN
BROADENED TO INCLUDE COOPERATIVE ORGANIZATIONS IN VIRTUALLY ALL
LINES OF BUSINESS ACTIVITY, INCLUDING AGRICULTURE, MANUFACTURING,
BANKING, INSURANCE, TRADE, ETC.
INTENT OF CODE IN DOING THIS, EXPRESSED IN ARTICLE 2, IS
"... TO FOSTER THE CREATION AND GROWTH OF COOPERATIVES AS A PRACTICAL
VEHICLE FOR PROMOTING SELF-RELIANCE AND HARNESSING PEOPLE POWER
TOWARDS THE ATTAINMENT OF ECONOMIC DEVELOPMENT AND SOCIAL
JUSTICE."

UNIVERSAL COOPERATIVE PRINCIPLES

1. OPEN AND VOLUNTARY MEMBERSHIP
2. DEMOCRATIC CONTROL
3. LIMITED INTEREST IN CAPITAL
4. DIVISION OF NET SURPLUS
 5. PROVISION FO THE EDUCATION OF MEMBERS
6. COOPERATION AMONG COOPERATIVES

OPEN AND VOLUNTARY MEMBERSHIP

IN PRINCIPLE, MEMBERSHIP IN COOPERATIVES ARE OPEN TO ALL
PERSONS WHO WISH TO MAKE USE OF THE COOPERATIVE'S SERVICES.
VOLUNTARINESS IN APPLYING FOR MEMBERSHIP IS CONSIDERED IMPORTANT
BECAUSE A PERSON'S DECISION TO JOIN A COOPERATIVE SHOULD BE BASED ON
HIS OWN APPRECIATION OF THE VALUE OF THE COOPERATIVE WAY OF LIFE AND
THE ECONOMIC ADVANTAGES OF MEMBERSHIP.

DEMOCRATIC CONTROL
IN SPIRIT, COOPERATIVES ARE RUN BY AND FOR ITS MEMBERS. THIS SPIRIT IS
MADE OPERATIVE IN THE PRINCIPLE OF "ONE MAN, ONE VOTE"
LIMITED INTEREST IN CAPITAL
UNDER THE COOPERATIVE CODE, THE RATE OF INTEREST, OR RETURN, TO BE
PAID TO THE SHARE CAPITAL OF A COOPERATIVE CAN NOT EXCEED "THE
NORMAL RATE OF RETURN ON INVESTMENT" AS DETERMINED BY THE
NATIONAL COOPERATIVE AUTHORITY.

DIVISION OF NET SURPLUS

UNDER THE COOPERATIVE CODE, THE ALLOCATION OF THE MINIMUM OF 10% OF
THE NET SURPLUS TO BULID UP A RESERVE FUND IS THE FIRST PRIORITY IN THE
ALLOCATION OF THE COOPERATIVE'S NET SURPLUS. THIS IS FOLLOWED BY A
MANDATORY ALLOCATION FOR AN EDUCATION AND TRAINING FUND, AS
SECOND PRIORITY AND AN OPTIONAL FUND, A LAND AND BUILDING FUND, A
COMMUNITY DEVELOPMENT FUND AND OTHERS AS THIRD PRIORITY.

PROVISIONS FOR THE EDUCATION OF MEMBERS

EDUCATION, IN THIS CONTEXT, DOES NOT REFER PRIMARILY TO FORMAL
EDUCATION BUT TO ALL TRAINING ACTIVITIES AND EXPERIENCES WHICH ADD
TO THE MEMBER'S KNOWLEDGE, SKILLS AND OUTLOOK AND ENHANCE THEIR
ABILITY TO WORK COOPERATIVELY WITH EACH OTHER.

COOPERATION AMONG COOPERATIVES

UNDER THE UNIVERSAL COOPERATIVE PRINCIPLES, COOPERATIVES ARE
ENJOINED TO OBSERVE THE COOPERATIVE SPIRIT BY AFFILIATING WITH AND/OR
PATRONIZING THE SERVICES OF OTHER COOPERATIVE ORGANIZATION.
ADVANTAGES AND DISADVANTAGES OF COOPERATIVES

ADVANTAGES OF COOPERATIVE
 A "CAPTIVE" MARKET IN THE FORM OF PATRONAGE OF BY ITS MEMBERS
OF THE COOPERATIVE'S PRODUCTS OR SERVICES.
 TAX ADVANTAGES - UNDER THE CODE, COOPERATIVES ARE EXEMPT
FROM ALL INCOME AND SALES TAXES DURING THE FIRST TEN YEARS OF
OPERATIONS.
 DEMOCRATIC CONTROL - BECAUSE OF THE PRINCIPLE "ONE MAN ONE
VOTE", IT IS MORE DIFFICULT FOR THE MANAGEMENT OF A COOPERATIVE
TO BE DOMINATED BY ONE OR A FEW MEMBERS WHO HAVE LARGE
CAPITAL INVESTMENTS.
 AS WITH CORPORATIONS, GOVERNMENT REGULATION AND REPORTING
REQUIREMENTS NECESSITATE THE OBSERVANCE OF A MINIMUM LEVELOF
FORMALITY IN THE CONDUCT OF THE INTERNAL AFFAIRS OF A
COOPERATIVE.
 AS COMPARED WITH SINGLE PROPRIERTORSHIP, COOPERATIVES CAN, IN
THEORY, RAISE AS MUCH CAPITAL AS THEIR MEMBERS CAN AFFORD TO
PUT UP- THAT IS, MORE CAPITAL THAN CAN BE RAISED BY SINGLE
PERSONS OR FAMILIES.
 OTHER PRIVILEDGES, E.G. PREFERENTIAL ACCESS TO GOVERNMENT
FACILITIES AND OTHER RESOURCES.

DISADVANTAGES OF COOPERATIVE
 THE RULE OF "ONE MAN ONE VOTE" AND THE RESTRICTIONS OF RETURNS
ON SHARE CAPITAL MAY LIMIT THE AMOUNT WHICH INDIVIDUAL
MEMBERS ARE WILLING TO INVEST IN THE COOPERATIVE.
 THE LIMITED SHARE CAPITAL OF A COOPERQTIVE MAY LIMIT ITS ABILITY
TO FINANCE EXPANSION OF THE SCALE OF ITS BUSINESS OPERATIONS.
 THE ORIENTATION TOWARDS MAXIMIZING DIRECT MEMBER BENEFITS
AND PARTICIPATION CAN COMPLICATE BUSINESS DECISION MAKING AND
MAY RENDER IT MORE DIFFICULT TO ACHIEVE ECONOMICAL BUSINESS
OPERATIONS.
NON-PROFIT ORGANIZATION
A NONPROFIT ORGANIZATION, ALSO KNOWN AS A NON-BUSINESS ENTITY,
NOT-FOR-PROFIT ORGANIZATION, OR NONPROFIT INSTITUTION, IS DEDICATED
TO FURTHERING A PARTICULAR SOCIAL CAUSE OR ADVOCATING FOR A SHARED
POINT OF VIEW. IN ECONOMIC TERMS, IT IS AN ORGANIZATION THAT USES ITS
SURPLUS OF THE REVENUES TO FURTHER ACHIEVE ITS ULTIMATE OBJECTIVE,
RATHER THAN DISTRIBUTING ITS INCOME TO THE ORGANIZATION'S
SHAREHOLDERS, LEADERS, OR MEMBERS.

WHAT NON-PROFIT ORGANIZATION DO?

NON-PROFIT ORGANIZATION ALLOW PEOPLE TO COME TOGETHER AND

JOIN RESOURCES TO ACHIEVE GOALS THAT BENEFIT THE ORGANIZATION’S
BEING. IN SO DOING, THE REVENUE GENERATED BY THE NON-PROFIT
ORGANIZATION IS USED FOR THE BETTERMENT OF MISSION THEY SEEK TO
COMPLETE.

WHAT ARE THE FUNCTIONS OF NON-PROFIT ORGANIZATION?

THE FUNCTION OF NON-PROFIT ORGANIZATION DEPENDS ON THE GOAL

OF THE ORGANIZATION. NON-PROFITS GENERALLY FUNCTION TO GENERATE
REVENUE AND/OR AWARENESS IN THE INTEREST OF A CERTAIN PURPOSE OR
MISSION.
• CHARITY OF SOCIAL WELFARE
• RELIGIOUS FUNCTION
• TRADE, RESEARCH AND EDUCATION

4 WAYS NON-PROFIT DIFFER FROM FOR-PROFIT

• NON-PROFITS USE ALL THE REVENUE AND RESOURCES TO FURTHER ADVANCE
THE ORGANIZATION
• NON-PROFIT BENEFIT SOCIAL WELFARE
• RELY ON DONATIONS GRANTS
• TAX EXEMPT
SUMMARY
A BUSINESS CAN BE STRUCTURED INTO SEVERAL BASIC FORM.
 SOLE PROPRIETORSHIP HAS THE OWNER WHO PAYS THE INCOME TAX ON
PROFITS AND IS PERSONALLY RESPONSIBLE FOR ANY LIABILITIES
 PARTNERSHIP TWO OR MORE OWNER SHARE PROFITS OR LOSSES.
 CORPORATION IS A LEGAL ENTITY DISTINCT FROM ITS OWNERS, LIMITING
THE OWNER’S PERSONAL LIABILITY.
 COOPERATIVE-FIRM OWNED, CONTROLLED, AND OPERATED BY A GROUP
OF USERS FOR THEIR OWN BENEFIT. EACH MEMBER CONTRIBUTES EQUITY
CAPITAL, AND SHARES IN THE CONTROL OF THE FIRM ON THE BASIS OF
ONE-MEMBER, ONE-VOTE PRINCIPLE (AND NOT IN PROPORTION TO HIS OR
HER EQUITY CONTRIBUTION).