West Visayas State University

Module in
SS 113:
Entrepreneurial Mind

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 Module in
SS 113:
Entrepreneurial Mind

Prof. Ritchelda P. Aguana-Auro

Dr. Roemarie M. Dichosa

Prof. Dee Jay A. Larroder

Dr. Teofilo R. Rabanes

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 Notes to the Students
This module is a part of the series of Modules for flexible learning spearheaded
by the Office of the Director of Instruction and the Center for Teaching Excellence, West
Visayas State University.
This is meant for SS-113 Entrepreneurial Mind. This course provides a meaning and
attributes of entrepreneurship such as innovativeness, risk-taking, and self-reliance, the
social role and impact of entrepreneurship (CMO NO. 20 SERIES OF 2013). Thus, it
provides students with an understanding of the nature of enterprise and entrepreneurship
and orientates students towards an entrepreneurial mind set. It introduces the role of the
entrepreneur, innovation and technology in the entrepreneurial process. This is purely a
lecture course with no laboratory.

There are 8 Units in this module. They are as listed below .

UNIT 1: Introduction to the study of UNIT 5: Identify and Meet a Market

Entrepreneurial Mind and Need
Entrepreneurial Competencies

UNIT 2: Inside the entrepreneurial UNIT 6. Develop the Marketing Plan

mind: from ideas to reality

UNIT 3: Creating an enterprise UNIT 7. Global Aspects of

entrepreneurship

UNIT 4: Develop a Business Plan UNIT 8. Risk Management

The learning outcomes for SS 113, specified below are unpacked by the specific

objectives of each lesson. Generally, at the end of this module, you must have:

o Understood the key elements of the entrepreneurial mind, and how to align personal
goals with that mind-set;
o used critical thinking skills to identify and evaluate entrepreneurial opportunities,
manage risks, and learn from the results of evaluating the process;
o distinguished and explain the important elements of business planning, managing
rapid growth and overcoming obstacles in an entrepreneurial environment;
o understood the process that enables entrepreneurs with limited resources
to transform simple ideas into sustainable success;
o understood and applied fundamental aspects of entrepreneurial thinking across
disciplines and as a means of personal development; and,

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 o used critical inquiry skills to identify, interview, and generally build relationships
with local innovators, entrepreneurs, and other community leaders.

Before you begin learning what the module is about, please be familiar with some
icons to guide you through this instructional tool. You are right now reading the
introduction entitled Notes to the Students. This will be followed by the Table of
Contents.

Pre-activity- In here, you will do an activity that you already know

and is related to the lesson.

Activity - In this part, you will practice what you have learned

Post Activity - You will be tested here and you will be able to know the
gaps in your understanding in this lesson. If you are not satisfied with the
feedback, you may then go back to some points that you may have
missed.

Answer Key shows the feedback that comes after assessment. It

can also be found in every break exercises within the lesson

References list down the resources and links from which the content
of the lesson was based from. These may take the form of books,
internet sites, blogs, videos, photographs, animation, Power point
presentations, icons,

Directions are found inside each lesson that tell you how long you are going to
work on this module. All formative activities must be answered and counter-checked with
the feedback attached. Honesty is a school policy. Be serious about the learning activities
you are working on. It will define who you are and what you will become in the future.
Pre-test and Post-test must be completed as well. At the end of the semester or as
instructed otherwise, you are to submit this module to your subject professor. Inquiries on
some points not fully understood will be made online via the Google Classroom on a
scheduled encounter. This module is a self –contained learning kit with instructions that
will guide to the end.

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 You are now ready to begin. Carpe Diem! Make your time count. Enjoy!

Table of Contents
Unit 1: Introduction to the study of Entrepreneurial Mind and Entrepreneurial Competencies
A. Lesson 1. The Entrepreneurial Mind and Its Essential Characteristics
1.1. Entrepreneurs and Entrepreneurship
1.2. Why an Entrepreneurial Mindset is Essential for Business?
1.3. Essential Characteristics of the Entrepreneurial Mind
B. Lesson 2. Personal Entrepreneurial Competencies (PECs) and Skills vis-à-s
a Practicing Entrepreneur in a Place
2.1. Entrepreneurial Competencies
2.2. Important Skills of a Successful Entrepreneur

Unit 2. Inside the Entrepreneurial Mind: From Ideas to Reality

A. Lesson 1: Creativity, Innovation, and
Entrepreneurship 1.1. Creativity and Innovation
1.2.
1.3.
1.4.
B. Lesson 2. Creativity—A Necessity for Survival
2.1.
C. Lesson 3. Creative Thinking
3.1.
3.2.
D. Lesson 4. Barriers to Creativity
Unit 3. Creating an Enterprises
A. Lesson 1: Forms of Business Organizations
1.1. Sole Proprietorship and Partnership
1.2. Corporation and Cooperative
B. Lesson 2. Identifying Business Opportunities in the
Environment 2.1. Entrepreneurial Activities
2.2. The Sears story
2.3. Business Opportunities in Rural Communities
2.4. Steps in Market Research
C. Lesson 3. Global Opportunities
3.1. The Nature of International Entrepreneurship
3.2. International versus Domestic Entrepreneurship
3.3. Entrepreneurial Entry into International Business
3.4. Enterprise Development and Competitiveness

Unit 4. Develop a Business Plan

A. Lesson 1. Purposes and Importance of a Business Plan
1.1. Business Plan
1.2. Importance of a Business Plan to an Entrepreneur
B. Lesson 2. Components of a Business Plan
2.1. The Entrepreneur Doing the Road Map
2.2. Contents of a Business Plan
2.3. Marketing Plan
2.4. Marketing Strategies/Sales
2.5. Financial Management/Analysis
C. Lesson 3. How to create an effective business plan?

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 3.1. Research the business plan
3.2. Available research resources for business plan
3.3. SWOT Analysis
3.4. Risk Analysis
3.5. Mistakes in Business Planning

UNIT 5. Identify and Meet a Market Need

A. Lesson 1. Identify Your Target
Market 1.1. Market Segments
1.2. Customer Profile
B. Lesson 2. Research the Market
2.1. Customer Profile
2.2. Disadvantages of Primary Data
2.3. Six steps of Market Research
C. Lesson 3. Know Your Competition
3.1. Impact of Competition
3.2. Large Retailers
3.3. Other Strategies for Maintaining Loyalty

Unit 6. Develop the Marketing Plan

A. Lesson 1. Importance of a Marketing
Plan 1.1. The Marketing Strategy
1.2. Write your Marketing Plan
B. Lesson 2. Product: Identifying the Market Need
2.1. The Marketing concept and the Product
2.2. Consider Branding, Packaging, and Labelling
2.3. Determine a Price for a Product
C. Lesson 3. Distribution and Promotion Strategies
3.1. Distribution Strategies
3.2. Promotion Strategies

Unit 7. Global Aspects of Entrepreneurship

A. Lesson 1. Why Go Global?
1.1. Benefits of Accessing the Global Market
1.2. Cost of Accessing the Global Market
B. Lesson 2. Strategies for Going Global
2.1. Creating a Presence on the Web
2.2. Joint Ventures
2.3. Foreign Licensing
C. Lesson 3. Barriers to International Trade
3.1. Domestic Barriers and International Barriers
3.2. Impact of Trade Barriers
D. Lesson 4. International Trade Agreements
4.1. The World Trade Organization (WTO)
Unit 8. Risk Management
A. Lesson 1. Business Risks
1.1. Major Types of Risks
1.2. Risk Management
1.3. Reducing the Risk
B. Lesson 2. Insure against risks
2.1. Shifting Risks to an Insurance Company
2.2. Life Insurance
2.3. The single premium payment policy
2.4. Bonds
2.4. Non-Life Insurance

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 C. Lesson 3. Other risks
3.1. Direct and Indirect risks to your business
3.2. Managing risk in your business

UNIT 1: Introduction to the study of

Entrepreneurial Mind and
Entrepreneurial Competencies

Desired Learning Outcomes

At the end of this module, you are expected to:
1. Define entrepreneurial mind and entrepreneurship in the context of small and
medium scale industries
2. Understand the different entrepreneurial competencies
3. identify areas for improvement, development, and growth
4. align your Personal Entrepreneurial Competencies based on your future business or
career choice, and
5. create a plan of action that ensures success in your business or career choice.

PRE ACTIVITY: Entrepreneurial Mind and

Entrepreneurial Competencies

As part of your initial activity, try to assess your prior knowledge and
experience related to personal entrepreneurial competencies.

Part I. Matching Type

Directions: Match the entrepreneurial competencies in column A with their meaning in
column B. Write the letter of the correct answer on the space provided before each
number.

A B

1. Creative A. makes wise decisions

towards the set objectives

2. Profit-oriented B. strategic thinking and setting of goals

3. Disciplined C. trusting in one’s ability

4. Sound decision maker D. adoptable to change

5. Possess people skills E. innovates to have an edge over other

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 competitors
6. Excellent Planner F. solid dedication

7. Confident G. skillful in record keeping

8. Hardworking H. always sticks to the plan

9. Ability to accept change I. work diligently

10. Committed J. effective and efficient

communication

K. always looking for an opportunity

to have/earn income.

How well did you do?

How do you feel about the test? Did it make you feel confident or insecure? Your feelings
will be your guide to go slow or breeze through this module. Below is the answer key of
TASK 1.

Answers: Task 1

1.E 2.K 3.H 4.A 5.J 6.B 7.C 8.I 9.D 10.F

A perfect 10 makes you well-known entrepreneur someday. Please continue to study this
module as a review. If you go lower than 7, studying this module is a must.
7-9 Great Entrepreneur
6-5 Average Entrepreneur
0-5 Novice Entrepreneur

Now let us begin the exploration of this Module.

Lesson 1. The Entrepreneurial Mind and Its

Essential Characteristics
”Huwag tayong mahihiyang magbenta-benta
Tandaan natin na hindi tayo mapapakain ng ating hiya”

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 Introduction:

T his module discusses the introduction of the study of

Entrepreneurial Mind. Here, you will learn about the
difference between entrepreneurial mind and
entrepreneurship, as well as the essential characteristics of
entrepreneurial mind and its competences. You will be
doing some activities wherein you will be assessing your
personal entrepreneurial competencies. Likewise, this module will encourage you to
think about your personal entrepreneurial competencies. You will be learning at the
same time a light background of entrepreneurship and its role in the business
community and the economic and social development of an individual.

To begin with this module, let us first understand entrepreneurs and

entrepreneurship.

Entrepreneurs are those people or individuals with the skills and capabilities
to see and evaluate business opportunities. They are the ones who can strategically
identify products or services needed by the community, and have the capacity to
deliver them at the right time and at the right place.

Entrepreneurs are agents of economic change; they organize, manage, and

assume risks of a business. Some of the good qualities of entrepreneurs are:
opportunity-seeker, risk-taker, goal-setter, excellent planner, confident problem-solver,
hardworking, persistent and committed.

Entrepreneurship, on the other hand, is not just a simple business activity

but a strategic process of innovation and new product creation. Basically,
entrepreneurship is both an art and science of converting business ideas into
marketable products or services to improve the quality of living.

Now that you have background knowledge about entrepreneurs and

entrepreneurship, you can now proceed in assessing your Personal Entrepreneurial
Competencies (PECs). Always remember that successful entrepreneurs continuously
develop and improve their PECs.

To start with, let us find out the competencies you will have gained upon

completion of this module.

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 When we say Entrepreneurial Mind, it is a specific state
of mind which orientates human conduct towards
entrepreneurial activities and outcomes. When we say
mind – it is the ability to think and imagine.

So, Mindset is a way of thinking and opinions of a

person. Or an entity from belief that we have, the criteria
are - expectations, attitude, habits, decisions, and opinions
that we spend in looking at ourselves.

Why an Entrepreneurial Mindset is Essential for Business?

Here are some of the reasons:

If you’re starting out in the business world, you might feel a little overwhelmed with all of
the information out there. You’ve probably been doing plenty of research, and you might’ve
come across the idea of an entrepreneurial mindset, which is, above all, a mindset that will
help you to succeed in the world of business. The essentials of an entrepreneurial mindset are,
among other characteristics, the lack of fear when it comes to innovation and taking risks, and
the ability to take failures into stride. If you consider yourself an entrepreneur, it’s important to
know why entrepreneurial mindset is important for business.

1. Thinking like an entrepreneur will help you right from the beginning

You have a plan for your business, you’ve figured

out all the details, and you’re ready to start making
money, but it’s normal to feel worried or anxious about
your new venture. Here’s where you should begin to
channel your inner entrepreneur! Creating that
entrepreneurial mindset will help you to think about what
you’re doing and why. It will help you to know where you
would like your business to lead you, and
what risks you’re willing to take to succeed. If you know the answers to these questions, you’ll
be ready to tackle all the challenges your new business throws at you.

2. An entrepreneurial mindset will help you in other areas of your life

Being willing to take risks and accept failure is a unique skill that isn’t relevant solely in the
business world. Incorporating an entrepreneurial mind set into your everyday life will help you to
minimize the importance of failure and rejection in your life. It will also help you to keep moving
forward even when things are difficult. Additionally, being able to plan ahead and foresee
potential problems (a key part of an entrepreneurial mind set) will help you to live a more
organized, less stressful life. In turn, this will help you to better run your business.

3. Having an entrepreneurial mindset will encourage creativity

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 You’ve started your business, and things are going well, for the most part. There’s just that
one problem…

If you’re open to innovation and willing to take risks, you’ll

be more likely to think outside the box. If something isn’t
working well, there may be more than one fix, and you
shouldn’t always fall back on the simplest or safest method.
Critical thinking is the key to a successful business, and being
willing to find creative solutions even if it might mean more
work will help your business greatly in the long run.

4. People trust others who seem to know what they’re doing

The old saying “fake it ‘til you make it” is especially true in
business. If you do your best to think, feel, and act like an
entrepreneur, people will treat you like one. By channeling an
entrepreneurial mind set, you’ll be able to make new contacts with
ease.

5. Thinking like an entrepreneur will enable you to take healthy breaks

Don’t overextend yourself as rest and relaxation are important. Successful entrepreneurs
know that focusing entirely on business is a sure-fire way to burn out. Go on an international
trip. Relax and visit new destinations. You might be surprised by the ideas and inspiration you
can get by experiencing new cultures. If you’re thinking like an entrepreneur, you’ll know that
taking regular breaks will actually benefit your business in the long run and that you needn’t feel
guilty for indulging once in a while.

Incorporating the an entrepreneurial mindset into your everyday life will help you
to minimize the importance of failure and injection in your life

Essential Characteristics of the Entrepreneurial Mind

• Creativity
It is the use of the imagination or original ideas, especially in
the production of an artistic work.
The creative mind conceptualizes and designs a
product that consumers find some use for. It
likewise produces a product that is pleasing to see,
touch, smell, hear and taste. The seed of
entrepreneurship is the ability to see things
differently. Whether it’s with new products or new
processes, entrepreneurs are driven by uncanny
knack to see holes in the marketplace and devise
innovations to fill them.

• Suspicion of predictors

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 Entrepreneurs tend to labor under the assumption that data is the sole
predictors of an outcome. Especially in new markets and. with new products where
data is largely interpretive or extrapolated, entrepreneurs are undaunted
by the typical predictors that may put off fainter hearts

• Comfort with uncertainty.

Similarly, a distrust of prediction and analysis creates an atmosphere where .
uncertainty rules. Indeed, uncertainty is the very essence of entrepreneurship

• Openness to Experimentation
A comfort with experimentation goes beyond educated trial and error. The
ability to experiment with, products, processes and outcomes, no matter where
the results may lead, is the key element of this quantity.

• Functional Humility
Egos can destroy the very best ideas. Entrepreneurs who are committed to
solving a business problem or reinventing a product or service display a
functional humility.

“Entrepreneurs must see things from different perspectives, willing to try new things,
willing to tolerate a higher level ambiguity, do not fear failure, seek and embrace new
norms, and most importantly to realign our mental attitude.”

ACTIVITY PROPER 1: The Entrepreneurial

Mind and Its Essential Characteristics
Directions: The following are guide questions which cover the entire module.

Answer the questions and discuss / share these to your classmates.

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 A. Why entrepreneurial activities are important to social development and
economy progress. Explain.
B. If you were given the opportunity to own a business, do you think you will be
confident enough to manage it? Why?
C. What do you think are the most important competencies one must possess in
order to be successful in running a chosen business? Why?
D. Name one successful entrepreneur that you know in your locality. What do you
think are the entrepreneurial competencies he/she possessed? Make sure you
will be able to share with the class the PECs that made them successful.

How was your experience in answering the guide questions with your
classmates? Were you able to benefit from them? What were the insights you have
realized?

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 Lesson 2.Personal Entrepreneurial Competencies (PECs)
and Skills vis-à-s a Practicing Entrepreneur in a Place
“ Walang masama gumasta, kumain, at magpakasaya at mag post
ng
#BLESSED, pero dapat tayo ay bayad sa mga pinagkakautangan
natin”

The term “competence”

refers to the combination of
Knowledge, Skills, Motive,
Attitude and Habits. Every role
requires some particular

Entrepreneurial competencies is the important characteristics that should

be possessed by an individual in order to perform entrepreneurial functions effectively.
Competencies are the combination of knowledge, abilities, and attitudes needed to
accomplish a role efficiently

In this module, you will learn some of the most important characteristics
(distinguishing feature of a person), attributes (characteristic or quality of a thing),
lifestyle, skills and traits of a successful entrepreneur or an employee to be successful
in a chosen career.
Below are few important characteristics / traits / attributes of the good entrepreneur:

• Hardworking: One of the important characteristics of a good

entrepreneur is hardworking. This means working diligently and being
consistent about it. Hardworking people keep improving their performance
to produce good products and/or provide good services.

• Confident: Entrepreneurs have self-reliance in one’s ability and

judgment. They exhibit self-confidence to cope with the risks of operating
their own business.

• Disciplined: Successful entrepreneurs always stick to the plan and fight

the temptation to do what is unimportant.

• Committed: Good entrepreneurs assume full responsibility over their

business. They give full commitment and solid dedication to make the
business successful.

• Change occurs frequently: When you own a business, you should cope
with and thrive on changes. Capitalize on positive changes to make your
business grow.

• Ability to accept change: Nothing is permanent but change.

• Creative: An entrepreneur should be creative and innovative to stay in

the business and in order to have an edge over the other competitors.

• Initiative: An entrepreneur takes the initiative. You must put yourself in

a position where you are responsible for the failure or success of your
business.
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 • Profit-oriented: An entrepreneur enters the world of business to generate
profit or additional income. The business shall become your bread and butter.
Therefore, you must see to it that the business can generate income.

• Persistent: An entrepreneur takes repeated

actions to overcome obstacles that get in the
way of achieving goals and ensure efforts to
solve a problem or barrier.

• Information seeker: An entrepreneur takes

action to help reach objectives. He/she
personally undertaking a research or analysis to
find out answers of some problems.

• Problem Solver: An entrepreneur identifies and applies new and

potentially unique ideas to reach the goals.

• Assertive: An entrepreneur confronts problems and issues with others

directly, speaks politely but firmly and tells others clearly what they have
to do.

• Concern for others’ Welfare: An entrepreneur takes action to improve

the welfare of employees and their families or responds positively to
employees’ specific needs.

Listed below are the important skills of a successful entrepreneur:

Excellent planner: Planning involves

strategic thinking and goal setting to
achieve objectives by carefully
maximizing all the available resources. A
good entrepreneur develops and follows
the steps in the plans diligently to realize
goals. A good entrepreneur knows that
planning is an effective skill only when
combined with action.

Possesses people skills: This is a very important skill needed to be successful

in any kind of business. People skills refer to effective and efficient communication
and establishing good relationship to the people working in and out of your
business. In day-to-day business transactions, you need to deal with people. A
well-developed interpersonal skill can make a huge difference between success
and failure of the business.

Sound decision maker: Successful entrepreneurs have the ability to think

quickly and to make wise decisions towards a pre-determined set of objectives.
No one can deny that the ability to make wise decisions is an important skill that
an entrepreneur should possess. Sound decisions should be based on given facts
and information and lead towards the pre-determined objectives.

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 ACTIVITY PROPER 2: Personal Entrepreneurial
Competencies (PECs) and Skills vis-à-s a Practicing
Entrepreneur in a Place

To firm up what you have learned and have a better appreciation of the different

entrepreneurial competencies, read the PECs checklist below, then answer the same.

Task 1: PECs Checklist

Directions: Using the PECs checklist, assess yourself by putting a check ( )

mark in either strengths or weakness/development areas column. Interpret the
results by counting the total number of check marks in each of the columns.
After accomplishing the checklist, form a group (4 members) and share your
insights on the result of the personal assessment.

Table 1: PECs Checklist

Personal Assessment in terms of:

Personal Entrepreneurial
Competencies (PECs) of Strengths Weakness /
an Entrepreneur Development Areas

Hardworking
- Works diligently

Confident
- Self-reliance in one’s ability

Disciplined
- Always stick to the plan

Committed
- Solid dedication

Ability to accept changes

- Adaptable
Creative
- Innovative to have edge over
other competitors
Profit-oriented
- Always looking for an opportunity
to have/earn income
Excellent planner
- Strategic thinking and setting of
goals

Possess people skill

- Effective and efficient
communication skills and relates
well to people

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 Sound decision maker
- Makes wise decisions towards
the set objectives

TOTAL

Interpretation or Insight:

How was your experience in discovering the strengths and the areas you
need to develop? Did you gain a valuable experience in exchanging insights with
your classmates? To learn more and deepen your understanding of PECs, do
task 2 below.
Task 2 : Interview

Directions: In your place, interview a successful entrepreneur. Focus your

questions on PECs and other business-related attributes that helped them
become successful. Analyze the results of the interview and reflect on the
similarities and/or differences. Write your answer on a separate sheet of paper.

Sample Interview Guide

Name of Proprietor/Practitioner: _
Age: _________ Number of Years in Business: ___________
Business Name: _
Business Address: _

1. What preparations did you make before you engaged in this type of
business or job?

.
2. What special skills and characteristics do you have that are related
with your business or job?

3. How did you solve business-related problems during the early years of
your business operation?

4. Did you follow the tips from a successful businessman or practitioner

before you engaged in your business?

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 .

5. What best business practices can you share with aspiring entrepreneurs?

6. What do you think are the salient characteristics, attributes, lifestyle, skills and
traits that made you successful in your business or job?

Task 3. Directions: Copy the tables below in your notebook or in a separate

sheet of paper. Gather the needed information from the interview to supply
answer/s to row 1 in the table below, after which, fill out the second row with
your PECs.

Personal
Entrepreneurial Characteristics Attributes Lifestyles Skills Traits
Competencies

Successful
Entrepreneur
in your place

My PECs

Characteristics- a feature or quality belonging typically to a person, place, or thing and serving
to identify it. Ex. Trusting, sociable, fearless, risk taker
Attributes - a quality or feature regarded as a characteristic or inherent part of someone or
something. For example, someone might be labeled beautiful, charming, funny, or
intelligent.
Trait - is an ingrained characteristic or habit that is difficult to learn or unlearn, like Shyness or
confidence.
Skills- are things you've learnt through work, training or education, or general life experience.

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Lifestyle (entrepreneurship) - means you create a business around the kind of lifestyle you
want. It's not that you work in your business and then come home and live.
For example Professional blogging. Many bloggers now make their living
through blogging.
Using the information on the table above, analyze and reflect on the similarities and
differences in your answers. Put your reflection on the table you copied in your notebook or in a
separate sheet of paper. Write your conclusion on the space provided.

Personal
Entrepreneurial Similarities Differences
Competencies
Characteristics

Attributes Lifestyles

Skills

Traits

Conclusion:

__________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________.

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 References

https://www.slideshare.net/monirbaalld/entrepreneurial-competencies-
81061658

module-1-personal-entrepreneurial-competencies

https://www.youtube.com/watch?v=0DYFDK8r9s0

https://engineeringmanagementinstitute.org/entrepreneurial-mindset-
essential-business/

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 UNIT 2:
Inside the Entrepreneurial Mind:
From Ideas to Reality

In this unit, you will be able to:

● Differentiate what creativity, innovation, and entrepreneurship
● Describe why creativity is a necessity for survival
● Learn what is creative thinking
● Discuss the barriers to creativity
● Describe the steps in the creative process
● Discuss techniques for improving the creative process

Overview
This chapter describes the mind of an entrepreneur, how creative processes are used to
create a solution to the problem people face everyday.

How much do you know?

Directions: Answer T if the statement holds true, and F if it is false on the space provided a
before the number.
_____ 1. Breaking away from the norm can develop an effective entrepreneurial mindset.
_____ 2. The characteristic of entrepreneurial economy is creative.
_____ 3. Entrepreneurship is only for right-brained thinkers.
_____ 4. Entrepreneurial society is innovative.
_____ 5. Innovation doesn’t help solve problems people face everyday.

How well did you do?

Answers

1.) T 2.) F 3.) F 4.) T 5.) F

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 What to know?

Lesson 1. Creativity, Innovation, and Entrepreneurship

To create a value in the marketplace, creativity and innovation is applied to solve

problems people face everyday and to give opportunities in the industry. Let's learn
more about these terms as we go on with the lesson.

Creativity is the ability to generate something from nothing. It utilizes new ideas
to discover new ways of looking at problems and opportunities. Moreover, innovation is
the ability to apply creative solutions to problems or produce opportunities to enrich the
lives of people. Having a great idea is not enough, thus turning the idea into a tangible
product, service or business venture is the first step for an entrepreneur to succeed.

The result of applying creativity and innovation to the needs and opportunities in the
marketplace in a disciplined and systematic process is called Entrepreneurship. It involves
satisfying the needs of a customer or solving their problems by applying new ideas and new
insights to create a product or a service. In order to achieve successful entrepreneurship, a
consistent effort on applying creative ideas for a purpose in the marketplace should be
done.

Entrepreneurship requires business owners to be bold enough to try their new ideas,
flexible enough to throw aside those that do not work, and wise enough to learn about
what will work based on their observations of what did not. Let’s learn more about
creativity, the creative process, and methods of enhancing creativity.

Creativity—A Necessity for Survival

Creativity is not only an important source to build a competitive advantage, it is

also necessary to survive in a fiercely competitive global economy. In order to develop
creative solutions to modern problems, entrepreneurs should go beyond what has worked
in the past. Furthermore, they should be on guard against traditional assumptions and
perspectives about how things are supposed to be. In other words, they must change their
perspectives, looking at the world in new and different ways. Self-imposed mental
constraints and other paradigms people build over time will kill creativity. A paradigm is a
preconceived idea of what the world is, what it should be like, and how it should operate.
Being able to maintain a creative mindset, not being satisfied with the current solution to
the problem but seeks for improvement, will help an entrepreneur survive in the competing
market.

Can creativity be learned?

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 By overcoming paradigms and by suspending conventional thinking long enough to
consider new and different alternatives, one can be creative.

Creative Thinking

The human brain develops asymmetrically, and each hemisphere tends to specialize
in certain functions. The hemispheres are divided into left and right. Left-brained individuals
are usually guided by linear and vertical thinking. They usually handle language, logic, and
symbols much better. They also process information in a step-by-step fashion. Meanwhile,
right-brained individuals are often referred to as “ Creative Thinkers”.

The following are the qualities of a right-brained individuals:

● Always ask, “Is there a better way?”
● Challenge custom, routine, and tradition
● Reflective
● Play logical games
● Has an perspective that there may be more than one “right” answer
● Consider mistakes as pit stops on the way to success
● Has the ability to relate unrelated ideas to a problem

In entrepreneurship, both the left and right hemispheres of the brain are used. The right-
brained thinking draws in divergent reasoning, the ability to create a multitude of original
diverse ideas. While the left -brained thinking counts on convergent reasoning, the ability
to evaluate multiple ideas and to choose the best solution to a problem.

Lesson 2. How to enhance Individual creativity and its

Barriers Enhancing Individual Creativity

Just as entrepreneurs can cultivate an environment of creativity by using their own
techniques. These are some of the as follows:

 Allow yourself to be creative. As we have seen, one of the biggest obstacles to

creativity occurs when a person believes that he or she is not creative. Giving
yourself the permission to be creative is the first step toward establishing a pattern
of creative thinking. When it comes to creativity there no stupid ideas.
 Give your mind fresh input everyday. To be creative your mind needs
stimulation. Do something different each day.
 Observe the products and services of other companies, especially those in
completely different markets. Creative entrepreneurs often borrow ideas from
companies that are in businesses totally related to their own.
 Recognize the creative power of mistakes. Innovations sometimes are the
result of serendipity finding something, else, and sometimes they arise as a result
of mistakes. Creative people recognize hat even thei errors may lead to new ideas,
products and services.

23
  Notice what is missing. Sometimes entrepreneurs spot viable business
opportunities by noticing what is missing. The first step is to determine whether a
market for the missing product or service actually exists, which is one of the
objectives in building a business plan.
 Keep a journal handy to record your thoughts and ideas. Creative ideas are
too valuable to waste so always keep a journal nearby to record then as long as you
get their.
 Listen to other people. No rule of creativity says that an ideas has to be your
own. Sometimes the best business ideas come from someone else, but
entrepreneurs are the one to act on them.
 Listen to customers. Some of the best ideas for new products and services or
new application of existing products or services come from a new company’s
customers. Entrepreneurs who take time to listen to customers often receive ideas
they may never have come up with on their own.
 Talk to a child. As we grow older, we learn to conform to society’s expectations
about many things, including creative solutions to problems. Children place very few
limitations on their thinking; as a result, their creativity is practically boundless.
 Do something ordinary in an unusual way. Experts say that simply doing
something out of the ordinary can stimulate creativity and improve dramatically
the ability to develop new and innovative ideas.
 Do not through away seemingly bad ideas. Some creative ideas prove to be
impractical, too costly, or to silly to work. Creative entrepreneurs do not discard these
seemingly had ideas. Instead they ask, What part of this idea can I build on?
 Read books on stimulating creativity or take a class on creativity. Creative
thinking is technique that anyone can learn . Understanding and applying the
principles of creativity
 Take some time off . Relaxation is vital to the creative process.
 Be persistent. Persistence and “don’t quit” attitiude for entrepreneurs is a
secret for success.

Barriers to Creativity

Among the limitless barriers to creativity, in his book, A Whack on the Side of the
Head, Roger von Oech stated 10 “mental locks” that limit an individual’s creativity:

1. Searching for the one “right” answer

- ingrained in most educational systems is the assumption that there is
one “right” answer to a problem.

2. Focus on “being logical”

- Logic is a valuable part of the creative process, especially when evaluating
ideas and implementing them. However, in the early imaginative phases of
the process, logical thinking can restrict creativity. Focusing too much effort
on being logical also discourages the use of one of the mind’s most
powerful creations: intuition.

24
 3. Blindly following the rules
- Sometimes, creativity depends on our ability to break the existing rules so
that we can see new ways of doing things.

4. Constantly being practical

- Suspending practicality for a while frees the mind to consider creative
solutions that otherwise might never arise.

5. Viewing play as frivolous

- A playful attitude is fundamental to creative thinking.
6. Becoming overly specialized
- Creative thinkers tend to be “explorers,” searching for ideas outside their
areas of specialty.

7. Avoiding ambiguity
- Ambiguity can be a powerful creative stimulus; it encourages us to “think
something different.” Avoiding it will not let us that something should be
identified in a situation.

8. Fearing looking foolish

- New ideas rarely are born in a conforming environment.

9. Fearing mistakes and failure

- Creative people realize that trying something new often leads to
failure; however, they do not see failure as an end. It represents a
learning experience on the way to success.

10. Believing that “I’m not creative”

- A person who believes he or she is not creative will, in all likelihood,
behave that way and will make that belief come true.

Lesson 3. Creative Process and Techniques for Improving

The following steps are what a Creative Process will take:

Step 1: Preparation
- This step involves getting the mind ready for creative thinking. Preparation might
include a formal education, on-the job training, work experience , and taking
advantage of other learning opportunities

Step 2: Investigation
- This step requires developing a solid understanding of the problem or situation ,
decision on hand. To create new ideas and concepts in a particular field , an individual
first must study the problem and understand its basic components.

Step 3: Transformation

25
 - Transformation involves viewing the similarities and the differences in the
information collected. This phase requires two types of thinking: convergent
thinking, and divergent thinking.
● Convergent Thinking
○ The ability to see the similarities and the connections among various
and often diverse data and events.
● Divergent Thinking
○ The ability to see the differences among various data and events.

Step 4: Incubation
- The subconscious needs time to reflect on the information collected. To an observer,
this phase of the creative process would be quite boring; it looks as though nothing
is happening. Incubation occurs while the individual is away from the problem, often
engaging in some totally unrelated activity.

Step 5: Illumination
- This phase of the creative process occurs at some point during the incubation stage
when a spontaneous breakthrough causes “the light bulb to go on”. It takes place
after five minutes or five years. In the illumination stage, all the previous stages
come to produce the ‘’Eureka factor’’ - the creation of the innovative idea.

Step 6: Verification
- Validating the idea as accurate and useful, for entrepreneurs, may include
conducting experiments, running simulations, test marketing a product or service,
establishing small-scale pilot programs and other activities designed to verify that the
new idea will work and is practical to implement.
- At this phase, appropriate questions to ask include the following:
● Is it really a better solution to a particular problem or opportunity?
Sometimes an idea that appears to have a bright future in the lab or on
paper dims considerably when put to the test of reality.
● Will it work?
● Is there a need for it?
● If so, what is the best application of this idea in the marketplace?
● Does this product or service idea fit into our core competencies?
● How much will it cost to produce or to provide?
● Can we sell it at a reasonable price that will produce adequate sales,
profit, and return on investment for our business?

Step 7: Implementation
- The focus of this step is to transform the idea into reality. Plenty of people come up
with creative ideas for promising new products, but most never take them beyond the
idea stage. What sets entrepreneurs apart is that they act on their ideas.

26
Techniques for Improving the Creative Process

Now that you’ve learned the process for creative thinking, the following are
the techniques to improve the creative process:

● Brainstorming
- A creative process in which a small group of people interact with very
little structure with a goal is to create a large quantity of new and
imaginative ideas
- It should have an open, uninhibited atmosphere that allows the members
of the group to “free-wheel” ideas
- Refer to this video to give you tips on how to have a successful
brainstorming session: The trick to successful brainstorming - Insights for
Entrepreneurs

● Mind-mapping
- It is an extension of brainstorming
- A graphical technique that encourages thinking on both sides of the
brain, visually displays the various relationships among ideas, and
improves the ability to view a problem from many sides.
- To create a mindmap you can refer to these videos: Creating a Mind Map -
Skillshare and Mind Mapping Explained and Demonstrated in Five Minutes!

● Rapid prototyping
- Rapid prototyping transforms an idea into an actual model will point out flaws
in the original idea and will lead to improvements in its design.
- The three principles of rapid prototyping are the three R’s: rough, rapid,
and right. Models do not have to be perfect; in fact, in the early phases of
developing an idea, perfecting a model usually is a waste of time. The key is
to make the model good enough to determine what works and what does
not.
- To learn more about rapid prototyping, you can refer to this video: Rapid
Prototyping: Sketching | Google for Startups
27
 Apply your Knowledge

ACTIVITY PROPER: Creativity, Innovation, and Entrepreneurship

Directions: Read the given situation. Apply your creativity on how to handle the situation
by generating several solutions. Use the matrix below.

Your given guests are to arrive in five minutes and you have just discovered that you
forgot to chill the wine! Wanting to maintain your reputation as the perfect host/hostess,
you must tackle this problem with maximum creativity. What would you do? Answer as
many solutions as you can. After which, work with two or three students in a small group to
brainstorm the problem.

Problem Solutions
a.
b.

Assess your Knowledge

Essay: Answer the following questions to assess what you have learned in this chapter.

1. In your own understanding, how would creativity help an entrepreneur thrive in this
ever competitive economy?
2. There are different barriers to creativity, what can you do to avoid them?
3. There are three techniques to improve one’s creative process, among the
techniques, which do you prefer and explain why.

28
 Summing - up

Creativity is the ability to generate something from nothing. It utilizes new ideas
to discover new ways of looking at problems and opportunities. While, innovation is
the ability to apply creative solutions to problems or produce opportunities to enrich
the lives of people. Creativity is not only an important source to build a competitive
advantage, it is also necessary to survive in a fiercely competitive global economy. In
order to develop creative solutions to modern problems, entrepreneurs should go
beyond what has worked in the past.

In entrepreneurship, both the left and right hemispheres of the brain are used. The
right-brained thinking draws in divergent reasoning, the ability to create a multitude of
original diverse ideas. While the left-brained thinking counts on convergent reasoning,
the ability to evaluate multiple ideas and to choose the best solution to a problem.

Among the limitless barriers to creativity that limit an individual’s creativity are the
following: a) Searching for the one “right” answer b)Focus on “being logical” c) Blindly
following the rules d) Constantly being practical e) Viewing play as frivolous f)
Becoming overly specialized g) Avoiding ambiguity h) Fearing looking foolish i)Fearing
mistakes and failure, and j) Believing that “I’m not creative”

The following steps are what a Creative Process will take:

Step 1: Preparation
Step 2: Investigation
Step 3: Transformation
● Convergent Thinking
○ The ability to see the similarities and the connections among various
and often diverse data and events.
● Divergent Thinking
○ The ability to see the differences among various data and events.
Step 4: Incubation

Step 5: Illumination

Step 6: Verification

Step 7: Implementation

29
 After learning the process for creative thinking, the following are the techniques to
improve the creative process such as brainstorming, mind mapping and rapid
prototyping.

References:
Scarborough N. (2011). Essentials of Entrepreneurship and Small Business Management
Ikram, N. (2016). Inside the entrepreneurial Mind. Retrieved from
https://www.slideshare.net/noorikram/inside-the-entrepreneurial-mind

The Entrepreneurial Mindset. Retrieved from

https://quizizz.com/admin/quiz/5c95a1e88890a5001eb8e31a/the-entrepreneurial-
mindset

30
 UNIT 3.
CREATING AN ENTERPRISES

Desired Learning Outcomes

At the end of the Unit, the students must have:
1. discussed the four basic forms of business ownerships;
2. explained the advantages and disadvantages of each of the four patterns of
business ownerships;
3. identified business opportunities in the environment;
4. learned the different global opportunities; and
5. named common mistakes to avoid in business planning.

PRE ACTIVITY: CREATING AN ENTERPRISES

Name: __________________________________________ Score: ___________

Course/Section: ___________________________________ Date: ___________

Part I. Multiple Choice

Direction: Write the letter of the letter of your choice provided.
____1. Which of these is not an advantage of sole-proprietorship?
a. It is easy to organize c. The owner acquires all profit
b. It has unlimited liability d. Financial operations are not complicated

____2. This serves as the fuel that keeps the business operating. The availability of funds should

fit the type of business to organize?

a. Capital c. Production
b. Skill d. Product

___3. The success of any business also depends on the efficiency of its employees?
a. Manpower c. Leadership
b. Profit d. Technology

___4. This is where an independent entrepreneur, company, or individual enters into an agreement
or contract to offer, sell, or distribute a particular product?
a. Wholesaler c. Resellers
b. Distributorship d. Management

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___5. Which does not belong to the group?
a. Higher income tax rate c. It is complicated and not easy to organize
b. It has limited powers d. It has legal capacity

___6. An association of at least two person who agree to place their money, property or industry in
a common fund, with the aim of sharing among themselves?
a. Cooperative c. Corporation
b. Sole proprietorship d. Partnership

___7. A business organization in which the owners are called stockholder?

a. Partnership c. Corporation
b. Sole proprietorship d. Cooperative

___8. Why international entrepreneurship is important except?

a. Multinational corporations are accused of social injustice, unfair working conditions
b. Globalization is also leading to the incursion of communicable diseases.
c. Globalization has led to lower manufacturing costs, increased international shipping options
and easier growth opportunities
d. Multinational corporations, which were previously restricted to commercial activities, are

increasingly influencing political decisions

___9. What is the main purpose of business?

a. To create customers c. To create services
b. To create profit d. All of the choices

___10. Business creates ______ in the economy?

a. Investments c. Income
b. Employment d. All of the choices

How well did you do?

How do you feel about the test? Did it make you feel confident or insecure? Your
feelings will be your guide to go slow or breeze through this module.
Here is the answer key and category to your pre-test.

Answers:

1.C 2.A 3.A 4.B 5.D 6.D 7.C 8.C 9.C 10.D

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 A perfect 10 makes you well-known entrepreneur someday. Please continue to study this
module as a review. If you go lower than 7, studying this module is a must.
7-9 Great Entrepreneur
6-5 Average Entrepreneur
0-5 Novice Entrepreneur

Now let us begin the exploration of this Module.

Lesson 1. Forms of Business Organizations

”Huwug umutang para lang sabihin na naka angat na sa buhay
Dahil ang pagiging masinop sa pera ang totoong sikreto sa buhay”

B usiness organizations are important in the economy. Their main goal is to

attract customers, and to consequently earn profit. Businesses provide for their
needs, wants, and demand of the economy. The business sector is also the
largest contributor of revenue to an economy.

It is important that the business owner seriously considers the

different forms of business organization types such as sole
proprietorship, partnership, and corporation. Which organizational
form is most appropriate can be influenced by tax issues, legal
issues, financial concerns, and personal concerns. For the purpose
of this overview, basic information is presented to establish a

general impression of the business organization.

Business and government work together for progress and development. Businesses pay the
necessary taxes to the government, and in return the government provides the proper
infrastructure, such as electricity, water, roads and highways, communication, railways, and etc.
These factors are essential in improving the efficiency of operations in business sector.

FORMS OF BUSINESS ENTERPRISES

Single or Sole Proprietorship

Single or Sole Proprietorship is a form of business owned
by a single person, known as the proprietor. Because one
person can organize it, it is the easiest enterprise to set
up. Most of the country’s businesses belong to single
proprietorship. The bulk of self-employed people are
single proprietors, and these include informal or
unorganized sector.

33
Organizing a Sole Proprietorship
• Register the business name (Department of Trade & Industry)
• Pay the municipal licenses to the local government.
• Apply for VAT or non-VAT number
• Register with the BIR the books of accounts (simplified bookkeeping records or journals and
ledger) and the business forms to be used (sales invoices, cash sales invoices, official
receipts, etc.)
Advantages
1. Ease of formation and dissolution. Establishing a sole proprietorship can be as simple as
printing up business cards or hanging a sign announcing the business. Taking work as a
contract carpenter or freelance photographer, for example, can establish a sole
proprietorship. Likewise, a sole proprietorship is equally easy to dissolve.
2. Typically, there are low start-up costs and low operational overhead.
3. Ownership of all profits.
4. Sole Proprietorships are typically subject to fewer regulations.
5. No corporate income taxes. Any income realized by a sole proprietorship is declared on
the owner’s individual income tax return.
Disadvantages
1) Unlimited liability. Owners who organize their business as a sole proprietorship are personally
responsible for the obligations of the business, including actions of any employee representing
the business.
2) Limited life. In most cases, if a business owner dies, the business dies as well.
3) It may be difficult for an individual to raise capital . It’s common for funding to be in the
form of personal savings or personal loans.
4) Limited ability to expand. This is due to the business 'limited capital. In be most cases,
operations are limited only to areas in which the sole proprietor has expertise. Not all
proprietors are flexible, this is what is required in business expansion.

Example of Sole Proprietorship

o Side walk vendor Owner of Sari-sari store
o Offer Tutoring Services Shoe Cleaner

Partnership
Partnership is a business organization that is an association of at
least two or more persons who agree to place money, property or
of Industry in a common fund with the aim of sharing the profits
among themselves. In addition, a partnership agreement can be
oral or written, although Philippine law requires a written
agreement when real property is involved, or when a limited
partnership is being established.

34
Organizing a Partnership
• Register the business name (Department of Trade Industry).
• Have the partnership agreement (Articles of Co-partnership) notarized and registered
with the SEC.
• Obtain a tax identification number for the partnership from the BIR.
• Obtain pertinent municipal licenses from the local government.
• 。Obtain the VAT or non-VAT number from the BIR.
• Register books of accounts (simplified bookkeeping records or journals and ledger) and the
business forms to be used (sales invoices. Cash sales invoices, official receipts, etc.)With the
BIR.

Advantages of a partnership
The following are the advantages of partnership:
1. Easy to form. The requirements are technically the same with sole proprietorship. The only
additional in the requirement is the partnership agreement. Unlike a corporation. There are
lesser requirements to accomplish in forming and maintaining a partnership business.
2. Flexibility of operations. There are only few owners in a partnership business. That is why if
there are certain concerns that need to be addressed, there is no delay in decision making
because it can easily be solved by the partners. Agreements and resolutions as to business
matters are immediately decided by the partners.
3. Efficiency in operations. Simply put. “Two heads are better than one. There is better
management because of the presence of more participants in the operation of business. With the
presence of the partners, more ideas will are also applied in the operation of the business.
4. Partners are expected to have great interest in the operation of the partnership. Partners have
their own areas of interest and responsibility, which helps in the smooth operation of the business.
The unlimited liability of the partners also encourages their interest in participating in the venture.
5. Possibility of bigger resources. Financial institutions may extend bigger loans to partnerships

considering the combined resources of the partners. Thus, more capital can be used in production.

The following are the disadvantages of partnership:

1. Partners have unlimited liability for partnership debts . This is one of
the identical disadvantages of single proprietorship and partnership.
Partners face unlimited liability for partnership debts. Partners may not
only put their combined money and property at risk, but also their
individual assets as well.
2. It has a limited life or it lacks stability. Partnership is unstable. Being a contract between the
partners, it is dissolved based on their agreement, or upon the withdrawal, incapacity or death of a
partner, or for other causes which terminates a contract.
3. Limited ability to raise capital. The amount of capital depends on how much can be contributed
by the partners. Thus, there is also limitation to raise funds for the business.

35
4. Conflicts and quarrels between among partners. Conflicts or quarrels are the main reason
why partnership is unstable. Rules, regulations policies, number of hours in the area,
responsibility, decision making agreements and profit distribution are just some cause of
conflicts and quarrel between the partners.

ACTIVITY PROPER 1: SOLE PROPRIETORSHIP

& PARTNERSHIP
Your friend Bobby, is an expert computer engineer. He currently works for a large
computer manufacturer. He thinks that he could run his own successful business. He has no
experience of running business. He has very few savings to invest into business.
Bobby has a rich uncle who knows nothings about computers! He is
retired businessman. He is friendly but rather bossy as he always thinks
he knows best!
Bobby asks for your advice about whether he should set up his own
business and what form of organization he should choose. He asks for
your help on three questions that are worrying him.
A. What would be the advantages and disadvantages of running his own business rather than
working for the computer manufacturer?
B. Should he set up a sole entrepreneurship business?
C. His uncle would like to become his partner in the business if Bobby decides to go ahead.
What would be the advantages and disadvantages of forming a partnership with his uncle?
Kindly write your answers inside the box as provided.

36
Corporation
Section 2 of the Corporation Code defines a corporation as follows:

＂A corporation is an artificial being created by operation of law having the right of

succession and the powers, attributes and properties expressly authorized by aw or incident
to its existence"(private corporations are governed by the Corporation Code of the
Philippines, per Batas Pambansa Blg.68).

A corporation is a form of business organization in which the owners (known as:

stockholders) have an undivided ownership share in the assets of the corporation upon its
dissolution; and a share in its profits corresponding to the amount of shares of stock which
they own.
A corporation has specific objectives in carrying out the business, in accordance with a
charter or articles of incorporation. This charter is a written document containing the names of the
original incorporators, their initial share in stockownership, and the objectives and activities of the
corporation. Below are some examples.

Organizing a Corporation
• Verification of corporate name with SEC.
• Drafting and execution of the Articles of Incorporation
• Deposit of cash received for subscribed shares of stocks in a banking institution in the
name of the temporary treasurer.in trust for an
• Credit of the corporation.
• Filling of the Articles of Incorporation together with the following:
o Treasurer's affidavit
o Statement of assets and liabilities of the proposed corporation.
o Authority to verify bank deposits
o Certificate of deposit of cash paid for subscription
o Personal information sheet of the incorporators
o Commitment to change corporate name if it is found similar to another corporate
name
• Payment of filing and publication fees
• Issuance by SEC of the certificate of incorporation
• Registration of the corporate name with the DTI.
• Obtaining municipal licenses from the local government

37
 • Obtaining the VAT or Non-VAT account number from the BIR
• Registration with BIR of books of accounts and accountable forms.

Contents of Articles of Incorporation (Section 14 of the Corporation Code)

The following are the contents of Articles of Incorporation as provided under
Section 14 of the Corporation Code:
• Name of the corporation
• The specific purpose or purposes for which the corporation is being incorporated.
• The place where the principal office of the corporation is to be located.
• The term for which the corporation is to exist
• The names, nationalities and residences of the incorporators.

• The number of directors or trustees, which shall not be less than five（5) nor more than
fifteen (15).
• The names, nationalities and residences of the directors or trustees.
• If it is a stock corporation, the amount of its authorized capital stock in
• Lawful money of the Philippines, the number of shares into which it is divided. Together
with its values on par.
• If it is a non-stock corporation, the amount of its capital, the names,
• Nationalities and residences of the contributors and the amount contributed by each.
• Such other matters as are not inconsistent with law and which the incorporators may deem

necessary and convenient.

Advantages of corporation:
The following are the advantages of a corporation: 1 . It
has a legal capacity. The presence of articles of
incorporation granting the corporation a separate
juridical personality.
2 It has Continued and more or less permanent
existence. The life span of a corporation is 50 years,
and subject to renewal for another 500 years. The
death or withdrawal of some officers, stockholders or
members does not affect the life of the corporation.
3. Management is centralized. The corporation's management is centralized, and lodged with the
board of directors or trustees. The board is the decision-making body of the corporation. It is
also centralized because the corporation is always guided by the provisions contained in the
articles of incorporation.
4. It has the most efficient management. The creation, organization, management and
dissolution processes of a corporation are standardized, in spite of its huge resources and large-
Scale operation. All these are primarily governed by the Corporation Code of the Philippines, and
secondarily provided for under the articles of incorporation.

38
5. Shareholders have limited liability. In case the corporation becomes bankrupt, only capital
contribution of the shareholders/members are affected. The personal properties of the
stockholders of a corporation are excluded from financial claims of creditors of the corporation.
6. Shareholders' freedom. Shareholders are not general agents of the corporation and can
transfer their shareholdings without the consent of other shareholders.
7. Ability to raise more capital. Corporation has the ability to raise more capital, allowing it to
undertake more expansive financial ventures. It has the most effective means of raising money
capital for its operations-selling stocks and bonds. Stocks are certificates of ownership while
bonds are certificates of indebtedness.

Disadvantages of corporation
The following are the disadvantages of a corporation:
1. Complicated to maintain and not easy to organize . Aside from complying with capital
requirements, there are many paper works involved in securing a charter. It also takes a
longer time to have an approval from the SEC.
2. Governmental intervention. It is subject to a greater degree of governmental control and
supervision. The government is keen in all the operations of a corporation like tax dues, creation
of commodities and employment. It is also subject to annual and/or quarterly reportorial
requirements.
3. Subject to higher tax. It is subject to higher income tax rate. Corporate income tax is fixed at
309%, whereas for individuals, the rates range from 0% to 32%. With the progressive tax
system by the government, given the huge revenue of the corporation, they are required to pay
higher percentage of tax.
4. It has limited powers. A corporation is guided by the articles of incorporation. Thus, its
operations can only revolve within the activities expressly or impliedly allowed by its articles.
5. Abuses of corporation officials. Corporate directors and officials may abuse their
powers, especially because of the minimum supervision of stockholders.
6. Some corporation are engaged in questionable activities . Some corporations engaged in
questionable activities just only to pursue their own interest which is to earn profit, regardless of
hurting others in the process. For example, they sell worthless securities, sell substandard goods
or pollute the environment. In short, they do not comply with their social responsibility.
7. There is a very impersonal or formal relationship between the officers and employees of a
corporation. In sole proprietorship and partnership, everybody knows everybody; while in a
corporation, it is possible that stockholders, as well as officers and directors, are not familiar
with each other.

Classifications of Corporation

Based on nature of its capital

39
 Based on purpose

Based on relation to another corporation.

Based on situs of incorporation

Based on whether they want to open

in public or not

Voting in a Corporation
In a stock corporation, the manner of voting is called
cumulative voting-where a stockholder is entitled to
cast votes equal to the number of shares he owns
multiplied by the number of directors or trustees to be
elected.
In a non-stock corporation, every member may cast as
many votes as there are trustees to be elected but may
not cast more than one vote for one candidate, unless
cumulative voting is authorized under the articles of incorporation.

Categories of Shares of Stocks

1. Common stock
Common stock represents the basic issue of shares, and has all
the basic rights of a share of stock so that it is often referred
to as the basic ownership in a corporation.

2. Preferred stock
Preferred stock is a type of stock having certain preferences over common stock. These
preferences may be in the distribution of dividends and/or corporate assets, upon dissolution of the
corporation. If dividends have been declared by the company, the preferred stockholders are
prioritized to receive it first.

3. Class A shares
These are the available stocks offered to Filipino shareholders.

40
4. Class B shares
These are the available stocks offered to foreign investors.

5. Par Value shares.

This refers to shares of capital stock that have been assigned a definite or fixed value in

the articles of incorporation. So as to fix its minimum subscription or original issue price.

6. No par value shares

No par values are shares which have not been assigned a definite or fixed value.

7. Founders' shares
Founder's shares are those classified, as such in the articles of incorporation and may be given
certain rights and privileges not enjoy by other stockholders. It is usually given to
incorporators-the formators of the corporation

Dividends
It is also called as the distributed profits of the corporation. It
represents the corporation's profit, which are distributed to
stockholders according to the proportionate interest of their
shareholding.

Kinds of Dividends
1. Cash - This is paid in cash to the stockholders.
2. Property - This is in the form of non-cash assets of corporation.
3. Stock - This is the dividend in the form of stocks of the issuing corporation.
4. Scrip - The dividend in the form of promissory notes indicating the kind of benefits the
stockholders shall be entitled to receive in the future (cash, non-cash, stock or some
other form of dividend).
5. Bond - This is in the form of bonds of the company
6. Liquidating - This refers to return of capital by a corporation

Cooperatives
Under the Presidential Decrees No. 175, a cooperative is
defined as follows:
“Only organizations composed primarily of small producers and
consumers who voluntarily join together to form business
enterprises which they themselves own, control and patronize.”
The government in its effort to promote the organization of
more cooperatives throughout the country has extended several
powers and privileges (like tax exemptions) to cooperatives.

41
The Cooperative Code of the Philippines was created in 1990. By virtue of Republic Act No.

6938, which serves as the legal basis for the operation of all cooperatives in the country.

Principles of Cooperatives
Every cooperative shall conduct its affairs in accordance with Filipino culture and experience
and the universally accepted principles of cooperation. Which include the following
1. Open and voluntary membership. Membership in a cooperative shall be voluntary and available to
all individuals regardless of their social, political, racial or religious background or beliefs.
2. Democratic control. Cooperatives are democratic organizations. Their affairs shall be
administered by persons elected or appointed in a manner agreed upon by the members.
Members of primary cooperatives shall have equal voting rights on a one-member-one-vote.
3. Limited interest on capital. The share capital shall receive a strictly limited rate of interest.
4. Division of net surplus. Net surplus arising out of the operation of a cooperative belongs to
its members and shall be equitably distributed for cooperative development, common
services, indivisible reserve fund, and for limited interest on capital and/or patronage refund,
in the manner provided in the Code and in the articles of cooperation and by-laws.
5. Cooperative education. All cooperatives shall make provision for the education of their members,
officers and employees and of the general public based on the principles of cooperation.
6. Cooperation among cooperatives. All cooperatives, in order to best serve the interest of their
members and communities, shall actively cooperate with other cooperatives at local,
national, and international levels.

Objectives of a Cooperative
The primary objective of every cooperative is to provide goods
and services to its members, and thus enable them to attain
increased income and savings, investments, productivity, and
purchasing power and promote among them equitable
distribution of net surplus through maximum utilization of
economies of scale, cost- sharing and risk-sharing without,
however, conducting the affairs of the cooperative for

eleemosynary or charitable purposes. As provided under the Cooperative Code, a cooperative shall
provide maximum economic benefits to its members; teach members efficient ways of doing
things in a cooperative manner; propagate cooperative practices and new ideas in business and
management; and allow the lower income groups to increase their ownership in the wealth of this
nation.

Similarities between a cooperative and a corporation

Factors of production are privately owned and managed. They both depend on business

efficiency to survive in a competitive market. Also, their activities and operations are regulated and

supervised by the government. Lastly, they both enjoy a reasonable degree of economic freedom .

42
Differences between a cooperative and a corporation
A cooperative is primarily organized for service while a corporation's purpose is mainly for
profit. Membership in a cooperative is open and voluntary while in a corporation, membership is
restricted. Management of a cooperative is more democratic. It is one man one vote, with no
proxy voting. In the case of a corporation, it is one share, one vote and more shares, more votes.
Moreover, savings or net profits are refunded to the members of a cooperative on the basis of
their individual patronage, while in a corporation; profits are distributed to stockholders on the
basis of the number of shares.

Activity No. 2 Cooperative and Corporation

Direction: Using the Venn Diagram below describe the Corporation

and Cooperative and determine their commonalities.

Cooperative Commonalities Corporation

43
 Lesson 2. Identifying Business Opportunities
In the Environment
“Hindi lahat ng oportunidad ay nakikita
minsan kailangan mismo and dapat lumikha nito”

Introduction
here are many business opportunities for an individual with a creative mind. All business
an idea, and it is said that creativity, through innovativeness and the capacity of
T starts with

bringing something new in the market, spells the difference between a traditional
businessman and an entrepreneur.
A smart entrepreneur may decide to have a small or large business, but it is important to follow
the process of identifying and evaluating the various options in generating ideas that can be
transformed into a profitable business endeavour.

Entrepreneurial Activities
Business activities are concentrated in cities and other
urban communities. The primary reasons are that more buyers,
more incomes more facilities are located in the said heavily
populated areas. Apparently, there are more business
competitors in the cities. This means it would be very difficult for
a newcomer to penetrate the markets .But for real entrepreneurs
such difficult situation provides a challenge. Hence, they are
encouraged to explore marker opportunities.
It is natural for buyers to look for goods and services which offer better quality, lower price
and more conveniences. Precisely, these are the basic features of consumer satisfaction which
entrepreneurs can develop. In our country. There are several marketing innovations of goods and
services. Like the express teller of banks, 24-hour service of some grocery stores. And home
delivery service of food items.

The Sears story

In the United States, Sears, Roebuck Corporation.
Introduced mail-order selling. The farmers comprised its
first market. Julius Rosenwald studied the specific needs of
the farmers in 1895.At that time, the American farmers
were isolated from the channels of distribution of goods and
services. Since individual farmers had low purchasing
power, and were very far from trading centers, they were
neglected by businessmen. And Sears, Roebuck rose to the occasion.

44
 To Sears, Roebuck, the untapped buying potential of the farmers as a group was a rich
market. To reach the farmers, Sears, Roebuck used the mail-order selling. It produced the goods
that satisfied the needs of the farmers. These were delivered to them in large quantities at low
prices, and with a guarantee or regular supply. And Sears made a policy of. “Your money back and
no question asked “if farmers were not satisfied.
Gradually Sears, Roebuck became successful. From a retail store, it expanded to other

industries until it has acquired international reputation and customers all over the world.

Business Opportunities in Rural Communities

Our rural areas are abundant with ‘cheap raw materials and labor force. Yet these are
underdeveloped and have greatly contributed to poverty in the rural communities. Many rural
folks are unemployed or underemployed. This results to low level income among the people.
The productive resources in the rural sector are sleeping business potentials. Our raw farm
products can be a good source of agribusiness. Other raw materials. Can be transformed into
toys, hats, bags, ‘slippers, decors, etc.
Senate President Neptali Gonzales has learned
during his political campaigns throughout the country
that entrepreneurs in Davao are exporting cut flowers
to Singapore; artisans in Cebu have. elevated local
stone craft to world-class status; piña-cloth weavers
in Aklan have attracted the attention of international
fashion designers; the goldsmiths of Bulacan have created jewellery that are admired even in a
place as far as Dubai; and the automotive tinsmiths of Pampanga get job orders from California.
There are other small entrepreneurs who have succeeded in selling their products to foreign
markets. In a graduation speech before college students in Pampanga, Senate President
Gonzalez cited the importance of entrepreneurship.
＂

THE SEARCH FOR BUSINESS OPPORTUNITY

In selecting a business, option should not be based on luck and immature
thinking, but on a thorough evaluation and systematic process. Start by
developing long and short lists of potential business opportunities. Likewise, the
resources, skills, and technology available in the community are to be evaluated if
these are not fully or efficiently utilized. In discovering business opportunities, the
following factors on resources have to be evaluated:

1. Markets. This refers to the number of prospective buyer’s competitors, the price, and the quality
of goods and services that have to be analyzed. Business opportunities exist in areas where
consumer satisfaction is weak or incomplete.
2. Individual Interests. Business interest of individuals should match business opportunities. For

example, if one is a good cook, he could venture in the food business.

45
3. Capital. This serves as the fuel that keeps the business operating. The availability of
funds should fit the type of business to organize.
4. Skills. The entrepreneur should have the proper skills in the business he is going to undertake
5. Suppliers of inputs. It is important that there are steady suppliers of raw material and
other inputs to the business.
6. Manpower. The success of any business also depends on the efficiency of its employees.
7. Technology. Entrepreneurs should be aware of the
presence of technology to improve their products or services,
or introduce new innovations in the market.
Among the productive resources, people are the most
important because they are the ones who organize and
manage the other productive resources such as money,
materials, machine, and manpower.
Other opportunity-seeking processes that can guide a prospective entrepreneur as to
what kind of business to establish are as follows:
1. Look at other successful businesses/entrepreneurs. Looking up at other entrepreneurs as a
role model that could be an inspiration, by doing what they have done or do it even better.
2. Respond to a problem area. The solution to a problem might be transformed into a
business venture.
3. Home-Based Business Option. These must not be taken for granted, for there are some big
businesses that started as a small business at home.
4. Linkage of Resources. The entrepreneur can produce his own input instead of buying them.

The Steps in Market Research are:

Making a preliminary
Defining the problem Planning' the research
investigation

Gathering the data Analyzing the data Reaching a conclusion

Implementation and
evaluating decision

46
 Through Market Research, the entrepreneur can be
guided in identifying the profitable markets, saleable
products, the strengths and weaknesses of competitors,
available resources, business risks, trends in consumer
tastes and preferences, better marketing strategies,
proper business location, new market opportunities, and
realistic objectives.
Location of the business is a key factor in business
success. In selecting a location, the population, income, competitor, government policies, peace

and order, and others are being considered. This requires a market survey.

To be able to translate business opportunities into profits, the SWOT (Strength, Weakness,
Opportunity, and Threat) Analysis is applied. These are tools for evaluating the strengths,
weaknesses, opportunities, and threats associated with a particular product or service. In knowing
this, the entrepreneur must be able to have an idea or a precautionary measure even before the
start of the business. Excellent knowledge about the life cycle of the products provides the
entrepreneur business opportunities to continuously start in business. The following are the
description of the various stages of a product life cycle. According to Fajardo, products have their
own life cycle. It is composed four stages: Introduction, Growth, Maturity, and Decline. Some
products have long product life cycle, while others have short. Here are the descriptions of
various stages of product life cycle, particularly as sales volume and profit.
• Introduction. If consumer awareness and acceptance of product are low, launch through the
use of marketing activities, which make the profit low due to cost of development and
marketing activities.
• Growth. To meet the growing demand, product distribution is expanded. Sales rise rapidly as
product becomes popular.
• Maturity. Sales are still rising, but rate of increase has declined. At the latter part, a
sale reaches its peak, while profit begins to fall.
• Decline. There is a sharp fall in sales volume, while profit curve becomes almost flat or horizontal.
There is also decline in the number of competitors. The only survivors are those who specialize in
marketing the product. Once product is no longer profitable, it is eliminated from
the market.
Entrepreneurs should be aware of the duration of each stage of the product life cycle.
Fajardo had emphasized in his book, Entrepreneurship, that excellent knowledge about product
life cycle provides entrepreneurs business opportunities to continuously stay in business.
Venturing into a business project demands a timely and clear decision as to which area
or business concern to deal with. In the selection process, one has to
begin with choosing or focusing on a particular business
by category or sector.
1. The service-based business. Common examples of service- based

businesses are consultancy, barber shops, repair shops, beauty

47
parlors, care giving, designing works, rendering professional services, such as engineers,
dentistry, medical doctor, and others where there is no need to manufacture something.
2. Trading Or product-based business. This is a buy-and-sell transaction that can happen in your
storehouse, showroom, or any other structure less environment. Selling involves a lot or
customer contact and requires a great deal of persistence on the entrepreneurs 'part. An example
of this is putting up a grocery store, bakery products, or general construction materials.
3. Manufacturing business. This is a manufacturing or production- based business by creating a
product. Manufacturing can be as simple as creating hand-painted T-shirts or ceramic vases
and now, the most popular is candle making, which can be done in your home.
4. Licensed business opportunities. If you find some difficulties in launching a product or service, it
is a good idea to look for licensed business opportunities. Franchising is a business format
somehow very similar to licensed business operations.
5. Distributorship. This is where an independent entrepreneur,
company, or individual enters into an agreement or contract to offer,
sell, or distribute a particular product, but is not entitled to use the
manufacturer's trade name as part of its own trade name. In our
country, distributor represents foreign companies who can sell
products to dealers strategically located all over the country.
6. Rack Jobber. This involves an agent or buyer entering an
agreement with a parent company to market its goods to various stores by means of
strategically located store racks.
7. Wholesalers. These sell the product of manufacturers or producers to retailers and other
distributors who have direct dealings with the end users or customers.
8. Subcontracting. This is a familiar form of business format in the garments sector, as well as the
shoe industry. This involves signing up an arrangement with a major producer to complete a set
of product components on a pre-agreed price.

ACTIVITY PROPER 3: Identifying Business Opportunities in the

Environment

Assume that you are already a graduate of your degree and you will put a business. Come
up with a business name and make a SWOT analysis of your business. Fill out the
template below.

48
 S:_____________________________
______________________________
______________________________
______________________________
_______________
W:____________________________
______________________________
______________________________
______________________________
_______________
O:____________________________
______________________________
______________________________
______________________________
_______________
T:_____________________________
______________________________
______________________________
______________________________
______________________________
Name of Business:
____________

Lesson 3. Global Opportunities

“Hindi ka dapat malungkot pag ikaw ay tinawag na kuripot
Tandaan na pinapahalagahan mo lang ang pera mo
dahil hindi mo ito pinupulot”

E ntrepreneurship is a common word nowadays but with the

rise of globalization, global entrepreneurship has also
become a well-known word. Global entrepreneurship is the
term used for the entrepreneurs who operate on global level and
businesses worldwide. Global entrepreneurship plays a key role
in businesses today as many entrepreneurs look for multinational
corporations to assess their leadership skills. Global
entrepreneurship may have many challenges and opportunities
that are discussed in this paper along with the ways to face those challenges. It is essential for
the entrepreneurs to understand the global nature of the business and the environment they are
operating in, in order to be successful. Global entrepreneurship is advantageous as it can also be
taken by the corporate know-how and expertise which is available in other countries.
As different companies have different labor markets and different set of ideas are present,

there can be more variations and more innovative ideas for business products and marketing. By

49
entering the field of global entrepreneurship, an entrepreneur enters the foreign lands to operate
their businesses there. This gives them the opportunity to have a good know-how of all the local
trends and demands that are present in that country’s consumer market. Moreover, it also gives
the chance to the entrepreneurs to be able to learn the systems of the foreign markets and learn
the tactics and strategies to compete in these markets.

THE NATURE OF INTERNATIONAL ENTREPRENEURSHIP

As more countries become market oriented and developed, the distinction between
foreign and domestic markets is becoming less pronounced. International entrepreneurship is the
process of an entrepreneur conducting business activities across national boundaries. It is
exporting, licensing, or opening a sales office in another country. When an entrepreneur executes
his or her business in more than one country, international entrepreneurship occurs.

THE IMPORTANCE OF INTERNATIONAL BUSINESS TO THE FIRM

International business has become increasingly important to firms of all sizes. The
successful entrepreneur will be someone who understands how international business differs
from domestic business and is able to act accordingly.

INTERNATIONAL VERSUS
DOMESTIC ENTREPRENEURSHIP
Whether international or domestic, an
entrepreneur is concerned about the same basic
issues-sales, costs, and profits. What varies is the
relative importance of the factors being
considered. International entrepreneurial
decisions are more complex due to uncontrollable
factors such as the following.

Economics
A domestic business strategy is designed under a single economic system. Creating
a business strategy for multiple countries means dealing with different levels of economic
development and different distribution systems.

Balance of Payments
A country's balance of payments affects the valuation of its currency. This

economic variable will affect how companies do business in other countries.

50
Political-Legal Environment Multiple
Political and legal environments create different business problems. Each element of the
international business strategy can potentially be affected by multiple legal environments. Laws
governing business arrangements also vary greatly in the 150 different legal systems and sets
of national laws.

Cultural Environment
The impact of culture on entrepreneurs and
strategies is significant. Understanding the local culture
is necessary when developing worldwide plans.

Technological Environment
Technology varies significantly across countries. New
products in a country are created based on the conditions and
infrastructure of that country. The first step in identifying
markets is to analyze data in the following areas:
1. Market characteristics.
2. Marketing institutions.
3. Industry conditions
.4. Legal environment.
5. Resources.
6. Political environment.

ENTREPRENEURIAL ENTRY INTO INTERNATIONAL BUSINESS

The choice of entry method depends on the goals of the entrepreneur and the
company's strengths and weaknesses.
Exporting
As a general rule, an entrepreneur starts doing international business through exporting.
Indirect exporting
Involves a foreign purchaser in the local market or using an export
management firm. For certain commodities, foreign buyers seek out
sources of supply. Export management firms, another indirect method,
are located in many commercial centers.

Direct exporting
Through independent distributors or through one's own overseas sales office is another
entry method. An independent foreign distributor directly contacts foreign customers and takes
care of all technicalities. Entrepreneurs who do not wish to give up control over marketing can open
overseas sales offices and hire their own salespeople.

51
Enterprise development and competitiveness
Enterprise development in the context of competitiveness
not only entails the ability to produce products that can be
accepted globally but also the level of support given to enterprises
to help them produce, innovate, and gain market access.
While relatively mature and free, enterprise development in the
Philippines is beset with critical challenges. These challenges are
found within the context of pillars identified by the United
Nations Development Programme in its report Unleashing
Entrepreneurship: rule of law, physical and social infrastructure, domestic macro environment, and
global macro environment; a level playing field, access to financing, and access to skill
development and knowledge.
If the challenges remain unresolved, gaps in enterprise development have the potential to thwart

the country’s competitiveness and ability to effectively function within global product.

ACTIVITY PROPER 4: Identifying Business

Opportunities in the Environment

Cite three (3) reasons why most of the entrepreneurs became succesful when they put up
businesses abroad? Explain comprehensively.

52
 Post-Activity No. 1: Four Business Organization

Name: _____________________________________ Score: ____________

Course/Section: ______________________________ Date: ___________

Part II. Name at least three businesses falling under each of the four business organization types,

and provide a brief background and explanation as to why you choose it. Sole-proprietorship

1.
2.
3.
Explanation:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________.

Partnership
1.
2.
3.

Explanation:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________.
Corporation
1.
2.
3.
Explanation:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

53
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.
Cooperative
1.
2.
3.
Explanation:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.

Note: Five (5) point rubric will be used in rating your answers
Level Description Value
Outstanding Well written and very organized. Excellent grammar mechanics. Clear 5
and concise statements. Excellent effort and presentation with detail.
Demonstrates a thorough understanding of the topic.

Good Writes fairly clear. Good grammar mechanics. Good presentation and 4
organization. Sufficient effort and detail.
Fair Minimal effort. Minimal grammar mechanics. Fair presentation. Few 3
supporting details.
Poor Somewhat unclear. Shows little effort. Poor grammar mechanics. 2
Confusing and choppy, incomplete sentences. No organization of
thoughts
Very Poor Lacking effort. Very poor grammar mechanics. Very unclear. Does not 1
address topic. Limited attempt.

Post-Activity No. 2: Identifying Business Opportunities

in the Environment and Global Opportunities
Modified True or False: Write True if the statement is true and if other change the underline
words to make it correct.
____1. Serves as the fuel that keeps the business operating is called skills.
____2. Common examples of service based businesses are consultancy, barber shop, repair shops,
beauty parlor, care giving, and designing works.
____3. Political and legal environments create different business problems.
____4. Global entrepreneurship is the process of an entrepreneur conducting business activities
across national boundaries. It is exporting, licensing, or opening a sales office in

another country

54
____ 5.The productive resources in the rural sector are sleeping business potentials.
_____6. In selecting a business, option should not be based on luck and immature thinking.
____7. Business market of individuals should match business opportunities. For example, if one is
a
good cook, he could venture in the food business.
____8. These are tools for evaluating the strengths, weaknesses, opportunities, and technology
associated with a particular product or service.
____9. Trading Or product-based business is a buy-and-sell transaction that can happen in your
storehouse, showroom, or any other structure less environment
____10. National entrepreneurship is the term used for the entrepreneurs who operate on global
level and businesses worldwide.

References

Marcelino, V.,et al.(2011) .Principles of economics with taxation and agrarian

reform. Cacho Hermanos. Inc.
Medina, Robert G. (2010), Entrepreneurship in the small
business Management. Rex Book Store Inc.

Winefreda B.Asor, (2009) .Entrepreneurship in the Philippine setting.Rex

Book Store Inc.

Internet Sources:
http://www.strategicthinking.eu/10-common-business-plan-mistakes-and-how-to-avoid-them/
https://articles.bplans.com/common-business-plan-mistakes/

https://businessfirstfamily.com/globalization-benefits-small-business/#:~:text=Globalization%20has
%20led%20to%20lower,funds%20they%20require%20to %20succeed.

https://www.google.com/search?q=competition+icon&tbm=isch&ved=2ahUKEwjz_4GY9pXrAhWSG
6YKHeVaBzQQ2-

https://www.ipl.org/essay/Challenges-Of-Global-Entrepreneurship-PKQ7G74SJFR

https://www.coursehero.com/file/64846221/130187674-International-Entrepreneurshippdf/

https://www.cipe.org/resources/entrepreneurship-philippines-opportunities-challenges-inclusive-
growth/

55
 UNIT 4. Develop a Business Plan

Desired Learning Outcomes

At the end of the Unit, the students must have:
1. explained the purpose of writing a good business plan;
2. described the importance of a business plan
3. explained the components of a business plan

PRE ACTIVITY: Develop a Business Plan

As part of your initial activity, try to evaluate your prior knowledge about the business plan. Answer
Task 1.

Task 1. Matching Type

Directions: Match the components of the business plan in Column A with their meaning in Column
B. Write the letter of the correct answer on the space provided before each number .

A B

___1 Executive summary A. covers the market research and competitor analysis

___2 Target market B. written document that provides details of a proposed

venture

___3 Organizational C. Clear, concise description of the business & overview of

structure market potential.

___4 Market analysis D. detailed description of products or services you plan to

sell

____5 Appendix E. Where you can find the mission, vision and goals are
stated

____6 Financial F. Identify the key functions in your start up and assign
responsibilities accordingly.

____7 Marketing and Sales G. company’s process of identifying and creating a

customer base

____8 Products/services H. Provides specific information that certain individuals

(such as creditors) may want review.

____9 Business plan I. Sometimes called a “pro-forma projection”

___10 Company description J. customer personas and market size

56
 How well did you do?

How do you feel about the test? Did it make you feel confident or insecure? Your
feelings will be your guide to go slow or breeze through this module. Below is the answer
key to your pre-test.

Answers: Task 1

1.C 2.J 3.F 4.A 5.H 6.I 7.G 8.D 9.B 10.E

A perfect score 10 makes you a good business planner. Kindly, continue to study this module as a
review. If you go lower than 10, studying this module is very important .

Now let us begin the exploration of this Module.

Lesson 1. Purposes and Importance of a Business Plan

Introduction:

In this module, you will be learning the importance of a business plan, its essential
components and on how to create an effective one. It will help and guide you in coming-up a
simple business plan as an output of this module. Likewise, this module will encourage you to think
about if what business will you produce, who will buy and run your products or services, how your
business will succeed in earning a profit and so on. In short, it will inspire you to be an effective
business planner.

There three (3) major questions to know and answer in this module, to wit;
1. Why business plan is important in entrepreneurship?
2. What goes into a business plan? and;
3. How to create an effective business plan?

To begin with this module, let’s first understand what business plan is all about.
Why should you make a Business Plan in venturing a business? Well, of course you don't need a
Business Plan if you wish to employ in other business firm just to earn a living. But, if you want to earn
income from your own products or services, you will hardly be able to avoid a Business Plan.

The following explanations and information will help you if you are thinking about or have

57
already decided to start a business seriously. You will learn how to position yourself professionally
in order to be an entrepreneur. You will recognize many things once you have planned the things
that you are going to do entrepreneurship.

A business plan is a written document that

describes in detail how a business—usually a new one—is
going to achieve its goals. It lays out a written plan from a
marketing, financial and operational viewpoint. This term,
which started from the USA, is used as synonym for
"company concept" or "business concept". A Business Plan
describes your business idea with the aim of implementing
this idea in your proposed project.

The Business Plan comprises two:

• Written formulation of your business idea with regard to your proposed business products,
services, customers, and marketing. This is a text section of your business plan
• Planning for financing, planned revenue and expenditure, (financial part).

To be a successful entrepreneur, you need to have a business plan. A business plan is

a document that contains your company’s background, product description, marketing plan,
competitor analysis, SWOT analysis, operational plan and financial plan. It is a
very important strategic tool for entrepreneurs. The business plan serves three important
purposes.
1. The business plan explains the idea behind your
business and spells out how your product or service will
be produced and sold.
2. It sets specific objectives and describes how your business
expects to achieve them
3. It describes the backgrounds and experience of the
leadership team of the business.
Having a business plan will help you to focus on how to operate your new business, and give it
the best chance for success. Therefore, business plan writing is quintessence of any curriculum on
entrepreneurship training.
Below are few importance of a Business Plan to an Entrepreneur:

• Writing a business plan allows you to have a clear indication of what you’re doing, and
where you are going; you get more clarity about an idea, as well as the execution plan.
• A business plan helps you to understand the industry you are venturing into, in an in-
depth manner, before your start-up.
• It will enable you to brain-storm on things you may not have, and think critically about
and the industry (business) you are going into. A lot of ideas sound great on paper
and even in discussion, until when you start adding the numbers.
• A business plan makes you to think through the numbers, making sure of the
possibility to hit your revenue and profit goals.
• Writing a business plan is an ideal way to ensure that everyone in your team is
aligned with the current and future plans for the business.
• A business plan ensures that you think and create a long-term vision and strategy
for your idea.
• It helps you stay organized, remain on track and remain committed to your business’
long-term goals. It provides benchmarks that you can use to track your performance
and make mid-course corrections, in the course of business.

58
 • A business plan can be used as a résumé; you can design one to introduce your
business to investors, suppliers, vendors, lenders and others.
• It is a necessity to raise funds for a start-up business, because a business plan is the
document that gives the details on the commercial potential of your idea or
business, based on which financing decisions are made.
• A business plan is the written guide to your business’ success. You can have others
prepare it for you, but it is advisable to be the one developing the plan; using others for
assistance, because the plan reflects your image and views of the business. The process
of developing the plan is perhaps, much more valuable as a learning experience than
the plan itself. The entrepreneur doing the “road map”.
• A good business plan not only helps entrepreneurs to focus on the specific steps
necessary for their to make business ideas succeed, but it also helps them to achieve
both their short-term and long-term objectives.

According to Benjamin Franklin, “Don’t start a business without a business plan because,

If you fail to plan, you are planning to fail!”

Activity 1 Video Presentation

Directions: Answer the following guide questions on a separate sheet of paper after
watching the video. Form your group (3 members/group). Share your answers and discuss
online with your classmates.

Click the video. “How the Starbucks Really Became a Coffee Giant ”

Questions:

1. Why do you think Starbucks was a successful company?

2. Do you think success comes quickly for most entrepreneur?
3. What do you think Starbucks first business plan included as his vision for the company ?

How was your experience in answering the guide questions with your
classmates? Were you able to benefit from them? What were the insights
you have realized?

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Task 2. Guide Questions

Direction: The following are guide questions which cover the entire module. Write your answers
on your assignment notebook.

1. What are the importance and purposes of writing a business plan?

2. Describe each component of a business plan .

After answering the guide questions, share, compare and discuss these with
your classmates through messenger or any used platforms.

Lesson 2. Components of a Business Plan

In this topic, we will tackle about step by step components of a business plan. Before, we formally
discuss the topic, let me show a short video to motivate you in studying this lesson. Watch this:
https://www.youtube.com/watch?v=Fqch5OrUPvA

The created business plan ends up becoming the entrepreneurs "road map." Doing this
will help the entrepreneurs identify opportunities and potential pitfalls, assess the overall market
potential, determine financial requirements, develop opportunity strategies, and guide in the
management of the venture. The business plan maybe simple or complex depending upon the
product or service. The entrepreneur doing the “road map” gets to:
• See the product and service in detail
• Do self-assessment
• See obstacles
• Assess cash and other resource requirements
As you look at the diagram below, it shows the detailed components and process in making
a business plan. This is usually used for funding purposes.

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 The completed and printed Business Plan should comprise a maximum of 30 to 35 pages in
total, so that it can be read by possible donors, such as banks or promotion agencies, in a short
time. This is to be written for three to five years into the future. You should plan in the first year on
a monthly basis, in the following years you can also plan annually.

However, it is impossible to be prescriptive in the content of a business plan since every

business plan will be different and will be designed for different requirements like the number of
pages, budgetary requirements and contents in the diagram above. Yet, there are a number of
standard sections that are normally included in a business plan.

Basically, the contents of a Business Plan are:

Introductory Elements
• Cover sheet
The cover sheet should include the name of the business, the names of the
directors, addresses, and number of the business and directors.

• Table of Contents
It is a list of the chapters or sections given at the front of a business plan.
This section should not be more than one page. The purpose of the table of
contents is to help the reader to locate the section of interest easily.

• Executive Summary
This section highlights briefly and convincingly the different parts in the
business plan. It sums up the following areas such as:
 purpose and objectives of a plan,
 market opportunity,
 management,
 financial projection and funding requirements.
This section should not be completed until the business plan is written.
Main Body
• Introduction (Description of the venture/project )
It provides complete picture or description of the products and services and
their unique features. In your description, you consider the following aspects:
a. Description of the people involved in starting your business
b. Products and Services - what your product or service is and what it does:
 Background to its development
 Benefits and features
 Unique selling points
 Advantages to customers and others
 Disadvantages or weak points
 Future developments

c. Objectives of the Venture/Project - state the specific milestones to be

achieved over the next five years
d. Long Term Aim of the business – state the long-term of the project

• Operating Plan
This part gives the detail of how products are to be manufactured. The
merchandising plan for trading business shows in detail how the products are to
be acquired.

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 • Marketing Plan
It describes market conditions and strategy related to how products and services
will be priced, distributed and promoted. Further, this section covers your market
research and competitor analysis. You must show that you have done the market
research to justify the projections made in your Business plan.
a. Target Market
The market to which you are planning to sell
your products or services. Analyse the
segments of your market as follows: (Market
Segment defines who your potential buyers.
For example, women with children under 18,
college students, etc. Gather demographic,
behavior, and psychographic information on
your market segment)
 Size of each market segment
 Is this segment growing or declining
 Characteristics of potential customers in each segment
 Special needs of potential customers

b. Total market valuation

It shows the total potential value of the market for this type of product or service in all
your target market areas.

c. Target revenue
These figures are the basis for the income figures in your financial projections and must
be based on realistic assessments. Include average deal size, length of income cycle,
recurring revenues
d. Market Trends
You analyse what is happening in the market like:
 Recent changes (e.g. what does the Philippine General Data Protection Regulation
mean for your business)
 Future prediction (e.g. how relevant will Intellectual Property Rights issues be for your
business)
 Drivers such as demographic changes, economic and legislative factors (e.g. how will
you consider the needs of disabled and elderly persons?)
 Your plans to meet demand and changes in the

market e. Profile of Competitors

It is the analysis of your competitors in the market. These are some of the things to
be considered:
 What are the competing products and services?
 Profile of key players (company size, turnover, profitability,
Etc.) and their market share)
 Advantages and disadvantages of the competitors’ offerings
f. Competitive advantage

This is your assessment of why potential customers

will choose to buy your cultural products or services
in place of those profiled above. Advantages may
include:
 Unique features
 Price
 New technologies or systems

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  Better value for customers
 Include any independent validation of case studies.
g. Benefits to clients
This is what your cultural product or services provides to potential customers in terms of their
expectations and needs. What will buying your product or services actually do for
your customers?

This aspect maybe very important to certain clients, e.g. elderly persons, disabled persons,
etc. In here, you explain what you will do specifically for them and demonstrate
with supportive data if any.

• Marketing Strategies/Sales
This section sets out your strategies for reaching out market, raising their interest in
your product or service, and actually delivering the product or services to them in
sales. These are the things to be considered:

a. Marketing Strategy
How will you position your product or service in the market and
differentiate it from its competitors:
 Which segment of the market will be targeted?
 How will this be developed to reach the full target market
 How will you differentiate your products or service?
 What key benefits will be highlighted?
 Which potential customers have your already targeted?
 What contacts can be used to generate market awareness and sales?
 Who will do the marketing staff, agency, representative?

b. Sales Strategy

 Directly
 Retail
 Agent/Sales agent
 Website
 Revenue sharing partners
Also, in doing so you state the advantage/s or
disadvantage/s of the methods you have
chosen to sell your products or service.

c. Pricing
How you will set the price charged from your products or service.
Considerations include:
 Competitors’ prices
 Level of completion in the market
 Perception of quality/price relationship by customers
 Production costs and overheads
 Chain of distribution and the added value at each stage
 The extent to which the buyer can control the price

State how each product or service will be priced referring to the income
sources stated above.

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 d. Marketing and Communication Strategy
How you will promote your product or service in the market
 Advertising – where, when, how, to whom
 Public relations
 Direct Marketing
 Website and internet marketing
 Exhibitions and conferences
 Special groups (e.g. disabled persons)
 Word of mouth

• Organization and Management Plan

This section describes the form of ownership and lines of authority and
responsibilities of the people in the organization. This is where you will outline
the intended structure of your project in terms of management, number of
employees, their skills and qualification, and the physical operational
requirements to produce or supply your products or service.
Things to be considered are:
a. Management Organizational Chart
You include a diagram of the way in which the management of new venture will be
organized. This should show the areas of responsibility of each manager and
employees.
b. Staffing
State what employees will be taken on over the next three years, with which skills,
in which areas of the business. Describe your own qualification(s), skills and
experiences as well.

c. Training Plans
Outline the planned employee and management development to be undertaken in
order to maintain a skilled workforce. This should also tie with future market
developments and any new product or service developments.

d. Operations
State the physical requirements of the business:

 Premises
 Equipment
 Production Facilities
 Infrastructure
 Communication facilities
 Costs Involved
 Suppliers

• Financial Management/Analysis
This section reviews the key assumption used in the financial projections. It is a
guide to explain how key figures in the financial projections were arrived
Likewise, it explains how the company is expected to perform financially over
the next several years. (Sometimes called a “pro -forma projection.”) Because
investors and lenders look closely at this projection as a measure of your
company’s growth potential, professional input is strongly recommended.

Included here should be items such as:

 Income sources
 Number of employees projected for each year and their intended salaries
 Projected investment in equipment and salaries

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  Depreciation allowed for
 Expected rent and rates charges
 Creditors days expected and debtor days allowed
 Expenses calculations
This section should be brief and to the point. Further details regarding
these items can be placed in the Appendices
a. Profit and Loss Account
Attach here projected profit and loss accounts for the first three years of the
operation of your proposed project.
b. Balance sheet
Attach here projected balance sheets for the first
three years of your proposed project.
c. Cash flow
Attach here a monthly cash flow prediction for the
first two years of your project’s operations

Appendix of Supporting Documents

• Appendices or Annexes
The appendix to the business plan includes supporting documents that provide
additional information and back-up statements made in the body of the report.
The back-up materials that support the text of the business plan include:
 Resumes of key personnel and partners
 Letter of reference
 Details of market studies
 Copies of licenses, permits, leases, contracts, etc.

Activity 2
Directions: Based on the video “How Starbucks really Became a Coffee Giant” that you
have seen, answer the following guide questions on a separate sheet of paper. Share and
discuss your answers with your group mates.

1. Write a description of the product or service and its unique features of Starbucks.
2. Identify its mission, vision, and objective/s.
3. Describe the market conditions and strategy/ies related to how products and services are
priced, distributed and promoted.

Lesson 3. How to create an effective business plan?

Research the business plan
Your business plan needs to convince readers that you have come up with practical
business idea. To do this you must include information and data from objective sources to
show that your idea is founded on solid evidence. The information that you will need to write
your business plan involves researching all aspects of your business. For example, from
leasing space or equipment to determining what you will charge what you will charge from
your products or services to dealing with competitors.

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 Available research resources for business plan
• Community, government and professional resources
When writing a business plan, you will likely need to seek out advice from
others. People from many organizations can help in crafting a business plan. Like
for instance, DTI, NEDA, professional consultants and any successful business
groups/individuals.
• Print Resources
Information for your business plans can come from any print resources like
books, magazines, government documents and many more.

• Online resources
Much of the information can be taken from various websites. These can help you
crafting your business plan with less time consumed since there are several
websites about entrepreneurship can be browsed.

 SWOT Analysis
The SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is one of the
strategic planning tools that is utilized by businesses and other organizations to ensure
that there is a clear objective defined for the project or venture, and that all factors
related to the effort, both positive and negative, are identified and addressed. In order
to accomplish this task, the process of SWOT involves four areas for consideration:
strengths, weaknesses, opportunities, and threats. It should be noted that when
identifying and classifying relevant factors, the focus is not just on internal matters, but
also external components that could impact on the success of the project.
In doing this, analyze the strengths and weaknesses of your proposed project and
products or services, the opportunities that exist in the market, and the threats to the
viability of the project.

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 When we talk about:

 Strengths – these are attributes of your project which are helpful to achieving the
objective
 Weaknesses - attributes of your project which are harmful to achieving the objective
 Opportunities - external conditions which are helpful to achieving the objective
 Threats – These are external conditions which could damage to your project’s
performance.
Risk Analysis
A systematic process is
necessary to ensure that all
relevant sources of risk are
identified. Sources of risk have
changed, so an important part
of the monitoring and review
process is to identify new
hazards which might change
have emerged for your project.
You should also indicate the
potential to be affected by a risk
(risk susceptibility) and how quickly your system can recover from failure (resilience).
The risk analysis should also contain a risk mitigation plan. Donors (or funding
institutions) always ask for risk mitigation, because they do not fund or invest in a
project that has no exit strategy. Your risk mitigation plan should identify the objectives
to be achieved, actions to be undertaken to achieve these objectives, timelines for these
actions to be undertaken, person(s) responsible for each of these actions, and means to
assess the success of this plan.

Mistakes in Business Planning

To create an effective business plan, avoid the following common mistakes:
1. Unrealistic financial projections
Many investors will go straight to the financial section of the business plan, so it is very
important for the projections to be realistic. Projections should be based on solid
evidence for the potential growth of the company.
2. An Undefined Target Market.
You must clearly define your market and give an accurate picture of your
potential customers. You explain why these customers will buy your product
3. Poor research
Many potential business owners do not spend the time necessary to do good
research. Use up to date research information and verify the facts and figures in your
business plan
4. Ignored Competition
Do not overlook the completion and do not focus only on what the competition has
done wrong. Outline how you will differentiate yourself from the competition.
5. Inconsistences in the business plan
6. You should review your final business plan to be sure it is well written and formatted
in an attractive style. Be sure that information provided is consistent from section to
section.

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 ACTIVITY PROPER 3: How to create an effective
business plan?
Directions: Read a story below and answer the guide questions. Discuss your answers with your
group mates and present to the class.
Michelle loved working with children. All of the parents in the neighbourhood wanted
her to babysit for them. She was always thinking up fun games to play and creative
activities for the children to do. She wondered if she could do even more with these
activities to earn money for college. She talked with her mother and some of the parents
and came with an idea. She would run an ice cream parlor where she could host parties and
let the children make their own ice cream sundaes, play games, and watch movies. Once
Michelle came up with a business idea, she knew it was time to make a detailed plan.
However, she didn’t know how to get started on a plan.

Questions.
1. What kind of information do you think Michelle needs to gather?
2. Where might Michelle find this information and whom might she talk with to learn more
about starting a business?

Assess your Knowledge

Direction: Answer the following questions

1. Why business plan is important in putting up a business?

2. Discuss the essential parts of a business plan
3. How can you say that your business plan is an effective one?

References

Medina, Roberto G., 2014. Entrepreneurship and Small Business

Management Greene, C., 2013. Entrepreneurship
Scarborough, N., 2011. Essential of Entrepreneurship and Small Business Management, Sixth
Edition
Banastao, C. and Frias, S, 2008. Entrepreneurship
Internet Sources:
https://articles.bplans.com/how-to-write-a-business-plan/
https://www.entrepreneur.com/article/247574
https://www.google.com/search?q=business+plan+meaning&oq=business+plan+meaning
&aqs=chrome..69i57j0l7.5965j1j7&sourceid=chrome&ie=UTF-8
https://entre3jean.weebly.com/business-plan
https://www.thebalancesmb.com/why-write-a-business-plan-2948013
https://www.godfreylegal.com/why-a-business-plan-is-important-for-entrepreneurs/
https://www.google.com/search?q=swot+analysis+of+jollibee&sxsrf

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 UNIT 5.
Identify and Meet a Market Need

Desired Learning Outcomes

At the end of the Unit, the students must have:

1. Identified a target market by analyzing the needs of the customer;
2. Explained how market segmentation can help and entrepreneur analyze a target market; and
3. Identified and examined the characteristics of a competing firms.
4. described the importance of a business plan
5. explained the components of a business plan

PRE ACTIVITY: Identify and Meet a Market Need

Name: ___________________________________________________Score:___________
Course/Section: ____________________________________________Date: ___________

Task 1. Matching Type

Directions: Match the components of the business plan in Column A with their meaning in Column
B. Match each statement with the term that best defines it. Some terms may not be used.

A B

___a, Psychographics 1. A description of the characteristics of the person or

company that is likely to purchase a product or service.

___b. Customer Profile 2. Data that describes a group of people in terms of their
age, marital status, family size, ethnicity, gender,
profession, education, and income

___c. Customer Relationship 3. An in-depth interview with a group of target customers

Management (CRM) who provide valuable ideas on products or services.

___d. Demographics 4. Information collected for the first time to fit a specific
purpose.

____e. Direct Competition 5. Marketing trend that focuses on understanding

customers as individuals instead of as part of a group.

___f. Focus Group 6. Data that describe group of people in terms of their
tastes, opinions, personality traits, and lifestyle habits

____g. Secondary Data 7. Data found in already published source

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 ____h. Primary Data 8. A business that makes most of its money selling the
same or similar products or services to the same
market as other businesses.

____i. Target Market 9. Data that help you determine where your potential
customers live and how far they will travel to do
business with you

____j. Geographic Data 10. Includes the individuals or companies that are
interested in a particular product or service and are
willing and able to pay for it.

How well did you do?

How did you perform in the pre-assessment test? Were you able to answer more
items correctly? Below is the answer key to your pre-test.

Answers:

1 b 2. d 3. f 4. h 5. c 6. a 7. g 8. e 9. j 10. i

A perfect score of 10 sounds so impressive. Kindly, continue to study this module as a review.
However, if you go lower than 7, studying thoroughly this module is required.

Now let us begin the exploration of this Module.

Lesson 1. Identify Your Target Market

Introduction:

In this module, you will be learning the importance of identifying your target, conducting
research of the market in order to meet a market need as valuable factors that would contribute to a
successful entrepreneurial pursuit.

Let me start discussing this module through these brief introductory points:

Entrepreneurs with exciting new ideas are sometimes so focused on their products or services
that they forget about the customer. Coming up with a good idea for a business in not enough to
guarantee success. Customers are the people or organization who buy the products and

70
services companies offer. Before establishing your new enterprise, you will have to determine who
your primary customers are and whether these customers will be willing to buy your own product or
service. Market research is the key to finding out this information. Understanding people’s want and
needs will allow you to identify business opportunities. The more you know about your customers,
the better you will be at giving them what they need and want.

As an entrepreneur, you will need to estimate demand for your products or service by
identifying your target customers. The target market includes the individuals or companies that are
interested in a particular product or service and are willing and able to pay for it. Identifying your
target market helps you reach the people who desire your products and service. Target customers
are the customers you would most like to attract. For instance, a car dealer selling moderately priced
minivans would target-middle-class families with children. A car dealer offering expensive sports cars
might target single people with higher incomes.
To identify the target market for your product or service, you will need to answer the following
questions:

1. Who is my potential market? Are my customer’s individuals or companies?

2. If my customers are individuals, how old are they? How much money do they earn? Where do
they live? Ow do they spend their time and money?
3. If my customers are companies, what industries are they in? Where those industries are
locate?
4. What needs or wants will my product or service satisfy?
5. How many potential customers live in the area in which I want to operate?
6. What is the demand for my products or services?
7. Where do these potential customers currently buy the products or services, I want to sell
them?
8. What price are they willing to pay for my products or services?
9. What can I do for my customers that other companies are not already doing for them?

As an entrepreneur, you should put yourself in your customers’ shoes before your start your
business. Afterwards, you should think about your customers’ needs and viewpoints every day. By
continually evaluating your market, you will be ready to respond to changes in communicates,
consumer tastes and buying habits, and competitors’ offerings.

Market Segments

Groups of customers within a large market who share

common characteristics are known as market segment. Market
research can be used be a business to identify market segments.
Segmenting, or dividing your target market into several small
groups, can help you develop a product or service that will meet
specific customer needs and wants.

The process of market segmentation is important

because most products and services appeal to only a small portion
of the population. The leisure services market is a large market that
includes many segments, such as outdoor adventures, people
who vacation frequently, couples who eat at restaurants, and more. Targeting the entire leisure
market would make sense. You would never be able to meet the needs of the entire market. Even
the restaurant segment of the leisure services market has sub-segments. Some people like Italian
food while others prefer seafood or Chinese food.

Business can make decisions based on the information gathered about market segments.
However, if the data are not analyzed correctly, the product may not meet needs of the customers,
or the business might ignore a segment of the market that would be very interested in the product.

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Customer Profile

A market segment is made up of people with common characteristics. The more you learn
about them, the better strategy you can develop for reaching them. A very useful part of analyzing
your data is the creation of a customer profile. A customer profile is a description of the
characteristics of the person or company that is likely to purchase a product or service. A customer
profile can help you understand what you need to do meet customer demand. Customers may be
profiled based on many types of data, including demographics, use-based data, and geographic data.

By analyzing these types of data, you will be able to develop a marketing strategy that
identifies those customers you can serve more effectively than your competitors can. The data can
help you determine the size of your market and how many people would be willing and able to
purchase your product or service. You can design your products and services, set prices, and direct
promotional efforts toward those customers.

Sample Customer Profile for a Sporting Good Store

• Individual 23 to 52 years of age

• Participates in sports
• Wants good-quality sports equipment
• Looks for good prices
• Lives in Pasig City
• Average household income -P250,000.00 per year

Demographics

Data that describes a group of

people in terms of age, marital status, family
size, a group of people in terms of age, marital
status, family size, ethnicity, gender,
profession, education, and income are called
demographics. Women business owners
between the ages of 25 and 40 who earn at
least P300,000.00 per year would be an
example of a market segment based on
demographic data.

Psychographics

Data that describe a group of people in terms of their taste, opinions, personality traits, and
lifestyle habits are called psychographics. People who prefer to live in a downtown setting and whose
musical preference is jazz would be an example of a market segment based on psychographic data.

Use-Based Data

Data that help you determine how often potential customers use a particular service use-
based data. If you were starting a travel agency, you would want to know how often your
potential customers travel.

Geographic Data

Data that help you determine where you potential customers live and how far they will travel
to do business with you are called geographic data. If you were thinking of opening a coffee

72
ship, it would be important for you to know that people are not willing to drive more than one mile
for coffee.

ACTIVITY PROPER 1: SO Identify Your Target Market

Directions: Look through magazines and newspapers for an advertisement of a new product.
Based on the type of publication and the material in the advertisement, answer the nine
questions listed in the lesson about identifying a target market. Can you determine who the
target market is for the product? Be ready to discuss your answer during our on-line class.

Lesson 2. Research the Market

Role of Market Research

For your business to succeed, you need to identify potential markets, analyze demand, and
determine how much customers are willing to pay for your products or services. To collect this
information, you will perform market research. Market research is a system for collecting,
recording, and analyzing information about customers, competitors, products, and services. Based on
the findings of market research, a business will be able to determine which marketing strategies will
be more effective and most profitable. Spreadsheets and databases are used for collecting and
analyzing market research data. Market research has its limits because it can be very expensive and
time-consuming, but it is worthwhile when major decisions must be made. You will draw on primary
data and secondary data to help you identify ways in which you can meet customer needs. Market
research can also help you forecast sales and make other business decisions.
Primary data
Most market researchers collect primary data. Information collected for the very first to fit a
specific purpose is primary data. A researcher collects primary data to help identify and understand
the target market. There are a few different ways to collect primary data.

• Survey

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 The most common type of primary market research is a questionnaire, or survey. A survey is
a list of questions you would like to ask your customers to find our demographic and psychographic
information. A survey can be conducted by mail, over the phone, on the Internet, or in person.

Creating a good survey is important. Surveys should be kept to a page in length when read
over the phone or mailed to respondents. Longer surveys can be used if an interview is face to face.
Questions should be clear and easy to answer, and only the most important questions should be
asked.

• Observation
Market research can also involve observation. If you are considering opening a juice bar in a
shopping mall, you might want to see how many customers you could attract. You could go to the
mall and count the number of people purchasing drinks at various food outlets. An entrepreneur
interested in starting a motor cycle repair shop might count the number of motorcycles at a busy
intersection.

• Focus Groups
Another way to find out about them market is by conducting interview with a small group of
people. A focus group is an in-depth interview with a group of target customers who provide
valuable ideas on products or services. You can ask the same kinds of questions in a focus group
that you would ask in a survey, but the group setting allows for ore discussion and interaction. Focus
groups usually are led by a moderator, who asks questions about buying habits, likes and dislikes,
and interest in particular products and services. The focus group session is recorded so that the
comments can be reviewed carefully after the session.

Disadvantages of Primary Data

While primary data can provide the most up-to-date and useful information, collecting it can be
time- consuming and more expensive than gathering secondary data. As an entrepreneur, you will
need to determine how much primary and secondary market research data you need to collect.

Secondary Data
Entrepreneurs also research their target markets by using secondary data. Secondary data are
found in already-published sources. Data on population, family size, household income, economic
trends, industry forecasts, and either information can be found in secondary data resources. Places to
find secondary data include the following:
1. Publication issued by government and community organizations
2. Books about specific industries
3. Information on websites for government and businesses
4. Books about other entrepreneur who set up similar businesses
5. Trade magazines and journals
6. Newspaper articles and statistics

Six steps of Market Research

Collecting primary data can be tie-consuming and expensive, but it is extremely valuable. It
will tell you exactly what you want to know and uncover information you may not find through
secondary sources. Conducting primary market research involves six steps:

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 1. Define the Question
In the first step in the market research process, you need to define exactly what you
need to know. Entrepreneurs have many concerns and questions about the businesses they
are planning. By determining what they need to know, they are defining the question that will
be the focused of their research.

2. Determine the Data Needed

Once you have defined the market research question, you are ready to determine
what data you need to collect to provide the answer to your question. Entrepreneurs need
to be sure that the data they collect will be helpful.

3. Collect the Data

Before you begin collecting data, you need to decide how you will go about gathering
the data. Should you use a survey? Should you use an observation method? Is a focus group
appropriate? The method you use will depend on what type of information you want to
gather. For example, you can find out people’s opinions in a survey or focus group but not by
observation. You should perform some secondary market research first to familiarize yourself
with your market. Demographic and psychographic data, as well as information on economic
trends and industry forecasts, will help you determine what kind of primary data research to
perform. You can then choose the best research method for the information you want to
gather.

4. Analyze the Data

Once you have collected all your primary and secondary data, you will need to
analyze and interpret the information thoroughly. The data may be used not only to find
out about your potential customers but also to forecast sales. The analysis should be in a
written format so you can refer to it later.

5. Take Acton
Once you have analyzed and interpreted your data, you will need to determine how
to use the data to make a decision. You will develop a plan of action based on the
information you found in your market research.

6. Evaluate the Results

Evaluation is the last step in the market research process. It is not enough just to develop a
plan of action. Entrepreneurs must regularly evaluate the actions they take as a result of the
plan.

Technology-Driven Marketing

Customer relationship management (CRM) is the goal of a new marketing trend that
focuses on understanding customers as individual instead of as part of a group. It is a business
strategy designed to increase profitability and customer satisfaction. CRM uses technology to track
customer interactions and to organize business processes in a way that will produce customer-
satisfying behaviors.

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 Activity No. 2 Cooperative and Corporation

Directions: Come up with a new product that you think will be very useful for students in the
school. Develop a survey for potential consumers of this product to gauge their interest. Have
your classmates complete the survey through any available on line flatform. Tabulate the
results and determine if the product is a good idea.

Lesson 3: Know Your Competition

Impact of Competition
Because consumers are free to buy whatever they want from whomever they want,
companies compete for their business. Most new businesses face competitors— companies
offering similar or identical products and services to the same group of target customers. As
the owner of a new business, you will have to persuade customers to buy from you instead of
from your competitors. You must always watch the competitors and be sure that you are
offering products that are of equal or better quality at the same or lower prices.

When personal computers first came on the market, Apple computers were the
biggest sellers. Then IBM developed a personal computer, and soon there were many other
manufacturers of personal computers. All of the computer manufacturers work hard to
persuade customers to buy their product.

Understand the Competition

Knowing about your competition will also help you define your target market.
Businesses typically enter into areas where there is competition. To survive, they have to
identify some special customer need or want that is not being met. Customers may be
happy with the products or services, but they may be unhappy with the prices. Customers
might be dissatisfied with the quality of a product or service and would be willing to pay
more for better quality. In either case, a customer need is going unmet by a competitor,
indicating a possible opportunity for entrepreneur.

Know the Types of Competition

Competitors may be categorized as either direct or indirect competition. You will
need to find ways to identify and differentiate yourself from both types of competition.

Direct Competition
A business that makes most of its money selling the same or similar products or
services to the same market as other businesses is direct competition. Secondary data
resources can give you information on your direct competition. Your direct competitors may
be in the same geographic area as your business. The telephone directory or an Internet
search will help you find the number and locations of competing businesses. Your local
Chamber of Commerce will also have information on competitors in your business field.
Observation methods can help you learn more about your direct competitors. If you start a
retails business, you can visit all of the malls, shopping centers, and retail outlets in your
area.
Indirect Competition

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 A business that makes only a small amount of money selling the same or similar
products and services to the same market as other business is indirect competition.
Locating your indirect competition is more difficult that finding direct competitors. You
should first think of all the possible businesses that can compete with you indirectly. A large
department store may stock some of the most popular products carried by a privately
owned specialty store shop. The department store offers many other lines of merchandise
as well. It makes only a small amount of money on the same items that the specialty shop
offers. This makes the department store indirect competitor to the specialty store. Commented [rmd1]:

Large Retailers
When a large retailer enters a community, it can be a source of direct and indirect
competition for many others businesses. Large retailers like Walmart bring lower prices and
jobs to a community but many small businesses find it difficult to compete with them.
Some of the smaller, locally owned retailers often are forced out of business. Some of the
reasons that is difficult for entrepreneurs to compete with large retailers include the
following:
1. Large retailers usually are able to keep larger quantities of products in stock.
They can purchase inventory in bigger quantities because they have and large more
revenues passed to consumers in the for more revenue and larger storage areas. Bigger
orders result in volume discounts, and the s savings can be passed to consumers in the
form of lower prices.
2. Large retail chains do not rely on a single product line. If one product line does
poorly, a large retail store does not go out of business because it has other successful
product lines. Small businesses have risks associate with having only one product line. If
its product falls out of favor with consumers, it has no other product lines to make up the
difference.
3. Large companies usually have more resources to devote to advertising. A larger
company makes more revenue and can hire advertising professionals to create effective
advertising to attract more customers.

Competitive Analysis
Identifying and examining the characteristics of f a competing firm is called a competitive
analysis. Analyzing the strengths and weaknesses of your competition will help you identify
opportunities and threats against your business. Follow these steps to begin your competitive
analysis.
1. Make a list of your competitors. Using the Internet and driving through the area in
which you plan to locate your business are good way to identify your competition. You can
also talk to potential customers to find out with whom they are currently doing business.
Review trade magazines and newspapers to see who is advertising the product or service
you plan to offer.
2. Summarize the products and prices offered by your competitors. Investigate the
products or services your competition offers for sale. How are they different from yours?
Examine the price ranges of your competitors and determine how they compare two that
you plan to charge. Are your prices higher or lower?
3. List each competitor’s strengths and weaknesses. What does the competitor do that
no one else dies, or what does it do better than anyone else? Where are your competitors
located? Determine if their location is better, worse, or about the same as the planned
location of your business. Compare your competitors’ facilities to the planned facility for your
business. Are their facilities to the planned facility for your business? Are their facilities
better, worse, or about the same as yours? What attracts customers to your competitors’
facilities?
4. Find out the strategies and objectives of your competitors. A copy of each
competitors’ annual report would have this information. In addition, looking at competitors’
websites or advertising can give you clues about their strategies and objectives.

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 5. Determine the opportunities in the market. Look at your competitors’ weaknesses. How
can you use these weaknesses to your advantage? Also, determine if there is an increase in
demand for the product or service you plan to offer. What are the industry forecasts? If
demand is predicted to increase, more opportunities exist for those wanting to enter the
market.
6. Identify threats to your business from the competition. What would make a customer
choose the competition over you? Examine your competitors’ strengths. How will you
compete these strengths?
Maintaining Customer Loyalty. Getting customers to buy your products and services
instead your competitors’ is only one step in running a successful business. Once you get
the customers, you must make sure they remain loyal to you and keep coming back.

Other Strategies for Maintaining Loyalty

To maintain customer loyalty, businesses use many strategies. The main purpose of
these strategies is to keep customers happy so that they will return to the business. The
strategies also give the business a means for gathering data about their customers and their
shopping and spending habits that can help in future decision making. Some of the most
basic customer loyalty strategies businesses use include the following:
• Superior service
• More convenient hours than other businesses
• Easy return policies
• Store specific credit cards
• Personal notes or cards for birthdays or as a way to say thanks for the business
• Frequent buyer programs

Activity No. 3 Know Your Competition

Directions: a) Choose a successful business in your area, then choose three competing
business. Access www.cengage.com/school/entrepreneurship/ideas. Click on Activities and
open the file Competitive Analysis. Complete the activity by analyzing each business using the
six steps in this lesson. b) Research in the internet a sample of a typical market research
survey and be familiar with its basic format and details.

Direction: Answer the following questions

1. Why is there a need to identify a target market by analyzing the market needs of the
customer:
2. How can market segmentation help the entrepreneur analyze its target market?

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 3. What is the role of market research in helping the entrepreneur determine its target market in
order to achieve its marketing goals?
4. Why is important to know the nature of competition in the business world as well as to
understand your competitors?

Summing – up

The need to identify your market:

1. Before starting a new business, you must determine who you target market is and whether is
and whether your target customers will be willing to buy your products or service. Market
research is key to finding out this information.
2. You should develop a customer profile and decide which segment(s) of the market to target.
Marketers may be segmented based on may factors, including demographics,
psychographics, use-based data, and geographic data.

The importance of market research:

3. Market research is important because it helps you learn about your customers and your
competition. Primary data are collected for the very first time to fit a specific purpose.
Secondary data are found in already published sources.
4. The six steps of market research are: (1) define the question, (2) determine the data needed
(3) collect the data, (4) analyze the data, and (6) evaluate results.
5. Customer relationship management (CRM) focuses on understanding customers as
individuals instead of as a group. CRM uses technology to track customer interaction.

The need to know and understand your competition/competitors

6. All businesses have both direct and indirect competition. Direct competition comes from a
business that makes most of its money selling the same or similar products and services to
the same market. Indirect competition comes from a business that makes only a small
amount of money selling the same or similar products to the same market.
7. Creating a competitive analysis involves the following steps: (make a list of competitors, (2)
summarize products and prices offered by competitors, (3) list each competitors, (4) find out
strategies and objective of competitors, (5) determine the opportunities in the market, and
(6) identify threats to your business from the competition.
8. There are so many ways to maintain customer loyalty. You should ask for and respond to
customer feedback. Offering superior service and frequent buyer programs also promotes
customer loyalty.

Task 2. Guide Questions

Direction: The following are guide questions covering this particular unit of the module.
Write your answers on your assignment notebook.

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1. Why is it important to identify your target market?
2. Why is a must to determine the needs of your customers?
3. How can market segmentation help an entrepreneur analyze its identified target market?
4. How important is the role of market research in capturing your target market?
5. How can you explain the importance of knowing and understanding your competition?

After answering the guide questions, be prepared to discuss your answers with
your classmates during our scheduled on-line class.

References

References:

Medina, Roberto G., 2014. Entrepreneurship and Small Business Management

Greene, C., 2013. Entrepreneurship

Scarborough, N., 2011. Essential of Entrepreneurship and Small Business

Management, Sixth Edition

Small Enterprises Research and Development (SERDEF), Introduction to

Entrepreneurship, 2007 edition

Internet Sources:

www.gonegosyo.net

www.cengage.com/school/entrepreneurship/ideas.

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 UNIT 6.
Develop the Marketing Plan

Desired Learning Outcomes

At the end of the Unit, the students must have:

1. explained the importance of marketing a business;
2. developed a marketing strategy for a business with the use of the four “Ps” of marketing:
product, price, place, promotion;
3. discussed factors to consider when pricing products and services;
4. described the basic options of channels of distribution and;
5. identified promotional strategies in marketing products and services

PRE ACTIVITY: Develop the Marketing Plan

Name: __________________________________________________Score:___________
Course/Section: ___________________________________________Date: ___________

Directions: Match the components of the business plan in Column A with their meaning in Column
B. Match each statement with the term that best defines it. Some terms may not be used.

A B

___a, Marketing Strategy 1.Creating an image of a product to the customer’s mind

___b. Return on Investment 2.A blending of product, price, distribution, and promotion
used to reach a target market
(ROI)

___c. Cost-based pricing 3.Pricing that is determined by using the wholesale cost of an
item as the basis for the price charged

___d. Marketing Mix 4.Amount earned as a result of an investment

____e. Positioning 5.Identifies how marketing goals will be achieved

___f. Indirect Channel 6.The act of establishing a favorable relationship with customer
and the general public

____g. Advertising 7.Direct communication between a prospective buyer and a

sales representative

____h. Channels of distribution 8.Routes that products and services take from the time they
are produced to the time they are consumed

____i. Personal Selling 9.A paid form of communication sent out by a business about
a product or service

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 ____j. Public Relations 10.Uses intermediaries that move products between the
manufacturer and the consumer

How well did you do?

How did you perform in the pre-assessment test? Were you able to answer more
items correctly? Below is the answer key to your pre-test.

Answers: Task 1

1e 2. d 3. c 4. b 5. a 6. j 7. i 8. h 9. g 10. f

A perfect score of 10 is impressive. Kindly, continue to study this module as a review. If you go
lower than 7 points, studying this module is a must.

Now let us begin the exploration of this Module.

Lesson 1. Importance of a Marketing Plan

What is marketing?

As defined by the American Marketing association, “Marketing is the activity, set of

institutions, and processes for creating, communicating, delivering, and exchanging offerings that
have value for customers, clients, partners, and society at large. “To simplify this definition,
marketing is all of the processes---planning, pricing, promoting, distributing, and selling---used
to determine and satisfy the needs of customers and the company. This definition demonstrates
the importance of the customer.

It is very important to conduct market research to discover what products or services

consumers want to buy. Using the primary and secondary data that is gathered through market
research helps entrepreneurs develop a marketing concept for the business. The marketing
concept uses the needs of customers as the primary focus during the planning, production,
distribution, and promotion of a product or service. To use the marketing concept successfully,
business must be able to:

• Identify what will satisfy the customers’ needs and wants

• Develop and market products or services that customers consider better than other choices
• Operate profitably

An important part of implementing the marketing concept is developing a marketing mix

that helps meet customer needs and enables the business to earn a profit. The marketing mix is
a blending of the product, price, distribution, and promotion used to reach a target market. For
example, once you have determined what product or service meets customers’ needs, you must
determine what product or service meets customers’ needs, you must determine the right price for
it, make it available to the customers in the right places, and then let your target market know
about it.

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The Marketing Strategy

As a business owner, you will need to outline the goals you want to accomplish through
your marketing efforts. Once you have identified your goas, you will need to develop a marketing
strategy, which is a plan that identifies how these goals will be achieved. In your startup marketing
plan your strategy should address:

• Product introduction or innovation

• Pricing
• Distribution
• Promotion
• Sales or market share
• Projected profitability

It is important that your marketing strategy be consistent with the overall goals you have
set for your busines. Be sure that the strategy will actually work for you and is within the resources
you have available. Your marketing goals should be written following the SMART guidelines:
specific, measurable, attainable, realistic, and timely.

Short-Term Goals

Short-term goals are what you want your business to achieve in the next year. They can
be stated in terms of number of customers, level of sales, level of profits, or other measures of
success. If your goal is to have a positive cash flow, you may decide to price your products or
services higher.

Medium-Term Goals

Medium-term goals describe what you want your business to achieve in the next two to
five years. Although your marketing strategy will be determined largely by your short-term goals,
you will need to make sure that the strategy you are planning will make it possible for you to
achieve your medium-term goals.

Long-Term Goals

Long term goals show where your business will be, 5, 10, and even 20 years from now.
Thinking about what you want the business to do in the long term can help you think about how to
market your business today.

Write your Marketing Plan

When your goals and marketing strategy have been determined, you will ready to write
your final marketing plan. The purpose of the marketing plan is to define your market, identify your
customer and competitors, outline strategy for attracting and keeping customers, and identify and
anticipate change.

A written marketing plan will help you determine whether it is solid and all parts are
consistent. Your written plan becomes a guiding document as you operate your business. You can
always review it later to determine if you need to change the way you are marketing your
business. The marketing plan becomes a part of your business plan. Having a marketing plan as
part of your business plan is essential when you seek financing for your business. Investors will
express your marketing plan to answer the following questions:

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 • What product or service will I offer?
• Who are my prospective customers?
• Is there a constant demand for this product or service?
• Can I create a demand for the product or service I want to offer?
• Can I compete effectively in price, quality, and delivery of my product or service?

To effectively answer these questions, he marketing plan for your business must
include information on the following topics:

1. Product or Service 5. Business Location

2. Target Market 6. Pricing Strategy
3. Competition 7. Promotional Strategy
4. Marketing Budget 8. Distribution Strategy

As part of your marketing plan, you should include performance standards that will help you
measure your effectiveness. Researching industry norms and past performances will help you
develop appropriate standards. After your marketing plan has been implemented, you should
compare your actual results to your performance standards to see how well you are progressing. It
is helpful to examine your performance quarterly. Questions to ask yourself include:

• Am I meeting sales forecasts?

• Is my promotional campaign reaching the target market?
• Is my company doing everything it can to meet customers’ needs?
• Is it easy for my customers to find what they want a competitive price?

ACTIVITY PROPER 1: Importance of a Marketing Plan

Directions: Choose one of the following businesses: Mexican restaurant,

wholesaler, health-food store, or advertising agency. Brainstorm a list of short-,
medium-, and long-term goals for the business. Make a list of these goals and
present during our on-line class.
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 Lesson 2: Product: Identifying the Market Need

The Marketing concept and the Product

Once you have determined what kind of business you will run, you will need to make
decisions about the products that you will sell. To select your products, think carefully about which
products and services most appeal to your target customers. If you can convince your customers
that your products satisfy their needs better than any competitors’ products, then your products
become a marketing tool for your business.

Customer-Driven Market

The marketing concept is the belief that the wants and needs of customers are the most
important consideration when developing any product or marketing effort.

Product Mix

The different products and services a business sells are its product mix. In a consumer-
driven economy, entrepreneurs realize that sometimes they must include products in their mix as
a convenience for customers even though those products may not be profitable. This will give the
appearance to customers that the store has everything they need. It has been found that often a
small percentage of the product selection makes up the majority of the sales revenue.

Product Management

Consumers buy a product because it meets their needs. However, there is much more to a
product than consumers may realize. The many aspects of a product that a business must spend
time developing and managing include its features, branding, packaging, labeling, and positioning.

Selecting Product Features

A product includes features, while are product characteristics that will satisfy customer
needs. Features include such things as color, size, quality, hours, warranties, delivery, and
installation. You will need to consider your target market when selecting product features.

Consider Branding, Packaging, and Labelling

Making your product stand out from all the others in the marketing mix as a challenging
task. The brand is the name, symbol, or design used to identify your product. The package is
the box, container, or wrapper in which the product is placed. The label is where information
about the product is given on the package. The brand, package, and label that you choose for
your product will help differentiate it from others on the market. The Nike “swoosh” has become a
very recognizable brand. When you see Nike symbol, you know about the quality of the product
you have selected.

Position Your Products or Services

Different products and services within the same category serve different customer needs.
For example, both Hyundai and Jaguar sell automobiles, but these two product lines are
positioned very differently in the marketplace.

Positioning is creating an image for position a product in the customer’s mind. Businesses
position a product in certain market to get a desired customer response. Product features, price,
and quality may be used for position.

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The Marketing Mix—Price

Set Pricing Objectives

The price is the actual amount a customer pays for a product or service. Prices you charge
must be low enough so that customers will buy from you, not form your competitors. To earn a
profit, though, your prices need to be high enough so that revenues exceed expenses. Before you
can select a pricing strategy, you will need to establish objectives for your pricing program. What is
the most important thing you want the price to do? Examples of pricing objectives include:

• Maximize sales
• Discourage competition
• Establish an image
• Increase profits
• Attract customers

Return on Investment (ROI)

When setting pricing objectives, you may want to consider your return on investment.
Investment refers to the cost of making and marketing a product. The return on investment
(ROI) is the amount earned as a result of the investment and is usually expressed as a
percentage. Entrepreneurs must identify the percentage return they want from their investment.
The target percentage in the beginning may be lower that it will be as the business grows.

Market Share

Market share is another consideration when setting pricing objectives. Market share is a
business’s percentage of the total sales generated by all companies in the same market. The total
market for product must be known in order for a market share to be determined.

Determine a Price for a Product

Once pricing objectives have been determined, the next step is to determine the possible
prices for products. There will usually be more than one price that can be charged for a product.
Pricing may be based on demand, cost or the amount of competition.

• Demand-Based Pricing - refers pricing that is determined by how much customers are
willing to pay for a product of service. Potential customers are surveyed to find out what
they would be willing to pay for the product. The highest price identified is the maximum
price that can be charged.
• Cost-Based Pricing - is determined by using the wholesale cost of an item as the basis for
the price charged. A markup price is determined by adding a percentage amount to the
wholesale cost of an item.
• Competition-Based Pricing - pricing that is determined by considering what competitors
charge for the same good or service. Once you find out what your competition charges for
an item, you must decide whether to charge the same price, slightly more, or slightly less.

Price a Service or an Idea

When setting the price for service, it is important to consider not only the cost of any
items used in providing the service but also the amount of time and anything that is included with
the service. You may also have business ideas that you can sell to others. You should consider the
different ways to structure payments for your ideas.

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 • Time-Based Pricing
The price to charge for services can be determined by the amount of time it takes
to completer the service. A plumber may charge $100 per hour.

• Bundling
Services can be bundled, or combined under one charge, rather than making the customer
pay for each individual part of the service. When you go a beauty salon and have your hair
cut and styled, the price is bundled. The price you pay includes the service of the hair
stylist as well as the cost of the hair products, water, and towels that were used on your
hair.

Pricing an Idea

Ideas can be priced in different ways. You might be acting as a consultant to another
business. When consulting, you could charge an hourly rate for your time and the ideas you
present during that time. You might have an idea that you want to license to another company for
development.

Licensing is the process of selling our idea to a company for the development and
launch of a new product. When licensing your idea, there are different ways you can be paid:

• Upfront payment. The license pays you a fee before development or sales begin. This
may be the only amount you receive, or it could be an amount that is applied to future
royalties.
• Royalties. The license makes payments to you based on a percentage of the product
sales. For example, you may be paid royalties of 2 percent of the total sales of a product
developed from our idea.
• Annual minimum. The license pays you a minimum amount each year regardless of the
amount of sales.

Pricing Strategies

It is important to set the right price for your product and service. Pricing can make or break
a business. When first introducing a product or service into the market, price skimming and
penetration pricing strategies may be used.

• Introductory Pricing
As product is introduced into the market, sales will be low, marketing costs will be high, and
little, if any profit will be made.

1. Price skimming – used when a product is new and unique, starts with a high price to
recover the costs involved in developing the product. Then as more competitors enter the
market with similar products, the price is dropped.
2. Penetration pricing – uses a low introductory price with the goal of building a strong
customer base. The low price also discourages competition.

• Psychological Pricing

This type of psychological pricing is based on the belief that certain prices have an impact
on how customers perceive a product. This type of pricing is most often used by retail businesses.
Strategies used in psychological pricing include the following:

1. Prestige pricing is selling at a high price in order to create a feeling of superior

quality and social status.
2. Odd/even pricing suggests that buyers are more sensitive to certain ending
numbers. For example, P99.99 sounds like a bargain compared to an even P100.00.

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 3. Price lining involves offering different levels of prices for a specific category of product
based on feature and quality. A jeweler might offer three price lines of diamond necklaces
and display them in different cases so that shoppers can go straight to the price level they
can afford.
4. Promotion pricing is offering lower prices for a limited time to increase sales. This type
of pricing is temporary, and prices will return to normal when the promotion ends.
5. Multiple-unit pricing involves pricing items in multiples, such as 10 for $10. This type of
pricing suggests. People will buy more items that they would if the items were priced
individually.

• Discount Pricing

Offers customers a reduced price. Discount pricing is used to encourage customers to buy.
Markdowns are a type of discount pricing:

1. Cash discounts are offered to customers to encourage early payment of invoices. When
this is done, the terms of an invoice will include the amount of the discount, the number of
days in the discount period, and when the invoice is due if the discount is not taken.
2. Quantity discounts are reductions in price based on the purchase of a large quantity.
This is also called a volume discount. Selling a large quantity at one reduces a
business’s selling expenses.
3. Trade discounts are reduction on the list price granted by a manufacturer or
wholesaler to buyers in the same trade.
4. Seasonal discounts are used for selling seasonal merchandise out of season. Barbecue
grills are in high demand in the spring and summer months but not in the fall and winter.
Manufacturer offer discounts to customers who purchase grill out season.

ACTIVITY PROPER 1: Product: Identifying

The Market Need
Directions: Your plan to open a pizza delivery service near the West Visayas State
University. Your target market includes students who live in dorms and houses on and near
the main campus. You know that the price you charge is going to be critical to the success
of your business as there several restaurants in the area with which you will be competing.
Develop a psychological pricing for the pizza delivery service.

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 Lesson 3: Distribution and Promotion Strategies

Distribution Strategies

Supply Chain Management is the coordination of manufacturers, suppliers, and retailers working
together to meet a customer need for a product.

Channels of distribution are the routes that products and service take from the time they
are consumed. Choosing the right channel of distribution for a product includes finding the most
efficient s way to ship it to desired location. Using the right distribution channels save time and
lower costs for both buyers and sellers.

Direct and Indirect Channels

• Direct channel moves the product directly from the manufacturers to the consumer.
• Indirect channel uses intermediaries – people or businesses that move products
between the manufacturer and the consumer. Agents, wholesalers, and retailers serve as
intermediaries.

Channel Options

Entrepreneurs should examine the different options for channels of distribution and
choose the one that best meets the needs of their business. The four basic options are as follows:

• Manufacturer to Consumer. The product can be sold by the manufacturer directly to the
consumer using various methods, such as the Internet, direct mail, or television shopping
channels. There are no intermediaries involved in this option, and it is the most cost-effective.
• Manufacturer to Retailer to Consumer. A sales force can sell manufactured goods to retail
stores, and the retail stores can sell to the consumers.
• Manufacturer to Wholesales to Retailer to Consumer. To reach a large market, the
manufacturer can sell large quantities to a wholesaler, also called a distributor, who will
then store and sell smaller quantities to many retailers. Even though more intermediaries
are involved in this method, prices can be lower because the manufacturer is producing
mass quantities if the product, resulting to lower production cost.
• Manufacturer too Agent to Wholesaler to Retailer to Consumer. With this option, the
manufacturer does not get involved in selling. Selling is handled by an agent. This option is
often used in international marketing.

Distribute Goods and Services

Retail businesses, service businesses, and manufacturing businesses will choose

different channel of distribution based on the needs of the businesses. The needs can vary
based on the size of the market, the type of product or service, and customer needs and wants.

• Retails Business
1. Retail businesses have many ways of selling products. As the owner of a retails business,
you can distribute products in various ways:
1.1Offer your product or service to consumers in a convenient location and
during convenient hours.
1.2Use catalogs, fliers, and other advertisements to reach customers who live
outside the areas.
1.3Create a website. People with access to the Internet can visit your website to
learn about your products and services and to make online purchases.
• Service Business

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 Most entrepreneurs who won service business sell directly to their customers. These
businesses sell their service directly to customers. These businesses have a single, direct
channel of distribution because the production and consumption of a service happens at
the same time. For example, electrician, restaurants owners, and lawyers deal directly with
the people who purchase their services.

Manufacturing Businesses

Manufacturer usually don’t sell directly to customers. Instead, they make their
products and then sell the products to other businesses, such as retailers. The retail store
then sells to the final consumer.

Physical distribution

Physical distribution includes not only transportation but also storage and handling of
products and packaging within a channel of distribution. A product may move through several
channel members by various forms of transportation to et to the point where it will ultimately
be sold to consumers.

Transportation
There are many choices when transporting goods. Products can be moved by airplane,
pipeline, railroad, ship, truck, or a combination of methods. You must determine which method
is best and most cost efficient for your products.

Product Storage and Handling

Efficient storage allows channel members to balance supply and demand of

products. However, this adds to the cost of the products and also adds the risk that products
may be damaged or stolen while stored. Most product are stored in warehouses at various
points through the channels of distribution.

Packaging

Packaging is designed to protect the product from the time is produced until it is
consumed. If the product is not protected during the distribution phase, it could be damaged
or destroyed, resulting in a loss of money to channel members.

• Promotion Strategies

No matter how wonderful your products, distribution methods, and pricing, you will not
succeed as an entrepreneur if customers do not know about your business. You will have to
promote your business to make customers aware of the benefit of buying from you. Promotions
takes many forms including advertising, publicity, personal selling, and sales promotion. The
strategy created by adopting a blend of some, if not all, of these techniques is called your
promotional mix.

• Advertising is a paid form of communication sent out by a business about a product

or service.
• Online Advertising – this is a cost-effective way for businesses to get information to
potential customers through the use of online technology.

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 Types of Online Advertising
1. Banner Ad – a graphic image or animation displayed within a rectangular
box across the top or down the side of a web page
2. Floating Ad – An ad that moves across the screen or floats above the
page content
3. Wallpaper Add – An ad that changes the background of the page being viewed
4. Trick Banner - A banner ad that looks like a dialogue box with button,
often appearing like an error messages or an alert
5. Pop Up Ad -- A new window that opens in front of the current one, displaying an
advertisement
6. Pop Under Ad -- A new window, similar to a pop-up ad, that loads behind
the current window and does not appear until the user closes one or more
active windows.

• Newspaper Advertising
• Telephone Directory Advertising
• Direct-Mail Advertising
• Magazine Advertising
• Outdoor Advertising
• Transit Advertising
• Social Networking Sites

Publicity is a nonpaid form of communication that calls attention to your business media
coverage. Publicity may be good or bad. Good publicity can be as helpful as advertising. Publicity
is free, but staging an even or bringing in a celebrity to generate publicity usually is not.

A press release, which is a written statement meant to inform the media of an event or product,
is a good way to promote an event.

Public Relations

Public relations is the act of establishing a favorable relationship with customers and the general
public. Public awareness and positive public relations can e generated for your business when you
show your community that you are involved and committed to it. Ways to support your
community:

• Sponsor a community sports team.

• Make a donation to a local charity or relief effort program.
• Get involved with the work-based program at your local high school or community college.
• Becomes active in the local chapters of the Big Brothers or Big Sisters organizations.
• Organize community programs such as cleaning up neighborhood parks.

Self-Promotion

A business should try to keep its name visible and in the forefront o people’s minds. Self-
promotion is a good way to do this. It’s simple way to generate “free” publicity. Self-promotion
mat include activities such as:

• Giving away t-shirts and hats displaying your company name and logo.
• Distributing pens, notepads, coffee mugs, and other useful items printed with the name,
telephone number, website address, and logo of your business,

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 ACTIVITY PROPER 3: Distribution and
Promotion Strategies
Directions:
a) You are a home improvement contractor. What role will distribution channels play in
your business? Which form of promotion work best for you?
b) You are going to open a retails store that will offer gifs and accessories. Your target
market is 13-15-year-old girls. Describe the promotional mix you will use for your
business.

Direction: Answer the following questions

1. What is the importance of marketing a business?
2. How to develop a marketing strategy for a business enterprise with the use of 4 P’s or marketing
mix?
3. What are the basic options of channels of distribution?
4. What are the factors to consider when pricing products and services?
5. What are the most commonly known distribution and promotion strategies?

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 Summing – up

6.1 Develop the Marketing Plan

1. Marketing is all of the processes -- planning, pricing, promoting, distributing, and selling—
used to determine and satisfy the needs of customers and the company. Business that follow the
marketing concept use the needs of customers as the primary focus.
2. A marketing strategy identifies how you will achieve your market goals. For a new business, a
marketing strategy should address, product introduction or innovation, pricing, distribution,
promotion, sales or market share, and projected profitability.
3. A marketing plan should include information on the product or service, target market,
competition, marketing budget, business location, pricing strategy, promotional strategy and
distribution strategy. Putting it in writing helps you determine whether your marketing plan is solid
and all parts are consistent.

6.2 The Marketing Mix - Product

4. The different products and services a business offers are its product mix. The marketing
concept keeps you focused on meeting the wants and needs of customers as you develop a
product mix.
5. Product features are the characteristics of the product that will satisfy customer needs.
Branding is the name, symbol, or design that identifies your product. The brand, package, and
label will differentiate your product from others. Positioning is creating an image for a product in
the customer’s mind.

6.3 The Marketing Mx –Price

6. A business may set pricing objectives aimed at maximizing sales, increasing profits, discouraging
competition attracting customers, or establishing an image.
7. Pricing may be based on demand, cost ko competition.
8. Service may be priced based on time, materials used, and bundling. Ideas can be licensed and
priced in different ways.
9. Introductory pricing strategies include price skimming and penetration pricing, Psychological
pricing techniques include prestige pricing, odd/even pricing price lining, promotional pricing,
and multiple unit pricing. Discount pricing includes cash discounts for early payment, quantity
discounts, trade discounts, and seasonal discounts.

6.4 The Marketing Mix - Distribution

10. The four basic options for channels of distribution are 1) manufacturer to consumer 2)
manufacturer to retailer to consumer 3) manufacturer to wholesaler to retailer to consumer, and 4)
manufacturer to agent to wholesaler to retailer to consumer.
11. Entrepreneurs should examine the different options for channels of distribution and choose
the one that best meets the needs of their business and their customers.
12. Transportation, product storage and handing, and packaging needs ae all factors that play an
important role when choosing methods of physical distribution.

6.5 The Marketing Mix – Promotion

13. Advertising may be done on the Internet, on television, on radio, in the newspaper, in a
telephone directory, through direct mailings, in magazines, on billboards and signs, and through
social networking sites, The best option for a business is the one that reaches the desired target
market in the most cost-effective way.

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Direction: The following are guide questions which cover the entire module. Write your answers
on your assignment notebook.

1. Why is it so important to market the business?

2. What is the role of the marketing plan to achieve your marketing-related strategies?
3. How to develop marketing strategies for a business employing the 4 “Ps” or the marketing
mix?
4. What are the common marketing mix strategies being employed by profit-oriented business
organizations?

After answering the guide questions, share, compare and discuss these with one
of your classmates through messenger or using any other on-line platforms.

References

References:

Medina, Roberto G., 2014. Entrepreneurship and Small Business

Management Greene, C., 2013. Entrepreneurship

Scarborough, N., 2011. Essential of Entrepreneurship and Small Business Management, Sixth
Edition

Kotler, Philip, Principles of Marketing: A Global Perspective, LPEdition

Internet Sources

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 UNIT 7.
Global Aspects of Entrepreneurship

Desired Learning Outcomes

At the end of the Unit, the students must have:

1. explained the importance of the “going global” mindset for many small companies’
strategies
2. described the principal strategies of small businesses for going global
3. explained how to build a thriving export program
4. discussed the major barriers to international trade and their impact on the
global community
5. described the trade agreements that will have the greatest influence on foreign
trade in the 21st century.

PRE ACTIVITY: Global Aspects of Entrepreneurship

Name: ________________________________________Score:___________
Course/Section: _________________________________Date: ___________

Task 1. True or False

Directions: Choose True if the statement is correct, and False if otherwise. Encircle your
answer.

1. The process of applying management concepts and TRUE FALSE

techniques in a multinational environment and adapting
management practices to different economic, political and
cultural environments is called international management.
2. Multinational corporations can be defined as firms having TRUE FALSE
operations in more than one country, international sales and
a nationality mix of managers and owners
3. Nongovernmental organizations believe that everyone TRUE FALSE
benefits from globalization, as evidenced in lower prices,

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 greater availability of goods, better jobs and access to
technology.
4. NAFTA is a free trade agreement between the United States, TRUE FALSE
Canada and Mexico that has in essence removed all barriers
to trade and investment between the three nations
5. NAFTA is better integrated as a single market than the EU or TRUE FALSE
the allied Asian countries

How well did you do?

Answers
1.True 2.True 3.False 4.False 5.True 6. False

Task 2. Guide Questions

The following are guide questions that will help you focus and better understand the
essential content for the entire unit. After answering the questions, you may create a
discussion with your classmates through online learning modalities.
1. Why must entrepreneurs learn to think globally?
2. What advantages does going global offer a small business owner? What are the
potential risks?
3. Describe the various types of trade intermediaries small business owners can use.
What functions do they perform?
4. Describe the barriers businesses face when trying to conduct business internationally.
How can a small business owner overcome these obstacles?
5. What impact have the WTO, NAFTA, and CAFTA trade agreements had on small
companies that want to go global? What provisions are included in these trade
agreements?

Lesson 1. Why Go Global?

Overview
This chapter describes the impact of globalization, especially to the small companies, and their
interdependence when it comes to trade, and how entrepreneurs discovered that the tools of
global business can be acquired, and benefits of conducting global business can be substantial.

Why Go Global?

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 Trade and globalization have brought enormous benefits to many countries and
citizens (WTO, 2008). Trade has allowed nations to benefit from specialization and
economies to produce at a more efficient scale. It has also raised productivity and incomes,
increased economic growth, supported the spread of knowledge and new technologies, and
it has enriched the range of choices available to consumers.
For small companies around the world, going global is a matter of survival, not
preference. Going global can put tremendous strain on a small company, but
entrepreneurs who take the plunge into global business can reap the following benefits:

Benefits of Accessing the Global Market

○ Offset sales declines in the domestic market. A small company’s export sales
act as a counter-cyclical balance against flagging domestic sales.
○ Increase sales and profits. Two forces are working in tandem to make global
business increasingly attractive: income rising to levels at which potential sales
are now possible.

○ Extend their products’ life cycle. Some companies have been able to take
products that have reached the maturity stage of the product life cycle and sell
them successfully in foreign markets.

○ Lower manufacturing costs. In industries characterized by high levels of fixed

costs, businesses that expand into global markets can lower their manufacturing
costs by spreading those fixed costs over a larger number of units.

○ Lower the cost of their products. Many companies find that purchasing goods
or raw materials at the lowest cost requires them to shop the global marketplace.

○ Improve competitive position and enhance reputation. Going up against

some of the toughest competition in the world forces a company to hone its
competitive skills.

○ Raise quality levels. One reason Japanese products have done so well
worldwide is that Japanese companies must build products to satisfy their
customers at home, who demand extremely high quality and are sticklers for
detail. Businesses that compete in global markets learn very quickly how to boost
their quality levels to world-class standards.

○ Become more customer-oriented. Delving into global markets teaches business

owners about the unique tastes, customs, preferences, and habits of customers in
many different cultures. Responding to these differences imbues businesses with a
degree of sensitivity toward their customers, both domestic and foreign.

business owners must strive to become “insiders” rather than just

“exporters.”

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 Cost of Accessing the Global Market
Understanding trade costs is essential for creating policy interventions designed to
reduce such costs.
● Fulfillment of Minority Interest. It is important to take into consideration
the interest of the local populace because it can be conflicting to the decisions
of the countries since they mainly value their businesses and profits and not
public interests.

● Specialization Leads to Over Dependency. When a firm relies on supply of other

goods from another country due to a more focused production of a specific good,
they are at risk of a supply shortage or stoppage.

● Cultural Identity Issues. Trade leads to diffusion of culture. Others get lost while
others are capable of adopting other culture

● Social Welfare Issues. It is important to maintain safety standards, minimum

wages, worker’s compensation and health benefits - all of these are social
welfare issues that cost business money.

● Environmental Issues. Implementing strict laws and regulations to keep air, land
and clean water is a costly process, so businesses decide to move their operations in
poorer countries where it is less regulated.

● Political Issues. Trade of precious commodities (e.g. gold, diamond, oil or

farmland) has caused political alliances which do not assist people in trading nations,
often powerful corporations control these commodities.

● Depletion of Natural Resources. Increase in international demand of a natural

resource can cause over-exploitation and depletion of these resources.

● Seizure of Power and Loss of Control. Rich foreign investors will

eventually control a number of local resources and possess more power and
authority in a country rather than the natives of the land.

It is important that entrepreneurs should answer these 6 questions before

venturing into the global marketplace:
1. Is there a profitable market in which our firm has the potential to be successful over
the long run?
2. Do we have and are we willing to commit adequate resources of time, people,
and capital to a global campaign?
3. Are we considering going global for the right reasons? Are domestic
pressures forcing our company to seek global opportunities?
4. Do we understand the cultural differences, history, economics, value systems,
opportunities, and risks of conducting business in the country (or countries) we
are considering?

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 5. Is there a viable exit strategy for our company if conditions change or the
new venture is not successful?
6. Can we afford not to go global?

To these entrepreneurs and their companies, they see the world as a market
opportunity. An absence of global thinking is one of the barriers that most often limit
entrepreneurs’ ability to move beyond the domestic market, not the national boundaries.
This highlights the need of learning to think globally - being the first and most
challenging obstacle an entrepreneur must overcome.
Global thinking is the ability to appreciate, understand, and respect the different beliefs,
values, behavior, and business practices of companies and people in different cultures and
countries.

Lesson 2. Strategies for Going Global

There are nine principal strategies which small companies can pursue in order to enter
a global presence: (1) creating a presence on the Web, (2) relying on trade intermediaries,
(3) outsourcing production, (4) establishing joint ventures, (5) engaging in foreign licensing
arrangements, (6) franchising, (7) using counter-trading and bartering, (8) exporting
products or services, and (9) establishing international locations

Creating a Presence on the Web

The Web gives even the smallest businesses the ability to sell its goods and services
all over the globe. With a well-designed Web site, an entrepreneur can extend its
reach to customers anywhere in the world—and without breaking the budget.
Only after establishing themselves domestically did small businesses begin to think
about selling their products or services internationally. The Web makes that business
model obsolete because it allows small companies to maintain a low-cost global
distribution channel that they can utilize from the day they are launched.
Trade Intermediaries
Trade intermediaries are domestic agencies that serve as distributors in foreign
countries for domestic companies of all sizes. They rely on their networks of contacts,
their extensive knowledge of local customs and markets, and their experience in
international trade to market products effectively and efficiently all across the globe.
The following are examples of trade intermediaries.
● Export Management Companies Export management companies (EMCs). EMCs
provide small businesses a low-cost, efficient, independent international marketing and
export department, offering services ranging from doing market research and giving
advice on patent protection to arranging financing and handling shipping. The greatest
benefits these intermediaries offer small companies are ready access to global markets
and an extensive knowledge base on foreign trade, both of

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 which are vital for entrepreneurs who are inexperienced in conducting
global business.

● Export Trading Companies. These are businesses that buy and sell products in a
number of countries, and they typically offer a wide range of services such as
exporting, importing, shipping, storing, distributing, and others to their clients. Unlike
EMCs, which tend to focus on exporting, ETCs usually perform both import and
export trades across many countries’ borders.

● Manufacturer’s Export Agents Manufacturer’s export agents (MEAs). They

act as international sales representatives in a limited number of markets for various
non competing domestic companies. Unlike the close, partnering relationship
formed with most EMCs, the relationship between the MEA and a small company is
a short-term one, and the MEA typically operates on a commission basis.
● Export Merchants. These are domestic wholesalers who do business in foreign
markets. They buy goods from many domestic manufacturers and then market them
in foreign markets. Unlike MEAs, export merchants often carry competing lines,
which means they have little loyalty to suppliers. Most export merchants specialize in
particular industries, such as office equipment, computers, industrial supplies, and
others.

● Resident Buying Offices. Another approach to exporting is to sell to a resident

buying office, a government-owned or privately owned operation of one country
established in another country for the purpose of buying goods made there.

● Foreign Distributors. Domestic small companies export their products to these

distributors, who handle all of the marketing, distribution, and service functions in
the foreign country.

The Value of Using Trade Intermediaries

Trade intermediaries can get small companies’ products into
foreign markets quickly and efficiently. The primary disadvantage
of using trade intermediaries is that doing so requires
entrepreneurs to surrender control over their foreign sales.
Maintaining close contact with intermediaries and evaluating their
performance regularly help to avoid major problems, however.

Joint Ventures
Joint Ventures are domestic or international enterprises involving two or more
companies joining temporarily to undertake a particular project.
Types of Joint Ventures
● Equity based - operations that benefit foreign and/or local private interests,
groups of interests, or members of the general public

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● Non-equity - known as cooperative agreements which parties seek
technical service arrangements, franchise and brand use agreements,
management contracts or rental agreements, or one-time contracts
Why Joint Ventures Fail?
● Define at the outset important issues such as each party’s contributions and
responsibilities, the distribution of earnings, the expected life of the relationship,
and the circumstances under which the parties can terminate the relationship.
● Understand their partner’s reasons and objectives for joining the venture.
● Select a partner that shares their company’s values and standards of conduct.
● Spell out in writing exactly how the venture will work and where decision-making
authority lies.
● Select a partner whose skills are different from but compatible with those of
their own company’s.
● Prepare a “prenuptial agreement” that spells out what will happen in case of
a business “divorce.”

Advantages of Joint Ventures

● access to new markets and distribution networks
● increased capacity
● sharing of risks and costs (ie liability) with a partner
● access to new knowledge and expertise, including specialised staff
● access to greater resources, for example technology and finance

Disadvantages of Joint Ventures

Problems may arise if:

● the objectives of the venture are unclear
● the communication between partners is not great
● the partners expect different things from the joint venture
● the level of expertise and investment isn't equally matched
● the work and resources aren't distributed equally
● the different cultures and management styles pose barriers to co-operation
● the leadership and support is not there in the early stages
● the venture's contractual limitations pose a risk to a partner's core
business operations

Foreign Licensing
Licensing is a relatively simple way for even the most inexperienced business
owner to extend his or her reach into global markets. Licensing is ideal for
companies whose value lies in its intellectual property, unique products or services,
recognized name, or proprietary technology. Foreign licensing enables small
businesses to enter the foreign markets with ease and with virtually no capital
investment. Although risks may include potential loss of control over its
manufacturing and marketing processes and creating a competitor. Securing patents,
trademarks and copyright protection may minimize these risks.
International Franchising

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Franchisers that decide to expand internationally should take the following steps:
1. Identify the country or countries that are best suited to the
franchisor's business concept
2. Generate leads for potential franchises
3. Select quality candidates
4. Structure the franchise deal
Countertrading and Bartering
● countertrade - a transaction in which a company selling goods in a
foreign country agrees to promote investment and trade in that country
● bartering - the exchange of goods and services for other goods and services
Exporting
Growing numbers of small companies are looking to export as a way of gaining or
maintaining a competitive edge.

Exporting can be defined as the marketing of goods produced in one country into
another.
Two types of Export:
1. Direct Exports - these represent the most basic mode of exporting made
by a company, capitalizing on in production concentrated in the home
country and affording better control over distribution. There are no
intermediaries.
2. Indirect Exports - a process of exporting through domestically
based export intermediaries.

Steps for a sound export strategy:

Step 1. Recognize That Even the Tiniest Companies and Least
Experienced Entrepreneurs Have the Potential to Export
Step 2. Analyze Your Product or Service
Step 3. Analyze Your Commitment
Step 4. Research Markets and Pick Your Target
Step 5. Develop a Distribution Strategy Step 6.
Find Your Customer
Step 7. Find Financing
Step 8. Ship Your Goods
Step 9. Collect Your Money

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 ● letter of credit - an agreement between an exporter’s bank and the
foreign buyer’s bank that guarantees payment to the exporter for a
specific shipment of goods.
● bank draft - a document the seller draws on the buyer, requiring the
buyer to pay the face amount either on sight or on a specified date.

Establishing International Locations

Establishing an office or a factory in a foreign land can require a substantial
investment reaching beyond the budgets of many small companies. The major
advantages to companies establishing international locations are lower
production, marketing, and distribution costs as well as the ability to develop an
intimate knowledge of local customers’ preferences, tastes, and habits.

Importing and Outsourcing

In addition to selling their goods in foreign markets, small companies also
buy goods from distributors and manufacturers in foreign markets. Also the
trend of outsourcing in order to cut costs and remain competitive is
prevalent among companies selling low-cost items as well as luxury goods.
The following are steps for entrepreneurs considering importing goods and
services or outsourcing:
● Make sure that importing or outsourcing is right for your business
● Establish a target cost for your product
● Do your research before you leave home
● Be sensitive to cultural differences
● Do your groundwork
● Protect your company’s intellectual property
● Select a manufacturer
● Provide an exact model of the product you want manufactured
● Stay in constant contact with the manufacturer and try to build a
long-term relationship

Lesson 3. Barriers to International Trade

Numerous trade barriers—domestic and international—restrict the freedom of
businesses in global trading.
Domestic Barriers
Three major domestic roadblocks are common: attitude, information, and
financing.the biggest barrier to small businesses exporting is the (1) attitude
that “My company is too small to export, (2) Lack of information about how to
get started, (3) Lack of export financing

Companies must be flexible, willing to make adjustments to their products and

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 services, promotional campaigns, packaging, and sales techniques.

International Barriers
Two types of international barriers: (1) Tariff and (2) Nontariff

Need to know: tariff - a tax, or duty, that a government imposes on goods

and services imported into that country.

● Tariff barriers. Imposing tariffs raises the price of the imported goods—making
them less attractive to consumers—and protects the domestic makers of
comparable products and services.
● Non Tariff barriers:
○ quota - a limit on the amount of a product imported into a country
○ embargo - a total ban on imports of certain products into a country.

Need to know: dumping - selling large quantities of goods at prices

that are below cost in foreign countries in an effort to grab market share
quickly.

Political Barriers
Companies doing business in politically risky lands face the very real dangers of
government takeovers of private property; coups intended to overthrow ruling
parties; kidnapping, bombings, and other violent acts against businesses and their
employees; and other threatening events.

Business Barriers
Simply duplicating the practices they have adopted (and have used successfully) in
the domestic market and using them in foreign markets is not always a good idea.

Cultural Barriers
Differences in cultures among nations create another barrier to international trade.
The diversity of languages, business philosophies, practices, and traditions make
international trade more complex than selling to the business down the street.

Impact of Trade Barriers

● on Employment. Domestic economy will produce goods and services
it requires to meet its demand which inturn will result in more
investment allowing more employment
● on Domestic Firms. Protectionism makes domestic firms less competitive
in the export market,as import barriers raise domestic prices through higher
costs for mediocre inputs. Due to this, export products also become costlier
resulting in decrease in market share against the international competition.
● on Consumers. Consumers pay more with protectionism. Trade protectionism
harms consumers by giving them little or no access to advance foreign

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 products and non-domestic that offer unique products subjected to
low market share
● on Balance of Payment. Tariffs and other barriers allow the deficit in
the balance of payment to be corrected.
● on Economic Growth. Trade barriers affect economic growth in developing
countries, which are unable to export goods because of high tariffs,
limiting their ability to prosper and expand their operations.

Lesson 4. International Trade Agreements

The following trade agreements have reduced some of the barriers to free trade that had
stood for many years.
The World Trade Organization (WTO)
● WTO was established in January 1995 replacing the General Agreement
of Tariffs and Trade (GATT)
● only international organization establishing rules for trade among nations
● the multilateral trading system (rules and agreements of WTO) are the
result of negotiations among its members
● the WTO’s General Agreement on Trade in Services addresses specific
industries, including banking, insurance, telecommunications and tourism
● it is involved in the resolution of trade disputes among its members

North American Free Trade Agreement (NAFTA)

● created a free-trade area among Canada, Mexico and the United States.

Need to know: free trade area - an association of countries that have

agreed to eliminate trade barriers, both tariff and nontariff, among
partner nations.

● barriers were eliminated for trade among the three countries

● forged a unified United States-Canada-Mexico market of 431 million
people with a total annual output of more than $13 trillion dollars in goods
and services
● provisions called for the reduction of tariffs to zero on most goods traded
among these three nations by 2008
○ other provisions:
■ tariff reductions
■ elimination of non tariff barriers
■ simplified border processing
■ tougher health and safety standards

Central American Free Trade Agreement (CAFTA)

● the agreement took effect on August 2, 2005

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 ● designed to promote free trade among the United States and six Central
American countries: Costa Rica, El Salvador, Guatemala, Honduras,
Dominican Republic, and Nicaragua

Conclusion: To remain competitive, businesses must assume a global posture. Global

effectiveness requires managers to be able to leverage workers’ skills, company resources,
and customer know-how across borders and throughout cultures across the world.

In addition to the text given, you can check this link to expand your knowledge on
International Trade Agreements.
https://www.youtube.com/watch?v=-v3uqD1hWGE :
What global trade deals are really about (hint: it's not trade) | Haley Edwards
| TEDxMidAtlantic

Apply your Knowledge

ACTIVITY PROPER: Why Go Global?

Select a nation that interests you and write or note down its business
customs and practices. How is it differ from our country Philippine? How is it
similar. Use the matrix below.

Business Customs/Practices Similarities Business Customs/Practices Differences

Note:
Business practices are any tactics or activity a business conducts to reach its objectives

Assess your Knowledge

The following are discussion questions which you can ponder on to maximize what
you’ve learned in this unit.

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1. What forces are driving small businesses into international markets?
2. Outline the eight strategies that small businesses can use to go global.
3. What are the benefits of establishing international locations? What are the
disadvantages?
4. What is a tariff? What is a quota? What impact do they have on international trade?
5. What advice would you offer to an entrepreneur interested in launching a global
business effort?

Summing - up

Globalization is the process of integration of national economies into a global

economic system. Trade is the action of buying and selling goods and services and
allowed nations to benefit from specialization and economies to produce at a more
efficient scale. It has also raised productivity and incomes, increased economic
growth, supported the spread of knowledge and new technologies, and it has enriched
the range of choices available to consumers.
Going global can put tremendous strain on a small company, but
entrepreneurs who take the plunge into global business can reap the following
benefits:
○ Offset sales declines in the domestic market.
○ Increase sales and profits
○ Extend their products’ life cycle.
○ Lower manufacturing costs
○ Lower the cost of their products.
○ Improve competitive position and enhance reputation.
○ Raise quality levels
○ Become more customer-oriented
Understanding trade costs is essential for creating policy interventions designed
to reduce such costs.
● Fulfillment of Minority Interest
● Specialization Leads to Over Dependency
● Cultural Identity Issues
● Social Welfare Issues
● Environmental Issues
● Political Issues
● Depletion of Natural Resources
● Seizure of Power and Loss of Control

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 Global thinking is the ability to appreciate, understand, and respect the
different beliefs, values, behavior, and business practices of companies and people in
different cultures and countries.
There are nine principal strategies which small companies can pursue in order
to enter a global presence: (1) creating a presence on the Web, (2) relying on trade
intermediaries, (3) outsourcing production, (4) establishing joint ventures, (5)
engaging in foreign licensing arrangements, (6) franchising, (7) using counter-
trading and bartering, (8) exporting products or services, and (9) establishing
international locations
The Web gives even the smallest businesses the ability to sell its goods and
services all over the globe. With a well-designed Web site, an entrepreneur can
extend its reach to customers anywhere in the world—and without breaking the
budget.
Trade intermediaries are domestic agencies that serve as distributors in
foreign countries for domestic companies of all sizes. They rely on their networks
of contacts, their extensive knowledge of local customs and markets, and their
experience in international trade to market products effectively and efficiently all
across the globe.
Joint Ventures are domestic or international enterprises involving two or more
companies joining temporarily to undertake a particular project. Its two types are
Equity based and Non-equity.
Licensing is formal permission from a governmental or other constituted
authority to do something, as to carry on some business or profession. It is ideal for
companies whose value lies in its intellectual property, unique products or services,
recognized name, or proprietary technology. Foreign licensing enables small
businesses to enter the foreign markets with ease and with virtually no capital
investment.
Exporting can be defined as the marketing of goods produced in one country
into another. Direct Exports - these represent the most basic mode of exporting
made by a company, capitalizing on in production concentrated in the home country
and affording better control over distribution. There are no intermediaries. Indirect
Exports is a process of exporting through domestically based export intermediaries.
Numerous trade barriers—domestic and international—restrict the freedom of
businesses in global trading such as:
● Tariff barriers. Imposing tariffs raises the price of the imported goods—
making them less attractive to consumers—and protects the domestic makers of
comparable products and services.
● Non Tariff barriers:
○ quota - a limit on the amount of a product imported into a country
○ embargo - a total ban on imports of certain products into a country.
● Political Barriers
● Business Barriers
● Cultural Barriers

To remain competitive, businesses must assume a global posture. Global

effectiveness requires managers to be able to leverage workers’ skills, company

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resources, and customer know-how across borders and throughout cultures across
the world.

References:

Christiansen, B. (2015). Handbook of Research on Global BusinessOpportunities.

Hershey, Pennsylvania, United States of America: Business Science Reference.
Retrieved from
https://www.academia.edu/10012606/Handbook_of_Research_on_Global_Business_
Opportunities
Goyat, S., & Nain, A. (2016, October). STRATEGIES OF ENTERING IN FOREIGN
MARKET. International Journal of Management Research & Review, 6(10). Retrieved
from
http://ijmrr.com/admin/upload_data/journal_Jyoti%20Goyat%20%203oct16mrr.pdf
Joint ventures and business partnerships. (n.d.). Retrieved from NI Business Info:
https://www.nibusinessinfo.co.uk/content/joint-venture-advantages-and-
disadvantages
Mittal, S. (2018, October). International Trade Barriers. International Journal
of Research and Analytical Reviews, 5(4). Retrieved from
https://www.academia.edu/37960838/INTERNATIONAL_TRADE_BARRIERS
Scarborough, N. M. (2011). Global Aspects of Entrepreneurship. In N. M.
Scarborough, Essentials of Entrepreneurship and Small Business Management
(6th ed., pp. 559 - 595). Prentice Hall Inc.
Sharp, A. G. (n.d.). Joint Adventures. Encyclopedia of Business. Retrieved from
https://www.referenceforbusiness.com/encyclopedia/Int-Jun/Joint-Ventures.html
University, L. S. (n.d.). MCQ Chap 01 - Chapter 01 Globalization and International
Linkages. Retrieved from coursehero.com:
https://www.coursehero.com/file/13070293/MCQ-Chap-01/

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 UNIT 8. RISK MANAGEMENT

At the end of the Unit, the students must have:

1. Listed and explained steps involved in preparing to face risks; and
2. Identified how to manage risks.

PRE ACTIVITY: Risk Management

Name: ________________________________________Score: ___________

Course/Section: _________________________________Date: ____________

Part I. Multiple Choice

Direction: Write the letter of the letter of your choice provided.

____1. Refers to the uncertainty about loss or injury in business.

a. Risk c. Poor management

b. Accident d. Innovative

____2. Which of these does not belong to the group?

a. Fire and allied risks c. Marine

b. General liability d. Loss of life

___3. People working in a small firm will have to worry about losses due to

sickness, injury, and death called?

a. Business insurance c. life insurance

b. Fire insurance d. Marine insurance

___4. Business firms purchase life policies for any or all of the following

reasons except?

a. For use as a fringe benefit for employees

b. To protect the firm against the financial problems caused by the loss of a key person

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 c. To aid in transferring ownership rights.
d. To keep control the business

___5. Which does not belong to the group?

a. Avoiding the risk c. reducing the risk

b. escalating risks d. shifting the risk

___6. This type of risk involves a threat of loss with no chance of profit. Examples

are the risk of fire, robbery, and injuries to third parties.

a. Pure Risk c. Risk management

b. Speculative risk d. risk assumption

___7. A fire insurance policy may also provide coverage on allied risks except?

a. Earthquake fire c. Riot and strike fire damage

b. Explosion d. none of the choices

___8. A person who wishes to avoid dying in an airplane crash and never

attempts to board airplanes is an example of?

a. Risk taking c. Risk avoidance

b. Risk assumption d. Risk policies

___9. Is an organized strategy for protecting and conserving assets and people.

It helps reduce financial losses caused by destructive or damaging events?

a. Risk management c. Shifting risks

b. Dealing with risk d. Balance the risk

___10. Your business might not be directly affected by a natural disaster, you may
still suffer if it affects your suppliers, customers or general location. What
type of risk in business?

a. Direct b. indirect c. Global d. Possible

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 How well did you do?

How do you feel about the test? Did it make you feel confident or
insecure? Your feelings will be your guide to go slow or breeze through this
module.

Here is the answer key to your pre-test.

Answers: Task 1

A 1perfect.A210.Dmakes3.Cyou4. wellD-known5.B entrepreneur6.A7.D

someday8.C. Please9.A continue10.B to study this module as a review. If you go
lower than 7, studying this module is a must.
7-9 Great Entrepreneur
4-6 Average Entrepreneur
0-3 Novice Entrepreneur

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Now let us begin the exploration of this Module.

UNIT 8. RISK MANAGEMENT

Lesson 1. Business Risks
“Don’t be afraid to take the risks, mas
kabahan ka Kung wala kang ginawa sa
buhay mo”

isks refers to the possibility of a

R commercial business making

inadequate profits (or even losses)
due to uncertainties - for example:
changes in tastes, changing preferences of
consumers, strikes, increased competition,
changes in government policy,
obsolescence etc. Every business organization faces various risk elements while
doing business. Business risk implies uncertainty in profits or danger of loss and the
events that could pose a risk due to some unforeseen events in future, which
causes business to fail.

Business risks can arise due to the influence by two major risks: internal
risks (risks arising from the events taking place within the organization) and external
risks (risks arising from the events taking place outside the organization)

 Internal risks arise from factors (endogenous variables, which can be influenced) such as:
o human factors (talent management, strikes)
o technological factors (emerging technologies)
o physical factors (failure of machines, fire or theft)
o operational factors (access to credit, cost cutting,
advertisement)

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 External risks arise from factors (exogenous variables, which cannot be
controlled) such as:
o economic factors (market risks, pricing pressure)
o natural factors (floods, earthquakes)
o political factors (compliance demands and regulations

imposed by governments)

Risks Confronting Small Business

Various kinds of risks are confronted by the small business in its daily
operations. The kinds of risk that are potentially damaging to the firm are fire,
burglary, accidents, infidelity of employees, damage to other people's property,
among others. There were instances when some firms were not able to recover
when damages had been done by unmanaged risks. Such misfortunes should
provide the SBO with sufficient reason to engage in risk management.

Major Types of Risks

Risks may be classified into two major types, namely:

1. Speculative risk, and

2. Pure risk.

Speculative Risk. This type of risk involves

a chance of either profit or loss. Engaging in
entrepreneurship is an example of speculative risk.
The venture may be successful, or it may fail. If the
firm is successful and a branch is opened in another
town, operating that branch is a kind of speculative risk. Speculative risk is dealt

with the use of effective management.

Pure Risk. This type of risk involves a threat of loss with no chance of profit.
Examples are the risk of fire, robbery, and injuries to third parties. If any of these
events occur, the firm loses money. If they do not occur, the firm gains nothing.
Pure risks are better confronted with the application of risk management techniques.

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What Is Risk Management

Risk management is an organized strategy for protecting and conserving

assets and people. It helps reduce financial losses caused by destructive or
damaging events. To effectively implement, the following must be undertaken:

1. Identify the pure risks confronting the firm;

2. Estimate the probability of financial loss in various situations that could go wrong;
and
3. Decide on the most economical way to handle the possible losses.

Methods of Dealing with Risk

In deciding the most economical way of handling possible losses, the SBO
must be familiar with the different methods of dealing with risk. The four methods
of dealing with risk are the following:

1. Avoiding the risk;

2. Reducing the risk;
3. Assuming the risk; and
4. Shifting the risk.

Avoiding the Risk

Avoiding the risk is a method of dealing with risk wherein the source of risk
is eliminated. A person who wishes to avoid dying in an airplane crash and never
attempts to board airplanes is an example of risk avoidance. Although risk avoidance
is an effective way of dealing with some risks, it is not so in many cases. Sometimes,
risk avoidance is just not practical. For instance, if someone wants to avoid the risk
of fire, renting a building (instead of owning it) avoids the risk. However, there are
times when no buildings are available for rent, and even if there are, they are in the
wrong place.

Moreover, even if the person is able to avoid owning the building, he may not

avoid owning machinery and equipment which may be lost to fire.

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 Reducing the Risk

Risk reduction refers to the steps undertaken to lessen the likelihood of a

loss. It is an alternative to risk avoidance. Examples of risk reduction measures are
the following:

1. Installation of non-skid stairways to minimize falls;

2. Implementation of accident prevention programs;
3. Requiring truck drivers to wear seatbelts to
minimize injuries from accidents,
4. Using fire sprinkles to minimize fire loss; and
5. Requiring machine operators to wear safety glasses, gloves, and safety shoes to

reduce the risk of injury.

Risk Assumption

Some companies find that setting aside an amount periodically to cover

possible losses is a viable alternative. This practice of building a contingency fund is
called self-insurance. In this manner, the company assumes the risk and gets ready
for whatever loss comes from the risks covered. This method may be used in
conjunction with the other methods. Risks that are too large for the company to
assume will be dealt with using other methods.

ACTIVITY PROPER 1: Business Risks

Direction: With your basic understanding supply a word in the cluster map of
the reasons why some businesses fail.

Why
businesses
fail?

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 Lesson 2. Insure against risks
“failures can be good only if you learn your lessons from it ”

Shifting Risks to an Insurance Company

hen the first three

W methods of handling risks

cannot meet the
requirements of the company or are
impractical, shifting the risks to an
insurance company may be feasible.
This involves the process by which the
firm, for a fee, agrees to pay another firm a sum of money stated in a written
contract when a loss occurs. The insured Party’s fee to the insurance company for
coverage against losses is called a premium .

Insurance substitutes a small known loss (the insurance premium) for a

larger unknown loss that may or may not occur. This method is most applicable
to large risks that the firm cannot afford to assume.

Life Insurance

People working in a small firm will have to

worry about losses due to sickness, injury, and death.
This is true with the employees, the managers, and
the owner/s of the firm. The financial strain may be
too much for the firm to carry if losses happen as a
result of not having such risks covered by life
insurance. If the sole owner of a small firm dies, for
instance, the surviving heirs may not be able to operate the firm effectively if they
still have to worry about expenses related to the death of the owner. As such, it
becomes mandatory that such risks are covered by life insurance.

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Types of life Insurance Policies

From the simple life insurance policy of old, life policies have evolved into
several variations. They may be classified according to the type of coverage and
according to the type of benefits and premium payments period.

Types of Life Insurance According to Coverage.

Life policies have become some sort of specialized contracts that they may

now.be classified as follows:

1. Life policies-this type of policy covers death due to any cause with

some exceptions like suicide;

2. Accident policies-these cover death due to

accidents. Sometimes, murder and assault are

also covered; and

3. Health policies-these are policies that cover medical

expenses related to sickness and preventive health
check-ups.

Types of Life Insurance Policies According to Other Factors.

Life insurance policies may be classified according to other factors as follows:
1. Term life insurance;
2. Whole life insurance;
3. Endowment life insurance; and
4. Other types.
Term life insurance is a kind of life policy providing protection for a specified
Period like one or two years. Benefits are paid only if the insured peril happens
(death, for instance) during the period covered.

Term insurance provides pure insurance cover, i.e., no other benefits are
included like accumulation of savings. This limited coverage lowers premium
and makes term insurance more affordable. If a small firm is cash strapped,
term insurance is a good alternative.

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 A whole life insurance policy provides the benefits of a stipulated sum when
the assured dies .Premiums are paid each year for as long as the assured lives. The
amount of Premium depends primarily on the age of the assured at the time the
insurance is purchased.

Whole life policies, unlike term policies, have cash value. This value refers to
the amount received by the assured if he gives up the insurance. The value

increases over the years until the policy is surrendered .

The limited payment

Policy requires that premium be

paid for a stipulated period, usually 20 to
30 years, or until a specified age such as
60 or 65 is reached. The payments or
premiums stop at the end of the stipulated
period or at the time or death of the
assured, whichever comes first. Coverage
extends beyond the stipulated Payment period until the assured dies and the

face amount of the policy is paid.

The single premium payment policy

Is a type of contract where only one premium payment is made . Modified life
insurance contracts are those in which the premiums are arranged so that they are
smaller than average for the first five or 10 years of the policy and slightly larger
than average for the remaining years of the contract. This arrangement fits the
needs and the ability to pay of a young married person with a limited income.

A variable life policy has a cash value that fluctuates according to the
yields earned by a separate fund. A minimum death benefit is guaranteed.

An adjustable life policy is one whose coverage can be increased or

decrease by changing either the premium payment or the period of coverage.

A universal life policy combines term insurance with investment.

Premiums are paid at any time in virtually any amount with the effect that the

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amount of insurance can be changed easily. The interest earned on short-term

investment poured into the plan increases the cash value of the policy.

An endowment life policy is one that builds up a large cash value

within a stated period of years. The face amount of the policy is payable in the event
of death before the policy expires.

Other types of life policies are group life and credit life.

Group life insurance are term life insurance issued on a

master contract for members of a group.

Credit life insurance is a contract arranged in an amount needed to

pay a debt in the event of death of the borrower.

Business Uses of Life Insurance

Business firms purchase life policies for any or all of the following reasons:

1. for use as a fringe benefit for employees;

2. to protect the firm against the financial problems caused by the loss of a
key person; and
3. to aid in transferring ownership rights.

When purchased as a benefit for employees, group life insurance helps

attract and maintain employees. When a key employee dies, financial losses may
come as a result. The purchase of life insurance offers protection against such type
of losses. The beneficiary of the Policy is the firm and the key employee is the
subject of insurance. Life insurance proceeds also make the transfer of ownership
interest easier because of the availability of cash at the time of death. This may also
help the family keep control of the business.

Non-Life Insurance

Small firms also face risks regarding

the following:

1.losses on properties owned by the firm due

to fire, robbery, theft, and the like, and

2. Losses due to liability claims of third parties.

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 The firm may be protected against such risks through the purchase of non-
life insurance appropriate to each specific requirement. The following types of
non-life insurance may be bought from reputable companies:

1. Fire insurance;
2. Motor car insurance;
3. Marine insurance;
4. General liability insurance;
5. Bonds; and
6. Miscellaneous insurance policies.

Life and non-life insurance companies operate throughout the Philippines

maintaining distribution network in at least all the provincial capitals.

Insurance Coverages

LIFE NON-LIFE

Loss of Fire and allied

Life risks

Motor Car
Health

Marine
Retirement

Surety

General liability

Miscellaneous
risks

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Fire Insurance

The risks of losses due to fire may be covered by fire

insurance. The subject of fire insurance may include
properties owned by the firm such as:

1. Buildings;
2. Machinery;
3. Furniture,
4. Stocks of merchandise;
5. Raw materials; and
6. work-in-process.

A fire insurance policy may also provide coverage on allied

risks such as:

1. Earthquake fire;
2. Earthquake shock;
3. Windstorm, typhoons, and flood;
4. Riot and strike damage and riot fire damage; and
5. Explosion.

Motor Car Insurance

If the firm owns motor cars like

automobiles and delivery 'vans, losses may
occur due to the following:

1. Damage on the motor car itself;

2. Damage to properties of third
parties; and
3. Physical injuries to third parties.

The following coverages can be purchased from insurance companies:

1. Own damage and theft insurance to cover losses on the vehicle itself
2. Third party property damages

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3. Third party liability-body injury to third parties
4. Passenger liability insurance

Marine Insurance

When a small firm delivers products to

its various clients, there is always a risk that
loss or damage may be affected on the
merchandise or the vehicle carrying the goods.
Sometimes, deliveries involve transporting
overseas or over long inland routes which
increases the risk of loss or damage to the
products.

The small business operator may be protected from such possible loss or
damage through the purchase of marine insurance. This type of insurance is a form
of property insurance which indemnifies the insured for loss or damage to property,
and a form of liability insurance protecting the insured against the consequences of
legal liability for loss or damage to property or for personal injury, illness, or death of
another person.

Marine insurance may be classified as follows:

1. Ocean marine insurance-this is one which covers primarily sea perils of ships and
cargoes, which can be protected from the warehouse of the seller to the
warehouse of the buyer.

2.Inland marine insurance-this is one which covers primarily the land or over the
land(but sometimes water)transportation perils of property shipped by railroads,
motor trucks and other means of transport.

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General Liability Insurance

There are times when business

firms become the subject of liability
suits arising from loss or damage
caused by any of the various aspects of
business operations. Examples of these
are several incidents of death and
illness caused by food poisoning.

If these happen to customers of food shops, the owners of these

establishments could be sued. The risks of liability suits are always present in all
firms including small business.

To protect himself, the SBO should consider buying liability coverage for

his specific need. Business liability forms of insurance consist of the following:

1. Owner’s, Landlord’s, and Tenant's Liability Policy

2. Manufacturer’s and Contractor's Form
3. Comprehensive General Liability Form
4. Contractual Liability Form
5. Owner’s and Contractor's Protective Liability Insurance
6. Products and Completed Operations Liability Form
7. Products Recall Insurance
8. Personal Injury Liability Policy
9. Storekeeper Liability Policy
10. Dram shop Liability Policy

Bonds

Surety bonds guarantee the performance of certain obligations. Bonds

are useful to small firms concerning the following risks:

1. Employee dishonesty;

2. A supplier's failure to honor a supply contract; and

3. A contractor's failure to complete a construction contract with the small business firm.

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 Fidelity Bond. This type of bond protects the SBO against losses suffered
as the result of dishonesty on the part of employees. It is an especially important
kind of insurance to carry if the SBO has delegated authority over the handling of
large sums of money, the control of large blocks of merchandise or other company
assets, or the responsibility for receiving and shipping merchandise.

Supply Contract Bonds. These refer to bonds that guarantee the faithful
performance of contracts for furnishing supplies and materials at an agreed price,
the SBO may require this bond from a supplier if the materials required are critical to
the operations of the firm.

Performance Bond. This type of bond guarantees performance and may

be required by a small firm from a contractor who agreed to construct a building or
a facility for the firm.

Miscellaneous Insurance Apart from those mentioned above, the small

firm may incur losses connected with any of the following:

1. Crime;
2. Boiler and machinery; and
3. Glass;
4. Credit.

Special kinds of insurance may be purchased to cover losses on such risks.

Crime Insurance. This type of insurance protects SBOs against losses due
to its being wrongfully taken by someone else. Crime coverage includes possible
losses from burglars, robbery, larceny, theft, forgery, embezzlement, and other
dishonest acts.

Glass Insurance. The large amounts of cash outlay invested in glass used
for light, displays, and ornamentation exposes the SBO to losses. Glass insurance
covers such losses.

Boiler and Machinery Insurance. This type of insurance provides

protection against loss from the accidental bursting or breaking of a great variety
of apparatus.

125
 Credit Insurance. A credit insurance policy protects the small firm against
loss that may result from the insolvency of persons to whom the SBO may extend
credit within the term of insurance.

ACTIVITY PROPER 2: Insure against risks

Create your own insurance company and identify the terms and conditions
you want?

Name of the
company

Terms

Conditions

126
 Unit 3. Other risks
”Kapag napapagod at nagsasawa sa trabaho,
balikan at tandaan ang dahilan kung bakit natin ginagawa ito”

Identifying business risk

T
here are many different types of business

risk. Risks can be internal and external to

your business. They can also directly or

indirectly affect your business's ability to operate. Risks can
be hazard-based (e.g. chemical spills), uncertainty-based
(e.g. natural disasters) or associated with opportunities (e.g.
taking them up or ignoring them).

The types of risk you face are specific to your business and its objectives. To
effectively manage risk you should prepare for internal and external scenarios that
may directly affect your business.

Direct risks to your business. Some common risk categories are:

• natural disasters, such as floods, storms, bushfires

and drought
• pandemic, such as coronavirus (COVID-19), human
influenza, swine flu or bird flu
• legal, such as insurance issues, resolving disputes,
contractual breaches, non-compliance with
regulations, and liabilities global events, such as pandemics and interruptions
to air traffic
• technology, such as computer network failures and problems associated with
using outdated equipment
• regulatory and government policy changes, such as water restrictions,
quarantine restrictions, carbon emission restrictions and tax
• environmental, such as climate change, chemical spills and pollution

127
• work health and safety, such as accidents caused by
materials, equipment, or location of your work
• property and equipment, such as damage from natural
disasters, burst water pipes, robbery and vandalism
• security, such as theft, fraud, loss of intellectual
property, terrorism, extortion and online security and fraud
• economic and financial, such as global financial events, interest rate increases,
cash flow shortages, customers not paying, rapid growth and rising costs
• staffing, such as industrial relations issues, human error, conflict management
and difficulty filling vacancies
• suppliers, such as issues within their business or industry resulting in failure or
interruptions to the supply chain of products or raw materials
• market, such as changes in consumer preference and increased competition
• Utilities and services, such as failures or interruptions to the delivery of your
power, water, transport and telecommunications.
You should use this list as a starting point for thinking broadly about the types of
risks that could impact your business. You may discover that you need to consider
other important areas of risk that are not listed here.

Indirect risks to your business

People often make the mistake of overlooking things that don't directly impact their
business and are therefore unprepared to deal with change. For example, while your
business might not be directly affected by a natural disaster, you may still suffer if it
affects your suppliers, customers or general location.

Consider how these scenarios could affect your business:

• If your suppliers are affected, you may run out of the products you sell, or
the materials you need to make products.
• If your customers are personally affected, their priorities may change and you
could experience a reduced demand for your products or services.
• If your general location is affected, you and your customers may not be able to
access your premises, or your utilities could be affected. For example, you
could lose power, which could mean you:

128
 o will not be able to operate your business
o may need to throw out any perishable goods and replace them, which can

be costly.

Managing risk in your business

The process of identifying risks, assessing risks and

developing strategies to manage risks is known as risk
management. A risk management plan is an essential
part of any business as it helps you to understand
potential risks to your business and identify ways to
minimize them or recover from their impacts.

ACTIVITY PROPER 3: Other risks

Direction: Describe the image below, relate your discussion on how businesses

address the risks, and write your answer inside the note pad below .

129
 Post-Activity No. 1: Risk Management

Name: ________________________________________Score:___________
Course/Section: _________________________________Date: ___________

I. MATCHING TYPE
Directions: Kindly match the statements in column B with its
answer in column A. Write the letter of the correct answer on the
space provided.

Column A Column B

___1. Major types of risks A. Kind of life policy providing protection for a specified
time like one or two years
___2. Pure risks B. One that has the cash value that fluctuates according
to the yields earned by a separate fund
___3.Risks assumption C. For use as a fringe benefit for employees
___4. Fire and Allied risks D. loses due to liability claims of third parties
___5. Term life insurance E. An insurance which covers sea perils and ship cargoes
___6. A variable life policy F. Covers employee dishonesty
___7. Reason why firms G. Risks that may be covered by non-life policies
purchase life policy
___8. Risks confronting small H. Speculative risks and pure risks
firms
___9. Ocean marine Insurance I. Threats and loss with no chance of profit

___10. Fidelity bond J. Setting aside an amount periodically to cover possible

losses

Post-Activity No. 2: Risk Management

PART II. PICTURE ANALYSIS

Directions: Below are the pictures of various risks and practices in business
operation. Kindly examine them carefully and explain each inside the box provided.

130
 Explain:

Explain:

Explain:

Note: Five (5) point rubric will be used in rating your answers
Level Description Value
Outstanding Well written and very organized. Excellent grammar 5
mechanics. Clear and concise statements. Excellent effort and
presentation with detail. Demonstrates a thorough
understanding of the topic.
Good Writes fairly clear. Good grammar mechanics. Good 4
presentation and organization. Sufficient effort and detail.
Fair Minimal effort. Minimal grammar mechanics. Fair presentation. 3
Few supporting details.
Poor Somewhat unclear. Shows little effort. Poor grammar 2
mechanics. Confusing and choppy, incomplete sentences. No
organization of thoughts
Very Poor Lacking effort. Very poor grammar mechanics. Very unclear. 1
Does not address topic. Limited attempt.

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 Post-Activity No. 3: Risk Management

Modified True or False: Write True if the statement is true and if other change
the underline words to make it correct.
______1. Accident policies provides pure insurance no other benefits are included
like accumulation of savings. This limited coverage lowers premium

and makes term insurance more affordable.

_____2. A machinery insurance policy protects the small firm against loss that may
result from the insolvency of persons to whom extend credit within the

term of insurance.

_____3. Credit insurance includes possible losses from burglars, robbery, larceny,
theft, forgery, embezzlement, and other dishonest acts.

____4. Inland marine insurance covers primarily the land or over the land
transportation perils of property shipped by railroads, motor trucks and

other means of transport.

____5. A person who wishes to avoid dying in an airplane crash and never attempts
to board airplanes is an example of risk management.

____6. Risk reduction refers to the steps undertaken to lessen the likelihood of a
loss. The best examples is requiring machine operators to wear

safety glasses, gloves, and safety shoes to reduce the risk of injury.

_____7. People working in a small firm will have to worry about losses due to
sickness, injury, and death. This is true with the employees, the managers,

and the owner/s of the firm called non-life insurance.

______8. Health policies are policies that cover medical expenses related to sickness
and preventive health check-ups.

______9. Example of general liability insurance is the incidents of death and illness
caused by food poisoning. If these happen to customers of food shops,

the owners of these establishments could be sued.

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_____10. Whole life insurance is a kind of life policy providing protection for a
specified Period like one or two years. Benefits are paid only if the insured

peril happens (death, for instance) during the period covered.

References

Medina, Robert G. (2010), Entrepreneurship in the small

business Management. Rex Book Store Inc.

Winefreda B.Asor, (2009) .Entrepreneurship in the Philippine setting.Rex Book

Store Inc.

Internet sources:
https://www.business.qld.gov.au/running-business/protecting-business/
risk-management/identifying-risk

http://www.strategicthinking.eu/10-common-business-plan-mistakes-and-
how-to-avoid-them/

https://www.infoentrepreneurs.org/en/guides/manage-risk/

https://www.google.com/search?q=competition+icon&tbm=isch&ved=2ahUK
Ewjz_4GY9pXrAhWSG6YKHeVaBzQQ2-

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