SHS

APPLIED ECONOMICS
Quarter 2 -Module VIII
APPLYING BUSINESS PRINCIPLES, TOOLS, AND
TECHNIQUES IN ENGAGING IN VARIOUS TYPES
OF INDUSTRIES IN THE LOCALITY

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Applied Economics – SHS
Quarter II – Module 8: Applying Business Principles, Tools, and Techniques in
Engaging in Various Types of Industries in the Locality

Republic Act 8293, section 176 states that: No copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the
government agency or office wherein the work is created shall be necessary for
exploitation such work for profit. Such agency or office may, among other things,
impose as a condition the payment of royalties.

Borrowed materials (i.e.., songs, stories, poems,, pictures photos, brand

names, trademarks, etc.) included in this book are owed by their respective copyright
holders. Every effort has been exerted to locate and seek permission to use these
materials from their respective copyright owners. The publisher and authors do not
represent nor claim ownership over them.

Regional Director: Gilbert T. Sadsad

Assistant Regional Director: Jessie L. Amin

Development Team of the Module

Writer: Jemima T. Rodriguez

Editors: Romel G. Petajen
Jezrahel T. Omadto
Carol P. Gil
Reviewers: Romel G. Petajen
Jesslyn T. Taway
Jogene T. San Juan
Carol P. Gil
Illustrator: Javine M. Tolledo
Layout Artist: Javine M. Tolledo
Language Editor: Elena Carullo

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 APPLYING BUSINESS PRINCIPLES, TOOLS,
AND TECHNIQUES IN ENGAGING IN VARIOUS TYPES
OF INDUSTRIES IN THE LOCALITY
The terms industry and sector may seem the same but have different meanings.
Oftentimes, industry can be used interchangeably as sector, or vice versa, in describing
group of companies in the same segment of the economy or similar business type. There
are dozens of sectors in the Philippines but thousands of industries.

There are different industry classifications and can be categorized according to

similar business activities in a more specific group such as insurance industry, automaker
industry, shoe industry, etc. These industries can be grouped into larger categories called
sector such as primary sector, secondary sector, and tertiary sector.

You can also watch the video on the differences between industry and sector in this
link https://www.investopedia.com/ask/answers/05/industrysector.asp. as additional
information.

The learners shall be able to:

 Apply business principles, tools, and techniques in engaging in
various types of industries in the locality.

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  Sector - refers to a larger, general part of the economy in which large groups of
companies can be categorized.
 Agriculture, Fishery, and Forestry is considered as the primary sector engaged in
the production and harvesting of natural resources.
 Industrial Sector refers to manufacturing, construction, electricity, gas and water,
mining and quarrying
 Service Sector refers to that part of the economy engaged in trade, transportation,
communication and storage, banking and finance, public service (government) &
private service, and real estate.

Direction: Read carefully and analyze the case below. Then answer the questions .

CASE 1: HONDA CARS PH TO STOP AUTOMOBILE PRODUCTION IN MARCH

By CNN Philippines Staff
Published Feb 22, 2020 8:58:25 PM
*Updated Feb 23, 2020 12:46:00 PM

Metro Manila (CNN Philippines, February 22) — Automobile maker Honda

announced on Saturday that it will stop production operations in the country by next month.
Honda Cars Philippines, Inc. said the company will close its production plant in Sta.
Rosa, Laguna in March. The company is known to produce passenger cars and models
such as the BR-V and City.
HCPI said closing the plant was necessary to meet customer's needs through
"efficient allocation and distribution of resources."
"As such, after consideration of optimization efforts in the production operations in
Asia and Oceania region, Honda decided to close the manufacturing operations of HCPI,"
said HCPI in a statement.
The company said it has around 650 employed associates in the country, but it did
not detail how many may be affected by the closure. However, it clarified that automobile
sales and after-sales services will continue.
Labor group Defend Jobs Philippines claimed that there are 387 people who will lose
their jobs over the closure of the plant. The group said workers from 60 other companies
who supply parts to HCPI will also be affected.
Defend Jobs Philippines said it has urged the Labor Secretary Silvestre Bello III to
“directly intervene, conduct impartial investigation and thoroughly look into” the reported
closure.
"Our government must not just allow the announced closure of HCPI without
undergoing proper evaluation and assessment but rather consider the holistic benefits of
Filipino workers," said Thadeus Ifurung, Defend Jobs Philippines spokesperson.
HCPI has a capital investment of ₱1.9 billion. It was first established in 1990 and it
started production in 1992.
Last month, Honda, along with fellow automaker Toyota, recalled millions of
vehicles due to safety issues. Honda recalled 2.7 million cars - of which 2.4 million are in the

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United States. On the other hand, Toyota called back 3.4 million cars, 2.9 million of which
are in the United States.
In February 2019, Honda also announced that it will shut down its only British
factory on 2021, which employs 3,500 people. Honda said production would shift to Japan,
North America, and China. Christian Stadler, an auto expert and professor of strategic
management at Warwick Business School, said Brexit or the United Kingdom's departure
from the European Union may have been a factor in the automaker's decision, CNN
reported. (cnn, n.d.)

Discussion Questions:

1. In which industry and sector does Honda Cars belong?

2. Carefully read the last paragraph of Case 1. Write your comments regarding
Honda’s decision to shift its production to Japan, North America, and China, in
relation to other information stated in the case. Your answer should justify the
decision vis-à-vis the decision to close the manufacturing operations of HCPI (Honda
Phils), with supporting information.

In the previous lesson, you learned that industry is part of different business
activities which works for the same line of undertaking to produce goods such as
farms, factories, mines, etc. It refers to a specific group of companies or businesses.
On the other hand, sector refers to a larger, general part of the economy in which
large group of companies can be categorized.

The economy has three (3) main producing sectors:

1. Agriculture, Fishery and Forestry Sector
2. Industrial Sector
3. Service Sector

 Agriculture, Fishery and Forestry Sector – It is considered as the primary

sector engaged in the production and harvesting of natural resources such as
crops, fruits, and vegetables, food and other agricultural products, all livestock
and livestock products, forestry and other fishery products.

Consider the data released on February 5, 2020 with Reference Number

2020-048 on the 2017 Final Results on Annual Survey of Philippine Business and
Industry (ASPBI) in Agriculture, Forestry and Fishing Sector (source from
https://psa.gov.ph/agriculture/aspbi-id/157127)

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 Table A showed that there was an increase of 5.6 percent in in the formal sector of the
economy engaged in agriculture, fishery and forestry in 2017. In Figure 1, animal
production had the biggest number of establishments with 1,238 or 41. 3 percent of the total.

 INDUSTRIAL SECTOR – This is considered as the secondary sector. This sector is

comprised of industries that make finished products, such as those in manufacturing
and in construction. The industrial sector usually accepts the primary sector’s end-
products and then applies them to manufacture completed products that are then
either purchased by the end user or sent for further processing or fabrication. Most
industries in this sector transform raw materials into finished products. Large
quantities of energy are consumed to run the process. Manufacturing industries tend
to generate pollution and are the source of environmental problems.

 SERVICE SECTOR – This is considered as the tertiary sector. It is comprised of

industries that produce intangible goods, specifically services such as skills,
application of labor and technology, etc. The Philippines is a source of high-quality
human resources in trade and a net exporter of services.

o What makes up the Services sector in the Philippines?

 Philippines Service sector is composed of those industries that are
engaged in the following according to the Philippine Statistics
Authority:

Services that facilitate exchange

Wholesale & Retail Information & Financial & Real Estate

Trade Communication Insurance Activities
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 Services that change the condition of a good or product

Repair of Motor Vehicles Professional, Scientific Transportation

& Motorcycles & Technical Activities & Storage

Services that change the physical or mental condition of people

Accommodation & Food Administrative & Public Education

Services Activities Support Services Administration
Activities & Defense

Human Health & Arts, Activities of Activities of

Social Work Entertainment Extraterritorial
Households
Activities & Recreation Organizations & Bodies as

Its gross value-added contribution increased from 36.6% in the 1970s to 57% in
2014. It also grows by
an average of 6.3%
ECONOMIC STRUCTURE (% SHARE TO GDP)
annually during the years
2000 to 2014.

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 At constant 2000 prices; in percentage.

ECONOMIC STRUCTURE

At constant 2000 prices; in million pesos.

INDUSTRY ANALYSIS. In a book published by the Development Academy of the

Philippines, How to Prepare Project Feasibility Studies, industry analysis includes the
following important factors:
1. COMPETITION. Know your competitors as to who the major businesses in
the industry are; the locations close to your proposed business and how long
the businesses have existed or if there are still new entrants; and know the
market share of each of these businesses. The goal is to win customers and
remain as loyal customers.
2. CUSTOMERS. Identify the target market to whom you will sell the
products/services; the level or bracket of income groups; age brackets;
gender; career groups, the type of people you want to cater, and their
preferences, lifestyle and buying habits.
3. SUPPLIERS. It is important to maintain good relationship with the suppliers
to ensure the availability of raw materials for prompt operations. A business
needs supplier to provide the needs for the production of goods.
4. SUBSTITUTES are products that serve similar need and can satisfy the same
needs of a consumer instead of another. Example, Pepsi cola may be a
substitute for Coca Cola; margarine to butter; wheat bread to white bread, but
not everybody will be willing to switch to other brands.

A GUIDE TO INDUSTRY ANALYSIS

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 A guide developed by North Carolina’s Small Business and Technology Development
Center (SBTDC) can help in the analysis of one’s business industry. The following are the
key factors to be considered in analyzing and identifying your industry:
1. Geographic Area – identify whether for local, regional, nationwide, or international
2. Industry (as to size) – worth of assets and number of firms, trends, and
developments and future look.
3. Product – describes product as to physical attributes and characteristics, and its
uses.
4. Buyers – identify target customers as to age, income group, sex, lifestyle, tastes,
preferences, etc.
5. Regulatory environment – includes government laws and regulations that apply to
the business.
6. Company information – a description of firm’s history, services offered of a
business.
7. A brief history of the industry – when it started and how it developed
8. Factors that affect growth of the industry such as migration of population from
rural to urban areas
9. Trends in sales over recent years that show the actual sales in the industry
over the past 5 years.
10. Current operational/management trends within the industry, which are
standard practices prevalent among the firms.
11. The types of marketing strategies prevalent within the industry.
12. Competitor information – includes the location of competitors and how long have
they been in business and their market share.

ENVIRONMENTAL ANALYSIS evaluates the possible or probable effects of external forces

and conditions on the survival and growth of the business. It includes the following thorough
study of:

1. ECONOMIC FORCES – includes income, target market, economic conditions such

as inflation, recession, prosperity, demand, and supply in the market.
2. PHYSICAL ENVIRONMENT – includes the population size, geographical location,
land distribution, and climate.
3. POLITICAL FACTORS – include the political stability of the government, the
leadership style of those in the government.
4. CULTURES AND LIFESTYLES – include cultural practices such as fiestas,
celebration of the Christmas season and other celebrations, trends/patterns and
spending behavior.
5. COMPETITION – the degree of competition and strength of competition are vital in
determining the success or failure of one’s business.

In the previous lesson, we discussed the different tools/techniques that will help you
in assessing the most important factors that may affect your business. Microeconomic
environment and macro-economic environment help in examining and addressing the
economic issues, and thus, interconnected with each other. For example, a high inflation
rate affects an increase in the prices of raw materials which in turn affect the final
product offered to the consumers. Micro-economic environment is more likely on the

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 decisions made by the individual and business. The microeconomic
environment includes market structures, customers, suppliers, and competitors, while
macroeconomic environment includes the gross national product (GNP) and real income
growth, income distribution, expending patterns and trends in consumer spending,
borrowing patterns and governmental legal restrictions, and other economic variables,
like cost of living interest rates and disposable income.

EXAMPLE:
CASE 2: Read carefully and analyze the case below. Then answer the questions
that follow.

PepsiCo is the largest selling beverage the world over, of course after its archrival
Coca Cola. It accounts for a 37% share of the global beverage market, and therefore they
need to understand each country’s market to stay in line with their situations.
Pepsi is a big brand, currently holds the 23rd place in the Interbrand’s report of the
World’s Leading Brands. Their advertisements feature major celebrities and athletes like
David Beckham, Robbie Williams, Britney Spears, and Michael Jackson etc.
Their market reach is also diverse, as they are present in almost every country from
the US to New Zealand.
Pepsi is a non-alcoholic beverage and is therefore regulated by the FDA. So, they
are supposed to maintain a firm standard of the laws set out by the FDA with consistency.
Also, many different markets across the world have different set of regulations that are either
relaxed or are stringent. There is competitive pricing by Pepsi’s competitors and that is one
factor that Pepsi always must keep in mind. The political scenario also matters greatly as
there can be some civil unrest in certain markets or due to inflation the sales of the product
can fall. Most importantly, cross border situations are starkly different therefore Pepsi must
stay in line with all those policies and changes so that they can adapt to all those changes
accordingly.
As the recent economic downturn has plagued the economy, companies had to
restructure their sales and marketing campaigns greatly. Also, with diminishing profits they
had to undergo downsizing internally and re-think upon how to penetrate the market.
Economic conditions have the highest influence on a business, regardless of what trade it is
in. The economic downturn that started in 2008 resulted in increased sales of its beverages
mainly as people were being laid off from jobs, they were spending time with friends and
family or at home, to Pepsi’s favor.

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 Social factors greatly impact Pepsi, as it’s a non-alcoholic beverage and has to
remain in line with the strict and stark differences of cultures the world over. Also, Pepsi
must communicate its image as a global brand so that the people can associate it with
themselves as something that connects the world together. Usually, the social implications
are seen in marketing campaigns for example certain countries have religious festivals, so
Pepsi has to keep in line with all those festivals in order to understand the psyche of their
market and how they can cash upon the opportunity.
With the advent of the new age in technology, companies have completely integrated
themselves with all the recent changes that have taken place. To mention a recent trend that
has greatly picked up and something that almost every business is turning toward is social
media. The social media explosion has allowed for increasingly interactive engagement with
the consumers with real time results so Pepsi has to stay ahead of all the developments that
take place with keeping in view how the youth of today utilizes technology for their benefit
and how can Pepsi reach them in order to keep on increasing brand recall and brand
engagement.
There can be many legal implications upon the beverage industry. I would cite one
very famous incident that took place in India, where Pepsi was accused of using
contaminated water, given a lab test that was done upon the water flowing into the Pepsi
factory that was located nearby an industrial estate. A massive recall was issued for the
products from shelves and then the product was tested costing the company many billions of
dollars upon the tests as India is a very major market.
These factors can affect Pepsi, but not immensely alter its trade and profit generation
as these factors affect agri-businesses much more directly.
(https://pestleanalysis.com/examples-of-pestle-analysis/)

DISCUSSION QUESTIONS:

1. Which external factors affect the operation of the business?

2. What are the best tools/techniques applicable for PepsiCo?

PRACTICE TASK 1:

What are the important factors to be considered in industry and environmental

analysis? Can these factors be of help in identifying tools/techniques to be applied in
the business?

PRACTICE TASK 2

Direction: Read carefully and analyze the case below. Then answer the questions that
follow.

PEPSICO AND OTHER PRODUCTS IN A WOOLWORTHS SUPERMARKET IN

AUSTRALIA

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 PepsiCo’s current position as the second biggest firm in the global food and
beverage market is based on the company’s ability to wield its strengths to continue growing.
The company grows despite an increasing level of market saturation.

As a successful global company, PepsiCo has one of the strongest brands in the
market. This enables the firm to attract consumers to its new products. In addition, the broad
product mix represents PepsiCo’s increasing ability to reach various markets and segments,
such as through Frito-Lay products, Quaker products, and Pepsi products. PepsiCo’s
extensive global production and distribution networks support the company’s international
growth and expansion strategies.
PepsiCo derives about 70% of its revenues from markets in North America and
South America. This weakness indicates that the company has not yet maximized potential
revenues outside the Americas. In addition, PepsiCo operates primarily in the food and
beverage industry. This is a weakness because it maximizes the company’s vulnerability to
risks in the food-and-beverage market. Also, PepsiCo fails to effectively market many of its
products to health-conscious consumers.

PepsiCo can diversify its businesses, such as by acquiring a complementary firm that
is not in the food and beverage industry. Another opportunity is for PepsiCo to increase its
penetration in developing countries to generate more revenues from markets outside the
Americas. In addition, PepsiCo can create alliances with complementary business to
increase its market presence.

Aggressive competition is a major threat against the company. The influence of the
Coca-Cola Company is especially significant against PepsiCo. In addition, the healthy
lifestyles trend is a threat against PepsiCo’s products, many of which are unhealthful
because of their sugar, salt, or fat content. Also, environmentalism threatens the company in
how consumers negatively respond to product waste and lifecycle issues. (Panmore
Institute, 2017)

Discussion Questions:
1. What are the most significant internal and external factors in PepsiCo to support and
continue its global growth strategy?
2. What are the major challenges in the areas of competition, changing consumer
behaviors, and product development that threaten and limit organizational
development and must be addressed through changes in its growth strategy?
3. Based from item no. 1 & 2, identify which tools/techniques can be best applied for
PepsiCo? Why? What recommendations can you give based on your analysis?

5 - POINT RUBRIC (ESSAY)

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5 = A Comprehensive/Analytical Essay – discusses extensive information.
4 = Well-written/include some analysis – discusses strong information.
3 = Well-written but lacks balance/lacks analysis – limited outside information
2 = Weak Essay/lacks organization/no analysis – little outside information
1 = Poorly written/barely addresses question – no outside information, factual errors

VII – POST-TEST

Read carefully and analyze the case below. Then answer the questions that
follow.

Photo credit: (www.google.com, n.d.)

KFC, also known as Kentucky Fried Chicken, is undoubtedly one of the most
dominant fast-food franchises all around the world. It has managed to establish its
presence in over 140 countries with more than 22,000 locations globally. Established
by Colonel Sanders in 1952, it has seen a lot of ups and downs before taking its spot
as one of the largest fast-food restaurant chains. Known for its trademark secret
ingredient of 11 herbs and spices, it is one of the most popular choices for chicken
lovers.
However, there are many critical external and macro-environmental
factors that influence and shape its growth and success.
One of the major political factors that influenced and shaped the fast-food
franchise is its association with unhealthy food laden with high-calorie diet. From
Kentucky Fried Chicken, the restaurant changed its name and identity to its
abbreviation, KFC. This was done with the intent of dropping fried chicken from its
name without having to undergo any major internal changes. Though this was a
clever move from the franchisee, it has gone under fire by various nutritionists and

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campaigners as it capitalizes on the psychological vulnerability of most people.
Additionally, there has been a gradual rise of health-conscious individuals and
campaigns against many fast-food chains and restaurants for promoting obesity and
an unhealthy lifestyle.
Many fast-food restaurant chains are failing to generate sustainable profits.
Again, one of the key reasons behind this is their association with an unhealthy
lifestyle and diet. KFC has a menu mostly comprising of fried chicken which has a
high calorie content and unhealthy fats. They have recently diversified their menu to
include more vegetarian and vegan options. Though this is a welcome change to
promote a healthier approach to fast food, there is still a lot of work to be done to
overcome its reputation of being unhealthy.
KFC is also known for its budget menu where people get high value for their
money. Paired with a steadily declining customer base, this is a major economic
factor that plagues KFC’s growth.
KFC, along with other popular fast food brands struggle with many social
issues and problems. Paying employees, a minimum wage is one of the top issues
that associate a negative connotation to the brand. Despite being a global brand with
a presence in over 140 countries, employees in most outlets are paid minimum wage
without any benefits or perks.
KFC is also under constant fire for using lucrative and
suggestive advertisements to lure children and masses to their restaurants while
slickly hiding the obvious health issues and risks that arise due to the consumption of
fast food.
Additionally, KFC and other fast food giants also evoke a negative reaction as
they endorse animal cruelty. The chicken in their facilities is loaded with hormones
so as to retain more fat and muscle. Additionally, farms mistreat animals by packing
them in unhygienic environments and facilities.
KFC has adopted many new technologies and changes to keep up with
changing trends and preferences of customers. Most outlets today have a click and
carry option where you can order your food before even reaching the outlet thus
helping you save time in queues and lines.
Additionally, self-order kiosks, voice automated machines, and online
platforms are some of the changes they have adopted to increase profits and sales.
KFC has also increased its digital presence through better social media
management and promotions.
Being a giant in the fast-food restaurant industry with over 22,000 locations, it
is no surprise that KFC is a major contributor to the environment. KFC’s paper
supplier is linked in many cases with deforestation, destruction of wildlife, and
endangering the environment.
Again, an increasing number of health-conscious individuals opt to turn away
from KFC due to reasons like this. The restaurant needs to adopt more
environmentally friendly practices to reduce waste and consumption.
As KFC operates in over 140 countries, complying with the local laws and
regulations is one of the key factors in continuous success and operation. They have

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to adhere to the food and health quality guidelines and laws in order to avoid
lawsuits and penalties.
There are numerous cases around the world where KFC has served low-
quality or rotting foods to the customers that have invited a lot of negative publicity.
(Marketingtutor.net, 2019)

DISCUSSION QUESTIONS:

1. What are the macroenvironmental factors that influence or affect KFC’s growth
and success in the future?
2. What are the best tools/techniques applicable for KFC? Why?
3. What recommendations can you give based on your analysis?

RUBRIC for PEST ANALYSIS

16-20 points = a thorough analysis is provided, and reasoning for each item is provided and
logical.

11-15 points = analysis is provided, but there are some missing points and reasoning for
each item is not always thoroughly provided and/or logical.

10 below = analysis is provided, but there are missing points and there is no reasoning
provided for items.

VII – ASSIGNMENTS (Short Bond Paper)

Direction: Read carefully and analyze the NIKE case below. Then answer the questions that
follow.
Nike is the largest apparel and footwear company that manufactures a wide range of
products mainly athletic footwear, apparel, and equipment. It was founded in 1964 as Blue-
Ribbon Sports by Phil Knight and Bill Bowerman with its headquarters in Beaverton, Oregon
(Success Story 2018). Nike currently operates over 1182 retail stores worldwide, according
to Statista. In 2018, Nike had annual revenue of $36.40bn that was a 6% increase from its
2017 revenue with a $1.93bn profit, a 54% decrease from its 2017 $4.20bn revenue
according to its annual report (Annual Report 2018). In the clothing and apparel industry,
Nike accounts for a 2.8% market share with major competitors Adidas, H&M, and Under
Armor having 1.8%, 1.4%, 0.4% market shares respectively (Statista 2018a).

President Trump’s executive order to pull the United States out of the Trans-pacific
partnership trade deal (TPP) threatens the profitability of Nike. The TPP being a trade
agreement between 12 countries including Australia, Vietnam, Mexico, Canada, New
Zealand, among others would lower tariffs for the twelve countries across the Pacific Rim
and the US joining the TPP would have reduced or eliminated tariffs for shoes imported from
Vietnam and some other countries into the US, reducing the built-in cost to outsource
sneaker manufacturing overseas for Nike and other manufacturers. According to Bloomberg,

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most of Nike’s footwear is made from countries included in the TPP trade deal. For
example, Nike imports 40% of its sneakers from Vietnam and since tariffs for footwear are
extremely high, ranging from 5% to 40% according to the material used and 20% taxes for
sneakers, US joining the TPP trade deal would boost its profit margins. Therefore, Nike still
faces high taxes which have affected its profitability (Business Insider 2017).

In addition, the US-China trade war between President Trump and Xi Jinping
threatens the profitability of Nike as its cost of imports and exports to China could rise
affecting its profit margins. In this trade war, US and China exchanged worth $34billion on
each other’s goods with Trump threatening additional tariffs of $200billion worth on Chinese
goods if the trade war escalates. Trump is considering to tax imports ranging from shoes,
clothes and consumer electronics that threatens the well-being of Chinese companies like
Yue Yuen Industrial Holdings Ltd and Li & Fung Ltd that supply goods worth $450billion to
American companies like Nike and Walmart every year. The trade war could also ruin Nike’s
relationship with its suppliers causing a ripple effect (Whitely and Wei 2018).

Low interest rates have for long supported growth in the athletic footwear industry as
the cost of borrowing funds is low. The high interest rates in the US affect the profitability of
footwear companies. The federal reserve increased prime rates and raised the benchmark
rate between 1.5% and 1.75% which is a challenge for footwear companies that need loans
to expand and grow because it will cost them more to borrow. Even though interest rate
increases have been small, they increase the footwear producers’ cost of funds that affects
the profitability of footwear companies like Nike, Puma, Adidas, among others (McDonald
2017).

In addition, US have high economic growth which gives Nike an opportunity to

improve its profit margins. The 4.1% annual economic growth in the UK has brought many
opportunities such as decrease in unemployment rates and increase in consumer spending
that grew at an annual rate of 4% up from 0.4% in between January and March of 2018
(Rushe 2018). Also, unemployment rates dropped to 3.9% gaining over 164,000 jobs in April
according to report by Department of Labor (Bayly 2018).

According to a new research by Mintel 2018, over 55% of Americans say they lived a
healthier lifestyle in 2017 compared to 2016, and 45 percent say they have made dramatic
changes to improve their health through healthy diet, getting enough sleep and regular
exercises. But while 74 percent of the people say regular exercise is part of a healthy
lifestyle, just 53 percent say they do so regularly. The number of Americans joining fitness
clubs has steadily increased over the years averaging to 57.25 million in 2016. The
increasing number of people that are joining fitness clubs and gyms influences demand for
fitness products particularly exercise apparel, shoes and equipment. Therefore, Nike can
utilize this opportunity to improve its revenues by targeting the growing population of health-
conscious consumers that are joining fitness clubs (Statista 2018).

Throughout the years, technology has influenced growth in the athletic footwear
industry. For example, it facilitated the development of smart shoes that have self-lacing
capabilities. Athletic footwear companies have since then incorporated technology in their
production process to provide unique products. For example the new adidas digit sole smart
shoe that can even order dinner and display works of art (Mlot 2018).

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 According to Mintel 2017, Nike recently introduced augmented reality technology into
its Paris flagship store that enables customers to design their own customized sneakers
using the NikeiD booth. With this technology, customers can customize sneaker color details
on the tablet attached to video-mapping devices using the NikeID online service.
SmartPixels connected the video mapping with NikeID’s configurator so customers need
only place an all-white sneaker in the device and they will see the colors projected on the
sneaker, in real time, as they select them on the tablet. This helps to increase customer
satisfaction as the customer gets his/her desired sneaker design; however, even though
Nike’s customizing tool (NikeiD) is in usage, the number of sneakers one can customize in
augmented reality is limited as customers can only customize in AirMax, Epic Low and
Cortez sneaker models (Nelson Jr 2017).

In addition, Nike has invested in robotic technology to replace the expensive human
labor and increase productivity (Moore 2017) which threatens thousands of jobs especially
the low-cost workforce in Asia. However, automation can help Nike in two major ways that
include increase in profit margins due to decreased labor costs. For example, robots can
offer a range of services like laser cutting, automated gluing, among others, and enabling the
company to deliver new designs to fashion-conscious customers faster (Bissell-Linsk 2017).

The low corporation tax rate in UK gives Nike a chance to improve its profit margins.
The UK has the lowest corporate tax rates at 19% with the UK further proposing to cut it to
17% to free up £5bn a year for other spending activities. Low corporate taxes can help many
companies like Nike to improve their profit margins due to decreased tax expenses (Pickard
2017).

On July 29, students and activists around the world organized by United Students
Against Sweatshops (USAS) protested against Nike, The students protested child labor and
sweatshops where it is believed that workers at a Nike contract factory in Hansae, Vietnam
labored for hours in temperatures over the legal limit of 90 degrees, to the point that they
would collapse at their sewing machines, suffered wage theft and verbal abuse. Also, Nike is
accused of cutting jobs at the Hansae factory and stopping production from a factory in
Honduras with a strong union presence that resulted in many workers losing their jobs. In
addition, Nike denied the independent monitoring group Worker Rights Consortium (WRC)
access to inspect its contract factories which could become a serious problem since it owns
$4 billion retail market for university-logo products mostly apparel. Most universities among
WRC’s 190 university affiliates have parted ways with Nike and allowed their contracts to
expire. This not only affects the profitability of Nike but also its reputation (Bain 2017).

According to the land disposal restrictions notification by the Environmental

Protection Agency in the US, waste must meet certain treatment standards under the LDR
program and must be treated to reduce the hazardous constituents to levels set by EPA or
the waste must be treated using a specified technology (RCRA in FOCUS 2002).

To reduce environmental pollution through dumping in landfills, Nike has

incorporated recyclable material in 75% of its products. Nike creates its products by
transforming plastic bottles and manufacturing scraps into new materials that can be reused
to manufacture shoes through Nike grind program. Besides reusing, Nike also manufactures
some of its most products in a sustainable way and air is one of Nike’s most sustainable

17
innovations. This technology consists of pressurized air (nitrogen) inside a flexible bag
(called a Nike Air sole unit) that sits in the midsole beneath the heel, forefoot, or both to
provide the sensation of walking, or running on air. This provides lighter and stronger shoes
minimizing Nike’s usage of recycled materials (Nike 2018a).

In addition, Nike signed its second major wind contract with Avangrid Renewables as
a step forward to use 100% renewable energy across all its owned or operated facilities in
North America to promote sustainability (Nike 2018). (www.123writing.com, n.d.)

DISCUSSION QUESTIONS:

1. What are the macroenvironmental factors that influence or affect Nike’s growth
and success in the future?
2. What are the best tools/techniques applicable for Nike? Why?
3. What recommendations can you give based on your analysis?

Key to Correction
Pre-Test
1. Industrial sector, manufacturing industry
2. Honda’s decision to shift its production to Japan is justified, considering that the
company is a Japanese brand and Japanese are famously patriotic. Its labor force is
very technology-adopting which could minimize if not completely eradicate safety
issues with its products. The shift to North America is also practical and financially
sound. Basing 2.7 million cars due to safety issues, 2.4 million of which are in the US.
That means they have a big market in the US and North America is an ideal location,
lesser transportation expense and transport time. What is not clear is why China was
chosen over Philippines, while Chinese labor may be cheap, Filipinos are considered
more of asset because their labor ethics and ability to communicate in English. China
is also considered a political adversary by Japan. This “choice” could be the reason
why Defend Jobs Philippines has urged Labor Secretary Bello to investigate the
closure.

LEARNING ACTIVITIES
1. Political, Economic, Social, Technological, Legal, and Environmental factors affect
the operation of the business.

P E S T L E
POLITICAL ECONOMIC SOCIAL TECHONOLOGICAL LEGAL ENVIRONMENTAL
L Have greatly
effect on
agri-business

18
Laws, Economic Marketing A recent Legal
2. PES
different set downturn campaigns trend of implications
of resulted to such as Social media on beverage TLE
regulations diminishing religious to keep on industry such Analysis is
that are profits festivals, increasing as accused of
the best
either etc.to brand recall using
relaxed or communicat and brand contaminate tool to
stringent, e his image engagement water, etc. apply in the
FDA law PepsiCo.

PRACTICE TASK #1.

1. Some important factors to be considered in industry analysis are competitors,

customers, suppliers, and product differentiation/substitutes. Likewise, for
environmental analysis the business needs to consider the external forces such as
economic, physical environment, political factors, and behaviors/trends/patterns.
With the help of these factors, the owner of the business can identify what
tools/techniques are applicable for the survival and growth of a business.

PRACTICE TASK #2.

1. INTERNAL FACTORS
a. Strong brand image
b. Broad product mix
c. Extensive global production network
d. Extensive global distribution network
EXTERNAL FACTORS
a. Business diversification
b. Market penetration in developing countries
c. Global alliances with complementary businesses

2. Major challenges in the areas of competition, changing consumer behaviors, and

product development that threaten and limit organizational development and must
address through changes in its growth strategy.

a. Low penetration outside the Americas

b. Limited business portfolio
c. Weak marketing health-conscious consumers
d. Aggressive competition
e. Healthy lifestyles trend
f. Environmentalism
3. In this case of PepsiCo, SWOT is the best tools/techniques that can be applied
because of the identified internal and external factors. For the recommendations,
PepsiCo can use its strengths to effectively respond to the issued identified in SWOT

19
 analysis, especially those considered as threats. The realistic actions that PepsiCo
could take to improve its competitiveness and internal growth are as follows:
a. Diversify businesses to minimize market exposure
b. Further penetrate developing markets to grow revenues
c. Improve product healthfulness to attract more consumers
d. Enhance a recycling effort to address environmentalism (Panmore Institute,
2017)

POST-TEST

DISCUSSION QUESTIONS:

1. Political, Economic, Social, Technological, Legal, and Environmental factors that

influence and plays a major role in KFC’s growth and success in the future.

P E S T L E
POLITICAL TECHONOLOGICAL ENVIRONMENTAL
ECONOMIC SOCIAL LEGAL
L

Association Failure to Paying its Increased its Complying KFC’s paper

with generate employees, digital with the local supplier is
unhealthy sustainable a minimum presence laws and linked in
food-laden profits wage through regulations. many cases
with high because of without better social Numerous with
calorie; the unhealthy benefits; media cases have deforestatio
change of its lifestyle and using management fount out on n,
name to KFC diet lucrative & and the low- destruction
suggested promotions quality or of wildlife,
advertiseme rotting foods and
nts to lure being served endangering
children and to the the
masses to customers environment
their .
restaurants;
animal
cruelty

2. PESTEL Analysis is the best tools/techniques that can be applied because of the
identified external factors.
3. These factors play a crucial role in the development and growth of KFC along with
current trends.

References

20
Textbooks:

Dinio, R.P. & Villasis, G.A. 2017. Applied Economics. Quezon City: Rex Book Store

Manapat, C.L. 2018. Applied Economics for Senior High School. Quezon City:
C&E Publishing Incorporated
Pagoso, C. M., Dinio, R.P., & Villasis, G.A. 2008. Principles of Economics. Quezon
City: Rex Book Store

Zarate, C. A., 2017., Principles of Marketing for Senior High School. Quezon City:
C&E Publishing Incorporated

Kotler, P., et.al., 1999., Principles of Marketing. New Jersey, USA: Prentice Hall Inc.

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