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Welcome to Business Welcome to Business Strategy Strategy Prepared by Mr. M. S. Halder Prepared by Mr. M. S. Halder Chairperson BBA Department Chairperson BBA Department

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Page 1: Welcome to business strategy

Welcome to Business StrategyWelcome to Business Strategy

Prepared by Mr. M. S. Halder Prepared by Mr. M. S. Halder

Chairperson BBA DepartmentChairperson BBA Department

Page 2: Welcome to business strategy

Jesus, sweet JesusJesus, sweet Jesus

What a wonder you areWhat a wonder you are

You are brighter than the morning starYou are brighter than the morning star

You are fairer, much fairer, than the lily You are fairer, much fairer, than the lily grows by the way side.grows by the way side.

Precious more precious than gold.Precious more precious than gold.

I live for Jesus day after day, I live for Jesus day after day,

I live for Jesus then come what mayI live for Jesus then come what may

The Holy Spirit I will obeyThe Holy Spirit I will obey

I live for Jesus, day after dayI live for Jesus, day after day

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Jesus, sweet Jesus, what a wonder you areJesus, sweet Jesus, what a wonder you areYou’re brighter than the morning star.You’re brighter than the morning star.You’re fairer, much fairerYou’re fairer, much fairerThan the lily that grows by the waysideThan the lily that grows by the waysidePrecious, more precious than gold. (2)Precious, more precious than gold. (2)

You’re the Rose of Sharon,You’re the Rose of Sharon,You’re the fairest of the fair.You’re the fairest of the fair.You are all my heart could ever desire;You are all my heart could ever desire;Jesus, Sweet Jesus, what a wonder you are,Jesus, Sweet Jesus, what a wonder you are,You’re precious, more precious than gold.You’re precious, more precious than gold.

Jesus, sweet Jesus, what a wonder you areJesus, sweet Jesus, what a wonder you areYou’re brighter than the morning star.You’re brighter than the morning star.You’re fairer, much fairerYou’re fairer, much fairerThan the lily that grows by the waysideThan the lily that grows by the waysidePrecious, more precious than gold. (2)Precious, more precious than gold. (2)

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Heaven Came Down / O What A Wonderful, Wonderful Day

1. O what a wonderful, wonderful day, day I will never forget;1. O what a wonderful, wonderful day, day I will never forget;After I'd wandered in darkness away, Jesus my Savior I met.After I'd wandered in darkness away, Jesus my Savior I met.O what a tender, compassionate friend, He met the need of my O what a tender, compassionate friend, He met the need of my heart;heart;Shadows dispelling, with joy I am telling, He made all the darkness Shadows dispelling, with joy I am telling, He made all the darkness depart.depart.

ChorusChorusHeaven came down and glory filled my soul, (filled my soul)Heaven came down and glory filled my soul, (filled my soul)When at the cross the Savior made me whole; (made me whole)When at the cross the Savior made me whole; (made me whole)My sins were washed away and my night was turned to day,My sins were washed away and my night was turned to day,Heaven came down and glory filled my soul! (filled my soul)Heaven came down and glory filled my soul! (filled my soul)

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2. Born of the Spirit with life from above into God's 2. Born of the Spirit with life from above into God's family divine,family divine,Justified fully thru Calvary's love, O what a standing Justified fully thru Calvary's love, O what a standing is mine!is mine!And the transaction so quickly was made, when as a And the transaction so quickly was made, when as a sinner I came,sinner I came,Took of the offer, of grace He did proffer, He saved Took of the offer, of grace He did proffer, He saved me, O praise His dear name!me, O praise His dear name!

ChorusChorusHeaven came down and glory filled my soul, (filled my soul)Heaven came down and glory filled my soul, (filled my soul)When at the cross the Savior made me whole; (made me When at the cross the Savior made me whole; (made me whole)whole)My sins were washed away and my night was turned to day,My sins were washed away and my night was turned to day,Heaven came down and glory filled my soul! (filled my soul)Heaven came down and glory filled my soul! (filled my soul)

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3. 3. Now I've a hope that will surely endure after Now I've a hope that will surely endure after the passing of time;the passing of time;I have a future in heaven for sure there in those I have a future in heaven for sure there in those mansions sublime.mansions sublime.And it's because of that wonderful day, when at the And it's because of that wonderful day, when at the cross I believed;cross I believed;Riches eternal and blessings supernal, from His Riches eternal and blessings supernal, from His precious hand I received.precious hand I received.

ChorusChorusHeaven came down and glory filled my soul, (filled my soul)Heaven came down and glory filled my soul, (filled my soul)When at the cross the Savior made me whole; (made me whole)When at the cross the Savior made me whole; (made me whole)My sins were washed away and my night was turned to day,My sins were washed away and my night was turned to day,Heaven came down and glory filled my soul! (filled my soul) Heaven came down and glory filled my soul! (filled my soul)

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Course RequirementsCourse Requirements1.1. Participate all the class lecturesParticipate all the class lectures2.2. Reading Report everydayReading Report everyday

Based on:Based on:a. Businessa. Business e. Technology e. Technologyb. Financeb. Finance f. Business current issues f. Business current issuesc. Strategyc. Strategy g. Contemporary issues g. Contemporary issuesd. Economics h. Business worldd. Economics h. Business world

3. Unannounced quizzes or tests will be there.3. Unannounced quizzes or tests will be there.5. Projects will be given.5. Projects will be given.

Projects on:Projects on:

““STRATEGY FORMATION TO IMPLEMENTATION AND STRATEGY FORMATION TO IMPLEMENTATION AND EVALUATIONEVALUATION””

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Guidelines are:Guidelines are:a. What is strategy? Why there is a need of strategy a. What is strategy? Why there is a need of strategy

formation?formation?b. The basic elements of strategy formationb. The basic elements of strategy formationc. The reasons for strategy formation.c. The reasons for strategy formation.d. The affect of making different strategy for different d. The affect of making different strategy for different

task purposes.task purposes.e. Different kinds or types of strategy and their uses e. Different kinds or types of strategy and their uses

to businessto businessf. A case study should be included that will reflect the f. A case study should be included that will reflect the

strategy formulation to evaluations.strategy formulation to evaluations.g. What is strategy Implementation and evaluationg. What is strategy Implementation and evaluationh. Different methods of making an evaluation formh. Different methods of making an evaluation formi. Conclusioni. Conclusion

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6. Course Compendium will be given for 6. Course Compendium will be given for supplementary resources.supplementary resources.

7. Mid-term exam will be conducted for 50 7. Mid-term exam will be conducted for 50 minutesminutes

8. Final-final exam will be conducted for 2 8. Final-final exam will be conducted for 2 hours (case study will be included)hours (case study will be included)

9. Fully need to be utilized the time to learn 9. Fully need to be utilized the time to learn the given course.the given course.

10. Final grade will be determined based on 10. Final grade will be determined based on all the activities which will be performed.all the activities which will be performed.

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Chapter 1Chapter 1Definition of Strategy Definition of Strategy

According to Webster’s New World According to Webster’s New World Dictionary, “ the science of planning and Dictionary, “ the science of planning and directing military operations.”directing military operations.”

According to Alfred Chandler, “the According to Alfred Chandler, “the determination of the basic long-term goals determination of the basic long-term goals of an enterprise, and the adoption of of an enterprise, and the adoption of courses of action and the allocation of courses of action and the allocation of resources necessary for carrying out these resources necessary for carrying out these goals.”goals.”

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According to James B. Quinn of Dartmouth According to James B. Quinn of Dartmouth College, “strategy is the pattern or plan College, “strategy is the pattern or plan that integrates an organization’s major that integrates an organization’s major goals, policies, and action sequences into goals, policies, and action sequences into a cohesive whole.”a cohesive whole.”

According to William F. Glueck, “strategy is According to William F. Glueck, “strategy is a unified, comprehensive, and integrated a unified, comprehensive, and integrated plan designed to ensure that the basic plan designed to ensure that the basic objectives of the enterprise are achieved.objectives of the enterprise are achieved.

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According to Mintzberg, “the role of planning According to Mintzberg, “the role of planning ignore the fact that strategies can emerge ignore the fact that strategies can emerge from within an organization without any from within an organization without any formal plan. formal plan.

Also he pointed the definition that is, Also he pointed the definition that is, “strategy as a pattern in a stream of “strategy as a pattern in a stream of decisions or actions, the pattern being a decisions or actions, the pattern being a product of whatever intended (planned) product of whatever intended (planned) strategies are actually realized and of any strategies are actually realized and of any emergent (unplanned) strategies.emergent (unplanned) strategies.

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Henry MintzbergHenry Mintzberg

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Components of Strategic ManagementComponents of Strategic Management

1.1. Mission and Major GoalsMission and Major Goals2.2. External AnalysisExternal Analysis3.3. Internal AnalysisInternal Analysis4.4. Strategic ChoiceStrategic Choice5.5. Business-Level StrategyBusiness-Level Strategy6.6. Corporate-Level StrategyCorporate-Level Strategy7.7. Analyzing the Corporate PortfolioAnalyzing the Corporate Portfolio8.8. Designing Organizational StructureDesigning Organizational Structure9.9. Choosing Integration and Control SystemsChoosing Integration and Control Systems10.10. Matching Strategy, Structure, and ControlsMatching Strategy, Structure, and Controls11.11. Conflict, Politics, and ChangeConflict, Politics, and Change12.12. FeedbackFeedback

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1. Mission and Major Goals1. Mission and Major Goals

The mission and major goals of an The mission and major goals of an organization exists and what it should be organization exists and what it should be doing. For example, the mission of doing. For example, the mission of national airline might be defined as national airline might be defined as satisfying the needs of individual and satisfying the needs of individual and business travelers for high-speed business travelers for high-speed transportation at a reasonable price to all transportation at a reasonable price to all the major population centers of North the major population centers of North America.America.

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Major goals specify what the organization Major goals specify what the organization hopes to fulfill in the medium to long term.hopes to fulfill in the medium to long term.

Most profit-seeking organizations operate with Most profit-seeking organizations operate with a hierarchy of goals in which the a hierarchy of goals in which the maximization of stockholder wealth is placed maximization of stockholder wealth is placed at the top.at the top.

Goals are objectives judged necessary by the Goals are objectives judged necessary by the company if it is to maximize stock-holder company if it is to maximize stock-holder wealth.wealth.

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The factors of Mission Statements are:The factors of Mission Statements are:

1.1. Defining the businessDefining the business

2.2. Purpose of the businessPurpose of the business

3.3. Functions of the businessFunctions of the business

4.4. ExistenceExistence

5.5. AccomplishmentsAccomplishments

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The relationship between mission, The relationship between mission, stakeholders, and strategiesstakeholders, and strategies

Strategy FormulationGuided by Mission

Statement

Inside ClaimantsExecutive Officers

BODStockholdersEmployees

Mission StatementBusi.Def.

Major GoalsPhilosophies

Outside ClaimantsCustomersSuppliers

Govt.Unions

CompetitorsLocal Communities

General Publics

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AssignmentsAssignments

1. Write down the BASC Mission Statements1. Write down the BASC Mission Statements

2. Write down the BBA Mission Statements2. Write down the BBA Mission Statements

3. Write down an imaginary company’s 3. Write down an imaginary company’s mission statements.mission statements.

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2. External Analysis2. External Analysis

The objective of external analysis is to The objective of external analysis is to identify strategic opportunities and threats identify strategic opportunities and threats in the organization’s operating in the organization’s operating environment.environment.

Analyzing the industry environment involves Analyzing the industry environment involves an assessment of the competitive an assessment of the competitive structure of the organization’s industry, structure of the organization’s industry, including the competitive position including the competitive position development.development.

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Analyzing the macro-environment consists Analyzing the macro-environment consists of examining macro-economic, social, of examining macro-economic, social, government, legal, international, and government, legal, international, and technological factors that may affect the technological factors that may affect the organization.organization.

For example, Royal Dutch/Shell, its external For example, Royal Dutch/Shell, its external opportunities included the OPEC oil cartel opportunities included the OPEC oil cartel reaching a sustainable agreement to reaching a sustainable agreement to restricts oil production.restricts oil production.

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3. Internal Analysis3. Internal Analysis

Internal analysis serves to pinpoint the Internal analysis serves to pinpoint the strengths and weaknesses of the strengths and weaknesses of the organization.organization.

The factors that determine the quantity and The factors that determine the quantity and quality of an organization’s resources in quality of an organization’s resources in manufacturing, marketing, materials manufacturing, marketing, materials management, research and development, management, research and development, information systems, personnel, and information systems, personnel, and finance.finance.

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For example, if a company’s businesses are For example, if a company’s businesses are concentrated in highly competitive and concentrated in highly competitive and unprofitable industries, then the balance is a unprofitable industries, then the balance is a weakness. Conversely, if its businesses are weakness. Conversely, if its businesses are concentrated in very profitable industries, then concentrated in very profitable industries, then the balance is a strength.the balance is a strength.

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4. Strategic Choice4. Strategic Choice

This components involves generating a This components involves generating a series of strategic alternatives, given the series of strategic alternatives, given the goals of the firm, its internal strengths and goals of the firm, its internal strengths and weaknesses, and external opportunities weaknesses, and external opportunities and threats.and threats.

The comparison of strengths, The comparison of strengths, weaknesses, opportunities, and threats is weaknesses, opportunities, and threats is normally referred to as a SWOT analysis.normally referred to as a SWOT analysis.

A SWOT analysis might generate a series A SWOT analysis might generate a series of strategic alternatives.of strategic alternatives.

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To choose among the alternatives, the To choose among the alternatives, the organization has to evaluate them against organization has to evaluate them against each other with respect to their ability to each other with respect to their ability to achieve major goals.achieve major goals.

The objective is to select the strategies The objective is to select the strategies that ensure the best alignment, or fit, that ensure the best alignment, or fit, between external environmental between external environmental opportunities and threats and the internal opportunities and threats and the internal strengths and weaknesses of the strengths and weaknesses of the organization.organization.

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For a single-business organization, the For a single-business organization, the objective is to match the company’s objective is to match the company’s strengths to environmental opportunities in strengths to environmental opportunities in order to gain a competitive advantage and order to gain a competitive advantage and thus increase profits.thus increase profits.

For a multi-business organization, the goal For a multi-business organization, the goal is to choose for its portfolio of business is to choose for its portfolio of business strategies that align the strengths and strategies that align the strengths and weaknesses of the portfolio with weaknesses of the portfolio with environmental opportunities and threats.environmental opportunities and threats.

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5. Business-Level Strategy5. Business-Level Strategy

A strategy that helps to make a business A strategy that helps to make a business to be progressed.to be progressed.

Three generic business-level strategies:Three generic business-level strategies:

1.1. Cost leadershipCost leadership

2.2. DifferentiationDifferentiation

3.3. Particular market nicheParticular market niche

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Cost leadershipCost leadership is a concept developed by is a concept developed by Michael Porter, used in , used in business strategy. It . It describes a way to establish the describes a way to establish the competitive advantage. Cost leadership, in basic . Cost leadership, in basic words, means the lowest words, means the lowest cost of operation in the in the industry.industry.[1][1]

The cost leadership is often driven by company The cost leadership is often driven by company efficiency, size, scale, scope and cumulative efficiency, size, scale, scope and cumulative experience (learning curve). A experience (learning curve). A cost leadership cost leadership strategystrategy aims to exploit scale of production, well aims to exploit scale of production, well defined scope and other economies (e.g. a good defined scope and other economies (e.g. a good purchasing approach), producing highly purchasing approach), producing highly standardized products, using high technology.standardized products, using high technology.

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In the last years more and more In the last years more and more companies choose a strategic mix to companies choose a strategic mix to achieve market leadership. This achieve market leadership. This patterns consist in simultaneous cost patterns consist in simultaneous cost leadership, superior customer service leadership, superior customer service and product leadership. and product leadership.

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Cost Leadership…Cost Leadership…Cost leadership is different from price Cost leadership is different from price

leadership. A company could be the lowest leadership. A company could be the lowest cost producer, yet not offer the lowest-cost producer, yet not offer the lowest-priced products or services. If so, that priced products or services. If so, that company would have a higher than average company would have a higher than average profitability. profitability.

However, cost leader companies do However, cost leader companies do compete on price and are very effective at compete on price and are very effective at such a form of competition, having a low such a form of competition, having a low cost structure and management. cost structure and management.

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DifferentiationDifferentiationApproach under which a firm Approach under which a firm

aims to develop and market aims to develop and market unique products for different unique products for different customer segments. Usually customer segments. Usually employed where a firm has clear employed where a firm has clear competitive advantages, and can competitive advantages, and can sustain an expensive advertising sustain an expensive advertising campaign. campaign.

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It is one of three generic It is one of three generic marketing strategies (see focus marketing strategies (see focus strategy and low cost strategy for strategy and low cost strategy for the other two) that can be the other two) that can be adopted by any firm. See also adopted by any firm. See also segmentation strategies.segmentation strategies.

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Particular market nicheParticular market niche

A A niche marketniche market is the subset of the market on is the subset of the market on which a specific product is focusing. So the which a specific product is focusing. So the market niche defines the specific product market niche defines the specific product features aimed at satisfying specific market features aimed at satisfying specific market needs, as well as the price range, production needs, as well as the price range, production quality and the demographics that is intended quality and the demographics that is intended to impact. It is also a small market segment. to impact. It is also a small market segment. For example, sports channels like STAR For example, sports channels like STAR Sports, ESPN, STAR Cricket, and Fox target Sports, ESPN, STAR Cricket, and Fox target a niche of sports loversa niche of sports lovers

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Every product can be defined by its Every product can be defined by its market niche. As of special note, the market niche. As of special note, the products aimed at a wide demographic products aimed at a wide demographic audience, with the resulting low price audience, with the resulting low price (due to price elasticity of demand), are (due to price elasticity of demand), are saidsaid to belong to the to belong to the mainstream nichemainstream niche in practice referred to only as in practice referred to only as mainstreammainstream or or of high demandof high demand. . Narrower demographics lead to Narrower demographics lead to elevated prices due to the same elevated prices due to the same principle. principle.

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So to speak, the niche market is a highly So to speak, the niche market is a highly specialized market aiming to survive among specialized market aiming to survive among the competition from numerous super the competition from numerous super companies. Even established companies companies. Even established companies create products for different niches, for create products for different niches, for example, Hewlett-Packard has all-in-one example, Hewlett-Packard has all-in-one machines for printing, scanning and faxing machines for printing, scanning and faxing targeted for the home office niche while at the targeted for the home office niche while at the same time having separate machines with same time having separate machines with one of these functions for big businesses.one of these functions for big businesses.

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In practice, product vendors and trade In practice, product vendors and trade businesses are commonly referred as businesses are commonly referred as mainstream providersmainstream providers or or narrow narrow demographics niche market providersdemographics niche market providers (colloquially shortened to just (colloquially shortened to just niche niche market providersmarket providers). Small capital ). Small capital providers usually opt for a niche market providers usually opt for a niche market with narrow demographics as a measure with narrow demographics as a measure of increasing their financial gain of increasing their financial gain margins. margins.

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Nevertheless, the final product Nevertheless, the final product quality (low or high) is not dependent quality (low or high) is not dependent on the price elasticity of demand; it on the price elasticity of demand; it is associated more with the specific is associated more with the specific needs that the product is aimed at needs that the product is aimed at satisfying and, in some cases, satisfying and, in some cases, aspects of brand recognition aspects of brand recognition

((e.g.e.g., prestige, practicability, money , prestige, practicability, money saving, expensiveness, planet saving, expensiveness, planet environment conscience,environment conscience,

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6. Corporate-Level Strategy6. Corporate-Level Strategy An organization’s corporate-level strategy must An organization’s corporate-level strategy must

answer this question: what businesses should we answer this question: what businesses should we be in to maximize the long-run profitability of the be in to maximize the long-run profitability of the organization?organization?

Competing successfully within a single business Competing successfully within a single business area also often involves vertical integration and area also often involves vertical integration and global expansion.global expansion.

Organization that are successful at establishing a Organization that are successful at establishing a sustainable competitive advantage may find that sustainable competitive advantage may find that they are generating resources in excess of their they are generating resources in excess of their investment requirements within their primary investment requirements within their primary industry.industry.

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For such organizations, maximizing long-For such organizations, maximizing long-run profitability may entail diversification run profitability may entail diversification into new business areas.into new business areas.

The strategies of vertical integration, The strategies of vertical integration, global expansion, and diversification fall global expansion, and diversification fall under the rubric of corporate-level under the rubric of corporate-level strategies.strategies.

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7. Analyzing the Corporate Portfolio7. Analyzing the Corporate Portfolio

Substantially diversified companies face Substantially diversified companies face the problem of how best to make sense the problem of how best to make sense out of their many different activities. For out of their many different activities. For example, General Electronic has more example, General Electronic has more than 100 different business units.than 100 different business units.

Portfolio analysis may indicate that a Portfolio analysis may indicate that a company needs to leave some existing company needs to leave some existing business areas or enter new ones.business areas or enter new ones.

A number of different entry and exit A number of different entry and exit strategies are available.strategies are available.

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The options for entering new businesses The options for entering new businesses include acquisitions, joint ventures, and include acquisitions, joint ventures, and internal new venturing.internal new venturing.

The options for exciting from an existing The options for exciting from an existing business include harvest, divestment, and business include harvest, divestment, and liquidation.liquidation.

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What is AcquisitionWhat is Acquisition??

1. In business, an acquisition is when one 1. In business, an acquisition is when one company purchases another. company purchases another.

2. In marketing, customer acquisition is the 2. In marketing, customer acquisition is the process of gaining customers.process of gaining customers.

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Joint VentureJoint Venture A joint venture takes place when two parties come A joint venture takes place when two parties come

together to take on one project. together to take on one project. In a joint venture, both parties are equally invested in the In a joint venture, both parties are equally invested in the

project in terms of money, time, and effort to build on the project in terms of money, time, and effort to build on the original concept. original concept.

While joint ventures are generally small projects, major While joint ventures are generally small projects, major corporations also use this method in order to diversify. corporations also use this method in order to diversify.

A joint venture can ensure the success of smaller A joint venture can ensure the success of smaller projects for those that are just starting in the business projects for those that are just starting in the business world or for established corporations. Since the cost of world or for established corporations. Since the cost of starting new projects is generally high, a joint venture starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as allows both parties to share the burden of the project, as well as the resulting profits.well as the resulting profits.

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DivestmentDivestment

The process of selling an asset. Also known as divestiture, it is made for either financial or social goals. Divestment is the opposite of investment.

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LiquidationLiquidation Liquidation is the process of taking a business' real assets Liquidation is the process of taking a business' real assets

and turning them into cash, either to pay off debt or to and turning them into cash, either to pay off debt or to reap a personal profit. Liquidation may be done either reap a personal profit. Liquidation may be done either voluntarily by a company or individual, or in response to a voluntarily by a company or individual, or in response to a declaration of bankruptcy as a way of repaying a portion declaration of bankruptcy as a way of repaying a portion of debtors.of debtors.

Compulsory liquidation is ordered by a court, and the laws Compulsory liquidation is ordered by a court, and the laws vary in different countries. Usually a court-appointed vary in different countries. Usually a court-appointed receiver takes over to analyze the company's assets and receiver takes over to analyze the company's assets and determine the best way to handle them. Originally, determine the best way to handle them. Originally, recovered cash from a compulsory liquidation was recovered cash from a compulsory liquidation was distributed evenly amongst debtors. Now certain debtors distributed evenly amongst debtors. Now certain debtors may take precedence over others, depending on the may take precedence over others, depending on the terms of the loans.terms of the loans.

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Voluntary liquidation may be done for a number of Voluntary liquidation may be done for a number of reasons. Some companies elect to undergo liquidation reasons. Some companies elect to undergo liquidation while their assets still outweigh their liabilities, if they while their assets still outweigh their liabilities, if they believe their business will continue to degrade. By selling believe their business will continue to degrade. By selling off assets early, these corporations may pay off debtors off assets early, these corporations may pay off debtors and still give a final dividend to shareholders. and still give a final dividend to shareholders.

A corporation with liabilities outweighing assets ay also A corporation with liabilities outweighing assets ay also undergo voluntary liquidation, expecting a compulsory undergo voluntary liquidation, expecting a compulsory liquidation should they fail to pay off a significant portion liquidation should they fail to pay off a significant portion of their debt. This type of voluntary liquidation is of their debt. This type of voluntary liquidation is considered an appropriate response to an insolvent considered an appropriate response to an insolvent situation.situation.

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Diversification?Diversification? Diversification is the process of investing a portfolio Diversification is the process of investing a portfolio

across different asset classes in varying proportions across different asset classes in varying proportions depending on an investor’s time horizon, risk depending on an investor’s time horizon, risk tolerance, and goals. tolerance, and goals.

While diversification does not assure or guarantee While diversification does not assure or guarantee better performance and cannot eliminate the risk of better performance and cannot eliminate the risk of investment losses, this disciplined approach does investment losses, this disciplined approach does help alleviate some of the speculation that is often help alleviate some of the speculation that is often involved with investing. Primary asset classes include involved with investing. Primary asset classes include domestic equity, foreign equity, and fixed income.domestic equity, foreign equity, and fixed income.

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Vertical IntegrationVertical Integration

In microeconomics and management, the term In microeconomics and management, the term vertical vertical integrationintegration describes a style of management control. describes a style of management control. Vertically integrated companies in a supply chain are Vertically integrated companies in a supply chain are united through a common owner. Usually each member united through a common owner. Usually each member of the supply chain produces a different product or of the supply chain produces a different product or (market-specific) service, and the products combine to (market-specific) service, and the products combine to satisfy a common need. It is contrasted with horizontal satisfy a common need. It is contrasted with horizontal integration.integration.

Vertical integration is one method of avoiding the hold-up Vertical integration is one method of avoiding the hold-up problem. A monopoly produced through vertical problem. A monopoly produced through vertical integration is called a vertical monopoly.integration is called a vertical monopoly.

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Global ExpansionGlobal ExpansionSources of Competitive Advantage from a Sources of Competitive Advantage from a Global StrategyGlobal Strategy

A well-designed global strategy can help a firm to A well-designed global strategy can help a firm to gain a competitive advantage. This advantage can gain a competitive advantage. This advantage can arise from the following sources:arise from the following sources:

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EfficiencyEfficiency Economies of scale from access to more customers and Economies of scale from access to more customers and

marketsmarkets Exploit another country's resources - labor, raw materialsExploit another country's resources - labor, raw materials Extend the product life cycle - older products can be sold in Extend the product life cycle - older products can be sold in

lesser developed countrieslesser developed countries Operational flexibility - shift production as costs, exchange rates, Operational flexibility - shift production as costs, exchange rates,

etc. change over timeetc. change over time

StrategicStrategic First mover advantage and only provider of a product to a First mover advantage and only provider of a product to a

marketmarket Cross subsidization between countriesCross subsidization between countries Transfer priceTransfer price

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RiskRisk Diversify macroeconomic risks (business cycles not Diversify macroeconomic risks (business cycles not

perfectly correlated among countries)perfectly correlated among countries) Diversify operational risks (labor problems, Diversify operational risks (labor problems,

earthquakes, wars)earthquakes, wars)

LearningLearning Broaden learning opportunities due to diversity of Broaden learning opportunities due to diversity of

operating environmentsoperating environments

ReputationReputation Crossover customers between markets - reputation and Crossover customers between markets - reputation and

brand identificationbrand identification

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8. Designing Organizational Structure8. Designing Organizational Structure

To make a strategy work, regardless of whether To make a strategy work, regardless of whether it is intended to emergent, the organization it is intended to emergent, the organization needs to adopt the correct structure.needs to adopt the correct structure.

Choosing a structure entails allocating task Choosing a structure entails allocating task responsibility and decision-making authority responsibility and decision-making authority within an organization.within an organization.

The issues covered include how best to divide The issues covered include how best to divide an organization into subunits and how to an organization into subunits and how to distribute authority among the different levels of distribute authority among the different levels of an organization’s hierarchy.an organization’s hierarchy.

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9. Choosing Integration and Control Systems9. Choosing Integration and Control Systems

Strategy implementation involves more Strategy implementation involves more than an organization’s choice of structure. than an organization’s choice of structure. It also involves the selection of appropriate It also involves the selection of appropriate organizational integration and control organizational integration and control systems.systems.

Strategy implementation often requires Strategy implementation often requires collective action or coordination between collective action or coordination between semi-autonomous subunits within an semi-autonomous subunits within an organization.organization.

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An organization must also decide how An organization must also decide how best to asses the performance and control best to asses the performance and control the actions of subunits.the actions of subunits.

Its options range from market and output Its options range from market and output controls to bureaucratic and clan controls.controls to bureaucratic and clan controls.

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10. Matching Strategy, Structure, and 10. Matching Strategy, Structure, and ControlsControls

Implementing a strategy requires the Implementing a strategy requires the adoption of appropriate organizational adoption of appropriate organizational structures and control systems.structures and control systems.

Different strategies and environment place Different strategies and environment place different demands on an organization and different demands on an organization and therefore require different structural therefore require different structural responses and control systems.responses and control systems.

For example, a strategy of cost leadership For example, a strategy of cost leadership demands that an organization be kept demands that an organization be kept simple and that controls stress productive simple and that controls stress productive efficiency.efficiency.

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On the other hand, a strategy of On the other hand, a strategy of differentiating an organization’s product by differentiating an organization’s product by unique technological characteristics unique technological characteristics generates a need for integrating the generates a need for integrating the activities of the organization around its activities of the organization around its technological core and for establishing technological core and for establishing control systems are very different in these control systems are very different in these two cases.two cases.

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11. 11. Conflict, Politics, and ChangeConflict, Politics, and Change

Although in theory the strategic Although in theory the strategic management process is characterized by management process is characterized by rational decision making, in practice rational decision making, in practice organizational politics plays a key role.organizational politics plays a key role.

Politics is endemic to organizations: Politics is endemic to organizations: different sub-groups within an organization different sub-groups within an organization have their own agendas.have their own agendas.

Typically, the agendas of different Typically, the agendas of different subgroups conflict.subgroups conflict.

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Thus departments may compete with each Thus departments may compete with each other for a bigger share of an other for a bigger share of an organization’s finite resources. Such organization’s finite resources. Such conflicts may be resolved as much by the conflicts may be resolved as much by the relative distribution of power between relative distribution of power between subunits as by a rational evaluation of subunits as by a rational evaluation of relative need.relative need.

Power struggles and coalition building are Power struggles and coalition building are major consequences of such conflicts and major consequences of such conflicts and clearly play a part in strategic clearly play a part in strategic management.management.

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Strategic change tends to bring such Strategic change tends to bring such power struggles to the fore, since by power struggles to the fore, since by definition change entails altering the definition change entails altering the established distribution of power within an established distribution of power within an organization.organization.

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12. Feedback12. Feedback

Strategic management is an ongoing process.Strategic management is an ongoing process. Once a strategy is implemented, its execution Once a strategy is implemented, its execution

must be monitored to determine the extent to must be monitored to determine the extent to which strategy objectives are actually being which strategy objectives are actually being achieved.achieved.

This information passes back to the corporate This information passes back to the corporate level through feedback loops. At the corporate it level through feedback loops. At the corporate it is fed into the next round of strategy formulation is fed into the next round of strategy formulation and implementation.and implementation.

It serves either to reaffirm existing corporate It serves either to reaffirm existing corporate goals and strategies or to suggest changes.goals and strategies or to suggest changes.

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Strategic Managers Strategic Managers chapter 2chapter 2

Strategic managersStrategic managers are individuals who are individuals who bear responsibility for the overall bear responsibility for the overall performance of the organization or for one performance of the organization or for one of its major self-contained divisions.of its major self-contained divisions.

Their overriding concern is for the health Their overriding concern is for the health of the total organization under their of the total organization under their direction.direction.

Strategic managers are distinct from Strategic managers are distinct from functional managers within an functional managers within an organization.organization.

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Functional mangersFunctional mangers bear responsibility bear responsibility for specific business functions, such as for specific business functions, such as personnel, purchasing, production, sales, personnel, purchasing, production, sales, customer service, and accounts.customer service, and accounts.

The authority is generally confined to one The authority is generally confined to one organizational activity, whereas strategic organizational activity, whereas strategic managers oversee the operation of the managers oversee the operation of the whole organization.whole organization.

This responsibility puts strategic managers This responsibility puts strategic managers in the unique position of being able to in the unique position of being able to direct the total organization in a strategic direct the total organization in a strategic sense.sense.

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According to Edward Wrapp of the According to Edward Wrapp of the University of Chicago has given 5 University of Chicago has given 5 characteristics of successful strategic characteristics of successful strategic managers.managers.

These are:These are:

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Major Characteristics of Successful Major Characteristics of Successful Strategic ManagersStrategic Managers

1.1. Well informedWell informed

2.2. Skilled at allocating their time and energySkilled at allocating their time and energy

3.3. Good politiciansGood politicians

4.4. Experts at being imprecise/inaccurateExperts at being imprecise/inaccurate

5.5. Able to push through programs in a Able to push through programs in a piecemeal/disconnected fashionpiecemeal/disconnected fashion

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1. Well informed1. Well informed

Successful strategic mangers keep Successful strategic mangers keep themselves Well Informed about a wide themselves Well Informed about a wide range of operating decisions being made range of operating decisions being made at different levels of organization.at different levels of organization.

They develop a network of information They develop a network of information sources in many different parts of the sources in many different parts of the organization, which enables them to organization, which enables them to remain in touch with operating realities.remain in touch with operating realities.

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2. Skilled at allocating their time and energy2. Skilled at allocating their time and energy

Successful strategic managers know how Successful strategic managers know how best to Allocate Their Time and Energy best to Allocate Their Time and Energy among different issues, decisions, or among different issues, decisions, or problems.problems.

They know when to delegate and when to They know when to delegate and when to become involved in a particular decision.become involved in a particular decision.

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3. Good politicians3. Good politicians

Successful strategic managers are Good Successful strategic managers are Good Politicians. The play the power game with Politicians. The play the power game with skill, preferring to build consensus for their skill, preferring to build consensus for their ideas, rather than using their authority to ideas, rather than using their authority to force ideas through.force ideas through.

The act as members or leaders of a The act as members or leaders of a coalition rather then as dictators.coalition rather then as dictators.

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4. Experts at being imprecise4. Experts at being imprecise

Successful strategic mangers are able to satisfy Successful strategic mangers are able to satisfy the organization that it has a sense of direction the organization that it has a sense of direction within actually committing themselves publicly to within actually committing themselves publicly to precise objectives or strategies.precise objectives or strategies.

They are experts at Being Imprecise.They are experts at Being Imprecise. At first glance this skill may seem curious, since At first glance this skill may seem curious, since

so much of the received wisdom in the so much of the received wisdom in the management literature suggests that part of the management literature suggests that part of the job of strategic managers is to set precise job of strategic managers is to set precise objectives and formulates detailed strategies.objectives and formulates detailed strategies.

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5. Able to push through programs in a 5. Able to push through programs in a piecemeal fashionpiecemeal fashion

Successful strategic managers possess is Successful strategic managers possess is the Ability to Push through programs ina the Ability to Push through programs ina piecemeal fashion.piecemeal fashion.

Successful Strategic managers recognize Successful Strategic managers recognize the futility of trying to push total packages the futility of trying to push total packages or strategic programs through the or strategic programs through the organization, since significant objections to organization, since significant objections to at least part of such programs are likely to at least part of such programs are likely to arise.arise.

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Levels of Strategic ManagementLevels of Strategic Managementchapter 3chapter 3

1.1. Corporate LevelCorporate Level

2.2. Business LevelBusiness Level

3.3. Functional LevelFunctional Level

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Head Office

Division CDivision A Division B

Business Functions

Business Functions Business Functions

Market A Market B Market C

Corporate LevelCEO Board of Directors, Corporate Staff

Business LevelDivisional Managers and Staff

Functional LevelFunctional Managers

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Competitive Changes during Competitive Changes during Industry EvolutionIndustry Evolution

Over time most industries pass through a Over time most industries pass through a series of well-defined stages, from initial series of well-defined stages, from initial growth, through maturity, and eventually growth, through maturity, and eventually into decline. into decline.

These stages have different implications These stages have different implications for the nature of competition. Specifically, for the nature of competition. Specifically, the strength of each of Porter’s five the strength of each of Porter’s five competitive forces typically changes as an competitive forces typically changes as an industry evolves. industry evolves.

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The changes give rise to different opportunities The changes give rise to different opportunities and threats at each stage of an industry’s and threats at each stage of an industry’s evolution. The task facing strategic managers is evolution. The task facing strategic managers is to anticipate how the strength of each force will to anticipate how the strength of each force will change with the stage of industry development change with the stage of industry development and to formulate Strategies that take advantage and to formulate Strategies that take advantage of opportunities as they arise and that counter of opportunities as they arise and that counter emerging threats.emerging threats.

The industry life-cycle model is a useful tool for The industry life-cycle model is a useful tool for analyzing the effects of industry evolution on analyzing the effects of industry evolution on competitive forces. The model is similar to the competitive forces. The model is similar to the product life-cycle model discussed in the product life-cycle model discussed in the marketing literature. marketing literature.

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Using the industry life-cycle model, we can Using the industry life-cycle model, we can identify five industry environments, each identify five industry environments, each occurring during a distinct stage of an occurring during a distinct stage of an industry’s evolution:industry’s evolution:

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1. 1. An embryonic industry environment,An embryonic industry environment,

2. A growth industry environment 2. A growth industry environment

3. A shakeout environment 3. A shakeout environment

4. A mature industry environment and 4. A mature industry environment and

5. A declining industry environment 5. A declining industry environment

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1. An embryonic industry 1. An embryonic industry environmentenvironment

An embryonic industry is one that is just An embryonic industry is one that is just beginning to develop (for example, the beginning to develop (for example, the hand-held calculator industry in the late hand-held calculator industry in the late 1960s). 1960s).

Typically, growth at this stage is slow Typically, growth at this stage is slow because of such factors as buyers’ because of such factors as buyers’ unfamiliarity with the industry’s product, unfamiliarity with the industry’s product, high prices due to the inability of high prices due to the inability of companies to reap any significant scale companies to reap any significant scale economies, and poorly developed economies, and poorly developed distribution channels.distribution channels.

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2. A growth industry environment2. A growth industry environment

Once demand for the industry’s product begins to Once demand for the industry’s product begins to lake off, the industry develops the characteristics of lake off, the industry develops the characteristics of a growth industry, In growth industry, first-time a growth industry, In growth industry, first-time demand is expanding rapidly as many new demand is expanding rapidly as many new consumers enter the market. consumers enter the market.

Typically`, industry growth takes off when Typically`, industry growth takes off when consumers become familiar with the products, when consumers become familiar with the products, when prices fall because of the attainment of experience prices fall because of the attainment of experience and scale economies, and as distribution channels and scale economies, and as distribution channels develop. The personal computer industry was at this develop. The personal computer industry was at this stage of development between 1981 and 1984. In stage of development between 1981 and 1984. In the United States, 55,000 PCs were sold in 1981. the United States, 55,000 PCs were sold in 1981. By 1984 the figure had risen to 7.5 million -a 136-By 1984 the figure had risen to 7.5 million -a 136-fold increase in just three years.fold increase in just three years.

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3. A shakeout environment3. A shakeout environment

In the shakeout stage, demand approaches In the shakeout stage, demand approaches saturation levels. In a saturated market, there are saturation levels. In a saturated market, there are few potential first time buyers left. Most of the few potential first time buyers left. Most of the demand is limited to replacement demand. demand is limited to replacement demand.

A dramatic example of a shakeout occurred in the A dramatic example of a shakeout occurred in the PC industry during 1984-1986.The average PC industry during 1984-1986.The average annual growth rate of demand between 1984 and annual growth rate of demand between 1984 and 1986 was 3.3percent, compared with and average 1986 was 3.3percent, compared with and average annual growth rate of 3,000 percent between annual growth rate of 3,000 percent between 1981 and 1984.1981 and 1984.

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4. A mature industry environment4. A mature industry environment

The shakeout stage ends when the The shakeout stage ends when the industry enters its mature stage. In a industry enters its mature stage. In a mature industry, the market is totally mature industry, the market is totally saturated and demand is limited to saturated and demand is limited to replacement demand. replacement demand.

During this stage, growth is low or zero. During this stage, growth is low or zero. What little growth there is comes from What little growth there is comes from population expansion bringing new population expansion bringing new consumers into the market.consumers into the market.

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5. A declining industry environment5. A declining industry environment

Eventually, most industries enter a decline Eventually, most industries enter a decline stage. In the decline stage, growth becomes stage. In the decline stage, growth becomes negative for a variety of reasons, including negative for a variety of reasons, including technological substitutiontechnological substitution (for example, air travel (for example, air travel for rail travel), for rail travel), social changessocial changes (greater health (greater health consciousness hitting tobacco sales), and consciousness hitting tobacco sales), and demographicsdemographics (the declining birthrate hurting the (the declining birthrate hurting the market for baby and child products), and market for baby and child products), and international competitioninternational competition (low-cost foreign (low-cost foreign competition pushing the American steel industry competition pushing the American steel industry into decline).into decline).

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Assignment on Industry Visitation Assignment on Industry Visitation at least 3 near to BASCat least 3 near to BASC

Group Areas can be:Group Areas can be:

1.1. Kharajora to ChandraKharajora to Chandra

2.2. Chandra to SafipurChandra to Safipur

3.3. Chandra to NabinagorChandra to Nabinagor

4.4. Kharajor to KaliakoirKharajor to Kaliakoir

5.5. Kaliakoir to MirjaporeKaliakoir to Mirjapore

Etc.Etc.

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Example of one of the group Example of one of the group presentationpresentation

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Three Industry Environment Three Industry Environment ResearchResearch

Group No – 2Group No – 2Milon Ghorami, Edison Falia, Robert Milon Ghorami, Edison Falia, Robert

Singh, Kanto Dofo, Urmi BatikSingh, Kanto Dofo, Urmi Batik

March 15, 2010

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Type of Organization Type of Organization -Corporate-Corporate

Main ProductsMain Products - Knits, Garments- Knits, Garments

Capacity of ProductionCapacity of Production - - 20,000 Kg fabric / day20,000 Kg fabric / day

Total EmployeesTotal Employees - - 4,500 employees 4,500 employees

Admn MembersAdmn Members -120-120

Collapse yearCollapse year - Not yet fall in - Not yet fall in collapse collapse (Strongly (Strongly Stated)Stated)

Nayagara Textiles Ltd.Nayagara Textiles Ltd.

General Manager: Muhammad Shahin MiahGeneral Manager: Muhammad Shahin Miah

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Sewing Department of NiagaraSewing Department of Niagara

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Type of Organization Type of Organization -Corporate-Corporate

Main ProductsMain Products - Yarn, fiber, wool,- Yarn, fiber, wool,

Substitute ProductSubstitute Product - - Jute bags and clothesJute bags and clothes

Total EmployeesTotal Employees - - 1050 1050

Admn MembersAdmn Members -35-35

Collapse yearCollapse year - 2007, 2008, 2010 - 2007, 2008, 2010 (January- March) (January- March)

Shihab Jute Spinners Ltd.Shihab Jute Spinners Ltd.

Manager: Anwar HossainManager: Anwar Hossain

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Type of Organization Type of Organization -Corporate-Corporate

Main ProductsMain Products - Thread, Spinning- Thread, Spinning

Substitute ProductSubstitute Product - - NothingNothing

Total EmployeesTotal Employees - - 15001500

Admn MembersAdmn Members -27-27

Collapse yearCollapse year - 1998, 2003, 2004, - 1998, 2003, 2004, 2007 2007

Jahanara Spinning Mill LtdJahanara Spinning Mill Ltd

Manager: Md. MoniruzjamanManager: Md. Moniruzjaman

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Environment Stages

Names of the CompanyNayagara Textiles Ltd Jahanara Spinning

Mill LtdShihab Jute

Spinners Ltd.

Embryonic Stage

2001 the company started its embryonic stage and they did not face much problem with the high price, unfamiliarity, uses or not reached to others

1995 – The Jahanara Mill started its embryonic stage. They faced many difficulties with the popularity, machinery problem etc.

2000 – The embryonic stage started. This company also faced problem with the unfamiliarity.

Growth Stage

The growth of this company was outstanding and still it is holding this growth. Just after opening the company it reached into the peak.

1996-1997 was its growth period. The manager sincerely told us that it took little time for Jahanara Mill to in the the competitive market.

2002 was the real growth stage for the company

ShakeoutIt is strongly stated that there

were no shakeout period for this company.

1998, 2000 it was in the shakeout period

In various years they faced the shakeout period. 2004 - 2006

Mature StageThe company is now totally

matured.In the year of 2002 the

company was quite matured.

Not reach in mature stage

Declining Stage

No declining stages were found according to our research.

Due to mechanical and technical inconvenience the company is not earning much profit. But still somehow they are running

2007, 2008, 2010 Andstill they are in decline stages due to many other products came into the market.

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End of group 2End of group 2

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Introduction:Introduction:

As we visited many companies, we found As we visited many companies, we found how over time most industries pass how over time most industries pass through a series of well-defined stages, through a series of well-defined stages, from initial growth, through maturity, and from initial growth, through maturity, and eventually into decline. Specifically, the eventually into decline. Specifically, the strength of each of Porter’s five strength of each of Porter’s five competitive forces typically changes as an competitive forces typically changes as an industry evolves. Based on the Porter’s industry evolves. Based on the Porter’s five forces we made our presentation and five forces we made our presentation and visitation. visitation.

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BudgetBudget

Collection Collection 6 X 35 = 210.00 Tk6 X 35 = 210.00 Tk

ExpendituresExpenditures Traveling Exp. (For appointment) 52.00Traveling Exp. (For appointment) 52.00 Traveling Exp. (For data collection) 52.00Traveling Exp. (For data collection) 52.00 Mobile Exp.Mobile Exp. 10.00 10.00 Printing Exp.Printing Exp. 28.00 28.00 Entertainment Exp.Entertainment Exp. 60.00 60.00

TOTAL EXP. 202.00Surplus 8.00

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COMFIT COMPOSIT NET Ltd.COMFIT COMPOSIT NET Ltd.GORAI, MIRZAPUR, TANGILEGORAI, MIRZAPUR, TANGILE

EMBROYNIC STAGESEMBROYNIC STAGES :: 19921992 GROWTH STAGESGROWTH STAGES :: 1993 - 19941993 - 1994 SHAKEOUT STAGESSHAKEOUT STAGES :: 1995 - 19961995 - 1996 MATURE STAGESMATURE STAGES :: 1997 - 20081997 - 2008 DECLINING STAGEDECLINING STAGE :: 2009 2009 MATURE STAGESMATURE STAGES :: 2009 - 20102009 - 2010

COMPETITIVE CHANGES DURING INDUSTRY EVALUATION

• EMBROYNIC STAGES : 1992• GROWTH STAGES : 1993 - 1994• SHAKEOUT STAGES : 1995 - 1996• MATURE STAGES : 1997 - 2008• DECLINING STAGE : 2009 • MATURE STAGES : 2009 - 2010

COMFIT COMPOSIT NET Ltd.GORAI, MIRZAPUR, TANGILE

COMPETITIVE CHANGES DURING INDUSTRY EVALUATION

• EMBROYNIC STAGES : 1992• GROWTH STAGES : 1993 - 1994• SHAKEOUT STAGES : 1995 - 1996• MATURE STAGES : 1997 - 2008• DECLINING STAGE : 2009 • MATURE STAGES : 2009 - 2010

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PRODUCTS OF COMPANYPRODUCTS OF COMPANY

ThreadThreadGarmentsGarmentsDyingDyingshirtshirtPantsPantscapcap

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EXPORT COUNTRIESEXPORT COUNTRIES

Pakistan, Pakistan, SrilankaSrilankaThailandThailand

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TOMISHA FASHION WEAR Ltd. TOMISHA FASHION WEAR Ltd.

COMPETITIVE CHANGES DURING INDUSTRY EVALUATION EMBROYNIC STAGESEMBROYNIC STAGES :: 19901990 GROWTH STAGESGROWTH STAGES :: 1991 - 19931991 - 1993 SHAKEOUT STAGESSHAKEOUT STAGES :: 1994 - 19951994 - 1995 MATURE STAGESMATURE STAGES :: 1996 - 20101996 - 2010 DECLINING STAGEDECLINING STAGE :: ------------------------------

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Export CountriesExport Countries

1. China2. Japan 3. Nepal

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ConclusionForm this visitation we learnt many things. Specially some of the area I want to mention,

As How to enter a company for visiting. How to start talking with the manger or others manager. Learned about the History of the company. How the company started and which product they used first. How the company developed day by day. When they loss, how they overcome. What are the raw materials using for the production? How they export the goods & product. Which are the countries they are exporting? How percentage tax need to give government. How much contribution own & form the bank. Which are products producing?Over all we learnt many things from the visiting. And it will help for the

future life in job place. Really it was pleasure to us. We all are leant many things from the project.

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End of group 1End of group 1

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Implications of Industry Implications of Industry Evolution: Evolution: chapter 4chapter 4

For strategic managers, the most important For strategic managers, the most important aspect of industry evolution concerns its impact aspect of industry evolution concerns its impact on Porter’s four competitive forces and through on Porter’s four competitive forces and through them, on opportunities and threats. them, on opportunities and threats.

Industry evolution has major implications for Industry evolution has major implications for two of the five competitive forces- potential two of the five competitive forces- potential competitors and rivalry among established competitors and rivalry among established companies and less substantial implications for companies and less substantial implications for the competitive forces of buyers, suppliers, and the competitive forces of buyers, suppliers, and substitutes. We discuss each in turn.substitutes. We discuss each in turn.

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1. Potential competitors and 1. Potential competitors and industry evolution:industry evolution:

The ways in which entry barriers change with industry The ways in which entry barriers change with industry evolution are summarized in Table 3.2 In an evolution are summarized in Table 3.2 In an embryonic industry and in the early stages of a embryonic industry and in the early stages of a growth industry; entry barriers are usually based on growth industry; entry barriers are usually based on the control of technological knowledge. the control of technological knowledge.

Consequently, at those stages the threat of entry by Consequently, at those stages the threat of entry by potential competitors tends to be relatively low. This potential competitors tends to be relatively low. This gives industry incumbents what is commonly known gives industry incumbents what is commonly known as a first-mover advantage. However, the importance as a first-mover advantage. However, the importance of technological knowledge as a barrier to entry is of technological knowledge as a barrier to entry is typically short-lived. Sooner or later potential rivals typically short-lived. Sooner or later potential rivals manage to work out the technological requirements manage to work out the technological requirements for competing in an industry, and technological for competing in an industry, and technological barriers to entry decline in importance.barriers to entry decline in importance.

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The best thing for a company to do when The best thing for a company to do when technological entry barriers are high is to take technological entry barriers are high is to take advantaged of the relative lack of new advantaged of the relative lack of new competition to build up market share and brand competition to build up market share and brand loyalty. loyalty.

For example, in the embryonic stage of the PC For example, in the embryonic stage of the PC industry, Apple computer had a virtual monopoly industry, Apple computer had a virtual monopoly of the relevant knowledge. This technological of the relevant knowledge. This technological advantage allowed Apple to become the market advantage allowed Apple to become the market leader. Thus, when technological entry barriers leader. Thus, when technological entry barriers were eroded by imitators such as IBM, Apple were eroded by imitators such as IBM, Apple had already established a degree of brand had already established a degree of brand loyalty for its products. This enabled Apple to loyalty for its products. This enabled Apple to survive in the industry when competitive survive in the industry when competitive pressures increased. pressures increased.

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Normally, the importance of control over Normally, the importance of control over technological knowledge as a barrier to entry technological knowledge as a barrier to entry declines significantly by the time an industry declines significantly by the time an industry enters its growth stage. enters its growth stage.

In addition, because few companies have yet a In addition, because few companies have yet a achieved significant scale economies or achieved significant scale economies or differentiated their product sufficiently to differentiated their product sufficiently to guarantee brand loyalty, other barriers to entry guarantee brand loyalty, other barriers to entry tend to be low at this stage. Given the low entry tend to be low at this stage. Given the low entry barriers, the threat from potential competitors is barriers, the threat from potential competitors is normally highest at this point. However, normally highest at this point. However, paradoxically, high growth usually means that paradoxically, high growth usually means that new entrants can be absorbed into an industry new entrants can be absorbed into an industry without a marked increase in competitive without a marked increase in competitive pressure. pressure.

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Rivalry among established companies Rivalry among established companies and and IndustryIndustry evolution evolution::

The extent and character of rivalry among established The extent and character of rivalry among established companies also change as a industry evolves, presenting a companies also change as a industry evolves, presenting a company with new opportunities and threats company with new opportunities and threats

In an embryonic industry, rivalry normally focuses on In an embryonic industry, rivalry normally focuses on perfecting product design and educating consumers.perfecting product design and educating consumers.

This rivalry can be intense, as in the race to develop This rivalry can be intense, as in the race to develop superconductors and the company that is the first that is the superconductors and the company that is the first that is the first to solve design problems often has the opportunity to first to solve design problems often has the opportunity to develop a significant market position.develop a significant market position.

En embryonic industry may also be the creation of one En embryonic industry may also be the creation of one company’s innovative efforts, as happened with personal company’s innovative efforts, as happened with personal computers.computers.

The company has a major opportunity to capitalize on the The company has a major opportunity to capitalize on the lack of rivalry and build up a strong hold on the market.lack of rivalry and build up a strong hold on the market.

During an industry’s growth stage, rivalry tends to be low.During an industry’s growth stage, rivalry tends to be low.

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Rapid growth in demand enables companies to Rapid growth in demand enables companies to expand their revenues and profits without taking expand their revenues and profits without taking market share away from competitors.market share away from competitors.

A company has the opportunity to expand its A company has the opportunity to expand its operations.operations.

A strategically aware company takes advantage A strategically aware company takes advantage of the relatively benign environment of the growth of the relatively benign environment of the growth stage to prepare itself for the intense competition stage to prepare itself for the intense competition of the coming industry shakeout.of the coming industry shakeout.

Shakeout stage, rivalry between companies Shakeout stage, rivalry between companies becomes intense.becomes intense.

Rapid growth during an industry’s growth phase Rapid growth during an industry’s growth phase continue to add capacity at rates consistent with continue to add capacity at rates consistent with past growth.past growth.

Managers use historic growth rates.Managers use historic growth rates.

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2. 2. Buyers, suppliersBuyers, suppliers, and industry , and industry evolution:evolution:

Industry evolution can change the nature of the relationships Industry evolution can change the nature of the relationships between an industry and its buyers and supplies. As an between an industry and its buyers and supplies. As an industry evolves toward maturity, it becomes both larger and industry evolves toward maturity, it becomes both larger and more consolidated. These changes enhance the bargaining more consolidated. These changes enhance the bargaining power of companies in the industry vis-à-vis suppliers and power of companies in the industry vis-à-vis suppliers and buyers in a number of ways. buyers in a number of ways.

First, thee larger a company is, the more important it is to First, thee larger a company is, the more important it is to suppliers as a customer for their products and the greater its suppliers as a customer for their products and the greater its bargaining power. Second, the more consolidated an bargaining power. Second, the more consolidated an industry is, the less suppliers are able to play off companies industry is, the less suppliers are able to play off companies against each other in an attempt to increase prices. Third, against each other in an attempt to increase prices. Third, the more consolidated an industry is, the less buyers are the more consolidated an industry is, the less buyers are able to play off companies against each other in a attempt to able to play off companies against each other in a attempt to drive down prices.drive down prices.

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3. Substitute products and 3. Substitute products and industry industry evolutionevolution::

The competitive force of substitute products The competitive force of substitute products depends to some extent on the ability of depends to some extent on the ability of companies in an industry to build brand loyalty companies in an industry to build brand loyalty for their own products. for their own products.

Other things being equal, the greater the brand Other things being equal, the greater the brand loyalty for an industry’s products. The less likely loyalty for an industry’s products. The less likely are consumers to switch to the products of are consumers to switch to the products of substitute industries. Generally, as an industry substitute industries. Generally, as an industry evolves toward maturity, companies within it evolves toward maturity, companies within it begin to expend more effort on differentiating begin to expend more effort on differentiating their products to create brand loyalty. their products to create brand loyalty.

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This gives a company some protection not This gives a company some protection not only from companies in its own industry, only from companies in its own industry, but also from those in substitute industries. but also from those in substitute industries.

This, as it moves toward maturity, an This, as it moves toward maturity, an industry begins to develop a grater degree industry begins to develop a grater degree of protection against the competitive force of protection against the competitive force of substitute products. However, the of substitute products. However, the emergence of significant new substitutes emergence of significant new substitutes may push a mature industry into decline, may push a mature industry into decline, as synthetic materials have done in the as synthetic materials have done in the steed industry.steed industry.

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4. Analyzing the macro-environment4. Analyzing the macro-environment..

Macro-environmental factors are factors external to an Macro-environmental factors are factors external to an industry that influence the level of demand within it, industry that influence the level of demand within it, directly affecting company profits. Many of these factors directly affecting company profits. Many of these factors are constantly changing and the change process itself are constantly changing and the change process itself gives rise to new opportunities and threats. gives rise to new opportunities and threats.

Strategic managers must understand the significance of Strategic managers must understand the significance of macro-environment factors and be able to assess the macro-environment factors and be able to assess the impact of changes in the macro-environment on their impact of changes in the macro-environment on their company and on the opportunities and threats it faces. company and on the opportunities and threats it faces. Seven elements of the macro-environments are of Seven elements of the macro-environments are of particular importance here: particular importance here: the macroeconomic the macroeconomic environment, the technological environment, the social environment, the technological environment, the social environment, the demographic environment, the political environment, the demographic environment, the political and legal environment, and the global environment.and legal environment, and the global environment.

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The Macro-Economic The Macro-Economic Environment Environment Ch. 5Ch. 5

The state of the macroeconomic The state of the macroeconomic environment determines the general health environment determines the general health and well-being of the economy. and well-being of the economy.

This is turn, affects companies ability to This is turn, affects companies ability to earn a adequate rate of return. The four earn a adequate rate of return. The four most important macroeconomic indicators in most important macroeconomic indicators in this context are the this context are the growth rate of the growth rate of the economy, the interest rates, currency economy, the interest rates, currency exchange rates, and inflation rates. exchange rates, and inflation rates.

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1. Economic growth:1. Economic growth: The rate of growth in the economy has a direct The rate of growth in the economy has a direct

impact on the level of opportunities and threats that impact on the level of opportunities and threats that companies face. companies face.

Because it leads to an expansion in Because it leads to an expansion in consumer consumer expenditureexpenditure, economic growth tends to produce a , economic growth tends to produce a general easing of competitive pressures within an general easing of competitive pressures within an industry. This gives companies the opportunity to industry. This gives companies the opportunity to expand their operations. Because economic decline expand their operations. Because economic decline leads to a reduction in consumer expenditure, it leads to a reduction in consumer expenditure, it increases competitive pressures and constitutes a increases competitive pressures and constitutes a major threat to profitability. Economic decline major threat to profitability. Economic decline frequently causes price wars in mature industries. frequently causes price wars in mature industries.

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Although the precise level of economic growth is Although the precise level of economic growth is notoriously difficult to predict, strategic notoriously difficult to predict, strategic managers need to be aware of the outlook for managers need to be aware of the outlook for the economy.the economy.

For example, it would make little sense to For example, it would make little sense to

embark on an ambitious expansion strategy if embark on an ambitious expansion strategy if most forecasters are expecting a sharp most forecasters are expecting a sharp economic downturn. Conversely, if the economy economic downturn. Conversely, if the economy is currently in poor shape but a general upturn in is currently in poor shape but a general upturn in activity is forecasted, companies might be well activity is forecasted, companies might be well advised to take up an advised to take up an expansion strategyexpansion strategy..

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2. Interest rates:2. Interest rates: The level of interest rates can determine the level of The level of interest rates can determine the level of

demand for a company’s products. Interest rates are demand for a company’s products. Interest rates are important whenever consumers routinely borrow important whenever consumers routinely borrow money to finance their purchase of these products. money to finance their purchase of these products.

The most obvious example is the housing market, The most obvious example is the housing market, where the mortgage rate directly affects demand, but where the mortgage rate directly affects demand, but interest rates also have an impact on the sale of interest rates also have an impact on the sale of products on autos, appliances, and capital products on autos, appliances, and capital equipment, to give just a few examples. For equipment, to give just a few examples. For companies in such industries, companies in such industries, rising interest rates rising interest rates are a threat and falling rates an opportunity. are a threat and falling rates an opportunity.

Interest rates also determine the cost of capital for a Interest rates also determine the cost of capital for a company. This cost can be a major factor in deciding company. This cost can be a major factor in deciding whether a given strategy is feasible. whether a given strategy is feasible.

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3. Currency exchange rates3. Currency exchange rates::

Currency exchange rates define the values of Currency exchange rates define the values of the dollar relative to the values of the currencies the dollar relative to the values of the currencies of other countries. of other countries.

Movement in currency exchange rates has a Movement in currency exchange rates has a direct impact on the competitiveness of a direct impact on the competitiveness of a company’s products in the global marketplace. company’s products in the global marketplace. When the value of the dollar is low compared When the value of the dollar is low compared with the value of other currencies, products with the value of other currencies, products made in the United States are relatively made in the United States are relatively inexpensive and product made overseas is inexpensive and product made overseas is relatively expensive. relatively expensive.

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4. Inflation rates4. Inflation rates::

Inflation can destabilize the economyInflation can destabilize the economy, producing , producing slower economic growth, higher interest rates, and slower economic growth, higher interest rates, and volatile(unpredictable) currency movementsvolatile(unpredictable) currency movements. If . If inflation keeps increasing, investment planning inflation keeps increasing, investment planning becomes a hazardous business. The key becomes a hazardous business. The key characteristic of inflation is that it makes the future characteristic of inflation is that it makes the future less predictable. less predictable.

In an inflationary environment, it that it may be In an inflationary environment, it that it may be impossible to predict with any accuracy the real impossible to predict with any accuracy the real value of returns that can be earned from a project value of returns that can be earned from a project five years hence. Such five years hence. Such uncertainty makes uncertainty makes companies less willing to investcompanies less willing to invest. Their holding back . Their holding back in turn depresses economic activity and ultimately in turn depresses economic activity and ultimately pushes the economy into a slump. Thus high pushes the economy into a slump. Thus high inflation is a threat to companies.inflation is a threat to companies.

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5. The Technological Environment:5. The Technological Environment:

Since World War II, the pace of technological change Since World War II, the pace of technological change has accelerated. Unleashing a process that has been has accelerated. Unleashing a process that has been called a “perennial gale of creativ e destruction.” called a “perennial gale of creativ e destruction.” Technological changes can make established Technological changes can make established products obsolete overnight. products obsolete overnight.

At the same time it can create a host of new product At the same time it can create a host of new product possibilities. Thus it is both creative and destructive possibilities. Thus it is both creative and destructive both an opportunity and a threat. Since accelerating both an opportunity and a threat. Since accelerating technological change also shortens the average technological change also shortens the average product life cycle, organizations need to anticipate product life cycle, organizations need to anticipate the changes that new technologies bring with them: the changes that new technologies bring with them: They need to analyze their environment strategically.They need to analyze their environment strategically.

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Witness recent changes in the electronics Witness recent changes in the electronics industry. For forty years, until the early 1960s, industry. For forty years, until the early 1960s, vacuum tubes were a major component in radios vacuum tubes were a major component in radios and then in record players and early computers. and then in record players and early computers.

The advent of transistors destroyed the market The advent of transistors destroyed the market for vacuum tubes but at the same time created for vacuum tubes but at the same time created new opportunities connected with transistors. new opportunities connected with transistors. Transistors up far less space than vacuum Transistors up far less space than vacuum tubes, encouraging trend toward miniaturization tubes, encouraging trend toward miniaturization that continues.that continues.

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The transistor held its position as the major The transistor held its position as the major component in the electronics industry for just component in the electronics industry for just decade. In the 1970s microprocessors were decade. In the 1970s microprocessors were developed, and the market for transistors developed, and the market for transistors decline rapidly. decline rapidly.

At the same time, however, the microprocessor At the same time, however, the microprocessor created yet another set of new product created yet another set of new product opportunities- hand-held calculators, compact opportunities- hand-held calculators, compact disk players, and personal computes to name disk players, and personal computes to name just few. Strategically aware electronics just few. Strategically aware electronics companies by anticipating the effects of change, companies by anticipating the effects of change, benefited from the progression of new benefited from the progression of new technologies. Unaware companies went out of technologies. Unaware companies went out of business.business.

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New technologies also give rise to new ways of New technologies also give rise to new ways of

manufacturing established products.manufacturing established products.

1. The Social Environment1. The Social Environment

2. The Demographic 2. The Demographic EnvironmentEnvironment

3. The Political and Legal 3. The Political and Legal EnvironmentEnvironment

4. The Global Environment4. The Global Environment

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1. The Social Environment1. The Social Environment Like technological change, social change Like technological change, social change

creates opportunities and threats. One of the creates opportunities and threats. One of the major social movements of the 1970s and 1980s major social movements of the 1970s and 1980s was the trend was the trend toward greater health toward greater health consciousness. consciousness.

Its impact has been immense, and companies Its impact has been immense, and companies that recognized the opportunities early have that recognized the opportunities early have often reaped significant gains. Philip Morris, for often reaped significant gains. Philip Morris, for example, capitalized on the growing health trend example, capitalized on the growing health trend when it acquired Miller Brewing Company and when it acquired Miller Brewing Company and then redefined competition in the beer industry then redefined competition in the beer industry with its introduction of low-calorie beer. Similarly, with its introduction of low-calorie beer. Similarly, Pepsi Co was able to gain market share from its Pepsi Co was able to gain market share from its archrival, Coca-Cola Company, by introducing archrival, Coca-Cola Company, by introducing diet colas and fruit-based soft drinks first. diet colas and fruit-based soft drinks first.

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The health trend has also given rise to booming The health trend has also given rise to booming sales of mineral waters, with a market growth of sales of mineral waters, with a market growth of 15 percent per year during the mid 1980s. In an 15 percent per year during the mid 1980s. In an attempt to capitalize on this opportunity, many of attempt to capitalize on this opportunity, many of the country’s largest beverage companies are the country’s largest beverage companies are currently expanding into this fragmented currently expanding into this fragmented industry. industry.

At the same time the health trend has crated a At the same time the health trend has crated a threat for many industries. The tobacco industry, threat for many industries. The tobacco industry, for example, is now in decline as a direct result for example, is now in decline as a direct result of greater consumer awareness of the health of greater consumer awareness of the health implications of smoking. Similarly, the sugar implications of smoking. Similarly, the sugar industry has seen sales decline as consumers industry has seen sales decline as consumers have decided to switch to artificial sweetenershave decided to switch to artificial sweeteners

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2. The Demographic Environment2. The Demographic Environment The changing composition of the population is another The changing composition of the population is another

factor that can create both opportunities and threats. For factor that can create both opportunities and threats. For example, as the baby-boom generation of the 1960s has example, as the baby-boom generation of the 1960s has moved through the population, it has created a host of moved through the population, it has created a host of opportunities and threats. opportunities and threats.

Currently, bay boomers are getting married and creating an Currently, bay boomers are getting married and creating an upsurge in demand for the consumer appliances normally upsurge in demand for the consumer appliances normally bought by couples marrying for the first time. Thus bought by couples marrying for the first time. Thus companies such as Whirlpool Corporation and General companies such as Whirlpool Corporation and General Electric are looking to capitalize on the predicted upsurge Electric are looking to capitalize on the predicted upsurge in demand fro washing machines, dishwashers, spin in demand fro washing machines, dishwashers, spin dryers, and the kike. The other side of the coin is that dryers, and the kike. The other side of the coin is that industries oriented toward the young, such as the toy industries oriented toward the young, such as the toy industry, have seen their consumer base decline in recent industry, have seen their consumer base decline in recent years.years.

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3. The Political and Legal Environment3. The Political and Legal Environment

Political and legal factors also have a major effect on the Political and legal factors also have a major effect on the level of opportunities and threats in the environment. level of opportunities and threats in the environment. One of the most significant trends is recent years has One of the most significant trends is recent years has been the move toward deregulation. been the move toward deregulation.

By eliminating many legal restrictions, deregulation has By eliminating many legal restrictions, deregulation has opened a number of industries to intense competition. opened a number of industries to intense competition. The deregulation of the airline industry in 1979, for The deregulation of the airline industry in 1979, for example, created the opportunity to establish low-fare example, created the opportunity to establish low-fare carriers –an opportunity that Texas Air, People Express, carriers –an opportunity that Texas Air, People Express, and others tried to capitalize on. At the same time, the and others tried to capitalize on. At the same time, the increased intensity of competition created many threats, increased intensity of competition created many threats, including, most notablyincluding, most notably, the threat of prolonged fare , the threat of prolonged fare wars, which have repeatedly thrown the airline industry wars, which have repeatedly thrown the airline industry into turmoil during the last decade.into turmoil during the last decade.

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Deregulation apart, companies also face serious Deregulation apart, companies also face serious legal constraints, which limit their potential legal constraints, which limit their potential strategic options. Antitrust laws, for example, can strategic options. Antitrust laws, for example, can prevent companies from trying to achieve a prevent companies from trying to achieve a dominant market position through acquisitions. dominant market position through acquisitions.

In 1986, both Pepsi Co and Coca-Cola attempted In 1986, both Pepsi Co and Coca-Cola attempted to buy up smaller soft-drink manufacturers, Pepsi to buy up smaller soft-drink manufacturers, Pepsi bidding for the Seven-Up Company and Coca-bidding for the Seven-Up Company and Coca-Cola for Dr. Pepper C0. Both acquisitions were Cola for Dr. Pepper C0. Both acquisitions were forbidden by the Federal Trade Commission on forbidden by the Federal Trade Commission on the grounds that if they went through, Pepsi and the grounds that if they went through, Pepsi and Coca-Cola between them would control more than Coca-Cola between them would control more than 80% of the soft-drink market. Seven-Up 80% of the soft-drink market. Seven-Up subsequently merged with Dr. Pepper, a move subsequently merged with Dr. Pepper, a move that has created the possible threat of the third that has created the possible threat of the third major company emerging in the industry.major company emerging in the industry.

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For the future, fears about the destruction of the For the future, fears about the destruction of the ozone layer, acid rain, and global warming may be ozone layer, acid rain, and global warming may be near the top to the political agenda in the 1990s. near the top to the political agenda in the 1990s.

Given these concerns, governments seem Given these concerns, governments seem increasingly likely to enact tough environmental increasingly likely to enact tough environmental regulations to limit air pollution. Rather than resisting regulations to limit air pollution. Rather than resisting this trend, companies should try to take advantage of this trend, companies should try to take advantage of it. Fro example, back in 1974, when ozone depletion it. Fro example, back in 1974, when ozone depletion was still a theory, E.I. Du Pont de Nemours & was still a theory, E.I. Du Pont de Nemours & Company decided to start research into substitutes Company decided to start research into substitutes for ozone-damaging chlorofluorocarbons (CFCs), for ozone-damaging chlorofluorocarbons (CFCs), widely used in aerosols, air conditioners, and widely used in aerosols, air conditioners, and refrigeration equipment. At the same time, Du Pont refrigeration equipment. At the same time, Du Pont made a pledge to phase out production of CFCS if made a pledge to phase out production of CFCS if they were shown to be a threat to public health.they were shown to be a threat to public health.

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4. The Global Environment4. The Global Environment Changes in the global environment can create both Changes in the global environment can create both

opportunities for market expansion and serious opportunities for market expansion and serious threats to a company’s domestic and international threats to a company’s domestic and international market share. market share.

As the world enters the 1990s, developments are As the world enters the 1990s, developments are occurring that may have great significance for the occurring that may have great significance for the future of American enterprise. The first is the future of American enterprise. The first is the emergence of the European community as a free- emergence of the European community as a free- trade blocks containing a single market that is half trade blocks containing a single market that is half again as large as the United States. After the again as large as the United States. After the removal of trade barriers between Community removal of trade barriers between Community members in 1992, the European Community could members in 1992, the European Community could have the fastest growing and potentially most have the fastest growing and potentially most wealthy economy in the industrialized world. wealthy economy in the industrialized world.

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American business would be well advised American business would be well advised to take advantage of this growth and to to take advantage of this growth and to recognize the threat posed by major recognize the threat posed by major European companies. European companies.

European companies may use their strong European companies may use their strong domestic economy as a springboard from domestic economy as a springboard from which to invade(attactk) U. S. markets, which to invade(attactk) U. S. markets, much as the Japanese did in the 1970s. much as the Japanese did in the 1970s. American companies need to anticipate American companies need to anticipate these developments rather than ignore these developments rather than ignore them as was all too often the case with the them as was all too often the case with the Japanese.Japanese.

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A second development is in Eastern Europe, A second development is in Eastern Europe, where the collapse of state communism and the where the collapse of state communism and the rapid shift toward free-market economies by rapid shift toward free-market economies by several Eastern European countries has created several Eastern European countries has created potentially enormous growth opportunities. potentially enormous growth opportunities.

The challenge facing American enterprise is to The challenge facing American enterprise is to capitalize on these opportunities before Western capitalize on these opportunities before Western European and Asian competitors do. A third European and Asian competitors do. A third development concerns the continuing development concerns the continuing emergence of “Asian tigers.” In particular, emergence of “Asian tigers.” In particular, Thailand looks set to join a list of major Asian Thailand looks set to join a list of major Asian competitors that already includes Japan, South competitors that already includes Japan, South Korea, and Taiwan. As a group, these countries Korea, and Taiwan. As a group, these countries will pose a significant competitive threat for the will pose a significant competitive threat for the foreseeable future. At the same time, their foreseeable future. At the same time, their markets represent largely untapped growth markets represent largely untapped growth opportunity.opportunity.

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Financial Resources Financial Resources chapter 6chapter 6

A company’s financial position can constitute A company’s financial position can constitute either a strength or a weakness.either a strength or a weakness.

It can seriously affect the company’s ability to build It can seriously affect the company’s ability to build distinctive competencies in other areas, given distinctive competencies in other areas, given that doing so often requires substantial that doing so often requires substantial investments.investments.

These are:These are:

1.1. Cash FlowCash Flow

2.2. Credit PositionCredit Position

3.3. LiquidityLiquidity

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1. Cash Flow1. Cash Flow Cash flow- perhaps the most important financial Cash flow- perhaps the most important financial

consideration for a companyconsideration for a company It refers to the surplus of internally generated It refers to the surplus of internally generated

funds over expenditure.funds over expenditure. A positive cash flow enables a company to fund A positive cash flow enables a company to fund

new investments without borrowing money from new investments without borrowing money from bankers or investors.bankers or investors.

This ability is obviously a strength, since the This ability is obviously a strength, since the company avoids paying interest or dividends.company avoids paying interest or dividends.

If current positions cannot generate a positive If current positions cannot generate a positive cash flow, the company is in a relatively weak cash flow, the company is in a relatively weak financial position.financial position.

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2. Credit Position2. Credit Position Even if cash flow is a weakness, a company Even if cash flow is a weakness, a company

can still establish a reasonable secure overall can still establish a reasonable secure overall financial standing if it has a good credit financial standing if it has a good credit position.position.

A good credit position can enable a company A good credit position can enable a company to expand by using borrowed money.to expand by using borrowed money.

To establish good, a company mustTo establish good, a company must(1)(1) Have a low level of current debt orHave a low level of current debt or(2)(2) Be viewed by bankers and investors as having Be viewed by bankers and investors as having

good prospects.good prospects.

Many bio-technological companies, for example, Many bio-technological companies, for example, have a negative cash flow but a strong over have a negative cash flow but a strong over financial position.financial position.

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LiquidationLiquidation

A company is said to be Liquid when its current A company is said to be Liquid when its current assets exceed its current liabilities.assets exceed its current liabilities.

Liquidity takes the form of idle working capital, Liquidity takes the form of idle working capital, such as marketable securities, or funding in such as marketable securities, or funding in reserve, such as unused lines of credit.reserve, such as unused lines of credit.

A company’s liquidity is a measure of its ability to A company’s liquidity is a measure of its ability to meet unexpected contingencies-for instance, a meet unexpected contingencies-for instance, a sudden dip in demand or a price war.sudden dip in demand or a price war.

Companies that lack liquidity are in a weak Companies that lack liquidity are in a weak financial position because they may be unable to financial position because they may be unable to meet these contingencies.meet these contingencies.

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The role of financial analysis in The role of financial analysis in case study analysiscase study analysis

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Profit RatiosProfit Ratios

1.1. Gross profit marginGross profit margin

The gross profit margin gives an indication The gross profit margin gives an indication of the total margin available to cover of the total margin available to cover operating expenses and yield a profit. It operating expenses and yield a profit. It is a measure of the value a company is a measure of the value a company creates net of the cost of performing creates net of the cost of performing value creation activities. It defined as value creation activities. It defined as follows:follows:

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Sales Revenue – Cost of Goods Sales Revenue – Cost of Goods SoldSold

Gross Profit Margin=Gross Profit Margin=

Sales RevenueSales Revenue

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2. Return on total assets.2. Return on total assets.

This measure the return earned on the total This measure the return earned on the total investment in a company. It defined as investment in a company. It defined as follows:follows:

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Profits After Tax+ InterestProfits After Tax+ Interest

Return of Total Assets=Return of Total Assets=

Total AssetsTotal Assets

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3. Return on stockholder’s equity3. Return on stockholder’s equity

Often referred to as return on net worth, this Often referred to as return on net worth, this measures the rate of return on measures the rate of return on stockholder’s investment in the company.stockholder’s investment in the company.

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Profit After Tax and Profit After Tax and InterestInterest

Return on Stockholder’s EquityReturn on Stockholder’s Equity==

Total Stockholder’s Total Stockholder’s EquityEquity

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Liquidity RatiosLiquidity Ratios

1.1. Current ratioCurrent ratio

The current ratio measures the extent to The current ratio measures the extent to which the claims of short-term creditors which the claims of short-term creditors are covered by assets that can be are covered by assets that can be quickly converted into cash.quickly converted into cash.

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Current AssetsCurrent Assets

Current Ratio=Current Ratio=

Current LiabilityCurrent Liability

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2. Quick Ratio2. Quick Ratio

The quick ratio measures a company’s The quick ratio measures a company’s ability to pay off the claims of short-term ability to pay off the claims of short-term creditors without relying on the sale of its creditors without relying on the sale of its inventories. This is a valuable measure inventories. This is a valuable measure since in practice the sale of inventories is since in practice the sale of inventories is often difficult. It is defined as follows:often difficult. It is defined as follows:

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Current Assets - Current Assets - InventoriesInventories

Quick Ratio =Quick Ratio =

Current LiabilitiesCurrent Liabilities

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Leverage RatiosLeverage Ratios

A company is said to be highly leveraged A company is said to be highly leveraged when it relies on external sources of funds when it relies on external sources of funds rather than internally generated funds to rather than internally generated funds to finance its investment.finance its investment.

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1. Debt-to-Assets1. Debt-to-Assets

The debt-to-asset ratio is the most direct The debt-to-asset ratio is the most direct measure of the extent to which borrowed measure of the extent to which borrowed funds have been used to finance a funds have been used to finance a company’s investments. It is defined as company’s investments. It is defined as follows:follows:

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Total DebtTotal Debt

Debt-to-Assets =Debt-to-Assets =

Total AssetsTotal Assets

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2. Long-term debt-to-equity ratio2. Long-term debt-to-equity ratio

The long-term debt-to-equity measure The long-term debt-to-equity measure indicates the balance between debt and indicates the balance between debt and equity in a company’s long-term capital equity in a company’s long-term capital structure. This is perhaps the most widely structure. This is perhaps the most widely used measure of a company’s leverage. It used measure of a company’s leverage. It is defined as follows:is defined as follows:

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Long-term DebtLong-term Debt

Debt-to-Equity =Debt-to-Equity =

Total Stockholder’s Total Stockholder’s EquityEquity

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3. Times-covered ratio3. Times-covered ratio

The times-covered ratio measures the The times-covered ratio measures the extent to which a company’s gross profit extent to which a company’s gross profit covers its annual interest payments. If the covers its annual interest payments. If the rimes-covered ratio declines to less than rimes-covered ratio declines to less than 1, then the company is unable to meet its 1, then the company is unable to meet its interest costs and is technically insolvent. interest costs and is technically insolvent. The ratio is defined as follows:The ratio is defined as follows:

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Profits Before Interest and Profits Before Interest and TaxTax

Times-covered Ratio =Times-covered Ratio =

Total Interest ChargesTotal Interest Charges

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Product Differentiation StrategyProduct Differentiation Strategychapter 7chapter 7

1.1. Market PenetrationMarket Penetration

2.2. Product DevelopmentProduct Development

3.3. Market DevelopmentMarket Development

4.4. Product ProliferationProduct Proliferation

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Companies with major investments in fixed Companies with major investments in fixed assets, such as steel mills or auto plants, assets, such as steel mills or auto plants, tend to be less liquid than companies with tend to be less liquid than companies with a lower level of fixed assets.a lower level of fixed assets.

The reason is that fixed assets cannot be The reason is that fixed assets cannot be easily translated into cash and often easily translated into cash and often require major fixed costs, which place require major fixed costs, which place heavy demands on the company’s cash heavy demands on the company’s cash reserves in times of trouble.reserves in times of trouble.

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1. Market Penetration1. Market Penetration

When a company concentrates on expanding When a company concentrates on expanding market share in its existing product markets, it is market share in its existing product markets, it is engaging in a strategy of Market Penetration.engaging in a strategy of Market Penetration.

Market penetration involves using advertising to Market penetration involves using advertising to promote and build product differentiation.promote and build product differentiation.

In some industry, advertising is used to influence In some industry, advertising is used to influence consumer’s brand choice and create a brand-consumer’s brand choice and create a brand-name reputation for the company and its name reputation for the company and its products.products.

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In some mature industries- for examples, the In some mature industries- for examples, the soap and detergent, disposable diapers.soap and detergent, disposable diapers.

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2. Product Development2. Product Development

Product development is the creation of new or Product development is the creation of new or improved products to replace existing ones.improved products to replace existing ones.

Product development is important for maintaining Product development is important for maintaining product differentiation and building market product differentiation and building market share.share.

Ex. The laundry detergent Tide has gone through Ex. The laundry detergent Tide has gone through over fifty different changes in formulation over over fifty different changes in formulation over the past forty years to improve its performance.the past forty years to improve its performance.

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3. Market Development3. Market Development

Market development involves finding new Market development involves finding new market segments in which to exploit a market segments in which to exploit a company’s products. A company pursuing company’s products. A company pursuing this strategy wishes to capitalize on the this strategy wishes to capitalize on the brand name it has developed in one brand name it has developed in one market segment by finding new market market segment by finding new market segments in which to compete.segments in which to compete.

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Ex.Ex.The Toyota Corolla was aimed at the small The Toyota Corolla was aimed at the small

economy car segment of the market as economy car segment of the market as was the Honda Accord. However, over was the Honda Accord. However, over time, the Japanese upgraded each car, time, the Japanese upgraded each car, and now each is directed at more and now each is directed at more expensive market segments. expensive market segments.

The Accord is now a leading contender in The Accord is now a leading contender in the mid-size luxury sedan segment, and the mid-size luxury sedan segment, and the Corolla fils the small-car segment that the Corolla fils the small-car segment that used to be occupied by the Celica, which used to be occupied by the Celica, which is now aimed at a sportier market is now aimed at a sportier market segment.segment.

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4. Product Proliferation 4. Product Proliferation (Production)(Production)

Companies seldom produce just one Companies seldom produce just one product. Most commonly, companies product. Most commonly, companies produce a range of products aimed at produce a range of products aimed at different market segments so that they different market segments so that they have broad product lines.have broad product lines.

The strategy of pursuing a broad product The strategy of pursuing a broad product line to deter entry is known as Product line to deter entry is known as Product Proliferation.Proliferation.

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AssignmentAssignment

Find out different companies which has Find out different companies which has develop so much in the market.develop so much in the market.

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Corporate-Level strategyCorporate-Level strategychapter 8chapter 8

The choice of Entry ModeThe choice of Entry ModeThere are basically five different ways of There are basically five different ways of

entering an overseas market:entering an overseas market:1.1. ExportingExporting2.2. LicensingLicensing3.3. FranchisingFranchising4.4. Joint ventureJoint venture5.5. Wholly owned subsidiaryWholly owned subsidiary

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1. Exporting1. Exporting

Most manufacturing companies begin their Most manufacturing companies begin their global expansion as exporters and only global expansion as exporters and only later switch to one of the other modes for later switch to one of the other modes for serving a foreign market.serving a foreign market.

Exporting does have two distinct advantages.Exporting does have two distinct advantages.1. Exporting avoid the costs of having to 1. Exporting avoid the costs of having to

establish manufacturing operations in the establish manufacturing operations in the host country. Since these costs are often host country. Since these costs are often substantial, this is not a trivial advantage.substantial, this is not a trivial advantage.

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2. Exporting is consistent with a pure global 2. Exporting is consistent with a pure global strategy. By manufacturing the product in strategy. By manufacturing the product in a centralized location and then exporting it a centralized location and then exporting it to other national markets, a company may to other national markets, a company may be able to realize substantial scale be able to realize substantial scale economies from its global sales volume.economies from its global sales volume.

This is how Sony came to dominate the This is how Sony came to dominate the global television market and how many of global television market and how many of the Japanese auto companies originally the Japanese auto companies originally made inroads into the U. S. auto market.made inroads into the U. S. auto market.

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2. Licensing2. Licensing

International licensing is an arrangement International licensing is an arrangement whereby a foreign licensee buys the rights to whereby a foreign licensee buys the rights to manufacture a company’s product in the manufacture a company’s product in the licensee’s country for a negotiated fee.licensee’s country for a negotiated fee.

The advantage of licensing is that a company The advantage of licensing is that a company does not have to bear the development costs does not have to bear the development costs and risks associated with opening up a and risks associated with opening up a foreign market.foreign market.

This can make licensing a very attractive option This can make licensing a very attractive option for companies that lack the capital to develop for companies that lack the capital to develop operations overseas. operations overseas.

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Two serious drawbacks to licensing.Two serious drawbacks to licensing.1.1. Licensing does not give the tight control over Licensing does not give the tight control over

manufacturing, marketing, and strategic manufacturing, marketing, and strategic functions in foreign countries that is required if a functions in foreign countries that is required if a company is going to pursue a global strategy.company is going to pursue a global strategy.

Each licensee sets up its own manufacturing Each licensee sets up its own manufacturing operations. Licensing, by its very nature, operations. Licensing, by its very nature, severely limits the ability of a company to do severely limits the ability of a company to do this. A licensee will not let a multinational this. A licensee will not let a multinational company take its profits and use them to company take its profits and use them to support an entirely different licensee operating support an entirely different licensee operating in another country.in another country.

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2.2. A second problem with licensing arises when a A second problem with licensing arises when a company licenses its technological know-how company licenses its technological know-how to foreign companies. Technological know-how to foreign companies. Technological know-how constitutes the basis of the competitive constitutes the basis of the competitive advantage of many multination companies.advantage of many multination companies.

By licensing its technology, a company can By licensing its technology, a company can quickly lose control over it. Many companies quickly lose control over it. Many companies have made the mistake of thinking that they have made the mistake of thinking that they could maintain control over their know-how could maintain control over their know-how within the framework of a licensing agreement.within the framework of a licensing agreement.

Unfortunately, this has often proved not to be Unfortunately, this has often proved not to be the case.the case.

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3. Franchising3. Franchising

In many respects franchising is similar to In many respects franchising is similar to licensing. However, whereas licensing is a licensing. However, whereas licensing is a strategy pursued primarily by strategy pursued primarily by manufacturing companies, franchising is a manufacturing companies, franchising is a strategy employed primarily by service strategy employed primarily by service companies.companies.Both McDonald’s and Hilton International, Both McDonald’s and Hilton International, for example, have expanded overseas by for example, have expanded overseas by franchising.franchising.

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In the case of franchising, a company sells limited In the case of franchising, a company sells limited rights to use its brand name to franchisee in rights to use its brand name to franchisee in return for a lump-sum payment and a share of return for a lump-sum payment and a share of the franchisee’s profits.the franchisee’s profits.

The Advantages are:The Advantages are:

1.1. It does not bear the development costs and It does not bear the development costs and risks associated with opening up a foreign risks associated with opening up a foreign market on its own.market on its own.

2.2. Franchisee assumes those costs and risks.Franchisee assumes those costs and risks.

3.3. Service company can build up a global Service company can build up a global presence quickly and at a low cost.presence quickly and at a low cost.

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Disadvantages are:Disadvantages are:

1.1. A franchiser does not have to consider A franchiser does not have to consider the need to coordinate manufacturing in the need to coordinate manufacturing in order to achieve economies of scale.order to achieve economies of scale.

2.2. Nevertheless, franchising may inhibit the Nevertheless, franchising may inhibit the ability of a company to achieve global ability of a company to achieve global strategic coordination.strategic coordination.

3.3. Less quality control.Less quality control.

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4. Joint venture4. Joint venture

Establishing a joint venture with a foreign company Establishing a joint venture with a foreign company has long been a popular way to enter a new has long been a popular way to enter a new market.market.

Advantages are:Advantages are:1.1. A multinational may feel that it can benefit from A multinational may feel that it can benefit from

a local partner’s knowledge of a host country’s a local partner’s knowledge of a host country’s competitive condition, culture, language, competitive condition, culture, language, political systems, and business systems.political systems, and business systems.

2.2. When the development costs and risks of When the development costs and risks of opening up a foreign market are high, a opening up a foreign market are high, a company might gain by sharing these costs company might gain by sharing these costs and risks with a local partner.and risks with a local partner.

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3. In many countries political considerations 3. In many countries political considerations make joint ventures the only feasible make joint ventures the only feasible entry mode.entry mode.

Disadvantages are:Disadvantages are:1.1. A company that enters into a joint A company that enters into a joint

venture runs the risk of losing control venture runs the risk of losing control over its technology to its venture partner.over its technology to its venture partner.

2.2. A joint venture does not give a company A joint venture does not give a company the right control over different the right control over different subsidiaries that it might need if it wishes subsidiaries that it might need if it wishes to pursue a global strategy.to pursue a global strategy.

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5. Wholly owned subsidiary5. Wholly owned subsidiary

Establishing a wholly owned subsidiary is Establishing a wholly owned subsidiary is generally the most costly method of serving a generally the most costly method of serving a foreign market.foreign market.

Companies doing this have to bear the full costs Companies doing this have to bear the full costs and risks associated with setting up overseas and risks associated with setting up overseas operations.operations.

Advantages are:Advantages are:1.1. It reduces the risk of losing control over It reduces the risk of losing control over

competencies.competencies.2.2. It gives a tight control over operations in It gives a tight control over operations in

different countries that is necessary if a different countries that is necessary if a company is going to pursue a global strategy.company is going to pursue a global strategy.

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Foreign Market Entry ModesForeign Market Entry Modes

The decision of how to enter a foreign The decision of how to enter a foreign market can have a significant impact on market can have a significant impact on the results. Expansion into foreign markets the results. Expansion into foreign markets can be achieved via the following four can be achieved via the following four mechanisms:mechanisms:

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Foreign Entry Modes are:Foreign Entry Modes are:

1. Exporting1. Exporting

2. Licensing2. Licensing

3. Joint Venture3. Joint Venture

4. Direct Investment4. Direct Investment

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ExportingExporting Exporting is the marketing and direct sale of Exporting is the marketing and direct sale of

domestically-produced goods in another country. domestically-produced goods in another country. Exporting is a traditional and well-established method Exporting is a traditional and well-established method of reaching foreign markets. Since exporting does not of reaching foreign markets. Since exporting does not require that the goods be produced in the target require that the goods be produced in the target country, no investment in foreign production facilities country, no investment in foreign production facilities is required. Most of the costs associated with is required. Most of the costs associated with exporting take the form of marketing expenses.exporting take the form of marketing expenses.

Exporting commonly requires coordination among Exporting commonly requires coordination among four players:four players:

ExporterExporter ImporterImporter Transport providerTransport provider GovernmentGovernment

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LicensingLicensing LicensingLicensing Licensing essentially permits a company in the Licensing essentially permits a company in the

target country to use the property of the licensor. target country to use the property of the licensor. Such property usually is intangible, such as Such property usually is intangible, such as trademarks, patents, and production techniques. trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights The licensee pays a fee in exchange for the rights to use the intangible property and possibly for to use the intangible property and possibly for technical assistance.technical assistance.

Because little investment on the part of the Because little investment on the part of the licensor is required, licensing has the potential to licensor is required, licensing has the potential to provide a very large ROI. However, because the provide a very large ROI. However, because the licensee produces and markets the product, licensee produces and markets the product, potential returns from manufacturing and potential returns from manufacturing and marketing activities may be lost.marketing activities may be lost.

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Joint VentureJoint VentureThere are five common objectives in a joint There are five common objectives in a joint

venture: market entry, risk/reward sharing, venture: market entry, risk/reward sharing, technology sharing and joint product technology sharing and joint product development, and conforming to government development, and conforming to government regulations. Other benefits include political regulations. Other benefits include political connections and distribution channel access that connections and distribution channel access that may depend on relationships.may depend on relationships.

Such alliances often are favorable when:Such alliances often are favorable when: the partners' strategic goals converge while their the partners' strategic goals converge while their

competitive goals diverge;competitive goals diverge; the partners' size, market power, and resources the partners' size, market power, and resources

are small compared to the industry leaders; andare small compared to the industry leaders; and partners' are able to learn from one another partners' are able to learn from one another

while limiting access to their own proprietary while limiting access to their own proprietary skills.skills.

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The key issues to consider in a joint venture are The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and technology transfer, local firm capabilities and resources, and government intentions.resources, and government intentions.

Potential problems include:Potential problems include: conflict over asymmetric new investmentsconflict over asymmetric new investments mistrust over proprietary knowledgemistrust over proprietary knowledge performance ambiguity - how to split the pieperformance ambiguity - how to split the pie lack of parent firm supportlack of parent firm support cultural clashescultural clashes if, how, and when to terminate the relationshipif, how, and when to terminate the relationship

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Joint ventures have conflicting pressures to Joint ventures have conflicting pressures to cooperate and compete:cooperate and compete:

Strategic imperative: the partners want to Strategic imperative: the partners want to maximize the advantage gained for the joint maximize the advantage gained for the joint venture, but they also want to maximize their venture, but they also want to maximize their own competitive position.own competitive position.

The joint venture attempts to develop shared The joint venture attempts to develop shared resources, but each firm wants to develop and resources, but each firm wants to develop and protect its own proprietary resources.protect its own proprietary resources.

The joint venture is controlled through The joint venture is controlled through negotiations and coordination processes, while negotiations and coordination processes, while each firm would like to have hierarchical control.each firm would like to have hierarchical control.

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Foreign Direct InvestmentForeign Direct Investment

Foreign direct investment (FDI) is the direct Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It ownership of facilities in the target country. It involves the transfer of resources including capital, involves the transfer of resources including capital, technology, and personnel. Direct foreign investment technology, and personnel. Direct foreign investment may be made through the acquisition of an existing may be made through the acquisition of an existing entity or the establishment of a new enterprise.entity or the establishment of a new enterprise.

Direct ownership provides a high degree of control in Direct ownership provides a high degree of control in the operations and the ability to better know the the operations and the ability to better know the consumers and competitive environment. However, it consumers and competitive environment. However, it requires a high level of resources and a high degree requires a high level of resources and a high degree of commitment.of commitment.

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Different modes of entry may be more appropriate under Different modes of entry may be more appropriate under different circumstances, and the mode of entry is an different circumstances, and the mode of entry is an important factor in the success of the project. Walt Disney important factor in the success of the project. Walt Disney Co. faced the challenge of building a theme park in Co. faced the challenge of building a theme park in Europe. Disney's mode of entry in Japan had been Europe. Disney's mode of entry in Japan had been licensing. However, the firm chose direct investment in its licensing. However, the firm chose direct investment in its European theme park, owning 49% with the remaining European theme park, owning 49% with the remaining 51% held publicly.51% held publicly.

Besides the mode of entry, another important element in Besides the mode of entry, another important element in Disney's decision was exactly where in Europe to locate. Disney's decision was exactly where in Europe to locate. There are many factors in the site selection decision, and a There are many factors in the site selection decision, and a company carefully must define and evaluate the criteria for company carefully must define and evaluate the criteria for choosing a location. The problems with the Euro Disney choosing a location. The problems with the Euro Disney project illustrate that even if a company has been project illustrate that even if a company has been successful in the past, as Disney had been with its successful in the past, as Disney had been with its California, Florida, and Tokyo theme parks, future success California, Florida, and Tokyo theme parks, future success is not guaranteed, especially when moving into a different is not guaranteed, especially when moving into a different country and culture. The appropriate adjustments for country and culture. The appropriate adjustments for national differences always should be made.national differences always should be made.

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The Case of Euro DisneyThe Case of Euro Disney Different modes of entry may be more appropriate under Different modes of entry may be more appropriate under

different circumstances, and the mode of entry is an different circumstances, and the mode of entry is an important factor in the success of the project. Walt Disney important factor in the success of the project. Walt Disney Co. faced the challenge of building a theme park in Europe. Co. faced the challenge of building a theme park in Europe. Disney's mode of entry in Japan had been licensing. Disney's mode of entry in Japan had been licensing. However, the firm chose direct investment in its European However, the firm chose direct investment in its European theme park, owning 49% with the remaining 51% held theme park, owning 49% with the remaining 51% held publicly.publicly.

Besides the mode of entry, another important element in Besides the mode of entry, another important element in Disney's decision was exactly where in Europe to locate. Disney's decision was exactly where in Europe to locate. There are many factors in the site selection decision, and a There are many factors in the site selection decision, and a company carefully must define and evaluate the criteria for company carefully must define and evaluate the criteria for choosing a location. The problems with the Euro Disney choosing a location. The problems with the Euro Disney project illustrate that even if a company has been successful project illustrate that even if a company has been successful in the past, as Disney had been with its California, Florida, in the past, as Disney had been with its California, Florida, and Tokyo theme parks, future success is not guaranteed, and Tokyo theme parks, future success is not guaranteed, especially when moving into a different country and culture. especially when moving into a different country and culture. The appropriate adjustments for national differences always The appropriate adjustments for national differences always should be made.should be made.

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RequirementsRequirements

1.1. Main ideas of this caseMain ideas of this case2.2. What are the different companies are there?What are the different companies are there?3.3. What are the different decision that different What are the different decision that different

companies would like to take?companies would like to take?4.4. How each company can be successful?How each company can be successful?5.5. What are the different entry mode can be used What are the different entry mode can be used

to enter into overseas market?to enter into overseas market?6.6. SWOT analyze the different company situationSWOT analyze the different company situation7.7. Are there any strategy is involved in market? Are there any strategy is involved in market? 8.8. Best solution to be madeBest solution to be made9.9. ConclusionConclusion

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The following exchanges were The following exchanges were overhead in an office:overhead in an office:

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Boss: I asked for this report on Friday - what delayed you? Boss: I asked for this report on Friday - what delayed you?

Subordinate: I was trying to clear up the end of quarter returns. Subordinate: I was trying to clear up the end of quarter returns.

Boss: But it's already the fourth of the month. Boss: But it's already the fourth of the month.

Subordinate: Yes, but I had two clerks away on holiday at the Subordinate: Yes, but I had two clerks away on holiday at the same time. same time.

Boss: How did that happen? Boss: How did that happen?

Subordinate: Well they asked me separately - a few weeks Subordinate: Well they asked me separately - a few weeks apart - and I hadn't realized what the consequences would be. apart - and I hadn't realized what the consequences would be.

Boss: I'm afraid it is not good enough. I constantly have to Boss: I'm afraid it is not good enough. I constantly have to complain about work which is produced at the last moment -or complain about work which is produced at the last moment -or later. It is often badly prepared and faulty. later. It is often badly prepared and faulty. What are you going to do about it? What are you going to do about it? Subordinate: I don't know. I never have the time to think ahead. Subordinate: I don't know. I never have the time to think ahead.

How would you help this subordinate? How would you help this subordinate?

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6 Steps to Successful Case Studies 6 Steps to Successful Case Studies

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1. Make sure you have a story to tell1. Make sure you have a story to tell

Once someone nominates a customer for Once someone nominates a customer for a case study, find out whether or not a case study, find out whether or not there’s a story worth sharing. The fact is there’s a story worth sharing. The fact is that not all customer situations translate that not all customer situations translate into an interesting story (or one that will into an interesting story (or one that will nudge prospects along in the sales cycle). nudge prospects along in the sales cycle). One suggestion is to create a One suggestion is to create a backgrounder form to be filled out by backgrounder form to be filled out by anyone suggesting a case study anyone suggesting a case study candidate. candidate.

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2. Determine the value of the story2. Determine the value of the story

While it never hurts to publish lots of case studies, you want While it never hurts to publish lots of case studies, you want to focus your efforts on the ones that will serve you best. to focus your efforts on the ones that will serve you best. Once you understand the basic customer situation, Once you understand the basic customer situation, compare it to your existing library of case studies. Some compare it to your existing library of case studies. Some considerations include the following:considerations include the following:

Will this story complement the list or will it be largely Will this story complement the list or will it be largely redundant?redundant?

Will it help round out examples of customers in a certain Will it help round out examples of customers in a certain industry?industry?

Is the customer a brand name that we want to tout?Is the customer a brand name that we want to tout? Is the customer engaged in a market that our company is Is the customer engaged in a market that our company is

trying to penetrate? trying to penetrate? Will the story highlight a solution or service that needs Will the story highlight a solution or service that needs

more visibility?more visibility? Are the proof points different from those in other stories?Are the proof points different from those in other stories?

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3. Get the customer’s buy-in3. Get the customer’s buy-in

If the story looks promising, make sure the If the story looks promising, make sure the customer is not only willing to be customer is not only willing to be interviewed and to share ROI metrics, but interviewed and to share ROI metrics, but that he or she has the green light to that he or she has the green light to participate in a case study. It’s wonderful participate in a case study. It’s wonderful to have an enthusiastic advocate within to have an enthusiastic advocate within the customer’s organization. But if the the customer’s organization. But if the customer’s marketing or legal department customer’s marketing or legal department is not open to going public with details, is not open to going public with details, there’s no sense pursuing the story. there’s no sense pursuing the story.

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4. Prepare the customer4. Prepare the customer There’s a lot to be said for the element of There’s a lot to be said for the element of

spontaneity in an interview. After all, the most spontaneity in an interview. After all, the most engaging stories are based on first-hand engaging stories are based on first-hand interviews and include plenty of customer quotes interviews and include plenty of customer quotes to move the story along. However, there’s to move the story along. However, there’s nothing more frustrating than starting an nothing more frustrating than starting an interview only to find out that the customer can’t interview only to find out that the customer can’t answer the questions. answer the questions.

To avoid this roadblock, send the customer a To avoid this roadblock, send the customer a general set of questions ahead of time, perhaps general set of questions ahead of time, perhaps as you’re scheduling the interview time. This as you’re scheduling the interview time. This allows the customer to decide if he or she is the allows the customer to decide if he or she is the appropriate interviewee, and to make sure all appropriate interviewee, and to make sure all information (such as ROI metrics) is in hand information (such as ROI metrics) is in hand during the interview. during the interview.

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5. Nail the interview5. Nail the interview

The interview can make or break a case study. The interview can make or break a case study. After all, if you don’t get enough information – After all, if you don’t get enough information – and compelling details – your story will fall flat. and compelling details – your story will fall flat. The following tips will help you get the most out The following tips will help you get the most out of an interview: of an interview:

Do a bit of research before interviewing the Do a bit of research before interviewing the customer. Recent customer press releases, customer. Recent customer press releases, news coverage, or annual report details might news coverage, or annual report details might inspire questions that help draw out a unique inspire questions that help draw out a unique angle. (Using this technique, a provider of on-angle. (Using this technique, a provider of on-demand Internet services has been able to demand Internet services has been able to uncover its customers’ online revenue uncover its customers’ online revenue percentages, conversion rates, and page views).percentages, conversion rates, and page views).

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Tailor the interview questions for the call. Not Tailor the interview questions for the call. Not every question will apply to each customer every question will apply to each customer situation so don’t waste everyone’s time asking situation so don’t waste everyone’s time asking irrelevant questions. irrelevant questions.

Ask open-ended questions. Getting lots of “yes” Ask open-ended questions. Getting lots of “yes” and “no” answers makes it hard to tell a good and “no” answers makes it hard to tell a good story.story.

Leave room to veer from the script. Some of the Leave room to veer from the script. Some of the most interesting questions are prompted by the most interesting questions are prompted by the customer’s responses to your original questions. customer’s responses to your original questions.

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6. Set expectations6. Set expectations If you can give the customer a general idea of If you can give the customer a general idea of

when you’ll be sending the case study draft – when you’ll be sending the case study draft – and also get their commitment to a fast review and also get their commitment to a fast review and approval – the entire process should go and approval – the entire process should go quickly and smoothly. Make sure to tell the quickly and smoothly. Make sure to tell the customer of anything else you will need, such as customer of anything else you will need, such as a boilerplate company description and logo file. a boilerplate company description and logo file. One of my clients has employed this technique One of my clients has employed this technique to greatly reduce the time it takes to produce a to greatly reduce the time it takes to produce a case study and, in a few instances, has case study and, in a few instances, has completed them in a matter of days.completed them in a matter of days.

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What Students Gain From CasesWhat Students Gain From Cases

Experience issues and problems confronting Experience issues and problems confronting business managersbusiness managers

Analyze the issues and problems in the light of Analyze the issues and problems in the light of business theory and research learned in other business theory and research learned in other classesclasses

Learn research proceduresLearn research procedures Develop appropriate strategies and plans for Develop appropriate strategies and plans for

coping with problemscoping with problems Develop persuasive and analytical skillsDevelop persuasive and analytical skills Gain new ideas and insights from group Gain new ideas and insights from group

discussions and peer editsdiscussions and peer edits

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Case Study ProceduresCase Study Procedures Identify the players in the case: their common Identify the players in the case: their common

and individual goalsand individual goals Identify key issuesIdentify key issues

Background leading up to the problemBackground leading up to the problem Business objectivesBusiness objectives Company’s cultural/political environmentCompany’s cultural/political environment Problems in caseProblems in case

Determine how the issues influenced and/or Determine how the issues influenced and/or caused problemscaused problems

Recommend realistic and workable strategies to Recommend realistic and workable strategies to solve problemssolve problems

Provide evidence/facts with advantages and Provide evidence/facts with advantages and disadvantages of at least two solutionsdisadvantages of at least two solutions

Prepare succinct and convincing resultsPrepare succinct and convincing results

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Seven Easy Steps to Case AnalysisSeven Easy Steps to Case Analysis

State the problem conciselyState the problem concisely Point out key issues; how did they influence Point out key issues; how did they influence

the problemsthe problems Determine management’s objectives in this Determine management’s objectives in this

casecase Understand the company’s goals regarding Understand the company’s goals regarding

this casethis case Analyze the facts of the case as they Analyze the facts of the case as they

contributed to the problemcontributed to the problem Consider and write the advantages and Consider and write the advantages and

disadvantages of each alternativedisadvantages of each alternative Choose a solution, based on the evidenceChoose a solution, based on the evidence

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Comparison of Market Entry OptionsComparison of Market Entry Options

The following table provides a summary of The following table provides a summary of the possible modes of foreign market the possible modes of foreign market entry:entry:

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ModeConditions Favoring

this ModeAdvantages Disadvantages

Exporting

Limited sales potential in target country; little product adaptation required Distribution channels close to plants High target country production costs Liberal import policies High political risk

Minimizes risk and investment. Speed of entry Maximizes scale; uses existing facilities.

Trade barriers & tariffs add to costs. Transport costs Limits access to local information Company viewed as an outsider

Licensing

Import and investment barriers Legal protection possible in target environment. Low sales potential in target country. Large cultural distance Licensee lacks ability to become a competitor.

Minimizes risk and investment. Speed of entry Able to circumvent trade barriers High ROI

Lack of control over use of assets. Licensee may become competitor. Knowledge spillovers License period is limited

Joint Ventures

Import barriers Large cultural distance Assets cannot be fairly priced High sales potential Some political risk Government restrictions on foreign ownership Local company can provide skills, resources, distribution network, brand name, etc.

Overcomes ownership restrictions and cultural distance Combines resources of 2 companies. Potential for learning Viewed as insider Less investment required

Difficult to manage Dilution of control Greater risk than exporting a & licensing Knowledge spillovers Partner may become a competitor.

Direct Investment

Import barriers Small cultural distance Assets cannot be fairly priced High sales potential Low political risk

Greater knowledge of local market Can better apply specialized skills Minimizes knowledge spillover Can be viewed as an insider

Higher risk than other modes Requires more resources and commitment May be difficult to manage the local resources.

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Advantages and disadvantage of Advantages and disadvantage of different Entry Modesdifferent Entry Modes

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ENTRY MODEENTRY MODE ADVANTAGESADVANTAGES DISADVANTAGESDISADVANTAGES

Exporting Exporting Ability to realize global Ability to realize global scale economies scale economies

High transport costsHigh transport costs

Tariff barriersTariff barriers

Problems with local marketing Problems with local marketing agents.agents.

Licensing Licensing Low development costs and Low development costs and

risksrisks Difficulties achieving global Difficulties achieving global strategic coordinationstrategic coordination

Franchising Franchising Low development costs and Low development costs and risksrisks

Difficulties achieving global Difficulties achieving global strategic coordinationstrategic coordination

Problems of quality controlProblems of quality control

Joint ventures Joint ventures Access to local partner’s Access to local partner’s knowledgeknowledge

Sharing of development costs Sharing of development costs and risksand risks

Political acceptabilityPolitical acceptability

Difficulties achieving global Difficulties achieving global strategic coordinationstrategic coordination

Lack of control over Lack of control over

technologytechnology

Wholly owned Wholly owned

subsidiariessubsidiaries Protection of technologyProtection of technology

Establishment of tight control Establishment of tight control necessary for achieving global necessary for achieving global

strategic coordinationstrategic coordination

Assumption by company of Assumption by company of all development costs and all development costs and riskrisk

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The Boston Consulting Group The Boston Consulting Group Business Matrix Business Matrix chapter 9chapter 9

The main objective of the Boston Consulting The main objective of the Boston Consulting Group (BCG) technique is to help strategic Group (BCG) technique is to help strategic managers identify the cash-flow requirements of managers identify the cash-flow requirements of the different businesses in their portfolio. The the different businesses in their portfolio. The BCG approach involves three main steps:BCG approach involves three main steps:

1.1. Dividing a company into strategic business unitsDividing a company into strategic business units2.2. Comparing SBUs against each other by means Comparing SBUs against each other by means

of a matrix that indicates the relative prospects of a matrix that indicates the relative prospects of each.of each.

3.3. Developing strategic objectives with respect to Developing strategic objectives with respect to each SBUeach SBU

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The BCG Growth-Share Matrix is a portfolio The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. the Boston Consulting Group in the early 1970's.

It is based on the observation that a company's It is based on the observation that a company's business units can be classified into four categories business units can be classified into four categories based on combinations of market growth and based on combinations of market growth and market share relative to the largest competitor, market share relative to the largest competitor, hence the name "growth-share". hence the name "growth-share".

Market growth serves as a proxy for industry Market growth serves as a proxy for industry attractiveness, and relative market share serves as attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-a proxy for competitive advantage. The growth-share matrix thus maps the business unit positions share matrix thus maps the business unit positions within these two important determinants of within these two important determinants of profitability.profitability.

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BCG MatrixBCG Matrix

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STARSSTARS1. The leading SBUs in a company’s portfolio are 1. The leading SBUs in a company’s portfolio are

the stars. They have a high relative market the stars. They have a high relative market share and are based in high-growth share and are based in high-growth

industries. In the language of SWOT industries. In the language of SWOT analysis, analysis, they have both competitive they have both competitive strengths and strengths and opportunities for expansion. opportunities for expansion. 2. Thus they offer excellent long-term profit and 2. Thus they offer excellent long-term profit and

growth opportunities.growth opportunities.3. Generally, BCG predicts that established stars 3. Generally, BCG predicts that established stars

are likely to be highly profitable and therefore are likely to be highly profitable and therefore can generate sufficient cash for their own can generate sufficient cash for their own investment needs.investment needs.

4. Emerging stars, in contrast, may require 4. Emerging stars, in contrast, may require substantial cash injections to enable them to substantial cash injections to enable them to consolidate their market lead.consolidate their market lead.

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QUESTION MARKSQUESTION MARKS1. SBUs that are relatively weak in competitive terms, 1. SBUs that are relatively weak in competitive terms,

that have low relative market shares, are that have low relative market shares, are question marks. question marks.

2. However, they are based in high-growth industries 2. However, they are based in high-growth industries and thus may offer opportunities for long-term and thus may offer opportunities for long-term

profit and growth.profit and growth.

3. A question mark requires substantial net injections 3. A question mark requires substantial net injections of cash; it is cash hungry.of cash; it is cash hungry.

4. The corporate head office has to decide whether a 4. The corporate head office has to decide whether a particular question mark has the potential to particular question mark has the potential to

become a star and is therefore worth the capital become a star and is therefore worth the capital investment necessary to achieve stardominvestment necessary to achieve stardom

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CASH COWSCASH COWS SBUs that have a high market share in low-growth SBUs that have a high market share in low-growth

industries and a strong competitive position in industries and a strong competitive position in mature industries are cash cows.mature industries are cash cows.

Their competitive strength comes from being farthest Their competitive strength comes from being farthest down the experience curve. They are the cost down the experience curve. They are the cost leaders in their industries.leaders in their industries.

BCG argues that this position enables such SBUs to BCG argues that this position enables such SBUs to remain very profitable.remain very profitable.

However, low growth implies a lack of opportunities However, low growth implies a lack of opportunities for future expansion.for future expansion.

As a consequence, BCG argues that the capital As a consequence, BCG argues that the capital investment requirements of cash cows are not investment requirements of cash cows are not substantial, and thus they are depicted as generating substantial, and thus they are depicted as generating a strong positive cash flow.a strong positive cash flow.

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DOGSDOGSSBUs that are in low-growth industries but SBUs that are in low-growth industries but

have a low market share are dogs.have a low market share are dogs.They have a weak competitive position in They have a weak competitive position in

unattractive industries and thus are viewed unattractive industries and thus are viewed as offering few benefits to a companyas offering few benefits to a company

BCG suggests that such SBUs are unlikely to BCG suggests that such SBUs are unlikely to generate much in the way of a positive cash generate much in the way of a positive cash flow and indeed may become cash hogs.flow and indeed may become cash hogs.

Though offering few prospects for future Though offering few prospects for future growth in returns, dogs may require growth in returns, dogs may require substantial capital investments just to substantial capital investments just to maintain their low market share.maintain their low market share.

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BCG STARS (high growth, high BCG STARS (high growth, high market share)market share)

- Stars are defined by having high market - Stars are defined by having high market share in a growing market.share in a growing market.

- Stars are the leaders in the business but - Stars are the leaders in the business but still need a lot of support for still need a lot of support for

promotion promotion a placement.a placement.- If market share is kept, Stars are likely to - If market share is kept, Stars are likely to

grow into cash cows.grow into cash cows.

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  BCG QUESTION MARKS (high BCG QUESTION MARKS (high growth, low market share)growth, low market share)

- These products are in growing markets but - These products are in growing markets but have low market share.have low market share.- Question marks are essentially new products - Question marks are essentially new products

where buyers have yet to discover them.where buyers have yet to discover them.- The marketing strategy is to get markets to - The marketing strategy is to get markets to adopt these products.adopt these products.- Question marks have high demands and low - Question marks have high demands and low

returns due to low market share.returns due to low market share.- These products need to increase their market - These products need to increase their market

share quickly or they become dogs.share quickly or they become dogs.- The best way to handle Question marks is to - The best way to handle Question marks is to

either invest heavily in them to gain market either invest heavily in them to gain market share or to sell them.share or to sell them.

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BCG CASH COWS (low growth, BCG CASH COWS (low growth, high market share)high market share)

- Cash cows are in a position of high market share - Cash cows are in a position of high market share in a mature market.in a mature market.- If competitive advantage has been achieved, - If competitive advantage has been achieved, cash cows have high profit margins and cash cows have high profit margins and generate a generate a lot of cash flow.lot of cash flow.- Because of the low growth, promotion and - Because of the low growth, promotion and placement investments are low.placement investments are low.- Investments into supporting infrastructure can - Investments into supporting infrastructure can improve efficiency and increase cash flow improve efficiency and increase cash flow more.more.- Cash cows are the products that businesses - Cash cows are the products that businesses strive strive

for.for.

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BCG DOGS (low growth, low BCG DOGS (low growth, low market share)market share)

- Dogs are in low growth markets and - Dogs are in low growth markets and have low market share.have low market share.- Dogs should be avoided and minimized.- Dogs should be avoided and minimized.- Expensive turn-around plans usually do - Expensive turn-around plans usually do

not help.not help.

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Are there any problems with the BCG Are there any problems with the BCG matrix model?matrix model?

1. The first problem can be how we define market 1. The first problem can be how we define market and how we get data about market shareand how we get data about market share

2. A high market share does not necessarily lead 2. A high market share does not necessarily lead to profitability at all timesto profitability at all times

3. The model employs only two dimensions – 3. The model employs only two dimensions – market share and product or service growth market share and product or service growth raterate4. Low share or niche businesses can be 4. Low share or niche businesses can be profitable too (some Dogs can be more profitable too (some Dogs can be more profitable than cash Cows)profitable than cash Cows)

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5. The model does not reflect growth rates 5. The model does not reflect growth rates of the overall marketof the overall market

6. The model neglects the effects of synergy 6. The model neglects the effects of synergy between business unitsbetween business units

7. Market growth is not the only indicator for 7. Market growth is not the only indicator for attractiveness of a marketattractiveness of a market

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When should I use the BCG matrix model?When should I use the BCG matrix model?

1. Each product has its product life cycle, and each 1. Each product has its product life cycle, and each stage in product's life-cycle represents a different stage in product's life-cycle represents a different profile of profile of risk and return. In general, a company risk and return. In general, a company should maintain should maintain a a balancedbalanced portfolio of products. portfolio of products. Having a balanced Having a balanced product portfolio includes both product portfolio includes both high-growthhigh-growth products as well products as well as as low-growthlow-growth products.products.

2. A high-growth product is for example a new one that 2. A high-growth product is for example a new one that we we are trying to get to some market. It takes some effort are trying to get to some market. It takes some effort and resources to market it, to build distribution and resources to market it, to build distribution

channels, and to build sales infrastructure, but it is channels, and to build sales infrastructure, but it is a a product that is expected to bring the gold in the product that is expected to bring the gold in the future. An future. An example of this product would be an example of this product would be an iPod.iPod.

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3. A low-growth product is for example an 3. A low-growth product is for example an established product known by the established product known by the

market. Characteristics of this product market. Characteristics of this product do do not change much, customers know not change much, customers know what what they are getting, and the price they are getting, and the price does not does not change much either. This change much either. This product has product has only limited budget for only limited budget for marketing. The is marketing. The is the milking cow that the milking cow that brings in the brings in the constant flow of cash. An constant flow of cash. An example of example of this product would be a this product would be a regular Colgate regular Colgate toothpaste.toothpaste.

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4. But the question is, how do we exactly find out 4. But the question is, how do we exactly find out what phase our product is in, and how do we what phase our product is in, and how do we classify what we sell? Furthermore, we also classify what we sell? Furthermore, we also ask, where does each of our products fit into ask, where does each of our products fit into our product mix? Should we promote one our product mix? Should we promote one product more than the other one? The product more than the other one? The BCG BCG matrixmatrix can help with this. can help with this.

5. The BCG matrix reaches further behind product 5. The BCG matrix reaches further behind product mix. Knowing what we are selling helps mix. Knowing what we are selling helps

managers to make decisions about what managers to make decisions about what priorities to assign to not only products but priorities to assign to not only products but also also company departments and business company departments and business units.units.

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  Strategy - portfolio analysis - GE Strategy - portfolio analysis - GE matrixmatrix

The The business portfoliobusiness portfolio is the collection of is the collection of businesses and products that make up the businesses and products that make up the company. The best business portfolio is company. The best business portfolio is one that fits the company's strengths and one that fits the company's strengths and helps exploit the most attractive helps exploit the most attractive opportunities.opportunities.

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The company must:The company must:

(1) Analyze its current business portfolio (1) Analyze its current business portfolio and decide which businesses should and decide which businesses should receive more or less investment, andreceive more or less investment, and

(2) Develop growth strategies for adding (2) Develop growth strategies for adding new products and businesses to the new products and businesses to the portfolio, whilst at the same time deciding portfolio, whilst at the same time deciding when products and businesses should no when products and businesses should no longer be retained.longer be retained.

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The two best-known portfolio planning methods The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix. In and the McKinsey / General Electric Matrix. In both methods, the first step is to identify the both methods, the first step is to identify the various Strategic Business Units ("SBU's") in a various Strategic Business Units ("SBU's") in a company portfolio. company portfolio.

An SBU is a unit of the company that has a An SBU is a unit of the company that has a separate mission and objectives and that can be separate mission and objectives and that can be planned independently from the other planned independently from the other businesses. An SBU can be a company division, businesses. An SBU can be a company division, a product line or even individual brands - it all a product line or even individual brands - it all depends on how the company is organized.depends on how the company is organized.

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The McKinsey The McKinsey / General Electric / General Electric MatrixMatrix

The McKinsey/GE Matrix overcomes a number The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box. Firstly, of the disadvantages of the BCG Box. Firstly, market attractivenessmarket attractiveness replaces replaces market growth market growth as the dimension of industry attractiveness, and as the dimension of industry attractiveness, and includes a broader range of factors other than includes a broader range of factors other than just the market growth rate. Secondly, just the market growth rate. Secondly, competitive strengthcompetitive strength replaces replaces market share market share as the dimension by which the competitive as the dimension by which the competitive position of each SBU is assessed.position of each SBU is assessed.

The diagram below illustrates some of the The diagram below illustrates some of the possible elements that determine market possible elements that determine market attractiveness and competitive strength by attractiveness and competitive strength by applying the McKinsey/GE Matrix to the UK applying the McKinsey/GE Matrix to the UK retailing market:retailing market:

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Analyzing a Case Study Analyzing a Case Study chapter 10chapter 10

1.1. The history, development and growth of the The history, development and growth of the company over time.company over time.

2.2. The identification of the company’s internal The identification of the company’s internal strengths and weaknesses.strengths and weaknesses.

3.3. The nature of the external environment The nature of the external environment surrounding the company.surrounding the company.

4.4. A SWOT analysis.A SWOT analysis.5.5. The kind of corporate-level strategy pursued by a The kind of corporate-level strategy pursued by a

company.company.6.6. The nature of the company’s business-level The nature of the company’s business-level

strategy.strategy.7.7. The company’s structure and control systems and The company’s structure and control systems and

how they match its strategy.how they match its strategy.8.8. Recommendations.Recommendations.

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A SWOT checklistA SWOT checklistPotential Internal StrengthsPotential Internal Strengths Potential Internal WeaknessesPotential Internal Weaknesses

Many products lines?Many products lines?

Broad market coverage?Broad market coverage?

Manufacturing competence?Manufacturing competence?

Good marketing skills?Good marketing skills?

R & D skills and leadership?R & D skills and leadership?

Brand name reputation?Brand name reputation?

Portfolio management skills?Portfolio management skills?

Good financial management?Good financial management?

Cost or differentiation advantage?Cost or differentiation advantage?

Ability to manage strategic change?Ability to manage strategic change?

Appropriate management style?Appropriate management style?

Others?Others?

Rising, narrow product lines?Rising, narrow product lines?

Decline in R&D innovations?Decline in R&D innovations?

Loss of customer good will?Loss of customer good will?

Loss of brand name capital?Loss of brand name capital?

Inadequate information systems?Inadequate information systems?

Growth without direction?Growth without direction?

Loss of corporate direction?Loss of corporate direction?

High conflict and politics?High conflict and politics?

Poor financial management?Poor financial management?

Poor marketing plan?Poor marketing plan?

Bad portfolio management?Bad portfolio management?

Others?Others?

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Potential environmental Potential environmental opportunitiesopportunities

Potential environmental threatsPotential environmental threats

1.1. Expand core business?Expand core business?

2.2. Widen product range?Widen product range?

3.3. Diversify into new growth busi.?Diversify into new growth busi.?

4.4. Expand into foreign markets?Expand into foreign markets?

5.5. Apply R&D skills in new areas?Apply R&D skills in new areas?

6.6. Vertically integrated forward?Vertically integrated forward?

7.7. Enlarge corporate portfolio?Enlarge corporate portfolio?

8.8. Overcome barriers to entry?Overcome barriers to entry?9.9. Reduce rivalry among competition?Reduce rivalry among competition?

10.10. Make profitable new acquisition?Make profitable new acquisition?

11.11. Seek fast market growth?Seek fast market growth?

12.12. Apply brand name capital in new Apply brand name capital in new areas?areas?

13.13. Others?Others?

1.1. Attacks on core business?Attacks on core business?

2.2. Increases in domestic Increases in domestic competition?competition?

3.3. Change in consumer tastes?Change in consumer tastes?

4.4. Fall in barriers to entry?Fall in barriers to entry?

5.5. Rise in new or substitute Rise in new or substitute products?products?

6.6. Increase in industry rivalry?Increase in industry rivalry?

7.7. Potential for takeover?Potential for takeover?

8.8. Existence of corporate raiders?Existence of corporate raiders?

9.9. Increase in regional competition?Increase in regional competition?

10.10. Changes in economic factors?Changes in economic factors?

11.11. Downturn in economy?Downturn in economy?

12.12. Rising labor costs?Rising labor costs?

13.13. Slower market growth?Slower market growth?

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Business Strategy TreeBusiness Strategy Treechapter 11chapter 11

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Business StrategyBusiness Strategy

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Corporate CultureCorporate Culture

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Corporate CultureCorporate Culture

1. The beliefs and values shared by people 1. The beliefs and values shared by people who work in an organisationwho work in an organisation

How people behave with each otherHow people behave with each otherHow people behave with customers/clientsHow people behave with customers/clientsHow people view their relationship with How people view their relationship with

stakeholdersstakeholdersPeople’s responses to energy use, community People’s responses to energy use, community

involvement, absence, work ethic, etc.involvement, absence, work ethic, etc.How the organisation behaves to its employees How the organisation behaves to its employees

– training, professional development, etc.– training, professional development, etc.

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Corporate CultureCorporate Culture

2. May be driven by:2. May be driven by:

3. Vision3. Vision – where the organisation – where the organisation wants to go in the futurewants to go in the future

4. Mission Statement4. Mission Statement – summary – summary of the beliefs of the organisation of the beliefs of the organisation

and where it is nowand where it is now

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Corporate CultureCorporate Culture

5. May be reflected in:5. May be reflected in:Attitude and behaviour of the leadershipAttitude and behaviour of the leadershipAttitude to the role of individuals in the Attitude to the role of individuals in the

workplace – open plan offices, team workplace – open plan offices, team based working, etc.based working, etc.

Logo of the organisation Logo of the organisation The image it presents to the outside worldThe image it presents to the outside worldIts attitude to changeIts attitude to change

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Corporate CultureCorporate Culture

What corporate What corporate culture do you culture do you think the following think the following businesses have businesses have managed to managed to develop?develop?

Virgin GroupCopyright: Joshua2150, http://www.sxc.hu

The Body ShopCopyright: fadaquiqa, http://www.sxc.hu

McDonaldsCopyright: alexalliedhttp://www.sxc.hu

NikeCopyright: alexbolhttp://www/sxc.hu

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Strategic PlanningStrategic Planning

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Strategic PlanningStrategic Planning First Stage of Strategic First Stage of Strategic

Planning may involve:Planning may involve: Futures ThinkingFutures Thinking

Thinking about what the Thinking about what the business might need to business might need to do 10–20 years aheaddo 10–20 years ahead

Strategic IntentsStrategic Intents Thinking about key Thinking about key

strategic themes strategic themes that will inform that will inform decision makingdecision making

““The thicker the planning The thicker the planning document, the more useless document, the more useless it will be”it will be” (Brent Davies: 1999)(Brent Davies: 1999)

Taking time to think and reflect may be more important than many businesses allow time for!Copyright: Intuitive, http://www.sxc.hu

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Strategic PlanningStrategic Planning

The VisionThe VisionCommunicating to all staff where the Communicating to all staff where the

organisation is going and whereorganisation is going and whereit intends to be in the futureit intends to be in the future

Allows the firm to set goalsAllows the firm to set goalsAims and Objectives:Aims and Objectives:

Aims Aims – long term target– long term targetObjectivesObjectives – the way in which you are – the way in which you are

going to achieve the aimgoing to achieve the aim

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Strategic PlanningStrategic Planning

Example:Example: AimAim may be for a chocolate manufacturer to break may be for a chocolate manufacturer to break

into into a new overseas marketa new overseas market

Objectives:Objectives: Develop relationships with overseas suppliersDevelop relationships with overseas suppliers Identify network of retail outletsIdentify network of retail outlets Conduct market research to identify consumer needsConduct market research to identify consumer needs Find location for overseas sales team HQFind location for overseas sales team HQ

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Strategic PlanningStrategic Planning

Once the direction is identified:Once the direction is identified: Analyse positionAnalyse position Develop and introduce strategyDevelop and introduce strategy Evaluate:Evaluate:

Evaluation is constant and the results of the Evaluation is constant and the results of the evaluation feed back evaluation feed back into the visioninto the vision

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AnalysisAnalysis

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SWOTSWOT

StrengthsStrengths – identifying existing – identifying existing organisational strengthsorganisational strengths

WeaknessesWeaknesses – identifying existing – identifying existing organisational weaknessesorganisational weaknesses

OpportunitiesOpportunities – what market – what market opportunities might there be opportunities might there be for the organisation to exploit?for the organisation to exploit?

ThreatsThreats – where might the threats – where might the threats to the future success come from?to the future success come from?

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PESTPEST Political:Political: local, national and international local, national and international

political developments – how will they affect the political developments – how will they affect the organisation and in what way/s?organisation and in what way/s?

Economic:Economic: what are the main economic issues what are the main economic issues – both nationally and internationally – that might – both nationally and internationally – that might affect the organisation?affect the organisation?

Social:Social: what are the developing social trends what are the developing social trends that may impact on how the organisation that may impact on how the organisation operates and what will they mean for future operates and what will they mean for future planning?planning?

Technological:Technological: changing technology can changing technology can impact on competitive advantage very quickly!impact on competitive advantage very quickly!

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PESTPEST

Examples:Examples: Growth of China and India as manufacturing centresGrowth of China and India as manufacturing centres Concern over treatment of workers and the environment Concern over treatment of workers and the environment

in less developed countries who may be suppliersin less developed countries who may be suppliers The future direction of the interest rate, consumer The future direction of the interest rate, consumer

spending, etc.spending, etc. The changing age structure of the populationThe changing age structure of the population The popularity of ‘fads’ like the Atkins DietThe popularity of ‘fads’ like the Atkins Diet The move towards greater political regulation of The move towards greater political regulation of

businessbusiness The effect of more bureaucracy in the labour marketThe effect of more bureaucracy in the labour market

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Five-ForcesFive-Forces Developed by Michael Porter: forces that shape and Developed by Michael Porter: forces that shape and

influence the industry or market the organisation influence the industry or market the organisation operates in.operates in. Strength of Barriers to EntryStrength of Barriers to Entry - how easy is it - how easy is it

for new rivals to enter the industry?for new rivals to enter the industry? Extent of rivalry between firmsExtent of rivalry between firms – how competitive – how competitive

is the existing market? is the existing market? Supplier powerSupplier power – the greater the power, the less control – the greater the power, the less control

the organisation has on the supply of its inputs.the organisation has on the supply of its inputs. Buyer powerBuyer power – how much power do customers – how much power do customers

in the industry have?in the industry have? Threat from substitutesThreat from substitutes – what alternative products – what alternative products

and services are there and what is the extent and services are there and what is the extent of the threat they pose?of the threat they pose?

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Required InputsRequired Inputs Changing strategy will impact on the resources Changing strategy will impact on the resources

needed to carry out the strategy:needed to carry out the strategy: Specifically the impact on:Specifically the impact on:

Land – opportunities for acquiring land for Land – opportunities for acquiring land for development – green belt, brownfield sites, development – green belt, brownfield sites, planning regulations, etc.planning regulations, etc.

Labour – ease of obtaining the skilled and Labour – ease of obtaining the skilled and unskilled labour requiredunskilled labour required

Capital – the type of capital and the cost of the Capital – the type of capital and the cost of the capital needed to fulfil the strategycapital needed to fulfil the strategy

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EvaluationEvaluation

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EvaluationEvaluation

Data from sales, Data from sales, profit, etc. used to profit, etc. used to evaluate the evaluate the progress and progress and success of the success of the strategy and to strategy and to inform of changes inform of changes to the strategy in to the strategy in the light of that the light of that datadata

Information from a wide variety of sources can help to measure and inform the impact and direction of the strategy.

Copyright: Mad7986, http://www.sxc.hu

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Types of StrategyTypes of Strategy

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Types of StrategyTypes of Strategy

Competitive AdvantageCompetitive Advantage – something – something which gives the organisation some which gives the organisation some advantage over its rivalsadvantage over its rivals

Cost advantageCost advantage – A strategy to seek out – A strategy to seek out and secure a cost advantage and secure a cost advantage of some kind - lower average costs, lower of some kind - lower average costs, lower labour costs, etc.labour costs, etc.

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Types of StrategyTypes of Strategy

Market Dominance:Market Dominance: Achieved through:Achieved through:

Internal growthInternal growth Acquisitions – mergers and takeovers Acquisitions – mergers and takeovers

New product development: New product development: to keep to keep ahead of rivals and set the paceahead of rivals and set the pace

Contraction/ExpansionContraction/Expansion – – focus on focus on what you are good at (core competencies) or what you are good at (core competencies) or seek to expand into a range of markets?seek to expand into a range of markets?

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Types of StrategyTypes of Strategy

Price LeadershipPrice Leadership – through dominating – through dominating the industry – others follow your price leadthe industry – others follow your price lead

GlobalGlobal – seeking to expand – seeking to expand global operationsglobal operations

ReengineeringReengineering – thinking outside the box – thinking outside the box – looking at news ways of doing things to – looking at news ways of doing things to leverage the organisation’s performanceleverage the organisation’s performance

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Types of StrategyTypes of Strategy

Internal business level strategies – Internal business level strategies – DownsizingDownsizing – selling off unwanted parts – selling off unwanted parts

of the business – similar of the business – similar to contractionto contraction

Delayering Delayering – flattening the management – flattening the management structure, removing bureaucracy, speed structure, removing bureaucracy, speed up decision makingup decision making

RestructuringRestructuring – complete re-think – complete re-think of the way the business is organisedof the way the business is organised

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SWOT Analysis SWOT Analysis chapter 12chapter 12

Strategy - SWOT analysisStrategy - SWOT analysisDefinition:Definition:SWOT is an abbreviation for Strengths, SWOT is an abbreviation for Strengths,

Weaknesses, Opportunities and Weaknesses, Opportunities and ThreatsThreats

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SWOT analysis is an important tool for auditing SWOT analysis is an important tool for auditing the overall strategic position of a business and the overall strategic position of a business and its environment. its environment.

Once key strategic issues have been identified, Once key strategic issues have been identified, they feed into business objectives, particularly they feed into business objectives, particularly marketing objectives. SWOT analysis can be marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's analysis, such as PEST analysis and Porter's Five-Force analysis. It is also a very popular tool Five-Force analysis. It is also a very popular tool with business and marketing students because it with business and marketing students because it is quick and easy to learn. is quick and easy to learn.

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The Key Distinction - Internal The Key Distinction - Internal and External Issuesand External Issues

Strengths and weaknesses are internal Strengths and weaknesses are internal factors.factors. For example, strength could be For example, strength could be your specialist marketing expertise. A your specialist marketing expertise. A weakness could be the lack of a new weakness could be the lack of a new product. product.

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Opportunities and threats are external Opportunities and threats are external factors.factors. For example, an opportunity For example, an opportunity could be a developing distribution channel could be a developing distribution channel such as the Internet, or changing such as the Internet, or changing consumer lifestyles that potentially consumer lifestyles that potentially increase demand for a company's increase demand for a company's products. A threat could be a new products. A threat could be a new competitor in an important existing market competitor in an important existing market or a technological change that makes or a technological change that makes existing products potentially obsolete. existing products potentially obsolete.

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Areas to ConsiderAreas to ConsiderSome of the key areas to consider when Some of the key areas to consider when

identifying and evaluating Strengths, identifying and evaluating Strengths, Weaknesses, Opportunities and Threats Weaknesses, Opportunities and Threats are listed in the example SWOT analysis are listed in the example SWOT analysis below:below:

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Prentice Hall 2003Prentice Hall 2003 281281

Chapter 13 Chapter 13

Selecting and Managing Selecting and Managing Entry ModesEntry Modes

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Chapter PreviewChapter Preview

• Discuss the essential aspects of exportingDiscuss the essential aspects of exporting

• Define each form of counter tradeDefine each form of counter trade

• Explain each type of export/import financingExplain each type of export/import financing

• Describe the advantages and disadvantages of each Describe the advantages and disadvantages of each contractual entry modecontractual entry mode

• Identify the pluses and minuses of each investment Identify the pluses and minuses of each investment entry modeentry mode

• Identify strategic factors in selecting entry modesIdentify strategic factors in selecting entry modes

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Step 1 Step 2

Identify a potential market

Match needs to abilities

Step 3

Initiatemeetings

Developing an Export StrategyDeveloping an Export Strategy

Step 4

Commit resources

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Degree of Export InvolvementDegree of Export Involvement

Direct exportingDirect exporting(sell to buyers)(sell to buyers)

Indirect exportingIndirect exporting(sell to intermediaries)(sell to intermediaries)

• Sales representatives

• Distributors

• Sales representatives

• Distributors

• Agents• Export management companies• Export trading companies

• Agents• Export management companies• Export trading companies

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Avoiding Export BlundersAvoiding Export BlundersAvoiding Export BlundersAvoiding Export Blunders

Conduct market researchConduct market researchConduct market researchConduct market research

Obtain export adviceObtain export adviceObtain export adviceObtain export advice

Consider a freight forwarderConsider a freight forwarderConsider a freight forwarderConsider a freight forwarder

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Forms of Counter tradeForms of Counter trade

Barter

Counter purchase

Offset agreement

Switch trading

Buyback

Direct exchange without money

Sale to a country in return for promise of future purchase from it

Offset a hard-currency sale to a nationwith future hard-currency purchase

Sale by a company of an obligation to purchase from a country

Export of industrial equipment in return for products the equipment produces

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Export/Import FinancingExport/Import Financing

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High-Risk ApproachesHigh-Risk Approaches

Advance paymentAdvance payment

Importer pays exporterImporter pays exporter for merchandisefor merchandise before it shipsbefore it ships

Advance paymentAdvance payment

Importer pays exporterImporter pays exporter for merchandisefor merchandise before it shipsbefore it ships

Open accountOpen account

Exporter shipsExporter ships merchandise andmerchandise and later bills importerlater bills importer

Open accountOpen account

Exporter shipsExporter ships merchandise andmerchandise and later bills importerlater bills importer

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Documentary CollectionDocumentary Collection

Draft (bill of exchange) Bill of lading

Bank acts as intermediary without accepting financial risk

Document that orders an importer to pay an exporter a specified sum of money at a specified time

Contract between an exporter and shipperspecifying destinationand shipping costsfor merchandise

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Documentary Collection Documentary Collection ProcessProcess

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Letter of CreditLetter of Credit

Importer’s bank issues a document stating Importer’s bank issues a document stating that the bank will pay the exporter when that the bank will pay the exporter when

exporter fulfills document’s termsexporter fulfills document’s terms

Irrevocable Revocable Confirmed

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Letter of Credit ProcessLetter of Credit Process

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LicensingLicensing

AdvantagesAdvantages

+ Finance expansionFinance expansion+ Reduce riskReduce risk+ Reduce counterfeitsReduce counterfeits+ Upgrade technologiesUpgrade technologies

– Restrict licensor’s futureRestrict licensor’s future– Reduce global consistencyReduce global consistency– Lend strategic propertyLend strategic property

DisadvantagesDisadvantages

Company owning intangible property (licensor) grantsCompany owning intangible property (licensor) grantsanother firm (licensee) the right to use it for a specified timeanother firm (licensee) the right to use it for a specified time

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FranchisingFranchising

AdvantagesAdvantages+ Low cost and low riskLow cost and low risk+ Rapid expansionRapid expansion+ Local knowledgeLocal knowledge

– CumbersomeCumbersome– Lost flexibilityLost flexibilityDisadvantagesDisadvantages

Company (franchiser) supplies another (franchisee)Company (franchiser) supplies another (franchisee)with intangible property over an extended periodwith intangible property over an extended period

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Management ContractManagement Contract

Company supplies another withCompany supplies another withmanagerial expertise for amanagerial expertise for a

specific period of timespecific period of time

AdvantagesAdvantages

+ Few assets riskedFew assets risked+ Nations finance projectsNations finance projects+ Develops local workforceDevelops local workforce

DisadvantagesDisadvantages

– Personnel at riskPersonnel at risk– Create competitorCreate competitor

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Turnkey ProjectTurnkey Project

AdvantagesAdvantages+ Firms specialize in coreFirms specialize in core

competencycompetency

+ Nations obtain infrastructureNations obtain infrastructure projectsprojects

– Politicized processPoliticized process

– Create competitorCreate competitorDisadvantagesDisadvantages

Company designs, constructs, and testsCompany designs, constructs, and testsa production facility for a clienta production facility for a client

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Wholly Owned SubsidiaryWholly Owned Subsidiary

Facility entirelyFacility entirelyowned and controlledowned and controlled

by a single parent companyby a single parent company

AdvantagesAdvantages

+ Day-to-day controlDay-to-day control+ Coordinate subsidiariesCoordinate subsidiaries

DisadvantagesDisadvantages

– Expensive– High risk

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Joint VentureJoint VentureSeparate company created and jointly owned by two or more Separate company created and jointly owned by two or more

independent entities to achieve a common business objective independent entities to achieve a common business objective

Forward • Backward • Buyback • MultistageForward • Backward • Buyback • Multistage

Advantages

• Reduce risk level• Penetrate markets• Access channels• Protect interests

Disadvantages

• Partner conflict• Lose control

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Strategic AllianceStrategic Alliance

DisadvantagesCreate competitor

Partner conflict

Advantages Share project cost

Tap competitors’ strengths Gain channel access

Protect interests

Entities cooperate (but do not form a separate Entities cooperate (but do not form a separate company) to achieve strategic goals of eachcompany) to achieve strategic goals of each

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Entry Modes: Strategic FactorsEntry Modes: Strategic FactorsEntry Modes: Strategic FactorsEntry Modes: Strategic Factors

Cultural environmentCultural environmentCultural environmentCultural environment

Political/Legal environmentsPolitical/Legal environmentsPolitical/Legal environmentsPolitical/Legal environments

Market sizeMarket sizeMarket sizeMarket size

Production and shipping costsProduction and shipping costsProduction and shipping costsProduction and shipping costs

International experienceInternational experienceInternational experienceInternational experience

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Risk, Control, ExperienceRisk, Control, Experience

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Chapter ReviewChapter Review

• Discuss the essential aspects of exportingDiscuss the essential aspects of exporting

• Define each form of counter tradeDefine each form of counter trade

• Explain each type of export/import financingExplain each type of export/import financing

• Describe the advantages and disadvantages of each Describe the advantages and disadvantages of each contractual entry modecontractual entry mode

• Identify the pluses and minuses of each investment Identify the pluses and minuses of each investment entry modeentry mode

• Identify strategic factors in selecting entry modesIdentify strategic factors in selecting entry modes

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Kaizen ChaptKaizen Chapt. 14. 14

KaizenKaizen (Japanese for "improvement") is a Japanese (Japanese for "improvement") is a Japanese philosophy that focuses on continuous improvement philosophy that focuses on continuous improvement throughout all aspects of life. throughout all aspects of life.

When applied to the workplace, Kaizen activities continually When applied to the workplace, Kaizen activities continually improve all functions of a business, from manufacturing to improve all functions of a business, from manufacturing to management and from the CEO to the assembly line management and from the CEO to the assembly line workers. By improving standardized activities and workers. By improving standardized activities and processes, Kaizen aims to eliminate waste. processes, Kaizen aims to eliminate waste.

Kaizen was first implemented in several Japanese Kaizen was first implemented in several Japanese businesses during the country's recovery after World War II businesses during the country's recovery after World War II and has since spread to businesses throughout the world.and has since spread to businesses throughout the world.

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IntroductionIntroduction

Kaizen is a daily activity, the purpose of which goes beyond Kaizen is a daily activity, the purpose of which goes beyond simple productivity improvement. simple productivity improvement.

It is also a process that, when done correctly, humanizes the It is also a process that, when done correctly, humanizes the workplace, eliminates overly hard work ("muri"), and teaches workplace, eliminates overly hard work ("muri"), and teaches people how to perform experiments on their work using the people how to perform experiments on their work using the scientific method and how to learn to spot and eliminate waste scientific method and how to learn to spot and eliminate waste in business processes. in business processes.

The philosophy can be defined as bringing back the thought The philosophy can be defined as bringing back the thought process into the automated production environment process into the automated production environment dominated by repetitive tasks that traditionally required little dominated by repetitive tasks that traditionally required little mental participation from the employees.mental participation from the employees.

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People at all levels of an organization can People at all levels of an organization can participate in kaizen, from the CEO down, as participate in kaizen, from the CEO down, as well as external stakeholders when applicable. well as external stakeholders when applicable.

The format for kaizen can be individual, The format for kaizen can be individual, suggestion system, small group, or large group. suggestion system, small group, or large group. At Toyota, it is usually a local improvement At Toyota, it is usually a local improvement within a workstation or local area and involves a within a workstation or local area and involves a small group in improving their own work small group in improving their own work environment and productivity. environment and productivity.

This group is often guided through the kaizen This group is often guided through the kaizen process by a line supervisor; sometimes this is process by a line supervisor; sometimes this is the line supervisor's key role.the line supervisor's key role.

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While kaizen (at Toyota) usually delivers While kaizen (at Toyota) usually delivers small improvements, the culture of small improvements, the culture of continual aligned small improvements and continual aligned small improvements and standardization yields large results in the standardization yields large results in the form of compound productivity form of compound productivity improvement. improvement.

Hence the English usage of "kaizen" can Hence the English usage of "kaizen" can be: "continuous improvement" or be: "continuous improvement" or "continual improvement." Literally, it "continual improvement." Literally, it translates to: "good change."translates to: "good change."

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This philosophy differs from the "command-and-This philosophy differs from the "command-and-control" improvement programs of the mid-control" improvement programs of the mid-twentieth century. twentieth century.

Kaizen methodology includes making changes Kaizen methodology includes making changes and monitoring results, then adjusting. and monitoring results, then adjusting.

Large-scale pre-planning and extensive project Large-scale pre-planning and extensive project scheduling are replaced by smaller experiments, scheduling are replaced by smaller experiments, which can be rapidly adapted as new which can be rapidly adapted as new improvements are suggested.improvements are suggested.

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In modern usage, a focused kaizen that is In modern usage, a focused kaizen that is designed to address a particular issue designed to address a particular issue over the course of a week is referred to as over the course of a week is referred to as a "kaizen blitz" or "kaizen event". These a "kaizen blitz" or "kaizen event". These are limited in scope, and issues that arise are limited in scope, and issues that arise from them are typically used in later from them are typically used in later blitzes.blitzes.

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TranslationTranslation

The original kanji characters for The original kanji characters for

this word are: this word are: In Japanese this is pronounced "kaizen".In Japanese this is pronounced "kaizen". ("kai") means "change" or "the action to correct".("kai") means "change" or "the action to correct". ("zen") means "good".("zen") means "good". In Korean this is pronounced "ge sun"In Korean this is pronounced "ge sun" ("ge sun") means "improvement" or "change for ("ge sun") means "improvement" or "change for

the better"the better"

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In Chinese this is pronounced "gai In Chinese this is pronounced "gai shan":shan":

("gǎi shàn") means "change for the better" or ("gǎi shàn") means "change for the better" or "improve"."improve".

("gǎi") means "change" or "the action to correct".("gǎi") means "change" or "the action to correct". ("shàn") means "good" or "benefit". "Benefit" is ("shàn") means "good" or "benefit". "Benefit" is

more related to the Taoist or Buddhist philosophy, more related to the Taoist or Buddhist philosophy, which gives the definition as the action that which gives the definition as the action that 'benefits' the society but not one particular 'benefits' the society but not one particular individual. individual.

In other words, one cannot benefit at another's In other words, one cannot benefit at another's expense. The quality of benefit that is involved expense. The quality of benefit that is involved here should be sustained forever, in other words here should be sustained forever, in other words the "shan" is an act that truly benefits others.the "shan" is an act that truly benefits others.

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HistoryHistory In Japan, after World War II, American In Japan, after World War II, American

occupation forces brought in American experts occupation forces brought in American experts in statistical control methods and who were in statistical control methods and who were familiar with the War Department's Training familiar with the War Department's Training Within Industry (TWI) training programs to Within Industry (TWI) training programs to restore the nation. restore the nation.

TWI programs included Job Instruction (standard TWI programs included Job Instruction (standard work) and Job Methods (process improvement). work) and Job Methods (process improvement). In conjunction with the Shewhart cycle taught by In conjunction with the Shewhart cycle taught by W. Edwards Deming, and other statistics-based W. Edwards Deming, and other statistics-based methods taught by Joseph M. Juran, these methods taught by Joseph M. Juran, these became the basis of the kaizen revolution in became the basis of the kaizen revolution in Japan that took place in the 1950s.Japan that took place in the 1950s.

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ImplementationImplementation

The Toyota Production System is known The Toyota Production System is known for kaizen, where all line personnel are for kaizen, where all line personnel are expected to stop their moving production expected to stop their moving production line in case of any abnormality and, along line in case of any abnormality and, along with their supervisor, suggest an with their supervisor, suggest an improvement to resolve the abnormality improvement to resolve the abnormality which may initiate a kaizen.which may initiate a kaizen.

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The cycle of kaizen activity can be The cycle of kaizen activity can be defined as:defined as:

standardize an operation →standardize an operation → measure the standardized operation (find cycle measure the standardized operation (find cycle

time and amount of in-process inventory) →time and amount of in-process inventory) → gauge measurements against requirements →gauge measurements against requirements → innovate to meet requirements and increase innovate to meet requirements and increase

productivity →productivity → standardize the new, improved operations →standardize the new, improved operations → continue cycle continue cycle ad infinitumad infinitum..

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THE FIVE FOUNDATION ELEMENTS OF THE FIVE FOUNDATION ELEMENTS OF KAIZEN:KAIZEN:

1) Team work 1) Team work 2) Personal Discipline 2) Personal Discipline 3) Improved morale 3) Improved morale 4) Quality circles 4) Quality circles 5) Suggestions for improvement5) Suggestions for improvement

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OUT OF THIS FOUNDATION, Two KEY OUT OF THIS FOUNDATION, Two KEY FACTORS ARISE:FACTORS ARISE:

1) 1) Elimination of wasteElimination of waste (muda) and (muda) and efficiency efficiency

2) 2) The Kaizen five - S frameworkThe Kaizen five - S framework for for good housekeepinggood housekeeping

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Seiri- tidiness Seiri- tidiness Seiton- Orderliness Seiton- Orderliness Seiso- Cleanliness Seiso- Cleanliness Seiketsu- Standardized clean- up Seiketsu- Standardized clean- up Shitsuke - Discipline Shitsuke - Discipline

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