Strategic management (1)

STRATEGIC MANAGEMENT
Course Code: MGT: 512
Lectures delivered by:
Prof. Dr. Ravi Raj Kumar

Strategy refers to the
„plan or course of
action‟ framed or
formulated to achieve
a specified objective
or goal.
A comprehensive way
to try to pursue
certain ends.

STRATEGY: SOME VIEWS !
A combination of the ends (goals) for which
the firm is striving and the means (policies)
by which it is seeking to get there.
A strategy is sometimes called a roadmap
which is the path chosen to plow towards
the end vision. The most important part of
implementing the strategy is ensuring the
company is going in the right direction
which is towards the end vision.

ETYMOLOGY OF „STRATEGY‟
Derived from the Greek
Word “Strategia”
meaning „generalship‟ ,
„office of command‟
Greek Word “Strategos”
(compound of „Stratos‟
which means „army‟ &
„ago‟ which means „to
lead‟) meaning „leader or
commander of an army‟

EARLY TEXTS ON STRATEGY
The famous Chinese
Philosopher Sun Tzu‟s
“The Art of War”
written in the
6th century B.C.

The famous Indian
Guru Chanakya‟s
“Arthasastra” written
in the 4th century B.C.
continued……

The notorious Italian
Niccolo Machiavelli‟s
“The Prince”
“The Discourses” &
“The Art of War”
written in the
16th century A.D.
continued……

STRATEGIC MANAGEMENT
“It is the set of managerial decisions and
actions that determines the long-run
performance of an organization”
“It is the process of developing a systematic
means of analyzing the environment,
assessing the organization‟s strengths and
weaknesses, and identifying opportunities
where the organization could have a
competitive advantage”

VISION:
Defines the way an
organization or
enterprise will look
in the future.
Vision is a long-term view, sometimes
describing how the organization would
like the world to be in which it operates.
SOME CORE CONCEPTS OF SM

MISSION/MISSION STATEMENT
In general, an organization‟s mission
indicates its activities including its
production and the satisfaction that it offers
to the customer through its products.
Mission statement indicates the purpose of
the organization‟s existence, and specifies
the boundaries of an organization‟s
activities. It answers the question:
“What business are we in ?”

VALUES:
Beliefs that are shared among the
stakeholders of an organization.
Values drive an organization's culture and
priorities and provide a framework in
which decisions are made.

OBJECTIVE/GOAL
It is the desired outcome expected by the firm.
Objectives must be clear, specific and realistic.
Effective planning should begin with a set of
objectives that are to be accomplished by
carrying out certain plans. It should answer
the question:
“What do we want to accomplish ?”

STRATEGY:
It is a broad plan of action, by the
implementation of which the company
achieves its goals.
It answers to:
In general terms, how are we going to
accomplish our goals ?

TACTIC:
It is a course of action
more specific and detailed
than a strategy and
covering a shorter time
period than a strategy.
It answers to:
“In specific terms,
how are we going to accomplish our goals ?”

OPPORTUNITIES:
Positive external environmental factors
which the organization can exploit to its
advantage.
THREATS:
Negative external environmental factors that
the organization can face, and which need to
be removed or avoided.

STRENGTHS:
Internal Resources that are available to the
organization. Even the things that an
organization does better can be its strengths.
WEAKNESSES:
Resources that an organization lacks or
activities in which it is not efficient.

CORE
COMPETENCY:
Any of the strengths representing unique
skills or resources that can determine the
organization‟s competitive edge

Competitive advantage is defined as
the strategic advantage one business
entity has over its rival entities within
its competitive industry.
Achieving competitive advantage
strengthens and positions a business
better within the business environment.
COMPETITIVE ADVANTAGE

STRATEGIC PLANNING
Strategic planning is an organization's
process of defining, often in hyperbolic
terms, its strategy, or direction, and
making decisions on allocating its
resources to pursue this strategy,
including its capital and people.

Strategic planning is the formal
consideration of an organization's future
course. All strategic planning deals with at
least one of three key questions:
"What do we do?"
"For whom do we do it?"
"How do we excel?"
STRATEGIC PLANNING

In business strategic planning, some authors
phrase the third question as
"How can we beat or avoid competition?"
But this approach is more about defeating
competitors than about excelling.
In order to determine where it is going, the
organization needs to know exactly where it
stands, then determine where it wants to go
and how it will get there. The resulting
document is called the "strategic plan."
STRATEGIC PLANNING

While strategic planning may be used to
effectively plot a company's longer-term
direction, one cannot use it to reliably
forecast how the market will evolve and what
issues will surface in the immediate future.
Therefore, strategic innovation and tinkering
with the "strategic plan" have to be a
cornerstone strategy for an organization to
survive the turbulent business climate.
STRATEGIC PLANNING

THE STRATEGY HIERARCHY
CORPORATE
STRATEGY
BUSINESS
STRATEGY
FUNCTIONAL
STRATEGY
OPERATIONAL
STRATEGY
Framed & Formulated
by:
Corporate Managers
Business Managers
Functional Managers
Operational Managers

THE STRATEGY HIERARCHY
Corporate Strategy
It refers to the overarching strategy of the
diversified firm. A corporate strategy answers
the questions: "which businesses should we be
in?" and "how does being in these businesses
create synergy and/or add to the competitive
advantage of the corporation as a whole?"
Business Strategy
It refers to the aggregated strategies of single
business firm or a strategic business unit (SBU)
in a diversified corporation. A business
strategy incorporates either
cost leadership, differentiation, or focus to
achieve a sustainable competitive advantage

Functional strategy
It is an attempt of each department to do its part in
meeting the overall corporate objectives. The
emphasis is on short and medium term plans and is
limited to the domain of each department’s
functional responsibility. Marketing strategies, new
product development strategies, human resource
strategies, financial strategies, legal strategies, and
supply-chain strategies are some of the functional
strategies.
Operational strategy
Encouraged by Peter Drucker in his theory of
management by objectives (MBO), it is a very
narrow focused strategy that deals with day-to-day
operational activities such as scheduling criteria.
THE STRATEGY HIERARCHY cont..

Identification
of the
Organization’s
Current
mission,
objectives and
strategies
Reassessment
of
Organization’s
Mission and
Objectives
Formulation &
Implementation
of the
Strategies
Evaluation
of
the
Results
SWOT
ANALYSIS
SWOT ANALYSIS
Analysis of the
Environment
Identification of
Opportunities &
Threats
Identification of
Organization’s
Strengths &
Weaknesses
Analysis of the
Organization’s
resources
STRATEGIES
DEVELOPMENT,
IMPLEMENTATION &
ASSESSMENT
PROCESS

STRATEGIC MANAGEMENT (redefined…)
“Strategic management is an ongoing process
that evaluates and controls the business and the
industries in which the company is involved;
assesses its competitors and sets goals and
strategies to meet all existing and potential
competitors; and then reassesses each strategy
regularly to determine how it has been
implemented and whether it has succeeded or
needs replacement by a new strategy to meet
changed circumstances, new technology, new
competitors, a new economic environment, or a
new social, financial, or political environment.”

DEVELOPMENT
OF STRATEGIC
VISION &
MISSION
STATEMENTS
SETTING OF
OBJECTIVES
(LONG
TERM)
GENERATION
OF
STRATEGIES
IMPLEMENTATION
OF STRATEGIES
(MANAGERIAL,
MARKETING,
PRODUCTION,
FINANCIAL, HR,)
EVALUATION
OF
OUTCOME
INTERNAL
FACTOR
EVALUATION
(IFE)
THE STRATEGIC MANAGEMENT MODEL
EXECUTION OF REMEDIAL MEASURES
EXTERNAL
FACTOR
EVALUATION
(EFE)
S
W
O
T

PLANNED
STRATEGY
REALIZED
STRATEGY
UNREALIZED
STRATEGY
EMERGENT
STRATEGY
DELIBERATE STRATEGY
UNPREDICTED C
H
A
N
G
E
UNPLANNED
SHIFT BY TOP
LEVEL MANAGERS
AUTONOMOUS
ACTION BY LOWER
LEVEL MANAGERSSERENDIPITY
WASTE
BASKET
Henry
Mintzberg’s
Model of
Strategy
Development

Forecasting techniques used in strategic planning:
SWOT analysis (Strengths, Weaknesses, Opportunities,
and Threats )
PEST analysis (Political, Economic, Social, and
Technological)
PESTEL analysis (Political, Economic, Social, and
Technological , Ethics, and Legal)
STEER analysis (Socio-cultural, Technological,
Economic, Ecological, and Regulatory factors)
EPISTEL analysis (Environment, Political, Informatic,
Social, Technological, Economic and Legal)
STEEPLED analysis (Social, Technological, Ethics,
Environmental, Political, Legal, Economic, and
Demographics

SCENARIO PLANNING
Identify
different
possible
futures
Formulate
Plans to deal
with those
futures
Invest in
one plan
but……
Hedge your
bets by
preparing
for other
scenarios
Switch Strategy if
tracking of signposts
shows alternative
scenarios becoming
more likely
The process of formulating Strategies based on what-if scenarios
about the future.

DECENTRALIZED PLANNING
Strategic Planning often fails because executives do
not plan for uncertainty and ivory tower planners
lose touch with operating realities.
Successful Strategic Planning should encompass
managers at all levels of the corporation.
Much of the best planning can and should be
undertaken by business level managers and/or
functional level managers who are closest to real life
scenario.

SEVEN CHARACTERISTICS OF EFFECTIVE STRATEGIC
LEADERSHIP
* VISION, ELOQUENCE, & CONSISTENCY
* ARTICULATION OF BUSINESS MODEL
* COMMITMENT
* BEING WELL INFORMED
* WILLINGNESS TO DELEGATE &
EMPOWER
* ASTUTE USE OF POWER
* EMOTIONAL INTELLIGENCE

factors and provides an interactive,
query-able 3D landscape.
The SWOT-landscape grabs different
managerial situations by visualizing
and foreseeing the dynamic
performance of comparable
objects.
Changes in relative performance are
continually identified. Projects that
could be potential risk or
opportunity objects are highlighted.
SWOT-landscape also indicates which
underlying strength/weakness
factors that have had or likely will

OTHER USEFUL MODELS
Porter's Four Corners Model
It is a predictive tool designed by Michael
Porter that helps in determining a
competitor‟s course of action. Unlike other
predictive models, this calls for an
understanding of what motivates the
competitor. This added dimension of
understanding a competitor's internal culture,
value system, mindset and assumptions help in
determining a much more accurate and
realistic reading of a competitor‟s possible

COMPETITOR‟S
MOTIVATION: DRIVERS
MOTIVATION: MANAGEMENT ASSUMPTIONS
ACTIONS:
STRATEGY
ACTIONS:
CAPABILITIES
Porter's Four Corners Model

The Four Corners Model
Motivation – drivers
This helps in determining the competitor's
action by understanding their goals (both
strategic and tactical) and their current
position vis-à-vis their goals.
Motivation – Management Assumptions
The perceptions and assumptions the
competitor has about itself and its industry
would shape strategy. This corner includes
determining the competitor's perception of its
strengths and weaknesses, organization

The Four Corners Model
Actions – Strategy
A competitor's strategy determines how it
competes in the market. However, there could
be a difference between the company's
intended strategy and its realized strategy (as is
evident in its acquisitions, new product
development, etc.).
Actions – Capabilities
This looks at a competitor's inherent ability to
initiate or respond to external forces. Though it
might have the motivation and the drive to

framework for industry analysis and
business strategy development.
It draws upon Industrial Organization
economics to derive five forces that
determine the competitive intensity
and therefore attractiveness of a
market.
Porter's five forces include - three
forces from 'horizontal' competition:
threat of substitute products, threat
of established rivals, and threat of
new entrants; and two forces from
'vertical' competition: bargaining
power of suppliers and bargaining

SIX FORCES MODELAn extension to Porter's Five Forces
Model, it is a market opportunities
analysis model more robust than a
standard SWOT analysis, and
comprises of the following forces:
* Competition * New
entrants
* End users/Buyers *
Suppliers
* Substitutes
* Complementary products/
government/public
(extended by Brandenburger &

approach to Strategic management.
Compared to a philosophical focus on
the characteristics of a product
(product economics), the model is
based on customer economics. The
customer-centric model was
developed by Dean Wilde and Arnoldo
Hax.
Haxioms are a set of principles,
proposed by Arnoldo Hax, which serve
as a framework for the
conceptualization of the
Delta Model, and somehow challenges

Haxioms of Delta Model
1. The center of the strategy is
the customer
He is the driving force for all
actions .
2. You don't win by beating the
competition. You win by achieving
Customer Bonding
3. Strategy is not war; it is Love
The extreme way of non-
conflict is LOVE.
4. A product-centric mentality is

It is a tool for analyzing the
organizations task environment & states
that strategic choices should not only be
a function of industry structure and a
firms resources, it should also be a
function of the constraints of the
institutional framework.
It recognizes four pillars of research:
* factor conditions
* demand conditions
* related and supporting
industries
* firm structure, strategy and
rivalry
that must be undertaken in analyzing the

context of business management. VRIO is
an acronym for the four question about
a resource/capability to determine its
competitive potential:
•The Question of Value: "Is the firm able
to exploit an opportunity or neutralize
an external threat ?"
•The Question of Rarity: "Is control of
resource/capability in the hands of a
relative few?"
•The Question of Imitability: "Is it
difficult to imitate, and will there be
significant cost disadvantage to a firm
trying to obtain or duplicate
resource/capability?"

First described & popularized by
Michael Porter in 1985, a value chain
is a chain of activities for a firm.
Products pass through all activities
of the chain in order, and at each
activity the product gains some
value. The chain of activities gives
products more added value than the
sum of independent activity's value.
A value system includes the value
chains of a firm's supplier (and their
suppliers ), the firm itself, the firm
distribution channels, and the firm's
buyers (extended to the buyers of

assumptions the seven main
elements of strategic management
theory are:
•Strategic management involves
adapting the organization to its
business environment.
•Strategic management is fluid and
complex. Change creates novel
combinations of circumstances
requiring unstructured non-
repetitive responses.
•Strategic management affects the
entire organization by providing
direction.

Continuation of Chaffee’s
Assumptions:
•Strategic management involves both
strategy formation (referred to as
content) and also strategy
implementation (referred to as
process).
•Strategic management is partially
planned and partially unplanned.
•Strategic management is done at
several levels: overall corporate
strategy, and individual business

COMPETITIVE
ADVANTAGE
* LOW COST
* DIFFERENTIATION
SUPERIOR
QUALITY
SUPERIOR
CUSTOMER
RESPONSIVENESS
SUPERIOR
INNOVATION
SUPERIOR
EFFICIENCY
BUILDING BLOCKS OF
COMPETITIVE
ADVANTAGE

COMPETITIVE ADVANTAGE & SUPERIOR PROFITABILITY
Company’s Business Model that
utilizes its Distinctive
Competencies to differentiate
its products and/or lower its
cost structure
A Firm implements a set of
Strategies to configure its Value
Chain to Create Distinctive
Competencies that give it a
Competitive Advantage
Distinctive Competencies are
Firm’s specific strengths
allowing it to achieve
superior efficiency, quality
innovation, and effective
customer responsiveness
BUSINESS MODEL
DISTINCTIVE COMPETENCIES STRATEGIES
COMPETITIVE
ADVANTAGE & VALUE
CREATION CYCLE

INTEGRATION STRATEGIES
* FORWARD INTEGRATION
Control over Retailers, Distributors, Wholesalers
* BACKWARD INTEGRATION
Control over Suppliers
* HORIZONTAL INTEGRATION
Control over Competitors (Mergers, Acquisitions)

INTENSIVE STRATEGIES
MARKET
PENETRATION
PRODUCT
DEVELOPMENT
MARKET
DEVELOPMENT
DIVERSIFICATION
Present New
Products Products
Present
Markets
New
Markets

DIVERSIFICATION STRATEGIES
CONCENTRIC
DIVERSIFICATION
HORIZONTAL
DIVERSIFICATION
X CONGLOMERATE
DIVERSIFICATION
Related Unrelated
Products Products
Existing
Customers
New
Customers

DEFENSIVE STRATEGIES
* RETRENCHMENT
Reduction in Cost and Asset
* DIVESTITURE
Disposing of a firm’s division or part
* LIQUIDATION
Disposing of a firm’s asset for its tangible worth

RED OCEAN & BLUE OCEAN
STRATEGIES
Red Oceans are all the industries in existence today—the
known market space. In the red oceans, industry boundaries
are defined and accepted, and the competitive rules of the
game are known. Here companies try to outperform their
rivals to grab a greater share of product or service demand.
As the market space gets crowded, prospects for profits and
growth are reduced. Products become commodities or niche,
and cutthroat competition turns the ocean bloody. Hence, the
term red ocean strategies.

RED OCEAN & BLUE OCEAN STRATEGIES
Blue oceans denote all the industries not in existence today—the
unknown market space, untainted by competition. In blue oceans,
demand is created rather than fought over.
There is ample opportunity for growth that is both profitable and
rapid. In blue oceans, competition is irrelevant because the rules of
the game are waiting to be set.
Blue ocean is an analogy to describe the wider, deeper potential of
market space that is not yet explored.

The corner-stone of Blue Ocean Strategy is 'Value
Innovation'. A blue ocean is created when a company
achieves value innovation that creates value
simultaneously for both the buyer and the company.
The innovation (in product, service, or delivery) must
raise and create value for the market, while
simultaneously reducing or eliminating features or
services that are less valued by the current or future
market.

HOW TO ACHIEVE THE
STRATEGIES
* First Mover Advantage
* Out Sourcing
* Joint Venture/Partnership
* Merger
* Acquisition
* Takeover (Hostile)

THE INPUT
STAGE
THE
MATCHING
STAGE
THE
DECISION
STAGE
STRATEGY FORMULATION
ANALYTICAL FRAMEWORK

PORTER‟S FIVE GENERIC
STRATEGIES
COST LEADERSHIP DIFFERENTIATION FOCUS
LOW COST – Type I
BEST VALUE – Type II
PRODUCT/SERVICE/COST
DIFFERENTIATION – Type III
-
- PRODUCT/SERVICE/COST
DIFFERENTIATION – Type III
LOW COST – Type IV
BEST VALUE – Type V
GENERIC STRATEGIES
LARGE
SMALL
SIZEOFMARKET

STRENGTHS - S WEAKNESSES - W
OPPORTUNITIES- O STRENGTH-
OPPORTUNITIES (SO)
STRATEGIES
WEAKNESS-OPPORTUNITIES
(WO)
STRATEGIES
THREATS - T STRENGTH-THREATS
(ST)
STRATEGIES
WEAKNESS-THREATS
(WT)
STRATEGIES
THE SWOT MATRIX

CONSERVATIVE
STRATEGY
AGGRESSIVE STRATEGY
DEFENSIVE STRATEGY COMPETITIVE
STRATEGY
STRATEGIC POSITION & ACTION
EVALUATION (SPACE) MATRIX
COMPETITIVE
ADVANTAGE(CA)
FINANCIAL STRENGTHS (FS)
ENVIRONMENTAL STABILITY (ES)
INDUSTRY
STRENGTHS(IS)
-6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 +5 +6
+6
+5
+4
+3
+2
+1
-1
-2
-3
-4
-5
-6

THE EXTERNAL FACTOR
EVALUATION (EFE) MATRIX
A significant Strategic Tool/Instrument utilized to identify
and assess an organization’s external forces, and the
opportunities & threats faced by it, viz:
* Social * Political
* Economic * Legal
* Technological * Governmental
* Environmental * Competition
* Product Life Cycle Stage * Demographic
* Customers’ Awareness * Natural

THE INTERNAL FACTOR
EVALUATION (IFE) MATRIX
A significant Strategic Tool/Instrument utilized to identify
and assess the strengths/weaknesses of an organization:
* Market Share * Product Quality
* Human Resources * Financial Resources
* Location * Technology
* Raw Materials * Management Policy
* Distribution Network * R&D (Innovation)
* Marketing Budget/Policy * Customer Loyalty

THE COMPETITIVE PROFILE
MATRIX (CPM)
A significant Strategic Tool utilized to identify an
organization’s major competitors and their strengths &
weaknesses, viz:
* Market Share * Technology
* Product Quality * Human Resources
* Financial Resources * Price
* Management Policy * Customer Loyalty
* Marketing Budget/Policy * R&D

Johnson, Scholes and Whittington present a model in
which strategic options are evaluated against three key
success criteria:
• Suitability (would it work?)
• Feasibility (can it be made to work?)
• Acceptability (will they work it?)
EVALUATION OF
STRATEGIES

SUITABILITY
Suitability deals with the overall rationale of the strategy.
The key point to consider is whether the strategy would address
the key strategic issues underlined by the organzation's
strategic position.
•Does it make economic sense?
•Would the organization obtain
economies of scale or economies of scope?
•Would it be suitable in terms of environment and capabilities?

FEASIBILITY
Feasibility is concerned with whether the resources required to
implement the strategy are available, can be developed or
obtained. Resources include funding, people, time and
information.
Technical Feasibility, Financial Feasibility, Commercial
Feasibility, & Socio-Cultural Feasibility are some of the concerns
that need to be addressed.

ACCEPTABILITY
Acceptability is concerned with the expectations of the identified
stakeholders (mainly shareholders, employees and customers)
with the expected performance outcomes, which can be return,
risk and stakeholder reactions.
•Return deals with the benefits expected by the stakeholders
(financial and non-financial).
•Risk deals with the probability and consequences of failure of a
strategy (financial and non-financial).
•Stakeholder reactions deals with anticipating the likely
reaction of stakeholders.

•The Industrial Organizational Approach
based on economic theory — deals with issues like
competitive rivalry, resource allocation, economies of scale
assumptions — rationality, self discipline behaviour, profit
maximization
•The Sociological Approach
deals primarily with human interactions
assumptions — bounded rationality, satisfying behaviour,
profit sub-optimality.
APPROACHES TO STRATEGIC
MANAGEMENT

Strategic management techniques can be viewed as bottom-up,
top-down, or collaborative processes.
In the bottom-up approach, employees submit proposals to
their managers who, in turn, funnel the best ideas further up
the organization.
The top-down approach is the most common by far. In it, the
CEO, possibly with the assistance of a strategic planning team,
decides on the overall direction the company should take.
Some organizations are starting to experiment with
collaborative strategic planning techniques that recognize the
emergent nature of strategic decisions.

REASONS WHY STRATEGIC PLANS
FAIL
•Failure to execute by overcoming the four key
organizational hurdles
Cognitive hurdle
Motivational hurdle
Resource hurdle
Political hurdle

REASONS WHY STRATEGIC PLANS
FAIL
•Failure to understand the customer
Why do they buy
Is there a real need for the product
Inadequate or incorrect marketing research
•Inability to predict environmental reaction
What will competitors do
oFighting brands
oPrice wars
Will government intervene

REASONS WHY STRATEGIC PLANS FAIL
•Over-estimation of resource competence
Can the staff, equipment, and processes handle the new
strategy
Failure to develop new employee & management skills
•Failure to coordinate
Reporting and control relationships not adequate
Organizational structure not flexible enough
•Failure to obtain senior management commitment
Failure to get management involved right from the start
Failure to obtain sufficient company resources to
accomplish task

•Failure to obtain employee commitment
New strategy not well explained to employees
No incentives given to workers to embrace the new
strategy
•Under-estimation of time requirements
No critical path analysis done
•Failure to follow the plan
No follow through after initial planning
No tracking of progress against plan
No consequences for above

•Failure to manage change
Inadequate understanding of internal resistance to
change
Lack of vision on the relationships between
processes, technology and organization
•Poor communications
Insufficient information sharing among
stakeholders
Exclusion of stakeholders and delegates

INTERNATIONAL STRATEGIC
MANAGEMENT
An ongoing management planning process aimed at developing
strategies to allow an organization to expand abroad and compete
internationally.
Strategic planning is used in the process of developing a particular
international strategy:
* determine what products or services to sell
* where and how to make these products or services
* where to sell them
* how to acquire necessary resources for these tasks
* how to outperform its competitors

MANAGEMENT
When an organization moves from being a domestic entity to an
international organization it must consider the possible broad
complexities that accompany such a decision.
In a domestic country, an organization needs only consider one
national government, a single currency and accounting system, one
political and legal system, and usually a similar culture.
Entering into one or more foreign countries can involve multiple
governments, currencies, accounting systems, legal systems, and a
large variety of languages and cultures. These create numerous
barriers to entry for organization looking to expand internationally.

MANAGEMENT
Factors that can influence international strategies:
•local languages required in many situations
•very diverse cultures, both between countries and sometimes
even within countries
•often volatile politics
•varied economic systems
•scarcity of skilled labor, with possible costs in training labor
or redesigning procedures
•poorly-developed financial markets and government-
controlled capital flows, in some of the countries

MANAGEMENT
Factors that can influence international strategies (cont..):
•problems & exorbitant costs in obtaining market research data
•limited advertising, subjected to lots of restrictions
•possible low literacy rates, not to mention the possibility of
making mistakes in the language when advertising
•currency exchange fluctuations
•inadequate or limited communication
•mandatory worker participation in management in some
countries
•legal restrictions on laying off of workers

To operate outside national borders, firms must be ready to
incorporate international considerations into their thinking
and planning, making decisions related to questions such as:
* How will our idea, good, or service fit into the
international market?
* Should we enter the market through trade or through
investment?
* Should I obtain my supplies domestically or from
abroad?
* What product adjustments are necessary to be
responsive to local conditions?
* What threats from global competition should be
expected and how can these threats be counteracted?

PROBLEMS OF GLOBAL BUSINESS
* Deals might have to be transacted in foreign languages
and under foreign laws, customs and regulations
* Information on foreign countries needed by a particular
firm may be difficult or even impossible to obtain
* Numerous cultural differences may have to be taken into
account when trading in other nations
* Control and communication systems are normally more
complex for foreign than for domestic operations

PROBLEMS OF GLOBAL BUSINESS
cont…
•Risk levels are higher in foreign markets. The risk include
political risks, commercial risk and financial risks
•Global managers require a broader range of management
skills than do managers concerned with domestic markets
•Large amounts of important work might have to be left to
intermediaries, consultants and advisors
•More difficult to observe/monitor trends activities(including
competitor’s activities) in foreign countries

MODES OF GLOBAL BUSINESS
•Import/export of commodities & manufactured goods
•investment of capital in manufacturing, extractive,
agricultural, transportation& communication assets
•supervision of employees in different countries
•investment in international services like banking,
advertising, tourism, retailing and construction
•transactions involving copyrights, patents,
trademarks and process technology

DIMENSIONS OF GLOBAL
BUSINESS
* Technological Impacts:
* Functional impact
* Competitive Impacts
* Environmental Impacts
* Political/Legal Impacts
* Economic Impacts

Technological Impacts: Better/Innovative Products,
Better Techniques, Shorter Life Cycles
Economic Impacts: Economic Structure of the Host Nation,
GDP, Inflation Rate, Labour Cost, Level of
Unemployment, Consumer Expenditures
Functional Impact: Variations in Accounting, Marketing,
Operational, HR & Financial Functions
Competitive Impacts: Competitive Advantages/Disadvantages
over other Domestic/International Firms
Environmental Impacts: Cultural/Social Differences, Transfer of
company’s resources, Technology, Bodies
like WTO, EC, ASEAN, IMF, ILO, UNCTAD
Political/Legal Impacts: Entry Restrictions, Tariff Levels, Laws &
Codes, Regulations concerning foreign
owner-ships, advertisements, production

REASONS WHY CORPORATIONS
GLOBALIZE
•They can reduce their sourcing and distribution costs
compared to national businesses
•They can avoid tariffs, quotas and other trade
barriers faced by exporters
•They are able periodically to shift operations from
high-cost to low-cost countries

•They can penetrate markets throughout the world
from supply points in several different countries,
supplemented perhaps by exports from the parent firm
plus ad hoc licensing and contract manufacture
agreements
•Their management plan, organize and control
company operations on a worldwide scale, with national
markets being regarded as little more than segments
of a broader regional customer base

FACTORS WHICH COMPEL
GLOBALIZATION
Organizations decide to globalize on account of the
following two sets of organizational/industry’s
internal and external factors:
Internal factors: Market Imperfections
Product Life Cycle
External factors: Macro forces of Globalization
Competitive Advantage of Nations

TYPES OF GLOBAL
STRATEGIES
• Wholly owned foreign subsidiary
• Joint Ventures
• Fade-Out Agreements
• Portfolio Investments
• Licensing
• Franchising
• Exporting

Strategic management (1)

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