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Job analysis consists of determining—often with the help of other company areas—the nature
and responsibilities of various employment positions. This can encompass determination of the
skills and experiences necessary to adequately perform in a position, identification of job and
industry trends, and anticipation of future employment levels and skill requirements. "Job
analysis is the cornerstone of HRM practice because it provides valid information about jobs that
is used to hire and promote people, establish wages, determine training needs, and make other
important HRM decisions," stated Thomas S. Bateman and Carl P. Zeithaml in Management:
Function and Strategy. Staffing, meanwhile, is the actual process of managing the flow of
personnel into, within (through transfers and promotions), and out of an organization. Once the
recruiting part of the staffing process has been completed, selection is accomplished through job
postings, interviews, reference checks, testing, and other tools.
Organization, utilization, and maintenance of a company's work force is another key function of
HRM. This involves designing an organizational framework that makes maximum use of an
enterprise's human resources and establishing systems of communication that help the
organization operate in a unified manner. Other responsibilities in this area include safety and
health and worker-management relations. Human resource maintenance activities related to
safety and health usually entail compliance with federal laws that protect employees from
hazards in the workplace. These regulations are handed down from several federal agencies,
including the Occupational Safety and Health Administration (OSHA) and the Environmental
Protection Agency (EPA), and various state agencies, which implement laws in the realms of
worker's compensation, employee protection, and other areas. Maintenance tasks related to
worker-management relations primarily entail: working with labor unions; handling grievances
related to misconduct, such as theft or sexual harassment; and devising communication systems
to foster cooperation and a shared sense of mission among employees.
Performance appraisal is the practice of assessing employee job performance and providing
feedback to those employees about both positive and negative aspects of their performance.
Performance measurements are very important both for the organization and the individual, for
they are the primary data used in determining salary increases, promotions, and, in the case of
workers who perform unsatisfactorily, dismissal.
Reward systems are typically managed by HR areas as well. This aspect of human resource
management is very important, for it is the mechanism by which organizations provide their
workers with rewards for past achievements and incentives for high performance in the future. It
is also the mechanism by which organizations address problems within their work force, through
institution of disciplinary measures. Aligning the work force with company goals, stated
Gubman, "requires offering workers an employment relationship that motivates them to take
ownership of the business plan."
Employee development and training is another vital responsibility of HR personnel. HR is
responsible for researching an organization's training needs, and for initiating and evaluating
employee development programs designed to address those needs. These training programs can
range from orientation programs, which are designed to acclimate new hires to the company, to
ambitious education programs intended to familiarize workers with a new software system.
"After getting the right talent into the organization," wrote Gubman, "the second traditional
challenge to human resources is to align the workforce with the business—to constantly build the
capacity of the workforce to execute the business plan." This is done through performance
appraisals, training, and other activities. In the realm of performance appraisal, HRM
professionals must devise uniform appraisal standards, develop review techniques, train
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managers to administer the appraisals, and then evaluate and follow up on the effectiveness of
performance reviews. They must also tie the appraisal process into compensation and incentive
strategies, and work to ensure that federal regulations are observed.
Responsibilities associated with training and development activities, meanwhile, include the
determination, design, execution, and analysis of educational programs. The HRM professional
should be aware of the fundamentals of learning and motivation, and must carefully design and
monitor training and development programs that benefit the overall organization as well as the
individual. The importance of this aspect of a business's operation can hardly be over-stated. As
Roberts, Seldon, and Roberts indicated in Human Resources Management, "the quality of
employees and their development through training and education are major factors in
determining long-term profitability of a small business…. Research hasshown specific benefits
that a small business receives from training and developing its workers, including: increased
productivity; reduced employee turnover; increased efficiency resulting in financial gains; [and]
decreased need for supervision."
Meaningful contributions to business processes are increasingly recognized as within the
purview of active human resource management practices. Of course, human resource managers
have always contributed to overall business processes in certain respects—by disseminating
guidelines for and monitoring employee behavior, for instance, or ensuring that the organization
is obeying worker-related regulatory guidelines—but increasing numbers of businesses are
incorporating human resource managers into other business processes as well. In the past, human
resource managers were cast in a support role in which their thoughts on cost/benefit
justifications and other operational aspects of the business were rarely solicited. But as Johnston
noted, the changing character of business structures and the marketplace are making it
increasingly necessary for business owners and executives to pay greater attention to the human
resource aspects of operation: "Tasks that were once neatly slotted into well-defined and narrow
job descriptions have given way to broad job descriptions or role definitions. In some cases,
completely new work relationships have developed; telecommuting, permanent part-time roles
and outsourcing major non-strategic functions are becoming more frequent." All of these
changes, which human resource managers are heavily involved in, are important factors in
shaping business performance.
THE CHANGING FIELD OF HUMAN RESOURCE MANAGEMENT
In recent years, several business trends have had a significant impact on the broad field of HRM.
Chief among them were new technologies. These new technologies, particularly in the areas of
electronic communication and information dissemination and retrieval, have dramatically altered
the business landscape. Satellite communications, computers and networking systems, fax
machines, and other devices have all facilitated change in the ways in which businesses interact
with each other and their workers. Telecommuting, for instance, has become a very popular
option for many workers, and HRM professionals have had to develop new guidelines for this
emerging subset of employees.
Changes in organizational structure have also influenced the changing face of human resource
management. Continued erosion in manufacturing industries in the United States and other
nations, coupled with the rise in service industries in those countries, have changed the
workplace, as has the decline in union representation in many industries (these two trends, in
fact, are commonly viewed as interrelated). In addition, organizational philosophies have
undergone change. Many companies have scrapped or adjusted their traditional, hierarchical
organizations structures in favor of flatter management structures. HRM experts note that this
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shift in responsibility brought with it a need to reassess job descriptions, appraisal systems, and
other elements of personnel management.
A third change factor has been accelerating market globalization. This phenomenon has served to
increase competition for both customers and jobs. The latter development enabled some
businesses to demand higher performances from their employees while holding the line on
compensation. Other factors that have changed the nature of HRM in recent years include new
management and operational theories like Total Quality Management (TQM); rapidly changing
demographics; and changes in health insurance and federal and state employment legislation.
SMALL BUSINESS AND HUMAN RESOURCE MANAGEMENT
A small business's human resource management needs are not of the same size or complexity of
those of a large firm. Nonetheless, even a business that carries only two or three employees faces
important personnel management issues. Indeed, the stakes are very high in the world of small
business when it comes to employee recruitment and management. No business wants an
employee who is lazy or incompetent or dishonest. But a small business with a work force of half
a dozen people will be hurt far more badly by such an employee than will a company with a
work force that numbers in the hundreds (or thousands). Nonetheless, "most small business
employers have no formal training in how to make hiring decisions," noted Jill A. Rossiter in
Human Resources: Mastering Your Small Business. "Most have no real sense of the time it takes
nor the costs involved. All they know is that they need help in the form of a 'good' sales manager,
a 'good' secretary, a 'good' welder, or whatever. And they know they need some-one they can
work with, who's willing to put in the time to learn the business and do the job. It sounds simple,
but it isn't."
Before hiring a new employee, the small business owner should weigh several considerations.
The first step the small business owner should take when pondering an expansion of employee
payroll is to honestly assess the status of the organization itself. Are current employees being
utilized appropriately? Are current production methods effective? Can the needs of the business
be met through an arrangement with an outside contractor or some other means? Are you, as the
owner, spending your time appropriately? As Rossiter noted, "any personnel change should be
considered an opportunity for rethinking your organizational structure."
Small businesses also need to match the talents of prospective employees with the company's
needs. Efforts to manage this can be accomplished in a much more effective fashion if the small
business owner devotes energy to defining the job and actively taking part in the recruitment
process. But the human resource management task does not end with the creation of a detailed
job description and the selection of a suitable employee. Indeed, the hiring process marks the
beginning of HRM for the small business owner.
Small business consultants strongly urge even the most modest of business enterprises to
implement and document policies regarding human resource issues. "Few small enterprises can
afford even a fledgling personnel department during the first few years of business operation,"
acknowledged Burstiner. "Nevertheless, a large mass of personnel forms and data generally
accumulates rather rapidly from the very beginning. To hold problems to a minimum, specific
personnel policies should be established as early as possible. These become useful guides in all
areas: recruitment and selection, compensation plan and employee benefits, training, promotions
and terminations, and the like." Depending on the nature of the business enterprise (and the
owner's own comfort zone), the owner can even involve his employees in this endeavor. In any
case, a carefully considered employee handbook or personnel manual can be an invaluable tool
in ensuring that the small business owner and his or her employees are on the same page.
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Moreover, a written record can lend a small business some protection in the event that its
management or operating procedures are questioned in the legal arena.
Some small business owners also need to consider training and other development needs in
managing their enterprise's employees. The need for such educational supplements can range
dramatically. A bakery owner, for instance, may not need to devote much of his resources to
employee training, but a firm that provides electrical wiring services to commercial clients may
need to implement a system of continuing education for its workers in order to remain viable.
Finally, the small business owner needs to establish and maintain a productive working
atmosphere for his or her work force. Employees are far more likely to be productive assets to
your company if they feel that they are treated fairly. The small business owner who clearly
communicates personal expectations and company goals, provides adequate compensation,
offers meaningful opportunities for career advancement, anticipates work force training and
developmental needs, and provides meaningful feedback to his or her employees is far more
likely to be successful than the owner who is neglectful in any of these areas.
HRP
Human resource policies are the formal rules and guidelines that businesses put in place to hire,
train, assess, and reward the members of their work force. These policies, when organized and
disseminated in an easily used form—such as an employee manual or large postings—can go far
toward eliminating any misunderstandings between employees and employers about their rights
and obligations in the business environment. "Sound human resource policy is a necessity in the
growth of any business or company," wrote Ardella Ramey and Carl R.J. Sniffen in A Company
Policy and Personnel Workbook. "Recognition of this necessity may occur when management
realizes that an increasing amount of time is being devoted to human resource issues: time that
could be devoted to production, marketing, and planning for growth. Effective, consistent, and
fair human resource decisions are often made more time consuming by a lack of written,
standardized policies and procedures. Moreover, when issues concerning employee rights and
company policies come before federal and state courts, the decisions generally regard company
policies, whether written or verbal, as being a part of an employment contract between the
employee and the company. Without clearly written policies, the company is at a disadvantage."
It is particularly important for small business establishments to implement and maintain fairly
applied human resource policies in their everyday operations. Small businesses—and especially
business startups—can not afford to fritter away valuable time and resources on drawn-out
policy disputes or potentially expensive lawsuits. The business owner who takes the time to
establish sound, comprehensive human resource management policies will be far better equipped
to succeed over the long run than will the business owner who deals with each policy decision as
it erupts; the latter ad hoc style is much more likely to produce inconsistent, uninformed, and
legally questionable decisions that will cripple—or even kill—an otherwise prosperous business.
For as many small business consultants state, human resource policies that are inconsistently
applied or based on faulty or incomplete data will almost inevitably result in declines in worker
morale, deterioration in employee loyalty, and increased vulnerability to legal penalties. To help
ensure that personnel management policies are fairly applied, business owners and consultants
alike recommend that small business enterprises produce and maintain a written record of its HR
policies and of instances in which those policies came into play.
SUBJECTS COVERED BY COMPANY HR POLICIES
Small business owners should make sure that they address the following basic human resource
issues when putting together their personnel policies:
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Companies typically have to make revisions to established HR policies on a regular basis, as the
company grows and as the regulatory and business environments in which it operates evolve.
When confronted with the challenge of updating HR policies, however, it is important for small
businesses to proceed cautiously. For example, if an employee asks the owner of a small
business if he might telecommute from his home one day a week, the owner may view the
request as a reasonable, relatively innocuous one. But even minor variations in personnel policy
can have repercussions that extend far beyond the initially visible parameters of the request. If
the employee is granted permission to work from home one day a week, will other employees
ask for the same benefit?
Does the employee expect the business to foot the bill for any aspect of the telecommuting
endeavor (purchase of computer, modem, etc.?) Do customers or vendors rely on the employee
(or employees) to be in the office five days a week? Do other employees need that worker to be
in the office to answer questions? Is the nature of the employee's workload such that he can take
meaningful work home? Can you implement the telecommuting variation on a probationary
basis?
Small business owners need to recognize that changes in HR policy have the potential to impact,
in one way or another, every person in the company, including the owner. Proposed changes
should be examined carefully and in consultation with others within the business who may
recognize potential pitfalls that other managers, or the business owner himself, might not detect.
Once a change in policy is made, it should be disseminated widely and effectively so that all
employees are made aware of it.
HRD
Human Resource Development (HRD) is the framework for helping employees develop their personal
and organizational skills, knowledge, and abilities. Human Resource Development includes such
opportunities as employee training, employee career development, performance management and
development, coaching, mentoring, succession planning, key employee identification, tuition
assistance, and organization development.
The focus of all aspects of Human Resource Development is on developing the most superior
workforce so that the organization and individual employees can accomplish their work goals in service
to customers.
Human Resource Development can be formal such as in classroom training, a college course, or an
organizational planned change effort. Or, Human Resource Development can be informal as in
employee coaching by a manager. Healthy organizations believe in Human Resource Development and
cover all of these bases.
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HRIS 3
The Human Resource Information System (HRIS) is a software or online solution for the data entry,
data tracking, and data information needs of the Human Resources, payroll, management, and
accounting functions within a business. Normally packaged as a data base, hundreds of companies sell
some form of HRIS and every HRIS has different capabilities. Pick your HRIS carefully based on the
capabilities you need in your company.
Typically, the better The Human Resource Information Systems (HRIS) provide overall:
An effective HRIS provides information on just about anything the company needs to track and
analyze about employees, former employees, and applicants. Your company will need to select a
Human Resources Information System and customize it to meet your needs.
With an appropriate HRIS, Human Resources staff enables employees to do their own benefits updates
and address changes, thus freeing HR staff for more strategic functions. Additionally, data necessary
for employee management, knowledge development, career growth and development, and equal
treatment is facilitated. Finally, managers can access the information they need to legally, ethically,
and effectively support the success of their reporting employees.
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Academic Processing
USW Processing
Benefits Administration
NON APPOINTED
STAFF DOCUMENTATION
Position Maintenance
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Financial management
4 comparative statement:
ComparativeComparative statements are financial statements that cover a different time frame, but are
formatted in a manner that makes comparing line items from one period to those of a different period an easy
process. This quality means that the comparativecomparativecomparative statementstatementstatement is a
financial statement that lends itself well to the process of comparativecomparativecomparative analysis. Many
companies make use of standardized formats in accounting functions that make the generation of a
comparativecomparativecomparative statementstatementstatement quick and easy.
The benefits of a comparative statement are varied for a corporation. Because of the uniform format of the
statement, it is a simple process to compare the gross sales of a given product or all products of the company
with the gross sales generated in a previous month, quarter, or year. Comparing generated revenue from one
period to a different period can add another dimension to analyzing the effectiveness of the sales effort, as the
process makes it possible to identify trends such as a drop in revenue in spite of an increase in units sold.
Along with being an excellent way to broaden the understanding of the success of the sales effort, a
comparative statement can also help address changes in production costs. By comparing line items that
catalog the expense for raw materials in one quarter with another quarter where the number of units produced
is similar can make it possible to spot trends in expense increases, and thus help isolate the origin of those
increases. This type of data can prove helpful to allowing the company to find raw materials from another
source before the increased price for materials cuts into the overall profitability of the company.
A comparative statement can be helpful for just about any organization that has to deal with finances in some
manner. Even non-profit organizations can use the comparative statement method to ascertain trends in annual
fund raising efforts. By making use of the comparative statement for the most recent effort and comparing the
figures with those of the previous year’s event, it is possible to determine where expenses increased or
decreased, and provide some insight in how to plan the following year’s event.
Trend analysis
trend analysis
forecasting technique that relies primarily on historical time series data to predict the future. The analysis
involves searching for a right trend equation that will suitably describe trend of the data series. The trend may
be linear, or it may not. A linear trend can be obtained by using a least-squares method . The line has the
equation y = a + bt where t = 1,2,3 . . ., b = slope of the line, and a = value oft = 0. The coefficients of the
equation, a and b , can be determined using these equations:
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trend analysis
in credit analysis, detailed examination of a company's financial ratios and cash flow for several accounting
periods to determine changes in a borrower's financial position. Trend analysis is a key part of credit
underwriting, and is a useful and necessary tool in determining whether the borrower's financial strength is
improving or deteriorating. Key ratios examined include debt coverage ratio,turnover ratio (conversion of
inventory and receivables to cash), and the quick assets ratio or quick ratio (current assets divided by current
liabilities).
trend analysis
a study of a company's financial performance over an extended period of time. Trend analysis helps to
understand overall financial performance over a period of time.
Related Terms:
Dictionary of Banking Terms
turnover ratios
financial ratios related to sales or volume, for example, accounts receivable turnover; also known as efficiency
ratios, for example, assets turnover, conversion of receivables into cash. These measure efficiency of
converting assets into cash.
Dictionary of Banking Terms
balance sheet ratios
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1. ratios used in examining the financial condition, and changes in financial position, of any company,
based on data reported in the balance sheet. Certain ratios are particularly applicable to banks. The
most important are the capital ratio (measuring the ratio of equity capital to total assets) and liquidity
ratios (measuring a bank's ability to cover deposit withdrawals and pay out funds to meet the credit
needs of its borrowers). Other useful ratios are the loan-to-deposit ratio (total loans divided by total
deposits) the charge-off ratio (net charge-offs as a percentage of total loans), the loan loss reserve ratio
(loan loss reserves for potential bad loans as a percentage of total loans), and the ratio of
nonperforming asset to total loans. See also Net Interest Margin (NIM); Return On Assets (ROA);
Return On Equity (ROE).
2. accounting ratios used by bank credit officers in evaluating creditworthiness of borrowers. The most
widely used are: the acid-test ratio or quick ratio (short-term assets divided by current liabilities); the
current ratio (current assets divided by current liabilities); and the debt coverage ratio (working capital
divided by long-term debt). Financial ratios can be measured against ratios in prior years, or industry
averages, for quick, easy comparison. Key performance ratios, such as the leverage ratio (long-term
debt as a percentage of shareholder net worth), are frequently used in pricing commercial loans. A loan
might have an interest spread over a base rate, for example, the bank prime rate plus 25 basis points if
financial leverage is kept at, or below, a certain level. See also ratio analysis.
3. The term "trend analysis" refers to the concept of collecting information and attempting to
spot a pattern, or trend, in the information. In some fields of study, the term "trend analysis"
has more formally-defined meanings. [1] [2] [3]
4.
In project management trend analysis is a mathematical technique that uses historical
results to predict future outcome. This is achieved by tracking variances in cost and schedule
performance. In this context, it is a project management quality control tool. [4] [5]
5.
Although trend analysis is often used to predict future events, it could be used to estimate
uncertain events in the past, such as how many ancient kings probably ruled between two
dates, based on data such as the average years which other known kings reigned.
6. [edit]
7. Today, trend analysis often refers to the science of studying changes in social patterns,
including fashion, technology and the consumer behavior.
Formatting financial statements in this way reduces the bias that can occur when analyzing companies
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of differing sizes. It also allows for the analysis of a company over various time periods, revealing, for
example, what percentage of sales is cost of goods sold and how that value has changed over time.
A statement in which all items are expressed as a percentage of a base figure, useful for purposes of
analyzing trends and changing relationship among financial statement items. For example, all items in
each year's income statement could be presented as a percentage of net sales
A financial statement that has variables expressed in percentages rather than in dollar amounts. For
example, items on an income statement are shown as a percentage of revenue or sales, and balance
sheet entries are displayed as a percentage of total assets. Common-size statements are used primarily
for comparative purposes so that firms of various sizes can be equated. Also called one hundred percent
statement
The commoncommoncommon-sizesizesize statementstatementstatement is a financial document that is often
utilized as a quick and easy reference for the finances of a corporation or business. Unlike balance sheets and
other financial statements, the commoncommoncommon-sizesizesize statementstatementstatement does not
reflect exact figures for each line item. Instead, the structure of the commoncommoncommon sizesizesize
statementstatementstatement uses a commoncommoncommon base figure, and assigns a percentage of that
figure to each line item or category reflected on the document.
A company may choose to utilize financial statements of this type to present a quick snapshot of how much of
the company’s collected or generated revenue is going toward each operational function within the
organization. The use of a common-size statement can make it possible to quickly identify areas that may be
utilizing more of the operating capital than is practical at the time, and allow budgetary changes to be
implemented to correct the situation.
The common size statement can also be a helpful tool in comparing the financial structures and operation
strategies of two different companies. The use of percentages in the common size statements removes the
issue of which company generates more revenue, and brings the focus on how the revenue is utilized within
each of the two businesses. Often, the use of a common-size statement in this manner can help to identify
areas where each company is utilizing resources efficiently, as well as areas where there is room for
improvement.
Common-size statements can be prepared for any review period desired. Companies that choose to make use
of financial statements of this type may choose to utilize this format for quarterly, semi-annual, or annual
reviews. When there is concern about operational costs, the common-size statement may be prepared on a
more frequent basis, such as monthly. Because the common-size statement is very easy to read and does not
necessarily contain information that would be considered proprietary, the format can often be employed as part
of general information that is released to the public.
D All ratios
A ratio is a comparison of two numbers. We generally separate the two numbers in the ratio with
a colon (:). Suppose we want to write the ratio of 8 and 12.
We can write this as 8:12 or as a fraction 8/12, and we say the ratio is eight to twelve.
Ratios tell how one number is related to another number.
A ratio may be written as A:B or A/B or by the phrase "A to B".
A ratio of 1:5 says that the second number is five times as large as the first.
The following steps will allow determination of a number when one number and
the ratio between the numbers is given.
Example: Determine the value of B if A=6 and the ratio of A:B = 2:5
• Determine how many times the number A is divisible by the
corresponding portion of the ratio. (6/2=3)
• Multiply this number by the portion of the ratio representing B
(3*5=15)
• Therefore if the ratio of A:B is 2:5 and A=6 then B=15
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The ratio analysis and industry analysis tools below are very useful for individuals to instantly assess a
company or industry by making two basic types of comparisons. First, the analyst can compare a
present ratio with past (or expected) ratios for the organization to determine if there has been an
improvement or deterioration or no change over time. Second, the ratios of one organization may be
compared with similar organizations or with industry averages at the same point in time. This is a type
of "benchmarking" so that one may determine whether the organization is "average" in performance
or doing better or worse than others. For the professional, conducting such in-depth analyses is
critical, allowing an analyst to make an informed business or investment decision.
reasons why ratios and proportions are so important
2. Markets repeat with clocklike regularity, they do the same thing every
day.
4. Each right triangle has a predictive nature making the risk/reward on each
trade solidly in the traders favor.
decision modeling should provide explicit support for the modeling of temporal
processes and for dealing with time-critical situations.
One of the most essential elements of being a high-performing manager is the ability to lead
effectively one's own life, then to model those leadership skills for employees in the
organization. This site comprehensively covers theory and practice of most topics in forecasting
and economics. I believe such a comprehensive approach is necessary to fully understand the
subject. A central objective of the site is to unify the various forms of business topics to link
them closely to each other and to the supporting fields of statistics and economics. Nevertheless,
the topics and coverage do reflect choices about what is important to understand for business
decision making.
Almost all managerial decisions are based on forecasts. Every decision becomes operational at
some point in the future, so it should be based on forecasts of future conditions.
Forecasts are needed throughout an organization -- and they should certainly not be produced by
an isolated group of forecasters. Neither is forecasting ever "finished". Forecasts are needed
continually, and as time moves on, the impact of the forecasts on actual performance is
measured; original forecasts are updated; and decisions are modified, and so on.
For example, many inventory systems cater for uncertain demand. The inventory parameters in
these systems require estimates of the demand and forecast error distributions. The two stages of
these systems, forecasting and inventory control, are often examined independently. Most studies
tend to look at demand forecasting as if this were an end in itself, or at stock control models as if
there were no preceding stages of computation. Nevertheless, it is important to understand the
interaction between demand forecasting and inventory control since this influences the
performance of the inventory system. This integrated process is shown in the following figure:
The decision-maker uses forecasting models to assist him or her in decision-making process. The
decision-making often uses the modeling process to investigate the impact of different courses of
action retrospectively; that is, "as if" the decision has already been made under a course of
action. That is why the sequence of steps in the modeling process, in the above figure must be
considered in reverse order. For example, the output (which is the result of the action) must be
considered first.
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It is helpful to break the components of decision making into three groups: Uncontrollable,
Controllable, and Resources (that defines the problem situation). As indicated in the above
activity chart, the decision-making process has the following components:
1. Performance measure (or indicator, or objective): Measuring business
performance is the top priority for managers. Management by objective
works if you know the objectives. Unfortunately, most business managers do
not know explicitly what it is. The development of effective performance
measures is seen as increasingly important in almost all organizations.
However, the challenges of achieving this in the public and for non-profit
sectors are arguably considerable. Performance measure provides the
desirable level of outcome, i.e., objective of your decision. Objective is
important in identifying the forecasting activity. The following table provides
a few examples of performance measures for different levels of
management:
Level Performance Measure
Return of Investment, Growth, and
Strategic
Innovations
There may have also sets of constraints which apply to each of these components. Therefore,
they do not need to be treated separately.
7Actions: Action is the ultimate decision and is the best course of strategy to achieve the
desirable goal.
Decision-making involves the selection of a course of action (means) in pursue of the decision
maker's objective (ends). The way that our course of action affects the outcome of a decision
depends on how the forecasts and other inputs are interrelated and how they relate to the
outcome.
Controlling the Decision Problem/Opportunity: Few problems in life, once solved, stay that way.
Changing conditions tend to un-solve problems that were previously solved, and their solutions
create new problems. One must identify and anticipate these new problems.
Remember: If you cannot control it, then measure it in order to forecast or predict it.
Forecasting is a prediction of what will occur in the future, and it is an uncertain process.
Because of the uncertainty, the accuracy of a forecast is as important as the outcome predicted by
the forecast. This site presents a general overview of business forecasting techniques as classified
in the following figure:
Progressive Approach to Modeling: Modeling for decision making involves two distinct parties,
one is the decision-maker and the other is the model-builder known as the analyst. The analyst is
to assist the decision-maker in his/her decision-making process. Therefore, the analyst must be
equipped with more than a set of analytical methods.
Integrating External Risks and Uncertainties: The mechanisms of thought are often distributed
over brain, body and world. At the heart of this view is the fact that where the causal contribution
of certain internal elements and the causal contribution of certain external elements are equal in
governing behavior, there is no good reason to count the internal elements as proper parts of a
cognitive system while denying that status to the external elements.
In improving the decision process, it is critical issue to translating environmental information
into the process and action. Climate can no longer be taken for granted:
• Societies are becoming increasingly interdependent.
• The climate system is changing.
• Losses associated with climatic hazards are rising.
These facts must be purposeful taken into account in adaptation to climate conditions and
management of climate-related risks.
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The decision process is a platform for both the modeler and the decision maker to engage with
human-made climate change. This includes ontological, ethical, and historical aspects of climate
change, as well as relevant questions such as:
• Does climate change shed light on the foundational dynamics of reality
structures?
• Does it indicate a looming bankruptcy of traditional conceptions of human-nature
interplays?
• Does it indicate the need for utilizing nonwestern approaches, and if so, how?
• Does the imperative of sustainable development entail a new groundwork for
decision maker?
• How will human-made climate change affect academic modelers -- and how can
they contribute positively to the global science and policy of climate change?
Quantitative Decision Making: Schools of Business and Management are flourishing with more
and more students taking up degree program at all level. In particular there is a growing market
for conversion courses such as MSc in Business or Management and post experience courses
such as MBAs. In general, a strong mathematical background is not a pre-requisite for admission
to these programs. Perceptions of the content frequently focus on well-understood functional
areas such as Marketing, Human Resources, Accounting, Strategy, and Production and
Operations. A Quantitative Decision Making, such as this course is an unfamiliar concept and
often considered as too hard and too mathematical. There is clearly an important role this course
can play in contributing to a well-rounded Business Management degree program specialized,
for example in finance.
Specialists in model building are often tempted to study a problem, and then go off in isolation to
develop an elaborate mathematical model for use by the manager (i.e., the decision-maker).
Unfortunately the manager may not understand this model and may either use it blindly or reject
it entirely. The specialist may believe that the manager is too ignorant and unsophisticated to
appreciate the model, while the manager may believe that the specialist lives in a dream world of
unrealistic assumptions and irrelevant mathematical language.
Such miscommunication can be avoided if the manager works with the specialist to develop
first a simple model that provides a crude but understandable analysis. After the manager has
built up confidence in this model, additional detail and sophistication can be added, perhaps
progressively only a bit at a time. This process requires an investment of time on the part of the
manager and sincere interest on the part of the specialist in solving the manager's real problem,
rather than in creating and trying to explain sophisticated models. This progressive model
building is often referred to as the bootstrapping approach and is the most important factor in
determining successful implementation of a decision model. Moreover the bootstrapping
approach simplifies the otherwise difficult task of model validation and verification processes.
The time series analysis has three goals: forecasting (also called predicting), modeling, and
characterization. What would be the logical order in which to tackle these three goals such that
one task leads to and /or and justifies the other tasks? Clearly, it depends on what the prime
objective is. Sometimes you wish to model in order to get better forecasts. Then the order is
obvious. Sometimes, you just want to understand and explain what is going on. Then modeling is
again the key, though out-of-sample forecasting may be used to test any model. Often modeling
and forecasting proceed in an iterative way and there is no 'logical order' in the broadest sense.
20
You may model to get forecasts, which enable better control, but iteration is again likely to be
present and there are sometimes special approaches to control problems.
3 Evaluat project of average isk we must know the overall cost of the capital why
Cost of Capital
Cost of Capital is the rate that must be earned in order to satisfy the required rate
of return of the firm's investors. It can also be defined as the rate of return on
investments at which the price of a firm's equity share will remain unchanged.
Each type of capital used by the firm (debt, preference shares and equity) should be
incorporated into the cost of capital, with the relative importance of a particular
source being based on the percentage of the financing provided by each source of
capital. Using of the cost a single source of capital, as the hurdle rate is tempting to
management
There are several factors that impact the cost of capital of any company. This would
mean that the cost of capital of any two companies would not be equal. Rightly so
as these two companies would not carry the same risk.
Generally, as the level of risk rises, a larger risk premium must be earned to satisfy
company's investors. This, when added to the risk-free rate, equals the firm's cost
of capital.
A firm's weighted cost of capital is a function of (l) the individual costs of capital, (2)
the capital structure mix, and (3) the level of financing necessary to make the
investment. The individual costs of capital helps in deciding the weigtage that has
to be given to the different modes of financing. The capital structure mix decides
level of the debt that the company would take up. The level of financing helps in
working out the amount that the company could shell out of its own and deciding
whether and how much to finance from outside sources.
a) Cost of Debt: As we discussed in the last chapter the before-tax cost of debt
is found by trial-and-error by solving for kd in
PV =
of return on debt)
kps = =
23
c) Cost of equity share: There are three measurement techniques to obtain the
required rate of return on equity shares.
ks = +
ks =
kns =
where NPo = the market price of the equity share less flotation costs
incurred in issuing new shares.
ks = kf + b(km - kf)
All these models are very useful for companies that have their shares listed in
the market or about to get them listed. What about the companies that are
privately owned. The best way for these companies to do it is to find the
general risk premium and take the company specific cost of debt (which is
supposed to include the risk premium of the company) and then add the two
to find out the equity cost of the company.
ks = kd + RPs
kd = cost of debt
The individual costs of capital will be different for each source of capital in the firm's
capital structure. If the company uses debt to the level of fifty percent of its
investment, then the cost of debt should get 50% weightage in the capital
structure.
The weighted marginal cost of capital specifies the composite cost for each
additional rupee of financing. The firm should continue to invest up to the point
where the marginal internal rate of return earned on a new investment (IRR) equals
the marginal cost of new capital.
1. 1. Issuing new equity share will increase the firm's weighted cost of
capital because external equity capital has a higher cost than internally
generated common equity.
2. 2. As we use additional debt and preference shares, their cost may
increase, which will result in an increase in the weighted cost of capital.
3. 3. The increase in the firm's weighted marginal cost of capital curve
will occur at the total rupee financing level when all the cheaper funding
will be consumed by the firm's investments, given the targeted debt-
equity ratio. The increase in the weighted cost of capital will occur when
the total financing from all sources equals:
Procedure for determining the weighted marginal cost of capital curve is given
below for ready reference.
where:
In the formula above we are assuming that the capital has two components only,
debt and equity. If the preference capital is also there then it is simply added to it
the way other two are denoted.
The cost of capital and cash flows are then utilized to evaluate a project by using an
evaluation method.
International business
Classify the environmental factor on the basis of their extent of intimacy with the
firm.
2) external factors:- external factors of international business are those where you need to
examine the whole crietari these are political environment,legal environment,socio-cultural
environment,demographic conditions of respective country.
Environmental factors for international business comprise the external relations a firm will face
in going global. These include, most importantly, the economic, political and legal environments,
each of these always entangled with the others
While analyzing foreign environment companies have to pay close attention to various factors that
will effect, or help if used efficiently, future success of business in a new economy. First of all it is
necessary to carefully examine the firm’s competitive position and understand if a project is able
to bring profit in the global industry. Adequate financial resources, successful global ventures in
the past, risk levels that a company is able to undertake and growing international demand are
those few questions that need to posed before a firm can make any projections as to doing
business abroad. There are also factors that are directly connected to specific projects and
situations and that influence the outcome of the venture and have to be considered.
27
7.
In case when a company is ready to start international project in terms of its internal situation, it
has to study issues and challenges that are caused by macro economical and other environmental
factors. Legal and political factors are essential for the implementation of the project abroad and
each country has its own laws and regulations that could be of negative or positive influence which
greatly depends on the nature of business. Economic condition of the host county is a core issue in
deciding where and when project will be carried out and if it is feasible at all. Such environmental
issues as GDP, inflation fluctuations and population growth have to be considered in order to
comprehend conditions in which business will operate. Infrastructure and geography are among
other factors that will affect the project or not allow its execution in case a host county has severe
weather conditions or undeveloped infrastructure; for instance unpaved roads and no electrical
power can easily fail the project in the very beginning and thus knowing such conditions is
necessary. Security of the country in which project will be developed is essential as well, people
make things happen and if they are in a dangerous environment it is priory impossible to do
business. Workers who are knowledgeable about cultural differences in a host country are more
likely to perform successfully as traditions and holidays can play a huge role in certain marketing
campaigns and serve for the good image of the company.
8.
Working in a foreign country requires a great deal of preparation and assessment of all possible
differences that business is about to encounter. As was already said major role is deciding whether
of not the project will be successful is comprehending macro environment of a new country.
Studying its economical condition, security levels and infrastructure system is a core competence
of a company who wants to be more successful that its competitors. In case when all of those
factors are studied and considered advantageous for a new enterprise it is important to bear in
mind that cultural differences can make all efforts void. Thus such countries as the United States
must attentively analyze what changes have to be made in the business plan and what people are
best suit for the its implementation. Often companies hire professionals already experienced in
such ventures with foreign education who speak two or more languages. Those intermediaries who
are familiar with host country’s traditions and have social connections are great helpers in
establishing a good image of the company abroad and in avoiding mistakes in a setting up period.
Selecting and training employees for the international project is very important for the future
success of the company. Culture shock and coping with it are issues that have to be addressed to
potential workers because people who cannot sleep at night of nervous breakdown are unable to
work effectively. Consequently firms need to inform and train employees how to cope with cultural
diversities and benefit from them to better manage in the new environment. Multiplicity of the
factors that have to be thought through by the international project managers can be outstanding
but successful implementation will be rewarded by monetary and personal contentment.
structuring their operations to take place in jurisdictions that they find congenial
and to avoid those that they find unsatisfactory is undermining the regulatory
role of the state. It is also creating demand for lawyers who can help their
clients exploit these opportunities for private ordering of economic transactions.
Increased Concern about the Environment: The growing recognition that
human activity is adversely affecting our physical environment imposes on all
actors whose actions will affect this environment an obligation to account for all
the costs and benefits that their activity is likely to cause. Since the impacts of
these activities can extend over large areas and over long periods of time, a full
accounting for their effects is also blurring the geographical and temporal
boundaries that have historically circumscribed our concepts of legal
responsibility and liability. This in turn is challenging us to adapt these concepts
to new environmental realities and to the requirements of social and
environmental sustainability and inter-generational equity.
Increased Attention to the Human Rights Obligations of Actors Other
Than States: The growing scale of operations of transnational corporations is
resulting in changing perceptions of the rights and obligations of all economic
actors, including in regard to human rights. To date, this has initially manifested
itself in two ways. First, it has stimulated the development of soft law standards
of conduct for corporations—such as corporate codes of conduct, the UN
Compact, IFC Performance Standards -- and an increased emphasis on corporate
social responsibility. The second is the increased willingness of consumers, non-
state actors, and international bodies to hold corporations accountable for the
social consequences of their actions. These two developments are causing
businesses and their lawyers to become much more sensitive to the human
rights implications of their actions.
The Role of Law and Lawyers
1 Prepared for the International Association of Law School’s conference on “The Law of International Business
Transactions: A Global Perspective”, Hamburg, Germany, April 10-12, 2008.
2 Professor of Law and Director, International Legal Studies Program, American University Washington College of
Law, Washington DC. and Research Associate, Centre for Human Rights, University of Pretoria. Email address:
bradlow@wcl.american.edu
29
Given the complex ways in which the above factors affect international business
transactions, lawyers can most effectively serve their international business
client’s needs by developing an expanded vision of the value they add to their
clients’ business operations. This means that, in addition to offering their clients
specific technical legal expertise, lawyers need to see themselves as member of
the multi-disciplinary teams that help their client’s negotiate and structure
international business transactions. Given the economic, social and
environmental impact of these transactions, the lawyers should also recognize
that, de facto, they act as agents for social change.
In order to play this expanded legal role, international business lawyers, in
addition to knowledge of their own legal systems, need:
1. A better understanding of the social, environmental and economic context
in which the law operates. This knowledge will enable them to assist their
clients assess and manage the legal risks associated with their proposed
plans of action. It will also ensure that they function effectively as
members of the cross-cultural and multi-disciplinary teams that drive
most international business transactions.
2. Cross-cultural negotiating and drafting skills so that they can help their
clients structure and negotiate international transactions that both meet
the needs of all relevant stakeholders and that creatively exploit the
opportunities that currently exist for the private ordering of cross-border
business relations. This suggests that effective international business
lawyers need an understanding of diverse cultures and the ability to
communicate in different languages.
lawyers to see law as a technical discipline that reacts to rather than shapes
either business transactions or social and economic policy.
In order to produce this new kind of international business lawyer, legal
education needs to produce lawyers who have the ability to help their clients
understand and evaluate the
31
practical effects of the legal choices they face and to minimize their negative
impacts. This means law students, in addition to the standard domestic law
curriculum, need to learn something about the social, environmental and
economic contexts in which law operates. They also need to develop expertise
in international law, including soft international law, like de facto global
regulatory regimes, and comparative law. Legal education should also provide
students with opportunities to devise legal solutions that mitigate risks and
advance their clients’ business interests.
Law schools can provide this training to their students in a number of different,
and non-mutually exclusive, ways. They can include more non-legal subjects in
the basic legal training; they can offer joint degree or post-graduate degree
options; and they can introduce innovative teaching techniques – such as
simulation and drafting exercises-- in business law courses.
These changes pose challenges to law schools which face personnel and
financial constraints on their capacity to deliver legal education. Most law with
these constraints, operate with relatively large class sizes and limited access to
materials. Both of these constraints undermine the ability of professors to
innovate in their teaching. While these issues are often symptoms of deeper
social problems, there are some steps that can be taken to deal with them. For
example, law schools can engage in revenue generating activities, like
commissioned research for government and other paying entities and CLE
programs, that will increase the resources available for innovations in legal
education. These activities offer the added benefit of improving relations
between the practicing bar and legal academics. This in turn should help
promote legal education that is responsive to the demands of the practicing bar
and ensures that practitioners remain aware of the latest legal scholarship. It
can also stimulate legal academics to do research that is grounded in the
demands of the profession and is related to the needs of society. Another way to
overcome these constraints is for law schools to cooperate with each other in
joint degree programs.3
Conclusion
1. The rapidly changing global environment in which international business
takes place has created a demand for lawyers who are capable of
functioning as problem avoiders rather than dispute solvers; who
understand how to use their skills and knowledge in a multidisciplinary
and cross-cultural team; and who have the sense of professional
responsibility to make sure that their clients enter into socially and
environmentally sustainable transactions. In order to meet this demand,
law schools need to change the ways in which they educate lawyers and
socialized them into the legal profession. The requisite change can be
resource intensive and so may be beyond the capacity of most law
schools in the developing world to implement. However, with creativity
and the cooperation of more fortunate law schools, they can overcome
these limitations.
32
2 1990s asia
Globalization was the buzzword of the 1990s, and in the twenty first century, there is no
evidence that globalization will diminish. Essentially, globalization refers to growth of trade and
investment, accompanied by the growth in international businesses, and the integration of
economies around the world. According to Punnett (2004) the globalization concept is based on
a number of relatively simple premises:
• Technological developments have increased the ease and speed of international
communication and travel.
• Increased communication and travel have made the world smaller.
• A smaller world means that people are more aware of events outside of their home
country, and are more likely to travel to other countries.
• Increased awareness and travel result in a better understanding of foreign opportunities.
• A better understanding of opportunities leads to increases in international trade and
investment, and the number of businesses operating across national borders.
• These increases mean that the economies around the world are more closely integrated.
Managers must be conscious that markets, supplies, investors, locations, partners, and
competitors can be anywhere in the world. Successful businesses will take advantage of
opportunities wherever they are and will be prepared for downfalls. Successful managers, in this
environment, need to understand the similarities and differences across national boundaries, in
order to utilize the opportunities and deal with the potential downfalls.
The globalization of business is easy to recognize in the spread of many brands and services
throughout the world. For example, Japanese electronics and automobiles are common in Asia,
Europe, and North America, while U.S. automobiles, entertainment, and financial services are
also common in Asia, Europe, and North America. Moreover, companies have become
transnational or multinational-that is, they are based in one country but have operations in others.
For example, Japan-based automaker Honda operates the largest single factory in the United
States, while U.S. based Coca-Cola operates plants in other countries including France and
Belgium—with about 80 percent of that company's profits come from overseas sales.
During the early1990s, there were reasons to feel that globalization was working. The economic
success of Singapore, the rapid economic growth in the Asian Tigers (as the Asian countries that
grew rapidly were called), the industrializing of countries, such as Brazil and Mexico, and a
variety of other positive economic events around the world suggested that the results of
globalization were indeed good for development in poorer countries, as well as in richer ones.
During the 1990s, the United States experienced one of its most sustained periods of growth as
well, and there was much talk of a "new economy", based on globalization, which was immune
to economic shocks and recession.
Unfortunately, this rapid growth was not without consequences. The Seattle meetings of the
World Trade Organization turned into a fiasco, with anti-globalization groups demonstrating
against globalization on all fronts—from animal rights to environmental concerns, poverty
alleviation, and jobs for Americans. The anti-globalization forces have not coalesced into a
coherent whole because they represent such diverse and often contradictory views. The
vehemence of their protests, however, make it clear that globalization is not a panacea for the
33
world's problems. In addition, the Asian Tigers suffered major economic setbacks in the late
1990s. In 2002, Argentina's economy, which had been one of the stars of the 1990s, crashed,
when the country could no longer maintain its currency at par with the U.S. dollar.
Further problems occurred in the Triad economies. Japan, Europe, and the United States, often
referred to as the Triad, dominated international trade and investment for much of the second
half of the twentieth century. The Japanese economy went into a severe period of recession and
deflation in the late 1990s, and in 2001 both the European and the U.S. economies took a
downward turn as well. In turn, the rest of the world was negatively affected by the economic
situation in the Triad. The terrorist attacks in the United States in September, 2001, exacerbated
this already negative economic situation.
In developing appropriate global strategies, managers need to take the benefits and drawbacks of
globalization into account. A global strategy must be in the context of events around the globe,
as well as those at home.
International strategy is the continuous and comprehensive management technique designed to
help companies operate and compete effectively across national boundaries. While companies'
top managers typically develop global strategies, they rely on all levels of management in order
to implement these strategies successfully. The methods companies use to accomplish the goals
of these strategies take a host of forms. For example, some companies form partnerships with
companies in other countries, others acquire companies in other countries, others still develop
products, services, and marketing campaigns designed to
Marketing Many media, few restrictions May be fewer media and more restrictions
where and how to sell them, where and how they will produce or provide them, and how they
will compete with other companies in the industry in accordance with company goals.
The development of international strategies entails attention to other details that seldom, if ever,
come into play in the domestic market. These other areas of concern stem from cultural,
geographic, and political differences. Consequently, while a company only has to develop a
strategy taking into account known governmental regulations, one language (generally), and one
currency in a domestic market, it must consider and plan for different levels and kinds of
governmental regulation, multiple currencies, and several languages in the global market.
The most recent wave of globalization by U.S. companies began in the 1980s, as companies
began to realize that concentrating on the domestic market alone would lead to stagnant sales and
profits and that emerging markets offered many opportunities for growth. Part of the motivation
for this globalization stemmed from the lost market share in the 1970s to multinational
companies from other countries, especially those from Japan. Initially, these U.S. companies
tried to emulate their Japanese counterparts by implementing Japanese-style management
structures and quality circles. After adapting these practices to meet the needs of U.S. companies
and recapturing market share, these companies began to move into new markets to spur growth,
enable the acquisition of resources (often at a cost advantage), and gain competitive advantage
by achieving greater economies of scale.
The globalization of U.S. companies has not been without concerns and detractors. Exporting
U.S. jobs, exploiting child labor, and contributing to poverty have all been charges laid at the
doors of U.S. companies. These charges have been accompanied by demonstrations and
consumer boycotts.
Nor have U.S. companies been the only ones affected. Companies in the rest of the developed
world have globalized along with U.S. companies, and they have also faced the sometimes
negative consequences.
Interestingly, in the late twentieth and early twenty-first century, there has also been a growth in
international companies from developing and transitional countries, and this trend can be
expected to continue and increase. Exports and investment from the People's Republic of China
are a notable example, but companies from Southeast Asia, India, South Africa, and Latin
America, to name some countries and regions, are making themselves known around the world.
TYPES OF GLOBAL BUSINESS ACTIVITIES
Businesses may choose to globalize or operate in different countries in four distinct ways:
through trade, investment, strategic alliances, and licensing or franchising. Companies may
decide to trade tangible goods such as automobiles and electronics (merchandise exports and
imports). Alternatively, companies may decide to trade intangible products such as financial or
legal services (service exports and imports).
Companies may enter the global market through various kinds of international investments.
Companies may choose to make foreign direct investments, which allow them to control
companies and assets in other countries. In addition, companies may elect to make portfolio
investments, by acquiring the stock of companies in other countries in order to gain control of
these companies.
Another way companies tap into the global market is by forming strategic alliances with
companies in other countries. While strategic alliances come in many forms, some enable each
company to access the home market of the other and thereby market their products as being
affiliated with the well-known host company. This method of international business also enables
35
After a strategy has been agreed on, managers must take steps to have it implemented.
Consequently, this stage involves determining when to begin global operations as well as
actually starting operations and putting into action the other components of the global strategy.
More specifically, the first stage—strategy formulation—entails analysis of the company and its
environment, establishing strategic goals, and developing plans to achieve goals as well as a
control framework. By assessing itself and the global business environment, a company can
determine what markets, products, services, etc. offer opportunities for growth. This process
involves the collection of data on a company and its environment, including information on
global markets, regulation, productivity, costs, and competitors. Therefore, the collection of data
should supply managers with economic, financial, political, legal, and social information on
various countries and their markets for different products or services. Based on this information,
managers can determine what markets and products offer economically feasible opportunities for
global expansion.
Once this analysis is complete, managers must establish strategic goals, which are the significant
goals a company seeks to achieve through a particular pursuit such as entering a new regional
market. These goals must be practicable, measurable, and limited to a specific time frame. After
the strategic goals have been established, companies should develop plans that allow them to
accomplish their goals, and these plans should concentrate on how to implement strategic plans.
Finally, strategy formulation involves a control framework, which is a process management uses
to help ensure that a company remains on the right course when implementing its strategic plans.
The control framework essentially responds to various developments while the strategic plans are
being implemented. For example, if sales are lower than the projected sales that are part of the
strategic goals, then a company might increase its marketing efforts and temporarily lower its
prices to stimulate additional sales.
INTERNATIONAL MARKET EVALUATION
While many aspects of international strategy and its formulation are similar to their domestic
counterparts, some key aspects are not, and hence call for different methods and different kinds
of information. Gaining knowledge of international markets is one of these key differences—and
a crucial part of developing an international strategy. In order for a company to enter a new
market, capture market share, and thereby increase sales and profits, it must know what that
market is like. At a basic level, a company must examine different markets, evaluate the
advantages and disadvantages of entering each, and select only the markets that show the
greatest potential for entry and growth.
When examining different international markets, a company should consider the market
potential, competition, regulation, and cultural factors of each. Company managers can assess
market potential by collecting data on the gross domestic product (GDP), per capita GDP,
population, transportation, and other figures of various countries. This kind of information will
enable managers to determine the spending power of the consumers in each country and
determine if that spending power allows them to purchase a company's
GDP per Capita (2003 Estimate in
Country US$)
Luxembourg 55,100
37
Norway 37,700
Bermuda 36,000
Switzerland 32,800
Denmark 31,200
Iceland 30,900
Austria 30,000
products or services. Managers also should consider the currency stability of the different
markets, which can be done by using documents from the home countries to determine currency
value and fluctuation over a period of years.
To select the best markets for entry, managers also should consider the degree of competition
within different markets and should anticipate future competition in them as well. Determining
the degree of competition involves the identification of all the companies competing in the
prospective markets as well as their sizes, market shares, and prices. Managers then should
evaluate a prospective market by considering the number of competitors and their characteristics
as well as the market conditions—that is, whether the market is saturated with competition and
cannot support any new entrants.
Next, managers should evaluate the regulatory environment of the prospective markets, since
knowing tax, trade, other related policies is essential for a successful international business. This
step entails determining the respective tariffs and trade barriers of prospective markets. Different
types of trade barriers may influence the kind of business activity a company chooses for a
particular market. For example, if a prospective market has trade barriers that restrict the entry of
foreign-made goods, a company might decide to access the market through foreign direct
investment and manufacture its products in that country itself. Ownership restrictions also may
limit a company's interest in a particular market; some countries permit foreign companies to set
up local operations only if they establish a partnership with a local company. In addition,
managers should find out if prospective countries charge foreign companies higher taxes or if
they offer tax breaks and incentive to encourage economic development. A final consideration
38
companies must make concerning government is stability. Since some countries have rough
government transitions resulting from coups and uprisings, companies must countenance the
possibility of political turmoil that could substantially disrupt business.
The last step in international market evaluation is the assessment of cultural factors. To avoid
difficulties associated with cultural differences, some managers look for new markets that have
cultural similarities to their home market, especially for initial international market penetration
endeavors. Unlike market potential, competition, and regulation, cultural differences are more
difficult to evaluate. Nevertheless, managers must try to determine the consumer needs and
preferences in the prospective markets. Managers must also account for cultural differences in
labor relations such as worker motivation, compensation, hours, etc. if planning foreign direct
investment in an overseas company. Moreover, a thorough understanding of a prospective
country's culture will greatly facilitate any kind of global business enterprise. This cultural
knowledge should include a basic understanding of a prospective country's beliefs and attitudes,
language and communication styles, dress, food preferences and customs, time and time
consciousness, relationships, values, and work ethic. This kind of cultural information is
essential for developing an effective and realistic global strategy.
Since conducting primary research is labor intensive and time consuming, managers may obtain
preliminary information on prospective markets from books such as Dun & Bradstreet's Guide to
Doing Business Around the World and Business Protocol: How to Survive and Succeed in
Business, or the Economist's "Doing Business in…" series, which list potential trade
opportunities, policies, etiquette, taxes, and so on for various countries.
After examining the prospective markets in this manner, managers are ready to evaluate the
advantages and disadvantages of each potential market. One way of doing so is the determination
of costs, advantages, and disadvantages of each prospective market. The costs of each market
include direct costs and opportunity costs. Direct costs are those a company pays when
establishing a business in a new market, such as costs associated with purchasing property and
equipment and producing and shipping goods. Opportunity costs, on the other hand, refer to the
costs associated with the loss of other opportunities, since entering one market rules out or
postpones entering another because of a company's limited resources. Hence, the profits that
could have been earned in the alternative market constitute the opportunity costs.
Each prospective market usually has a variety of advantages, such as the possibility for growth,
which will lead to greater revenues and profits. Other advantages include relatively low material
and labor costs, new technology gaining strategic advantage over competitors, and matching
competitors' actions. However, each prospective market also usually has a number of
disadvantages, including opportunity costs, greater business complexity, and potential losses
stemming from unforeseen aspects of prospective markets and from currency fluctuations. Other
disadvantages might result from potential losses associated with unstable political conditions.
ANALYSIS OF TWO INTERNATIONAL STRATEGIES
In the late 1990s after a significant amount of globalization had taken place, business analysts
began to examine the success of various strategies for doing business in other countries. This
examination led to the distinction between various orientations of international strategies. The
main distinction was between multi-domestic (also called multi-local) international strategies and
global strategies. Multi-domestic international strategies refer to those that address competition
in each country or region on an individual basis, whereas global strategy refers to addressing
competition in an integrated and holistic manner across country and regional boundaries. Hence,
multi-domestic international strategies attempt to appeal to the needs of customers in different
39
countries or regions, while global strategies attempt to standardize products and marketing to
work across boundaries. Instead of relying on one of these strategies, multinational companies
might adopt a different strategy for different products or services. For example, a company might
use a global strategy for its electronics and a multi-domestic strategy for its appliances.
Critics of the standardization approach argue that it makes two questionable assumptions: that
consumers' needs are becoming more homogenous throughout the world and that consumers
prefer high quality and low prices over advanced features and functions. Nevertheless,
standardized global strategies have some significant benefits. Companies can reduce their
marketing expenditures, for example, if they use the same ads in all their markets. PepsiCo, for
example, uses the same televisions ads in all of its national markets, saving an estimated $10
million a year. Besides marketing savings, global strategies can lead to other kinds of benefits
and advantages in areas such as design, packaging, manufacturing, distribution, customer
service, and software development.
Some people argue that companies must customize their products or services to meet the needs
of various international markets, and hence must use a multi-domestic strategy at least in part.
For example, KFC planned a standardized approach to its foray into the Japanese market, but the
company soon realized it had to change its strategy to meet the needs of Japanese consumers and
customize its operations in Japan. Consequently, KFC introduced smaller pieces of foods to cater
to a Japanese preference, and located restaurants in crowded areas along with other restaurants,
moving away from independent sites. As a result of these changes, the fast-food restaurant
experienced stronger demand in Japan.
The development of regional trading blocs has promoted an emphasis regional strategies as
companies develop plans to take advantage of the conditions within various trading blocs such as
the North American Free Trade Agreement (NAFTA), the European Union, the Asia-Pacific
Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN). In
addition, the United States has signed 16 different trade agreements with South American
countries, creating a foundation for a trading bloc consisting of all North and South American
countries. Consequently, companies have been establishing regional strategies designed around
these trading blocs. Nike, for example, established central warehouses for its European
distribution, just as it has a central warehouse for its U.S. distribution. This strategy has enabled
Nike to reduce its inventory, cut down on redundancy, reduce costs, and enhance availability. In
addition, News Corporation originally relied on a global strategy with its STAR-TV satellite
television network; attempting to provide the same television shows across Asia in English. The
company quickly switched to a multi-domestic strategy, providing programming in local
languages after receiving low ratings and advertising dollars with its first approach.
A variety of corporate collapses, and the revelation of unethical and illegal practices in many
international companies, has led to a focus on Corporate Governance and Ethics in the early
twenty first century. Issues of what constitutes socially responsible behavior are likely to be a
major part of global strategy for the coming years.
Pom
3 cellular processes
40
Cellular Manufacturing is a model for workplace design, and is an integral part of lean
manufacturing systems. The goal of lean manufacturing is the aggressive minimisation of waste,
called muda, to achieve maximum efficiency of resources. Cellular manufacturing, sometimes
called cellular or cell production, arranges factory floor labor into semi-autonomous and multi-
skilled teams, or work cells, who manufacture complete products or complex components.
Properly trained and implemented cells are more flexible and responsive than the traditional
mass-production line, and can manage processes, defects, scheduling, equipment maintenance,
and other manufacturing issues more efficiently.