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The Examinations of ICAP are a demanding test of student’s ability to master the wide
range of knowledge and skills required of the modern professionals. Subject of “Business
Management” is one of the efforts made by ICAP in this context for enhancing student’s
knowledge about detailed overview of effective management of businesses.
The best and recommended book for this subject is “Study Text by PBP” that covers each
and every area of syllabus in extraordinary detail. The basic problems faced by the
students in going through PBP are its size and the language used. Students who are new
to this subject have to spend most of their precious time in understanding the theme
conveyed in any chapter. Moreover students feel it very hard to revise the complete
course near or on the exam day.
For these reasons there arise needs to have some short and easy to revise notes for this
subject that covers the extent of PBP in a concise form. For this purpose we used short
notes of PBP prepared by Muhammad Asif (Ex A.M, AFF & Co Lahore) 3 years earlier.
After compiling the notes Faraz Ahmad reorganized the notes and updated it using the
PBP. Now those notes are finalized and presented to you in a booklet form. Hopefully it
will help you all.
I would suggest that first of all you should read BM from PBP and afterwards you may
consult these notes for revision purposes. An Annexure has been given at the end of this
booklet to help you deciding how you can use this booklet in combination with PBP.
May ALLAH bless you with success in every exam of both lives.
E-Mail id:
Talib e Doa atifnotes@gmail.com
HTU UTH
Password:
Syed Atif Hassan Abidi a4atif
Faraz Ahmad
These notes are also
March 31, 2009 available at
www.canotes.multiply.com
HTU UTH
Chapter 1 : Objectives of Organisation
Introduction to Strategy
Strategy:
“ Course of actions, including specification of resources required, to achieve a specific objective”
Government organizations:
External Financing Limit.
To create Value for Money, funds must be applied Economically, Efficiently and Effectively.
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Chapter 2 & 4 : Strategy Formulation and Choice
Strategy formulation/choice
Competitive position is the market share, costs, prices, quality and accumulated experiences of an organization/product
relative to competition.
Competitive strategy is taking offensive or defensive action to create a defendable position in an industry, and to cope
with competitive forces yielding superior ROI.
Competitive advantage is anything which gives one organization an edge over competitors.
There are following Competitive Strategies for companies to achieve Competitive Advantage.
Differentiation is “creating value through uniqueness”. It could be at following levels of product i.e.
1.Actual Product
a). Features.
b). Quality level.
c). Design.
d).Brand name
e). Packaging.
2. Augmented Product
i. Delivery and credit
ii. Warranty
iii. Installation
iv. After sale service
Focus involves a restriction of activities to only part of the market (a segment) through
− Providing goods/services at lower cost (Cost focus)
− Providing a differentiated product/service (Differentiation focus)
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Advantages/Comparison of Competitive Strategies:
Diversification Vertical
Related Backward
Growth Horizontal
Organic Growth
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Chapter # 3 : Planning and Control
Planning
Planning:
“ Planning involves making choices between alternatives and is primarily a decision making activity”
2 approaches to planning:
Top-down approach means strategic management starts from top management and flows down the structure.
Bottom-up approach means information is accumulated at lower level and presented to top management along with
summary and options available.
Planning cycle
1. Identify objectives
2. Identify available strategies
3. Evaluate each strategy
4. Choose strategy (course of action)
5. Implement long-term plan in the form of annual budgets
Types of risks:
Physical
Economical
Political
Financial
Business
Product lifecycle
Quantification risk:
Rule of Thumb (best estimate of value within worst to best possible range)
Probability Theory (likelihood of occurrence of a forecast result)
Standard Deviation (calculate Standard Deviation of Expected Value, the higher it is the higher risk is)
Budgetary Control
Control:
“Control is comparing actual results with planned performance and taking appropriate actions”
Control Cycle
1. Actual results are recorded and analyzed for each responsibility center.
2. Feedback is reported to management.
3. Management compares actual results with plans or targets.
4. Do one of three things
i. Decide to do nothing
ii. Take control actions
iii. Alter the plan or target
Feedback:
“ The process of reporting back control information to management and the control information itself”
¾ It may be Single Loop or Double Loop.
¾ It may be Positive or Negative.
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Well organized system of control should have:
¾ Hierarchy of budget center.
¾ Clearly defined responsibilities.
¾ Responsibilities for Cost, Revenue, and Capital Employed.
Budget Center:
“Each section of the organization for which budget is prepared”
Responsibility Accounting:
Each manager has a clearly defined area of responsibility and authority to make decisions within that area. No
uncertainty as to who is responsible for what (sometimes dual responsibility exists).
There are 3 different areas of responsibility.
Responsibility Center is a unit of organization headed by a manager who has a direct responsibility for its performance.
Controllable Cost is an item of expenditure which can be directly influences by a given manager within a given time
span.
Controllability of fixed cost:
Committed fixed cost (e.g. PPE-------non-controllable in short term)
Discretionary fixed cost ( e.g. R.&D. or Advertisement ---------- controllable in short term)
IT as changing industry:
With Porter’s 5 forces model.
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Chapter 4 & 5 : Strategic Management : Traditional & other models
Strategic Management:
“Strategic Management is the analysis, choice, implementation and control of agreed strategies”
Strategy is a course of action including the specification of resources required to meet a specific objective.
Tactics is the deployment of resources to execute an agreed strategy.
Policy is a general statement providing guidelines for management of decision-making.
1. Corporate Strategy determines the overall purpose and scope of the organization. It is concerned with what types of
business the organization is in.
Defining aspects of corporate strategy:
− Scope of activities (whole organization)
− Faces environment (opportunities and threats)
− Resources (how to obtain and allocate them)
− Values (of people in power in organization affect it)
− Time scale (long term)
− Complexity (uncertainty of future)
2. Business Strategy is how an organization approaches a particular product market area (applied at SBU level).
3. Functional/Operational strategies deal with specialized area of activity within an SBU e.g. Production, Marketing,
HRM, Finance.
o Strategic analysis
Analyzing Vision, Mission and Objectives (Strategic Direction)
Corporate appraisal (where we are)
o Analyzing external environment
i. SLEPT analysis
ii. Porter’s 5 forces model
iii. Scenarios
o Analyzing internal environment (Situation analysis/Position audit)
i. Resources Audit
ii. BCG and GEBS matrices
iii. Value chain
iv. System structure
o SWOT Analysis
o Gap analysis
o Strategy formulation/Choice (how we can go)
o Strategy implementation
o Strategy evaluation and Control
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iii. Objectives are unlikely to be directly related to economic benefits of shareholders.
2. Senior management should not be only strategy- setter.
3. In reality formulation is not a simple step by step process.
4. Strategies that firms follow are not the same as ones they set in plans.
5. Over reliance on formalization.
6. Predetermination
7. Failure in practice (suitable for only stable environment)
8. Hinders innovation and radical change.
Intended Deliberate
Strategies Strategies
Realized
Unrealized Strategies
Strategies
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Paradigm and Politics:
Paradigm (basic assumption and beliefs common in organization’s decision makers) is inhabitant and
conservative than culture.
Politics is process of bargaining and negotiation of strategy among powerful stakeholders.
Process by which Paradigm and Politics influence process of strategy development.
o Issue awareness (by internal results, customer response or environmental change)
o Issue formulation (analysis of issue to get its root)
o Solution development
Summary:
Memory search (from past experience)
a) Managers do not take best
Passive search (time will tell)
decisions but satisfactory
o Solution selection
ones.
Eliminate unacceptable plans (politics)
b) Managers do not pursue the
Endorsement to junior management
whole rational model but take
Incrementalism: small-scale decisions.
Incrementalism: (Lindblom)
It involves small-scale extension of past practices.
Organizations change incrementally, during which time, strategies form gradually.
Disadvantages of Incrementalism:
1. Not suitable where radical new approaches are needed.
2. Some changes are dramatic not incremental.
3. Ignores influence of corporate culture.
4. Applicable to stable environment only.
Double loop learning is where purpose is also reviewed. (derived from control theory)
Future will change incrementally
Future Orientation: (Hamel and Prahalad)
Future will be radically different
Diagnostic:
Diagnostic statement Protect the past Create the future
Senior management, view about future Reactive Distinctive
Senior management, spending most time on Re-engineering current practices Regenerating core strategies
Are managers…… Engineers of present Architect of future
Are employees….. Anxious Hopeful
The company is better at Operational efficiency Building new businesses
Within the industry, the company Follows the rules Makes the rules
Competitive advantage is pursued by Catching up with competitors Creating new sources of
competitive advantage
Agenda for change is set by Competitors Vision of future
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How to cope with future:
- Simply more far-sightedness
- Imaging products and services that do not exist.
- Spend less time in positioning in competitive environment
- Future orientation is embodied in the corporate culture.
Ecology Model:
Organisation’s environment changes radically, it will only survivor if it adopts its environment and evolves i.e finding
niche areas which provide both demands for output and resources to be used as input to the system.
Competitive strategy is the taking of offensive or defensive actions to create a defendable position within an
industry------ and a superior return on investment.
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Competitive strategy:
“ A strategy by which a firm can have significant ground on its competitors at an acceptable costs”
Competitive Advantage:
- Re-adjust current resources Æ i.e identify key success factors
- Relative superiority Æ i.e exploiting competitors weakness
- Challenge assumptions
- Degree of freedom Æ i.e segmenting
Realised Strategies
Flaws:
- Purely deliberate strategy prevents
learning from experience.
- A purely emergent strategy defies
control
Descriptive : “what is actually happening in the organisations i.e paradigm, politics, pattern of decisions, incremental approach
Prescriptive : “to prescribe something” i.e rational model, strategic thinking, learning based environment, resource based
model
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Chapter # 6 : SWOT Analysis ad gap analysis
Corporate Appraisal
Corporate appraisal is assessment of SWOT in relation to internal (SW) and external (OT) factors affecting
organization to establish long term plans.
Legal factors:
o Health and safety legislation
o Employment laws
o Environmental legislation
o Information about performance.
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Exchange rate is the rate at which a national currency exchanges for other national currency.
Determinants are:
− Demand and supply of currencies in foreign exchange market (Floating exchange rate)
− Govt. (Fixed exchange rate)
− Synthesis of above two (Managed exchange rate)
Types are:
− Spot exchange rate (rate set for immediate delivery of a currency)
− Forward exchange rate (rate set for future exchange of a currency)
− Closing rate (Spot exchange rate at Balance Sheet date)
−
Political factors:
Type of Govt.
Stability of Govt.
Govt. attitude i.e. privatization or nationalization
Amount of bureaucracy
Pricing, dividend, tax, employment issues
Political risk is the risk that political factors will affect an organization e.g. war, corruption, nationalization, political
instability.
Technological factors:
o Change in production techniques
o Invention and innovation
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•Slow industry growth
•High fixed costs (plants, machinery, outlets)
•Undifferentiated products
•A large number of competitors
•High exit barriers (what you lose if you leave the business)
•Small changes in market share have a big pay-off
v) Indirect Competitors/Substitutes
•Close substitutes place a ceiling on the price that can be charged for a product or service
•Close substitutes also set indirect performance comparisons
•Main product is sensitive to price of substitute.
Strategic Intelligence:
Strategic Intelligence is the knowledge of business environment, which enables an organization to anticipate changes
and design appropriate strategies that will create business value for customers and profit for co.
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Marketing Finance/Accounting Operation R&D HRM MIS
Is market and share Sufficient working Production capacity Adequate R&D Efficient Or Is IS updated
increasing? capital? facilities? experience regularly?
manpower
Segmented Can we raise capital Economies of scale Outsourcing is Recruitment and Contribution by all
effectively? or borrowings? cost effective? Training functional
managers?
Channel of Return on investment Inventory control Are R&D Communication Effective
distribution reliable & Cost of capital policies and resources allocated passwords for
and cost-effective? procedures, effectively? entry?
effective?
Conduct market Effective budgeting Is machinery Communication Labor relations User friendly IS?
research? process? technically updated? between R&S and
other units?
Product priced Accounting ratios, Is equipment in good Are present Turnover and Training provided?
appropriately? strong or weak? condition? products absenteeism
technologically
competitive?
Effective Quality control Under or over Continuous
promotion? policies and staffing? improvement?
procedures,
effective?
Brand strength How much
expensive?
Products Stocks
Product quality and brand reputation Sources of supply
Age and life of products Turnover periods
Price elasticity of demand Storage capacity
Margin and contribution Obsolescence and deterioration
Market share and growth
Miscellaneous concepts:
Gap analysis (objects – existing strategies = Gap) is a comparison between objectives and expected performance of
projects both planned and underway. E.g. Profit Gap (Target profit – Forecast Profit)
Forecasting is the identification of factors and quantification of their effect on an entity as a basis for planning. It
includes judgment.
Projection an expected future trend pattern obtained by extrapolation. It includes quantitative factors.
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Chapter 7 : Performance Appraisal & Analysis
Performance Appraisal
Measurement of Performance:
Types of Benchmarking:
Internal Benchmarking comparing one operating unit with another within same industry.
Functional Benchmarking internal functions compared with best external regardless of industry.
Competitive Benchmarking information about direct competitors is gathered through techniques e.g. reverse
engineering.
Strategic Benchmarking aimed at strategic action and organizational change.
Levels of Benchmarking:
1. Resources through resources audit
2. Competences in separate activities through analyzing activities
3. Competences in linked activities through analyzing overall performances.
Inflation:
- Effect of inflation on accounting system
- Effect of inflation on strategy in reference to operating in competitive market and exporting goods
overseas
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Chapter 8 : Mission Goals and Objectives
Hierarchy
Vision--------Mission----------Goals (objectives and aims) at 3 levels----------strategy at 3 levels
Vision:
“ Where the organization wants to be”
Advantages of vision:
- gives general directions to organisation
- gives hope and motivation
- establishes scope and boundaries
- enables flexibility in choice
Strategic intent:
“Vision with an emotional core to energize and stretch”
- similar to vision
- stretch current competencies
- gives sense of direction
- gives coherence to plans
Mission Statement:
Mission statement includes Purpose, Competence, Strategic Scope, Product, Targeted customers, and Values of
various stakeholders.
It should be market oriented, specific, realistic, motivating and consistent with market environment.
e.g. “To provide best satisfaction to customers and fair return on investment, keeping environment healthy and clean
and promising secure future to employees”.
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Functions/Importance of mission
1. Employee motivation
2. Contributes to profitability
3. Focus for strategic decision making
4. Replaces national or divisional subculture with a corporate culture
5. Communicates nature of organization to insiders and outsiders
Goals:
Goals could be
¾ Objectives (quantifiable)
¾ Aims
A goal must be SMART.
Goals
S Æ Specific
M Æ Measurable Operational goals Non-operational goals
A Æ Attainable
R Æ result-oriented Measurable not measurable
T Æ time-bounded
Unit Objectives:
¾ Commercial sector
• Increase number of customer by 15% (sales department)
• Decrease number of rejects by 50% (production department)
¾ Public sector
• To provide cheaper, subsidized bus traveling (local transport department)
• Responding more quickly to calls (police, fire station, hospital)
Types of Goals:
1. System Goals [Derived from organization’s existence]
2. Ideological Goals [Focus on organization’s mission]
3. Formal Goals [Imposed goals; e.g. from Shareholder’s]
4. Shared Personal Goals [Consensus b/w individual and collective goals]
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Goal Congruence State of individuals to take actions which are in their own interest and also in
best interest of organization.
Trade off between objectives: [One at expense of other.]
Primary and secondary objectives: [Based on importance.]
Stakeholders
Stakeholders are Groups or Individuals whose interests are directly affected by activities of a firm or organization.
Stakeholder Objectives
Shareholders To maximize wealth
Increased by (dividend, capital gain of shares, EPS, ROCE)
Measured by (increase in Retained earnings, Market Value listed or non-listed)
Lenders Timely repayment of interest and principal
Trade creditors Timely payment
High prices
Continuing profitable relations
Employees High wages
Job security
Job satisfaction
Retailers and Continued supply
customers Quality products
Management Maximize own reward
Training and career development
Society SHE Issues
Level of employment
Govt. Taxes
Legislation compliance
2 approaches to stakeholders:
1. Strong view (To balance all stakeholders is important)
2. Weak view (Primary objective is profit, stakeholders are satisfied indirectly)
Organization’s Culture
Culture/Organization’s Culture:
“ Culture is sum total of belief, knowledge, attitudes, norms, customs, values and peculiarities that prevail in a society/
an organization”.
Levels of Culture:
There are 3 levels of culture in an organization:
1. Basic, underlying assumptions (guide the behavior of individuals and groups in organization)
2. Overt beliefs (expressed by organization and its members)
3. Visible artifacts (e.g. style of offices, display of trophies etc.)
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Some Important concepts:
Belief is what we feel to be the case on the basis of objective and subjective information.
Values are beliefs which are relatively general and widely accepted as culturally appropriate behavior.
Customs is culturally accepted behavior in response to given situation.
Artifacts are physical tools designed by human beings for their physical and psychological well being including works
of arts and technology.
Rituals are activities which take on symbolic meanings.
Ethics is a set of moral principles to guide behavior.
Theories on Culture
Harrison and Handy’s Work: (gods of management)
There are 4 types of culture in organizations:
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1. Defenders (doing things right)
Low risk, low profits
Secured niche market e.g. accountants, engineers etc
Tried and trusted solution
3. Analysers
Balance risk and profit
Using core stable products & markets e.g. managers
Follow the change, do not initiate change
4. Reactors
Do not have viable strategy
Denision’s model:
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Pumpin’s dynamic company (Cultural characteristics of dynamic companies)
“Dynamic company is one that considerably increases the benefits for its stakeholders within a relatively short time”
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Chapter 9 : Mergers and Acquisitions
Take Overs:
“Purchase by a company of a controlling interest in the voting share capital of another company”
Mergers:
“Merger is a business combination that results in the creation of a new reporting entity formed from the combining
parties” (Mutual sharing of risks and benefits)
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Payment Methods
- Cash Purchase
- Share exchange
- Use of convertible loan stock
- Earn out arrangements
Choice of Cash or Paper offer or Both for payment depends on view of parties:
Target Company:
If Cash is received, tax on capital gain will become payable immediately.
If other consideration is received, it is to be ensured that
o Existing income is at least maintained, and
o Shares retain their value.
If shareholders want to have stake in business, they will prefer shares.
Earn-out arrangement:
When consideration is payable upon the target company reaching certain performance targets.
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5. Little or no post acquisition planning
6. Lack of knowledge of target company or industry
7. Little or no experience of acquisition.
Joint Ventures
“ It is an arrangement where two or more firms join forces for manufacturing, financial and marketing purposes and
each has a share in both equity and management of business”
Advantages:
¾ Joint contribution of
o Production technology
o Corporate expertise
o Market knowledge
¾ Access to foreign markets
¾ Eliminating competition
¾ Cheaper than internal expansion
¾ Spread risk
¾ Suitable for smaller companies
Problems:
¾ Conflict of interests
¾ Where profits will go (in resident company or shareholders of foreign company)
¾ Local partners may wish to export to other countries where foreigner is already supplying.
¾ Transfer pricing issues (on transfer of expertise, technology and components)
¾ Cultural differences e.g.
Equal employment opportunity
Commercial practices
Short term and long term planning
¾ Lack of smooth coordination, control and decision making
¾ Who will lead
¾ Who is responsible
¾ Confidentiality issues
Strategic Alliances
Strategic Alliance:
“ When two or more firms agree to work together to exploit common advantages”
e.g. alliance between national airlines to cross-book passengers.
Licenses
Licenses are very similar to Franchising in their financial aspects, however degree of central control and support is
usually less.
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Franchising
This gives limited right to franchisee (e.g. in a geographical area) to exploit patent product or production process,
brands, manufacturing know how and/or technical advice and assistance. e.g. KFC, McDonald
Mechanism:
¾ Franchiser grants permission.
¾ Franchisee pays for permission and assistance.
¾ Franchisee is responsible for day to day running of franchise.
¾ Franchiser may impose Quality Control Measures to ensure that goodwill is not damaged.
¾ Franchisee supplies capital, personal involvement and local market knowledge.
Benefits to Franchiser:
¾ Rapid expansion (franchisee provides capital).
¾ Local knowledge.
¾ Economies of scale.
Problems to Franchiser:
¾ Limited control over quality.
¾ Conflicts of interest.
¾ Franchisee may become competitor.
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Chapter 10 : Corporate Reorganisation
Defensive Strategies
Downsizing
Demerger is splitting up of a corporate body into two or more separate and independent bodies.
Sell off is a form of divestment involving the sale of a part of a company to third party usually another company.
Liquidation is extreme form of liquidation where the entire business is sold and funds are distributed to shareholders in
their proportion.
Management Buy Out. (MBO) management buyout is the purchase of all or part of a business from its owners by its
managers.
Management Buy Out.(MBI) where purchase of a business is made by group of managers from outside the business.
Spin Off : a new company is created whose shares are owned by the shareholders of the original company which is
making the distribution of assets.
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Management Buy Out:
Going Private
“A public company goes Private when a small group of individuals buys all of the company’s shares (possibly
including existing shareholders)”
Advantages:
¾ Cost saving (cost of meeting statutory requirements are saved)
¾ Limited number of members
¾ Similar objectives of shareholders
¾ Shareholders are close to management
¾ Protection against volatility in share price
Disadvantages:
¾ No trading of shares on stock exchange
¾ Loss of repute
¾ Loss of some value of share
Disadvantages of De-Merger
9 Loosing economies of scale
9 Lower turnover
9 Higher overhead cost
9 Less ability to raise finance
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Chapter # 11 : Ethics and Social Responsibility
Ethics
Ethics:
Ethics is a set of moral principles to guide behavior. It concerns with what is right and what is wrong.
Individual Organisation
Levels of
Practicing ethics Personal ethics professional ethics Org. culture Org. System
Compliance based approach aims to remain within letter of law by establishing system of audit and review so that
violations are prevented, detected and punished. It works from outside the system.
Integrity based approach combines a concern for the law with an emphasis on managerial responsibility. This
approach incorporates ethics in organization’s culture in which managers will do the right thing e.g shared
accountability, sound behavior, defining values. It works from within the system
Whistle blowing:
It is the disclosure by an employee of illegal, immoral or illegitimate practices on part of the organization.
Social Responsibility
Objectives of a company:
− Economic objectives
− Social/Ethical objectives
− Boundaries (Imposed rules; they restrict management’s freedom of action)
− Responsibilities (Voluntarily undertaken obligations e.g. charities)
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Arguments against and favoring Social Responsibility recognition:
Social responsibility is expected from all types of organizations.
AGAINST:
Organizations should concern wealth only because
− Shareholders own assets.
− Shareholders are part of society.
− Taxes on revenues are given to build society.
− Businesses exist for profit.
Boundary Management:
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Chapter 12 : Corporate Governance
Corporate Governance is the system by which companies are directed and controlled.
Range of shareholders:
Advantages:
− Greater activity in firm’s shares
− No individual controlling whole firm
− Less effect on share price if anyone sells
− No threat of takeover
Disadvantages:
− Administrative cost is high.
− Various objectives in holding shares.
Agency Theory:
“Although individual members of the business team act in their own self-interest, the well being of each individual
depends on the well being of other team members and on performance of the team in competition with other teams”
Assumptions of theory:
− Behavioral
Individual welfare maximization.
Individual rationality.
Individuals are risk-averse.
− Structural
Investments are not infinitely divisible.
Individuals vary in their access to funds and their entrepreneurial ability.
Agency Problem:
Arises from separation of ownership from management.
Non-executive directors are directors not running the day to day operations of the company.
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Chapter 13 : Human Resource Management
Human Resource Management-Introduction
Human Resources Management is concerned with people at work and their relationship as they arise in working
environment.
Roles/Scope of HR Manager:
Staffing:
Job Analysis
HR Planning
Recruitment
Selection
Retirement, Resignation, Redundancy
HR Development:
Performance Appraisal
Career Planning
Training
Development
Motivation/ (Individuals):
Job Analysis and Design
Pay and Promotion
Other Aspects:
Health and Safety
Workforce diversity (Equal Employment Opportunity)
Maternity
Compliance with legal and other standards
Personnel record and Information System
Objectives of HRM:
Cooperative Relationships
Development of motivated employees
Effective response to change
Fulfilling social and legal requirements
Advantages of HRM:
Decrease in Staff Turnover
Increase in Productivity
Increase in Group learning
Increase in initiative
Decrease Absenteeism
Lesser conflicts
Increase quality
Increased co-operation
Increased commitment
HRM Theories
Scientific management [Clearly defined principals]
Human Relation [Fulfillment of needs]
Rational [Division of authority]
Contingency theory [Change according to situation]
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To provide stability and continuity
To adapt the organization to change
Views of HRM:
HR Planning
3. Forecasting of
a. Internal Demand and Supply
b. External Supply
4. Implementation
a. HR Plan
Job Analysis
The process of collecting, analyzing & setting out information about the contents of job in order to provide basis for job
description and data for recruitment, training, job evaluation & performance management.
Systematic way to gather and analyze information about the
¾ Content
¾ Context
¾ Human requirements of the job.
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Job Description
A written statement of duties, responsibilities and tasks of job.
It should be written in outputs and performance levels.
Job Specification
Minimum acceptable qualification (i.e. knowledge, skills, abilities, experience and other characteristics needed to do a
particular job.)
Person Specification
Identifies the type of person needed to do a particular job.
Following characteristics are assessed: (Fraser’s 5 point to assess pattern of personality)
1. Impact on other
2. Motivation
3. Acquired knowledge or qualification
4. Innate ability (initiative, innovative)
5. Adjustment and emotional balance
Competencies
Capacity of a person that leads to behavior that meets the job demands.
Intellectual Competence (Strategic, judgment, planning)
Interpersonal Competence (managing staff)
Adaptability (flexibility with change)
Results
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Supply is estimated from:
¾ Current workers’ Stocks and Flow analysis
¾ External labor market
A Position Survey compares demand and supply. (Grade, skills, location etc)
Closing the gap between Demand and Supply- HR Plan: (along with subsidiary plans of HR Plan)
Definition:
“ Recruitment is the process of generating a pool of qualified applicants for organization’s job”
Sources of Recruitment:
Internal Search:
1. Organizational database (HRIS) to sort employee data according to job requirement.
2. Employee referrals
3. Promotion and Transfers
Advantages:
¾ Good employee relations
¾ Encourages ambitious individuals
¾ Less costly
¾ No adjustment or orientation time required, because already familiar
i. Individual with organization and policies
ii. Organization with individual
Disadvantages:
¾ No new blood, no innovation and new perspectives
¾ Political fight for promotion
¾ Morale problems of those not promoted
¾ Diversity lacking
¾ Requires training
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External Search:
Internet Search:
1. Employer website
2. Professional career websites
Advantages:
¾ Cost saving
¾ Time saving
¾ Global in nature
Disadvantages:
¾ Non-serious application
¾ Difficult to process large number of application
¾ Not accessible to all
“The process of choosing individuals who have needed qualification to fill job in an organization”
Purpose of selection:
“Filling a right person to the job” ensuring
9 Person fits job (matching people with job characteristics)
9 Person fits organization (Objectives, culture, values etc. of organization)
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Why and What tests are conducted
¾ Cognitive ability tests
o Thinking, memory, reasoning
o Mathematical abilities
o Communication abilities
¾ Physical ability tests
¾ Writing analysis
¾ Performance simulation test (requiring to perform actually a small segment of the job)
Advantages of interview
Most valid to determine applicant’s
Organization fit
Level of motivation
Interpersonal skills
Limitations of Interviews
Unreliable assessment (wrong decision)
Fail to provide accurate prediction (error of judgment)
Halo and Horns Effect (based upon single attribute)
Stereotyping candidates on the basis of dress, hairstyle, accent etc.
Induction Training:
− Identify area for later learning or training (e.g. detailed technical knowledge)
− Explain nature of job and goal of each task
− Explain working hours
− Explain structure of organization hierarchy and his position
− Introduce with people in office.
− Plan and implement training program.
− Appraise after 3,6 or 12 months.
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Chapter 14 : Motivation and Performance
Individuals
Situational variables
Characteristics of Organization
Physical environment
Motivational Theories
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Maslow’s hierarchy of needs:
( A ranked structure of behavior stimulating within individual which explains motivation)
¾ Self actualization (fulfillment of personal potential, freedom, fairness, justice)
¾ Esteem needs (Independence, status, respect, gaining knowledge)
¾ Social needs (relationship, affection, belonging)
¾ Safety needs (security, threat)
¾ Physiological needs (food, cloth, shelter)
McClelland’s needs:
¾ Need for achievement, Need for power, Need for affiliation Top management Æ Power
¾ These needs could be taught from top to lower managers. Entrepreneur Æ
Achievement
Employees Æ Affiliation
Herzberg’s two factor theory:
There are 2 groups of work related factors.
¾ Hygiene factors (remove dissatisfaction e.g. Salary, Job security, Working conditions, Interpersonal
relations)
¾ Motivators (creates satisfaction e.g. Status, growth in job, power authority and responsibility)
Ability Understanding
Importance of Success/Failure
reward
Equity theory:
Reward of 1/Output of 2 = Reward of 2/ Output of 2
Satisfaction = (atleast fair reward, not maximum reward)
- people compare results and rewards
- people get upset if inequity in rewards
Goal theory:
Goals can motivate.
Psychological contracts
“Members will expend efforts and organization will reward them in exchange”
− Coercive contract (returns are inadequate compensation; involuntary contribution)
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− Calculative contract (returns are defined; voluntary contribution)
− Cooperative contract (employees participate also in decision making)
Under Herzberg’s theory, Pay is the most important of all hygiene factors.
Under Expectancy theory, Pay motivates if pay is linked with performance and is valued by individual.
Job Components:
Occupation------Jobs-----------Position----------Duties------------Tasks (Responsibilities)
Working arrangements:
Æ attitude and values Æ flexible working arrangement
Æ high performance work systems Æ multi-skilling
Æ empowerment Æ flexitime
Æ compressed week Æ job sharing
Æ part-time work Æ home-working (distant working)
i) Numerical flexibility
ii) Financial flexibility
iii) Task flexibility
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Employee Appraisal
“Appraisal is a systematic review and assessment of an employee’s performance”
Why:
Employee Development:
Specific Job performance feed back
Career opportunity information
Assessing employee potential
Purpose of appraisal:
Reward review for deserving employees
Performance review to confirm whether any training is required or not
Potential review to confirm whether any management career planning is required or not.
Objectives:
Achieving objectives
Performance levels
Training needs
Identifying lacking areas
Communication
Methods:
1. Check list appraisal (yes/no)
2. Forced choice appraisal (MCQs)
3. Essay appraisal/ Overall assessment (paragraph)
4. Grading, result oriented schemes, and self appraisals
An appraisal system:
i) Identify criteria for assessment
ii) Preparation of appraisal report
iii) Appraisal interview
iv) Review assessment
v) Action/plan preparation
vi) Monitoring progress (follow-up)
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Methods of appraisal:
i) Upward appraisal Æ sub-ordinates upraise their seniors
ii) Customer appraisal Æ internal & external
iii) 360 degree appraisal
Effective Appraisal:
Job related criteria
Standardization
Trained appraisers
Employee access
Purpose must be understood by both
It must be participative, problem solving activity
Regularly conducted.
Effort, integrity and ability of line managers.
Managing Careers:
Career management is a technique whereby the progress of individuals within an organization from job to job is
planned keeping organization needs and individual capacity in mind.
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Chapter 15 : Training Appraisal and Career Management
Training and Development
HR Development:
“The process of extending personal abilities and qualities through development activities e.g. training, appraisal, career
planning, job rotation etc.”
Training:
“The process of providing employees with specific skills to carry out work effectively or to correct deficiencies in their
performance”
Development:
“ An effort to enhance a person’s abilities that organization will need in future”.
Development purpose:
− Ensures firm meet current and future performance objectives by
Maximizing people’s potential
Continuous improvement
Development activities:
− Training (on job and off the job)
− Career planning
− Job rotation
− Appraisal
− Other learning opportunities
For Organization
− Training supports business strategy
− Higher productivity
− Management of SHE issues
− Less need for detailed supervision
− Multi skilled people
− Succession planning
− Increased commitment
For employees:
− Enhanced skills
− Psychological benefits (valuable)
− Social benefits (e.g. contact)
− Job management
Learning organization:
An organization that facilitates the learning of all its members and continuously transforms itself.
A learning organization creates, exploits and shares knowledge.
Characteristics of learning organization:
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− Learning approach to strategy
− Participation in decision making
− Information is used as a resource
− Formative accounting
− Reward flexibility
− Enabling structural responsiveness to external changes
− All employees are environmental scanners
− Intercompany learning
− Learning climate
Training Process:
Validation of training means observing results of training and measuring whether training objectives have been
achieved.
Evaluation of training means comparing costs incurred with benefits obtained to redesign/withdraw scheme.
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Skill analysis:
Aim is to put interest into actual role.
Performance
High Low
Liking of skills High Likes and does well Likes but does not do well
(Motivated) (Requires training)
Low Dislikes but does well Dislikes and does not do well
Concrete experience
Applying/testing
the implications Observation
of concepts in and reflection
new situations
Formation of
abstract concepts
and generalizations
¾ Theorists
Understand underlying concepts
Preference for concepts or analysis
Take intellectual ‘hand-off’ approach based on logical argument
¾ Reflectors
Observe phenomena, think about them and then choose how to act
Find learning difficult if forced into hurried program.
Tend to be fairly slow, non participative and cautious.
¾ Activists
Require training on hand-on
Excited by participation and pressure e.g. new projects
Flexible, optimistic, rush without preparation, take risks and get bored.
¾ Pragmatists
Good at learning new techniques in OJT
Aim is to implement action plans and/or do the task better
May discard as impractical good ideas which require development.
Competence
“ Capacity that leads to behavior that meets job demands within organizational environment and brings desired results”
Types of competence:
1. Personal/Behavioral (Personal characteristics and behavior required for successful performance).
2. Work based/Occupational competence: (expectation of work performance and outputs and standards that are
expected by people in specific roles)
3. Generic competence can apply to all people in an occupation.
Competence of managers:
Intellectual
i. Strategic Perspective
ii. Analytical Judgment
iii. Planning and Organizing
Interpersonal
i. Managing staff
ii. Persuasiveness
iii. Assertiveness and Decisiveness
iv. Interpersonal sensitivity
v. Oral communication
Adaptability results
i. Initiative
ii. Motivated
iii. Business sense
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Chapter 16 : Management and Human Resource
Leadership
Trait Theories:
Leaders have certain qualities (Inborn or Acquired) e.g. Helicopter factor i.e certain traits makes a person good leader.
Style theories:
A manager’s style is the way in which the manager handles his relationship with the task and with subordinates.
Leadership is an interpersonal process and is affected by behavior. To create an effective group, characteristics of
followers should match with characteristics of leader.
− Dictatorial
Manager makes decisions and enforces them
Manager makes decisions and announces them
− Autocratic
Manager sells his decisions
Manager suggests own ideas and asks comments
− Democratic
Manager suggests his idea and amends as per comments
Manager presents problem, asks for ideas and makes a decision
− Laissez-faire
Manager presents a problem and asks to solve it.
Manager allows his subordinates to act freely within prescribed limits.
Leadership:
- Definition
- Management vs Leadership
- Manager VS Leader
- Key leadership skills
- Developing managers as leaders
- Theories of leadership
i) Trait theory
ii) Style theory
iii) Contingency theory
Leadership skills:
- Entrepreneurship
- Interpersonal skills
- Decision making
- Time management
- Self development skills
- Competitive
- Goal oriented
- Team empowering
- motivated
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4 styles of leadership:
High
Country club Team
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Influence is ability to change behavior of others.
Accountability managers are accountable for their action.
Delegation of authority sharing of decision making power.
Discipline
Discipline promotes good order and behavior in an organization by enforcing acceptable standards of conduct.
Disciplinary problems:
¾ Absenteeism
¾ Poor punctuality
¾ Poor job performance
¾ Poor attitudes
¾ Breaches of safety regulations
¾ Refusal to carry out legitimate instructions
Disciplinary actions:
¾ Informal talk
¾ Oral warning Warning
¾ Written or official warning
¾ Disciplinary lay-offs or suspension
¾ Demotion Action
¾ Discharge
Resignation:
− Exit interview
− Period of notice.
Discrimination could be
¾ Direct
¾ Indirect
¾ Positive (law protected)
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¾ Career break
¾ Accommodate wheelchair users
Employer’s Duties:
− Work environment must be safe and healthy.
− Plant and equipment must be maintained to standard.
− Work practices must be safe.
− Health and Safety Policy should be communicated to all employees.
Statement of principles
Detail of safety procedures
Detailed instruction of how to use equipment
Training requirement
Compliance with law
− Risk assessment should be made.
− Hazard and risk information should be shared.
− Identify employees who are especially at risk.
− Controls must be introduced to reduce risks.
− There must be safety and health advisors.
Employee’s duties:
− Take reasonable care of themselves and others.
− Allow the employer to carry out his duties.
− Inform the employer of any situation which may cause danger.
− Use all equipment properly.
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Chapter 17 : Groups in Organisation
Groups:
“A group is any collection of people who perceives themselves to be a group”.
Sense of identity
Loyalty to group
Purpose & Leadership
Team:
“A team is a small number of people with complementary skills who are committed to a common purpose,
performance goals for which they hold themselves accountable”
− The Given
Group’s members
Group’s task
Group’s environment
− Intervening factors
Motivation
Leadership
Process
Procedure
− The Outcomes
Productivity
Effectivity
Objective is met within time
Group satisfaction
Management can operate on both ‘givens’ and ‘intervening factors’ to affect the ‘outcomes’.
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Indications of Effective Team:
Quantitative factors
− Productivity
− Absenteeism
− Turnover rate
− Accident rate
− Targets
− Interruption to work rate
Qualitative factors
− Commitment
− Understanding
− Communication
− Feed back
− Job satisfaction
− Motivation
Effects of Conflicts within groups: (Sherif and Sherif) PTCL vs. Union
Within a group:
− Group becomes more structured and organized.
− Members eliminate their differences, get close and demand loyalty.
− Climate becomes task oriented.
− Members’ individual needs are subordinated to achievement.
− Leadership moves from democratic to autocratic with group’s acceptance.
Winning group:
− Cohesion
− Relaxation
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− Return to group maintenance and concern for members’ needs.
− Assertion for group self-concept with little reevaluation.
Losing group:
− It may deny defeat or blames on others.
− Loses cohesion.
− Turn to regrouping.
− Reevaluates perception of itself and other group.
− Might become cohesive and effective unit if defeat is accepted.
Group subculture:
Subcultures are cultures which exist within cultures.
Characteristics:
¾ Group share distinctive way of life, beliefs.
¾ Learned from others in the group.
¾ Way of life has somehow become traditional.
Political behavior:
Organizations are political systems because people within them have their own objectives and priorities.
Political behavior is concerned with competition, conflict, rivalry and power relationships in organization.
Political Game:
Mintzberg identifies various Political Games played in organization which can be useful or harmful.
¾ Game resist authority
¾ Game to counter this resistance
¾ Game to build power basis (control over resources and superiors, colleagues, subordinates etc.)
¾ Game to defeat rivals (interdepartmental)
¾ Game to change the organization
At senior level political activities occur in following cases
− Allocation of resources.
− Management Succession
− Interdepartmental coordination
− Structural change
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Chapter 18 : Strategies for Critical Periods
Large Vs. Small organizations
Organization’s structure:
− Sharing roles and responsibilities (who does what?)
− How much specialization
− How many levels of management
− Delegation of authority (centralized or decentralized)
Planning and control:
− Vague accountability
− MIS should be in place
− Coordination
− Reward
Slow adoption to change
Motivation is down
No self-esteem
Slow decision-making
Solutions:
− Decentralized and delegation of authority
− Fair pay policies with bonus, awards and rewards
− MIS
− Delayering in hierarchy
− Job design
Solutions:
− Growth
− Specialist servicing
− Key person’s insurance
Corporate decline
3 types of decline:
2. Vulnerability
− SLEPT
− Porter’s 5 forces
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Increase in gearing
Top management fear
Change in senior executive
Financial engineering (change in accounting policies, auditors etc.)
Restriction on dividend policy
Causes Strategies
− Poor management − New management + restructuring
− Poor financial controls − Tighter controls + delegation of responsibilities
− High cost structure − Cost focus strategy + Ansoff’s matrix
− Poor marketing − Redevelop marketing mix + motivate sales
− Competitive weakness force
− Big projects/acquisition − Porter’s generic strategies
− Escalation of commitment of bad decisions − Feasibility reports
Turnaround of decline:
− Visionary leader required.
− Contraction and cost cutting.
− Reinvestment in organization’s capability.
− Rebuilding with innovation.
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Chapter 19 & 20 : Change Management and Changing Environment
Change
Types of change:
Approaches to change:
Resistance to change
i) Unfreeze – Move /Shake– Refreeze
ii) Adaptive change approach
Active resistance passive resistance
iii) Coercive change approach
iv) Using Change agent
v) Integrative VS segmentalist
vi) Theory E & Theory O
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Force Field Analysis: (Lewin)
It is an interplay of restraining and driving forces that keeps things in equilibrium.
Introducing change:
Changing culture:
Hamper Turner suggests 6 modes of intervention:
1. Find the dangers (locate black sheeps)
2. Brings conflicts in open.
3. Discuss culture with members (play out corporate drama)
4. Reinterpret the corporate myths.
5. Look at symbols, images, rituals.
6. Create a new learning system.
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Greiner’s growth model: (Growth & Organisational Development)
As an organization ages, it grows in size.
This growth takes place in 5 discrete phases.
Each phase has 2 characteristics i.e.
− Evolution (distinctive factor that directs growth) and Æ Growth (“Move” Stage)
− Revolution. (crisis to pass to enter next phase) Æ Crisis (“Unfreeze” Stage)
Phase 1: (Focus)
− Evolution (Small organization focusing on operations, personnel issues and innovation)
− Revolution (Need for leadership skills)
Phase 2: (Management/group)
− Evolution (Management is professionalized, there are more employees but less enthusiasm)
− Revolution (delegation is problem; lack of detailed control; no initiation)
Phase 3: (System)
− Evolution (decentralized decision making)
− Revolution (no coordination between departments, sub optimization occurs)
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Chapter 22 : The evolution of marketing concept
“the right product or service to the right customer, at the right price, at the right time and right place”
Marketing Department: Functions (Research, Demand, Design, Selling)
Marketing Environment: PESTEL (Political, Economical, Social, Technological, Ecological, Legal)
Chapter 1- Introduction
Marketing, :
Managerial definition: Managing profitable customer relationships, by delivering superior value to customers.
Social definition: “a social and managerial process by which individuals and groups obtain what they need and want
through creating and exchanging products and value with others.”
Market:
A market is the set of actual and potential buyers of a product.
Marketing Offer:
Combination of good-service offered to market to satisfy need or want.
Elements of Marketing:
Company
Supplier Market Intermediaries End user
Competitors
ENVIORNMENT
Customer’s life time value:
Value of entire stream of purchases by customer over his lifetime.
Customer Equity:
Total lifetime value of all of company’s customers.
Marketing Management:
Marketing management has four functions: Analysis, Planning, Implementation and control.
Demarketing’s aim is to reduce demand temporarily or permanently. It is done when product is not feasible from
supplier or customers’ point of view. i.e intentional and non-intentional reduction in demand.
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CONCEPT CUSTOMER WANTS COMPANY SHOULD
Production concept Availability and affordability Improve production, distribution
efforts
Product concept Quality, performance, features Continues product improvement
Selling concept No feelings to purchase Large scale selling, promotion
Marketing concept Needs & wants of target market Effective & efficient than competitor
Despite adoption of market oriented approach; there is need for sales force:
− To create awareness
− To convince to buy from company, not from competitors
− To reassess benefits to customers
− To convince that average customers’ requirements are met
Scope of Marketing = Marketing Planning Tied with corporate strategy Short term, and focuses
e.g which product of market to choose on place, promotion,
price
Marketing Vs. R&D department:
Marketing has commercial and competitive atmosphere whereas R&D has University atmosphere with open-end work
and consumption of substantial resources.
Customers’ needs and change in product specification tighten them.
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− Porter’s 5 forces model
i) Threat of new entrants
ii) Threat of substitutes
iii) Bargaining power of customers
iv) Bargaining power of suppliers
v) Rivalry among competitors
Service industry:
− People
− Processes
− Physical evidence
Marketing Approaches
A model of consumer behavior helps managers answer questions about what, where, how and how much, when and
why they buy.
The stimulus-response model of buyer behavior shows that marketing (made up of the four P’s—product, price, place,
and promotion) and other environmental stimuli (Micro and Macro) center on the consumer’s “black box” and
produce certain responses.
Marketers must figure out what is “in” the consumer’s “black box.”
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Social
o Reference group
o Family
o Roles and status
Personal
o Age and lifecycle stage
o Occupation
o Economic situation
o Lifestyle
o Personality and self concept
Psychological
o Motivation
o Perception
o Learning
o Beliefs and attitudes
Culture is the set of basic values, perceptions, wants, and behaviors learned by a member of society from family and
other important institutions.
Subculture is a group of people with shared value systems based on common life experiences and situations.
Subcultures might be nationality groups, religious groups, racial groups, or geographic area groups.
Social classes are society’s relatively permanent and ordered divisions whose members share similar values, interests
and behaviors.
Reference group has a direct (face to face) or indirect points of comparison or reference in forming a person’s attitudes
or behavior.
Aspirational group is one to which an individual wishes to belong.
Opinion leader is a person within a reference group who, because of special skills, knowledge, personality or other
characteristics, exerts influence on others.
Personality is a person’s unique psychological characteristics that lead to relatively consistent and lasting responses to
his or her own environment.
A motive (drive) is a need that is sufficiently pressing to direct the person to seek satisfaction.
Perception is the process by which people select, organize, and interpret information to form a meaningful picture of
the world.
Learning is changes in an individual’s behavior arising from experience.
Belief is a descriptive thought that a person holds about something.
Attitude is a person’s consistently favorable or unfavorable evaluations, feelings, and tendencies toward an object or
idea.
i) Problem Recognition:
Perceiving a need.
It can be stimulated by:
• Consumer’s depleted assortment (e.g. empty paste) or
• Marketing efforts
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Size
Price
However sometimes consumer has to base his decision only on one attribute.
v) Post-Purchase behavior:
Dissatisfied
Satisfied
Delighted
A policy by firms is to understate performance because customers are delighted with better-than-expected performance.
Decision process for new product i.e. stages in adoption process (from hearing to adoption):
1. Awareness:
2. Interests: seek information i.e. through external sources
3. Evaluation: whether to try or not
4. Trial: on small scale to improve estimate of value
5. Adoption: decides to make full and regular use
Mission Statement:
This is a statement of organization’s purposes- What it wants to accomplish in the larger environment.
It should be market oriented, specific, realistic, motivating and consistent with market environment.
e.g. “To provide best satisfaction to customers and fair return on investment, keeping environment healthy and clean
and promising secure future to employees”
1. Portfolio Analysis:
A tool by which management identifies and evaluates SBUs to determine which business should receive more, less or
no investment.
BCG growth-share matrix is used to evaluate a company’s SBUs in terms of market growth rate and relative market
share.
SBU is a unit of company that has a separate mission and objectives and that can be planned independently from other
company businesses.
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Existing Product New Product
Existing Market Market Penetration Product Development
Downsizing:
When a firm reduces business portfolio by eliminating products or business that is not profitable or no longer fit its
overall strategy..
Marketing Process:
The marketing process is the process of
1. segmenting the market,
2. selecting target markets,
3. marketing positioning
4. developing the marketing mix, and
5. managing the marketing effort.
Marketing mix:
The marketing mix is the set of controllable factors that the firm blends to produce the response it wants in the target
market. i.e. Product, Price, Place, Promotion
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Chapter 23 : Strategic Marketing & Planning
1. Market Segmentation
Market segmentation is dividing a market into smaller group of distinct buyers who have different needs,
characteristics or behavior and might require different marketing mixes.
Market segment is a group of buyers who respond in a similar way to a given set of marketing mix.
Geographic segmentation calls for dividing the market into different geographical units such as states, regions,
counties, cities, or neighborhoods.
Demographic segmentation calls for dividing the market into groups based on variables like age, gender, family size,
family life cycle, income, occupation, education, religion, race, generation, and nationality.
Psychographic segmentation calls for dividing a market into different groups based on social class, lifestyle, or
personality characteristics.
Behavioral segmentation involves dividing a market into groups based on consumer knowledge, attitudes, uses, or
responses to a product. E.g.
Occasion segmentation: dividing market according into groups according to occasions when buyers get the
idea to buy, actually make their purchase, or use purchased item.
Benefit sought: Dividing market into groups according to different benefits that consumers seek from the
product. Consumers seek unique combination of benefits e.g. for a laundry detergent, from cleaning and
bleaching to economy, fresh smell, strength or mildness etc.
User status and user rate
Loyalty status
Demographic segmentation
¾ Industry (which industry)
¾ Company size (what size)
¾ Location
Operating variables
¾ Technology (what technology to focus)
¾ User- nonuser status (heavy, medium or light user)
¾ Customer capabilities (many services or few services)
Purchasing approaches
¾ Purchasing function organization (centralized or decentralized)
¾ Power structure
¾ Nature of existing relationship
¾ General purchasing policies (leasing, service contracts, or sealed bidding)
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¾ Purchasing criteria (quality, service or price)
Situational factors
¾ Urgency (quick delivery/service?)
¾ Specific application
¾ Size of order
Personal characteristics
¾ Buyer-seller similarity of values
¾ Attitude towards risk (risk taking or averse)
¾ Loyalty (to companies who show high loyalty to suppliers)
2. Target Marketing
Target market is a set of buyers sharing common needs or characteristics that the company decides to serve.
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¾ Substitute products
¾ Power of buyers
¾ Power of suppliers
Company objectives and resources
3. Product Positioning
Product positioning is imaging the product in the minds of consumers relative to competing products.
Positioning task (or choosing a positioning strategy) consists of following four steps:
1. Identifying possible competitive advantages
2. Choosing right competitive advantages
3. Selecting an overall positioning strategy
4. Developing a positioning statement
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Chapter 24 : Marketing Research
Marketing Research
Marketing Research:
“It is the objective gathering, recording, and analyzing of all facts about problems relating to the transfer and sales of
goods and services from producer to consumer or user”
Market research:
Study and analysis of
− Characteristics of market
− Market share
− Market trends
− Sales forecasting for all products
− Market potential for existing products
− Likely demand for new products
Product research:
− Comparative study between competitive products
− Studies into packaging and design
− Forecasting new uses for existing products
− Customer acceptance of proposed new products
− Development of new product lines
− Test marketing
Price research:
− Analysis of elasticity of demand
− Analysis of cost and profit margins
− Effect of change in credit policy on demand
− Customers’ perception of price and quality
Research procedure:
The marketing research process consists of following steps:
1. Defining the problem
2. Designing the research (basis of research objectives)
3. Collection of data
4. Analysis of data (Pre and Post testing etc)
5. Presentation of report
6. Management decision
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Defining the problem and designing the research
After the problem has been defined carefully, the manager and researcher must set the research objectives.
External sources:
¾ Information about Competitors (annual reports, press releases, web pages, business publications,
advertisements etc.)
¾ Analyzing competing products
¾ Rival companies’ personnel (executives, engineers, sales force, purchasing agents)
¾ Trade suppliers
¾ Outside suppliers
¾ Online databases
¾ New patents or applications for patents
Research approaches,
¾ Observational research
¾ Survey research
¾ Experimental research
Research methods
¾ EPOS (Electronic Point of Sale system)
¾ DSS (Decision Support system)
¾ Data Warehousing
¾ Internet
Contact methods,
¾ Mail questionnaires
¾ Telephone interviewing
¾ Personal interviewing
• Individual interviews
• Group interviews (including focus-group interviews)
¾ Online (Internet) marketing research
¾ Mechanical instruments
i. People meters
ii. Supermarket scanners
iii. A galvanometer measures strength of interest or emotions aroused by a subject’s
exposure to different stimuli, such as an ad or picture.
iv. Eye cameras are used to study respondents’ eye movements to determine at what points
their eyes focus first and how long they linger on a given item.
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Sampling plans
As surveying the whole population would be too expensive & time consuming, so a sample is selected.
Sample is a segment of population selected for marketing research to represent population as a whole.
Sample should be a true representative of population and should not be biased
Types of samples:
Random sampling:
Every member has a known and equal chance of selection)
Non-random sampling:
1. Systematic (Every nth item is selected)
P P
2. Stratified (Population is divided into mutually exclusive groups e.g. age groups and selecting random samples
from each group.
3. Multistage (Process of subdividing population and selecting sample again and again till a suitable selection is
made)
4. Quota (Different categories of populations are made and a specific quota from each category is selected)
5. Cluster (Investigators are told to examine every item in a small population that fits the required definition)
MkIS:
“Marketing Information System represent a systematic attempt to supply continuous, useful, usable marketing
information within an organization to decision makers often in the form of a database”.
Audits:
Trade audits: count of stock at wholesalers and retailers
Retail audits: count of stock at retailers only
E.Business is the all electronic based information exchange within company or between companies and consumers
using following platforms:
¾ Intranet
¾ Extranet
¾ Internet
Intranet is a network that connects people within a company to each other and to the company network.
Extranet connects a company with its suppliers, distributors, and other outside partners.
Internet is a vast public web of computer networks, which connects users of all types all around the world to each
other.
E.Commerce is more specific than E.Business. It is the ability to buy and sell goods and services electronically
primarily by internet.
E. Marketing is the marketing side of E.Commerce. Company efforts to communicate about, promote and sell
products and services over internet. It includes only Business and Consumers.
Advantages:
¾ Geographical reach
¾ Speed
¾ Information sharing of any kind e.g. text, audio, video, animation, graphics
¾ Shopping at home (Consumer)
¾ No physical barriers (Consumer)
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¾ Doing business 24 hours (Business)
¾ Paperless business (Business)
Disadvantages:
¾ Security concerns (consumer)
¾ Whom to complaint (consumer)
¾ What you see is sometimes not what you get (consumer)
¾ Sometimes physical presence is necessary e.g. smelling a perfume or fitting clothes (consumers)
¾ Logistic, shipping, distribution and delivery challenges (business)
¾ Availability of secure and affordable communication network
E.Business Models:
Government Business Consumer Employee
B2C E.Commerce occurs when an average citizen interacts with a company (like Bata Pakistan or amazon.com)
through a website to buy shoes or books online or making inquiries.
B2B E.Commerce is companies doing business electronically with other businesses e.g. a business selling up, down or
across the supply chain involving business partners. Such as All Pakistan Textile Association Mills
B2E E.Commerce is use of intranet technology to handle activities that take place within a business. Using B2E
E.Commerce employees collaborate with each other, exchange data and information and access in-house database,
sales information, market news and competitive analysis.
Its need arises when branching out and spreading business across geographical areas. E.g. H/O receiving and
processing Timesheets, Expense Claims, and Absent forms.
C2C E.Commerce is consumers selling goods directly to consumers in an auction process. E.g.
¾ EBay
¾ Chat rooms for information and advertisement
¾ Over personal websites
¾ Advertisement on E.news papers
G2C E.Commerce is the use of E.Commerce technology by the government to handle activities electronically in
which govt. is involved with. E.g.
¾ To publish and disseminate information by Govt.
¾ Change in address, marital or family status
¾ Submission of tax returns
¾ To cast vote
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Chapter 25 : Product
Product
A product is anything that can be offered to a market for use, or consumption and that might satisfy a want or need
such as soap.
Product includes:
Goods
Services
Other entities e.g. People, idea, places, organizations
Services are a form of product that consist of activities, benefits offered for sale that are essentially intangible and do
not result in the ownership of anything. such as a doctor’s exam.
Classification of products:
1. Consumer Products
i. Convenience
ii. Shopping
iii. Specialty
iv. Unsought
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Key Decisions about product:
• Individual product
o Standardized or adapted Market offers can be differentiated along the lines of:
¾ Product
¾ Service
¾ Channels
¾ People
¾ Image
o Product attributes
Tangible
• Quality
• Features
• Style and design
• Brand name
• Packaging
Intangible
• Image
• Perceived value
o Packaging & Labeling
o Product support service
• Product Line Decisions
o Product line length
• Product Mix/Assortment/Portfolio Decisions
o Width (No. of product lines of a company)
o Depth (No. of items per product line)
o Consistency (how closely related the various product lines are in end use, production requirements,
distribution channels, or in some other way.
A brand is a name, sign, symbol, or design, or a combination of those that identifies the maker or seller of a product or
service.
Packaging is the activity of designing and producing the container or wrapper for a product.
Labeling is also part of packaging and consists of printed information appearing on or with the package
Product support services are the services that augment actual products.
A product line is a group of products that are closely related because they function in a similar manner, are sold to the
same customer group, are marketed through the same types of outlets, or fall within given price ranges.
Product line length is the number of items in the product line. Long/short depends on increase of profit by
adding/deleting items.
An organization with several product lines has a product mix.
Product-Market Matrices:
It is a simple technique used to classify a Product/Business according to the features of the product and market to
determine the
− Relative positions of Businesses/Products and
− Strategies for resources allocation between them.
There are 2 commonly used techniques:
1. Boston Consulting Group’s Growth-Share Matrix
2. General Electric Business Screen (GEBS)
1) BCG growth-share matrix is used to evaluate a company’s SBUs/Product in terms of market growth rate and
relative market share.
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After determination of position of a SBU in BCG matrix, following strategies are available:
Build
Hold
Harvest
Divest
The BCG and other formal methods revolutionized strategic planning. Such approaches, however, have limitations:
1). They can be difficult.
2). They can be time consuming.
3). They can be costly to implement.
4). Management may find it difficult to define SBUs and measure market share
and growth.
5). The approaches focus on classifying current businesses but provide little
advice for future planning.
SBU is a unit of company that has a separate mission and objectives and that can be planned independently from other
company businesses.
Market attractiveness
Attractive Average Unattractive
Invest for growth Invest selectively for Develop for income
Strong growth
Business
Strength Average Invest selectively Develop selectively Harvest or Divest
and build for income
Weak Develop selectively; Harvest Divest
build on strength
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Product Development: (New Product)
Degree of newness:
− Unquestionably new product
− Partially new product
− Major product change
− Minor product change
1. Idea generation
which is the systematic search for new product ideas rather than haphazard?
a. Internal sources (R&D)
b. External sources (customers, competitors, distributors, suppliers)
2. Idea screening
Evaluation against criteria to spot good ideas and drop poor
3. Concept development and testing
Product concept is a detailed version of the new-product idea stated in meaningful consumer terms.
Concept testing involves testing the concepts with a group of target consumers to find out if the concepts have
strong consumer appeal.
4. Marketing strategy development
A marketing strategy statement should be produced. This is a statement of the planned strategy for a new product
that outlines the target market, positioning, market mix and market share, long term sales, profit goals and
marketing budget for the first few years.
5. Business analysis
Review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the
company’s objectives
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6. Product development
Developing the product concept into a physical product in order to ensure that the product idea can be turned into
a workable product
7. Test marketing
The basic purpose is to test the product itself in real markets.
8. Commercialization
Introducing a new product into the market.
Product life cycle- Characteristics, objectives and strategies: [very nice table]
Assessment of PLC:
¾ Regular review of existing products
¾ Analysis of past trends
¾ History of other products
¾ Market research
¾ Analysis of competitors
¾ Estimate of future life and profitability should be discussed with experts
R&D Deptt. ----------------------Product life
Marketing staff-------------------Price and demand
Management accountant------- Cost
¾ Decide to continue, stop or change strategy.
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Packaging:
Functions of packaging:
− Protection
− Quality standard (e.g. expiry)
− Distribution
− Selling (Advertising, attractive, motivating,)
− User convenience (value depicting)
− Conforms to govt. regulations (e.g. ingredients, price, expiry etc.)
Usually goods are packaged in more than one layer.
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Chapter 26 : Price
Price Setting
Cost
Competition
Demand (Elastic / Inelastic)
1. Marketing objectives:
• Survival
• Current profit maximization
• Market share leadership
• Product quality leadership
• Other objectives
To prevent competitors
To keep loyalty and support of reseller
To avoid govt. intervention
To create excitement or draw attention of new customers
To help the sale of other product in product line
3. Costs
Set the floor for the price that the company can charge. (price below this is not acceptable)
Companies want to charge a price that covers all its costs for producing, distributing, and selling the product, and
provides a fair rate of return for its effort and risk.
To price wisely, management needs to know how its costs vary with levels of production.
The experience curve (or the learning curve) indicates that average cost drops with accumulated production
experience
4. Organizational considerations.
Management must decide within the organization who should set prices.
Small companies: CEO or top management
Large companies: Divisional or product line managers
Some companies have pricing departments
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External Factors Affecting Pricing Decisions
1) Nature of market and demand
2) Competitors’ costs, prices, and offers
3) Other environmental elements
Approaches
¾ Cost based pricing
Cost plus pricing
Break even or target profit pricing
¾ Customer value based pricing (i.e. demand based )
¾ Competitive based pricing
Going rate pricing
Sealed bid pricing
• Market-Skimming Pricing
“Setting a high price for a new product to skim maximum revenues layer by layer from segments
willing to pay the high price”.
Product image must support price
Competitors must not be able to enter the market
Prices are lowered when demand falls
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• Market-Penetration Pricing
“Setting a low price for a new product to attract a large number of buyers and a large market
share”.
High volume reduces cost
Spare resources are utilized
Eliminates competition
May promote related products.
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Chapter 27 : Place
Place / Distribution Channels / Delivery System
Place is selection of distribution channels to deliver goods to consumers.
Marketing Channel (distribution channel) is a set of interdependent organizations (intermediaries) involved in the
process of making a product or service available for use or consumption by consumer or business user. Each
organization performs a specialized and specified role.
Importance includes:
1. Channel decisions affect other marketing decisions
2. Competitive advantage could be gained.
3. Involves long term commitments to other firms
4. Channel members add value through
a. Their contacts, experience, specialization and scale (economies) of operation.
b. Matching supply and demand
c. Bridging Time, Place and Possession gap
Types of Distributors:
a) Franchisees:
“Trade in name of parent in exchange of initial fee + share of sales volume”
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b) Distributors/Dealers:
“Buy and resell at profit”
− Dealing in narrow range of products;
− Sometimes exclusive distribution or dealing only one manufacturer;
− Also provide after sale services.
d) Wholesaling:
“Selling goods to business buyers”
e) Retailing:
“Selling goods to consumer buyers”
f) Multiple Stores:
“Sell under the ‘own label’ brand name”
How do channel firms interact and organize to do the work of the channel:
Channel Conflict is disagreement among marketing channel members on goals, roles and rewards (who should do
what for what reward). It may be
¾ Horizontal, conflict among firms at same level of channel e.g. dealers may complain that others are
pricing too low or selling beyond their territory.
¾ Vertical, conflict among firms at different level of channel e.g. conflict with dealers when opening
online stores even though for hard to reach customers.
Marketing logistic (or physical distribution) involves planning, implementing and controlling the physical flows of
goods, services form points of origin to points of consumption.
Marketing logistic addresses whole Supply Chain Management i.e.
Outbound distribution (moving product form factory to reseller and ultimately to consumers)
Downstream
Inbound distribution (moving products from supplier to factory) Upstream
Revere distribution (moving broken, unwanted or excess products returned by consumers or
resellers)
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Chapter 28 : Promotion
Two basic strategies of Promotion:
Push strategy using sales force to push the product through the channels, the producer promotes the product to
wholesalers, the wholesalers promote to the retailers, and the retailers promote to the final consumers.
Pull strategy spending a lot on advertising and consumer promotion to build up consumer demand; if successful,
consumers will ask their retailers for the product, the retailers will ask the wholesalers, and the wholesalers will ask the
producers.
Communication media
1. Personal communication channels, through which people communicate directly with each other.
i. Face to face
ii. Person to audience
iii. Over telephone
iv. Through mail
v. Through internet chat
2. Nonpersonal communication channels, media that carry messages without personal contact or feedback.
i. Print media (newspapers, magazines)
ii. Broadcast media (radio, television)
iii. Display media (signs, posters)
iv. Online media (online services, Websites)
A) Advertising:
“Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor”
Advertising media
¾ Above the line (Press, Radio, TV, Cinema)
¾ Below the line (Direct mail, Exhibition, Package design, Merchandizing)
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B) Personal Selling (face to face via sales force):
“ Personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships
i.e. paid form of personal communication”
Sales force structures:
1. Salary only
2. Salary with bonus
3. Commission only
C) Sales Promotion:
“Marketing activities other than personal, selling & advertising that stimulates customer purchasing”
“ Short-term incentives to encourage the purchase or sale of a product or service”.
Major tools are:
1. Samples
2. Coupons
3. Rebates
4. Premiums (buy 2 get 1 free)
5. Contests, sweepstakes, and games
6. Free gifts
e) Public relations:
“Building good relations with the company’s various publics by obtaining favorable publicity, and building up a good
corporate image”
Publicity is non-paid, non-personal communication dealing mass audience.
Branding:
Expenditures on promotion gives rise to brands.
A Brand is a name, term, sign, symbol or design intended to identify the product of a seller to differentiate it from
those of competitors.
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Reasons for branding:
− Product differentiation
− Conveying lot of information quickly and concisely
− Advertisement needs a brand name.
− The more similar a product is to competing goods; the more branding is necessary.
− It facilitates self selection.
− It reduces price sensitivity.
− Brand loyalty gives control over marketing strategy.
− Other products (i.e. new flavors/sizes) can be introduced into brand name/range. (Brand extension)
− Eases personal selling
− Eases market segmentation
Brand strategies:
− Brand extension
− Multi branding (different names for similar nature goods serving similar consumer habits)
Product----------------Names----------------Brands in each name
− Family branding
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Part F : International Business
Theories on International Trade
Scarce resource is a resource for which the quantity demanded at a nil price would exceed the available supply.
4 scarce resources are Land, Labor, Capital and Enterprise.
Scarcity is the excess of human wants over what can be produced.
Production Possibility Curve illustrates limits of possible production of two products within given resources.
Opportunity Cost is the cost of sacrificed alternative.
Mercantilism:
Export > Import
Zero-sum game (benefit at the expense of other)
Absolute advantage:
Absolute advantage is producing goods more efficiently than any other country.
Country should produce goods for which they have an absolute advantage and then trade these goods for
other goods produced by other countries.
Comparative advantage:
One step further than absolute theory introducing concept of opportunity cost.
Country should specialize in the production of those goods in which it has lowest opportunity cost.
Ethnocentrism:
¾ Company focuses on domestic market and export is secondary.
¾ No local research, marketing mix is standardized.
¾ Same products with same market programs.
Polycentrism:
¾ Each country is unique and requires customization.
¾ Product and market programs must match with local environment.
¾ Company establishes independent local subsidiaries and decentralizes marketing management.
Geocentrism:
¾ Synthesis of two approaches.
¾ Think globally, act locally.
¾ Integrated approach to create a global strategy that is fully responsive to local market.
Regiocentrism:
¾ It is Geocentricism but that it recognizes regional differences.
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Evolution and Reasons of Global Business (by Ohmae)
Evolution:
Ethnocentrism
1. Export (extension of home sales)
2. Overseas branches (when turnover is large, greater investment)
3. Overseas production (exploits cheap labor and reduces exporting cost)
Polycentrism
4. Insiderisation (full functional organization having production and distribution system is set-up overseas,
company is multinational)
Geocentrism
5. The Global Company
Reasons:
5 Cs
1. Customer (market convergence)
2. Company (economies of scale)
3. Competition (Keeping up)
4. Currency (exchange rate risk)
5. Country (Absolute and comparative advantage, local orientation)
Other reasons:
Exchange rate:
Purchasing Power Parity theory calculates exchange rate based on relative cost of purchasing same basket of goods in
two countries.
A currency’s exchange rate is also determined by Demand and Supply. They in turn are determined by Inflation,
Speculation, Interest rates, Govt. policies and Balance of Payment.
Exchange rate risk is the risk that foreign currency will exchange in smaller amount of domestic currency in future.
Types:
This can arise under any of three Exchange Rate Systems i.e.
1. Fixed (Central bank interferes to fix the rate)
2. Managed (Like fixed but allowed to vary between preset limits)
3. Floating (depends on supply and demand)
Low requirement for local adaptation High requirement for local adaptation and
and responsiveness responsiveness
High pressure to Global environment Transitional environment
Globalize Geocentric orientation Polycentric orientation
Global product divisions Integrated system and structure
Chemicals, Construction Pharmaceutical, motor vehicles
(focus of organization is heteroarchy)
Low Pressure to International Environment Multinational environment
Globalize Ethnocentric orientation Polycentric orientation
International division National or regional divisions
Paper, textile Fast food, tobacco
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Planning to enter Foreign Market
Phase 1: Preliminary analysis and screening:
− Evaluation of available markets (to exclude obvious unfit)
− Applying screening criteria to evaluate remaining markets (criteria might include Profit, Market Share,
Quality)
− Analysis of environment conditions in each country
Porter’s 5 forces analysis
− Choosing country (i.e. Target Market)
Objectives:
− Availability and quality of information is enhanced for planning.
− Change in customers needs and preferences is timely observed.
− Competitors’ plan and strategy
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− Finding of new markets
− Opportunities and Threats
− Trends of market
− SLEPT analysis
− Technology – Quality of information
IMR Process:
− Monitoring
Passive information gathering (Market not yet targeted)
Identification of market for which information needs to be gathered.
− Investigation (accurate assessment of market opportunities)
Existing demand; where customer’s needs are already being served.
Latent demand; where potential customers are currently recognized but are not being
served.
Incipient demand; where there is foreseeable, but not a present, market for products.
− Research
Define scope of project
Define projects, information needs
Evaluate available sources for required information
Undertake desk research
Undertake field research
Problems in IMR:
− Secondary data problems
Lack of data
Not timely, out of date information gathered on unpredictable schedules
Not comparable, different data definitions in different countries
Lack of reliability
− Response problems (People’s unwillingness to provide info)
Tax evasion and avoidance of responsibilities
Wish to preserve secrecy
Cultural taboos and norms
− General problems (developed vs. undeveloped)
No suitable list (sampling frame)
Inadequate communication infrastructure
Low level of literacy
Problems of language and comprehension
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Entry in International Market
Entry in International Market could be through:
¾ Foreign Direct Investment/Overseas production
100% owned subsidiary
Joint venture
o Industrial cooperation/Contractual (fixed period)
o Joint-equity venture (continued)
¾ Export
Direct (greater control but lesser market knowledge)
o To Branch office
o To Agents between importer and exporter
o To Wholesaler, Retailer or Consumers
Indirect (greater market knowledge but lesser control)
o Through Export houses
o Through Specialist export management firms
o Through UK buying offices of foreign stores and government
o Through Complimentary Export (i.e. Piggy back export)
¾ Licensing
Giving right to use production process for Royalty.
Foreign Direct Investment is direct investment in business operations in a foreign country. It may be:
1. Horizontal FDI (investment in same industry abroad)
2. Vertical FDI (investment in an industry abroad which provides input to firm’s domestic operations.
i. Backward Integration (to acquire raw material)
ii. Forward Integration (to establish final product)
Selection criteria for entry mode: (Factors to be considered)
Mode varies among firms, according to markets and over time.
¾ Firm’s marketing objectives (in relation to volume, time scale and coverage)
− Low ----------export
− High----------produce locally
¾ Firm’s size
− Small--------export
¾ Mode availability
− Govt. may restrict modes
¾ Mode quality
− Qualified, trained staff is necessary for export of high technology goods.
¾ Human Resource Requirement
− If staff is suitable---------Direct export
− If staff is not suitable----Indirect export (agent based)
¾ Market information feedback
− Is received in case of Direct export.
¾ Learning curve requirement
− Heavy investment calls for learning curve i.e. close observation through direct export before
investment.
¾ Political risks
¾ Control needs
FDI vs. Export vs. License:
FDI(Foreign Direct Investment) Export License
− Lower production cost − Concentration on − Avoids costs and hassle of
− Better understanding of production setting up overseas.
Market and Customers. − Economies of scale − Rapid penetration
− Lower transportation cost. − Consistency of product − No investment
− Overcomes tariff and non- quality − No Political risk, No
tariff barriers. − International experiment on Protectionism
Advantages
small scale
− Easiest, cheapest, most
common
− Political risks are avoided.
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− Political risks. − Protectionism − Small cash inflows
− Partnership − Exchange rates − Quality standards issues
− Managing overseas − Usually less involvement − Indirect competition where
Key Issues
facilities both export
− Usually more involvement − Licensee may become
but subsidiary may act competitor (by transfer of
independent. knowledge and technology)
Dumping is selling goods in foreign market below cost or market value to:
Unload excessive production
Capture market.
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ii. Access to local finance
iii. Govt. interference
iv. Taxation
v. Transfer policy
2. Insurance
3. Contacts with markets
4. Management structure (joint venture or giving control to local)
5. Financial management (obtain finance locally)
6. Production strategies (giving control to local to produce Or to supply chain management)
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Borrowing in Euro market Vs. Domestic market
Domestic banking is subject to tighter regulation
Domestic banking is subject to security requirements
Euro finance may have
i. Flexibility in draw-down dates
ii. Early redemption penalties
iii. Commitment fee
Euro is suitable for very large finance requirements
Euro Currency:
Following types of currency is available in Euro Markets:
1. Euro equity
2. Euro bond
3. Euro currency
4. Euro Currency loan
5. Euro credits
6. Commercial papers
7. Syndicated credits
8. MOFs
Euro bond:
Currency differs country of issue (underwritten by international syndicate of banks and sold internationally)
Euro bonds are suitable when:
− Large organization with excellent credit rating
− Requires long term loan for capital expansion
− Requires borrowing not subject to national exchange control
− Interest rates are fixed or floating with minimum.
Euro currency:
Eurocurrency is any currency banked outside of its country of origin e.g. Eurodollars are dollars banked outside United
States.
Commercial papers:
An example of Securitization.
Short term financial instruments
Issued in the form of unsecured promissory notes with a fixed maturity date.
Issued in bearer form
Issued on discount basis
Companies with net capital of 25 million can issue it.
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MOFs:
Multiple Options Facilities (MOF) comprise variety of instruments through which company can raise funds and
include:
¾ Note Issuance Facilities (NIF)
¾ Revolving Underwriting Facilities (RUF)
Counter Trade
Counter trade is a trade of goods and services for other goods and services.
Export factoring:
Factoring company provides administration of:
Client invoicing
Sales accounting
Debt collection
Credit protection
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Documentary Credit (L/C):
1. Importer orders.
2. Exporter accepts.
3. Importer’s bank issues L/C to exporter’s bank.
4. Exporter’s bank authorizes exporter to ship merchandize.
5. Exporter ships and gives documents and draft to own bank.
6. Exporter’s bank sends documents to importer’s bank and gets the draft accepted.
7. Importer’s bank informs importer about arrival of documents and merchandize.
8. Importer pays (or not pays) his bank.
9. On maturity, importer’s bank pays to exporter’s bank who pays to exporter.
Export Credit Guarantee Scheme: (where L/C is not acceptable by strong importer)
Preshipment Facility:
Guarantee is issued to banks to indemnify them against losses on finance given to exporters to manufacture
and process goods for export.
Risks covered are:
o Insolvency of exporter
o Inability to repay or deliver on due date
Postshipment Facility:
Exporter submits application with required particulars to ECGS.
ECGS will issue a guarantee specifying maximum amount covered and rate of premium.
Risks covered are:
o Insolvency of buyer
o Political and Economic risks
o Risks of refusal to take delivery
o Risk of any loss (beyond control of buyer or exporter)
Reducing large investment in Receivables and Stocks:
− Advance against collection
− Documentary credit
− Negotiation of bills or cheques
Standardization Vs. Adaptation: whether to adopt or not is linked with promotional issues.
Product Standardization Product Adapted
Occasional exporters Single product meets the same
Communication Also major companies need in all markets but need to be
Standardization seeking economies of adapted.
scale
Communication Adaptation Same product for Costly
different uses in Required to exploit market fully
different countries
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− Advertising and media restrictions
¾ Competition
− Nature of existing products
− Competitors’ prices
¾ Culture
− Consumers’ tastes and habits
− Language and attitude differences
¾ Economy
− Income level
− Media availability
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Cash Management:
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Transfer pricing:
Basis include
Standard Cost
Marginal Cost/ Full Cost/ Opportunity Cost
Market Price
Market Price – discount
Negotiated Price (any other basis)
Advantages of having Market Price as Transfer Price Disadvantages of having Market Price as Transfer Price
1. For buying department 1. Market prices may be temporary.
i. Better quality of services 2. Disincentive to use spare resources as
ii. Greater flexibility compared to incremental cost approach.
iii. Dependability of supply 3. Buying department may enforce discount.
2. For both departments 4. Many products don’t have equivalent market
i. Lower cost of administration, selling prices.
and transportation
Factor conditions
These are a country’s endowment of inputs to production e.g. Human Resources, Physical resources, Capital,
Knowledge and infrastructure.
These factors could be
− Basic (inherited and creation involves less investment e.g. natural resources) or
− Advanced (include modern digital communications, highly educated people and research laboratories
etc.)
Demand conditions
The home market determines how firms perceive, interpret and respond to buyer needs.
Related and supported industries
Competitive success in one industry in liked to success in related industries.
Firm strategy, structure and rivalry
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Annexure “A”