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Examination Control Division


Subject: Strategic Management

& Innovation

Full Marks
Pass Marks



3 hrs


Candidates are required to give answers in their own words as far as practicable.
Attempt Five Questions. Question Six is compulsory.
The figures in the margin indicate Full Marks.



What is Strategic Management? Is it a Science or an Art? Explain your point of view

giving suitable examples.



The Choudhary Group (CG) wishes to identify strategies for the various businesses in
its portfolio. How can it go about doing this?
It has been argued that diversification in many firms has not led to better performance
and that many firms are now restructuring or divesting businesses in order to be more
focused. Discuss the benefits and disadvantages of diversification. Use examples in
your answer.
Explain the difference between Global strategy and Multi-domestic
Strategy. What are their key characteristics? For an organization in the
energy sector in Nepal, which strategy do you recommend and why?
Why has Strategy evaluation and control become so important in business today?
Explain major control tools used for this.


Chapter 1
and Class
Chapter 6


Chapter 5




Chapter 9




Given below is a case of an organization " Nepal Hosiery (Pvt) Limited. Please go
through it carefully and then answer the questions raised at the end of the case. (Be
analytical and logical.).
Nepal Hosiery (Pvt) Limited
Good morning, Professor Sharma, I am S.K. Singh, Managing Director of Nepal
Hosiery (Pvt) Limited.
Good morning, please have a seat. What can I do for you?
Actually, I have come to seek your expert advice on certain problems I am facing in
my business. I heard you in one of the Friday Seminars of Management Association of
Nepal on Strategic Management and I thought I must see you to get some new ideas
and techniques for managing a small business. By the way, what is this strategic
planning all about?
Well, Strategic decisions are primarily concerned with external, rather than internal
problems of the firm and especially with selection of the products which the firm will
produce and the markets to which it will sell. The object is to produce a resourceallocation pattern which will offer the best potential for meeting the firms objectives,

say, growth with profit.

That is exactly, our problem! But tell me, Professor, whether its possible for a small
unit like ours to go for strategic planning and that too in a country like Nepal, plagued
with a lot of uncertainties.
Why not? In Nepal too, strategic planning has received its due recognition, albeit
belatedly, but it was mainly confined to multinationals and some of the professionally
managed large companies. As a result, it was often thought that the role of strategic
planning was limited to large-scale enterprises only. In fact, its not true. Strategic
planning is equally important in small and medium-scale business which are also
affected in different ways, by the external environment and market competition, often
more severely than their larger counterparts. As a matter of fact, one of the basic
reasons of high mortality rate in small enterprises may be traced back to the lack of
suitable strategic thinking to cope with the changing environmental realities.
Mr. Singh, 34, was talking to Dr. Sharma, professor of Strategic Management in his
office. Mr. Singh is a science graduate and along with his elder brother, a matriculate,
has been managing his small-scale hosiery unit Nepal Hosiery (Pvt) Limited having
two separate divisions, viz. Fabrics and Knitwear Divisions. Fabrics division is
manufacturing knitted fabrics on overhead circular machines, both imported and
indigenous and with a turnover of over Rs. 2 crore is doing fine. It has the technology
and a knack of manufacturing acrylic and polyester/cotton blended fabrics which
command a premium in the market. Knitwear division specialized in the manufacture
of knitted Gents wears like Gents shirts, T-shirts, female nighties and children wears.
Despite their best efforts, the sale of this division remained at low levels and almost
stagnant at around Rs 40-50 lakhs per annum during the past three years, mainly due to
the rising competition. Mr. Singh is very much worried about the future of his knitwear
Hosiery Industry in Nepal an overview
The hosiery industry in Nepal is dominated by tiny and small sector units located in
Jhapa. The industry consists of about 500 knitting factories of various sizes. Over
three-fourth of these units are in the unorganized cottage industry sector with annual
sales of less than Rs 1 lakh per unit. Moreover, the industry is dominated by woolen
hosiery units (60 %) to be followed by cotton hosiery (30%). Synthetic yarn hosiery, a
late entrant, accounts for only 10% of these units.
The knitwear segment of the industry (ready-made garment manufacturers) can be
divided into two broad categories, viz.:


Units which do not have any established brand names and manufacture and
market comparatively inferior quality knitwear. These units constitute a large
majority and operate in the unorganized sector. Distribution here is through
Units which manufacture and market high quality products with a brand
name. These units operate in the organized sector with sales ranging from Rs
40 lakh to Rs 3 crore. Distribution is through booking agents to the retailers

Most of these factories work 10-12 hours a day, 6 days a week, except during busy
season when they work 24 hours a day in two shifts of 12 hours each. Almost all of
them, even relatively larger and better organized are owner-managed. Professional
management is conspicuously absent.

Background of the Company

Nepal Hosiery (Pvt) Limited is a better know hosiery unit located in Jhapa. It was
started as a partnership firm in the 1990s to manufacture knitted fabrics, which it sold
both locally and also to outside manufacturers of knitwears in Biratnagar and Birgunj.
With a very modest beginning, it slowly grew in strength and in 2007-08, its sales
crossed Rs 2 crore per annum. In 2009, the firm was converted into a private limited
company and a new production facility to manufacture summer knitwear was added.
The knitwear division did quite well and showed good signs of growth. It specialized
in open full and half shirts made of knitted acrylic, polyester and cotton-blend fabrics
which are supplied by its Fabric division. The company used the brand name
EVEREST for all its knitwears and it is well known for quality and texture. The rising
competition has affected Nepal Hosiery (Pvt) Limited badly as the demand for open
shirts has of late been declining and have almost stagnated around Rs 40 to 50 lakh
during the last three years despite the company experimenting with other knitwear
items like female tops and nighties, gent T-shirts and children wears.
Organization and Personnel
The organization chart of the company is as shown below:


Mr. N.K.Singh
Managing director

Store Keepers
Sales Clerk

Mr. S.K.Singh
Managing Director


Workers and Helpers

The two managing directors (brothers) have distinct responsibilities for the two
separate division, both oversee the operations of the other division as and when
required. However, Mr. S.K. Singh is the brain behind the whole show and is always
willing to learn about modern management tools as well as new technology. Though
he feels that operations are well under control, yet he is often hard pressed for time,
resulting in delays and tensions. The company does not face any problem in procuring
skilled and semi-skilled workers or other staff. During the busy season, it employs
additional causal workers. All decisions, routine as well as important, are made by the
managing directors and others have simply top implement them under their close
Production and Procurement
The knitwear division of the company specialized in full and half-sleeved executive
shirts, which formed over 80 per cent of its output. For the past few years, the demand
for executive shirts has been declining. The company therefore, introduced casual
wears like T-shirts, female tops and gowns and children wears.
Raw materials, account for the major cost of production (70 to 80 per cent). The total
requirement of fabrics is met by the Fabrics division of the company which supplies

them at the prevailing market price.

The most important feature of any knitwear is its design. The concept of design in
knitwear includes color combination, fabrics used, patterns knitted in the fabrics,
texture and styling of the garments. The product life cycle of each design is only one
season i.e. 4 to 5 months. Each season, new designs have to be developed to be
developed in business. For this purpose, the highly paid designer (called Master) has
an important role to play; though he is continuously helped and guided by the owners.
Hosiery is a seasonal industry and so is summer knitwear. The five- month busy
season lasts from February to June. The exercise for creating new designs begins in
September-October. Finally, specimens of different knitwear garments are readied by
early December and the sets are sent to the companys consignee agents in different
cities for booking the orders. The average lead time between the receipt of orders and
sending the consignment ranges between 30 and 45 days. The company does not have
any marketing organization of its own. It depends entirely on consignee agents for
promotion, order-booking and collections. The consignee agents are allowed 3-5 per
cent commissions on net sales affected by them. Most of them work for other
manufacturer too.
The company has been facing collection problems in recent years. Consequently, the
credit terms stand extended beyond one month as compared to either cash payment or
one-week credit five years back. The owners rarely visit them. The company has
adopted a cost-plus pricing method. The mark-ups vary from product to product. The
price of their main items viz. shirts and T-shirts varies from Rs 40 to Rs 100 a piece.
The retailers are free to charge any price normally a mark-up of 40 to 50 per cent on
company prices.
Presently, the company is selling its knitwear products in cities all over the country.
However, Kathmandu, Birgunj, Biratnagar and Nepalgunj are relatively better markets
with sales in 2007-08 ranging from Rs 20 lakh to Rs 30 lakh in each city. The
company has never gone for any advertising campaign.

The company has so far depended primarily on its own funds. The growth was
financed by plough back of profits. Presently, the company enjoys cash credit limit
from the back to finance its inventories. It has not so far faced any acute financial
problem. During the busy season, it sometimes resorts to market borrowing on a shortterm basis at 20-40 per cent rate of interest as the banks finance the receivable only
marginally. Mr. Singh does not think that money is going to pose any problems to
finance expansion and growth. His bankers are also willing to provide additional
working capital finance if the level of operations increases.
Mr. Singh is interested in some sort of a turnaround strategy for his Knitwears
Division. He is afraid that at the present level of activity, the division may become
uneconomical. There are a number of issues which have to be taken into account while

formulating future plan or strategy for the company:


different segments of knitwear markets

brand preference in knitwears
manufacturer-retailer relations
kind of knitwears preferred and so on.

Professor Sharma prepares to go ahead with the formulation of corporate strategy for
the company. For this he wants your help in carrying out the following:

Formulating mission and objectives for the company based on the situation
described in the case particularly the results of the market survey.
Carrying out SWOT AND PEST analysis.
Suggesting strategy to be adopted by the company and
Suggesting how the strategy should be implemented.