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Business environment

Strategic Management (University of Mumbai)

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Chapter 1 http://bit.ly/edu91app

Business Environment
Blue Print for Chapter 1
1. Business
2. Profit
3. Objectives of Business (Homework topic)
a. Survival
b. Stability
c. Growth
d. Efficiency
e. Profitability
4. Environment
5. Problems is understanding environmental influence
6. Framework to understand environmental influence
7. Characteristics of Business environment
a. Complex
b. Dynamic
c. Multifaceted
d. A- Far Reaching Impact
8. Relationship between organization and its environment.
9. Environmental scanning
10. Micro & Macro environment
11. Components of micro environment
a. Customer
b. Competitors
c. Organization
d. Market
e. Supplier
f. Intermediaries
12. Elements of Macro Environment
a. Demographic Environment
i. Population size
ii. Geographic
iii. Ethnic Mix
iv. Income Distribution
b. Economic Environment. (Homework topic)
c. Political –Legal Environment.
i. Government
ii. Legal Political
iii. Political.
d. Socio-Cultural environment. (Homework topic)
e. Technological.
f. Global.
i. Nature of globalization
ii. Why do companies go global?
iii. manifestation of globalization
13. Pestle Analysis

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14. Strategic response to the environment. (Homework topic)


a. Least resistance
b. Proceed with caution
c. Dynamic response
15. Competitive environment
16. Cooperation in competition
a. Cartelization http://bit.ly/edu91app
b. Kieretsus
c. Family owned Cooperation
17. Porter Five Force Model
a. New Entrants
b. Bargaining power of customer
c. Bargaining power of supplier
d. Rivalry among current players
e. Threat from substitutes

Business

) State of being Busy.


) One’s regular occupation.
) Forms of business may be entity, corporation or company.
) Can have different functions Purchase, sale, manufacture, processing.
) Goods or services.

Profit

♥ Discuss profit as business objective as per Peter F Drucker.

) Reward for risk taking.


) Financial yardstick.
) Higher the efficiency higher the profit.
) Peter F Drucker: Organisation is created and managed by people it depends on decision taken by the
people.
) In Present times business cannot be explained in terms of Profit.
) Other factors such as development of wealth, non-financial factors such as goodwill, societal factors,
relations and CSR are also to be considered.

"Profit may not be a universal objective but business efficiency is definitely an objective common to all business". T/F with reason.

Correct: It is generally asserted that business enterprises are primarily motivated by the objective of profit. Organizations pursue multiple objectives
rather than a single objective in which business efficiency is a very useful operational objective. Many organizations, particularly charitable and non-
government do not aim for making profits. But in general, all organizations aim for optimum utilization of resources and economy in operational
costs.

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Objectives of business {PEG- Survival& Stability}

Multiple Objectives
1. Survival http://bit.ly/edu91app
) Basic& Implicit
) Important during initial stages & economic slowdowns.
) It depends on
¾ Nature of business.
¾ Nature of ownership.
¾ Abilities of management.
¾ Financial Strength of enterprise.

NOTE: Survival is NOT the only objective.

2. Stability
) Cautious & Conservative objective.
) Least resistance in a hostile environment leads to stability.
) It minimises the risk of management failure.
) It promotes smooth workflow & better efficiency.

3. Growth
) Popular Objective.
) It is associated with dynamism.
) Forms of growth.
¾ Increase in Assets.
¾ Increase in revenue.
¾ New Products.
¾ Increment in profit levels.
¾ Mergers &Acquisition.
) May take to unknown and risky paths.

4. Efficiency
) Rationally choosing
) Optimum utilisation of available resources. (Carrying out production at minimum cost.)
) An enterprise should be efficient in selecting the means to achieve their goals.
) Operational objective.

5. Profitability
Write the points explained in the topic profit. And also write the following line
Profit is equated with degree of business efficiency and managerial competence.

♥ How would you analyze the meaning and importance of Efficiency and Profitability as objectives
of business?

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Business Environment

) Environment is sum of several external and internal surroundings.


) Business is a part of broader environment.
) No one can live in isolated vacuum; same is the case with business.
) Passive response to environment results in fade away of business.
) Successful business identifies, appraise & respond to various opportunities and threats in its
environment.
) Business organisation will take input from environment and will process it and convert it into output, that
output will be given to the customer and in return business organisation will get surplus which will either
be stored or used.

Environment

No one casn live Successful


Sum of External Passive Business Input, Process,
in isolated Response to Env
& Internal Output, Clients,
vaccum same is
Surrounding Surplus, Stored,
the case with
Identify Appraise respond Used
business
Business will I-P-O-C-S-S-U
fade away Various
Business is a
part of broader Opportunities &
Env. Threats

A business, even if it continually remains passive to the relevant changes in the environment, would still grow and flourish.
Incorrect: Businesses function within a whole gamut of relevant environment and have to negotiate their way through it. A successful business has
to identify appraise and respond to various opportunities and threats in its environment. The extent to which the business thrives depends upon the
manner in which it interacts with environmental situations or constraints. A business remaining passive to changes in its environment is destined to
gradually fade away into oblivion.

Environmental constituents exist in isolation and do not interact with each other. T/F
Incorrect: Environmental constituents such as economic, legal, society, technology and other macro and micro elements are interwoven through
complex and haphazard linkages. These constituents comprise of multitude of forces that are inter-related and inter-dependent. They are termed as
environment as they are outside the main periphery of business but may affect its functioning directly or indirectly.

There is both opportunity and challenge in changes happening in environment. T/F with reason.
Correct: It is said that change is inevitable, especially in the context of business environment. Changes in the business environment from time to time
throw up new issues before businesses. A right perspective of such new issues is to view them both as challenges and opportunities - challenge
because appropriate action is called for and. opportunity because it opens up new potentials for the future plans that would lead to prosperous
business.

The basic objective of a business enterprise is to monitor the environment. T/F with reason.
Incorrect: Monitoring environment is ancillary to basic objectives of a business enterprise. It is imperative for organisations to create and retain
customers. Organizational objectives may include survival, stability, growth, profitability and like. Organisations monitor the changes in the

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संजीवनीबू टी- Comprehensive Module for Strategic Management C1

environment, analyze their impact on their own goals and activities and translate their assessment in terms of specific strategies for survival, stability
and strength.

Problems in understanding environmental influences

1. Diversity - Different influences difficult to predict. (ववववधता)


a. Many influences -It’s difficult to make them useful
b. We may list all of them - Only listing will not help - We have to make sense out of it.
c. To consider their impact on strategic decision making.
2. Uncertainty
a. Technological changes & Speed of communication leads to very fast changes in business
environment
b. It becomes difficult to predict things in uncertainty

3. Human behaviour error: Oversimplification


a. Managers are no different from other individuals
b. Managers sometimes focus on things which are historically important - Biased view on past
experience.
c. One of the role of the strategic manager should be to break out oversimplification or biasness in
understanding the business environment.

Framework to understand environmental influences

In spite of problems in understanding the business environment, organisation cannot ignore it. Understanding of
environment is very important task.

Framework To understand Environmental Influences

Understand Nature of Focus on


organisation's environment. What environmental Evaluation (A.I.R) immediate
influences are present in environment
How uncertain it is? Audit- Environmental
the environment (explicit forces are
Is it easy to understand . influences more imp. eg:
(कौन कौन से है ) competition).
It will help in deciding the focus
(Product/service & related issues) This is done by Environment which
considering the way in require immediate
which political economic consideration
social and technological
influence ahave a bearing
on organsiation
Indentify-
Effect of How they are going to
influences effect the organisation
(वो कैसे Effect डालें गे)

Relate with
latest trends
Analyse the
results

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संजीवनीबू टी- Comprehensive Module for Strategic Management C1

Characteristics of Business environment (C,D,M, a)

Characteristics of
Business Environment

Complex Dynamic Multi-faceted A far reaching


impact

Environment is
collection of many General meaning of shape & character of
factors,events,condit the term "dynamic" is Growth &
business env. depends Profitability of an
ions & information. constantly changing on Perception of organisation depends
observer upon it's environment
These are easy to
understand in parts
but difficult to grasp Dynamism in business
A particular change, Change in
in totality environment
facilitates continuous new dev. viewed environment may
differently. effect a business in
change in it's shape &
several way
These donot exist in character. It may be seen as a
isolation, keep threat for a co. it can
interacting among be opp. for the other.
themselves to create
new influences.

Relationship between organisation and its environment

Relationship b/w org. &


environment

Exchange of

Influences & Factors on


Information Resources which
power
1. Environmental scanning/monitoring/ANALYSIS relationship
depends
Environment
I-P-O-C-S-S-
is more
Q10. Define environmental scanning. Give Info. U* Size of the
Take Info powerful.
org.
Q11. Explain the need for a business organization to scan the environment on a continuous basis.
It has Command Age
over resources
Envrionment To whom? How? & inputs
can be used for Nature of
gathering business
information on Employees, Trade Voluntarily/
market Uniongovt, , Sometimes org. Nature of
Legally
condition, suppliers, investors influence env. ownership
(Advertisement
technological etc. s & Annual
devlopment, Reports)
Offers opp. & Degree of
social &
demographic threats professionalisatio
n of Mgt.
factors &
Competition

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• *I-P-O-C-S-S-U – Input Process Output Client Surplus, Stored, Used.


• Make sentence from it.
• We take input from the environment, we process it to make output then output is given to the clients, we get
some surplus from it, that surplus is either stored or used.

Envrionmental Scanning

Environment scanning/monitoring/analysis

Meaning Objective Related factors

Process through which Events


Provides understanding
org. monitor its relevant
of current & potential
env.
changes
Expectation of diff.
To identify opp. & interest groups
threats affecting their
Input for strategic
business
decision making
Issues
For taking strategic
decisions facilitate & foster
strategic thinking Trends

Related Factors of Environmental Scanning


x Events – Events are certain and specific occurrence taking place in different environmental sectors. Events
are certain happenings in the internal and external environment of the organisation which can be observed
and tracked.
x Trends are the general tendencies or the courses of action along which events takes place. Trends are
grouping of similar or related events that tends to move in a given direction. Trends usually suggests a pattern
of change in a particular area (for example, consumer behaviour, and technology use.)
x Issues are the current concerns that arises in response to events and trends. Identifying an emerging issue
is more difficult. Emerging issues start with a value shift, or a change in how an issue is viewed.
x Expectations are the demands made by interested groups in the light of their concern for issues.

Why Environmental Analysis (Objectives of Environmental analysis or environmental scanning)


1. Understanding of current and potential changes (Passive response to environment results in fade away of
business.)
2. Environmental analysis should provide input for strategic decision making (Collection is not enough)
3. Facilitate strategic thinking. (Generating new ideas for operation & Management)

Through EA Strategist will get time to anticipate opportunity & Threats & Managerial decision will be better.

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♥ Discuss the contemporary developments in the business environment.

→ A lot of changes are occurring within India and across the globe affecting the business. Students should list out different elements
of macro environment and discuss the contemporary developments in each of the area. They may develop their answers to cover
different elements of environment.
→ For example in the economic environment, students may briefly list out the impact of the global recession on the Indian Business.
→ They may list different factors such as difficulty in financing through primary market, inflation, low demand in certain sectors such
as real estate etc.
→ As far as social environment is concerned a new culture is evolving in the country on account of increased global interaction and
impact of mass media.
→ There is also increase in awareness. The developments in the legal environment including introduction of new direct tax code,
limited liability partnership, GST, etc. have their own bearing on the business.

Micro & Macro Environment

Micro/Macro
Environment
Business Env. consists
Why micro/macro?
of
Micro Macro Cope up with Understand
Env. Env. complexity env. as a whole
better
forces that Forces that distantly
are close to effect org.
org
Nature-External,
Nature- Internal, uncontrollable
controllable http://bit.ly/edu91app
Affect- Long term goals
and strategies
Affect- Day to
day In Includes - (Mention the macro
operations environment variables here)

In Includes - (Mention
the variables here)

Distinguish between Micro Environment and Macro Environment. (Important)

The business environment consists of both the macro environment and the micro environment. Following are the differences between the two:
The micro environment refers to the forces that are very close to the company and affect its ability to do routine functions. Macro environment
refers to all forces that are part of the larger periphery and distantly affect organization and micro environment.
Micro environment includes the company itself, its suppliers, marketing intermediaries, customer markets and competitors. Whereas macro
environment includes demography, economy, natural forces, technology, politics, legal and socio-cultural.
The elements of micro environment are specific to the said business and affects it's working on short term basis. The elements of macro environment
are general environment and affect the working of all the firms in an industry.

Components of Micro Environment (COSMIC)

Micro environment is also known as task environment and affects business and marketing in the daily operating level.
Organisation have to analyse and monitor all the elements micro environment in order to stay competitive

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1. Customers
x Customer are the people who pay consideration to buy the goods and services of the organisation.
x Organisation cannot survive without customers.
x A consumer occupies the central position in the marketing environment.
x The marketer has to closely monitor and analyse the changes in the consumer tastes and preferences
and their buying habits.
x A business must study
o Who are the customers,
o What benefits they are looking for.
o What are their buying patterns?

2. Competitors
x They are the other business entities and compete for resources as well as markets.
x Following are the few major questions that may be addressed for analysing competition.
x Who are the competitors?
x Their product & service.
x Market share
x Financial positions.
x Cost and price advantage.
x What will be there next move?
x Potential competitors.

3. Organisation
x Organisation consist of individuals they come from outside they have varied interest.
x In micro environment organisation must understand itself first and it is very important also.
x Organisation must know it’s SWOT
x Organisation consist of specific group which influence it these are
o Owners (Having stake in org.)
o Board of directors (General management Æ Ensure smooth & efficient running of
organisation)
o Employees (work in organisation)
Organisation & Employee should have same value. Their goals must coincide. Employees
of an organisation differ in many terms like education etc. All the employees must
work in a unified direction.

4. Market (Also Refer Points as discussed in C3 Industry & Competitive analyses – Dominant
Economic features)
x Studied in terms of potential size, growth and its attractiveness
x One should study Key success factors of the market in which they are operating.
x Important issues: Cost Structure, Price Sensitivity, Technological structure, Distribution system,
market maturity.

5. Suppliers
x Providers of materials, equipment, services.

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x Org. Rely on suppliers to maintain production


x Can affect cost structure of the industry, with their bargaining power.
x Organisation have to take a major decision on outsourcing or in house production depending on
this supplier environment

6. Intermediaries
x They have a considerable influence on the business organisation.
x In many cases consumers are not aware of the manufacturers of the product they are buying.
x Big intermediaries are becoming popular
x Link between customer & supplier

Elements of Macro Environment


Demographic Environment

x Characteristics of population in a region. http://bit.ly/edu91app


x Factors such as race, age, income, educational levels, etc.
x Data in relation to above factors is useful for businessmen and economists.
x Following things are to be studied (Common for all Macro Environment Variables)
i. How demographic trends will affect market size? (MS)
ii. How they represent opportunities or threat? (OT)
iii. What effect they will have on strategic competitiveness of the organisation.
(SC)
x Factors of interest to business
i. Population
1. Population size. (large or small)
a. Larger the population size better it is for the business.
b. India 16% approx. of world’s population and therefore it holds great
potential.
2. Change in make-up of population. (Young, old, Male, female.)
a. India young population; China aging population;
b. Change in birth rate or family size.
c. Effect of rapid population growth on natural resources or food
supplies.
ii. Geographic Distribution
1. Company’s location. (Governmental support)
2. Availability of qualified workforce. (Because of population shift)

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3. Impact of technology leading to work from home. (may impact recruiting &
managing people)
iii. Ethnic Mix (Characteristics of group of people sharing common culture)
1. Ethnic means cultural or culture.
2. In an organisation people are coming from different ethnic background.
3. Dual Impact: Company’s workforce & Customers.
4. Organisation have to determine the impact of change in ethnic mix on
product design and delivery.
5. Organisation shall consider Modifying the existing or introduce new
product and service.
6. Organisation nowadays have more culturally diverse workforce.
7. They should learn Ways to take advantage of increased workforce
heterogeneity.

What do you understand by ethnic mix?


Ethnic mix reflects the changes in the ethnic make-up of a population and has implications both for a company's potential customers and for the
workforce. Issues that should be addressed include:
x What do changes in the ethnic mix of the population imply for product and service design and delivery?
x Will new products and services be demanded or can existing ones be modified?
x Managers prepared to manage a more culturally diverse workforce?
x Any position itself to take advantage of increased workforce heterogeneity?

iv. Income Distribution


1. Leads to change in saving and consumption pattern. (Spending habits).
2. Tracking, forecasting & assessing changes in income pattern may give new
opportunities.

Economic Environment.

x Nature and direction of the economy.


x General economic situation, conditions which impact demand, supply, cost, availability, reliability etc.
x It determines strength and size of the market.
x Purchasing power, current income, price, and income, circulation of money, credit and debt availability.
x Scan, monitor & forecast, assess.
i. Tax rates
ii. interest rates
iii. Imp-ex.
iv. Stock market trend.
v. Inflation rates.
vi. Money market trends.

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Political –Legal Environment.

x Partly general to all similar enterprises & partly specific to individual enterprise.
x Level of politics, its morality, law and order situation, political stability, government policies and
enactments. Such factors can be of interest to businessmen and can impact on product & services.
i. Government
1. Policies. (business oriented or otherwise)
2. Type of government. (growth oriented or otherwise)

ii. Legal (Business Org. operates in countries where there is a sound legal system)
1. Good knowledge of major laws (consumer, competition, IPR, Forex & labour)
2. Consider changes in the regulatory framework (taxes, duties) and its impact on
business
iii. Political.
1. Political pressure groups influence and limit organisation.
2. There may be political movements against products and organisations.
3. Impact of special interest group shall also be considered. (Human right
commission etc.)
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Can a change in the elected government affect the business environment? Explain
x The type of government running a country is a powerful influence on business.
x Businesses are highly guided and influenced by government actions.
x Change in the elected government relates to the change in political environment.
x To an extent, even legal environment may change with the changes in the Government.
x It has a strong bearing on the conduct of business as it leads to significant changes in the economic policies and the regulatory framework.
x It generally reflects the political ideology of the political party or alliances.
x The government's policy of promoting select sectors further impacts the functioning of business organizations.
x Businesses are affected by the factors such as political stability, the political ideology and practices of the ruling party, the purposefulness and
efficiency of governmental agencies, the extent and nature of governmental intervention in the economy and the industry, Government policies
(fiscal, monetary, industrial, labor and export-import policies), specific legal enactments and framework and so on.

Socio-Cultural environment

x They have impact on product & service


x Mixture of factors such as social traditions, values and beliefs, level and standards of literacy and
education, ethical standards and state of society.
x The core beliefs & values of a particular society tend to be persistent.
x Business cannot change them & therefore they become major determinants of business functioning.
x Important social factors are
i. Social Concerns. (Pollution, corruption, mass media)
ii. Social attitude. (expectation of society from business)
iii. Family factors. (structure & values)
iv. Role of women in society.
v. Educational levels. (Right consciousness & work ethics)

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Socio-cultural environment consists of factors related to government and politics. T/F with reason.

Technological Environment (Most Dynamic/ Effect cost profitability & growth)

x Technology has changed the way people communicate, travel, and do business
x Technology and business are highly inter-related and interdependent.
x Dual impact of new business opportunities and making obsolete many existing systems. (act as both
opportunity & threat)
x Risk and uncertainty of technological developments & Role of R&D in a country and government’s outlook towards
R&D is also to be considered
x Technology not only affects the product but the whole business. (From Acquisition of raw material to
providing after sales services)
x Other Factors to be considered.
i. Technology required by the enterprise. ( वितनीजरुरतहै )
ii. Technology used by the enterprise (वितनीहै )
iii. Additional technology required (वितनीऔरजरुरतहै )
iv. Sources of technology. (िहााँ सेआएगी)
v. Role of technology.(क्यािरवाये गी)
vi. Investment in technology. (वितनेलगवाये गी)

Explain how technological factors present an opportunity as well as threat to a particular business organization.

Write these points in addition with above discussion


x Technology can act as both opportunity and threat to a business. It can act as opportunity as business can take advantage of adopting
technological innovations to their strategic advantage.
x However, at the same time technology can act as threat if organisations are not able to adopt it to their advantage. For example, an innovative
and modern production system can act as weakness if the business is not able to change their production system.
x New entrants or existing competitors can always use availability of technological improvements in products or production methods that can be
a threat to a business.

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Global Environment

Global
Environment

Meaning Effects Characteristics Need to go global

Meaning at Co. Universal


Integration of level configuring Conglomerate Shrinked Time &
world into one
huge market Distance
Incresasing trend
Many Mfring. locations towards
& products around the privatization Increased Foreign
world Multiple units with Demand
Done by removal common resources
of trade barriers pool
Mobility of skilled
labour
Reduced
Ability to compete Trasportation Cost
with foreign Multiple units
Economic reforms have
competitors in Market size with common
promoted Globalisation
domestic market efficiency strategy
Small Size of
home markets

Perceived Lower trade


differently by diff. barriers Industry Specific -
people Companies which go Cheap Raw Mat.
global are know as labour
multinational or Interlinked &
transnational Interdependent
Global org. Gain economies Compensate R&D
R&D, Prod.,
exp.
Marketing &
financial advantage Resources &
in cost & reputation inputs at
which is not international
available to domestic prices. Change in Tech.
org.

Formation of
regional blocks Rise of service
sector

Entrepreneur got central


economic role

x Write short notes on Characteristics of a Global Company.


x Why do companies go global?
x Globalization means different things to different people. T/F with reason.

Explain briefly different strategic approaches for Globalization by a Company.

Strategic approaches

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International economic dynamics accompanied by geographical changes have changed the paradigm of global business. A firm I company which
wishes to go global will be guided by the following types of strategies:
Multi-domestic strategy
A multi-domestic strategy focuses on competition within each country in which the firm operates. This Strategy is adopted when a company tries to
achieve a high level of local responsiveness by matching their products and services offerings to national conditions prevailing in the countries they
operate in. The organization attempts to extensively customize their products and services according to the local conditions of different countries.

Global strategy:
A global strategy assumes more standardization of products across country boundaries. Under this strategy, the company tries to focus on a low cost
structure by leveraging their expertise in providing certain products and services and concentrating the production of these standard products and
services at a few favorable locations around the world. Competitive strategy is centralized and controlled by the home office.

Transnational strategy:
Many large multinational firms, particularly those with many diverse products, may use a multi-domestic strategy with some product lines and a
global strategy with others. A transnational strategy seeks to combine aspects of both multi- domestic and global strategies. Thus there is emphasizes
on both local responsiveness and global integration and coordination. Although the transnational strategy is difficult to implement, environmental
trends are causing multinational firms to consider the needs for both global efficiencies and local responsiveness.

Manner in which firm will commence international operations (It is one of the important decision)
• Expansion into foreign markets can be achieved through following options:
• Exporting.
• Licensing/ Franchising.
• Joint Venture.
• Foreign Direct Investment

Write short notes on Characteristics of a Global Company.


In simple economic terms, globalization refers to the process of integration of world into one huge market. At the company level, globalization means
two things:
• the company commits itself heavily with several manufacturing locations around the world and offers products in several diversified
industries and
• It also means ability to compete in domestic markets with foreign competitors.
• The global company views the world as one market minimizing the importance of national boundaries. A global company has three attributes:
1. It is a conglomerate of multiple units located in different parts of the globe but all linked with common ownership.
2. Multiple units draw a common pool of resources such as money, credit, patents, trade name, etc.
3. The units responds to a common strategy

Write short notes on Role of Global Industries.


The term global industry specifically means an industry where a firm's competitive position in one country is affected by its position in other countries.
A global industry is one that by operating in more than one country gains R&D, production, marketing and financial advantages in its costs and
reputation that are not available to purely domestic competitors.
The global business organisation views the world as one market, minimizes the importance of national boundaries, sources material, raises capital
and markets wherever it can do the job best.
The industries reveals global pattern in today's world include automobiles, television sets, commercial aircrafts and boats, sporting equipment,
watches, clothing, semiconductors, copiers and also the transfer of funds.

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Pestle Analysis

PESTLE Analysis

Framework for Replaced Simple Encourages Environment


analysis of Traditional to Factors
Macro Framework ( understa
Environment PEST) nd & Proactive
Factors quick to approach Effects Increased Awareness
impleme industries regarding Environment is More
nt such as also effecting how legislation are
Structured companies operate coming into
thinking for pic. to save
Tourism
Decision environment
,farming,
making and they have
Insurance
direct impact
on the markets

The term PESTLE analysis is used to describe a framework for analyzing the micro- environmental factors. T/F with reason.
Incorrect: The term PESTLE Analysis is used to describe a framework for analysis of macro environmental factors. It involves identification of political,
economic, socio- cultural, technological, legal and environmental influences on an organization and providing a way of scanning the environmental
influences that have affected or are likely to affect an organization or its policy. The advantage of this tool is that it encourages management into
proactive and structured thinking in its decision making.

Strategic Response to the environment

1. Least Resistance

a. Just Manage to survive.


b. Goal-Maintaining units.
c. Passive behavior.
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d. Guided by signals of environment.
e. Not ambitious.
2. Proceed with caution

a. Monitor the changes in the environment.


b. Analyze their impact on their goals &activities.
c. Develop strategies for survival stability & strength on the basis of above analysis.
d. Comparatively sophisticated strategy.
3. Dynamic response

a. Take environment forces partially manageable and controllable by their actions.


b. Highly dynamic feedback system.
c. They convert threats into opportunities.
d. Conscious and confident of their own strength and weakness.
e. Generate contingent set of alternatives courses of action.

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f. Choose one in tune with the changing environment.

Competitive Environment

x The essence of strategy formulation is coping with competition.


x Intense competition is neither a coincidence nor a bad luck.
x All organisations have competition.
x Even large public sector monopolies are facing competition.
x For business organisation competition affects its prices and scale of operations.
x The benefit of Competition is also enjoyed by the society and markets in which organisation operates.
x Customers get better products at lower prices.
x Competition may not be necessarily for the same product or service.
x May be direct, May be indirect.

Following things should be considered to understand the nature and extent of competition.
x Who are the competitors?
x Their product & service.
x Market share
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x Financial positions.
x Cost and price advantage.
x What will be there next move?
x Potential competitors.

Additional Points
1. Competitive pressure varies from industry to industry
2. Competitive process of all the industry is more or less alike.

Cooperation in a Competitive Environment

Instead of fighting with each other, business groups work with other. Businesses cooperate with each other in order
to maximize the profit and minimize the cost. In times of competition cooperation becomes very important.

There are three types of cooperation in competition

1. Cartelization
2. Kieretsus
3. Family owned business cooperation

Cartelization

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Cartelisation

Arrangements Aims at
Same condition as
Organisations dealing OLIGOLPOLY
in the same product or Example OPEC
Tacit( unknown Safeguarding
service or sometimes which is collective Explicit( known Stabilising the
to public) their interest
even in different group of countries to public) market price &
individually or
product or service extracting & avoiding
collectively
forms groups or cartels exporting fluctuaions
to rule the market

What is Kieretsus?

Cooperation in Japan is known with the name of Kieretsus.

1. A kieretsu is a loosely-coupled group of companies, usually in related industries.

2. They are large cooperative networks of businesses.

3. These are formed in order to enhance the abilities of individual member businesses to
compete in their respective industries.

4. Kieretsu members are peers and may own significant amounts of each other's stock and
have many board members in common.

5. In Kieretsu members remain independent companies in their own right: the only strategy they have
in common is to prefer to do business with other kieretsu members, both when buying and when
selling.

6. However, they are different from conglomerates (Common in western countries and also found in
India) wherein all members are lineated through ownership pattern.

7. A kieretsu also differs from a consortium or an association, as the primary purpose of a kieretsu
is not to share information or agree industry standards, but to share purchasing, distribution or
any other functions

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Family owned cooperation

Family Owned Cooperation

In India, a very large number of Major and minor decision Disadvantages


business enterprises are family taken by the members of
owned cooperation (tata, birla, family
Quarrels and conflicts among
modi, escorts etc) managing members (may
distort their behaviour in
managing & damage
interest of family and functioning
enterprise coincides (identical)
Cooperation generates in
automatically
Succession remains a tricky
and conflicting issue in
Business ( ex-Ambanis , bajajs,
nandas etc)

Exception - murugappa group


resolved their succession
issues withou coming in
public eyes

Porter's Five Forces Model - Competitive Analysis

To understand the competitive environment of the company the managers need to focus only on the important
tasks rather than gathering bulk of unimportant information.

The task of focusing only on important task can be done with the help of some well-defined concepts and
analytical tools.

A powerful and widely used tool for systematically diagnosing the significant competitive pressures in a market and
assessing the strength and importance of each is the five-force model of competition. (िौन िौन से competitive
presessure है और विसिी वितनी strength and importance है )

This model simply suggests that Competition is made of pressures operating in five different areas of market.

1. New Entrants.
2. Bargaining power of the customer.
3. Bargaining power of the suppliers.
4. Rivalry among current players.
5. Threats from substitutes.

The five forces together determine industry attractiveness/profitability.

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How to use it
1. Identify specific competitive pressure associated with each of the five forces.
2. Evaluate how strong the pressure is (Fierce, strong, moderate weak)
3. Determine whether the collective strength of 5 competitive forces are conducive to earn attractive
profits.

Porters five forces model


(competitive analysis)

Level of competition and its nature for


different organisation depends upon its
Nature, size etc. (five key areas are:-)

Bargaining power of Bargaining power of Rivalry among current Threats from


New Entrants
customer supplier players Substitutes

Powerful source of Influence price , Effects cost i.e. Normally known as


Attractiveness Latent source of
competition investment & cost competition
competition

They may come in Specialised offering Influence Strategic


Brings new variety Decisions at every Subsitute may give
groups or cartels more bargaining power price advantage or
level. Specially @
Functional level performance
improvement
Limit price &
profitability Generally found in Lesser the no.of
industrial products supplier more the Effects price and cost
bargaining power Direct impact on price
of competition
and profit
Bigger the entrant
severe the threat

Other Questions
x Porter's five forces model considers new entrants as a significant source of competition. T/F with reason.
x Industry is a composite of competitive pressures in five areas of the overall market. Briefly explain the competitive pressures
x Explain the factors that affect the strength of competitive pressures from substitute products.
x How the new entrant affects the competition?

Miscellaneous Questions
State with reasons which of the following statements is correct / incorrect

Managers must list and analyze all environmental influences for proper strategic understanding.
Incorrect: The environment encapsulates many different influences. The difficulty is in making sense of this diversity in a way which can contribute
to strategic decision-making. Listing all conceivable environmental influences may be possible, but it may not be of much use.

Changes of any type are always disquieting, sometimes they may be threatening."
Incorrect: Favorable changes either in the external environment or internal environment are not threatening and/or disquieting. Changes that are
initiated by the management to bring improvements in its working are not always disquieting. However, sometimes changes can be threatening
especially for old and weak organizations.

The rate and magnitude of changes that can affect organisations are decreasing dramatically
Incorrect: No. the reality is just the other way round. Business environment especially after globalization and liberalization is witnessing changes
that are fast paced and have far-reaching implications for businesses. This is true for economic, political, technological, legal, and socio-cultural

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factors. This has created strong pressures on organization for proactive adaptation to environmental changes for survival growth and competitive
edge.

Strategic actions are always in reaction to the changes in environment.


Incorrect: Strategic actions are typically a blend of (1) proactive actions on the part of managers to improve the company's market position and
financial performance and (2) as needed reactions to unanticipated developments and fresh market conditions and developments.

The benefit of competition is also enjoyed by the customers.


Correct: The benefit of competition is enjoyed by the society and the markets in which organisations operate. The customers are able to get
products at lower costs and of better quality. They are able to get better value of their money because of competition.

The process of strategy avoids matching potential of the organization with the environment opportunities.
Incorrect: In the process of strategic management an organization continuously scan its relevant environment to identify various opportunities
and threats. Organisations keen to grow and expand often look for promising opportunities that match their potential. Such opportunities become
a good stepping stone for achieving the goals of the organization.

Describe two environmental changes that you expect to have a major impact on the industry:
(i) Retail Industry
(ii) Automobile Industry
(iii) Education Industry

All the environmental forces impact industries in varying degree. Over a period of time these may change and oscillate between dominant factors and insignificant
factors. Candidates are expected to provide two environmental factors in their answer. In the answers given below a large number of factors have been included
Marks to be awarded on the basis of merit of two environmental changes highlighted by the candidates

(i) Retail Industry:


) Macro environmental factors such as Technological, Economic, Demographic, Social. Legal and political.
) Rapid change in production process and product innovation.
) Foreign Direct Investment and policies thereon.
) Changes in Direct and indirect taxes
) Inflation, interest rates.
) Changes in employment / labour laws
) Change in attitude towards health.
) Developments in IT can help in support supply chain management, logistics and transportation.

(ii) Automobile Industry:


) Macro environmental factors such as Technological, Economic, Demographic, Social. Legal and political.
) New research and development.
) Anti- pollution pressures. Use of eco-friendly cars.
) Use of alternative fuels.
) Population growth and age mix
) Rural urban ratio.
) Changes in family structure.
) Changes in income levels.
) Changes in Import & Excise Duties.
) Foreign Direct Investment.
) Financing facilities at low interest rates.

(iii) Education Industry:


) Macro environmental factors such as Technological, Economic, Demographic, Social. Legal and political
) Changes in government policies. Proposed Higher Education and Research outlays
) Privatization of Higher Education
) Availability of soft loans for higher / professional education
) Attitude towards education
) Mobility of students
) Income
) Job opportunities

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QUESTIONS
1. Business is the state of being ________. It’s one’s regular __________________.
2. A business can have different forms like __________, _________________ or ________________ and different
functions like ______________, ____________, ________________, ______________.
3. As per Peter F Drucker, Profit is a reward for _______________________. It acts a ______________ yardstick.
4. Higher the _________________, higher the profit.
5. Some of the other factors that help in explaining a business, other than profits, are ______________
______________________________________________________________________________________________.
6. “Profit may not be a universal objective but business efficiency is definitely an objective common to all businesses”.
True/False? _____________
7. State the main objectives of business. (PEG-Survival & Stability)

(1) (2) (3)

8. ______________ is equated with degree of business efficiency and managerial competence.


9. Efficiency means ________________ utilization of available resources. It is an _________________ objective.
10. The objective of _____________ is associated with dynamism. It is achieved in the form of:

(1) (2) (3)

11. _______________ is important during initial stages & economic slowdown. It depends on:

(1) (2) (3)

12. ______________is a cautious & conservative objective. _________________________ in a hostile environment


leads to it.
13. Environment is a sum of several ______________ and _________________ surroundings.
14. ______________ response to environment results in fade away of business.
15. Successful business ______________, ______________ & _____________ to various opportunities and threats in its
environment.

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16. Business organization will take __________ from environment and will ___________ it and convert it into
__________, which will be given to customer and in return business organization will get _____________ which will
either be _____________ or ___________.
17. A business even if it continually remains passive to the relevant changes in the environment, would still grow and
flourish. True/False? ___________
18. Environmental constituents exist in isolation and do not interact with each other. True/False? _________
19. There is both opportunity and challenge in changes happening in environment. True/False? _________
20. The basic objective of a business enterprise is to monitor the environment. True/False? _________
21. State the steps (framework) & sub-steps to understand environmental influences.

(1) (2) (3)

22. State 3 problems that arise in understanding environmental influences and state in brief the reasons for each.

a) a) a)

b) b) b)

c) c) c)

a) a) a)

b) b) b)

a) a) a)

b) b) b)

c) c) c)

(1) (2) (3)

23. To understand the nature of organization’s environment, the 2 questions that need to be answered are:

(1) (2) (3)


It will help in deciding the focus. (Product/service & related issues)

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24. State the characteristics of business environment (C.D,M,a)

(1) (2) (3)

25. Relationship between organization & environment depends on the exchange of _______________, ______________,
___________________________.The factors on which this relationship depends on are:

(1) (2) (3)

26. Environment scanning/monitoring/analysis means: Process through which organization _____________


___________________________ to ________________________________________________________ for
__________________________________________.
27. State the objectives of environment scanning:

(1) (2) (3)

28. Some of the related factors while monitoring the environment are:

(1) (2) (3)


29. ____________are the general tendencies or the courses of action along which events take place.
30. ____________ are the current concerns that arise in response to events and trends.
31. ________________ are the demands made by interested groups in the light of their concern for issues.
32. Managers must list and analyze all environmental influences for proper strategic understanding.
True/False? _________
33. Changes of any type are always disquieting, sometimes they may be threatening. True/False? _________
34. The rate and magnitude of changes that can affect organizations are decreasing dramatically. True/False? _________
35. Strategic actions are always in reaction to the changes in environment. True/False? _________
36. The benefit of competition is also enjoyed by the customers. True/False? _________
37. The process of strategy avoids matching potential of the organization with the environment opportunities.
True/False? __________

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38. Distinguish between Micro environment & Macro environment.

39. State the components of Micro Environment (COSMIC)

(1) (2) (3)

40. Micro environment is also known as ________________________ and affects business and marketing in the daily
operating level.
41. _________________ are the people who pay consideration to buy the goods and services of the organization.
42. With regards to customers, a business must study:

(1) (2) (3)

43. __________________ are the other business entities and compete for resources as well as markets.
44. Some of the few major questions that may be addressed for analyzing competition are:

(1) (2) (3)


45. Some of the specific groups which influence an organization are:

(1) (2) (3)


46. A market is studied in terms of ____________________, _____________ and its ___________________. One should
study _____________________________ of the market in which they are operating.

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47. ___________________ provide materials, equipment, services. They can affect cost structure of the industry, with their
____________________________.
48. Organizations have to take a major decision on __________________ or __________________________ depending on
the supplier environment.
49. ___________________ are the link between customer & supplier.
50. State the elements of Macro environment:

(1) (2) (3)

51. _______________________________ refers to characteristics of population in a region including factors such as


_______, _______, ____________, _______________________, etc.
Following things are to be studied in this:
a) a) a)

b) b) b)

c) c) c)

(1) (2) (3)


52. State the factors (& their sub-factors) of interest to business while studying a demographic environment:
i.
a)
b)
ii.
a)
b)
c)
iii.
iv.
(1) (2) (3)

53. _________________ the population size, better it is for business. (Smaller, larger)
54. __________________ refers to characteristics of group of people sharing common culture. It has a dual impact:
Company’s _______________ & _________________.
55. Organizations have to determine the impact of change in ethnic mix on _____________________ and ____________.
56. _________________________ leads to change in saving and consumption pattern (spending habits).
57. _________________________ means the general economic situation, conditions which impact demand, supply, cost,
availability, reliability, etc. It determines _____________ and ___________ of the market.

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58. When studying the economic environment, we scan, monitor & forecast, assess the following:

(1) (2) (3)


59. Political- Legal environment is ___________________ to all similar enterprises & ___________________ to individual
enterprise.
60. State the factors (& their sub-factors) of interest to business while studying a political-legal environment:
i.
a)
b)
ii.
a)
b)
iii.
a)
b)
c)
(1) (2) (3)

61. A change in the elected government does not affect the business environment. True/False? ___________
62. Socio-cultural environment consists of factors related to government and politics. True/False? ________
63. The core beliefs & values of a particular society tend to be ________________. Business cannot change them & therefore
they become major determinants of business functioning.
64. Important social factors are:

(1) (2) (3)


65. Technology and business are highly __________________ and __________________.
66. The factors to be considered while scanning the technological environment are:

(1) (2) (3)

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67. Globalization means _______________ of world into one huge market and is done by removal of
_____________________.
68. At company level, globalization means ______________________________________________________ and
_________________________________________________________________________________.
69. Companies which go global are known as ______________________ or _______________________.
70. State some of the effects of a Global Environment. (8-9 points)

(1) (2) (3)


71. Why do companies go global? (8 points)

(1) (2) (3)

72. Name the 3 strategic approaches for globalization by a Company.

(1) (2) (3)

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73. Expansion into foreign markets can be achieved through following options:

(1) (2) (3)

74. ___________ analysis is the framework for analysis of Macro environment Factors. It encourages:
a) ________________________________________________
b) ________________________________________________
75. Write the characteristics of the following Strategic response types to the environment:
LEAST RESISTANCE PROCEED WITH CAUTION DYNAMIC RESPONSE

76. The essence of strategy formulation is _____________________________________.


77. Intense competition is either a coincidence or bad luck. True/False? __________
78. Large public sector monopolies never face competition. True/False? __________
79. For business organization competition affects its ____________ and ___________________________.
80. In a competitive environment, customers get better products at a ___________ price. (higher/lower)
81. State the factors that help better understand the nature & extent of competition:

(1) (2) (3)


82. Competitive process of all the industry is more or less alike. True/False? __________
83. There are 3 types of cooperation in competition. They are:

(1) (2) (3)


84. Organizations dealing in the same product or service or sometimes even in different product or service forms groups or
_______________ to rule the market. It is similar to a ______________ (monopoly/ oligopoly).
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85. There can be 2 types of arrangements in cartelization known as ____________ and ______________. Its primary aims
are:
a) _________________________________________________________________
b) _________________________________________________________________
86. What is Kieretsus?
Ans: _________________________________________________________________________________
87. A Kieretsu usually exists in ___________________ industries. (related/unrelated)
88. Kieretsu are formed in order to ____________________________________________________________
_____________________________________________________________________________________.
89. Kieretsu members may have many board members in common. True/False? ___________
90. Kieretsu networks are almost same as conglomerates. True/False? __________
91. A kieretsu differs from a consortium. True/False? ___________
92. State 2 disadvantages of a family owned cooperation.

(1) (2) (3)


93. A powerful and widely used tool for systematically diagnosing the significant competitive pressures in a market and
assessing the strength and importance of each is the ________________________________. Name the competitive
forces suggested in this model:

(1) (2) (3)


94. Mention in brief the steps to use a Porter’s Five Forces model:

(1) (2) (3)


95. _____________ the number of supplier, more the bargaining power. (Higher/Lesser)
96. The force of _______________________ in porter’s five forces model, brings new variety.
97. The force of _______________________ in porter’s five forces model, is a latent source of competition.
98. Porter’s five forces model considers new entrants as a significant source of competition. True/False? __________

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