313

M.Com.
PART - I

STRATEGIC MANAGEMENT - I

(Revised Syllabus w.e.f Academic Year 2014-15)

 UNIVERSITY OF MUMBAI

Dr. Rajan Welukar Dr. Naresh Chandra

Vice Chancellor, Pro-Vice Chancellor,
University of Mumbai University of Mumbai

Dr. Dhaneswar Harichandan

Professor-Cum-Director IDOL,
University of Mumbai

Course and Programme : Ms. Madhura Kulkarni

Co-ordinator Asst. Prof..-Cum. Asst. Director
University of Mumbai IDOL

Course Writer : Dr. Madhuri Karmarkar

Ghanshyamdas Saraf Girls Collge of Commerce,
Malad (W), Mumbai

: Dr. Vinita Pimpale

R.A.Poddar College of Commerce &
Economics, Matunga, Mumbai - 400090

: Dr. B. B. Kamble
Chinoy College of Commerce and Economics,
Andheri (E), Mumbai - 400069

Editor : Dr. Vinita Pimpale

R.A.Poddar College of Commerce &
Economics, Matunga, Mumbai - 400090

November-2014, M.Com., Part - I, Strategic Management - I.

Published by : Professor cum Director

Institute of Distance and Open Learning ,
University of Mumbai,
Vidyanagari, Mumbai - 400 098.

DTP Composed : Ashwini Arts

Gurukripa Chawl, M.C. Chagla Marg,
Bamanwada,Vile Parle (E), Mumbai - 400 099.

Printed by : Gogri Offset Printers

Andheri (E) Mumbai - 400 093
 CONTENTS
Unit No. Title Page No.

1. Introduction to Strategic Management 01

2. Formulation of Strategy and Strategic Management 28
3. Global Strategic : Practices and Issues 40
New Emerging Strategies in Information Communication
Technology (ICT) 77
Disaster Management : The Development Perspective,
Concerns and Strategies 92
Strategic Alliances, Corporate Strategy and Corporate
Governance 103
7. Emerging Trends in Global Business Environment 125
 I

M.Com
Part - I
Strategic Management - I

w.e.f the Academic Year 2014-15 in IDOL)

Course Objectives
To introduce the subject of Strategic Management to the
students and make them understand its process, and levels.
To help students identify and link Strategy formulation and
implementation with environmental analysis.
To provide information pertaining to business, corporate and
global reforms taking place globally and familiarizing the
students to new formats of the market.
To acquaint the students with knowledge of disaster
management to handle critical situations through practical
application of strategies of control and prevention.
To outline and illustrate how the market for corporate strategy
and control is related to corporate governance and help
students relate their knowledge of India context to emerging
trends of the global world.
To develop learning and analytical skill of the students to solve
business cases and provide Strategic Solutions.

SECTION I

MODULE – I

Introduction to Strategic Management

Define Strategy, Strategic Management Process.

Levels of Strategies - Corporate, Business and Operational
level, Types of Strategies - Functional Strategies, H. R.
Strategy, Marketing Strategy, Financial Strategy, Operational
Strategy.
Benefits and Risks of Strategic Management.
Formulation of Strategy and Strategic Implementation.
Business Environment, Components of Environment,
Environmental Scanning, Analysis of Strategies and Choice of
Strategy.
 II

MODULE – II

Business, Corporate and Global Strategies :

Practices and Issues
Introduction to corporate Restructuring, Need for corporate
restructuring and forms of corporate restructuring.
Evaluation of Strategic Alternatives, Types of Strategic
Alternatives like Portfolio Analysis and its techniques, SWOT
Analysis, Profit Impact of Market Strategy (PIMS).
Strategic Change, Corporate Renewal, Internal and External
Causes of Organizational failures.
Culture of Organization, Management of Strategies and
Cultures.
Strategies for Foreign Direct Investment and International
Trade in India.

MODULE – III

New Emerging Strategies in Information Communication

Technology (ICT)
(15 Lectures)
Concept of Outsourcing, Strategic Reasons of growing
Outsourcing in India.
Meaning of Management Information System (MIS), Strategic
MIS, Characteristics of Strategic MIS System and Barriers to
Successful Development of Strategic MIS System.
Business firms using Information Technology for creating
Strategic Advantages - Reengineering Business Process,
Virtual Company Strategies, knowledge creating company.
Emerging Strategies in Telecommunication Sector.

SECTION- II

MODULE – IV

Disaster Management: The Development Perspective,

Concerns and Strategies
Disaster Management Strategies in Global Context.
Strategic ways of managing disasters at the National, State,
District levels in India.
Challenges of Disaster Management of Governance in India.
Economic Losses due to disasters - Issues and Strategies.
 III

Strategies for preventing disasters and Preparedness

Measures.
Strategies to cope with Disasters.

MODULE - V

Strategic Alliances, Corporate Strategy and Corporate

Governance
Meaning of Strategic Alliances, Types and Structure.
Problems in Indian Strategic Alliances.
Meaning of Corporate Strategy, Corporate Level Strategies -
Mergers and Acquisitions, Takeovers, Joint Ventures,
Diversification, Turnaround, Liquidation.
Relationship Between International Strategy and Corporate
Strategies.
Corporate Governance Principles and Practices in India.
Corporate Governance Practices around the World.

MODULE - VI

Emerging Trends in Global Business Environment

Strategies for growing green economies.

Strategies for Governing Public Private Participation of
Business Sector in India.
Meaning of Corporate Social Responsibility ((CSR), Strategies
of linking CSR with Profit and Sustainability for obtaining
business benefits.
Strategies for Environmental Accounting and Auditing.

Case Preparation and Analysis

Applying the Section II Modules I, II and III of Strategic

management techniques and applications, cases can be illustrated
and more detailed comprehension and analysis of the cases can be
done by the students with the guidance of the subject teacher. The
cases can be further represented by recommendations and
suggestions by the students so that the students are exposed to
creative analysis, critical thinking, accurate observations and
developing learning skills.
 IV

References
Strategic Management, A Dynamic Perspective - Concepts and
Cases - Mason A. Carpenter, Wm. Gerard Sanders, Prashant
Salwan, Published by Dorling Kindersley (India) Pvt Ltd,
Licensees of Pearson Education in South Asia.
Strategic Management and Competitive Advantage - Concepts -
Jay B. Barney, William S. Hesterly, Published by PHI Learning
Private Limited, New Delhi.
Globalization, Liberalization and Strategic Management - V. P.
Michael.
Business Policy and Strategic Management - Sukul Lomash and P.
K. Mishra, Vikas Publishing House Pvt. Ltd., New Delhi.
Strategic Management - Fred R. David, Published by Prentice Hall
International.
Business Policy and Strategic Management - Dr. Azhar Kazmi,
Published by Tata McGraw Hill Publications.
Strategic Management - Bern Banerjee.
Business Policy and Strategic Management - Jauch Lawrence R &
William Glueck Published by Tata McGraw Hill.
Strategic Management - Thomas L. Wheelers & J David Hunger
Addison, Wesley publishers.
Strategic Management - A Multi Perspective Approach, Edited by
Mark Jenkins & Veroruque Ambrosini Palgrave.
Strategic Management : Competitiveness & Globalisation - Michael
Hilt and R. Duane Ireland, Robert E. Hoskisson South,
Published by Western Thomson Learning.
Strategic Management - John A. Pearce II & Richard B. Robinson
Jr. A.I.T.B.S., Delhi.
Business Policy and Strategy - Concepts & Readings - Daniel
McCarthy, Robert Minichiello, Joseph Curran, Published by All
India Traveller Bookseller.
Public Enterprise Management and Privatisation - Laxmi Narain
Published by S. Chand & Company Ltd, New Delhi.
Business Organisation - Rajendra P. Maheshwari, J. P. Mahajan,
Published by International Book House Pvt Ltd.
Disaster Management Strategies - A Global Perspective -
Deolankar Vivek, Published by Commonwealth Publishers,
New Delhi.
Disasters and Development - Cuny Fred C. Published by Oxford
University Press, Oxford.
 V

At Risks Natural Hazards, People’s Vulnerability and Disasters

- Wisner Ben P. Blaikie, T Cannon and I. Davis, Published by
Wiltshire Routledge.
Mergers, Acquisitions and Corporate Restructuring - Strategies
and Practices - Rabi Narayan Kar, Published by International
Book House Pvt. Ltd. Mumbai.
Working Class Movement in India in the Wake of Globalisation
Edited by Jose George, Manoj Kumar, Dharmendra Ojha,
Published by Manohar Publishers & Distributors, New Delhi.
Labour Market and Institution in India - Shuji Uchikawa,
Published by Manohar Publishers & Distributors, New Delhi.
Globalisation, Labour Market & Inequality - Muzumdar and
Sarkar.
Industrial Relations - Arun Monappa, Published by Tata
McGraw Hill Publishing Co. New Delhi.
Industrial Relations in India Edited by E A Ramaswamy,
Published by Macmillian Co of India Ltd, Mumbai.
Trade in Early India - Edited by Ranabir Chakravarti, Oxford in
India Readings.
Corporate Social Responsibility in India : A study of
Management Attitudes, C. Gopala Krishna, Mittal Publications,
New Delhi.
Corporate Excellence through Corporate Governance,
Contemporary Practices and Prognosis, Backgrounds Papers,
Presentations and Proceedings - Edited by Dr. P. Asthana,
Published By ICSI - Centre for Corporate Research and
Training, Navi Mumbai.
Corporate Excellence - Manu Agarwal, Kalpaz Publications,
Delhi.
The Mechanisms of Governance - Oliver E. Williamson, Oxford
University Press, New York.
Emerging Multinationals : The rise of New Multinational
Companies from emerging economies - Pricewaterhouse
Coopers.
International Business, Charles Hill.
Foreign Direct Investment in India - Policies, conditions and
process by Niti Bhasin, New Century Publication, 2012.
Foreign Direct Investment - Global Financial Crisis by A. Rais
Ahmed, New Century Publication, 2013.
Crisis Management Challenges And Responses By Prof
Mukesh Bhatia, regal Publication, New Delhi.
 VI

Strategic Management - Awareness and Change, John. L.

Thompson, Internal Thomson Business Press.
Gaining and Sustaining Competitive Advantage, Jay B. Barney,
Eastern economy Edition, PHI Learning Pvt Ltd, New Delhi.
Strategic Management by Prof N. H. Mulick, Enkay Publishing
House New Delhi.
Public Sector Perspective, by Dr. M. Veerappa Moily.
The Impact of Private sector participation in Infrastructure -
Lights, shadows and the Road ahead by Andres, Luis, Guasch,
luis, J. Thomas, Haven & Foster, World Bank, Washington.
Corporate Sector and Public Relations Today, Jacksons MK,
Cambridge, London.
E-business A Management Perspective - Jonathan Reynolds,
Indian Edition, Oxford University Press.
Quality of Service in Telecom Sector : Users Perception -
Assessment - Chalam G. V. ICFAI University Journal of
Management Economics, Vol.34, Issue 2, Pages 77-93.
Modeling and Navigation of Large Information Space : A
Semantic Based Approach Ram. S. Shankaranarayanan G,
1999.
Management Information System - An Insight by Hitesh Gupta,
International Book House Pvt Ltd Publication, Mumbai.



 1

1
INTRODUCTION TO STRATEGIC
MANAGEMENT

Unit Structure:
1.0. Objective
1.1 Introduction
1.2 Meaning and definition of strategy.
1.3 Nature of business strategy
1.4 Strategic management process.
1.5 Benefits of strategic management.
1.6 Summery
1.7 Questions

1.0. OBJECTIVES

After studying this unit the student will be able to -

 Understand the concept of strategy and strategic management.

 Know the process of strategic management
 Know the levels of strategic management
 Understand the various types of strategies
 Explain its advantages and limitations
Know the roles, strategists play in strategic management.

1.1. INTRODUCTION

Globalization of economy has brought about revolutionary

changes in the policy framework of both developed and
underdeveloped countries. The liberalization has removed artificial
trade barriers and businesses have, now truly become international
and the competition has become very severe. These developments
gave rise to new paradigms in business policies and strategic
thinking. Due to this there are drastic changes in conventional
concept of business. The survival and success of the firm ,is
influenced significantly by superior strategies like business have
started focusing on customers and their satisfactions rather than
focusing on products and sales early 1960’s corporate planning
 2

was popular but after 1980’s its place has taken by strategic
management to face stiff competition arisen by globalization.

There are number of examples where some firms have

prospered and other has perished. The keen study of these cases
reveals that the basic reasons of their success and failure are the
types of policy that the firm pursues. This is known as business
policy.

Business policy refers to decisions about the future taken by

top management. It is guidelines given to employees by senior
management for functioning. It is the means and ends, molding of
organization’s identity and character and continuous guidance of
actions to attain goal.

Normally the business policy consists of :

Study of the functions and responsibilities of senior
management related to the organizational problems affecting on
the success of total enterprise.
It determines the future course of action which organizations
have to adopt.
Choosing the purpose and defining the problem or need of the
organization.
Lastly, it is concerned with the proper mobilization of resources
so that Organization can attain its goal easily.

1.2 MEANING AND DEFINITION OF STRATEGY

Unlike the pure science which have their foundation in

experimental research, management studies draw upon the
practical experiences of managers in defining concepts? Business
policy is rooted in the practice of management and has passes
through certain phases before taking its shape of strategic
management.

The concept of strategy is undoubtedly the most significant

concept in business policy and strategic management. The concept
of strategy is derived from military principles. In military context, the
strategy is a plan of action to win a war. Here military identify the
quality and quantity of resources to be mobilized and used at the
most appropriate time in suitable and convenient manner to win a
war.

In business parlance, there is no definite meaning of

strategy and used for number of things like mobilizing and
deploying resources systematically and attain organizational goal or
 3

the pattern of common thread related to the organization’s activities

which are derived from the policies and objectives and goals. It is
related to pursuing those activities which move an organization
from its current position to desired future state. It also relates to
resources necessary for implementing a plan or following a course
of action.

Strategy literal meaning is “In anticipation of opponents

move, designing one’s own way of action”. As it has different
interpretations and really difficult to fathom what strategy means.
So we can conclude that it is the means to achieve organizational
goal.

Following are some of the definitions with which we will be

able to understand the meaning of strategy.

Definitions:-
“Strategy is the determination of the basic long term goals
and objectives of an enterprise and the adoption of the course of
action and the allocation of resources necessary for carrying out
these goals.”

Alfrred D. Chandler.

“A strategy is a unified, comprehensive, and integrated plan

that relates the strategic advantages of the firm to the challenges of
the environment. It is designed to ensure that the basic objectives
of the enterprise are achieved through proper execution by the
organization.”
Lawrence R. Jauch & William F. Glueck.

1.3 NATURE AND CHARACTERISTICS OF BUSINESS

STRATEGY

Following are the features of strategic management.

Objective.
Future oriented.
Availability and allocation of resources.
Influences of Environment.
Universal applicability.
Levels of strategy.
Review.

1. Objective Oriented:
The business strategies are objectives oriented and are
directed towards organizational goal. To formulate strategies the
business should know the objectives that are to be pursued. For
 4

example if any business want to achieve growth then it has to set

following objectives.
To increase market share.
To increase customers satisfaction.
To enhance the goodwill of the firm.

2. Future Oriented:
Strategy is future oriented plan and formulated to attain
future position of the organization. Therefore strategy enables
management to study the present position of organization and
decides to attain the future position of the organization. This is
possible because strategy answer question relating to the following
aspects.
Prosperity of the business in future.
The profitability of the business in future.
The scope to develop and grow in future in different business.

3. Availability and Allocation of Resources:

To implement strategy properly there is need of adequate
resources and proper allocation of resources. If it is done then
business can attain its objectives. There are three types of
resources required by business namely physical resources, i.e
plant and machinery, financial resources i.e capital, and human
resources i.e manpower. If these resources are properly
audited/evaluated and find out its strength and weaknesses and co-
ordinate well then management can do better strategy
implementation.

4. Influence of Environment:
The environmental factors affect the formulation and
implementation of strategy. The business unit by analyzing internal
and external environment can find out its strength and weaknesses
as well as opportunities and threats and can formulate its strategy
properly.

5. Universally Applicable:
Strategies are universally applicable and accepted
irrespective of business nature and size. Every business unit
designs strategy for its survival and growth. The presence of
strategy keeps business moving in right direction.

6. Levels of strategy:
There are companies that are working in different business
lines with regards to products /services, markets or technologies
and are managed by same top management. In this case such
companies need to frame different strategies. The strategies are
executed at three different levels such as –
 5

Corporate level
Business level
Functional/operational level

Corporate level strategies are overarching plan of action

covering the various functions that are performed by different
SBUs(strategic business unit, which involved in a signal line of
business) the plan deals with the objectives of the company,
allocation of resource and co-ordination of SBUs for best
performance.

Business level strategy is comprehensive plan directed to

attain SBUs objectives, allocation of resources among functional
areas and coordination between them for giving good contribution
for achieving corporate level objectives.

Functional level strategy is restricted to a specific function. It

deals with allocation of resources among different operations within
that functional area and coordinating them for better contribution to
SBU and corporate level achievement.

7. Revision of strategy:
Strategies are to be reviewed periodically as in the process of
its implementation certain changes are going to take place. For
example while implementing growth strategy there could be
shortage of resources because of limited sources or recession
during the period so retrenchment strategy should be considered.

8. Classification of strategy:
Strategies are classified into four major categories known
as –
Stable growth strategy
Growth strategy
Retrenchment strategy
Combination strategy.

1.4 STRATEGIC MANAGEMENT PROCESS

Strategic management is a dynamic process .it is continual,

evolving, iterative process. it means that it cannot be a rigid, step-
wise collection of few activities arranged in a sequential order
rather it is a continually evolving mosaic of relevant activities.
Managers perform these activities in any order contingent upon the
situation they face at a particular time. And this is to be done again
̀ĀȀ⤀Āᜀ again over the time as the situation demands. There are
four major phases of strategic management process which are as
under.
A) Establishment of strategic intent.
B) Formulation of strategies.
 6

Implementation of strategies.
Strategic evaluation.

A. Establishment of strategic intent:

It is a first step in strategic management Process. It involves

the hierarchy of objectives that an organization set for itself.
Generally it includes vision, mission, business definition and
objectives establishing the hierarchy of strategic intent which
includes -

Creating and communicating a vision.

Designing the mission statement.
Defining the business.
Adopting the business model.
Setting objectives.

The hierarchy of strategic intent lays the foundation for

strategic management of any organization. The strategic intent
makes clear what organization stand for. In the hierarchy, the vision
intent serves the purpose of stating what the organization wishes to
achieve in the long run. The mission relates the organization to the
society. The business definition explains the businesses of the
organization in terms of customer needs, customer groups and
alternative technologies. The business model clarifies how the
organization creates revenue. And the objectives of the
organizations state what is to be achieved in a given period of time.

B. Formulation of strategy:

Formulation of strategy is relates to strategic planning. It is

done at different levels i.e. corporate, business, and operational
level. The strategic formulation consists of the following steps.

1. Framing of mission statement :

Here the mission states the philosophy and purpose of the
organization. And all most all business frames the mission
statement to keep its activities in the right direction.

2. Analysis of internal & external environment:

The management must conduct an analysis of internal and
external environment. Internal environment consists of manpower,
machines, and other sources which resides within the organization
and easily alterable and adjustable. These sources reveal the
strength and weakness of the organization. External environmental
factor includes government, competitions, consumers, and
technological developments. These are not adjustable and
controllable and relates to organizations opportunities and threats
 7

3. Setting of objectives:
After SWOT analysis, the management is able to set
objectives in key result areas such as marketing, finance,
production, and human resources etc. While setting objectivities in
these areas the objectives must be realistic, specific, time bound,
measurable, and easy attainable.

4. Performance comparison :
By undertaking gap analysis management must compare
and analyze its present performance level with the desired future
performance. This enables the management to find out exact gap
between present and future performance of the organization. If
there is adequate gap then, the management must think of strategic
measures to bridge the gap.

5. Alternative strategies :
After making SWOT analysis and gap analysis management
needs to prepare (frame) alternative strategies to accomplish the
organizational objectives.
It is necessary as some strategies are to be hold and others to be
implemented.

6. Evaluation of strategies :
The management must evaluate the benefits and costs of
each every alternative strategy in term of sales, market share,
profit, goodwill and the cost incurred on the part of the strategy in
terms of production, administration, and distribution costs.

7. Choice of strategy :
It is not possible to any organization to implement all
strategies therefore management must be selective. It has to select
the best strategy depending on the situation and it has to consider
in terms of its costs and benefits etc.

C. Strategy Implementation :

Once the strategies are formulated the next step is to

implement them. The strategic plan is put into action through six
sub processes known as project, procedural, resource allocation,
structural, behavioral, and functional implementation. The project
implementation deals with the setting up of organization.
Procedural implementation deals with the different aspects of the
regulatory framework within which organizations have to operate.
Resource allocation relates to the procurement and commitment of
resources for implementation. The structural aspect of
implementation deals with the design of organizational structures
and systems and reorganizing so as to match the structure to the
needs of strategy. The behavioral aspects consider the leadership
style for implementing strategies and other issues like corporate
 8

culture, corporate politics, and use of power, personal values and

business ethics and social he responsibilities. The functional
aspects relates to the policies to be formulated in different
functional areas. The operational implementation deals with the
productivity, processes, people and pace of implementing the
strategies

For any strategy implementation there are five major steps.

Such as
Formulation of plans.
Identification of activities.
Grouping of activities.
Organizing resources.
Allocation of resources.

D. Strategic Evaluation:

Strategic evaluation appraises the implementation of

strategies and measures organizational performance. The feedback
from strategic evaluation is meant to exercise control over the
strategic management process. Here the managers try to assure
that strategic choice is properly implemented and is meeting the
objectives of the firm. It consists of certain elements which are
given below.

Setting of standards:- The strategists need to set standards,

targets to implement the strategies. it should be in terms of quality,
quantity, costs and time. The standard should be definite and
acceptable by employees as well as should be achievable.

Measurement of Performance:- Here actual performances are

measured in terms of quality, quantity, cost and time.

Comparison Of Actual Performance With Set Targets:- The

actual performance needs to be compared with standards and find
out variations, if any.

Analyzing Deviation And Taking Corrective Measures:- If any

deviation is found then higher authorities tries to find out the causes
of it and accordingly as per its nature takes corrective steps. Here
some time authority may re-set its goals, objectives or its planning,
policies and standards.

1.5 CORPORATE LEVEL STRATEGY

There are three broad levels of strategy known as-

Corporate strategy
Business strategy.
Functional strategy.
 9

CORPORATE LEVEL STRATEGY.

Corporate level strategies are basically related to allocation

of resources among the different businesses of the firm, managing
and nurturing portfolio of businesses etc. it helps to exercise the
choice of direction that an organization adopts. Corporate strategy
typically fits within three main categories- stability, growth, and
retrenchment strategy. We will discuss these three strategies in
detail.

Corporate level strategies are principally about the decision

related to dispersion of resources among different businesses of an
organization, transforming resources from one set of business to
others and managing and nurturing a portfolio of businesses such
that the overall corporate objectives are achieved.

1. Stability strategy:-

This strategy is adopted by the firm when it tries to hold on to

their current position in the market. It also attempts at incremental
improvement of its performance by marginally changing one or
more of its businesses in terms of their respective customer group,
customer function and technologies either individually or
collectively. it does not mean that the firm don’t wants to have any
growth. Its attempts are at the modest growth in the same business
line. For example any company offers a special service to a
institutional buyers to increase its sale by encouraging bulk buyer
so it is companies strategy of stability by improving market efficient.

2. Growth Strategy:-

This strategy is also known as expansion strategy. Here the

attempts are made to have substantial growth. This strategy will be
pursued when firm increases its level of objectives upward in a
significant increment which is much higher as compared to its past
achievements.

To achieve higher target compared to past the firm may enter

into new /introduces new product lines, enter into additional market
segment. it involves more risk and efforts as compared to stability
strategy. The growth strategy is divided into two parts namely

Internal growth strategy and

External growth strategy.

Internal growth strategy mainly consists of diversification

strategies and intensification strategy.
 10

External growth strategy consists of merger, takeover, foreign

collaboration and joint venture.

The major objectives of adopting of growth strategies are –

Survival: - This is natural tendency of every business to grow. if

it does not then new entrants will be there in the market and its life
will be in danger. Survival is also necessary to face challenges of
business environment.

Innovation: - Innovation is important to business as it gives new

product, new methods, new schemes with which business can grow
to a desirable extent. With this business gets high performance,
high results which are indication of growth.

Motivation to employees: - growth strategy generates higher

performance and it enables the firm to motivate employees with
monetary and non-monetary incentives.

Customer satisfaction: - Growth strategy enables the firm to

give more satisfaction by providing good quality products at
reasonable price.

Corporate image:- corporate image means creating good image

of the organization in the minds of the all stakeholders. This will be
made possible only with growth strategies of the firm as it gives
quality goods to people, good return to investor, fair wages and
salaries to employees with its increased volume of output and
enhance performance.

Economies of scale: - Due to growth strategy there is increase

demand to a products which results in large scale production, which
in turn brings economies of large scale. It may be in saving labour
cost or material cost.

Efficiency:- Efficiency is the ratio of returns to costs. Due to

growth strategy there is innovation, up gradation of technology,
training and development of employees and research and
development all these leads to improvement in output and
reduction in cost and increases profit.

Optimum use of resources: - Due to growth strategy there is

increased demand to a product. This leads to large scale
production and distribution. Therefore the firm can make optimum
use of resources.

Expansion of business: - The growth strategy facilitates

expansion to business unit. Because the performance of business
units improves in terms of sales, market share and profit. Therefore
 11

the business unit can move from its local level function to national
or international level.

Minimize risk: - due to the expansion of business there is

change in term of product sales, market areas. In this case if
business suffers a loss in one product or market then it will be
compensated in another market or product. Therefore the business
will be minimize the risk.

3. Intensification Strategy:

In intensification strategy, the business tries to grow within

the existing businesses through market penetration, market
development and product development.

Market penetration means increasing current market’s sale

by undertaking aggressive efforts like high advertising, price cutting
and sales promotion etc.

Market development means entering into new markets along

with the current market. Here business units undertakes market
research, effective pricing policy, effective promotion mix and
distribution chain. And product development means introducing
improved or substitute’s product. It may be in the same market or
new market.

4. Diversification Strategy:

Diversification is one type of internal growth strategy. It is

changing product or business line. In this case business enters into
in the new business service or product which is extension of
existing activity or there could be a substantial difference in skill
technology and knowledge. There are certain reasons because of
company go for diversification. The reasons are as under

Spreading of risk: - Diversification enables to spread the risk.

In this the business operates in a different markets where in one
market business suffer a loss, that can be compensated in other
market and the levels of profit will be maintained.

Improves corporate image: - Corporate image is creating

mental picture of the company in the peoples mind. Through the
diversification company as changes products and knowledge
gives better quality product and services with which it creates
positive impact on peoples mind.

Face competition effectively: - Due to the diversification

company introduce wide range of products and services. This
enables company to maintain it’s a sale in the market.
 12

Utilization of resources: - Diversification enables company to

use the resources optimally as it has excess capacity
manufacturing. If facilities managerial man power and other
resources to production dept and other activities.

Economies of scale: - Diversification brings economies of

scale especially in the area of diversification. The company can
combine the distribution old product as well as new products
with the help of same distribution chain.

Customer satisfaction: - When the company entered into new

business it assured to give qualitative product and good
services. This leads to customer’s satisfaction.

Synergistic advantages: - Synergistic advantages are those

which are gained by putting little bit improvement in the same
product or process which are related to old product and gain
new products. This will be easily attained in diversification.

TYPES OF DIVERSIFICATION:

There are four major types of diversification knows as:

Vertical diversification: - Vertical diversification is the

extension of current business activities. Such extension is of two
types known as

Backward diversification:- It is a diversification where

company moves one step back from the current line of business for
example cupboard manufacturing unit enter into it’s a raw material
supply unit (Color and Hardware)

Forward diversification: - In this case company enters into the

activity which is extension of its current business for example cloth
manufacturer enter into garment manufacturing.

Horizontal diversification: - In this case company enters into a

new business which is very closely related with existing line of
business and it is with the help of the same technology and the
market. For example gent’s garments manufacture enter into ladies
garments manufacturing.

Concentric diversification: - In this new business is linked to

the existing business which is indirectly related. For example a car
seller may start finance company to increase his sale.

IV) Conglomerate diversification: - In this type of diversification,

the attempt is made to diversify the present market or product in a
totally new product of market. There is a no linkage between old
 13

and a new business. For example Transport operator entered into

furniture manufacturing

5. Turnaround Strategy:

Turnaround strategy means converting loss making unit into

a profitable one. It is possible when company restructure its
business operations. it is broad in nature and including divestment
strategy (where business get out of certain activities or sell off
certain units or divisions) Its aim is to improve the declining sales,
market share and profit because of high cost of materials, lower
price utilization for goods and services or increase competitions,
recession, managerial in efficiency.

The turnaround strategy is needed when the following

situations arise in business. Namely:-
I) Liquidity problem
Fall in market share
Reduction in profit
IV) Under utilization of plant capacity
High inventory

6. Divestment Strategy:

Divestment is dropping out or sells off the products, or

functions. It involves the sale or liquidation of a portion of a
business or major division or SUB. It is a part of rehabilitation plan
and his adopted when turnaround has been attempted but has
proven to be unsuccessful. There is certain reason for divestment

Withdrawal of obsolete products:- Those products which do

not give adequate return to the firm will be removed. And the
products which are having good market share and profitable will
be continued.

Problem of Mismatch:- The business which is undertaken by

the company is not matching with the existing business line.
Therefore the company may take initiative to gate red of newly
acquired business

Problem of competition:- Some times due to tough

competition company may withdraw some products from the
market or sell the units producing such products.

Negative cash flows:- When business gets negative cash

flows from a particular business. The revenue collected from
such a business is lower as the expenditure incurred on it
therefore it is to be divested
 14

e. Technology Up-gradation:- Technology Up-gradation is

important for survival of business. But the cost of up-gradation is
so high which is not affordable to business therefore that
business activity is to be divested

Concentration on Core Business:- When business undertake

number of activities at a time, then it may be difficult to the
business to manage all activities satisfactorily. Due to this
business ignore its over activity which leads to loss in business
therefore to concentrate on core business divesting other
activities is essential.

Alternative for Investment: - Some time, by divesting certain

activity company can invest its blocked fund into some another
investment alternative which will give good return

Returns to Shareholders: - Company, by divesting may

increase shareholders return by giving shareholder hefty
dividend.

Attractive Offers from Other Firm: - Sometimes it happens

company may get offer from another company. To invest in a
good return giving from company may divest current activity.

Liquidation Strategy:

This is extreme case of divestment strategy and is

undertaken in the situation when all the efforts of reviving the
company have come to an end. There is no possibility that the
business can made profit making unit again. In such situation
business takes decision to sell its entire business and the amount
realized from it can be invested in another business. When it is
done it is known is liquidation. This is generally done by small
businesses.

There are certain reasons because of the liquidation has taken

place that reasons are –

When the business continuously suffered loss and all efforts

have failed to make it profitable again.
When there is good offer from other businesses
When business found that there are difficulties to deal with the
present business
When the business unit has taken over new business and the
current business is not coping with or matching and current
business is not profitable.
 15

Whenever such type of situation has occurred, business, as

per company act 1956 can go for liquidation.

The relief gained on the part of liquidation to the company is

It gives relief to financial institution as financial institutions are
able to get their funds back.
It enables the firm to enter into new business.
It enables to the acquirer to consolidate its market.
The shareholders of liquidating company may get shares or
compensation from new company or acquirer.
The employees may not lose their job as the new management
can continue them in new business.

8. Modernization strategy:

Modernization is nothing but it is improvement/up-gradation of

existing physical facilities (plant, machinery, process etc) it is done
to have improved quality of products and offer customer value. It is
also undertaken to face competition on proactive basis and take
competitive advantages. At present every firm is undertaking this
on continuous basis to be there in competitive business era and
ensure its survival, growth and prosperity

It is to be noted that while doing modernization, it incurred a

cost, so before introducing it the firm must go through cost analysis
and find out its impact in long term or short term basis and then
take decision. However modernization has some advantages

Modernization can improve both product quality and over all

organizational efficiency.
There will be proper utilization of plant capacity, qualitative
products will be produced and there will be increase in sale.
Modernization helps business to face competition in the market.
In fact, due to introduction of liberalization MNC, s and TNC,s
are entering in market with sophisticated technology and
competing them is not a easy task to Indian business here
modernization helps.
It also helps to build good corporate image in the market as
good quality is the result of modernization.
Modernization also leads to economy in production by reducing
cost of production per unit. This is because of reduction in
wastages and increase in efficiency.
 16

9. Merger Strategy:

Merger refers to combination of two or more companies

where one company survives and another company ceases to
exist. The merger takes place for consideration. Here the acquiring
company pays it either in cash or its shares.
Advantages of Merger :
It enables the pooling of resources and streamlining of
operations, thereby, resulting in improved operational
efficiencies.
Merger can bring out a revival of sick units. The sick units can
be merged with strong companies, and therefore the problem of
industrial sickness can be avoided.
Merger provides faster growth to business as it offers
advantages in several areas such as marketing, production,
finance, R&D and so on.
Merger can be used as effective source of tax planning,
especially, when one of the merged entities was having
accumulated losses.
There are some finance related advantages as merger results in
integration of assets and other resources and provides stability
of cash flows and serves as leverage for raising more funds
from the market.

10.Joint Venture Strategy:

Joint venture could be considered as an entity resulting from

a long term contractual agreement between two or more parties,
undertaken for mutual benefits. It is a type of partnership and when
both parties establishing new units that time they are exercising
supervising and control over the new business. Joint venture also
involves the sharing of ownership.

Now a days joint ventures are very popular as there is sharing

of development cost, risk spread out and expertise combined to
make effective use of resources. It is best way to enter into foreign
collaboration. Generally Indian firms are entering into foreign
collaboration with the help of joint ventures.

Following are the advantages of joint venture:

Huge capital
Better use of resources
Goodwill and reputation.
Risk sharing.
Economies of scale
Expansion and diversification.
 17

Helps to face competitions

Customer satisfaction.
Motivate employees

1.6 BUSINESS LEVELS STRATEGIES / STRATEGIC

BUSINESS UNIT (SBU) STRATEGY

1.6.1 MEANING

Corporate level strategies lay down the frame work in

which business strategies operate. For example, corporate level
decides to stabilize, expand or retrench whereas an individual
business needs their own strategies in order to contribute to the
achievements.

Business strategies are the course of action adopted by an

organization for each of its businesses separately and aim at
developing competitive advantages in the individual businesses
that the company has in its portfolio and are also aimed to use the
resources, skills, and synergies to enhance its competitive
advantages. The multi-products and multi-geographic area
company creates strategic business divisions to manage effectively
each of the products. For example a multi-product firm likes
Hindustan Unilever Ltd. have adopted the concept of strategic
business unit. Each strategy is focusing on particular products like
toiletries, beverages, laundry products, cosmetics and so on.

It is also known as Strategic Business Unit (SBU) strategy.

This is developed by General Electric Company of USA, to manage
its multi-product business. It is used by multi-product or multi
geographic area companies to manage effectively each of the
product or a group of product for example a multi-product firm like
Hindustan Unilever Ltd. May adopt the concept of SBU. Separate
SBUs may be created, each focusing on specific product like
toiletries, beverages, ice-creams, laundry product, cosmetics, and
so on.

Every SUB has four major important aspects to manage its

activities efficiently that are –
Each unit has a separate management.
Every SUB formulates its own strategy with the line of
organizational strategy.
The SBU has its own resources and manage in tune of
organizational object.
The SBU should have inter competition between the other SBUs
of the same Organization.
 18

1.6.2 Advantages of SUB:

The company which adopt the business level strategy has

certain advantages which are as under-

Effective Management:-the SUB being managed by an

independent management it can concentrate on its own product. It
looks into its planning, organization, proper direction and effective
execution of its own resources. It also sees its own marketing
mixes for good profitability.

Intra competition:- as every activity being managed

independently, every manager will try to prove his efficiency and
from that point of view he will compete with the other SUBs of the
same organization.

Higher efficiency:- efficiency is measured in terms of ratio

between input and output. Under this, every SUB will try to
minimize its cost of production by reducing wastages, optimum
utilization of resources and coordinating all resources.

Better customer service:-each SUB tries to provide effective

customer service. The SUB tries to identify customer’s needs and
problems, and accordingly undertake products design and
development so that the customer gets maximum satisfaction. With
this it develops customer relationship and offer good services to
customer.

Motivation to employees:- every SUBs manager creates team

spirit among employees. They being aware that their performances
are recognized they put themselves in full capacity and give
maximum output to organization.

Corporate image:-it is a way of creating goodwill and

reputation of the organization among the people. This will be
complete with the help of-

Better customer services

New and innovative products
Market development through promotion, advertising etc.

1.6.3 Disadvantages of SUBs :

The business level strategy has certain disadvantages which

are as follows.

Higher overheads:- as every SUB recruits its own staff there

will be excess nos. of employees in organization which will lead
to increase salary.
 19

Internal rivalry:- in this system every SUB tries to prove that

they are more efficient. They try to pull more resources towards
each other and accordingly there is creation of disputes.
Bias based support from top management:- it is possible that
there could be favoritism in terms of supply of material,
recognition, rewards or allocation of resources.
Problem of inter unit comparison:- it is quite possible to do
comparison between two or more units of the organization. This
will lead to create diluted atmosphere in the organization.

1.7 FUNCTIONAL (OPERATIONAL) LEVEL

STRATEGIES

Functional strategies are derived from business and

corporate strategies and are implemented through functional
implementations. Functional strategy deals with relatively restricted
plan designed to achieves objectives in a specific functional area,
allocation of resources among different operations within that
functional area and coordination among different functional areas
for optimal contribution to achievement of business or corporate
level objectives.

The key task of strategy implementation is to align activities

or capabilities of the organization with its strategies. For this, there
is a need to have coordination among the strategies at different
level.

The operational strategy mainly includes production

strategies, marketing strategies, financial strategy and human
resources strategy.

A. PRODUCTION STRATEGIES.

Production strategies are mainly aimed at improving quality,

increasing quantity and reducing cost of production. For this
purpose there is need to consider following activities.

Production capacity: an organization must decide its

production capacity. This is subjective and depends on demand of
the product in market and fluctuations in the market due to
competition, recession, boom in market etc. however some
organization decides it on the basis of its sales forecast. Now a day
some firms are producing some part of production and partially they
purchasing from others. So with the consideration of all these
aspects the business should fix its production capacity.
 20

Location and size of plants: While taking decision on location

the business considers certain points from the view of place safety
and security, local conditions availability of raw materials nearness
to market law and order situation at the place, availability of
infrastructure facilities as well as competent work force.

Size of the plant will be decided on the basis of projected

demand for product and dependency of the firm on other firms
which are supplying partially manufactured goods.

Technology:- it refers to the know-how and equipment,

machinery, tools etc. while deciding on production these things
are to be consider as its effects is there on capital manpower,
and cost of production.
Research and development:- R&D helps to improve the quality
reduces the cost of production etc. so it should be consider from
the investment point of view, its processes and centralized or
decentralized nature.
Quality of product:- production strategies are concerned with the
quality of the product. Quality means fitness of the product. And
this differs from customer to customer. Here the firm needs to
know its customer first and then decide the quality of the
product that a customer may find it suitable or not. They may
like its quality, price etc. and then go for production.

B. MARKETING STRATEGIES.

Marketing refers to thorough understanding of customer that

how he desire the product (from the view point of his perceptions to
the products.) It is important aspects of any organization as its
success is mostly attributed to the performance of the marketing.
Therefore every business needs to frame suitable marketing
strategies in respects of the following.

Product strategy:-product means anything available for

consumption purpose of the people. And generally they desire
quality products. Therefore, under this strategy the business unit
takes decision in regards of product line/mix. If it found that
there is no need to think of about diversified product then it
continues stressing on core products. Then business unit may
consider the development of new products. Here the business
unit decides about the development of new products or
modification of the product to face the competition in the market
and to meet the needs of the customer. And under same
strategy business may think of other product policies like
product’s packaging, branding, or its positioning.
 21

Pricing strategy:-price is very sensitive part of marketing. With

a minor change in price there would be greater set back to
sales. Therefore the business unit considers various sub
variables of the price element such as credit period, discount,
competitor’s price list etc. and fix price to the product. After that
business unit should consider the different methods of charging
price to product and as per customer’s convenience and market
situation the price should be charged to the product. Besides
this, there will be other strategies, consider by business units
are as under:

Skimming pricing strategy:- In this case at the initial stage of

product the prices of products are very high and as the sales
volume increases in that proportion the price of the product will
be reduced. This type of pricing is adopted for recovering heavy
expenditure incurred on the part of research and development
by earning huge profit.

Penetration pricing strategy:-in this case low prices are

charged at initial period of launch of the product and as there is
good response to the product and its sales increases in that
proportion the price of the product will be reduced. This is done
to capture the market.

Other pricing strategies:- in this case the business use to

adopt other methods of charging price to the products like-

Leader pricing method

Cost plus method.
Psychological pricing method.

Distribution strategy:- distribution means supple of goods from

manufacturer to customer. If the supply of product good,
regular, on time then only here will be smooth and efficient
functioning of marketing. From this point, marketer takes
decision on channels of distribution, area of distribution, dealer’s
network, and policies regarding dealer’s efficiency like
incentives, commission rates etc.

Promotion strategy:- promotion means communication or

supply of information to the customer about products and
services. For this firm uses various means o tools of promotion
like advertising, sales promotion, publicity, personal selling and
so on. Here marketer’s responsibility is to see every mean
keenly and then design strategies in regards of each respective
means. For example in case of advertising he should have think
from the point of its budget, media selection strategies, media
scheduling strategies etc. in the same way with other strategies.
 22

C. FINANCIAL STRATEGY.

Finance is the back bone of each and every business unit.

Therefore the financial management of the business units deals
with planning, raising, utilizing and controlling functions of the
organization’s financial resources to attain its goal. Generally
financial policies are design from the view point of

Mobilization of funds:- the funds are required to undertake

various business activities. There a decision has to be taken in
regards of purchase of fixed assets as well as current assets
requirement and any other long them investment. While taking
decision on fixed assets it is mostly taken on the basis of

Nature of business:- it means that whether it is manufacturing

unit or trading unit. If it is manufacturing it requires more amount
and vice versa.

Size of business unit: - that is large size or small size. If it is

large then more capital and if it is small then it requires less
amount.

Technology used: -if lets developed technology is used the

more amount and labour intensive firms requires fewer
amounts.

Scope of business activities: - that is more goods are produced

then more amount is required and only one or two products are
produced the low amount is required.

In case of current assets or working capital the decision is to

be taken on the ground of-

i.Nature of business:-here the firms are using expensive raw

material may require more funds and vice-versa.

ii.Operating cycle :-the firms having long operating cycle and

selling goods on credit basis requires more capital and vice-
versa

iii.Growth and expansion of business:-if the firms are growing

rapidly then require more funds.

iv.Seasonality of operations:- the products of the firm are seasonal

then during the period only the fund requirement will be more
and in slack season there is no more fund requirement.

Capital structure:-Capital structure refers to the composition of

firm’s long term funds comprising of equity, preference and long
term loans. There should be proper ratio between owned and
 23

borrowed funds. It is to be noted that one should not place too

much emphasis on borrowed fund because it puts burden on
company’s financial aspects as there should be regular payment
of interest and repayment of loan. Also too much emphasis on
equity capital is not good as it dilutes the equity capital. In shot
there should be balance between borrowed and owned capital.

Depreciation policies:- Depreciation is a activities which

provides compensation to the risk of wear and tear. There are
two methods of depreciation known as i) fixed line method and
ii) reducing balance method.

Under the company law both methods are accepted but for
income tax purpose, in certain cases written down method is
accepted and in some cases straight line method is accepted.

Dividend strategy:- dividend is a return on investment given to

the investors. No doubt every investor wants to have a good
rate of return on their investment and most of the companies are
willing to do so. Here as per financial strategy company should
think of its effects on financial aspects and then go for either
liberal dividend policy or conservative dividend policy.

Retained earnings strategy:- it means keeps earned income

with company itself. Generally whatever amount of profit is
earned is to be spent (used/utilized) for different purposes by
company. Here the company should have to think of that what
portion of profit is to be kept for future activities like:

Future needs of funds for development.

To provide stable dividend to the shareholders or
To meet the restrictions of financial institutions etc.

HUMAN RESOURCE STRATEGY:

Human resource is the most important resource among all

resources required by an organization. This is the only alive and
sensational resource. So every organization those who want to
develop and grow rapidly should be very cautious about these
resources and should plan for their best uses and performances. If
business is able to do so then it will attain its apex level of success
without any hurdles. For this the organization has to take decisions
in regards of

Recruitment and selection strategy.

To make employees more competent, the training strategy.
Their performance appraisal strategy.
 24

Promotion strategy.
Employee’s motivation strategy.
Transfer strategy.

1.8 BENEFITS OF STRATEGIC MANAGEMENT

The strategic management has certain benefits or

importance are briefly explained as follows

Choice of Strategy:- strategic management helps to

management to select the best possible strategy option. Then it
may be internal or external growth of the organization. For
example in case of internal growth it may adopt intensification or
diversification strategy

Improves Employee’s Efficiency:- strategic management

clarifies about what to do, how to do, when to do a particular
task to the employees. This helps to employee to perform a job
accurately and expertise which leads to increase in efficiency.

SWOT Analysis:- A thorough analysis of internal and external

environment of a business enables to identify the strength and
weakness as well as threats and opportunities of the business.
This helps the business to keep pace with the changing nature
of the environment affecting to the firm. And this is possible only
with the help of strategic management.

Aids in planning:- strategic management helps to frame

realistic plans.

Organizing Resources:- business objectives can be

accomplish with the help of proper allocation and utilization of
resources. This is possible only with the systematic plan, which
is the result of strategic management.

Helps in Evaluation:- the important aspect of strategic

management is evaluation of plans or strategy. Here the actual
performance will be compared with standards set and if any
variation is found then the corrective measures are taken.

Facilitates Communication and Coordination:- as the

strategies are well planned. For its proper execution there is
need to have proper communication and coordination at all
levels of operations.

Helps to face Competition:- strategic management enables a

firm to meet competition more effectively. This is because
strategic management enables to develop effective strategies to
face the competition.
 25

1.9 RISKS / LIMITATIONS OF STRATEGIC

MANAGEMENT:

Limitation of Assumption: - Strategic management is based

on certain assumptions, if that assumptions remains good then
the plans will be implemented otherwise there be no use of
strategic management.

Problem in Analyzing Environment: - the success of strategic

management is depend on the correct analysis of internal as
well as external environment. Here especially the external
environment scanning is important to grab opportunities which
many times does not proved.

Unrealistic Mission and Objectives: - if the mission and

objectives are not realistic then the strategic management can’t
be successful.

Problem of Setting Target: - sometimes it happens that the

strategists may be very enthusiastic so they may set unrealistic
goal which will be difficult to accomplish.

Problem in Implementation:- implementation of strategy is

important if it is not implemented well then there may be
problem, the strategy may not give the desired result.

Lack of Commitment of Lower Level:- generally the strategies

are framed by top level management and at the time of framing
if top level management has not consulted with lower then lower
level management may not be that much committed. In other
word they being unaware of the plans may not give desired
performance. Their dedication may not be there up to expected
level.

Problem of Resistance: - there may be resistance on the part

of employees to accept the set target of the top management.

More theoretical in Nature:-as per experts opinion strategic

management is more theoretical. In practice there are different
so it remains unsuccessful.

Problem of Internal Politics:-in organizations, there are

differences among or between departments. So as there is no
good relation, proper coordination, strategies became
unsuccessful.

Problem of Traditional Management:- the traditional

management has narrow approach towards development. Its
 26

philosophy is not progressive; they want to run their business

with the same fashion. So the strategies are not fruitful in this
case.

1.10 SUMMARY

Strategic management provides the framework for all the

major business decisions of an enterprise such as decisions on
businesses, products and markets, manufacturing facilities,
investments and organizational structure.

In a successful corporation, strategic planning works as the

pathfinder to various business opportunities; simultaneously, it also
serves as a corporate defense mechanism, helping the firm avoid
costly mistakes in product market choices or investments. Strategic
management has the ultimate burden of providing a business
organization with certain core competencies and competitive
advantages in its fight for survival and growth.

An SBU has three characteristics:

It is a single business or collection of related business that
 can be planned separately from the rest of the company.
It has its own set of competition.

It has a manager who is responsible for strategic planning
and profit performance and who controls most of the factors
affecting profit.

1.11 QUESTIONS:

“In anticipation of opponents move, designing one’s own way of

action”. Discuss.

Define Strategic Management. What are the Characteristics of

Strategic Management?

“Strategic Management cannot be a rigid, step-wise collection of

few activities arranged in a sequential order”. Discuss.
Elaborate the basic elements of strategic management process.

“Production strategies are mainly aimed at improving quality,

increasing quantity and reducing cost of production”. Explain.
Explain in detail Corporate Strategy.
 27

What are the benefits of Strategic Management?

Discuss the Limitations of Strategic Management.
Elaborate the Functional Strategies.
Write Short Notes:
Diversion Strategy
Growth Strategy
Disinvestment Strategy
Liquidation Strategy
Merger Strategy
SUBs Strategy
Financial Strategy





 28

FORMULATION OF STRATEGY AND

STRATEGIC MANAGEMENT

Unit Structure :
2.0 Objectives
2.1 Introduction
2.2 Meaning and Definition of business Environment
2.3 Environmental scanning
2.4 Summery
2.5 Questions

2.0 OBJECTIVES

After studying this unit the student will be able -

To formulate and implement strategy in business.


To know business environment & its components.

To understand environmental scanning.

To know the analysis of strategies.

2.1 INTRODUCTION

Business decisions are influenced by two sets of factors

known as internal environmental factors and external environmental
factors. Therefore these two factors are very important to any
business so for its decisions are concerned.

The internal factors are also known as controllable factors as

they can be managed and control by the business as per its need
necessity or requirements. These factors are being resided with
company premises are known as internal factors. External factors
are as residing outside the business is not controllable. Here
 29

business itself has to change or mould it resources for getting its

support.

As the environmental factors are beyond the control of a

business organization, its success will depend mostly on the
adaptability of the business to the environment. In other word if the
business is able to property design and adjust the controllable
(internal) factors to take advantages of the opportunities and
combat the threats in the environments.

These are certain challenges faced by business units,

among all those one most critical challenge is to cope up with the
environmental dynamics of change. Which many a time assumes
the nature of turbulence.

In fact business environmental exposes two challenges to

the organization such as -

The challenge to combat environmental threat.

To exploit the business opportunities.

To come up with the solution of these two there is new of

environmental analysis.

Environmental analysis is the first step in strategic

management. Here strategists monitor the economic governmental,
legal, market, technological, geographical and social settings to
determine opportunities and threats to the business.

So in this chapter we are discuss the business environment

in detail before formulating and implementing strategies.

2.2 BUSINESS ENVIRONMENT

2.2.1 Meaning and Definition of Business Environment:

It is said that the business can not live exist, survive in its
isolation. It need support from different aspects of its surrounding.
That surrounding factors around the business is known as
environment. It may be living or non - living but its support, positive
response is essential for business smooth functioning. Therefore
we can summarize environment as all those factors or forces,
residing besides the business and affecting its functions or various
decisions of the business.
 30

A business environment consists of two types of

environment known as internal environment and external
environment.

Definition :

According to Keith Davis “Environment of the business

means the aggregate of all conditions, events and influences that
surround and affect it”.

According to Arthur M. Weimer’s opinion, “Business

environment encompasses the climate or set of conditions,
economic, social, political or institutional in which business
operations are conducted.”

2.2.2 FEATURES

With the help of above noted definitions and the meaning, we can
points out some of its features.

Environment is dynamic in nature: It keeps on changing as

changes are going to take place.

It has direct and indirect impact: Environment gives direct

and sometimes indirect effect on the working of the business.

It has two types of factors: Environment mainly consists of

two type of factors namely internal and external environmental
factors.

It is not separatable from business: Environment is integral

part of business. Without the support of either internal or
external forces business can’t run or operate.

Impact on business decisions: Due to environment business

can take proactive or reactive decisions in its operation to make
operation more beneficial.

It regulates the scope of business: Environment directs to the

business, whether its has to with or without internal or external
forces consideration. For example Govt. bans something so
business should think of and according more forward.

It is multi dimensional: This it always consider both aspects of

a force i.e. its positive as well as negative impacts.
 31

2.3 COMPONENTS / PARTS OF BUSINESS

ENVIRONMENT

There are two major parts of or components of business

environment known as -
Internal Environment
External environment

The external environment is divided into two parts known as

Micro component of environment and
Macro component of environment

These all parts of the environment will be present in the

following way

Lets Discuss these points in details :

Internal Environment:

Internal environmental factors are these, which resides

within company premises and are easily adjustable and
controllable. Company as per its necessity & requirements, moulds
it and take appropriate support from these factors, so that business
activity can run safety & smoothly.

Value System : The value system is helm (the position of

control) of affairs of the founders. Therefore it is widely
acknowledge fact that the extent to which the value system is
shared by all in the organization is an important factor contributing
to success. If the founder has strong value, then he will never do
 32

any activity which is out of limit. For example, Murugappa group

had taken over the E.I.D. porry group, which is one of the most
profitable businesses. Its one of ailing business was liquor, which
was sold off by Murugappa, as it did not fit into its value system.

Mission and Objectives: Mission is basic or fundamental

cause because of what the company came into existence. It is
company’s domain, priorities, or ways of development. Generally
company is objectives are consistent with mission statements.
Therefore it is always advisable to the company to Frame a mission
statement and then to list out various objectives. The study analysis
of internal environment enabled the company to find out, whether
the objectives are in line with mission statement or not.

Plans & Policies : Plans & policies are nothing but deciding in
advance, of a particular activity i.e. what is to be done, how it is to
be done, when it is to be done etc. and according executing them to
attain the success. Here business unit need to frame there plans &
policies with the consultation of business objectives and available
resources. Here internal environment analysis will help to the firm
to know the appropriateness of plans & policies.

Human Resources : Human resources are most important

resources among the required all types of resources by the firm.
There resources are very sensible; therefore every business need
to tackle them with carefulness and cautiousness, because the
survival and success of the firm is largely depends on the quality of
human resources. The internal environmental analysis in respect of
human resources reveals the shortcomings of human resources
and measures need to be undertaken for its creativeness.

Physical Resources : Physical resources consist of machines,

equipments, buildings furniture’s and fixtures. The analysis of these
resources reveals the deficiencies of these resources. The
business may take corrective steps to remove these deficiencies.

Financial resources: Finance is the back bone of each & every

business. So every business needs to have proper financial
management, which includes the consideration of financial sources.
Financial policies, financial positions, capital structure,
management of working & fixed capital, build up adequate reserves
for future etc.

The analysis of there resources reveals that the soundness

of its financial position.
 33

Labour management relations: It is stated that the business

flourish to a greater extent, if it is supported by labour / human
resources well. Even if there are certain shortcomings on the part of
other physical, natural, resources, but there is good relation
between management and labour then there would not be a
problem. To keep a good relationship with labours a management
needs to take care of all types of problems of the labour. It includes
salary, wages, facilities allowances, good working conditions, their
promotion transfer, etc. The analysis & internal environmental
discloses the certain short comings.

2. External Environment :

External environment is also important in survival and

success of the business unit. External environment means those
factors or forces which resides outside the business, but has its
influence over the functioning of the business. As these forces
resides outside, does not have control over them. The environment
factors are of two types known as i) Micro environment and ii)
Macro Environment.

i) Micro Environment :

Micro environmental factors mean those which are very

close and direct effect factors. It includes suppliers, competitor’s
customers, marketing intermediaries and the public at large. These
factors are more intimately linked with the company than the macro
factors. These factors are giving individual effect on each company
rather than a particular industry. Let’s see the all these factors in
detail.

Suppliers : It is important force in micro environment. This force

supplies the inputs like raw materials and other supplies. This is
important because of supplying smoother functioning of the
business. The supply is very sensitive. So many companies give
high importance to vendor development. The company never
depended on a single supplier because if they back out, or any
other problem with that supplier may seriously affect the company.

Customers : Customer is the king of the market. Therefore

every company strives to create & sustain customers in the market.
So that it can survive & be success in the market. In fact monitoring
the customer sensitivity is the pre-requisite for the business
success.
 34

There are different categories of customers like individuals,

household industries and other commercial establishments and
govt. etc. Depending on a single customer is dangerous to the
company as it place to the company in poor bargaining position and
customer’s switching to competitors may lead to closure of the
company.

Therefore the choice of customer segment should be made

with the full consideration of profitability, stability of demand, growth
prospects and the extent of competition.

Competitors : In simple word competition means the firms

which market the same products. Here all those who compute for
the discretionary income of the consumer are considered as
competitors. Discretionary income of the consumers means
creating consumers decisions for similar or equivalent needs
products. For example for A T.V. manufacturer another T.V.
manufacturer is not only a competitors but refrigerators, cooking
ranges, or other saving and investment institutions, as they are
attracting consumers towards their product.

Marketing Intermediaries : Marketing intermediaries means

those who are helping company to supply goods from
manufacturing company to customer it includes agents and
merchants who help company to find customers sales it’s the
products or those who are physically distributing the goods from
their origin to their destination. It includes warehousing,
transportations, marketing firms, or promoting companies products.
These intermediaries are vital link between the company and the
final users. So the wrong choice of the marketing intermediaries
may cost the company heavily.

2) Macro - Environment :

Macro environment is not that much immediate environment

of a company. This macro environment factors are for away from
the company but it gives indirect effects on companies functioning.
The micro environment operates in a large macro environment
forces that shapes opportunities and pose threats to the company.
It includes demographic, economic, natural, social and
technological environmental forces or factors.

Demographic environment: It is relates to human population

with reference to its size, density, literary rate, gender, age,
occupations etc. By going through all these elements of
 35

demographic environment business units decides its production

and distribution strategies property. It also gives effect on
technology intensive business for its product if the high population
growth rate exists or vice versa. Again the occupational and spatial
nobilities of population have implications for business. i.e. it labour
is easily moveable from one business to another, as well as other
region, then its supply will be smooth otherwise business have to
face labour problem.

Economic Environment: Economic conditions, economic

policies and the economic system are the important external factors
which are framing economic environment for a business.

The economic conditions of a country means the nature of

the economy, the level (slope) of development of economy,
economic conditions, the level of income of the people, or
distribution of income and assets etc. These factors are important
while determining the business strategies, for example in a
developing country the low income may be the cause for very low
demand for a product, here business can’t increase the purchasing
power of the people to generate higher demand for its product. So
here the company should emphasis an reduction of prices for
higher sale.

The economic policy of the govt. has great impact on

business in this case same business are favorably affected and
same are adversely affected by government policy. For example if
govt. wants to protect home industries then its affects import
competing industries. On the other hand if a liberalization of the
import policy may create difficulties to home industry.

The economic system refers to the kind of economy; the

country has i.e. free market economy, capitals or socialist
economy.

Natural Environment : If consists of geographical and

ecological factors such as natural resources endowments, weather
and climatic conditions, location aspects in the global context, port
facilities, etc. which are relevant to business. The geographical and
ecological factors influence the location of certain industries. For
example industry with high material index tend to be located near
the raw material sources in the same way climate or weather
conditions matter a lot in certain industries like cotton textile
industry. The ecological factors have great importance. Say govt.
policies aimed at the preservation of environmental purity and
 36

ecological balance have resulted in additional responsibilities and

problems for business. Same of these have dead business towards
increase in cost of production and distribution.

Social - Cultural environment: Socio cultural fabric is on

important environmental factors that would be analysed while
formulation business strategies. For a successful business, the
buying and consumption habits of the people, their languages,
beliefs and values, customs and traditions, taste and preferences
and education level should have to be considered and then it has to
decide its strategy so that it will be fit in social - cultural
environment.

Technological environment: Technological environment are

relate to technological know - how, used in business.

It is expected that business need to introduce and use latest

technology in their production. But technological developments
sometimes pose problems to business as business are not able to
cope up with developed technology and hence its existence came
into danger. The technological development may increase demand
for a production too. For example in India as we are having
frequent power flections, if the business introduces voltage
stabilizers then definitely there will be growing demand for electrical
appliances.

Political environment: The government is the care taker of all

of us. So it also takes care of business too. While working on
business govt. frames certain policies as per its ideology. So
whenever govt. through its policy brightness the prospects of some
enterprises may pose a threat to same others. For example
liberalization has opened up same opportunities to same business
at the some time it has give set back to same business.

In our country the govt. is not a static. It changes after every

five years. So whenever new govt. comes into power its changes its
policy which affects business positively or negatively.

2.3 ENVIRONMENT SCANNING

Environment is surrounding around the business with which

business is able to move / function smoothly and regularly and
continuously. Here scanning means looking into all aspect of
environments parts. Here environmental analysis enables a
business firm to identity its strengths weaknesses, opportunities
 37

and threats. The proper evaluation or analysis of environment helps

a firm to formulate effective strategies in various areas of its
functions. The significance of environment scanning will be
explained as under.

2.3.1 Importance of Environmental Scanning :

Following are the points suggest importance of scanning of

business environment.

Identification of strengths : The analysis of internal

environment helps to identify the strength of the firm and every
organization put its all efforts to maintain and improve its strengths.
For example every business will see that how we maintain
competent & dedicated employees. What will be ways with which
we can pursue good HRP & HRD and what will be the methods
with which we may have good & improved & latest technology etc.

Identification of weaknesses : The business analysis give

idea about business weakness. The weaknesses are barriers in the
process of development. There for every organization try to point
out its drawback and will try to improve it. Then the weakness may
be in terms of its technology, HR, lack of finance or in any other
areas.

Identification of opportunities : Opportunities generally

resides outside the business. Therefore external environment
analysis helps to point out and use for business benefits. Business
also undertake all those efforts to grab that opportunities. For
example it govt. gives concession or subsidies. Then business may
cut its products prices and may gain large sell advantage of
products.

Identification of threat : The business may have threats from

its competitions or rivals and others. Therefore environmental
analysis helps to identify those threats and helps to defuse them
before it affects on business or its functioning.

Effective planning : Environmental scanning help to business

in the preparation of effective plan. The planning is the guide of the
business or so it is to be prepared defect free. Environmental
analysis does that and helps business.

Survival and growth of business : Survival and growth are

two basic objectives of any business. Without attainment of there
two, there is no meaning to the existence of business. So analysis
 38

of environment ensures the existence of there two objectives and

according business unit.

vii)Facilitates organising of Resources : Business units needs

different resources, it includes natural, physical, Human resources
etc. There resources are limited in number. Therefore it should be
used in very conscious way. The analysis of environment enables
business to organize all these resources in required and logical
manner.

Flexibility in operations: A study of environment enables a

firm to adjust its activities depending upon the changing situation.

Corporate image: Corporate image means create mental

picture of the firm in the minds of customer. Due to the analysis of
environment, there is over all improvement in the performance of
the business, and its effect is there is good image of the business
among all i.e. customer dealer, suppliers etc.

Motivation to employees : Because of environmental analysis

there are goods decisions, improved performances, and
introduction of new HR policies, employees in the organization are
motivated.

2.3.2 Techniques of environmental scanning : There are various

techniques of environmental scanning. Some of the important
techniques are explain as follows:

Forecasting

Scenarios

Spying

Gathering verbal information

QUEST (quick environmental scanning technique)

2.4 SUMMARY

Business Environment consists of all those forces both

internal and external that affect the working of a business. It refers
to the conditions, forces, events and situations within which
business enterprises have to operate. Business and its
environment are closely related and the effectiveness of interaction
of the two determines the success or failure of a business.
 39

The business environment can be broadly divided into two

groups A. Internal Environment B. External Environment

Environmental Scanning means an examination and study of

the environment of a business unit in order to identify its survival
and prosperity chances. It means observing the business
environment both external and internal and understanding its
implications for business opportunities. It also involves knowing
beforehand the risks and uncertainties as well as threats to the
business unit.

2.5 QUESTIONS:

Define Business Environment. Explain the features of Business

Environment.
Explain in detail the components of Business Environment.
“The proper evaluation of Business Environment helps a firm to
formulate effective strategies in various areas of its functions”.
Discuss.
Write short notes:
Internal business environment
External Business Environment




 40

GLOBAL STRATEGIES:
PRACTICES AND ISSUES

Unit Structure
3.0 Objectives
3.1 Introduction to Corporate Restructuring
3.2 Forms of Corporate Restructuring
3.3 Corporate Portfolio Analysis
3.4 Strategic Change
3.5 Corporate Renewal
3.6 Organizational Failures - Causes
3.7 Culture of Organization
3.8 Management of Strategies and Cultures
3.9 Strategies for Foreign Direct Investment
3.10 Strategies for International Trade in India
3.11 Summary
3.12 Questions

3.0 OBJECTIVES

After studying the unit the students will be able to:

Explain define the concept Corporate restructuring its need and

forms.

Understand the concept Corporate Portfolio Analysis and its
techniques.

Know the Meaning and Nature of Process of Management
Change its Causes of Resistance to Change and how to
Resistance to Change.

Familiarize with Business, Corporate and Global Strategies

Analyze cases and develop strategic solutions.
 41

3.1 INTRODUCTION TO CORPORATE

RESTRUCTURING

3.1.1 Need for Corporate Restructuring

Corporate Restructuring is concerned with arranging the
business activities of the corporate as a whole so as to achieve
certain predetermined objectives at corporate level. Such objectives
include the following:

Growth and Expansion: Corporate restructuring helps a firm to

grow and expand. For instance, merger may enable a company
to grow faster as compared to firms that undertake internal
expansion.

Competitive Advantage: Corporate restructuring may enable

an organization to gain competitive advantage in the market.
For instance takeover or merger may enable a firm to gain
economies of large scale production and distribution. Therefore,
a firm would be in a better position to produce quality goods and
at lower prices.

Corporate image: Corporate restructuring may be undertaken

to improve the image of the firm to improve its performance.
Improved performance enables a firm to improve its image.

Concentration on core business: Corporate restructuring may

be undertaken to enable a firm to focus on core business. In
some cases, a firm may find it difficult to manage growing
business, and therefore, it may divest non core business to
concentrate on core business.

Debt servicing problem: Some firms may face the problem of

debt burden. They may find it difficult to service the debt .i.e.,
repayment of loan installment and interest. Some firms may
divest a part of the business so as to generate funds for the
purpose of repayment of debt.

Market Share: Corporate restructuring may be undertaken to

increase market share. For instance, firms may adopt the
strategy of merger or takeover in order to increase the market
share. The merger or takeover may enable the firm to take the
advantage of goodwill of enjoyed by the merged firms or
takeover firm.
 42

Mismatch Problem: Restructuring may be undertaken to

overcome the problem of mismatch of business. At times, a
business firm may take over another business or entered into a
new line of business which may not match with the current line
of business.

Obsolete Products: At times, a firm may withdraw obsolete

products from the market. After withdrawing obsolete products
the firm can utilize its resources on existing brands.

3.1.2 Forms of Corporate Restructuring

Corporate Restructuring may be a one-time exercise for an
organisation but it has a lasting impact on the business and other
concerned agencies due to its numerous considerations and
immense advantages viz., improved corporate performance and
better corporate governance.

Corporate restructuring is an expression, by which a company

can consolidate its business operations and strengthen its position
for achieving its short-term and long-term corporate objectives -
synergetic, dynamic and continuing as a competitive and
successful entity.

Types of Corporate Restructuring: The most commonly

applied tools of corporate restructuring are amalgamation, merger,
demerger, acquisition, joint venture, disinvestments etc. Corporate
restructuring refers to reorganizing a business firm. It may include a
major reorganizing such as in the case of mergers, or a minor
restructuring such as downsizing of workforce. The main purpose
or corporate restructuring is to make best use of resources in order
to generate higher return on investment.

3.2 FORMS OF CORPORATE RESTRUCTURING

Corporate restructuring refers to reorganizing a business

firm. It is done in order to make best use of resources and to
generate maximum return on investment.
 43

MERGERS AND TAKEOVERS

1. Mergers:

They can be defined as the fusion or absorption of one

company by another.

In a case of Company A and Company B, a merger can take

place by Company A and Company B merges into a third entity to
be called as Company AB and Company A and B ceases to be
legal entity, OR Company A transfers its business and undertakings
including assets and liabilities into Company B and Company A
ceases to be in existence.

A merger refers to a combination of two or more companies

into one company. It may involve absorption or consolidation. In
absorption one company acquires another company, and in
consolidation two or more companies join to form a new company.

Mergers may be broadly classified as follows:

Concentric– within same industries and taking place at the same
level of economic activity – exploration, production or
manufacturing wholesale distribution or retail distribution to the
ultimate consumer.
 Horizontal merger: A firms engaged in same line of business
 Vertical merger: A firms engaged in different stages of production
in an industry.

Conglomerate – Merger of firms engaged in unrelated lines of

business or between unrelated businesses.

Reason for mergers

a. To undertake diversification
This follows the need of a narrowly based business to
reduce the risks by broadening its activities. To reduce the risks
effectively, the acquired firm must not be subject to the same risk
promoting factors as a parent firms even though its may operate in
a different fields.

b. To secure scare sources of supply

Where any of the resources which the business needs are in
short supply or subject to other difficulties, one solution for it is to
acquire its own sources. By mergering the different resources
available with two or more units can be pooled together.
 44

c. To secure economies of scale

Increase in volume of often leads to decrease in operating

costs, thereby enabling a larger capacity bank to survive. Merger is
considered when the bank has low profitability and through merger
bank can secure economies of scale.

d. To have better management

Where the business suffer from poor management and it

does not appear possible to rectify this in the near future, the
problem may be resolved by merging with good management team.

e. To improve the financial standing

When two firms join together, the strengths of both of them

are added together and the market may put a higher valuation on
such combination than on the constituent parts.

f. To achieve a monopoly position

The elimination of competition by absorption gives a firm a

greater control over a market. The competition in the market can be
reduced with the merger of firms engaged in the similar market.

g. Revival of Sick units

Merger can bring out a revival of sick units. The sick units
can merged with strong companies, and therefore, the problem of
industrial sickness can be avoided in case of certain units.

2. Amalgamation:

It is an arrangement‘ or reconstruction‘. Amalgamation is a

legal process by which two or more companies are joined together
to form a new entity or one or more companies are to be absorbed
or blended with another and as a consequence the amalgamating
company loses its existence and its shareholders become the
shareholders of new company or the amalgamated company.

To give a simple example of amalgamation, we may say A

Ltd. and B Ltd. form C Ltd. and merge their legal identities into C
Ltd. It may be said in another way that A Ltd. + B Ltd. = C. Ltd.

3. Take over:
It is generally involves in the acquisition of a block of equity
capital of a company which enables the acquirer to take control of
 45

the affairs of the taken over firm. In the theory, the acquirer must
buy more than 50% of the paid up capital of the acquired company
to take over the control of the affairs of the acquired firm, but in
practice in most of the cases, even between 20% to 40% is
sufficient enough to exercise control, as the remaining shareholders
are scattered and unorganized, and therefore, are not likely to
challenge the control of the acquirer.

Takeover is a corporate device whereby one company

acquires control over another company, usually by purchasing all or
a majority of its shares.

Takeovers may be classified as friendly takeover, hostile

takeover and bail out takeover.

Takeover bids may be –

Mandatory - This type of bid has arisen due to regulatory

requirement.

Partial - Partial bid covers a bid made for acquiring part of the
shares of a class of capital where the offer or intends to obtain
effective control of the offered through voting power.

competitive bids - This type of a bid envisages the issue of a
competitive bid so that when a bid is announced by a
prospective acquirer, if any other person finds interest in
acquiring the shares, such acquirer should offer a competitive
bid.

There are several reasons for takeover. The most obvious

reasons for takeover are :

 Quick growth
 Diversification
 Establishing oneself as industrialist
 Reducing competition
Increasing the market share or even creating goodwill.

Takeover have become commonplace in the Indian corporate

world. Many foreign MNC Indian firms
so as to facilitate easy entry in the Indian market.
 46

B. PORTFOLIO RESTRUCTURING:

Portfolio restructuring basically involves modifying the

business portfolio divestiture and de – merger.

Purchase of Division / Plant: A firm can purchase a division or

plant of another firm for the purpose of improving its market or
financial position. For instance, a large cement company can
purchase a cement division of a diversified firm, or a large food and
beverage company can purchase foods division of another
diversified company.

Divestiture: A divestiture involves the sale of a division or a

plant or a unit of one firm to another. From seller’s point of view, it
represents contraction of portfolio, and from the buyers point of
view it represents expansion.

Reasons of Divestiture:

 Raising capital
 Reduction of losses
 Concentration on core business
Improvement in Efficiency

De-merger: A demerger takes place, when a firm transfers one
or more of its units to another firm. The company whose unit is
transferred is called Demerger Company, and a firm to which the
unit is transferred is called the resulting company. A scheme of
demerger, is in effect a corporate partition of a company into two
undertakings, thereby retaining one undertaking with it and by
transferring the other undertaking to the resulting company. It is a
scheme of business reorganization
De-merger can takes place in two forms:

In spin – off: A division or unit is spun-off into an independent

company.

In split – up: An existing company is split up into two or more

independent companies.

Reasons of Demerger:

 Sharper focus
Improved initiatives and accountability
 47

There are 2 modes of demerger: partial demerger and complete

demerger

Partial demerger: In the case of a partial demerger, the existing

company also continues to maintain its separate legal identity
and the new company being a separate legal identity, carries on
the separated or spun off business and undertaking of the
existing company.


Complete demerger: In the case of a complete demerger, the
existing company is voluntarily wound up and its entire
business, undertaking etc. are transferred to one or more new
companies.

C. FINANCIAL RESTRUCTURING:

Financial restructuring of a company involves a rearrangement of

its financial structure to make the company‘s finances more
balanced.

A company may reorganize its capital in different ways, such

as reduction of paid up share capital; conversion of one type of
shares into another; conversion of shares into debentures or other
securities. It involves a significant change in the financial structure
of the firm or the pattern of ownership and control.

Going Public: Private Limited companies, closely held public

companies, and even sole trading concerns and partnership firms
may go public. The main reason is mainly to access capital for its
growth and expansion plans.

Debt – equity Swap: When a firm finds it difficult to service its

existing debt, it may decide to convert debt into equity.

Leveraged buyout: It normally involves an acquisition of a

division or unit of a company; and occasionally, it involves the
purchase of an entire company.

Buy back of shares: A share buyback involves a firm’s decision

to repurchase its own shares from the market. The main reasons of
buy back are:

It is a defensive strategy against a potential takeover.

 48

The management may have excess cash, but lacks

profitable investment opportunities.

To provide returns to the remaining share holders in future,

as the number of shareholdings get reduced.

D. ORGANIZATIONAL RESTRUCTURING:

A good number of firms are resorting to organizational

restructuring to face competition and to improve their financial
position. Some of the ways are:

Regrouping of business: Firms are regrouping the existing

businesses into a few compact strategic business units, which are
often referred to as profit centers.

Business process reengineering: It aims at improvements in

performance by redesigning the processes through which an
organization operates.

Downsizing: It involves retrenchment of surplus manpower

through voluntary retirement scheme and other schemes.

Outsourcing: Companies are resorting to outsourcing or sub

contracting, which helps to reduce manpower and convert fixed
costs into variable costs.

E. REHABILITATION SCHEMES:

A sick unit can be revived to improve its financial position by

adopting revival schemes. Some of the important revival schemes
are:

Settlement with creditors: A sick units is normally not in a

position to honor its commitments, and therefore, it must enter into
a settlement with its creditors.

Divestment: A sick unit may divest or dispose of unprofitable

units, and plants, and other non – essential assets in order to
improve liquidity.

Strict control over costs: A sick unit should have a strict control
over costs, especially over its discretionary expenses.

Streamlining of operations: Business operation must be

reviewed to find out any unproductive activities.
 49

Provision of Additional capital: A sick unit normally requires

additional capital for working capital needs, repair and
modernization of plant and machinery.

3.3 CORPORATE PORTFOLIO ANALYSIS

In portfolio analysis, top management views its product lines

and business units as a series of investments from which it expects
profitable returns. It is mainly used for competitive analysis and
corporate strategic planning in multi-product and multi- business
firms.

There are several techniques of portfolio analysis that can be

used by business firms. Some of the important business techniques
are as follows:

3.3.1 Boston Consulting Group (BCG) Matrix

BCG Matrix was developed by Boston Consulting group, USA.

According to this technique, businesses or products are classified
as low or high performers depending upon:

 Industry Growth Rate

Firm’s Market Share

The stars are market leaders and are usually able to generate
enough cash to maintain their high market share. When their
market growth rate slows, stars become cash cows. The main
features of stars are:
 50

 High industry growth rate.

 High market share
 The firm may undertake various activities such as:
 R & D introduce better features
Effective after sales service to enhance customer loyalty

The question marks are also called as wild cats. They are new
products with the potential for success, but they need a lot of cash
for development. The main features of question marks are:

 High industry growth

Low market share

The firm may adopt growth strategy for question marks.

Various activities may be undertaken to transform question marks
into stars.
Penetration pricing strategy

Effective sales promotion and other elements of promotion –
 mix
 Dealers incentives
Enhancing customer relationship

3. The cash cows bring in far more money than is needed to

maintain their market share. In their declining life cycle, the money
of cash cows is invested in new question marks. The main features
of cash cows are:

 Low industry growth

High market share

The company may adopt stability strategy. Various activities

may be undertaken such as:

Retentive advertising to maintain customer loyalty


Guarantees and warranties depending upon the nature of
product.

4. The dogs have low market share and do not have the potential
to bring in much cash. According to BCG matrix, dogs should be
either sold off or managed carefully for the small amount of cash
they can generate. At times, the dogs may be withdrawn from the
market so that the company concentrates its efforts on question
marks or stars. The main features of dogs are:

 Low industry growth

Low market share
 51

3.3.2. General Electric (GE) Business Screen

General Electric of USA, with the support of the consulting

firm McKinsey and Company developed a more complicated matrix
as a technique of portfolio analysis. The GE screen includes 9cells
based on two parameters – long term industry attractiveness and
business strength or competitive position.

The GE screen includes:

Industry attractiveness in case of growth rate, profitability,

seize, pricing practices, other possible opportunities and
threats.

Business strength of a firm, which include its market share,
technological up gradation, profitability, and size, and other
possible strengths and weaknesses.

The GE Business Screen can be depicted in the following
exhibit:

The nine cells of the GE matrix are grouped on the basis of

low to high industry attractiveness, and weak to strong business
strength or competitive position. Three zones are made, each
indicating different combinations represented by green, yellow and
red colors.

Green Zone: The green zone indicates firm’s competitive

position is strong and industry attractiveness is high in case of
certain products and firm’s competitive position is strong and the
industry attractiveness is medium in the case of certain
products. The green zone signal is to “Go ahead”.


Yellow Zone: The yellow zone indicates firm’s competitive
position is strong and industry attractiveness is low in case of
certain product and its average and the industry attractiveness
is medium in the case of certain products. The yellow zone
gives signal for “wait and watch”.


Red Zone: The red zone indicates the firm’s competitive
position is average and industry attractiveness is low in case of
certain products and firms competitive position is weak and the
industry attractiveness is low the case of certain products. The
red zone gives the signal to “stop”.

Overall the 9 cell GE Business Screen is an improvement over

the BCG Matrix.
 52

3.3.3 Strategic Position and Action Evaluation (Space)

This technique considers the firms strategic position and the

strategic position of the industry. SPACE involves a consideration
of four dimensions.

 Firm’s competitive advantage.

 Firm’s financial strength
 Industry strengths
Environmental stability

The SPACE factors are depicted as follows:

Competitive Advantage Industry strength

Technology Growth Rate
Market share Profit Potential
Manpower etc Size, etc
Financial Strength Environmental Stability
Profits Government Policies
Liquidity Competitor’s Strategies
Reserves, etc Customer Preferences,
etc.

Depending upon the nature of for SPACE dimensions – firm’s

competitive advantage, financial strength and environmental
stability – the organization may adopt any one of the strategic
postures.

 Aggressive Posture (Internal and External Growth Strategies

 – Mergers, Takeovers etc)
 Competitive Posture ( Internal Growth Strategy)
 Defensive Posture ( Stability Strategy)
Conservative Strategy ( Stability or Retrenchment Strategy)

The four strategic postures are depicted in the following exhibit:

3.3.4 Direction Policy Matrix (DPM)

The DPM developed by Shell Chemicals, UK, uses the two

dimensions to select strategies:

 Business Sector Prospects

Firm’s Competitive Capabilities

Each dimension is further divided into three grades

 53

Business sector prospects are graded into:

 Unattractive
 Average
Average

Firm’s Competitive capabilities are graded into

 Weak
 Average
Strong

The combination of two dimensions with three grades of

each provides a nine - cell matrix as shown in the following exhibit:

The strategies that can be used on the basis of DPM are as

follows:

Market Leadership: The business with strong capabilities and

attractive business prospects can become market leaders
through heavy investment in market development and R & D
activities.


Diversification: The business with strong capabilities and
average business prospects may require additional investments
in areas like market development and R & D so as to increase
market share.


Product Differentiation: The business with average
capabilities and attractive business prospects may be expanded
through product differentiation.


Cash Generation: The business with average capabilities and
average business prospects fall in this category.


Phased Withdrawal: A business with weak and average
capabilities and average or unattractive business prospects may
be phased out or divested in phases, as such business are not
likely to earn enough returns as compared to others.


Liquidation: A business with weak competitive capabilities and
unattractive business prospects should be divested or
liquidated, as such business may continue to incur losses in
future as well.
 54

Internal Growth Strategy: A firm with weak capabilities but with

attractive business prospects may adopt stability strategy or
internal growth strategy. The internal growth can be undertaken
with the help of market penetration.

3.3.5 TOWS MATRIX

The TOWS matrix illustrates how the external threats and

opportunities facing a particular corporation can be matched with
the company’s internal strengths and weaknesses sot he at 4 sets
of possible strategic alternative emerge:

 SO – Strengths – Opportunities Strategies

 WO – Weakness - Opportunities Strategies
 ST – Strengths – Threat Strategies
WT – Weakness – Threat Strategies

The following are the steps to develop TOWS Matrix:

In the Threats (T) block, list the external faced by the

company now and may be in the near future.


In the Opportunities (O) block, list the external opportunities
available to the company now or may be in the near future.


In the Weakness (W) block, list the firm’s weakness that the
company has now or in the near future.


In the Strengths(S) block, list the firm’s strengths that the
company has now or may have in near future.

Internal factors Strength (S) Weakness (W) List 5-

List 5 – 10 internal 10 internal
strengths weaknesses
External factors

Opportunities (O) SO Strategies (use WO Strategies

List 5 – 10 external strengths to take (Overcome
opportunities advantage of weaknesses by taking
strategies) advantage of
opportunities)
Threats (T) ST Strategies (use WT Strategies
List 5 – 10 external strengths to avoid ( Minimize weaknesses
threats threats) and avoid threats)
 55

The TOWS Matrix is useful for generating a series of

alternative strategies. It can be used for the entire firm, or it can be
used for a specific business unit within a firm.

3.3.6 PROFIT IMPACT OF MARKET STRATEGY (PIMS)

The PIMS project was started by Sidney Schoeffler working

at General Electric in 1960s managed by the Marketing Science
Institute in the early 1970s and has been administered by the
American Strategic Planning Institute since1975.

It was initiated by senior managers at GE who wanted to

know why some of their business units were more profitable than
the others.

The initial survey, between 1970 and 1983 involved 2600

strategic business units from 200 companies. Each SBU gives
information on the market within which they operate, the products
they had brought to market and the efficacy of the strategies they
and implemented. The PIMS study measured the impact of
strategic planning on affirms return on investment (ROI). This study
aimed to identify the most important variables affecting profits. The
PIMS study collected data from several business units across
different industries. Based on the collected data, the study identified
the most important variable that influence profitability. Some of the
variables that impact profitability include:

 Market share
 Investment intensity
 Corporate diversity
 Product or Service quality
 Product promotion
 Product pricing
Product design etc

CRITICISMS OF PIMS MODEL

Several critics have criticized the research findings of

PIMS model, the existence of linear relationship between market
share and profitability with lower market shares. These are valid in
the following cases:

When the cost per unit declines with an increase in market

share due to economies of large scale production and
distribution.
 56

When the firm undertakes effective marketing mix, more would

be the demand, which in turn would lead to higher production
and distribution.


When firms offer premium quality products and charge premium
price that more than covers the costs incurred on R & D improve
quality.

3.4 STRATEGIC CHANGE

3.4.1 Meaning and Nature of Organizational change

A Change may be influenced by internal or external
factors. Organizational change is any alteration that occurs in the
working of an organization. Changes are introduced in strategies,
procedures, objectives, technology, job designs, and people.

The following are the features of organizational change:

Pervasive in nature: Changes are required in all organizations.

No organization can succeed without a change. A change in
one part of the organization may affect changes in the other
parts of the organization. Some parts of organization may be
affected more than others. Some parts may have a direct
impact, whereas, others may have an indirect impact.
Therefore, it is essential for the management to assess
implications of any change in the organization.


Necessities new equilibrium: when a change takes place in
any part of the organization, it disturbs the existing equilibrium in
the organization. A change requires need for new equilibrium in
the organization.


Continuous in nature: Organizational change is a continuous
in nature. As long as the organization exists, there would be
changes.


Reactive and Proactive: A change may be reactive or
proactive. A reactive change is unplanned and it takes place
due to changes in the environment. Proactive change is the
deliberate attempt on the part of the organization.
 57

Change is different from innovation: Change and innovation

are two different concepts. All innovation is change, but not
every change is innovation. Innovation takes place when an
organization exploits an idea to introduce a new and innovative
product, to develop a new technique, method, process, etc.


Internal and External forces: All organizational change can
take place due to variety of factors or forces. The forces can be
internal or external. The internal factors may be in respect of
management-labor relations, management policies, working
conditions, management philosophy, etc. the external factors
relates to competition, government customers, suppliers,
dealers.

Degree of change: Changes may differ in terms of degree.
Some changes may require massive restructuring in the
organization, such as changes due to mergers, takeover, etc.


Risks and Rewards: Changes are subject to risk and rewards.
When changes are introduced, and the changes bring positive
outcome, the organization may get the rewards in terms of
higher performance or results.

3.4.2 Process of Management of Change

The following are the various steps involved in the planned

process of management of change:

Identifying need for a change: The first step in the process of

management of change is to identify the need for a change.
Often a need for a change arises due t forces in the external
environment such as technological factor may force the
management to introduce a change in the organization. Internal
factors may require a change in the organization such as high
cost of production, high maintenance costs. Fall in sales,
decline in profits, increase in employee grievances, increases in
absenteeism etc.

Decision on elements of change: After identifying the need for

a change, the management must decide in the elements which
require a change. For instance a company’s sales may decline
due to faulty promotion, defective pricing policies and problems
in distribution, problems in the product
 58

Planning for change: After identifying the elements that require

a change, eh management should plan for a change. Planning
for a change need to answer the following questions like who’s
should introduce a change? When to introduce a change? How t
introduce a change?

Assessing Possible Impact: The management should also

assess the impact other change on the stake holders such as
employees, customers, etc. For instance, introduction of new
technology may have a direct impact on the work force such as
reduction in work force, Problem of social networking and need
or additional training.

Communicating the change: The management must

communicate the change to the various stakeholders. For
instance, if there is change in the price of goods, the
management must inform to the customers, dealers, sales -
force and other concerned parties.

Overcoming the resistance to change: At times there may be

resistance to change. For instance, employees may resist
automation for the fear of retrenchment, problem of adjustment
to new technology, etc.

Introducing a change: The management introduces the

change after communicating and on overcoming the resistance,
if any. According to the Paul O’Neill introduction of a change
involves a three step procedure:

Unfreezing means that the old ideas and practices need to

be kept aside so that new one can be learned.

Changing means the new ideas and practices are accepted
and learnt by the employees.

Refreezing means the new techniques which are learnt is
put into practice.

Review: There must be a review to ensure that the change is
progressing in the right direction. The change should bring the
desired results. For this purpose, the management should
constantly monitor the performance of the change process. If
there are any problems due to the change, such problems
should be handled immediately. The timely identification of
problems and appropriate solutions to such problems will enable
the change to bring the desired results into the organization.
 59

3.4.3 Causes of Resistance to Change

In any organization, there is resistance to change. The
resistance to change can be at individual level, group level and
even at the organizational level.

The factor or causes of resistance to organizational changes

can be broadly classified as follows:

I. Individual factors

There are several factors operating at individual level,

which are responsible for resistance to change in the organization.
Some of the individual factors responsible for resistance to change
are briefly stated as follows:

a. Psychological factors: The psychological factors are based on

individual feelings emotions and attitudes towards change. The
major psychological factors responsible for resistance to change
are as follows:

Fear of Unknown: Individuals may resent change for the fear of

unknown. For instance, a firm may introduce new technology and
an individual employee may resist such change may be because of
the fear of non exposure to new technology.

Status quo: Most individuals are satisfied with their present

routine of work environment. They feel that changes could disturb
their present pattern of work and life.

Problem of Ego: Some individuals enjoy present status in the

organization. They satisfy their ego needs with the present position
or status in the organization.

Lack of Trust: At times, individual employees may not have

faith and trust in the change agent. They feel that the change agent
introduces the change to satisfy his own interest rather than the
interest of others who would be affected by such change.

Economic factors: Individuals may feel the economic loss due

to the proposed change in the organization. The economic cause’s
resistance to change can be stated as follows:

Redundancy of Jobs: Employees may feel that a change can

make their jobs redundant as such as they lose their jobs which in
turn would affect their economic security.
 60

Problem of Incentives: At times, a change would reduce

incentive of employees such as over-time pay and as such they
may resist change.

II. Group Factors

Individuals as members of group may jointly resist a change

in the organization. The group resistance to change can be
explained from the view point fo nature of group dynamics and
vested interests.

Group Dynamics: It refers to the interaction among the group

members, which in turn affects the group behavior. The
members of a group may jointly oppose a change in the
organization, as it may affect the group interaction.


Vested Interests: Normally every group has its own leader,
whether elected or accepted by the group members. The leader
may use the group as a means of satisfying has personal
interests. A change in the organization may threaten the
leadership of a group, especially that of informal groups.

III. Organizational and Management Factors:

At times, the organizational factors are responsible to resist

changes in the organization. Organizations resist change due to the
following factors:

Resource Limitations: Every organization needs to adjust to

changes in the external environment. For instance, if there are
technological changes, which need to be introduced in the
organizations for the better performance, organizations may find
to difficult to introduce technological changes due to resource
constraints.

Stability of Systems: Organizations tend to develop certain
system, which bring benefits to the organization. The
organization may be so used to the system that it may find it
difficult to replace with new and better system, even though the
new system may bring better results than the existing one.


Traditional Management Philosophy: traditional managers do
not like to introduce changes in the organization. They are
content with the present performance of the organization.
 61

Problem for Responsibility: Managers are held responsible for

the outcome of changes, if introduced. Every change is
associated with some degree of risk. There is no guarantee that
change introduction would bring positive results.

3.4.4 Overcoming Resistance to Change

Management has to overcome resistance to organizational

change. It is a real challenge to overcome resistance to change in
the organization. Employees may be forced to accept the change
imposed on them as a result of formal authority of management.
However, they may not give their willing support, and commitment
in implementing the change in the organization. The following are
the various ways to overcome resistance to organizational change:

Employee’s participation: The management should secure

involvement of the employees who would be affected by the
change through continuous interaction. This would involve
explanation then discussion the proposed changes. The
management should find relations, opinions and suggestions of
the employees in respect of the proposed changes in the
organization. Such interaction is a trust building exercise. As the
interaction continues, the level of resistance to change may
decline, and personal involvement in the change process
increases.

Group Dynamics: Changes can not only affects individual
members, but also the groups in the organization. Therefore,
the management should understand the impact of group
dynamics. The management may find out the influencing
members of the group and through them may introduce the
change in the organization.

Competent Leadership: Managers should have strong
leadership skills to influence the employees to willingly accept
the changes in the organization and work for the
accomplishment of organizational goals. An effective e leader
presents change on the basis of impersonal requirements rather
than on personal grounds.

Sharing of Rewards: Management should promise sharing of
rewards arising out of the proposed change. When employees
are assured of rewards they would be willing to accept and
implement the change in the organization. Employees need to
 62

be provided both with monetary and non monetary incentives.

Employees not only appreciate increase in pay or promotion,
but also development o few skills, better working conditions,
recognitions from management etc.

Employees Security: Existing employee’s security must be

protected. Management must guarantee workers protection
from reduction in earning when new technology is introduced in
the organization. The organization should also protect seniority
rights, opportunities for promotion, and other such benefits.


Education and Communication: Management can introduce
change successfully in the organization through education and
communication. Effective communication is required for gaining
support for change. Even if the proposed change affects one or
few persons in the group, all the member of the group must be
informed of such changes, so as to gain group support if need
arises.

Training and Counseling: Management can introduce training
programmers so as to upgrade knowledge, skills and attitudes
of the change and it’s working. At time management may
provide psychological counseling to develop a positive attitude
towards change.


Union Consultants: Management should consult the workers
union in introducing the change in the organization. Union
representatives should be involved before the change is
introduced in the organization. Such involvement is required not
only to avoid resistance but also to secure willing cooperation
and commitment of the workers toward the changes in the
organization

3.5 CORPORATE RENEWAL

Corporate Renewal strategy is also known as turnaround

strategy. This strategy helps to transform underperforming
organizations to achieve short term profitability and long run
success. Today’s increased competition, cyclical and volatile
financial markets, and economic trends have created a climate in
which no business can take stability for granted.
 63

Turnaround is possible only when the company restructures

its business operations. Turnaround strategy is broader strategy
and it can include investment strategy – where a firm decides to
divest or get out of certain business and sells off certain units or
divisions.

The essentials of Turnaround strategy are as follows:

Effective Leadership: To make Turnaround successful, there is

a need to have good leadership at all levels, especially at the
top level management. The CEO needs to be committed and
dedicated to the organization. He needs to be a dynamic person
with creative skills to handle the turnaround situation.

Proper Review of the situation: The turnaround team needs to

conduct a proper review of both the internal and external
situation affecting the firm.
The turnaround team should review:
Competitor’s strategies.

Market position of the company in terms of market shares,
 sales, etc.
 Performance of the various departments.
Government policies affecting the firms.


Support from various parties: To make turnaround effective,
there should be good support from various parties such as
employees, suppliers, dealers, shareholders, government
authorities, etc.

Availability of Resources: There must be availability of

required resources to make turnaround effective. The
turnaround team needs to analyze both internal and external
environment.

Planning and Control: There must be proper planning and

control of various operations. The turnaround team needs to
analyze both internal and external environments.

Proper Communication: There must be good communication

throughout the organization. Any information relating to
turnaround strategy to the concerned departments or persons
must be quick, clear and complete.
 64

Viability of Business: Turnaround strategy is possible only

when there is viability of business. One cannot revive a
business which has no prospects.

Long Term approach: Firms must undertake turnaround

strategy not only from short term point of view, but also from
long – term point of view.

Steps in Turnaround Strategy

To manage turnaround strategy, and to make it successful,

the following are the steps that may be followed by business firms:

Setting up of a Turnaround Committee: The business firm

may set up a turnaround committee or a team to deal with the
turnaround strategy. The committee may involve top
management personnel, consultant, and may include
employees’ representative.

Identifying the Causes of Losses: The turnaround team has

to identify the possible causes of losses. The losses may be due
to internal factors or external factors or both.

The internal factors may be:

 Entry in non viable business.
 Excessive manpower due to poor manpower planning
 Focus on several product lines or brands.
Use of outdated technology.

The external causes may be:

 Improved practices or strategies of the competitors
 Changes in Government policies
Changes in customers’ preferences, tastes, etc.

Detailed investigation of causes: The turnaround team needs
to make a detailed analysis of the various causes. The
turnaround team may undertake the following activities:

Discussion with workers to know the problems and to get

their support.

Consumer research may be conducted to know their
reactions towards company’s products and services.
 65

Alternative Solutions: The team must look for alternative

solutions to overcome the problem of poor performance. The
alternatives solutions may be:

 Downsizing of work force

 Debt equity swap to reduce interest burden
 Divestment of unviable or non – core business unit
Focusing on profitable customers, etc.


Analysis of Alternatives: The turnaround committee must
analyzed the various alternatives. There must be analysis of
benefits and costs of every alternative solution or strategy. The
analysis of benefits and costs must be undertaken not only from
short term perspective but also from long term point of view.

Selection of Best Alternatives: The team may select a proper

mix of alternatives. The team may select two or three
alternatives out of the several listed. The choice of the best
alternatives depends upon the causes of poor performance and
the current situation.

Communication of Turnaround Strategy: The management

must communicate the turnaround strategy to the employees,
shareholders, and the concerned stake holders. Effective
communication will receive support from the stake holders for
implementation of the turnaround strategy.

Organization and Allocation of Resources: The Company

needs to organize the resources required to implement the
selected strategy. In case of divestment, the firm will get the
capital resources from the sale of the unit or product line.

Implementation: The Company needs to get good support from

the employees, shareholders and financial institutions to make
the turnaround strategy successful. There must be a continuous
dialogue between the turnaround team and employees

Review: The turnaround strategy needs to be monitored at

different phases. Monitoring of implementation is a must to
ensure early revival. If required, the company may adopt
additional measures to overcome the turnaround strategy.
 66

3.6 ORGANIZATIONAL FAILURES – CAUSES

Most business failures are due to internal and external causes.

Internal causes of Organizational Failures:

Ineffective Management style: The CEO or the founder of

a company is often is reluctant to delegate authority or
refuses to do so. The CEO may lack trust or faith in the
subordinate managers. This may lead to poor relationship
between the CEO and the rest of the management team.

Over – diversification: The business may resort to

unwarranted diversification to reduce risk. However, over
diversification may lead to overburden on functional areas
such as production, marketing finance and HRM.

Weak Financial Position: A company may face financial

problems due to various reasons which may lead to downfall
of the organization. The financial problems may be due to
the following cases:
Poor Management of working capital
Poor management of fixed capital
Defective credit policy
Lack of retained earnings

Marketing Problems: A Company may become sick due to

marketing problems. Some marketing problems include:
Poor product design
Defective pricing strategy
Ineffective promotion mix
Faulty distribution strategies

Defective HRM: A firm may adopt defective HR policies and

practices. The HRM problems may be due to the following
causes:
Poor manpower planning
Faulty recruitment and selection
Faulty placement of employees
Lack of training and development
 67

Poor Production Policies: A firm may suffer losses on

account of poor production processes and practices such as
follows’
Lack of Production planning and control
Faulty inventory management
Lack of quality control
Lack of emphasis on R & D

II. External causes:

Government Policies: At times, changes in Government

policies may have an adverse effect on the domestic firms. For
instance, government may liberally allow foreign firms to enter
the Indian markets, and as such the domestic firms may have to
face heavy competition.

Poor financial climate: The poor financial climate may prevail

in the economy due to recession in the market. Therefore,
business firms may find it difficult to obtain funds from banks
and financial institutions

Malpractices by Competitors: the competitors may adopt

malpractices to malign the name of the other organizations.
Some of the malpractices include:
Duplication of products
Unethical comparative advertising and publicity
Pressurizing the dealers not to stock the products of the
other organization
Pressurizing the suppliers to delay the supplies or to supply
poor quality of materials to other organizations etc.

Other external causes: There are several other external

causes that can have adverse effect on the business firms.
Some of such causes may include floods, earthquakes, wars
and other calamities. Recession in the international markets
may also have an adverse effect on the working of business
organizations.

3.7 ORGANIZATIONAL CULTURE

Corporate culture is the combination of values, attitudes,

beliefs, and expectations which are learned and shared by an
organization member and transmitted from one generation of
employees to another. The organizations culture generally reflects
 68

the values and beliefs of the founder and the mission of the firm. It
gives a sense of identity to the organizations members – This is
who we are. This is what we do. This we stand for.

The main features of organizational culture are as follows:

Organizational culture is a combination of social, cultural,

physical, psychological and other conditions within an
organization.

It influences the motivation, attitudes, behavior and performance

of the members of an organization.

The organizational culture evolves over a fairly long period of

time.

It is invisible and abstract, although it is perceived and

experienced by the members of an organization.

Organization culture can bring name and goodwill to the

organization.

It can provide opportunities and threats to its members.

The main dimensions or constituents of organizational

culture are as follows:

The plans and policies of an organization.

The rules and regulations of the organization.

The goals, priorities, values and beliefs of an organization.

The competence and character of the top management of the

organization.

The facilities and treatment to the employees in the

organization.

Style of leadership followed by the members in the organization.

Reward and recognition structure in the organization.

Approach of the organization in resolving conflicts within and

outside the organization.

The dominant orientation of the company, such as research and

development.
 69

10.The informal work rules that employees follow without question.

From the above dimensions it is clear that organization culture

is a holistic or an integrated systems concept. It consists of all
facets of the organization.

Functions of Corporate Culture:

Corporate culture performs certain important functions in an

organization;

It conveys a sense of identity for employees.

It helps to generate employee’s commitment to the objectives of

the organization.

It brings stability to the organization due to the commitment of

the employees.

It serves as a frame of reference for employees to undertake

activities of the organization.

A strong culture not only promotes survival and stability, but it

also creates the basis for competitive position.

3.8 MANAGEMENT OF STRATEGIES AND CULTURE

Every company has a unique organizational culture. Every

organization has its own values, attitudes, beliefs, business
practices and personality that define its corporate culture. For
instance, the foundation of Tata Group’s culture is its dedication to
customer satisfaction, zealous pursuit of excellence and a strong
work ethic.

Strategy and Culture:

A strong culture is needed for implementation of the

corporate strategy. Culture needs to be aligned with the strategy.
The culture-strategy alignment helps to develop a committed and
dedicated work force. A culture - strategy alignment helps to
influence employees in performing organizational tasks in two
ways:

A work environment where culture is conducive for effective

implementation of strategy provides a system of informal rules a
 70

deeper pressure to perform effectively towards the successful

implementation of the strategy.

A strong strategy supportive culture motivates employees to

perform organizational tasks effectively. It provides a strong
value system to perform, and it promotes employee
identification with the company’s mission, performance targets
and the strategy.

Managing Culture and Strategy Relationship:

The strategy formulators need to select a strategy that is

compatible with the corporate culture. The strategy implementers
need to change any element of the corporate culture that hinders
strategy implementation.

Once a culture is established, it is difficult to change.

Changing a problem culture is difficult because most employees
cling to old and familiar beliefs and values.

The top management must first diagnose the elements of

present culture that hamper strategy implementation. The
communication must be followed quickly by visible and aggressive
actions to modify the culture. Every member must understand that
the actions are intended to establish a new culture in order to align
with the corporate strategy.

Some of the actions would include:

Communicating to all members of the organization the need for

cultural change and the benefits to all concerned.

Replacing key managers who are deeply associated with the old
and problematic culture.

Recruitment and selection of new managers and employees
who have the desired cultural values and serve as a role model
for the desired cultural behavior.

Changing long standing policies and practices that impede the
new initiatives and strategy.

Special monetary incentives to reward the desired cultural
behavior.
 71

3.9 STRATEGIES FOR FOREIGN DIRECT

INVESTMENT

Foreign Direct Investment (FDI) is a long term direct

investment in business in a foreign country by an individual or a
company of another country, either by buying a company or
through equity participation or by expanding operations of an
existing business in a foreign country.

FDI differs from portfolio investment, in that portfolio

investment is generally short term passive investment in the
securities of forms in foreign country.

FDI brings certain benefits to the host country such as:


Capital inflows which improve capital account balance and if
there is a tie up with local firms, the local firms can use the
capital for expansion and modernization.

Skills development through training and development by the

foreign firm.

Transfer of technology by the foreign investing firm.

There are various strategies for attracting and promoting

FDI:

Green filed Investment: A foreign firm may invest fresh equity

capital investments by setting up a new firm a foreign country.
This may be in response to the initiatives taken by the
Governments of the country where FDI is invested. For
instance, the Government may encourage FDI by increasing the
FDI limits. AT present 100% FDI is allowed in sectors like hotels
and tourism industry, export sector, pharmaceutical sector,
telecom sector, etc.

Reinvestment of earning: Several countries encourage

reinvestment of earning by foreign firms by providing special
incentives such as tax benefits. This strategy does not result in
outflow of foreign exchange by way of dividend of transfer of
profits. This strategy adds to the host countries capital stock and
as such the productive capacity increases.
 72

Intra-company Loans: Usually this strategy is followed by

parent company when it provides additional funds to its
subsidiary by way of loans. Initially this strategy may lead to
foreign capital inflows which can be used by the subsidiary for
expansion and modernization. However, this strategy may
require larger outflow of capital by way of interest payment and
repayment of loans by the subsidiary to the parent firm.

Mergers and acquisitions: AT times, the Government of the

host country may attract FDI through merger and acquisition
route. Generally, it is not most desirable mode of FDI unless FDI
is crucial to the success other privatization of a loss-making
public enterprise, or in the case where the merger of a domestic
company with a foreign company takes place on equal terms.

Non – equity forms of FDI: These may involve arrangements

in the form of subcontracting, licensing, franchising, etc. Such
arrangement may not involve capital flows from abroad.
However, such arrangements contribute to the development of
the host country’s economic growth and development.

3.10 STRATEGIES FOR COMPETING IN

INTERNATIONAL MARKETS

There are several strategic options for a firm that decides to

expand outside its domestic market and compete globally.

Joint Ventures: A business firm may enter into a joint venture

with foreign forms as the main strategy for entry in foreign
markets. Joint ventures have several advantages over other
strategies. The firm can easily adapt to cultural variations in
foreign markets with the help of its overseas partner.

Franchising strategy: Certain firms may adopt franchising

route to enter in foreign markets. Franchising is a contract
between two parties, especially in different countries involving
transfer of rights and resources. The franchisor enters into a
contract with the franchisee, whereby the franchisor agrees to
transfer to the franchisee a package of rights and resources
such as: Production process, loans and equity participation,
patents, trademarks, brand names, product ingredients, etc.
 73

One country production base: A firm may maintain one

country production base, preferably in the domestic market, due
to various location advantages such a s low-cost labor; or
availability of cheap materials. However, the distribution could
be done in several world markets.

Licensing: Licensing makes sense when a firm with valuable

technical know-how or a unique patented product has neither
the organization capability nor the funds to enter foreign
markets. This strategy also becomes important if the host
country makes entry difficult through investment.

Production sharing: this concept of production sharing was

developed by Peter Drucker. It combines professional skills and
technology available in the developed countries with the low-
cost labor available in developing countries.

Acquisitions: it involves purchasing another company already

operating in a foreign country / market where the firm wants to
enter. Synergetic benefits can result if the firm acquires a unit
with strong goodwill and good distribution network. Research
indicates that wholly owned subsidiary is more successful in
international markets as compared to joint ventures.

Green field development: Firms may go green field

development project. It involves setting up manufacturing plant
and distribution system in other countries. It allows a firm more
freedom in designing plant, selecting its own workforce and
choosing right suppliers and dealers.

Turnkey operations: They are contracts for the construction of

operating facilities in exchange for a fee. The facilities are
transferred to the host country or a firm when they are
completed. The client is usually a government agency that
requires a particularly product to be produced locally under its
control.

BOT concept: The Build, Operate, Transfer Concept is a

variation of Turnkey operation. Instead of turning the facility over
to the host country when completed, the company operates the
facility for a fixed period of time during which it earns back its
investment, plus a profit.
 74

Global Strategy: In this case, the firm adopts standard strategy

across all global markets. The same competitive approach is
used in all countries / markets where the firm has its presence.
For instance, a firm may adopt premium pricing strategy world
wide as in the case of Mercedes Benz or a company may adopt
low-cost strategy worldwide and accordingly charge low price in
all the global market.

3.11 EXPORT MARKETING STRATEGIES

There are several reasons as to why companies expand into

foreign markets. The main reasons are:

To gain access to new customers.


To achieve lower costs and to improve the firm’s
 competitiveness.
 To capitalize on its core competence.
To spread its business risks across a wider market base.

Normally, the initial strategy followed is production at home and

distribution in overseas markets through overseas distributors.

The primary functions performed in overseas markets involve

mainly selecting a network of distributors and dealers and
undertaking sales promotion and brand awareness activities.

I. Product Design Strategies

A manufacturer may adopt any or the following product

design strategies:

Product innovation: A new product may be launched only for

overseas market, which is quiet rare.

Product Modification: The domestic product may be modified
to accommodate overseas buyers’ tastes and preferences.

Product Standardization: The domestic product may be
marketed abroad without any modifications.

II. Pricing Strategies

As far pricing strategies are concerned, an exporter may

adopt any of the following strategies:

Skimming Pricing: Where high price is charged when the

product is launched in the market as in the case of
innovative products.
 75

Penetration Pricing: Where low price is charged when

product is launched to gain market share.


Differential Pricing: Where different prices are charged in
different markets depending upon market and competitive
conditions.


Standard Pricing: Where the same price is charged in all
the global markets, which is quite rare.

Distribution Strategies

The manufacturer may also adopt distribution strategies as follows:

Direct exporting: Where the manufacturer directly exports

the goods to overseas buyers.


Indirect exporting: Where the manufacturer exports
through intermediaries such as star export houses or
merchant export houses.

IV. Promotional Strategies

The exporter also needs to adopt suitable promotion strategies:

Standard Promotion Strategy: Where the same promotion

mix is used in all the global markets and with the same
promotional theme.


Differential Promotion Strategy: Where the different
promotion mixes is used depending upon market and
competitive situation and with different promotion theme.

3.12 SUMMARY

Corporate restructuring is the process of redesigning one or

more aspects of a company. The process of reorganizing a
company may be implemented due to a number of different factors,
such as positioning the company to be more competitive, survive a
currently adverse economic climate, or poise the corporation to
move in an entirely new direction. Here are some examples of why
corporate restructuring may take place and what it can mean for the
company.
 76

Restructuring a corporate entity is often a necessity when

the company has grown to the point that the original structure can
no longer efficiently manage the output and general interests of the
company. For example, a corporate restructuring may call for
spinning off some departments into subsidiaries as a means of
creating a more effective management model as well as taking
advantage of tax breaks that would allow the corporation to divert
more revenue to the production process.

In this scenario, the restructuring is seen as a positive sign

of growth of the company and is often welcome by those who wish
to see the corporation gain a larger market share.

3.13 QUESTIONS:

Q.1.Discuss the need and different forms of corporate restructuring

Q.2. Write a note on BCG Matrix

Q.3. Write a note on General Electric Business Screen Portfolio

analysis technique.
Q.4.Discuss the TOWS matrix
Q.5.Write a note on DPM matrix
Q.6. Write a note on SPACE as a technique of portfolio analysis
Q.7. Write a note on Profit Impact of Market Strategy Model
Q.8. Explain the process of management of strategic change

Q.9. discuss the steps involved corporate renewal or turn around

strategy
Q.10. what are the causes of resistance to strategic change

Q.11. what are the measures to overcome resistance of strategic

change
Q.12. Write a note on organizational culture
Q.13. Write a note on strategies relation to FDI in India
Q.14. Describe the strategies for competing in international markets

Q.15. Discuss the internal and external causes of organizational

failures in India


 77

NEW EMERGING STRATEGIES IN

INFORMATION COMMUNICATION
TECHNOLOGY (ICT)

Unit Structure
4.0 Objectives
4.1 Introduction
4.2 Outsourcing
4.3 Management Information System
4.4 Re - Engineering Business Process
4.5 Virtual Company Strategies
4.6 Knowledge Creating Company
4.7 Emerging Strategies in Tele Communication Sector:
4.8 Summery
4.7 Questions

4.0 OBJECTIVES

After studying this unit the student will be able to -

 Understand the concept of Outsourcing.

Understand the meaning of Management information system

Know Barriers to successful development of strategic MIS
 system
 Know the Re - Engineering Business Process
 Understand Emerging Strategies in Tele Communication Sector
Explain virtual companies meaning and features
 78

4.1 INTRODUCTION

Outsourcing became part of the business lexicon during the

1980s. There is a strong public opinion regarding outsourcing
(especially when combined with off shoring) that outsourcing
damages a local labor market. Outsourcing is the transfer of the
delivery of services which affects both jobs and individuals. It is
difficult to dispute that outsourcing has a detrimental effect on
individuals who face job disruption and employment insecurity;
however, its supporters believe that outsourcing should bring down
prices, providing greater economic benefit to all.

Outsourcing is subcontracting a process, such as product

design or manufacturing, to a third-party company.

The decision to outsource is often made in the interest of

lowering firm or making better use of time and energy costs,
redirecting or conserving energy directed at the competencies of a
particular business, or to make more efficient use of land, labor,
capital, (information) technology and resources

4.2 CONCEPT OF OUTSOURCING

Outsourcing is an arrangement in which one company

provides services for another company that have usually been
regarded as intrinsic in managing a business. In some cases, the
entire information of a company is outsourced, including planning
and business analysis as well as the installation, management and
servicing of the network and workstations.

4.2.1 Examples of outsourcing are :

Outsourcing of Municipal Corporation for waste collection.

Outsourcing of business process.

Outsourcing of specialized knowledge such as R & D.

Outsourcing of after sales service in case of consumer durable,

office equipment etc.

4.2.2 Strategic Reasons of Growing Outsourcing in India :

India holds 65% of the global offshore outsourcing and

continues to remain the world’s favorite destination for outsourcing.
 79

It has gained global confidence with major players such as Cisco,

oracle Hewlett - Packard and many make Mr. Win Elfrink (Cisco
systems) he says “we believe that India is the hub of the world
where ICT sector is concerned.”

4.2.3 Reasons are as follows :

1) Focus on core activities :

Outsourcing enables a business firm to concentrate on core

activities such as customer relationship, product development and
other activities this bad to operational excellence and to gain
competitive advantage in the market.

2) Production in operation costs :

Outsourcing may enable a firm to reduce its operational

costs. For example a company may lower a amount to the third
party to provide certain services than if activities are undertaken
with in house employees.

3) Tower Investment :

Outsourcing enables a firm to reduce fixed capital

investments. For example in case of BPO (Business Process
Outsourcing) the premises are owned by BPO owner. Therefore the
outsourcing from need not invest in certain fixed assets.

4) Facilitates Quick Delivery :

In certain firms, the production of certain items as

outsourced. The third party that produces on behalf of the firm
would make every possible effort to produce on time.

5) Specialized Services :

At times, outsourcing may enable a firm to obtain specialized

services from exports for example in case of legal process
outsourcing a foreign firm can obtain specialized services from
Indian legal exports and that too for lower fees.

6) Target Customer Base:

Outsourcing enables a firm to focus on core activities and

get the advantage of specialized services and in a better position to
provide quality services and also charge lower prices due to lower
charges charged for services by the form which provides
 80

outsourcing services. This lead to customer satisfaction and larger

customer base.

8) India’s Technical and Professional Talents:

India has large number of spilled and talented human

resources the country has 1.2 billion population and over 30 lakh
graduates are added to workforce every year. It also holds the
distinction of being the largest English speaking nation in the world
which attracts company to outsource.

4.3 MANAGEMENT INFORMATION SYSTEM:

4.3.1 Meaning:

Communication is essential to carry managerial functions

and to link the enterprise with its external environment customer’s
dealers, suppliers, investors and others.

H. Weifrich and H. Koontz defines MIS as “a formal system of

gathering, integrating, comparing and analyzing and dispersing
information internal and external to the enterprise in a timely
effective and efficient manner”.

4.3.2 Features of MIS

1) Systematic Process :

MIS involves a systematic process of gathering, integrating,

comparing and analyzing information for effective decision making.

2) Scope :

Originally, MIS was used for electronic data processing

(EDP). It provides information for forecasting sales, tracking
inventories, tracking accounts payable and receivables and other
data that would help managers in managing the enterprises.

3) Components :

MIS is a computer system used for managing five primary

components. Hardware, software, data, procedure and people.

4) Types of Data base :

Organizations use MIS to store data. It stores data in one or

two database systems like relational data base and hierarchical
data base.
 81

5) Report Generation :

MIS used not only to store data but also to generate reports.
When prompted by the user, the system complies the report
required, inserting the data into the template and then printing the
report for decision making.

6) Accessibility and Integration :

Open access means that the primary MIS can be connected

or integrated with other system within the organization. It enables to
make changes to data from different locations.

7) Professional Approach :

There is a need to adopt professional approach toward MIS.

The organization must select and train the MIS staff for collecting,
classifying, combining analyzing and transmitting systematically to
managers to take appropriate decision.

8) Continuous in Nature :

The MIS activity is continuous in nature. There is a constant

need a collecting analyzing data relating to environment such as
competitors strategies, govt. policies, consumer requirements etc.

4.3.3 Barriers to successful development of strategic MIS

system :

1) Traditional Management Philosophy :

The traditional managers are reluctant to adopt modern

management system such as MIS. They consider this system as
waste of money effort and time.

2) Resource Crunch :

Several organization face resource crunch even in case of

professional managed companies. There is always a need to cut
cost.

3) Lack of Trained Manpower :

There is often dearth of skilled manpower to handle MIS

operations. As a result, organization may be reluctant to adopt
strategic MIS and depend on traditional means of managing data.
 82

4) High cost of employees training :

Properly trained employees form an vital element of MIS.

The length and depth of training may vary making it difficult to
estimate the cost of its training. MIS requires money cost as well as
productivity loss during the training period.

5) MIS Flexibility :

Once MIS is installed in a company, it may prove to be an

inflexible system. Making changes quickly to reflect fluctuating
business operators may not be possible depending on the MIS
style and functionality

6) Information Overload :

MIS that collects too much information can lead to the

management problem known as the paralysis of analysis.
Information overload may lead to the delay and anability of making
right and timely decisions.

7) Problem of Data Collection and Analysis :

There may be a possibility of gathering inaccurate and faulty

data and may be outdated as well. The problems of data collection
and analysis may create barriers for successful implementation of
MI?S in an organization.

8) Time factor :

That of time is required for creating and updating MIS, this

may create delays in decision making as timely data may not be
presented to decision makers.
4.3.4 Advantages of Information Technology :

Information Technology (IT) benefits the business world by

allowing organisations to work more efficiently and to maximize
productivity. Since computerized systems are widely used it is
advantages to incorporate information technology into you
organization.
The following are the advantages :

1) Storing and Protecting Information :

Information technology creates electronic storage system to

protect a company’s valuable records by allowing certain users with
in a company to access, withdrew add or change the documents.
 83

2) Automated Process :

Information technology improves a company’s efficiency by

developing a automated process which reduces a burden on staff
which makes employees to work on other things.

3) Remote Access :

IT system provides remote access to the company’s

electronic network, so employees can work from home or during
travel or other location which increases firms productivity.

4) Communication :

The IT system enables employees to connect with others via

the email, video conferencing, equipment etc which provides
efficient way to conduct business and communication.

5) Cost Effectiveness :

It brings cost effectiveness by helping to computerize

business processors which ultimately gives vize to profits that
means better pay to employees and less strenuous working
conditions.

6) 24 × 7 Business Hours :

This means that business can be open any time and

anywhere making purchases from different counties easier and
convenient.

7) Competitive Advantage :

IT system gives competitive advantage to the users by

enabling services providing quick and quality services to the
customers making business firms more competitive.

8) Benefits to knowledge workers :

It systems can improve the performance of knowledge

workers in customers, supplier and partner organizations; add
information value to existing products and services.
 84

4.4 RE - ENGINEERING BUSINESS PROCESS

4.4.1 DEFINITION

Business Process Re-engineering (BPR) is also known as

business process re - design business transformation, or business
process change management. Business Process Re-engineering
(BPR) is more than just business improvising’ it is an approach for
re-design the way work is done to better support the organization’s
mission and reduce costs.

According to Hommor and Champy, “BPR is a fundamental

rethinking and radical redesign of business processes to achieve
dramatic improvements in critical contemporary modern measures
of performance, such as quality, cost, service and speed”.

4.4.2 BPR success factors are as follows :

1) Organization wide commitment :

There is not doubt that major changes to business

processes have a direct impact on process, technology, job roles
and work place culture. Significant changes to one of them require
resources, money, leadership which is an extraordinary task. Since
BPR can involve in multiple areas it is extremely important to get
support from all affected departments.

2) BPR Team Composition :

Once organization wide commitment has been secured from

all departments involved in the re engineering effort and at different
levels, the critical step of selecting a BPR team must be taken. The
BPR team forms the nucleus of the BPR effort, major key decisions
and recommendations, and helps communicate the details and
benefits of the BPR program to the entire organization.

3) Business Needs Analysis :

Generally, BPR teams focus on technology without first

assessing the current process processes of the organization and
determining what exactly needs reengineering. Therefore, there is a
need for business need analysis. In this analysis phase, a series of
sessions should be held with process owners and stakeholders,
regarding the need and strategy for BPR. This session identify
essential goals for BPR within each department and then
collectively define defectives for how the project will import each
 85

work graph or department on individual basis and the business

organization as a whole.

4) Adequate IT Infrastructure :

Effective alignment of IT infrastructure and BPR strategy

building an effective IT infrastructure, adequate IT infrastructure
investment decision, adequate measurement of IT infrastructure
effectiveness, proper information systems, effective reengineering
of legacy IT, effective use of software tools are the most important
factors that contribute to the success of BPR projects.

5) Ongoing Continuous Improvement :

BPR is a successive and ongoing process and should be

regarded as an improvement strategy that enables an organization
to make the move from traditional functional orientation to one that
aligns with strategic business process.

6) Effective change Management :

Change management is the discipline of managing change

as a process, with due consideration that employees are people,
not programmable machines. An important step towards any
successful reengineering effort us to convey an understanding of
the necessity for change. It is a well known fact that organization do
not change unless people change, the better change is managed,
the less painful the transition us.

4.5 VIRTUAL COMPANY STRATEGIES

4.5.1 DFINITION

Virtual Organization (VO) is a temporary network of

independent organisations that came together to exploit
opportunities. In a virtual organization, companies can share costs
and spells can have access to global markets with each
participating from contributing its best capabilities.

VO can be defined as “a group of individuals or organisations

with specialized core competencies, who work spontaneously
together with the help of ICT to develop and deliver a product or
service in the market to gain competitive advantage.
 86

4.5.2 Features of virtual organization :

1) VO separate Entity :

Virtual organization does not create any separate entity. It

does not have neither any head office or an organization chart. It
operates through virtual team across participating organization.

2) Inter dependence :

The alliance members or organization are entirely dependent

on each other during collaboration process. The participants in it
complement each other by making it possible to deliver a product or
complete a project collaboratively.

3) Information and Communication:

In VO, the use of ICT is substantially grater, thereby,

reducing or eliminating the necessity of their physical presence for
the transaction of business or for doing work collaboratively in order
to realize common objective.

4) Geographic Dispersion of Participants :

In VO communication is taken care of by the ICT, Therefore,

the geographic location of alliance members does not matter. It is
possible to communicate with in seconds on a world wide scale
with the help of ICT.

5) Temporary in Nature :

VO is generally temporary in nature. It gets disbanded once

the goal is achieved. However, there may be regrouping of the
individuals for upgrading the project or for another project in future.

6) Excellence :

VO can provide excellence in a particular product or project.

It generates synergetic effect due to excellent team work.

7) Mutual Trust and Respect :

The alliance member need to have complete faith and trust

each other. At the same time, the members much respect each
others competencies. Trust and respect enhances efficiency of the
VO.
 87

8) Support from Top Management :

The top management of participating in VO must provide

active support to the individuals. The top management may provide
necessary facilities and incentives to the employees to take active
part in VO.

4.6 KNOWLEDGE CREATING COMPANY

4.6.1 MEANING

In an economy where the only certainly is uncertainly, the one

sure source of lasting competitive advantage is knowledge. When
markets shift, technologies proliferate competitors multiply and
products become obsolete almost overnight, successful companies
are those that consistently create new knowledge, disseminate it
widely throughout the organization and quickly embody it in new
technologies and products. These activities define the “knowledge
creating” company whose sole business is continuous innovation.

Two leading Japanese business experts Ikujero Nonapa and

Hwiotaka Tapeuchi are the first to the success to Japanese
countries to their ability to create new knowledge and use at to
produce successful products and technologies. Peter Doukper calls
it the “knowledge society” one that is different from the “industrial
society” and one in which acquiring and applying knowledge will
become pay competitive factors.

4.6.2 Aspects of Knowledge creation :

1) Organizational knowledge creation :

Creating organizational knowledge is much about

experience and trial and error as it is about mental modeling and
learning from others.

2) Knowledge Business :

Organization don’t just process knowledge, they create it as

well knowledge creation by the business organization has been
virtually neglected in management studies.

3) Human Knowledge :

Explicit knowledge can be articulated in formal language

including grammatical statements mathematical expressions,
 88

specification manuals and so forth. Tacit knowledge is hard to

articulate with formal language.

4) Tacit Knowledge :

Knowledge expressed in words and numbers is only the top

of the iceberg. It is highly personal and hard to formalize mapping it
difficult to communicate and share with others.

5) Two Dimensions of Tacit Knowledge :

The technical dimension which contains the kind of informal

and hard to ten down spells or crafts captured in the term know
flow. A master craftsman is often unable to articulate what he
knows.

6) Explicit / Tacit Distinctions:

The distinction between explicit and tacit is the pay to

understanding the difference between western and Japanese
approaches to knowledge. Explicit can be processed by computer
but the subject and intuitive nature of tacit knowledge makes it
difficult to process in any systematic or logical manner.

4.7 EMERGING STRATEGIES IN TELE

COMMUNICATION SECTOR :

The telecom sector has been one of the fastest growing

sectors in recent years. It is now the second largest telephone
network in the world, after only China Tele density which shows the
number of telephone per 100 persons was 76.75% at the end of
October 2012. But with the growth of mobile telephony the number
of landline telephone has declined from over 32 million as on end
March 2012 to less those 31 million as on 31st October 2012.

Some of the strategies adopted by Govt. of India to promote

telecommunication sector include.

1) Broadband Strategy :

Special efforts are being made to increase the penetration of

broadband especially in rural and cremate areas. The govt. has
approved a project cost of Rs. 20000 crore for creating National
Optical Fiber network (NOFN) which will provide broad band
connectivity to 2-5 lakh gramanchyat for various application like e-
 89

health, e-governance, e-education. The project is being funded

under universal service obligation fund (USOF)

2) Rural Telephone Strategy :

Under another scheme for village Public Telephone at the

end of November 2012 a total of over 5-8 lakh villages had been
covered for providing broad band connectivity to rural and remote
areas, the USOF signed an agreement with Bharat Sanchar Nigam
Ltd. on January 20, 2009 under Rural Wire line Broadband scheme
to provide wire line broad band connectivity.

3) Increase in FDI :

In July 2013, the Govt. of India has increased FDI in telecom

sector from 74% to 100%. The main purpose is to encourage
foreign investors to invest in the telecom sector, thereby promoting
this sector. FDI brings certain benefits such as

a. Capital inflows for expansion and modernization.

b. Skill development through training by foreign firms.
Transfer of latest technology.

Right to Broadband Strategy :

The National Telecom Policy 2012 recognizes telecom

sector including broadband connectivity, as a basic necessity like
education and health and therefore this policy has introduced the
concept “Right to Broadband”. This policy states the Govt. will
make efforts to provide affordable and reliable broad band on
demand by the year 2012 and to achieve 175 million connection by
the year 2017 and 600 million by ear 2020.

5) Technology Strategy :

Advancement and innovation are being made in all sectors

of telecommunication industry, wireless technology. Internet and
satellite communication being the main parts of Telecom industry
as investing heavily in technological innovation, and in the
development of technology and innovation the growth rate is
continuing at fast face and new value added products and services
are during the consumer spending behavior.
 90

6) One Nation Free Roaming Strategy:

The govt. of India has initiated the move towards one nation
free roaming strategy. The National Telecom Policy 2012 states
one of the objectives - To achieve one - full Mobile number
portability and work towards one Nation Free Roaming. This
measure would benefit the mobile customers and consequently
expand the telecom sector.

7) Green Policy for Telecom Sector :

The Govt. of India initiating for enhanced and continued

adoption of green policy in telecom and incentivize use of
renewable resources for sustainability.

8) Take over strategy :

Firms operating in the telecom sector have adopted takeover

strategy. There is an upward trend in the mergers and acquisitions
in the Telecom sector that are happening throughout the world. The
aim behind such merger is to attain competitive benefit in the
telecommunications industry.

4.8 SUMMARY

Outsourcing is an allocation of specific business processes

to a specialist external service provider. Most of the times an
organization cannot handle all aspects of a business process
internally. Additionally some processes are temporary and the
organization does not intend to hire in-house professionals to
perform the tasks.

In an economy where the only certainly is uncertainly, the one

sure source of lasting competitive advantage is knowledge. When
markets shift, technologies proliferate competitors multiply and
products become obsolete almost overnight, successful companies
are those that consistently create new knowledge, disseminate it
widely throughout the organization and quickly embody it in new
technologies and products. These activities define the “knowledge
creating” company whose sole business is continuous innovation.
 91

4.9 QUESTIONS:

What is outsourcing? Gives reasons for outsourcing to India.

What is MIS and explain its characteristics and its advantages?
Discuss the barriers to successful development of strategic MIS
system.
Explain the success factors of business process reengineering
and its advantages.
Explain virtual company and its nature.
Write a note on knowledge creating company.
Describe the emerging strategies in the telecom sector in India.




 92

5
DISASTER MANAGEMENT: THE
DEVELOPMENT PERSPECTIVE,
CONCERNS AND STRATEGIES.

Unit Structure

5.0 Objectives
5.1 Introduction
5.2 Disaster Management-Meaning and Features
5.3 Disaster Management Strategies in Global Context
5.4 Strategic Ways of Managing Disasters at the National, State,
District Levels in India.
5.5 Challenges of Disaster Management and Governance in India.
5.6 Economic Losses due to disasters-Issues and Strategies
5.7 Strategies for preventing disasters and Preparedness Measures

5.8 Strategies to cope with Disasters

5.9 Summary
5.10 Questions

5.0 OBJECTIVES

After studying this unit the student will be able to -

Understand the concept of Disaster Management.


Know the Strategic Ways of Managing Disasters at the
 National, State, District Levels in India
Know the Challenges of Disaster Management

Understand the Economic Losses due to disasters-Issues
 and Strategies
Explain Strategies to cope with Disasters

.
 93

5.1 INTRODUCTION

India has been traditionally vulnerable to natural disasters on

account of its unique geo-climatic conditions. Floods, droughts,
cyclones, earthquakes and landslides have been recurrent
phenomena. About 60% of the landmass is prone to earthquakes of
various intensities; over 40 million hectares is prone to floods;
about 8% of the total area is prone to cyclones and 68% of the area
is susceptible to drought. In the last decade, an average of about
6000 people lost their lives and about 30 million people were
affected by disasters every year. The loss in terms of private,
community and public assets has been astronomical.

5.2 DISASTER MANAGEMENT - MEANING AND

FEATURES

5.2.1 MEANING

The term `Disaster’ owes its origin to the French word

`Disaster’ which is the combination of two terms `des’ meaning bad
or evil and `astre’ meaning `star’. The combined expression is `Bad
or Evil Star’ In the earlier days, a disaster was considered to be the
loss due to some unfavorable star.

The United Nations defines disasters as, “the occurrence

of a sudden or major misfortune which disrupts the basic fabric and
normal functioning of a society or community”.

The Webster’s Dictionary, defines disaster as, “any event

that over whelms existing resources to deal with the event”.

5.2.2 CLASSIFICATION OF DISASTER

Disasters can basically be classified into two ‘Categories i.e.

Natural Disasters – such as

Wind related - Storm, Cyclone, tornado, Huricane, Tidal

waves, Storm surge.

Water related - Flood, cloud burst, Flash flood, excessive

rains, Drought, Communicable diseases,

Earth related - Earthquake, Tsunamis, Avalanches, Land

slides, Volcanic eruptions.
 94

Man-made Disasters:

Such as: war, battle, enemy actions, riots, Accidents of

vehicles, Industrial accidents, Fire and Forest Fires. Nuclear
explosion, Ecological disasters like deforestation, soil erosion air,
water pollution, HIV / AIDS, Life Style diseases, Violence and so
on.

5.2.3 FEATURES

Disaster is associated with following features.

Disruption to normal pattern of life. Such disruption is usually

severe and may also be sudden, unexpected and wide spread
and thus human beings remain in shock for a long period.

Human effects such as loss of life, livelihood, and property,

injury, hardship, and adverse effects on health - physical as
well as mental.

Effects on social structure such as destruction of or damage to

infrastructure buildings, communication and other essential
services leading to disruption of life and destination of the
resources become scarce.

Community needs shelter, food, clothing, medical assistance

and social care.

5.2.4 DISASTER MANAGEMENT

Disaster Management is a challenging task for which

personnel of different specialization are required to work in teams.
There is a need of Human Resource Development for personnel
engaged in disaster management e.g. engineers doctors,
architects, social workers, administrators etc. What is actually
required is the team of dedicated workers who can work in team
with complete understanding among themselves.

Disaster Management - involves the following aspects.

It needs to be professionalized.

Risk management to be brought to the centre stage in all

disaster mitigation plans.

All efforts for disaster management to be based on hazard and

vulnerability analysis.
 95

Communities and local governments to be made aware of the

hazards and the vulnerabilities.

Communities and local governments to be involved in

formulating disaster management plans.

The primary responsibility for disaster management should be

that of the State Government with the Union Government
playing a supportive role.

Effective implementation of land use laws, building byelaws,

safety laws and environmental laws.

Setting up a framework to co-ordinate the responses from

different sections like donors, voluntary organizations,
corporate bodies etc.

Special needs of women, children, elderly and physically

challenged persons to be addressed.

Hence, it can be concluded that the impact of disasters can

be lessened through advance planning, developing warning system
as well as prompt implementation. It is essential to understand and
practice all the techniques which can help in prevention, mitigation
and rehabilitation.

5.3 DISASTER MANAGEMENT STRATEGIES IN

GLOBAL CONTEXT

Natural disasters take place in all countries, developed as well

as developing, all over the world. Every year, more than twenty
natural disasters occur throughout the world. In last two decades,
disasters have claimed more than three million lives and affected
about one billion people. The frequency of natural disasters is many
times more in Asia and Pacific region.

At the global level, there have been considerable concerns

about natural disasters. Even as substantial scientific and material
progress has taken place, the loss of lives and property due to
disasters has not decreased. In fact, the human toll and economic
losses have increased many fold. It was in this background that the
United Nations General Assembly, in, 1989, declared the decade
1990-2000, as the International Decade for Natural Disaster
Reduction with the objective to reduce loss of lives and property
and restrict socio-economic damage through concerted
 96

international action, specially in developing counties. It would

enable governments to focus on hazard vulnerability and risk
assessment, disaster prevention, sustainable development,
effective early warning systems, Sharing of knowledge and transfer
of technology.

This has laid the basis for the shifting of focus from rescue and
relief to preparedness and mitigation.

In May 1994 a major conference of the International Decade

for Natural Disaster Reduction (IDNDR) programme was held which
brought out a plan of action for disaster reduction called the
yokohama Strategy. It made a case for an accelerated
implementation of a Plan of Action with development of a global
culture of prevention as a key component of the integrated
approach to disaster reduction. The strategy emphasized on the
need to increase awareness on the importance of disaster
reduction policies, support to states from the International
Community and evolving an integrated approach to disaster
management in all spheres.

5.4 STRATEGIC WAYS OF MANAGING DISASTERS

AT THE NATIONAL, STATE, DISTRICT LEVELS IN
INDIA.

India is a vast country, experiencing major natural hazards like

drought, floods, earthquakes and cyclones throughout its history of
civilization. Naturally, the country developed its own practices and
strategies for coping with the various natural calamities. Since
independence in 1947, India has developed a nationwide relief
administration in which state Governments have to play a leading
role.

Disaster Management is primarily the responsibility of the State

and Union Territory Governments. The Government of India
supplements their efforts by providing financial and logistic support
in case of disaster of exceptionally severe magnitude. Based on the
recommendation of the Group of Ministers on Internal Security, the
subject of disaster management (including man made disasters)
was transferred from the Ministry of Agriculture to the Ministry of
Home Affairs in Feb-2002 (except drought and epidemics which
remain with the Ministry of Agriculture & Ministry of Health
respectively) and the specific disasters have been allocated to
other Ministries and Departments.
 97

An additional Secretary in the Ministry of Home Affairs is

designated as the Central Relief Commissioner. He provides the
focal point for interaction with the State Governments and other
Departments and agencies of the Union Government and for the
implementation of the decisions of the Union Government. Now, as
a national initiative, the representatives of the communities and the
NGOs are invited in the operational and policy processes so as to
achieve greater impact of mitigation and preparedness measures.

Disaster management occupies an important place in the

country’s policy framework as it is the poor and under privileged
who are worst affected on this account.

5.5 CHALLENGES OF DISASTER MANAGEMENT AND

GOVERNANCE IN INDIA.

Earth quakes and other disasters are a phenomenon which

cannot be avoided altogether but advance planning can mitigate
sufferings. With necessary precautions, research, analysis and
documentation are also required. Concrete action plan is required
to avoid miseries and sorrows which can be prevented.

The following are the issues which need to be addressed to

lessen the burden of disasters.

Failure to comprehend the magnitude of damage and

complexities in providing relief while organising rehabilitation.

While deciding an action plan, it has to be considered that

occurrence of disaster affects not only the part where it occurs,
but it has ramified influences in the rest of the society. Ignoring
these ramifications may lead to serious imbalances. The entire
approach should be holistic rather than chemical and partial.

It is generally ignored that different types of disasters require

different types of responses. Even a similar type of disaster in
a different setting, or at a different time, requires different type
of response. In both the situations, generally cultural context is
lost sight of and tailor made solutions are offered which fail to
adequately meet the specific needs. Due attention should be
paid to traditional technologies and cultural coping
mechanisms.

There is invariably a failure to understand disaster in the

broader context of development. Development may not cause
 98

disaster but can certainly aggravate its impact if it is not

environmentally sustainable. Similarly, a well thought out
development strategy might work to minimize the impact of
natural disasters.

Confusion and crisis are caused by lack of co-operation and

interface between organisation both governmental and non-
governmental involving relief at all levels. Attention needs to be
paid to have better coordination between the administration
and different sections of civil society.

There is generally a lack of sophistication in designing post

disaster developmental strategies, particularly, the cultural
factor is ignored and the local community participation is not
fully ensured. In designing post disaster strategies, the role of
social science must be recognized.

There exist inadequate criteria for programme evaluation of

post disaster developmental activities. This is another area
where social science intervention could be of considerable
help.

5.6 ECONOMIC LOSSES DUE TO DISASTERS-ISSUES

AND STRATEGIES

Disasters whether natural or man-made are causing a great

loss to all sorts of life- human beings, animals, plants and
resources Due to more and more urbanization and industrialization,
natural disasters are occurring because of the disturbances in
natural equilibrium caused by the greed and lust of human beings
to exploit natural resources for their material benefits.

Disasters of all types e.g. earthquakes, floods, accidents, cloud

bursts, cyclones, etc. have been occurring since times immemorial.
However, their frequency, magnitude and area have increased
many times in all parts of the word, in recent times.

5.6.1 Types of economic losses due to disaster:

The following types of economic losses are incurred due to different

types of disasters.

Loss of crops and therefore scarcity of essentials like food and

agricultural commodities.
 99

Loss of employment opportunities in the area where natural

disaster has taken place, particularly in rural areas.

Problems of health & diseases arising both from insufficient

availability of the basic necessities causing malnourishment,
hunger etc. or on the availability of good and hygienic drinking
water.

Financial losses are caused to the farming community who is

dependent on land. The natural disaster affect their ability to
withstand hard conditions immediately following the occurrence
of the natural disaster It also affects, their ability to recover well
enough before the next-cropping season and to take full
advantage of normal conditions which may prevail.

Impact on the industrial sector due to loss of production of raw

materials, reduction in power generation etc.

The impact of the disaster on the cattle wealth.

5.6.2 Policy of the governments

For rapid progress towards appreciable reduction in the

disastrous impact of natural hazards, the policy of the governments
may include the following.

To invest in Global Observations and Early Warning Systems,

and to give a boost to the science of observation and
measurement on which the real progress depends.

To enhance the scientific content of prediction methodologies

and reliability of forecasts.

To map the hazards on a large scale, and line the maps

intimately with the process of Development Planning.

To encourage, closer partnerships with financial and legal

institutions, insurance companies, and community based
organizations and industry.

To create an all India Institutional Network, which can involve

in Disaster Preparedness, Mitigation Management and
Prevention.

To invest more on public awareness, education, training and

human resource development in the areas of Disaster
Mitigation.
 100

5.7 STRATEGIES FOR PREVENTING DISASTERS AND

PREPAREDNESS MEASURES

This protective process covers measures which enable

governments, communities and individuals to respond rapidly to
disaster situations and to cope with them effectively. Preparedness
includes the formulation of viable emergency plans, the
development of warning systems, the maintenance of inventories
and the training of personnel. It may also cover search and rescue
measures as well as evacuation plans for areas that may be at risk
from a recurring disaster. Preparedness therefore includes those
measures which are taken before a disaster takes place. They are
aimed at minimizing loss of life, disruption of critical services and
damage to resources when the disaster occurs. All preparedness
planning needs to be supported by appropriate legislation with clear
allocation of responsibilities and budgetary provisions.

Mitigation includes all measures taken to reduce both the effect

of the hazard itself and the vulnerable conditions involved in it in
order to reduce the scale of a future disaster. Therefore mitigation
activities can be focused on the hazard itself. or the elements
exposed to the threat. Examples of mitigation measures which are
hazard specific include modifying the occurance of the hazard e.g.
water management in drought prone areas, avoiding the hazard by
settling people away from the hazard and by strengthening
structures to reduce damage when a hazard occurs. In addition to
these physical measures, mitigation should also be aimed at
reducing the physical, economic and social vulnerability to threats
and the underlying causes for this vulnerability.

5.8 STRATEGIES TO COPE WITH DISASTERS

There is no doubt that hazards are integral aspects of our

environment. Disaster management is normally viewed as a post
disaster mitigation focusing on rescue, relief and rehabilitation in
the events such as earthquakes, cyclones, floods, droughts and
fires. It has been realised that effects of disasters on human
population can be mitigated if not avoided altogether, by integrating
disaster prevention and mitigation with development planning.
 101

Strategies to cope with disasters can be given as follows:

Effective and efficient administration and commitment by all i.e.

Government, People and Voluntary organizations.

Treatment and care of victims through provision of goods and

services and especially sympathy.

Restoration of essential services such as communications,

water supply and power supply as early as possible.
Information and advice to the public.
Maintenance of public morale and motivation.
Counseling of victims and their relatives.
Measures for long-term rehabilitation.
Goods Inventory Management.
Monitoring at regular intervals.

Allocation of duties and responsibilities clearly to avoid

ambiguity & duplication.
Provision of shelters for human beings & animals.
People’s participation in their own welfare.

5.9 SUMMARY

Disaster means the occurance of a sudden and major

misfortune that disrupts and damages namal functioning of a
society or community in the form of loss of life and property. Such
event can be natural and/or manmade. The natural disasters take
place due to imbalance in the natural environment such as storm,
flood, earthquake, drought etc. Manmade disasters are created by
human beings because of imbalance in their behavior such as
greed to acquire a get something, ignorance or negligence, and
desire to get control over something. These can be war, riots,
accidents of vehicles, deforestation, air pollution and so on.

Disaster management is a specialized and professional activity

requiring the expertise of different professionals such as engineers,
doctors, architects, social workers and administrators. The impact
of disasters can be minimized through advance planning,
developing, working system as well as prompt implementation
Disasters especially natural disasters cannot be avoided altogether
but advance planning can mitigate sufferings. With necessary
 102

safety precautions, research, analysis and documentation are also

required. Concrete action plan is required to avoid lunge economic
losses miseries and somas which can be prevented.

Disaster management is primarily the responsibility of the State

Governments. The Government of India supplements their efforts
by providing financial and logistic support in case of disaster of
exceptionally severe magnitude.

While managing disaster, generally confusion and crisis are

caused by lack of co-operation and interaction between
governmental and nongovernmental/organizations giving relief at all
levels. Also attention needs to be paid to have close links between
the administration and different sectors of civil society. With
strategies for preventing disasters and preparedness measures,
governments, communities and individuals can respond rapidly to
disaster situations to cope with them effectively. Mitigation vefors to
all measures taken to reduce both the effect of the hazard itself and
the vulnerable conditions involved in it in adder to reduce the scale
of a future disaster.

5.10 QUESTIONS

What is disaster management? Explain Disaster Management

Strategies in global context.

What are the strategies adopted at the National, State and

District levels in India for managing disaster?

Explain Challenge and strategies of disaster management in

India.

What are the economic losses due to disaster? How can they
be avoided?

Write a note on ‘Strategies for Preventing Disasters and

Preparedness Measures.


 103

6
STRATEGIC ALLIANCES, CORPORATE
STRATEGY AND CORPORATE
GOVERNANCE

Unit Structure :
6.0 Objectives
6.1 Introduction
6.2 Meaning of Strategic Alliances, Types and Structures
6.3 Problems in Indian Strategic Alliances
6.4 Meaning of Corporate Strategy, Corporate Level Strategies-
Mergers and Acquisitions, Takeovers, Joint Ventures,
Diversification, Turnaround, Liquidation
6.5 Relationship Between International Strategy and Corporate
strategies
6.6 Corporate Governance Principles and Practices in India
6.7 Corporate Governance Practices around the World
6.8 Summary
6.9 Questions

6.0 OBJECTIVES

After studying this unit the student will be able to -

Understand the Meaning of Strategic Alliances, Types and

Structures.

Know the concept of Corporate Strategy, Corporate Level
Strategies-Mergers and Acquisitions, Takeovers, Joint
Ventures, Diversification, Turnaround, Liquidation

Understand Relationship Between International Strategy and
Corporate strategies

Know Corporate Governance Principles and Practices in
India
 104

6.1 INTRODUCTION

Strategic alliances are common in business world. They are

significant to achieve synergy. Strategic alliance leads to synergy
due to sharing of resources and combined efforts of various parties.
However, due to involvement of various parties, certain problems or
difficulties can occur such as conflicts between parties, government
interferon, delay in decision making, difference in values & culture,
loss, unfair terms and conditions and so on.

6.2 MEANING OF STRATEGIC ALLIANCES,

TYPES AND STRUCTURES

The term alliance can be derived from the word ‘ally’ or the
old French word aligre which mean to associate with or to bind or to
co-operate with another with some common cause or interest. An
alliance therefore is an association that involves co-operation and
collaboration and merging of complementary interests to achieve
individual and mutual goals and objectives.

Strategic alliance is a relationship between corporations that

is characterized by merging of complementary interests, the
sharing of privileged information and meaningful collaboration and
co-operation to achieve strategic goals and objectives. The
strategic alliance may provide technical, operational and / or
financial benefits to the corporations.

Strategic alliances include non-equity agreements, and joint

ventures which undertake joint R & D, joint product - development,
knowledge sharing, marketing and distribution sharing and joint
quality control and research.

1 Types / Structure of Strategic Alliances :

Structure of a strategic Alliance refers to the formal

arrangement by which work is co-ordinate between firms who are
parties to the alliance. This structure defines the framework within
which the activities take place.

The structure of strategic Alliances can be of different forms

based on different criteria as given below.
 105

a) Based on the parties to alliance :

Horizontal Strategic Alliance - In this type, two or more firms in

the same industry, collaborate with each other.

Vertical Strategic Alliance - In this type, the firms integrate

backward or forward with either supplier or marketing firm.

iii) Intersectoral Strategic Alliance - In this type, the firms belonging

from different industries collaborate with each other.

b) Based on financial involvement :

Non - Equity Strategic Alliance - Non - Equity Strategic Alliances

can range from close working relations with suppliers,
outsourcing of activities or licensing of technology, sharing of R
& D, industry clusters and innovation networks. Informal
alliances without any agreements, or based on ‘Gentlemen’s
agreement are common among smaller companies and within
university research groups.

Equity Strategic Alliance - In this type, the companies invest in

each other’s equity, making the parties shareholders as well as
stakeholders in each other. The cross shareholding of
companies may result in a complex network where company. A
owns equity in Company B that owns equity in C, creating direct
and indirect ownership.

Joint - Venture Strategic Alliance - Joint ventures are

distinguished from other types in that the participating
companies usually form a new and separate legal entity in
which they contribute equity and other resources such as
brands, technology or intellectual property. The parties agree to
share revenues, expenses and control of the new company for
one specific project only or a continuing business relationship.

c) Based on Participation of the Government :

Host - Country’s Government - It acts as local partner in

strategic alliance. Such strategic alliances are effective in
socialist - countries.

Public - Private Venture - This involves partnership between a

government and a private company This type of Strategic
Alliance is created under the following circumstances –
 106

When a country allows entry of foreign companies only

through Strategic Alliances with the government.

When the priority of the Government for development

matches with the competence of a private company.

Firms can enter centrally controlled economies like China

and Sweden only through Strategic Alliances with the
Government.

Private Partners - In this case private companies enter into

Strategic Alliance agreement.

6.3 PROBLEMS IN INDIAN STRATEGIC ALLIANCES

Strategic Alliances are common in business world. They are

significant to achieve synergy. Synergy means increased
effectiveness or achievement gained by combined action or co-
operation. Strategic Alliances provide synergy due to sharing of
resources and combined efforts of different parties.

However problems or difficulties in the operations of

Strategic Alliances can occur due to the following reasons.

Conflict between Partners - Joint ownership can result into

conflict between Partners. Conflict is more common when
management is shared equally. In such case, neither partner’s
managers have the final say on decisions. This problem can be
solved by establishing unequal ownership whereby one partner
maintains 51% ownership and has the final say on decisions.

Government Interference - The loss of control over a joint

venture’s operations can result when the local government is a
partner in the Strategic Alliance. This situation occurs in
industries considered important to national security such as
broadcasting, infrastructure and defense. The profitability of the
Strategic Alliance could suffer because the local Government
would have motives that are based on national interest, which
may compel them to interfere in the operations of the Strategic
Alliances.

Delay in Decision Making - Decision making is normally

slowed down due to involvement of a number of parties. This
may lead to inefficient - operations. Opportunities may be lost
which may affect the growth of the business.
 107

Differences in Work Culture - The work culture of the

companies forming Strategic Alliances are different. MNCs who
generally are parties to the Strategic Alliances are profit
centered. All decisions are taken from economic angle. This
may conflict with the culture of the local company it’s decisions
may be socially oriented. This may make functioning of the
Strategic Alliances difficult.

Losing of Secrecy - There is a risk of losing control over

proprietary information, especially regarding complex
transactions requiring extensive coordination and intensive
information sharing.

Expensive and Time Consuming - The procedure for

formation of Strategic Alliances is lengthy, complicated and time
consuming. The formation of Strategic Alliance can increase
costs because of the absence of a formal hierarchy and
administration within the strategic alliance. Even costs can rise
due to the element of hidden costs and activities outside the
scope of original agreement and inefficiency in management.

Problems Due to Changes in Government Policies - The

changes in government policies relating to foreign exchange
and technology transfer may create problems in the formation of
Strategic Alliances.

Unfair Terms and Conditions - The terms and conditions laid

down in the agreement may not be fair and reasonable to both
partners.

Thus, there are several risks and limitations associated with

Strategic Alliances. Failures are often caused due to lack of
mutual trust and confidence, unrealistic expectations, lack of
commitment, cultural differences, and so on.

6.4 MEANING OF CORPORATE STRATEGY,

CORPORATE LEVEL STRATEGIES-MERGERS
AND ACQUISITIONS, TAKEOVERS, JOINT
VENTURES, DIVERSIFICATION, TURNAROUND,
LIQUIDATION

6.4.1 Meaning of Corporate Strategy.

A business organization operates under the influence of

various environmental forces / factors. In order to survive and grow,
 108

an organization has to constantly interact with various

environmental forces and adapt and adjust it’s strategies
accordingly. So environmental and organizational analysis acts as
the foundation for generating strategic alternatives that an
organization can consider for adoption.

The corporate level strategies refer to identifying the

businesses the company shall be engaged in. They determine the
direction that the firm takes in order to achieve its objectives. For a
small business firm, the corporate strategy can identify the courses
of action for improving profitability of the firm. In case of the large
firm, the corporate strategy means managing the various
businesses to maximize their contribution to the achievement of
overall corporate objectives.

Corporate level strategy is concerned with two main

questions :

What business areas should a company deal in so as to

maximize its long term profitability?

What strategies should it use to enter into and exit from

business areas? In other words, corporate level strategies are
basically about decisions related to allocating resources among
the different businesses of a firm, transferring resources from
one set of businesses to others and managing a portfolio of
businesses in such a way that the overall corporate objectives
are achieved.

6.4.2 Corporate Level Strategies :

There are four generic ways in which corporate level

strategy alternatives can be considered a) stability b) growth c)
retrenchment and d) combination. Firms take into consideration
these strategy alternatives while formulating their corporate
strategies because only through generic strategies, they can locate
the particular route best suited for achieving the chosen objective.

Stability Strategy - When a company finds that it should

continue in the existing business and is doing reasonably well in
that business and there is no scope for significant growth, the
stability strategy is used.

Growth Strategy - When growth strategy is adopted, it can lead

to addition of new products / or new markets or functions. Even
without a change in business definition, many firms undertake
 109

major increases in the scope of activities. Growth is usually

considered as the way to improve performance in terms of market
share, sales turnover and profitability of the firm.

Growth strategies can be given with the help of the following

chart.

It is possible for the firm to grow through the use of a)

Internal and b) External growth strategies.

Internal Growth Strategies –

Internal growth is within the organization or with the help of it’s

internal resources. i.e. the capital, employees, the technique used
for production etc. There are no major changes in the management
and operations of the organization, if it focuses on internal growth.
Internal growth can take place either by a) Intensification or b)
Diversification of business.

Intensification Strategy - In this strategy, a firm intends to

grow by concentrating on its existing businesses. This strategy
involves three alternatives.

Market Penetration Strategy - This strategy involves using

aggressive sales promotion techniques for promoting the sale of
existing products in existing markets. In order to capture higher
share of the market, a firm may cut prices, improve distribution
network and adopt sales promotion techniques to increase the
sale to existing customers, convincing the non users to
purchase the products and also attracting the users of
competing brands.

Market Development Strategy - This strategy involves finding

out new markets for the existing products. It aims at reaching
new customer segments within an existing geographic market,
 110

or it may aim at expanding into new geographic areas, including

overseas markets.

Product Development Strategy - This strategy involves

developing new products for existing markets or for new
markets. In product development, the firm may improve it’s
product’s features or performance or it may extend its product
line.

Diversification Strategy - In this strategy, the firm enters into

the new line of business. It involves expansion or growth of
business by introducing new products either in the same market
or in different markets. The firm may diversity for various
reasons such as to spread the risks by operating in various
businesses, the make optimum use of resources, to face
competition effectively etc.

Diversification strategy involves the following forms :

Vertical Diversification - In this case, the company expands its

activities or product lines vertically i.e. by forward or backword
integration.

Forward Integration - In forward integration, the firm may start

marketing its products by its elf i.e. by establishing it’s own retail
outlets. The purpose is to reduce the dependence on
distributors and to enjoy control over marketing of it’s products.

Backward Integration - In backward integration, the firm may

start manufacturing its own raw materials, spare parts and
components. The purpose is to reduce the dependence on
suppliers and to enjoy control over it’s supplies.

Horizontal Diversification - In this case, a company expands

its activities by introducing new products or product lines which
are related to a certain extent to the current line of business.
The products are related because they perform a closely related
function, or are sold to the same customer groups, or are
marketed through the same distribution channel. For example, a
company manufacturing refrigerators may enter into
manufacturing of air conditioners or a truck manufacturing
company may set up a car making unit.

Concentric Diversification - In involves diversification into

such areas or products, which are indirectly related to its
existing line of business. In concentric diversification, the new
 111

business is linked to the existing business through process,

technology or marketing. For example, a car dealer may start a
finance company to finance hire purchase of cars.

Conglomerate Diversification - It involves entry in a totally

new area or business. It is an attempt to diversity outside the
present market or product. In conglomerate diversification, there
are no linkages between the new business and the existing
business. New line of business is quite different as far as
process, technology or functions are concerned. For example, a
computer software company may enter into insurance business.

External Growth Strategies :

Growth with the help of external resources or organisations

is called external growth.

The external growth strategies can be broadly divided into

three groups.

Mergers and Acquisitions

Amalgamations

Joint Ventures

Mergers and Acquisitions / Takeovers :

In merger and acquisition, two companies come together but

only one company retains its existence and the other loses its
identity i.e. the company which acquires other company continues
to operate in the business but the merging company loses its
existence. In merger, the acquiring company takes over the assets
liabilities of another company. Shareholders of merging company
are given the shares of the acquiring company.

Mergers represent a process of allocation and reallocation of

resources of firms in response to changes in economic conditions
and technological innovations. The main rationale for a merger is
that the value of the merged firm is expected to be greater than the
total of the independent values of merging firms due to operating
economies, tax benefits, opportunities of diversification, ability to
face competition and so on.

Merger may be horizontal, vertical or conglomerate. In

horizontal merger, both the companies (merging and merged) are
engaged in the same line of business. In vertical merger, the
 112

combining companies are engaged in the successive stages of

production / marketing. In the case of conglomerate merger, the
combining companies are engaged in different business activities
which are unrelated.

There is minor difference between acquisition and takeover.

In acquisition, both the companies are willing to merge. In a
takeover, the willingness is absent in the seller’s management.
Takeover is with force i.e. without the consent while acquisition is
with mutual consent and persuasion.

Amalgamation -

An amalgamation is an arrangement in which the assets and

liabilities of two or more companies become vested in another
company. In other words, it is a process of combining two or more
companies and a new company is formed. The shareholders of the
amalgamating companies become shareholders of new entity
(amalgamated company)

Amalgamations are governed by the companies Act and

require consent of the shareholders and creditors.

Joint Ventures -

Joint venture is a form of business combination. Two or

more companies form a temporary partnership and arrive at an
agreement on certain issues of mutual interest. New company is
not created but suitable working arrangements are agreed upon.
Such agreements are beneficial to combining units. It is an
economic route for gaining increased competitiveness to combining
units. Joint venture covers more areas of co-operation between the
two companies. Joint ventures are useful for the inflow of foreign
capital, machinery and technology for rapid industrial growth in
developing countries. They are popular among the developing
counties and are not harmful provided the joint venture agreements
are made with due care and caution.

In a joint venture, the business units from two different

countries come together for starting a new industrial activity. Joint
venture is also possible among two or more domestic companies.
However, leading foreign companies are normally preferred. It is
generally for sharing of ownership and control of an economic enter
pries between foreign firm and local firm.
 113

Joint ventures are possible at private and public sector level.

The purpose is to use latest technology for production purposes
and to undertake large industrial projects involving huge capital with
the co-operation of reputed foreign companies. They are also
useful for exploiting natural deposits within the country.

Joint Venture is not an integration of two units. It is not a

business combination in the ordinary sense of the term as two
companies maintain their independent identity even after the joint
venture agreement. It only suggests co-operation and participation
for setting up a new manufacturing unit in the country.

Retrenchment Strategies -

Various external and internal developments create the

problems to the prospects of business firms. In declining industries,
companies face such risks as falling demand, emergence of more
attractive substitutes, adverse government policies, and changing
customer needs and preferences. In addition to external
developments, there are company specific problems such as
inefficient management and wrong strategies that lead to company
failures. In such circumstances, the industries, markets and
companies face the danger of decline in sales and profit and
thereby intend to sub statically reduce the scope of its activity. For
this purpose, the problem areas are identified and the causes of the
problems are diagnosed. Then, steps are taken to solve the
problems that result in different types of retrenchment strategies.

The retrenchment strategies can be of the following forms :

Turn around strategy

Divestment strategy
Liquidation strategy
Turnaround Strategy :

Turnaround strategy can be referred as converting a loss

making unit into a profitable one. According to Dictionary of
Marketing ‘Turnaround means making the company profitable
again.’ Normally the turnaround strategy aims at improvement in
declining sales or market share and profits. The declining sales or
market share may be due to several factors both internal and
external to the firm. Some of these factors may include high cost of
materials, reduction in prices of the goods and services, increased
competition, recession, managerial inefficiency etc.
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Turnaround is possible only when the company can

restructure its business operations. Certain strategies which can be
used for turning around include changing the management,
redefining the Co’s strategic focus, divesting for closing unwanted
assets, improving profitability of remaining operations, making
acquisitions to rebuild core operations and so on.

Divestment Strategy -

Divestment involves the sale of a division or a plant or a unit

of one firm to another. From seller’s point of view, it represents
contraction of port folio, and from the buyer’s point of view, it
represents expansion.

Reasons for divestment can be as follows :

Raising Capital Firms can raise funds to improve their liquidity.

Reduction of Losses - Divisions or units are divested, when they

earn low returns or suffering losses.

Concentration on Core Business - Some firms may divest some

units or divisions to concentrate on core business.

Improvement in Efficiency - Due to divestment, a firm can

concentrate more efficiently on its existing business, which may
improve the overall efficiency of the firm.

The main idea behind a proactive divestment programme is

creation of new businesses. As companies get rid of businesses,
they also need to formulate expansion plans focused on
strengthening remaining businesses. The goal should be to create
a cycle of rejuvenation, through which the corporate portfolio of
business is continually reinvented.

Thus, divestment is not an end in itself. Rather, it is a means

to a larger end, building a company that can grow and prosper over
the long run. Wise executives divest businesses so that they can
create new ones and expand existing ones. Ultimate aim should be
optimum utilization of resources for creating shareholder value.

Liquidation Strategy :

Winding up or liquidation of a company is the complete

closing down of the business of a company Basically it refers to a
proceeding by which a company is permanently dissolved and its
assets are then disposed off to pay its debts. Surplus, if any is
 115

distributed among the members according to their rights in the

company.

The decision to close down or liquidate a company is taken

after careful consideration, only when it is not possible to carry on
the company in the present state of affairs. It should also not be
possible, for a turnaround of the company in the future. Liquidation
strategy should be considered as the last resort because it leads to
serious consequences such as loss of employment for workers and
other employee’s loss of job opportunities and the stigma of failure.

The decision to close down the company and cut down

losses should be in the interests of the members / shareholders /
investors of the company. The winding up or closure of a company
has to be in accordance with rules laid down in the companies Act,
1956.

Combination Strategies :

When an organization adopts a mix of stability, expansion

and retrenchment either simultaneously or sequentially for the
purpose of improving its performance, it is said to follow the
combination strategies. Combination strategies are applied at the
same time in different businesses or at different times in the same
business. No organization has grown or survived by following a
single strategy. The complex nature of businesses requires that
different strategies be adopted to suit the situation i.e. as
companies divest businesses, they also need to formulate
expansion plans focused on strengthening remaining businesses,
starting new ones or making acquisitions. An organization following
a stability strategy for quite some time has to consider expansion
and one that has been on expansion path for long has to pause to
consolidate its businesses. Multi business firms have to adopt
multiple strategies either simultaneously or sequentially.

Reasons for following combination strategies can be given

as follows :

When the organization is large and faces a fast changing

complex environment.

The products are in different stages of the life cycle.

A combination strategy is suitable for a multiple industry firm at

the time of recession.
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The combination strategy is best for firms, divisions which

perform unevenly or do not have the same future potential.

6.5 RELATIONSHIP BETWEEN INTERNATIONAL

STRATEGY AND CORPORATE STRATEGY

Corporate level strategies basically refer to taking key

decisions related to allocating of resources among the different
businesses of a firm, and ultimately managing a portfolio of
businesses so that ultimately organizational objectives are
achieved. In this process the company may adopt stability strategy,
expansion strategy, retrenchment strategy or a combination of
these strategies.

International strategy is a kind of expansion strategy in which

firms market their products or services beyond the domestic
market.

For this purpose, a firm requires to asses the international

environment, evaluate its own capabilities and devise strategies to
enter foreign markets.

Some firms are required to enter new markets in other

countries when they face slower growth rates at domestic market.
Sometimes firms can introduce new products successfully in a
foreign market than in domestic market. Sometimes firms may find
that producing the goods in other countries can be more beneficial
than exporting to those countries due to some import restrictions by
a host government Cheap supply of raw materials, labour or
availability of latest technology can also be reasons for starting
production facilities in other country.

It should be noted that movement towards international

markets is a gradual process. Most firms begin by exporting that
involves relatively low investment and risk. Then a firm may engage
in a joint marketing venture with a foreign local firm who will act as
its agent. Once a foreign presence is established, the firm may
decide to expand its activities.

Expansion at this stage may take place with the

development of specialized products new investments in local
manufacturing facilities or direct investment in the foreign market.
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6.6 CORPORATE GOVERNANCE PRINCIPLES AND

PRACTICES IN INDIA

Corporate governance relates to laws, procedures, practices

and implicit rules that determine company’s ability to take improved
managerial decisions from social point of view. It is basically a
system of making directors accountable to shareholders for
effective management of the company along with concern for ethics
and values. It is a process or a set of systems and processes to
ensure that a company is managed to suit the best interests of all.
The systems include structural & organisational / matters. The
stockholders may be internal state holders (promoters, members,
employees and executives) and external state holders (promoters,
members, customers, lenders, vendors, bankers, community,
government and regulators).

Objectives of corporate governance can be listed as

follows.

To enhance the long term value of the company for its

shareholders and all other parties directly a indirectly
associated with it.

To provide norms for the relationships between company

management, its board, shareholders, owners, employees,
suppliers, customers and the public.

To promote the goodwill and reputation for the company and

the esteem of its management.

To attract, employ & retain talented and motivated employees

by encouraging participative Style of Management.

To create and adopt code of conduct whole hearted

commitment and improve the moral and ethical standards to
performance of the utmost level.

6) To have a right balance knowledge and competence, to set

strategies and lead the organisation.

To use the available resources in most economic, efficient &

productive manner for the benefit of shareholders an well as
for the society at large.

To set the high standards of business ethnics based on

humanity, honesty & hard work.
 118

To improve the standard of living of the society.

To generate accurate & reliable information.

To make decision making process transparent.

Principles of Corporate Governance.

Commonly accepted principles of corporate governance can

be explained as follows.

Acknowledging rights of the shareholders and ensuring

equitable treatment to them.

Organizations should respect the rights shareholders and

help shareholders to exercise those rights by ensuring effective
communication of information and encouraging them to participate
in general meetings, Organizations should also accept that they
have legal and other obligations to all legitimate stakeholders.

Role and responsibilities of the board:

The board needs certain skills and attitudes to deal with

various business issues and the ability to review and challenge
management performance. It needs to be of sufficient size and
have a commitment to fulfill its responsibilities and duties. The
issues regarding the appropriate mix of executive and non
executive directors should the tackled properly. The key roles of
chairperson and CEO should not be held by the same person.

Integrity and Ethical Behaviour.

Ethical and responsible decision making is required for

improving public relations, managing risks of business and avoiding
disputes. It can be achieved by developing a code of conduct for
the directors and executives. In order to ensure ethical standards
by individuals, many organizations establish compliance and ethics
programs.

Disclosure and Transparency –

Organisations should publicise the roles and responsibilities of

board and management so that they become accountable to
shareholder. They should also lay down procedures for verifying
the integrity of the company’s financial reporting. All investors
should have access to clear and factual information.
 119

Accountability –

The Board of Directors should be accountable to the

shareholders and management to the Board of Directors. Both the
Board and the management must be accountable to the
shareholders for the performance of tasks assigned to them. It is
necessary to ensure that there is an effective management of
resources and achievement of results with efficiency coupled with
empowerment.

Trusteeship:

Organisation should have both social & economic purpose.

The Board must ensure that the company fulfill its obligations &
responsibilities to all its stake holders.

Empowerment –

The management should be empowered to adopt dynamic &

progressive approach. Empowerment i.e. delegating decision
making powers at the most appropriate levels in the organizational
hierarchy generates creativity and innovation throughout the
organization.

Ethics –

An organisation must set specific standards of ethical

behaviour both within the organization & in its external
relationships.

Oversight –

It means the existence of a system of checks & balances. It

should prevent misuse of power & facilitate timely management
response to change & risks.

Fairness to all Stakeholders –

It involves a fair and equitable treatment of all participants in

the corporate governance structure. There should be no
discrimination between any groups of stakeholders.

Corporate Governance Practices in India:

In India, there are six mechanisms to ensure corporate

governance.
 120

The Company’s Act –

Companies in India are regulated by the Indian Companies

Act., 1956, as amended from time to time. To ensure Corporate
governance, the Act confers legal rights to shareholders as under.

1)To vote on every resolution placed in an Annual General Meeting.

2)To elect directors who are responsible for specifying objectives

and laying down policies.

3)To determine remuneration of directors and the CEO.

Removal of directors and.

Take active part in the annual general meetings.

Securities Law :

The primary securities law in our country is the SEBI Act.

Since its setting up in 1992, the board has taken a number of
initiatives towards investor protection. One such initiative is to
mandate information disclosure both in the prospectus and in the
annual accounts. While the Companies Act itself specifies certain
standards of information disclosure, the SEBI Act has added
substantially to these requirements in an attempt to make these
documents more meaningful.

Discipline of the Capital Market.

Capital market itself has considerable impact on corporate

governance. The minority shareholders can play an effective role in
this regard. They can refuse to subscribe to the capital of a
company in the primary market and in the secondary market. They
can sell their shares, thus depressing the share prices. A
depressed share price makes the company an attractive takeover
target.

Nominees on Company Boards.

Development banks hold large amount of shares in

companies which have been given long term loans. Being equity
holders, these investors have their nominees on the Board of
Companies. These nominees can effectively control resolutions,
which may be detrimental to their interests.
 121

Statutory Audit –

Statutory Audit is yet another mechanism directed to ensure

good, corporate governance. Auditing enhance the credibility of
financial reports prepared by any enterprise. The auditing process
ensures that financial statements are accurate and complete,
thereby enhancing their reliability and usefulness for making
investment decisions.

The above mentioned mechanisms are regulatory in approach.

They are governed by law and violation of any provision can invite
penal action. But legal provisions alone cannot ensure good
corporate governance. What is actually need is self regulation on
the part of directors.

6.7 CORPORATE GOVERANCE PRACTICES AROUND

THE WORLD.

`Corporate governance refers to the relationship among

various participants in determining the directions and performance
of corporations. The primary participants are shareholders, the
management, and Board of Directors. The proper implementation
of corporate governance regulations by the companies is beneficial
both for companies and countries. High quality status of corporate
governance means low capital cost, increase in financial
capabilities, liquidity, ability of overcoming crises more easily and
prevention of execution of soundly managed companies, from
capital markets.

For years, the OECD (Organisation for Economic Co-operation

and Development) has been working to promote use of corporate
governance principles. They were first issued in 1999 and revised
in 2004 to support good Corporate Governance policy & practice,
both within OECD countries & beyond.

Global Strategies of corporate governance cover the following

aspects.

Corporate Objective - The primary objective of the

corporation should be to enhance the returns of its
shareholders. Corporate objective should be clearly stated and
disclosed.
 122

Communication and Reporting - Corporation should disclose

accurate, adequate and timely information especially on the
issues of acquisition, ownership obligation and sale of shares.

Voting Rights - Corporations should value shareholders’

rights to vote.

Corporate Boards - The Board of Directors are accountable to

the shareholders. Each member of the Board should contest
election on a regular basis. The Board should include a
sufficient number of independent Non Executive Directors with
appropriate competencies. Responsibilities should include
monitoring and contributing effectively to the strategy and
performance of management, and influencing the conduct of
the Board as a whole.

Corporate Remuneration Policies - Remuneration of

corporate directors or supervisory board members and key
executives should be in line with the interest of shareholders.

Strategic Focus - Major strategic modifications to the core

business of a corporation should not be made without prior
shareholders’ approval of the proposed modification.
Shareholders should be given sufficient information about any
such proposal sufficiently early to allow them to make an
important judgment and exercise their voting rights.

Operating Performance - Corporate Governance practices

should make clear the intention of the company to enhance
company operating performance in comparison with its
competitors.

Shareholders’ Returns - Corporate Governance practices

should also focus Board’s attention on optimizing profits to pay
good returns to their shareholders.

Corporate Citizenship - The Company should adhere to all

applicable laws of the jurisdiction in which they operate.

Corporate Governance Implementation - Codes of best

practices should be applied pragmatically. Where they do not
yet exist, investors and others should try to develop them.

Many MNCs and TNCs operate in several countries of the

world. Their activities must focus on ethically and responsibly
inspired vision and core values. They must adopt ethical standards,
 123

norms and practices. They must be the leaders in the industry not
only in the technology, organizational practices, product features, R
D, marketing organization and performance, but they must also
lead in ethics and social responsibility in their home countrles & all
other countries.

6.8 SUMMARY

Strategic alliance refers to collaboration and co-operation

between corporations to achieve strategic goals and objectives. It
may provide technical, operational and / or financial benefits to the
corporations of strategic alliance. They may undertake joint R and
D, product development, knowledge sharing marketing and
distribution sharing, and joint quality control and research.

There are different types of strategic alliances based on various

criteria. Such as based on the parties to alliance, their financial
involvement, and participation of the Government.

Strategic alliances are common in business world. They are

significant to achieve synergy. Strategic alliance leads to synergy
due to sharing of resources and combined efforts of various parties.
However, due to involvement of various parties, certain problems or
difficulties can occur such as conflicts between parties, government
interferon, delay in decision making, difference in values & culture,
loss, unfair terms and conditions and so on.

Corporate Strategy refers to identifying the business the

company shall be engaged in. They determine the direction that
firm takes in order to achieve its objectives.

Corporate Strategy covers four basic alternatives which can be

considered for optimum utilization of resources and maximizing
profitability of the firm and they are stability, growth, retrenchment
and combination.

International strategy is a kind of expansion strategy in which

firms market their products or services beyond the domestic
market. For this purpose, a firm requires to assess the international
environment, evaluate its own capabilities and devise strategies to
enter foreign markets.

Corporate governance relates to laws, procedures, practices

and implicit rules that determine company’s ability to take improved
managerial decisions from social point of view. It is basically a
 124

system of making company directors follow ethics and values for

safeguarding the interests of all.

In India, there are six mechanisms to ensure corporate

governance. Such as the company’s Act, Securities Law,
Disciplines of the capital market, Nominees on Company boards,
and statutory audit. For years, the OECD is working to promote use
of corporate Governances Principles at the global level. They were
first issued in 1999 and revised in 2004 to support good Corporate
Governance Policy & Practice, both within OECD countries &
beyond.

6.9 QUESTIONS

What are Strategic Alliance? Describe its types.

Explain the term Corporate Strategies Explain Internal and

External Corporate Strategies.

Explain the relationship between International Strategy and

Corporate Strategy.

Write a note on Corporate Government Principles & parities in

India.

Write a note on Corporate Governance Practices around the

world.




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7
EMERGING TRENDS IN GLOBAL
BUSINESS ENVIRONMENT

Unit Structure.

7.0 Objectives
7.1 Introduction
7.2 Strategies for Growing Green Economies.
7.3 Meaning of Corporate Social Responsibility Strategies for
Governing Public Private Participation of Business Sector in
India.
7.4 Strategies for governing PPP of Business Sector in India.
7.5 Strategies for Environmental Accounting & Auditing.
7.6 Summary
7.7 Questions

7.0 OBJECTIVES

After studying this unit the student will be able to -

Understand Strategies for Growing Green Economies


Know Meaning of Corporate Social Responsibility Strategies for
Governing Public Private Participation of Business Sector in
India.

Understand Strategies for governing PPP of Business Sector in
 India.
Know Strategies for Environmental Accounting & Auditing.

7.1 INTRODUCTION

Globalization is the process of linking a nation’s economy

with the global economy. The policy initiated by the Government of
India in the form of structural reforms through liberalization,
privatization and globalization will enable the country to become an
active participant in the global market. The business community
 126

particularly the large business houses concerned with exporting,

how to understand the message of globalization in the right
perspective.

Today, everything has changed. Globalization, the

internationalization of markets and corporations, has changed the
way modern corporations do business. To reach the economies of
scale necessary to achieve the low costs, and thus the low prices,
needed to be competitive, companies are now thinking of a global
(worldwide) market instead of a national market.

7.2 STRATEGIES FOR GROWING GREEN

ECONOMIES

The global recession has brought new attention to chronic

structural flaws in Current economic models. As economies
struggle to recover, many countries are considering the broad
concept of a `Green Economy’, one that simultaneously promotes
sustainability and economic growth.

A green economy is a broader and all inclusive vision for

growth and development. It not only emphasizes on growth but also
improvement in people’s lives that can lead to sustainable
development. It can achieve triple objectives of economic growth,
environmental protection and social wellbeing.

The prevailing economic growth model is focused on

increasing GDP above all other goals. While this system has
improved incomes and reduced poverty, at the same time it is the
cause of serious social, environmental and economic costs. As
many as two and a half billion people are below the poverty line.
The natural wealth of the planet is rapidly depleting. In a recent
global assessment, approximately 60% of the world’s ecosystem
services are found to be degraded or used unsustainably. They gap
between the rich and poor is fast widening.

The persistence of poverty and degradation of the environment

is due to several weakness of the prevailing economic model and
there is no attempt to correct them e.g. there are no sufficient
mechanisms to ensure that polluters pay the full cost of their
pollution. Markets do not systematically account for the inherent
value of services provided by nature like water filtration or coastal
protection. A `market-economy’ alone cannot provide public goods
like efficient electricity grids, sanitation or public transportation. And
 127

economic policy is often framed by those who have power, with

strong vested interests, and not by those who are aware of the
problems of weaker sections of the society.

A Green Economy attempts to remedy these problems through

a variety of institutional reforms and regulatory, tax and expenditure
based economic policies and tools. It aims at the economic system
that will benefit more people over the long run. For achieving this, it
will require a fundamental shift in thinking about growth and
development, production of goods and services and consumer
habits.

The following steps can be taken at the policy making

levels to ensure sustainable growth and development.

Increasing public awareness regarding the need for change.

Greater awareness on the need for this transition can motivate
voters and consumers not just because of the costs but also
the economic benefits generated by a Green Economy, such
as new jobs, and new markets.

2) Promotion of new indicators that complement GDP Planning

agencies and Finance Ministries should adopt a more diverse
and representative set of economic indicators that focus less
exclusively on growth and more on the progress of social
indicators of development.

Opening up government decision - making processes to the

public and civil society. This would help to ensure that policies
are accountable to the public and not to vested and well
connected interests.

4) Identifying and taking advantage of political leadership when

available as this will be crucial in order to limit the undue
influence of `dirty’ economic hold outs.

Timing is everything when it comes to big policy reforms.

Green economy policies will have to be ready to take advantage of
the right opportunities - Ultimately, the widespread transition to a
Green Economy will depend upon whether or not the long term
public interest in reflected in today’s economic policies.
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7.3 MEANING OF CORPORATE SOCIAL

RESPONSIBILITY STRATEGIES FOR GOVERNING
PUBLIC PRIVATE PARTICIPATION OF BUSINESS
SECTOR IN INDIA

7.3.1 Meaning –

The term Public Private Partnership (PPP) can be used to

describe a wide variety of arrangements involving the public and
private sectors working together in some way. These questions
arise as regards PPP-

Why the government joins the hands with the private sector?

What are the forms of PPP?

How the PPPs can be formulated?

PPP are contractual arrangements of varied nature in which

the two parties share rights and responsibilities during the duration
of the contract. Different forms of PPPs may exist involving various
combinations of public and private sector finance and exposure to
project risk. The role of the private party varies according to the
type of sector and the nature of the market.

are often confused with Privatisation. There is a clear

difference between these two forms of private sector engagement.
Privatisation involves the permanent transfer of a previously
publicly owned asset to the private sector, where as a PPP
necessarily involves a continuing role for the public sector as a
`Partner’ in an ongoing relationship with the private sector. Under a
PPP, accountability for provision of the service remains the public
sector, and there is a direct contractual relationship between the
Government and private sector provider. With Privatisation,
immediate accountability for providing the service may often be
transferred to the private provider (although ultimately the citizen
may hold government accountable.) If the telephone in a privatized
telecommunications utility does not work, the citizen will normally
complain to the private provider but if a PPP hospital is closed, the
citizen will still hold the government immediately accountable.

There are PPP in which a private party provides public

infrastructure under a long term contract with a public sector body.
Under such an arrangement, the private sector party usually agrees
to under take the following.
 129

Design and build, expand or up grade the public sector

infrastructure.

Assume substantial financial, technical and operational risks.

Receive a financial return through payments over the life of the

contract from users, from the public sector, a from a
combination of the two.

Usually return the infrastructure to public sector ownership at

the end of the contract.

Terms such as BOT (build, operate and transfer) and DBFO

(design, build, finance & operate) are often used to describe such
schemes. Such terms also apply to long term concessions where
the private sector is responsible for the operation, maintenance and
expansion of existing assets. When the underlying asset is not
returned to the public sector, it is sometimes referred to as a BOO
(build, own and operate) contract, and the procedures to select,
prepare and bid these types of projects are usually no different.
Each sector may have its own particular issues, but these
approaches can apply across a wide range of infrastructure
provision.

Whether in power generation, the building and maintenance of

roads, or the provision of schools or hospitals, the broad nature of
the PPP is determined by what rights, obligations and risks are
assumed by the public or private parties within the partnership.

7.3.2 FORMS OF PPP

Various forms of PPP can be broadly classified into two further

categories -

User - Fee and

Availability - based PPP.

User - Fee PPP - In a user fee PPP, a public authority grants a

private party the right to design, build, maintain, operate and
finance an infrastructure asset owned by the public sector.

The user fee PPP contract is for a fixed period, say 25-30
years, after which responsibility for operation goes back to the
public authority. The private party recovers its investment,
operating and financing costs and its profit by charging
members of the public a user fee (e.g. a road toll). Thus a key
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feature is that the private party is usually allocated the risk of

demand for use of the asset, in addition to the risk of design,
finance, construction and operation.

Availability Based PPP - The other main form of PPP has

some similarities with user fee PPPs, in that it also involves a
private party designing, financing, building or rebuilding, and
subsequently operating and maintaining the necessary
infrastructure. However, in this case, the public authority - not
the end users makes payments to the private party. These
payments are usually made as and when and to the extent that
a service is made available. Hence the demand or usage risk
usually remains with the public authority.

Whether to pursue a user fee or an availability - based PPP is

both a policy decision and a reflection of who is best placed to pay
for the service. The affordability of availability bared PPPs is likely
to be an issue, because such projects require public resources and
don’t themselves raise revenue through user payment
mechanisms.

Availability based PPP also require that the long term payment
obligations of the government are acceptable to insures especially
since such payments may rely on multi annual budget approvals.
However, user fee PPPs also presents their own challenges with
regard to demand risk and user affordability.

Faced with these challenges, the solution in a particular

situation may involve blending user fees and public service charges
and, in some cases, tailoring overseas development assistance into
longer term, performance based contracting support.

7.4 STRATEGIES FOR GOVERNING PUBLIC PRIVATE

PARTICIPATION OF BUSINESS SECTOR IN INDIA.

7.4.1 MEANING

Over the years, the nature of the involvement of business

houses with social causes has undergone a change. Doing
business is no longer only making profits; organizations also have
to behave in a way that has gradually started to be called `Socially
Responsible’. This attempt for new and expanding responsibilities
often called Corporate Social Responsibility - implies taking into
account issues beyond the conventional business scope. Thus
businesses all over the world are realizing that for sustainable
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development, they need to consider benefit to society also, rather

than only individual profits.

The World Business Council for Sustainable Development

defines corporate social responsibility as “the commitment of the
company to contribute to the sustained economic development by
working with employees, their families, the local community, and
the entire society in order to improve quality of life.

Thus, the meaning of Corporate Social Responsibility is

twofold - on one hand, it exhibits the ethical behaviuor that an
organization exhibits towards its internal and external stakeholders
(customers as well as employees) On the other hand, it denotes the
responsibility of an organization towards the environment and
society in which it operates.

7.4.2 CHARACTERSTICS OF CORPOATE SOCIAL

RESPONSIBILITY:

The concept of Corporate Social Responsibility can be explained

with the help of the following characteristics -

It is an attempt made by companies to be voluntarily responsible

to ethical and social considerations.
It is not legal binding for the company, unlike corporate
accountability.
It is a set of obligations to pursue those policies, to make those
decisions, or to follow those lines of action which are desirable
in terms of the objectives and values of our society.
It is the overall relationship of the corporate with all of its
stakeholders. These include customers, employees,
communities, owners / investors, government, suppliers and
competitors.
The socially responsible firms should strive to make a profit,
obey the law, be ethical and be a good corporate citizen.
The concept of Corporate Social Responsibility differs from
society to society and country to country according to the
perception and sensitivity of the analyst.

7.4.3 Scope of Corporate Social Responsibility

The responsibilities for Corporate Social Responsibility are

basically categorized into two areas fundamental and voluntary.
The fundamental responsibilities to society cover compliance with
all the rules and regulations of the land such as the rules regarding
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quality of the products, paying taxes, rules regarding labour and fair
work environment. In voluntary responsibilities, a company can take
both internal and external roles. In internal role, it can work towards
betterment of its staff, giving them more rights and better facilities,
making the superior quality product and making it available at
reasonable price giving benefit to it’s state holders, being ethical in
all its dealings etc. In external role, it can contribute to any social
cause, like in the field of education, health, sanitation etc.

Thus, to sum up, Corporate Social Responsibility can be

defined as, the `ethical behaviour of a company towards society’. It
means engaging directly with local communities, identifying their
basic needs and integrating their needs with business goals and
strategic intent. The Government perceives Corporate Social
Responsibility as the business contribution to the nation’s
sustainable development goals.

7.5 STRATEGIES OF LINKING CSR WITH PROFIT

AND SUSTAINABILITY FOR OBTAINING BUSINESS
BENEFITS.

Business is a socio-economic activity. A firm cannot survive

successfully in business unless it meets its social obligations along
with achieving its economic objectives. So the management is
required to reconcile economic and social objectives, It is possible
to reconcile socio-economic objectives through proper planning
rational approach and continuous balancing of multiple objectives.

Giving more importance to economic objectives, at the cost of

social objectives may prove to be dangerous in the long run, as
business always needs support and co operation from the society
at large. Conflict between economic & social objectives is quite
possible if rational approach is not adopted.

Balancing of objectives is not an easy task. Here, mechanical

solutions are not available. It requires minute study of business
situation, and ability to understand economic & social changes
taking place in the country.

Suggestions for balancing economic and social objectives can

be given an under.
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Profit and Consumer Price - A firm should not aim only at

making profits. Profits should not be earned by charging
unreasonable prices to the consumers. This would result in
exploitation of the consumers. Therefore, a firm should charge
reasonable prices by striking a balance between profits and
consumer satisfaction.

Profit and Research and Development - A part of the profit

needs to be invested in R & D. This would help the firm to
improve the quality of the product Improvement in quality
would not only lead to consumer satisfaction, but also higher
sales to the firm.

Profit and After Sales Service - A business firm needs to

focus on after sales service, especially in the case of consumer
durables. A part of the profit must be used for giving efficient &
quick and value added after sales service to the consumers.

Profit and Employees’ Welfare - Firms can make profits due

to improvement in efficiency and productivity of its work force.
Therefore, a firm needs to spend a part of its profits for the
welfare of its employees by providing better facilities such as
improved working conditions, additional welfare facilities,
increase in salaries etc.

Profit and Taxes - A business firm should provide a true

picture of its profits. It should pay properly its taxes and duties
to the government authorities. As for as possible, business
firms should not in bulge in manipulating the profits so as to
avoid payment of taxes and duties.

Profit and Shareholders’ Interest - Business firms should

provide a fair return to the shareholders in the form of
dividends, bonus shares etc. As far as possible, the top
management should avoid manipulating the profits for their
own interest. The interest of the shareholders must be
considered in the distribution of profits.

Profit and Social Welfare - A part of the profit must be utilized

for social welfare activities like donations to schools, colleges,
trusts etc. Contributions can be made to the government at the
time of floods, famines and such other natural calamities.

Business Expansion and Social Interest - A firm may

expand its business activities. It should not be undertaken only
 134

to make profits but also in the interest of the society such as for
employment generation, better customer service etc. Also
health issues of the society must be considered in setting up of
industries.

Business Expansion and Competition - For increasing sales

turnover, the firm may adopt aggressive sales promotion
techniques such as advertising, giving discounts, offers etc. A
firm should not adopt unethical practices to spoil the image of
competitors. In other words, a firm should adopt healthy
competitive practices.

Business Expansion and Suppliers - A firm needs support of

suppliers for its business expansion plans. It should not try to
exploit the suppliers. by delaying payments, demanding
unreasonable higher discounts etc.

Profit and protection of environment - A part of the profits

should be used to protect the environment by using anti
pollution measures, planting of trees, investing in R and D. to
produce eco friendly products & packages and so on.

Use of modern technology & employment generation -

Firms should use modern technology for quality production at
lower cost. Technology should not be used for reducing
employment opportunities. On the other hand, it should lead to
creation of more jobs. This brings fair balance between
economic & social objectives.

Thus it can be concluded that economic & social objective

should be rather complementary & supportive to each other
because unless the firm earns profit, it cannot serve the society and
unless it satisfies different groups of the society, it cannot earn
profits.

7.6 STRATEGIES FOR ENVIRONMENTAL

ACCOUNTING AND AUDITING

7.6.1 Environmental Accounting.

Environmental Accounting refers to a system for recording

information on the status, use and value of natural resources and
environmental assets including fisheries and forest - accounts, as
well as expenditures incurred on environmental/protection and
resource management.
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The latest categorization of environmental accounts by the

international community includes four types of accounts i.e. natural
resource asset accounts, pollution and material physical flow
accounts, monetary and hybrid accounts and environmentally
adjusted macro economic aggregates.

Natural resource asset accounts primarily focus on stocks of

natural resources. Environment is a dynamic life support
system consisting of air, water, land, plants, animals, micro
organisms etc. Thus, there is a complex system of inter linkage
among many living and non-living components, which may be
termed more technically as atmosphere, hydrosphere,
lithosphere and altogether biosphere.

Two types of changes in stocks take place:

Changes due to economic activity (e.g. mining, fishing etc.) and

Changes due to natural processes (e.g. birth s and deaths of

trees in a forest account.

These accounts provide indicators of ecological sustainability

and can be used to show the effects of policy on resource stocks.
They can help managers monitor resources more effectively. They
help us in knowing monetary value of the national wealth of natural
resources, the diversity of resources, its distribution and its price
fluctuations.

Pollution and physical material flow accounts provide

information at the industry level about the quantity of resources
(energy, water and materials) that are used in economic
activities and quantity of residuals solid waste, air emissions
and wastewater generated by these activities. These accounts
can take several forms, but they are generally organized to
show the origin (Supply) and destination (use) of materials and
pollution. More detailed accounts also show how inputs are
transformed into other products, pollution and waste, and they
provide information on the net material accumulation to either
the economy or environment.

Monetary and hybrid accounts focus on expenditures and

taxes related to protecting and managing the environment as
well as the economic contribution of environmental services
industries. Examples of monetary and hybrid accounts include
fees collected by government for resource use such as levies
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on materials, forestry or fisheries and funds spent on pollution

control measures, water treatment and solid waste
management.

4. Environmentally adjusted macro economic aggregates are

used to assess overall environmental health and economic
progress.

7.6.2 Environmental Auditing

Environmental audit involves two words `environment’ and

`audit’. The environment consists of variety of components of our
surroundings, processes and their interactions, interdependence
etc. where as an audit refers to the verification of different activities
against certain principles or rules or standards.

Environmental Audit is an objective evaluation of overall

environmental performance of an activity or organisation. The most
important aspect of the environmental audit is to understand the
environmental performance indicator for any specific activity. This
may vary according to time, place and nature of activity to be
audited. An environmental auditor has to have certain
environmental key words and process in mind while evaluating the
performance. Environmental audit should be done objectively.

Human population is bestowed with plenty of resources by the

nature to sustain the life of self and surrounding fellow creatures.
The natural resources have certain limitations and if not managed
properly will get lost early, jeopardizing the existence of non
human. The resources and factors that support life and non sub
suitable materials need to be conserved, prevented from
degradation, pollution and utilized optimally for development
activities.

An environmental audit tries to assess and establish the

degree of compatibility to the environment and help in identifying
the areas requiring improvements.

Environmental audit can be utilized by organizations,

industries, municipalities, governments and on a less formal level
by individuals in households and schools for assessing and
improving environmental care attitude in their day to day activities.
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In specific terms, environmental auditing can be employed to

Assess compliance level with relevant legislative & regulatory

requirements pertaining to local & global environment.

Facilitate in designing of case specific Environmental

Management Systems.

Facilitate management control of environmental practices.

Increase awareness and commitment in the employees to

strengthen environmental measures.

Assessment of internal policy & procedural conformance.

Establish current practice status.

Promote good environmental management practices.

Explore & identify improvement opportunities across the

business line.

Assess and quantity the achievements.

Enhance creditability with the public as a responsible corporate

citizen.

7.7 SUMMARY

A Green economy is a broader and all inclusive vision for

growth and development. It tens to achieve three fold objectives of
economic growth, environmental protection and social well being. In
order to implement this new economic model, it required to create
public awareness regarding to the need for change has to be given
to social indicators of development Importance along with economic
indicators.

CSR can be defined as the ethical behavior of a company

towards society. It means voluntary engagement of the company
for contributing to social and community welfare activities. The
government perceives CSR as the business contribution to the
nation’s sustainable development goals.

In PPP, two sectors of the economy the i.e. Public and the
Private Sector work together for completion of certain project
involving huge investment. Different forms of PPPs may exist
involving various combinations of public and private sector finance
 138

and exposures to project risk. The role of the private party varies
based on the type of sector and the nature of the market.

Various farms of PPP can be broadly classified into two

categories – User fee and availability based PPP. In both the types,
a private party is allowed to design, building, maintain, operate and
finance an infrastructure assets owned by the public sector. In user
Fee, the private party recovers its investment, operating and
financing costs and its profits by charging members of the public a
user fee however in Availability based PPP, the public authority, not
the end users makes payments to the private party.

Whether to pursue a user fee or availability based PPP is both a

policy decision and a reflection of who is best placed to pay for the
service.

Environment Accounting refers to a system for recording

information on the status, use and value of natural resources and
environmental assets including fishers and forest accounts, as well
expenditure incurred on environmental protection and resource
management.

Environment Audit is an objective evaluation of overall

environmental performance of an activity or organization. The most
in aspect of the environmental audit is to understand the
environmental performance indicator for any specific activity. This
may very accounting to time, place and nature of activity to be
audited.

7.8 QUESTIONS

What do you mean by the term ‘Green Economy’? What

Strategies can be used for Covering Green Economy?

Write a note on PPP of business sector in India.

What is the meaning of CSR? What are the Strategies of linking

CSR with Profit?

Write a note on ‘Environmental Accounting and Auditing?

 Question Paper Pattern for STRATEGIC MANAGEMENT
M.Com Parts I (Revised) for IDOL-Annual Pattern

Duration: 3 Hours Maximum Marks: 100

Note: 1) All Questions are Compulsory.

2) Figures to the right indicate full marks.

Q. No. 1 Full Length Question 20

Q. No. 2 a)Short Answer Type Question 10

b)Short Answer Type Question 10
OR
Q. No. 2 a)Short Answer Type Question 10
b)Short Answer Type Question 10

Q. No.3 a)Short Answer Type Question 10

b)Short Answer Type Question 10
OR
Q. No. 3 a)Short Answer Type Question 10
b)Short Answer Type Question 10

Q. No. 4 a)Short Answer Type Question 10

b)Short Answer Type Question 10
OR
Q. No. 4 a)Short Answer Type Question 10
b)Short Answer Type Question 10

Q. No. 5 a)Short Answer Type Question 10

b)Short Answer Type Question 10

Note: Question No. 1 will be from Module No. 1 and Question No. 2 to 5
will be from remaining modules.
 M.Com. (Part- I)
Strategic Management (Rev)
{April – 2016}