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Note 1470116481
Note 1470116481
Note 1470116481
UNIT – III
BUSINESS ENVIRONMENT
Business is dynamic in nature, it is affected and it affects the society. Thus, the
business environment is vital to study before, during and after establishing a business.
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Switching costs
Access to distribution
Proprietary learning curve
Access to necessary inputs
Low cost product design
Government policy
Expected competition
THREAT OF SUBSTITUTES
This threat is determined by
Relative performance of substitutes
Switching (changing costs)
Buyers’ chances to substitute
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Fixed costs / value added
Intermitted over capacity
Product differences
Brand loyalty
Switching costs
Information complexity’
Diversity of competitors
Corporate stakes
Exit barriers
All these play a crucial role, as these aspects of the environment, are uncontrollable.
Thus, understanding them in detail we have;
ECONOMIC ENVIRONMENT
The GNP, per capita income, growth rate, inflation and all these play a very
important role. Besides the economic cycle of the country like boom, recession, depression
or recovery. This will decide the companies to enter into the market, diversify, expand, etc.
EXAMPLE: Growth rate decides investment in securities, Gold, etc., so, Gulf i.e.,
Middle Eastern and south eastern countries invest more in these.
TECHOLOGICAL ENVIRONMENT
The progress of technology in the country and the utilization of such technology in
the industry also affects markets.
EXAMPLE: up gradation of Hardware, software; use of equipment with do not
harm environment.
POLITICAL ENVIRONMENT
The political situation i.e., stable/unstable government, the political philosophy of
the party in power. The type of government, the policies that is adopting etc play vital role.
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The laws, acts and the legal machinery and establishment and enforcement of law too play
a very vital role, even the relations with other countries is crucial
EXAMPLE: the EXIM policy, Trade policy, Regional Associations, Economic
Policy, Budget Customs, Duties, etc
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New entrants penetrate deep as they have greater access to all customers in a
segment, i.e., they try to reach as many as possible. Others i.e., the existing players
however reach only through the existing outlets only. There by they need to spend
additional amount to reach the customers directly, so there is an additional requirements of
sales force. Therefore this expenditure arises each time there is a new entrant. This is
another threat.
g) PROPRIETARY LEARNING CURVE
The new entrants due to products aimed at the gaps will be able to reach the market
at greater speed, so will imitations. The real researched or developed products take longer
duration to reach. Yet though this is a drawback, it is an advantage to the existing firms
because their research and learning is at their disposal.
h) ACCESS TO NECESSARY INPUTS
The availability of necessary inputs is an important factor that determines the
position in the market. An existing firm can acquire a source of input or a holder of input
may start a firm. Either way there is an advantage to the new entrant or the existing firm.
i) LOW COST PRODUCT DESIGN
Due to continuous research a firm may get a product design of low cost or an
imitator without R & D can enter the market at low cost, better still, they may fill the gap
with a better suited customer accepted design.
j) GOVERNMENT POLICY
The government may decide on open competition and more number of players may
be asked to enter into the market. Further, the government may fix the price too without
identifying imitator and original, thereby leading to further problems, of competition
among rivals.
k) EXPECTED COMPETITION
There is an amount of competition that every organization expects, both the
established and the unestablished. While established need to worry only about a few, the
new entrants take the entire market as competition, thus, battling becomes difficult.
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of substitution. Thus, unless an equally similar product with all the specialty, but with an
additional attribute comes up, the chances of substituting remain slim, weak or little.
a) BUYER CONCENTRATION
The lesser the buyers, then greater in chance to bargain by them, since there are
very few buyers, they can withdraw from buying the product and soon the manufacturer
will be at loss. However, certain factors influence this aspect. They include;
Number of companies manufacturing the product
The extent of utility of the product
Durability of the product
Availability of foreign buyers
Alternate uses of the product
Storage details and so on
If few manufacturers and large number of buyers exist in the market, then it becomes the
other way around and the company’s can manipulate the buyers and charge higher and
make greater profits.
b) BUYER VOLUME
The volume of purchase also determines the capacity of the buyer to bargain. In
other words, the larger the volume of purchases, the greater is their capacity to bargain and
these influences the internal revenues or finance of the organization.
c) SWITCHING COSTS
A dissatisfied buyer or a more lucrative manufacturer, who is willing to sell his
product at a lesser cost, will definitely take the buyer away. Thus, a manufacturer has to
bring the customer (in this case the buyer) back, need to may be sell for lesser price, offer
credit, discounts etc to regain them back. Each time a modification is made the
manufacturer needs to take this up, so as to retain the customer and prevent them from
switching.
d) BUYER INFORMATION
The buyers have access to some important information like the cost, availability,
future increase or decline in price, government involvement, etc. these trigger a change in
purchase pattern or bargaining patterns of buyers. Thereby either helping or hindering the
manufacturers.
e) BUYER PROFITS
The amount of profit that a buyer makes is crucial for the buyer and the
manufacturer. The buyer tries to maximize his profits, and the manufacturer wants to
maximize his own profits. Thus, there is a keen battle between the two. The manufacturers
offer greater benefits, discounts and price cuts for bulk purchase and thereby prompting the
buyers to buy in bulk. However, the buyers want all the benefits that are offered for the
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amount or number of products that they buy or are willing to buy. Thus, since buyers are
vital for the organization, many a time they wield to the buyers tactics.
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return or replacement of spoilt goods, greater handling of stock of by the company itself.
These are indirect incentives given along with direct incentives of commission. These help
in deciding
Thus, these factors in combination constitute the bargaining power of buyers.
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Must be available in plenty
Processing the input into output should not be difficult, etc
When the substitute products have these qualities then the substitute is equally successful
in the market. Thus, they become a threat to manufacturers’ suppliers.
e) IMPORTANCE OF VOLUME TO SUPPLIERS:
The suppliers should understand or realize the importance of volume ie., bulk
orders. In other words bulk or voluminous orders bring about a lot of chance to negotiate,
in terms of price-offs, discounts, credit terms, exchange risk taking and so on. This is vital
for penetrating business.
f) IMPACT OF INPUTS ON COST OR DIFFERENTIATION:
Inputs or raw materials makes up 70% of the total cost of the product. Hence any
change ie., reduction or increase in the cost of the input directly affects the cost and price
of the product. Every manufacturer thus knows not to tamper with price due to the reasons
that buyers will not be interested. However, the manufacturer should negotiate well so that
the suppliers will not increase the price of the input, there by upsetting the entire cycle.
Similarly, differentiation in inputs may change the product quality wise or in any other
sense. But until the customers are convinced that the input or product has quality, (even
when the supplier has increased the price) the products price should not be increased.
Suppliers noting that the product is being sold well, try to increase the cost of the
input, so that they make profits. All these have to be monitored.
g) THREAT OF FORWARD OR BACKWARD INTEGRATION:
The supplier just with his experience, reach or financial worthiness may plan to
integrate forward and manufacture the product himself. This will then cause problem to
manufacturers. Since, suppliers has raw materials available at lesser cost than
manufacturer, their products can be sold in the market at cheaper prices.
The other threat is if the supplier goes into backward integration and takes over a
source of raw material. Then it has greater chances to bargain because, it can provide large
volumes of raw material, may start to competitors, and so. On, all these act as threats from
the suppliers.
h) COST RELATIVE TO TOTAL PURCHASE IN THE INDUSTRY:
The comparison in the cost with respect to the total amount purchased in the whole
industry is to be taken up. If the product is purchased by many manufacturers and the
amount of money involved in the purchase of material in the overall industry is more. Then
the product is considered vital and suppliers start negotiating the price of the inputs. Thus,
fluctuating markets.
a) INDUSTRY GROWTH:
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The industry growth ie., faster the industry grows, greater will be the number of
competitors, as new entrants swarm the industry. In other words, the growth of an industry
makes more people to invest, start associated companies, and also seek employment. This
triggers a great competition as more and more the brand name, greater will be the
investments. Thus, each company, big or small is a competitor or rival.
b) CONCENTRATION AND BALANCE:
The number of competitors in an industry is termed concentration. That is, the
number of alternative products or services available for one need. Balance is that sensitive
situation where there is enough demand and supply or may be a slight difference in the
demand and supply. If there is vast difference then the balance collapses. Similarly, he
competitors’ should be able to provide what the customer wants, and also, at time more
that what the customer expects. Then the customers’ balance too is retained.
c) FIXED COSTS OR VALUE ADDED COSTS:
Every competitor provides a set of solutions or a gamut of services. What a
customers requires besides these is the availability of value added services and their costs.
The value added services can be;
Free maintenance for the first year
Free insurance for the first year
Transportation to the premises free of cost
Replacement when required
24 hour helpline
easy availability of genuine spare parts and so on
d) INTERMITTANT OVER CAPACITY:
The competitors should be in a position to take up over production capacity,
suddenly when there is a spurt in demand. If this is not possible by a company, then the
competitors will take over that sudden spurt and the company tends to lose valuable
customers.
e) PRODUCT DIFFERENCES:
Without differentiation, products cease to exist in the market. Thus, differentiation
is the reason behind successful brand. Every product must compete on some unique selling
proposition which is the platform by or on which a product is identified and holds value in
the eye of the customers. Thus, in any industry rival products should be in a position to
differentiate itself.
REMOTE ENVIRONMENT:
Remote environment consist of forces that originate beyond the generate
approachable environment ie., the environment which cannot be handled. They constitute
of;
political
economics
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social
technological and
industry factors
POLITICAL
Stable political conditions influence the environment in which the company’s
operated. This helps in identifying with the predictability of business activities.
Political instability or unrest, threats to law and orders, change in the ruling party
ideology etc influence business considerably.
Categorically listing the factors which influence business environment on the outside and
the sub factors under them we have some of the factors in the political environment which
influence business are;
political instability
threat to law and order
ideology of the ruling party
interest in local business groups
insurgency in border party
dissent within ruling party
international power associations
foreign economics associations and their impact
strength or power of the party in opposition
trade agreements with trade unions
coalition government, etc
SOCIAL FACTORS:
Some of the social factors influencing the business and the business policy are;
population density
inter-state migration
rural – urban mobility
growth of educational opportunities
change in life style
marriageable age of men and women
values and attitudes of people towards life, family, spending
size of the family
women’s participation in the work force
consumer behaviour
changes in the tastes and preferences of consumers
corporate social responsibility of company’s
TECHNOLOGICAL FACTORS:
The several technologies based or technological conditions which influences the
following factors;
advice on diffusion of technology than invention
social and economic factors influencing technology adoption
availability of proper infrastructure facilities
availing chances of collaboration. Current product conditions, and the extent to
which the people using them are advanced in using these products
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of the market is not developed, then it is not suitable to have a highly technical
market.
ECONOMIC ENVIRONMENT:
Anticipating the changes in the economic environment might have a bearing on the
progress of trade and industry in future needs information processing with respect to the
following aspects;
The existing state of economy and the stage of the business cycle (boom,
depression, recession or recovery)
The rate of growth of GNP and the per capita income at current and constant prices
Rates of saving and investments
Volume of imports and exports of different items
Balance of payments and changes in foreign exchange reserves
Fluctuations in currency exchange
Percentage of interest of loans taken
Agricultural and industrial production trends
Changes in the distribution of income and wealth
Expansion of transport and communication facilities
Planned outlay in the private and public sectors, and priorities of development laid
down in the five year plans
Government budgetary, allocation, economic and fiscal policy provision
Money in supply
Rate of inflation
Internal and external public debt etc
LEGAL OR REGULATORY CONDITIONS:
Legal or regulatory conditions and government policies too invariably affect the
business and its policies. There are several such laws that govern Indian business houses.
They include;
The government should set right market failures. Which cause in equities and
imbalances in the economy
The government should ensure allocation of resources for proper economic
development
Industrial licensing
Import restrictions
Differential taxation
Exemptions
Remissions
Foreign exchange control including control over the flow of cash, technology,
foreign collaboration and joint ventures under FERA act
Capital issues control Act, 1956
Control over expansion of existing capacity
Creation of excess capacity MRTP act
Approval for Foreign Direct Investment (FDI)
Securities Exchange Board of India (SEBI) for investor protection
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NATURAL ENVIORNMENT
Natural environment affects businesses which are either dependent on it or are
indirectly influenced. This factor plays a crucial role in several businesses.
EXAMPLE: insufficient monsoon affects agro based industries lack of power, industries
using water suffer. Floods, snow, fog, earthequakes, volcanoes, etc are to be taken care
before establishing i.e., the climate of the area needs to be forecasted or judged by earlier
records before going in for setting up business. That is the reason factories are not set up in
earthquake belts, regions often flooded and are near to volcanoes.
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h. CII reports
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Multivariate interaction analysis
Structured expert opinion
Unstructured expert opinion
Structured inexpert opinion
Unstructured inexpert opinion
TYPES OF FORECASTS:
These techniques of forecasting are use to find or determine;
Economic forecasts
Social forecasts
Political forecasts and
Technological forecasts
ECONOMIC FORECASTS:
Economic forecasts can be made using general statistical techniques like trend
analysis, econometric models, judgmental models etc. Here they try to determine the
overall revenue and expenditure connected or related forecasts and estimates.
SOCIAL FORECASTS:
Social forecasts are very complex tasks. Trend analysis using time series, scenario
development, and judgmental approaches are the most popular techniques in social
forecasting in areas such as demographic trends, housing, health and nutrition, household
income and expenditure patterns, government policy on social issues.
POLITICAL FORECASTS:
Political forecasts such as domestic political conditions and political developments
across the borders including foreign international relations constitute important aspects of
political forecasting. It takes into account such criteria as social development,
technological advancement, natural resource endowment, level of domestic peace or calm
(within the country) and type of political system in forecasting political conditions. The
political factors depend on the unique hypothesis ie., assumption that “if development in
respect of any of the criteria, moves faster than in other criteria, than there is tension and
violence”.
TECHNOLOGICAL FORECASTS:
Technological forecasts have been done mostly using judgmental models, scenario
development, brain storming and Delphi method. These methods have proven to be useful
in forecasting technology.
SCENARIO GENERATION:
The next most suitable techniques is use of scenario, in other words scenario
generation. This has been proven to be quite useful in interpreting the oft changing
business environment. The first or primary reason for scenario generation is to reduce the
risk and also the boundaries to decision making. This along with probability estimates and
other qualitative and quantitative data, helps in generating a similar situation (simulates a
similar situation) so that the ideas and strategies can be tested.
These are a few techniques by which the external environment can be forecasted
and found besides the ETOP/SWOT/PEST/SLEPT analysis.
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The environmental analysis outside the company after being taken up. The next
logical step is to find out the situation that exists internally.
STRENGHTS
Potential resource strengths and competitive capabilities;
A powerful strategy supported by competitive valuable skills and expertise in key
areas.
A strong financial condition; ample financial resource to grow the business
Strong brand name, image / company reputation
A widely recognized market leader and an attractive customer base
Ability to take advantage of economics of scale and / or learning and experience
curve effects
Proprietary technology / superior technological skills / important patents
Superior intellectual capital relative to key rivals
Cost advantages
Strong advertising promotion
Product innovation skills
Proven skills in improving production processes
Sophisticated use of e-commerce technologies and processes
Superior skills in supply chain management
Reputation for good customer service
Better product quality relative to rivals
Wide geographic coverage and / or strong global distribution capability
Alliances / joint ventures with other firms that provide access to valuable
technology, competencies and / or attractive geographic markets
WEAKNESSES
Potential resources weaknesses and competitive deficiencies:
No clear strategic direction
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Obsolete facilities
A weak balance sheet burden with too much debt
Higher overall unit cost relative to key competitors
Missing some key skills or competencies / lack of management depth / a deficiency
of intellectual capital relative to leading rivals
Profitability is low as plagued with internal operating problems
Falling behind rivals in putting e-commerce capabilities and strategies in place
Too narrow a product line relative to rivals
Weak brand image or reputation
Weaker dealer network than key rivals and / or lack of adequate global distribution
capability
Short on financial resources to fund promising strategic initiatives
Subpar e-commerce systems and capabilities relative to rivals
Lots of under utilized plant capacity
Behind on product quality and / or R & D and / or technological know how
Not attracting new customers as rapidly as rivals due to ‘ho-hum’ product
attributes.
OPPORTUNITIES
Potential company opportunities
Serving additional customer groups or expanding into new geographic markets or
product segments
Expanding the company’s product line to meet a broader range of customers needs
Utilizing existing company skills or technological know how to enter new product
line or new businesses
Using the internet and e-commerce technologies to dramatically cut costs and / or
to pursue new sales growth opportunities
Integrating forward or backward
Falling trade barriers in attractive foreign markets
Openings to take market share away from rivals
Ability to grow rapidly because of sharply rising demand in one or more market
segments
Acquisition of rival firms or companies with attractive technological expertise
Alliances or joint ventures that expand the firms market coverage or boost its
competitive capability
Openings to exploit emerging new technologies
Market openings to extend the company’s brand name or reputation to new
geographic areas
THREATS
Potential external threats to company’s well being;
Likely entry of potent new competitors
Loss of sales to substitute products
Mounting competition from new internet start up. Companies pursuing e-
commerce strategies
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Increasing intensity of competition among industry rivals – may cause squeeze on
profit margins
Technological changes or product innovations that undermine demand for the firms
product
Slow downs in market growth
Adverse shifts in foreign exchange rates and trade policies of foreign governments
Costly new regulatory requirement
Growing bargaining power of customers or suppliers
A shift in buyer needs and tastes, away from the industry’s product
Adverse demographic changes that threaten to curtail demand for the firm’s
product
Vulnerability to industry driving forces
DISTRIBUTION RELATED
A strong network of whole sale distributors/dealers ( or electronic distribution
capacity via internet)
Gaining ample space on retailer shelves
Having company owned retail outlets
Low distribution costs
Accurate filling of customer orders
Short delivery times
MARKETING RELATED
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Fast, accurate technical assistance
Courteous customer services
Accurate filling of buyer orders (back orders, mistakes)
Breadth of product line and product selection
Merchandising skills
Attractive styling and packaging
Customer guarantee and warrantees
Clear and clever advertising
SKILL RELATED
Superior workforce talent
Quality control know-how
Design expertise
Expertise in a particular technology
An ability to develop innovative products and product improvements
An ability to quickly develop newly developed products past R & D into market.
SWOT (INTERNAL)
Thereby based on these attributes, the assessment of the strengths and weakness of
a firm thus, centres around an analysis of the following factors under the functional
groups of;
Marketing / Distribution
Finance and Accounting
Production, Manufacturing, Engineering
Personnel and Labour Relations
Research and Development
Corporate resources / Management
Now understanding these functions in detail, we have;
MARKETING ANALYSIS:
The marketing function is considered to be a key area not just because its
performance will result in the success or failure of business activities. Besides, it also
provides a vital communication link between the organization and the external
environment. The elements under this are
Existence of a sizable market share and competition position
Existence of a wide range and variety of design and qualities and sizes in the
product line
The phase of the life cycle are the main products
Effectiveness of the pricing strategy
The effectiveness of sales force
Effectiveness of distribution channels in terms of market coverage
Target market – mass consumption or selective
Creation of brand image by the advertising policy
Existence of separate market research unit and its effectiveness
Efficiency or effectiveness of packaging and similar services
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Consistency of marketing policy with competition, consumer preferences,
technological change and other environmental factors.
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process research, improvement research, cost reduction research, and raw material
adaptation research. By these the company should gain competitive advantage. The
capabilities of any R & D department can be assessed by;
Adequacy of R & D facilities like laboratories, equipment, material and so on
Consistency of facilities with the latest scientific advancement
Efficiency in maintaining facilities that are being used
Efficiency in utilizing the facilities
Amount of R & D expenditure
Basis for the outlay of R & D expenditure
Meeting recurring expenses
Results of the R & D efforts for the past five years
Marketability of the efforts
Profitability of those efforts
Organizing and managing such efforts
Comparison between technical personnel of the company with competitors
Conductive ness of work environment for creativity and innovation
Managers’ disposition towards change and innovation
Mix of basic, long term R & D projects and applied short term projects
HUMAN RESOURCES ANALYSIS:
Human resources capability and the organization are closely related. Together they
yield corporate resources. The organizational environment and the associated managerial
and technical quality of other employees can be easily identified from the following
elements;
Healthy organizational climate
Consistency in employee performance record
Effective implementation of company policies with respect to staffing, promotion,
training and development, compensation and benefits and so on.
Are these policies comparative with the competitive firms?
The best way the organization can describe its managerial talent (delegative,
participative, communicative or autocratic)
Degree of unionization of employees of the organization
Union and organization relationship
Image of the company to provide a source of prided and loyalty to the employees
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The support activities are those which provide inputs or infrastructure for primary
activities to be performed. The support activities and primary activities are classified based
on technological and strategic distinctness:
procurement of raw materials
technology development
human resources management
firm infrastructure
The primary activities are;
inbound (incoming) logistics
operations
outbound (outgoing) logistics
marketing and sales
Service. The generic value chain can be seen below;
FIRM INFRASTRUCTURE
TECHNOLOGY DEVELOPMENT
PROCUREMENT
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STRATEGIC ADVANTAGE PROFILE (SAP)
A profile of strategic advantages is a summary statement which provides an
overview of the advantages and disadvantages in key areas likely to affect future
operations o f the firm. This profile gives a detailed analysis of the position and negative
aspects of each functional area. The other relevant data useful for critical areas may go as a
supplement to this profile. Based on the strategic advantage profile (SAP) a strategic
capability grid can be drawn which gives an idea about the position where the company
lies and the strategy that they need to adopt.
Numerous
Environmental Opportunities
Cell 3: Cell 1:
Turn around Aggressive
Strategy growth oriented
Strategy
Critical Substantial
Internal Internal
Weaknesses Strengths
Cell 4: Cell 2:
Diversification Defensive
Strategy Strategy
GAP ANALYSIS
Gap analysis aims at identifying the achieved level of goals in comparison with the
set or stated goals. In other words GAP analysis aims at finding the difference between
standards set and goals achieved. These achieved goals can be depend or below the set
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standards. But whether one have over achieved or underachieved the reasons behind are to
be analyzed. The reasons are then used to reset these standards.
The set standards may not be achieved due to troubles in the organization, which
come suddenly, like strike, lockout, government order or accidents like fire, flood and so
on. They may also be not achieved due to changes in the external environment like
dynamic changes in the market, product ban in the market, consumer related issues,
withdrawal of product from the market due to hazard in use and the standards may be set
too high.
The set standards may be achievable because or may be achieved in excess due to
several reasons like understating of objectives, underestimating the strengths of the
employees, downplaying the competence of the organization, overestimating market
hurdles and so on, besides the standards may be set too low too.
Invariably a GAP analysis plays a vital role in identifying our set standards vis – a
– vis (as against) our achieved standards.
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Cost
per
unit
The experience curve effect is derived (got) by dividing the accumulated costs by the
accumulated product outputs. The factors influencing these include economies of scale, the
learning curve, critical masses of knowledge and specialization. In short, the more
experience a company has in producing a product, the lower is its unit costs.
The following factors produce the experience curve effect;
Labour efficiency
New processes and improved methods
Product redesign
Product standardization
Scale effect and
Substitution in the product
The factors in the experience curve model are said to include; cost, volume and
market share. The greater the volume, the lower the cost, and larger the market share,
the larger the production volume.
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as the rate of growth accelerates, there is a decline in profitability. The relation between
size and profitability also declines after a period. The second set of limits arising due to
environmental limitations include scarcity of resources, decline in target market
population, compulsive environment protection laws, government regulations, public
attitudes, and side effects of technological advancement.
Companies which actually show an increase in the number of employees, products
and scales do not always improve their profits. Companies that expand quickly often lose
sight and end up unable to focus on the strength that brought success in the first place.
Many times the basic investments money itself becomes difficult to get back.
Expansion often creates confusion and many companies get active in areas which
are not suitable for them. Thus, in the long run, both the old and the new businesses will
require large amounts of capital to survive, an the new business will yield losses more than
profits.
Thus, small scale operations and changes are better, as their force either
constructive or destructive is very little or limited. Even if human error occurs it is easier to
correct in small scale than large scale.
Between these extremes, lies the third option. This option is that of sustained
growth or sustainable growth.
This strategy aims at a growth pattern that keeps a firm increase in output and
productive capacity in line with increase in its external environment. This strategy implies
that ‘increase or decrease in the systems’ productive capacity with commensurate
(equivalent) increase or decrease in its external environments’ carrying capacities. Thus,
many firms are opting for this strategy to attain achievable and retainable growth or
success.
INTERNATIONAL ENVIRONMENT
This too plays a crucial role as we are concerned with international trade, laws,
regulations which will help industries to market their products world wide. Besides the
active competition of international (MNC) companies functioning within the country and
outside need to be monitored for successful marketing of products.
Some of the major factors influencing the international Business Environment are
listed below;
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Declaration of war
Relative economic strength
GATT and other tariff agreement
Economic and financial policies of various countries
Balance of trade consideration
International terrorism
Protectionist policies
Dumping practices
Law and order problems
Comparative culture and traditions
Patent laws and intellectual property rights
Trade zones and military zones
Different rules and regulations in the legal system
Political relationship
Different labour conventions
Infrastructure facilities
Different practices and documentations
Speed schemes like export processing zones, encouragement to 100% EO units
Free port, port of call etc
Tax rebates and subsidies
Socials security schemes
Currency blocks like EURO, NATO, SAARC, etc
Most favoured nation or non-favoured nation states
Availability of international credit
Credit rating schemes
International corruption
Foreign institutional investment
Economic sanctions
Thus, these factors need to be given due importance before strategy formulation.
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QUESTIONS FOR PRACTICE
PART-A
PART-B
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PART-C
CASE STUDY
DD is the India’s premier public service broadcaster with more than 1,000 transmitters
covering 90% of the country’s population across an estimated 70 million homes. It has
more than 20,000 employees managing its metro and regional channels. Recent years have
seen growing competition from many private channels numbering more than 65, and the
cable and satellite operators (C & S). The C & S network reaches nearly 30 million homes
and is growing at a very fast rate.
DD’s business model is based on selling half-hour slots of commercial time to the
programme producers and charging them a minimum guarantee. For instance, the present
tariff for the first 20 episodes of a programme is Rs. 30 lakhs plus the cost of production of
the programme. In exchange the producers get 780 seconds of commercial time that he can
sell to advertisers and can generate revenue. Break-even point for producers, at the present
rates, thus is Rs. 75,000 for a 10 second advertising spot. Beyond 20 episodes, the
minimum guarantee is Rs. 65 lakhs for which the producer has to charge Rs. 1,15,000 for a
10 second spot in order to break-even. It is at this point the advertisers face a problem – the
competitive rates for a 10 second spot is Rs. 50,000. Producers are possessive about buying
commercial time on DD. As a result the DD’s projected growth of revenue is only 6-10%
as against 50-60% for the private sector channels. Software suppliers, advertisers and
audiences are deserting DD owing to its unrealistic pricing policy. DD has three options
before it. First, it should privatize, second, it should remain purely public service
broadcaster and third, a middle path. The challenge seems to be to exploit DD’s immense
potential and emerge as a formidable player in the mass media.
Questions
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