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Master of Business Administration – MBA Semester 4

MB0036 – Strategic Management & Business Policy
Assignment Set- 1

Q1. Explain the different circumstances under which a suitable growth strategy should be
selected by any company to improve its performance (i.e., intensive, integrative or
diversification growth). You may select an example of your choice to substantiate your
views (10 marks).

Ans. Strategies to Improve Sales:- There are three alternatives to improve the sales performance of
a business unit, to fill the gap between actual sales and targeted sales:

a) Intensive growth
b) Integrative growth
c) Diversification growth

a) Intensive Growth: It refers to the process of identifying opportunities to achieve further growth
within the company’s current businesses. To achieve intensive growth, the management
should first evaluate the available opportunities to improve the performance of its existing
current businesses.
It may find three options::-
· To penetrate into existing markets
· To develop new markets
· To develop new products At times, it may be possible to gain more market share with the
current products in their current markets through a market penetration strategy. For instance,
SONY introduced TV sets with Trinitron picture tubes into the market in 1996 priced at a
premium of Rs.10,000 and above over the market through a niche market capture strategy. They
gradually lowered the prices to market levels. However, it also simultaneously launched higher-
end products (high-technology products) to maintain its global image as a technology leader.
By lowering the prices of TVs with Trinitron picture tubes, the company could successfully
penetrate into the markets to add new customers to its customer base. Market Development
Strategy is to explore the possibility to find or develop new markets for its current products
(from the northern region to the eastern region etc.). Most multinational companies have
been entering Indian markets with this strategy, to develop markets globally. However,
care should be taken to ensure that these new markets are not low density or saturated
markets, which could lead to price pressures. Product Development Strategy involves
consideration of new products of potential interest to its current markets (e.g. Gramaphone
Records to Musical Productions to CDs)– as partof a Diversification strategy.
Study the following example to understand what Product Development Strategy is.

MICROSOFT’s New Strategy

It is called PC-plus. It has three elements:

a) Providing computer power to the most commonly used devices such as cell phone,
personal computer, toaster oven, dishwasher, refrigerator, washing machines and
so on.

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b) Developing software to allow these devices to communicate.

c) Investing heavily to help build wireless and high-speed internet access throughout the
world to link it all together. Microsoft envisions a home where everyday appliances and
electronics are smart. According to Bill Gates, ‘In the near future, PC-based networks will help us
control many of our domestic matters with devices that cost no more than $ 100 each ‘. It is also
said at Microsoft that VCRs can be programmed via e-mail, laundry washers can be designed to
send an instant message to the home computer when the load is done and refrigerators can be
made to send an e-mail when there’s no more milk. Microsoft plans to give these appliances
‘brains‘ and provide them the means to talk to each other through their Windows CE Operating

b) Integrative Growth: It refers to the process of identifying opportunities to develop or acquire

businesses that are related to the company’s current businesses. More often, the business
processes have to be integrated for linear growth in the profits. The corporate plan may be
designed to undertake backward, forward or horizontal integration within the industry. If a
company operating in music systems takes over the manufacturing business of its plastic material
supplier, it would be able to gain more control over the market or generate more profit.
(Backward Integration) Alternatively, if this company acquires some of its most profitably
operating intermediaries such as wholesalers or retailers, it is forward integration. If the company
legally takes over or acquires the business of any of its leading competitors, it is called horizontal
integration (however, if this competitor is weak, it might be counter-productive due to dilution of
brand image).

c) Diversification Growth: It refers to the process of identifying opportunities to develop or

acquire businesses that are not related to the company’s current businesses. This makes sense
when such opportunities outside the present businesses are identified with attractive returns and
that industry has business strengths to be successful. In most cases, this is planned with new
products that have technological or marketing synergies with existing businesses to cater to a
different group of customers (Concentric Diversification). A printing press might shift over to
offset printing with computerised content generation to appeal to higher-end customers and also
add new application areas ( Horizontal Diversification ) – or even sell stationery. Alternatively,
the company might choose new businesses that have nothing to do with the current technology,
products or markets (Conglomerate Diversification). The classic examples for this would be
engineering and textile firms setting up software development centres or Call Centres with new
service clients.

Situation Analysis Sales Improvement Strategies:

a) A supplier of computer stationery invests in a computer stationery manufacturing unit.

b) A vendor supplying engine boxes to Maruti decides to supply the same with
modifications to Hyundai.
c) A company dealing in computer floppies plans to set up a Software Technology Park.

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Q.2. What are the components of a good Business Plan and briefly explain the importance of

Ans. The format of a Business Plan is something that has been developed and refined over the years
and is something that should not be changed. Like a good recipe, a business plan needs to include
certain ingredients to make it work. When you create a business plan, don't attempt to recreate its
format. Those reviewing this type of document have expectations you must meet. If they do not
see those crucial decision-making components, they'll see no reason to proceed with their review
of your business plan, no matter how great your business idea.

Executive Summary Section :-

Every business plan must begin with an Executive Summary section. A well-written Executive
Summary is critical to the success of the rest of the document. Here is where you need to capture
the attention of your audience so that they will be compelled to read on. Remember, it's a
summary, so each and every word must be carefully selected and presented. Use the Executive
Summary section of your business plan to accurately describe the nature of your business venture
including the need that you plan to fill. Show the reasons why people need
your product or service. Show this by including a brief analysis of the characteristics of your
potential market. Describe the organization of your business including your management team.
Also, briefly describe your sales and marketing plan or approach. Finally include the numbers
that those reviewing your business plan want to see -the amount of capital you seek, the carefully
calculated sales projections and your plan to repay the loan. If you've captured your audience so
far they'll read on. Otherwise, they'll close the document and add your business plan to the heap
of other rejected ideas. Devote the balance of your business plan to providing details of the items
outlined in the Executive Summary.

The Business Section :-

Be sure to include the legal name, physical address and detailed description of the nature of your
business. It's important to keep the description easy to read using common terminology. Never
assume that those reading your business plan have the same level of technical knowledge that you
do. Describe how you plan to better serve your market than your competition is currently doing.

Market Analysis Section

An analysis of the market shows that you have done your homework. This section is basically a
summary of your Marketing Plan. It needs to show the demand for your product or service, the
proposed market, trends within the industry, a description of your pricing plan and packaging and
a description of your company policies.

Financing Section
The Financing section must show that you are as committed to your business venture as you
expect those reading your business plan to be. Show the amount of personal funds you are
contributing and their source. Also include the amount of capital you need and your plan to repay
this debt. Include all pertinent financial worksheets in this section: annual income projections, a
break-even worksheet, projected cash flow statements and a balance sheet.

Management Section
Outline your organizational structure and management team here. Include the legal structure of

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your business whether it is a partnership, corporation or limited liability corporation. Include
resumes and biographies of key players on your management team. Show staffing projection data
for the next few years. By now you're probably thinking that you don't need Business Plan just
yet. Well you do, and there is business plan building software that can help you through this
immense project. These software packages are easy to use and affordable. Use one today and
produce a professional-quality Business Plan - including all critical components - tomorrow!

Q.3. You wish to start a new venture to manufacture auto components. Explain different stages
in the process of starting this new business. Sol.

Ans. Every business starts out as an idea. This idea usually involves the invention of a new product, or
revolves around a better way of making and marketing an existing one. While many would argue
that the idea stage is not a stage at all, it is actually a turning point, as business adviser Mike
Pendrith points out. After this, you as a business builder must refine this idea into a money-
making reality. Here in this case supposing we are to start a new venture of manufacturing auto
components and also to market them. We will see here in the following paragraphs different
stages of achieving the same goal.

1. Idea Researching
In this stage, you are researching your idea. The object of your research is to find out who is
marketing the same product or service in your area, and how successful the marketer has been.
You can accomplish this by a Google search on the Internet, launching a test-marketing
campaign, or conducting surveys. Also, you are attempting to find what the level of interest is in
the products (or services) you wish to market. Here as the main goal is to start a company that
manufactures the auto components, we are to make a research on all the auto companies which
are procuring the spares from the outside vendors. And also the competitors who are all
marketing that, their existence and also how successful they are. As part of the initial research
process, it is important to consider the legal requirements of selling your product or service.
According to the Biz Ed website, examine the legal ramifications of your business. Know the tax
laws governing your business. If insurance is a requirement, prepare to budget for it. Also, be
aware of any safety laws governing you as an employer. Hence we are also to make a research on
the feasible area where we can start our organization and licenses that we need to take keeping in
mind the environmental factors as well.
2. Business Plan Formulation
You must write a business plan. As Pendrith points out, this is crucial if you want funding, such
as a small business loan or grant, or if you wish to lease a building. At this stage, Pendrith
advises, you need to consult with an attorney or business adviser for assistance. In the business
plan you typically include following heads:
i) Executive Summary ii) Company and Product Description iii) Market Description iv)
Equipment and Materials v) Operations vi) Management and Ownership vii) Financial
Information and Start-Up Timeline viii) Risks and Their Mitigation

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3. Financial Planning Financial planning involves thinking about the financial costs of starting and
maintaining your business. According to the Biz Ed website, you should consider such issues as the
costs of running the business; the prices you wish to charge your customers; cash flow control; and
how you wish to set up financial reserves in case of an emergency or an event causing significant loss
to the business. This includes the planning of whether to take any loans or make personal investments
in the company.
4. Advertising Campaign Decide how you will market your product. Consider your budget and your
target audience. Make up business cards with your logo on it, your name and the name of your
business. Make sure that they are of the most professional quality. Utilizing print, the newspaper, the
Internet, radio or TV is also wise, considering, of course, the size of your advertising budget. Here in
this case more than TV, a better advertising media will be road side sign boards placed close to the
auto companies for getting the deals to manufacture their spares. As TV is useful only to reach the
common man and he is not our target customer. Hence sign boards is the feasible solution and also
pamphlets circulated across the pioneers. This apart personal marketing is much more suggested.
5. Preparing for Launch Advertise for employees. This also requires adequate planning. Think about
what you look for in an employee. Be specific about the requisite skills and experience you are
seeking. Then begin requesting resumes and setting up interviews, making hiring decisions based on
the standards you have set. In this case we will be looking for a few candidates in managerial position
who must be good in managing things apart from minimal technical knowledge. Lower level people
at the shopfloor people. They need to have real time experience in the shop floor activities. The
employees apart, one needs to plan on the plant and machinery as well. Thus these are all the stages
that I would consider performing if incase I plan to start a manufacturing unit producing automobile

Q.4. Explain the process of due Diligence and why it is necessary.(10 marks).

Ans. Due diligence :-Of course, your commercial partner will need some reassurance about the quality
of the offer you are making to them. If you are involved in licensing technology or seeking
commercial support for your research you are likely to hear of ‘due diligence.’ When a future
partner is considering whether or not to license technology, to buy a share of patent rights, or to
support your research, they will need to satisfy themselves that it is a viable proposition. The
process of assessing the viability, risk, potential liabilities and commercial prospects of a project
is known as ‘due diligence.’ Indeed, if a potential partner seems not to be interested in this kind
of issues, it may actually raise questions about their commitment to the project or the credibility of
their business plan, particularly if the relationship assumes some degree of risk and investment on
their part.

Generally, due diligence will involve assessing the overall commercial operations, cash flow,
assets and liabilities of a business that is being purchased or otherwise financially supported. You
would think twice about purchasing a business if you found that it was burdened with debts, or
was about to be involved in difficult litigation, or if there were doubts about whether it really
owned its assets. The same applies to a potential investment involving intellectual property. For
instance, a potential commercial partner would not want to invest in patented technology only to
find out that patent renewal fees have not been paid and the patent has lapsed, or to find out that
the patent was being opposed by another company, or to find that there is prior art available that
calls into question its validity. It may transpire that a student, a contractor or a visiting researcher
could actually be legally entitled to some or all of the patent rights. Even a serious level of
uncertainty or doubt could be enough to deter a potential partner, especially if they have run into

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this kind of difficulty before. Due diligence may also involve searching for information about the
full range of IP rights that might impact on the relevant technology – for instance, to check
whether you have later filed patent applications on improvements to the original patented
technology, that may limit the value of their investment in the original technology. Other
intellectual property rights – such as related trade mark or design registrations, or key trade
secrets or copyright material (such as manuals or software) – may also need to be identified or
located, as these may also affect the commercial partner’s interests in the technology. For
example, they may be unwilling to take out a licence for your patent without getting access to the
software you have developed for a related process. They may want the right to use your trade
mark in association with the patented technology. So in a due diligence process, your commercial
partner may undertake a range of checks and need various forms of information.

These may include:

· Checks on external records, such as patent registers and patent databases, including foreign
patents; · Searches of patent databases for conflicting technology;
· Independent advice from patent attorneys on issues such as patent ownership, patent validity and
scope of patent claims;
· Checks on employment contracts, confidentiality arrangements, and contracts with other parties
that may interfere with the exercise of IP rights;
· Details of the patent prosecution such as examiners’ reports and other opinions;
· Details of any legal challenges to the patent, and the way the proceedings were resolved;
· Checks on laboratory notebooks in the event that the validity of US patents is of concern to the
commercial partner (this also provides reassurance as to claims of ownership of the patent);
· Surveys of the activity of competitors and owners of competing technology, and possibilities of
conflict; and
· Analysis of freedom to operate issues. In preparing to licence your technology, you should
consider in advance these kind of due diligence issues. If you can anticipate and provide
comprehensive answers to these questions, you will be able more effectively to reassure your
commercial partner, and you will be in a stronger negotiating position in negotiating licence
terms. It should also speed up the licensing negotiations, and ultimately the commercialization of
your intellectual property.

Q.5. Is Corporate Social Responsibility necessary and how does it benefit a company and its

Ans. Corporate social responsibility (CSR), also known as corporate responsibility, corporate
citizenship, responsible business, sustainable responsible business (SRB), or corporate social
performance,[1] is a form of corporate self-regulation integrated into a business model. Ideally,
CSR policy would function as a built-in, self-regulating mechanism whereby business would
monitor and ensure its support to law, ethical standards, and international norms. Consequently,
business would embrace responsibility for the impact of its activities on the environment,
consumers, employees, communities, stakeholders and all other members of the public sphere.
Furthermore, CSR-focused businesses would proactively promote the public interest by
encouraging community growth and development, and voluntarily eliminating practices that harm
the public sphere, regardless of legality. Essentially, CSR is the deliberate inclusion of public
interest into corporate decision-making, and the honoring of a triple bottom line: people, planet,
profit. The practice of CSR is much debated and criticized. Proponents argue that there is a
strong business case for CSR, in that corporations benefit in multiple ways by operating with a

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perspective broader and longer than their own immediate, short-term profits. Critics argue that
CSR distracts from the fundamental economic role of businesses; others argue that it is nothing
more than superficial window-dressing; others yet argue that it is an attempt to pre-empt the role
of governments as a watchdog over powerful multinational corporations. Corporate Social
Responsibility has been redefined throughout the years. However, it essentially is titled to aid to
an organization's mission as well as a guide to what the company stands for and will uphold to its
consumers. Development business ethics is one of the forms of applied ethics that examines
ethical principles and moral or ethical problems that can arise in a business environment. In the
increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical
business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is
applied on industry to improve business ethics through new public initiatives and laws (e.g.
higher UK road tax for higher-emission vehicles). Business ethics can be both a normative and a
descriptive discipline. As a corporate practice and a career specialization, the field is primarily
normative. In academia, descriptive approaches are also taken. The range and quantity of business
ethical issues reflects the degree to which business is perceived to be at odds with non-economic
social values. Historically, interest in business ethics accelerated dramatically during the 1980s
and 1990s, both within major corporations and within academia. For example, today most major
corporate websites lay emphasis on commitment to promoting non-economic social values under
a variety of headings (e.g. ethics codes, social responsibility charters). In some cases,
corporations have re-branded their core values in the light of business ethical considerations (e.g.
BP' s "beyond petroleum" environmental tilt). The term "CSR" came in to common use in the
early 1970s, after many multinational corporations formed, although it was seldom abbreviated.

The term stakeholder, meaning those on whom an organization's activities have an impact, was
used to describe corporate owners beyond shareholders as a result of an influential book by R
Freeman in 1984.[2] ISO 26000 is the recognized international standard for CSR (currently a Draft
International Standard). Public sector organizations (the United Nations for example) adhere to
the triple bottom line (TBL). It is widely accepted that CSR adheres to similar principles but with
no formal act of legislation. The UN has developed the Principles for Responsible Investment as
guidelines for investing entities.

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Potential business benefits

The scale and nature of the benefits of CSR for an organization can vary depending on the nature
of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting
business to adopt measures beyond financial ones (e.g., Deming's Fourteen Points, balanced
scorecards). Orlitzky, Schmidt, and Rynes found a correlation between social/environmental
performance and financial performance. However, businesses may not be looking at short-run
financial returns when developing their CSR strategy. The definition of CSR used within an
organization can vary from the strict "stakeholder impacts" definition used by many CSR
advocates and will often include charitable efforts and volunteering. CSR may be based within
the human resources, business development or public relations departments of an organization,[11]
or may be given a separate unit reporting to the CEO or in some cases directly to the board. Some
companies may implement CSR-type values without a clearly defined team or program. The business
case for CSR within a company will likely rest on one or more of these arguments:
Human resources
A CSR program can be an aid to recruitment and retention,[12] particularly within the competitive graduate
student market. Potential recruits often ask about a firm's CSR policy during an interview, and having a
comprehensive policy can give an advantage. CSR can also help improve the perception of a company
among its staff, particularly when staff can become involved through payroll giving, fundraising activities
or community volunteering. See also Corporate Social Entrepreneurship, whereby CSR can also be driven
by employees' personal values, in addition to the more obvious economic and governmental drivers.
Risk management
Managing risk is a central part of many corporate strategies. Reputations that take decades to build up can
be ruined in hours through incidents such as corruption scandals or environmental accidents. These can
also draw unwanted attention from regulators, courts, governments and media. Building a genuine culture
of 'doing the right thing' within a corporation can offset these risks.[13]
Brand differentiation
In crowded marketplaces, companies strive for a unique selling proposition that can separate them from
the competition in the minds of consumers. CSR can play a role in building customer loyalty based on
distinctive ethical values.[14] Several major brands, such as The Co-operative Group, The Body Shop and
American Apparel[15] are built on ethical values. Business service organizations can benefit too from
building a reputation for integrity and best practice.
License to operate
Corporations are keen to avoid interference in their business through taxation or regulations. By taking
substantive voluntary steps, they can persuade governments and the wider public that they are taking
issues such as health and safety, diversity, or the environment seriously as good corporate citizens with
respect to labour standards and impacts on the environment
Stakeholder priorities
Increasingly, corporations are motivated to become more socially responsible because their most
important stakeholders expect them to understand and address the social and community issues that are
relevant to them. Understanding what causes are important to employees is usually the first priority
because of the many interrelated business benefits that can be derived from increased employee
engagement (i.e. more loyalty, improved recruitment, increased retention, higher productivity, and so on).
Key external stakeholders include customers, consumers, investors (particularly institutional investors),
communities in the areas where the corporation operates its facilities, regulators, academics, and
the media.

Q.6. Distinguish between a Financial Investor and a Strategic Investor explaining the role they

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play in a Company. (10 marks).

Ans. In the not so distant past, there was little difference between financial and strategic investors.
Investors of all colors sought to safeguard their investment by taking over as many management functions
as they could. Additionally, investments were small and shareholders few. A firm resembled a household
and the number of people involved – in ownership and in management – was correspondingly limited.
People invested in industries they were acquainted with first hand. As markets grew, the scales of
industrial production (and of service provision) expanded. A single investor (or a small group of
investors) could no longer accommodate the needs even of a single firm. As knowledge increased and
specialization ensued – it was no longer feasible or possible to micro-manage a firm one invested in.
Actually, separate businesses of money making and business management emerged. An investor was
expected to excel in obtaining high yields on his capital – not in industrial management or in marketing.
A manager was expected to manage, not to be capable of personally tackling the various and varying
tasks of the business that he managed. Thus, two classes of investors emerged. One type supplied firms
with capital. The other type supplied them with know-how, technology, management skills, marketing
techniques, intellectual property, clientele and a vision, a sense of direction. In many cases, the strategic
investor also provided the necessary funding. But, more and more, a separation was maintained. Venture
capital and risk capital funds, for instance, are purely financial investors. So are, to a growing extent,
investment banks and other financial institutions. The financial investor represents the past. Its money is
the result of past -right and wrong decisions. Its orientation is short term: an "exit strategy" is sought as
soon as feasible. For "exit strategy" read quick profits. The financial investor is always on the lookout,
searching for willing buyers for his stake. The stock exchange is a popular exit strategy. The financial
investor has little interest in the company's management. Optimally, his money buys for him not only a
good product and a good market, but also a good management. But his interpretation of the rolls and
functions of "good management" are very different to that offered by the strategic investor. The financial
investor is satisfied with a management team which maximizes value. The price of his shares is the most
important indication of success. This is "bottom line" short termism which also characterizes operators in
the capital markets. Invested in so many ventures and companies, the financial investor has no interest,
nor the resources to get seriously involved in any one of them. Micro-management is left to others -but, in
many cases, so is macro-management. The financial investor participates in quarterly or annual general
shareholders meetings. This is the extent of its involvement. The strategic investor, on the other hand,
represents the real long term accumulator of value. Paradoxically, it is the strategic investor that has the
greater influence on the value of the company's shares. The quality of management, the rate of the
introduction of new products, the success or failure of marketing strategies, the level of customer
satisfaction, the education of the workforce -all depend on the strategic investor. That there is a strong
relationship between the quality and decisions of the strategic investor and the share price is small
wonder. The strategic investor represents a discounted future in the same manner that shares do. Indeed,
gradually, the balance between financial investors and strategic investors is shifting in favour of the latter.
People understand that money is abundant and what is in short supply is good management.

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Given the ability to create a brand, to generate profits, to issue new products and to acquire new clients -
money is abundant.
These are the functions normally reserved to financial investors:
Financial Management
The financial investor is expected to take over the financial management of the firm and to directly
appoint the senior management and, especially, the management echelons, which directly deal with the
finances of the firm.
1 To regulate, supervise and implement a timely, full and accurate set of accounting books of the
firm reflecting all its activities in a manner commensurate with the relevant legislation and regulation in
the territories of operations of the firm and with internal guidelines set from time to time by the Board of
Directors of the firm. This is usually achieved both during a Due Diligence process and later, as financial
management is implemented.
2 To implement continuous financial audit and control systems to monitor the performance of the
firm, its flow of funds, the adherence to the budget, the expenditures, the income, the cost of sales and
other budgetary items.
3 To timely, regularly and duly prepare and present to the Board of Directors financial statements
and reports as required by all pertinent laws and regulations in the territories of the operations of the firm
and as deemed necessary and demanded from time to time by the Board of Directors of the Firm.
4 To comply with all reporting, accounting and audit requirements imposed by the capital markets
or regulatory bodies of capital markets in which the securities of the firm are traded or are about to be
traded or otherwise listed.
5 To prepare and present for the approval of the Board of Directors an annual budget, other
budgets, financial plans, business plans, feasibility studies, investment memoranda and all other financial
and business documents as may be required from time to time by the Board of Directors of the Firm.
6 To alert the Board of Directors and to warn it regarding any irregularity, lack of compliance, lack
of adherence, lacunas and problems whether actual or potential concerning the financial systems, the
financial operations, the financing plans, the accounting, the audits, the budgets and any other matter of a
financial nature or which could or does have a financial implication.
7 To collaborate and coordinate the activities of outside suppliers of financial services hired or
contracted by the firm, including accountants, auditors, financial consultants, underwriters and brokers,
the banking system and other financial venues.
8 To maintain a working relationship and to develop additional relationships with banks, financial
institutions and capital markets with the aim of securing the funds necessary for the operations of the
firm, the attainment of its development plans and its investments.
9 To fully computerize all the above activities in a combined hardware-software and
communications system which will integrate into the systems of other members of the group of
10 Otherwise, to initiate and engage in all manner of activities, whether financial or of other nature,
conducive to the financial health, the growth prospects and the fulfillment of investment plans of the firm
to the best of his ability and with the appropriate dedication of the time and efforts required.

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Collection and Credit Assessment
1 To construct and implement credit risk assessment tools, questionnaires, quantitative methods,
data gathering methods and venues in order to properly evaluate and predict the credit risk rating of a
client, distributor, or supplier.
2 To constantly monitor and analyse the payment morale, regularity, non-payment and non-
performance events, etc. – in order to determine the changes in the credit risk rating of said factors.
3 To analyse receivables and collectibles on a regular and timely basis.
4 To improve the collection methods in order to reduce the amounts of arrears and overdue
payments, or the average period of such arrears and overdue payments.
5 To collaborate with legal institutions, law enforcement agencies and private collection firms in
assuring the timely flow and payment of all due payments, arrears and overdue payments and other
6 To coordinate an educational campaign to ensure the voluntary collaboration of the

clients, distributors and other debtors in the timely and orderly payment of their dues. The
strategic investor is, usually, put in charge of the following:
Project Planning and Project Management
The strategic investor is uniquely positioned to plan the technical side of the project and to implement it.
He is, therefore, put in charge of:
1 The selection of infrastructure, equipment, raw materials, industrial processes, etc.;
2 Negotiations and agreements with providers and suppliers;
3 Minimizing the costs of infrastructure by deploying proprietary components and planning;
4 The provision of corporate guarantees and letters of comfort to suppliers;
5 The planning and erecting of the various sites, structures, buildings, premises, factories, etc.;
6 The planning and implementation of line connections, computer network connections, protocols,
solving issues of compatibility (hardware and software, etc.);
7 Project planning, implementation and supervision.

Marketing and Sales

1 The presentation to the Board an annual plan of sales and marketing including: market
penetration targets, profiles of potential social and economic categories of clients, sales promotion
methods, advertising campaigns, image, public relations and other media campaigns. The strategic
investor also implements these plans or supervises their implementation.
2 The strategic investor is usually possessed of a brandname recognized in many countries. It is the
market leaders in certain territories. It has been providing goods and services to users for a long period of
time, reliably. This is an important asset, which, if properly used, can attract users. The enhancement of
the brandname, its recognition and market awareness, market penetration, co-branding, collaboration with
other suppliers – are all the responsibilities of the strategic investor.
3 The dissemination of the product as a preferred choice among vendors, distributors, individual
users and businesses in the territory.
4 Special events, sponsorships, collaboration with businesses.
5 The planning and implementation of incentive systems (e.g., points, vouchers).
6 The strategic investor usually organizes a distribution and dealership network, a franchising
network, or a sales network (retail chains) including: training, pricing, pecuniary and quality supervision,
network control, inventory and accounting controls, advertising, local marketing and sales promotion and
other network management functions.

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7 The strategic investor is also in charge of "vision thinking": new methods of operation, new
marketing ploys, new market niches, predicting the future trends and market needs, market analyses and
research, etc.

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The strategic investor typically brings to the firm valuable experience in marketing and sales. It has
numerous off the shelf marketing plans and drawer sales promotion campaigns. It developed software and
personnel capable of analysing any market into effective niches and of creating the right media (image
and PR), advertising and sales promotion drives best suited for it. It has built large databases with multi-
year profiles of the purchasing patterns and demographic data related to thousands of clients in many
countries. It owns libraries of material, images, sounds, paper clippings, articles, PR and image materials,
and proprietary trademarks and brand names. Above all, it accumulated years of marketing and sales
promotion ideas which crystallized into a new conception of the business.

1 The planning and implementation of new technological systems up to their fully operational
phase. The strategic partner's engineers are available to plan, implement and supervise all the stages of the
technological side of the business.
2 The planning and implementation of a fully operative computer system (hardware, software,
communication, intranet) to deal with all the aspects of the structure and the operation of the firm. The
strategic investor puts at the disposal of the firm proprietary software developed by it and specifically
tailored to the needs of companies operating in the firm's market.
3 The encouragement of the development of in-house, proprietary, technological solutions to the
needs of the firm, its clients and suppliers.
4 The planning and the execution of an integration program with new technologies in the field, in
collaboration with other suppliers or market technological leaders.

Education and Training

The strategic investor is responsible to train all the personnel in the firm: operators, customer services,
distributors, vendors, sales personnel. The training is conducted at its sole expense and includes tours of
its facilities abroad. The entrepreneurs – who sought to introduce the two types of investors, in the first
place – are usually left with the following functions:
Administration and Control
1 To structure the firm in an optimal manner, most conducive to the conduct of its business and to
present the new structure for the Board's approval within 30 days from the date of the GM's appointment.
2 To run the day to day business of the firm.
3 To oversee the personnel of the firm and to resolve all the personnel issues.
4 To secure the unobstructed flow of relevant information and the protection of confidential
5 To represent the firm in its contacts, representations and negotiations with other firms,

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authorities, or persons. This is why entrepreneurs find it very hard to cohabitate with investors of
any kind. Entrepreneurs are excellent at identifying the needs of the market and at introducing
technological or service solutions to satisfy such needs. But the very personality traits which qualify them
to become entrepreneurs – also hinder the future development of their firms. Only the introduction of
outside investors can resolve the dilemma. Outside investors are not emotionally involved. They may be
less visionary – but also more experienced. They are more interested in business results than in dreams.
And – being well acquainted with entrepreneurs – they insist on having unmitigated control of the
business, for fear of losing all their money. These things antagonize the entrepreneurs. They feel that they
are losing their creation to cold-hearted, mean spirited, corporate predators. They rebel and prefer to
remain small or even to close shop than to give up their cherished freedoms. This is where nine out of ten
entrepreneurs fail - in knowing when to let go.

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Master Of Business Administration-MBA Semester 4

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MB0036- Strategic management & Business Policy

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Assignment Set-2

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Note: Each question carries 10 Marks. Answer all the questions.
Q.1. What is the purpose of a Business Plan? Explain the features of the component of the Plan
dealing with the Company and its product description.(10 marks)

Ans. A good business plan will help attract necessary financing by demonstrating the feasibility of
your venture and the level of thought and professionalism you bring to the task. The first step in
planning a new business venture is to establish goals that you seek to achieve with the business.
You can establish these goals in a number of ways, but an inclusive and ordered process like an
organizational strategic planning session or a comprehensive neighborhood planning process may
be best. The board of directors of your organization should review and approve the goals, because
these goals will influence the direction of the organization and require the allocation of valuable
staff and financial resources. Your goals will serve as a filter to screen a wide range of possible
business opportunities. If you fail to establish clear goals early in the process, your organization
may spend substantial time and resources pursuing potential business ventures that may be
financially viable but do not serve the mission of your organization in other important ways. A
liquor store on the corner may be a clear money-maker; however, it may not be the retail to assist
your community desires. The following are examples of goals you may seek to achieve through
the creation of a new business venture:
Revenue Generation – Your organization may hope to create a business that will generate
sufficient net income or profit to finance other programs, activities or services provided by your
Employment Creation – A new business venture may create job opportunities for community
residents or the constituency served by your organization.
Neighborhood Development Strategy – A new business venture might serve as an anchor to a
deteriorating neighborhood commercial area, attract additional businesses to the area and fill a
gap in existing retail services. You may need to find a use for a vacant commercial property that
blights a strategic area of your neighborhood. Or your business might focus on the rehabilitation
of dilapidated single family homes in the community. Whenever possible, goals should have
quantifiable outcomes such as “to generate a minimum of $50,000 of net income or profit within
three years”; “to employ at least 15 community residents within two years in new permanent jobs
at a livable wage”; “to occupy and support a minimum of 10,000 square feet of neighborhood
commercial space”; or “to rehabilitate 50 single-family houses over three years.” Clearly defined
and quantifiable goals provide objective measurements to screen potential business opportunities.
They also establish clear criteria to evaluate the success of the business venture.

Establish Goals
Once you have identified goals for a new business venture, the next step in the business planning
process is to identify and select the right business. Many organizations may find themselves
starting at this point in the process. Business opportunities may have been dropped at your
doorstep. Perhaps an entrepreneurial member of the board of directors or a community resident
has approached your organization with an idea for a new business, or a neighborhood business
has closed or moved out of the area, taking jobs and leaving a vacant facility behind. Even if this
is the case, we recommend that you take a step back and set goals. Failing to do so could result in
a waste of valuable time and resources pursuing an idea that may seem feasible, but fails to
accomplish important goals or to meet the mission of your organization.

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Depending on the goals you have set, you might take several approaches to identify potential
business opportunities. Local Market Study: Whether your goal is to revitalize or fill space in a
neighborhood commercial district or to rehabilitate vacant housing stock, you should conduct a
local market study. A good market study will measure the level of existing goods and services
provided in the area, and assess the capacity of the area to support existing and additional
commercial or home-ownership activity. This assessment is based on the shopping and traffic
patterns of the area and the demographic and socio-economic characteristics of the community. A
bad or insufficient market study could encourage your organization to pursue a business destined
to fail, with potentially disastrous results for the organization as a whole. Through a market study
you will be able to identify gaps in existing products and services and unsatisfied demand for
additional or expanded products and services. If your organization does not have staff capacity to
conduct a market study, you might hire a consultant or solicit the assistance of business
administration students from a local college or university. Conducting a solid and thorough
market study up front will provide essential information for your final business plan.

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Analysis of Local and Regional Industry Trends: Another method of investigating potential business
opportunities is to research local and regional business and industry trends. You may be able to identify
which business or industrial sectors are growing or declining in your city, metropolitan area or region.
The regional or metropolitan area planning agency for your area is a good source of data on industry
trends. Internal Capacity: The board, staff or membership of your organization may possess knowledge
and skills in a particular business sector or industry. Your organization may wish to draw upon this
internal expertise in selecting potential business opportunities. Internal Purchasing Needs /
Collaborative Procurement: Perhaps, your organization frequently purchases a particular service or
product. If nearby affiliate organizations also use this service or product, this may present a business
opportunity. Examples of such products or services include printing or copying services, travel services,
transportation services, property management services, office supplies, catering services, and other
products. You will still need to conduct a complete market study to determine the demand for this product
or service beyond your internal needs or the needs of your partners or affiliates.
Identify Business Opportunities Buying an Existing Business: Rather than starting a new business,
you may wish to consider purchasing an existing business. Perhaps a local retail or small light
manufacturing business that has been an anchor to the local retail area or a much-needed source of jobs in
the neighborhood is for sale. Its closure would mean the loss of jobs and services for your neighborhood.
Your organization might consider purchasing and taking over the enterprise instead of starting a new
business. If you decide to pursue this option, you still need to go through the steps of creating a business
plan. However, before moving ahead, these are just a few important areas to research in assessing the
business you plan to purchase: Be sure to conduct a thorough review of the financial statements for the
past three to five years to determine the current fiscal status and recent financial trends, the validity of the
accounts receivable and the status of the accounts payable. Are all the required licenses and permits in
place and can they be transferred to a new owner? Also look at the quality of key employees who,
because of their expertise, may need to remain with the business.

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You will also need to assess the customer or client base and determine whether its members will remain
loyal to the business after it changes hands. Another area to evaluate is the perception or image of the
business. Inspect the facilities and talk to suppliers, customers and other businesses in the area to learn
more about the reputation of the business. At this early stage of your planning process, be sure to consult
an attorney experienced in corporation law. As a non-profit corporation, engaging in income-generating
activities not related to your mission may affect your tax-exempt status. You may also wish to protect
your organization from any liability issues connected with the proposed business activity. After you have
decided on a particular business activity, have a qualified attorney advise you on the proper corporate
structure for your new venture. In addition to qualified legal counsel, seek the expertise of an experienced
professional in that particular industry. He or she will bring valuable knowledge and insights regarding
the industry that will prove extremely useful during the business planning process.
You have decided on a business opportunity that meets the goals of your organization. Now you are ready
to test the feasibility of the venture and to present your business concept to the world. A solid business
plan will clearly explain the business concept, describe the market for your product or service, attract
investment, and establish operating goals and guidelines. The first step in writing your business plan is to
identify your target audience. Will this be an internal plan the board will use to assess the feasibility and
appropriateness of the business? Or will this plan be distributed to a larger external audience such as
funding sources, commercial lenders or the community to gain financial backing and political support for
the proposed venture? The content and emphasis of the plan will shift according to the audience. You will
also need to decide who will conduct the necessary research and write the plan. The following table lists
the advantages and disadvantages of several options for getting the work

Creating One’s Own Business Plan

It is also important to establish a timeline for completing the plan. A business plan can be completed by
one staff member working full time in as little as a week, although a thorough market analysis will add
several days at least. A committee will probably need much more time. Combinations of staff, volunteers,
consultants and a board committee may lengthen or shorten the process depending on skill level, available
time, experience with planning and research, and the group’s facilitation needs. Now that you have
decided who will put together your business plan and have set a timeline for its completion, you are ready
to begin assembling the elements of the plan. Your business plan should contain the following sections: ·
Executive summary · Company and product description · Market description · Operations · Management
and ownership · Financial information and timeline · Risks and their mitigation A solid business plan will
clearly explain the business concept, describe the market for your product or service, attract investment,
and establish operating goals and guidelines.

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1 Executive Summary
In this section of your business plan, provide a description of your company, the industry you will be
competing in, and the product or service you plan to offer. Sell your concept! The executive summary
may be the first and only section of your business plan that most of your audience will read. Tell the
audience why the business is a great idea. Some readers will look at this section to determine whether or
not they want to learn more about a business. Other readers will look to the executive summary as a
sample of the quality and professionalism of the overall plan. The executive summary should be no more
than one to three pages long and should answer the following questions: · Who are you? (describe your
organization) · What are you planning? (describe the service or product) · Why are you planning it?
(discuss the demand and market for the service or product) · How will you operate your business? · When
will you be in operation? (overview of timeline) · What is your expected net profit? (discuss your
projected sales and costs) Although the executive summary is the first part of your business plan, you
should write it after you have written the other sections of the plan in order to include the most important
points of each section.
2 Company and Product Description
In describing your company be sure to include what type of business you are planning (homeownership
development, wholesale, retail, manufacturing or service) and the legal structure (corporation or
partnership). You should discuss why you are creating this new venture, referencing the goals you set at
the beginning of the business planning process. Also include a description of your non-profit
organization, the role it has played in developing this new venture and the on-going role, if any, it will
play in operations. Give the reader a brief overview of the industry, describing historic and current growth
trends. Whenever possible, provide documentation or references supporting your trend analysis such as
articles from business-oriented newspapers and magazines, research journals or other publications.
Include these references in the attachments of your business plan.
Product or Service
After describing your company and its industry context, describe the products or services you plan to
provide. Focus on what distinguishes your product or service from the rest of the market. Discuss what
will attract consumers to your product or service. Provide as much detail as necessary to inform the reader
about the particular characteristics of your product that distinguish it from its competition – many
nonprofits, for example, expect to produce higher-quality housing than otherwise exists in the area.
Mention any distinctive elements in the manufacture of the product, such as being “hand-made by a
particular people from a specific area.” If you are providing a service, explain the steps you will take to
provide a service that is better than your competition.

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Provide a realistic estimate of the price for your product or service, and discuss the rationale behind that
price. An unrealistic price estimate may undermine the credibility of your plan and raise concerns that
your product or service may not be of sufficient quality or that you will not be able to maintain
profitability in the long run. Describe where this price positions you in the marketplace: at the high end,
low end or in the middle of the existing range of prices for a similar product or service. In other sections
of the plan you will discuss the target market for your product or service and also provide additional
details on how the price of your product fits into the overall financial projections for the enterprise.
Describe the location where you will produce or distribute your product or provide your service. Discuss
the advantages of the location, such as its accessibility, surrounding amenities and other characteristics
that may enhance your business. Depending on your anticipated customer base, accessibility to your
location via public transportation could affect the marketability of your product or service.
In this section of your business plan, you will describe the customer base or market for your product or
service. In addition to providing a detailed description of your customer base, you will also need to
describe your competition (other local developers or nearby businesses providing a similar service to your
potential customer base). Who will purchase your product or use your service? How large is your
customer base? Define the characteristics of your target market in terms of its: · Demographics –
Measures of age, gender, race, religion and family size. · Geography – Measures based on location. ·
Socioeconomic Status – Measures based on individual or household annual income. Provide statistical
data to describe the size of your target market. Sources for this information may include recent data from
the Bureau of Statistics, state or local census data, or information gathered by your organization, such as
membership lists, neighborhood surveys and group or individual interviews. Be sure to list the sources for
your data, as this will further validate your market assumptions. Include any relevant information
regarding the growth potential for your target market if your business is expected to rely on growth. Cite
any research forecasting population increases in your target market or other trends and factors that may
increase the demand for your product or service.
Discuss how people identified in your target market currently meet their need for your product or service.
What other businesses exist in your area that are similar to your proposed venture? For example, for a
housing business, what are the local markets for purchase and rental? How much are people currently
paying for similar products or services? Briefly describe what differentiates your proposed venture from
these existing businesses and discuss why you are entering this market.

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Sales Projections
Present an estimate of how many people you expect will purchase your product or service. Your estimate
should be based on the size of your market, the characteristics of your customers and the share of the
market you will gain over your competition. Project how many units you will sell at a specified price over
several years. The initial year should be broken down in monthly or quarterly increments. Account for
initial presentation and market penetration of your product and any seasonal variations in sales, if
3 Market Description
In this section, you will describe how you plan to operate the business. You will present information on
how you plan to create your product or provide your service, describe the staff required to operate and
manage the business, discuss the equipment and materials necessary, and define the site or facility
requirements, if any. A key component of the operation of your business will be your sales and marketing
strategy, so you must describe how you will inform your target market about your product or service and
how you will convince customers to purchase it.
Production Description
Describe the steps for creating your product, from the raw material or initial stage to the finished product,
packaged and ready for distribution and sale. If you plan to provide a service, describe the process of
service deliver (such as the initial interview, for instance, if you are offering consulting services),
assessment, research and design, and final presentation. Provide a description of any sub-contractors or
external services you plan to use in the production process. The reader of the plan may be unfamiliar with
the industry, so avoid using industry jargon to describe the production process.
Describe the staff required to operate your business: discuss how many people you will need; describe the
tasks they will carry out; and the skills they will need. Prepare a chart outlining the salaries and benefits
you will provide to your workforce. Provide information on how you will recruit staff and provide initial
and ongoing training of employees.
4 Equipment and Materials
To manufacture your product or provide your service, what type of equipment will you need? Describe
any machinery and vehicles necessary in the production, packaging and distribution of your product,
including any office equipment such as computers, copiers, furniture, fixtures and telephone systems.
Also discuss the types of materials you will use in the production process and describe the source and cost
of those materials.
Describe the type of facility in which you will house your business. Indicate the amount of building space
you will need for production and administration. Also discuss any building features required for the
production process such as high ceilings, specialized ventilation and heating systems, sanitized laboratory
space or vehicular accessibility. If you have already identified a location and a facility that meets your
requirements, describe its features. Even if you are planning to provide a service instead of manufacturing
a product, you need to demonstrate that you will have adequate space for administrative functions and
other activities related to the service you plan to provide .
Market Description
Describe your strategy for locating your target market, informing or educating customers about your
product or service and convincing them to purchase it. Provide details on the methods you will use to
advertise your product, such as print media (advertisements in newspapers, magazines or trade journals),
electronic media (television, radio and the Internet), direct mail, telemarketing, individual sales agents or
representatives, or other approaches. Discuss the product’s or service’s features you plan to emphasize to
gain the attention of your target market. Also detail how you will distribute and sell your product or
service. Will you use sales agents or existing retail outlets, or directly distribute your product through a

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delivery service such as United Parcel Service, Federal Express or independent trucking company?

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5 Operations
In this section of your business plan, describe the senior managers responsible for overseeing the start-up
and operation of your business, their background and their responsibilities in the business. Be sure to
highlight your management team’s experience in managing the production, marketing and administration
of similar businesses or within the selected industry and attach the resumes of each member to the plan.
Be sure to provide a complete job description of any vacancies in your management team. Describe the
responsibilities, the skills, the background required and the steps you plan to take to fill that key position.
What is its relationship to your existing organization? Who is on the board of directors / board of advisors
of the new business and what are their backgrounds and areas of expertise? Potential investors or lenders
will be interested in the ownership stake of the board of directors and also in what portion of the
company’s equity is available. Success is often due to one’s contacts, so fully describe your business
relationships with attorneys, accountants and advertising or public relations agencies, and any industry-
specific services such as suppliers and distributors.
6 Management and Ownership
In this section you will describe the financial feasibility of your planned venture and provide several
financial reports and statements to document why your business will be a viable enterprise and a sound
investment. At a minimum, you should provide a brief descriptive narrative for each of the following
financial statements and include a copy in the attachments to your plan: · Start-up budget · Cash flow
projection · Income statement · Balance sheet In preparing these statements, you may want to seek the
advice of a certified public accountant (CPA).
Start-up Budget
Describe the initial expenses you will incur to get your business up and running. Some items you might
include in your start-up budget research and product design and development expenses, legal
incorporation and licensing expenses, facility purchase or rental, equipment and vehicle purchase or
rental, and initial material or supply purchase. You can use Worksheet B as a sample format for
preparing your start-up budget.
Cash Flow Projection
This statement presents a month-to-month schedule of the estimated cash inflows and outflows of your
business for the first year. This schedule should indicate how much money your business will have or
need and when you will need it. You should describe your sources of income and capital, detailing your
projected sales revenue and indicating your own or investor equity contribution, lenders, investors and
other sources of capital. Itemize your projected expenses, distinguishing between the cost of goods sold
(materials, supplies, production labor), overhead expenses (rent, utilities, insurance, maintenance, interest,
insurance, administrative costs and salaries, legal and accounting services, marketing, taxes, fees and
other ongoing operating expenses) and capital expenditures (land and buildings, equipment, furniture,
vehicles, and building repair or renovation expenses). In preparing this statement, account for a gradual
increase in sales from initial product introduction and any expected seasonal fluctuations in revenue

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Income Statement
Prepare a multiyear (three-to five – year) statement of projected revenue, expenses, capital expenditures
and cost of goods sold. If you make assumptions about the growth of your business, provide supporting
documentation such as growth patterns of similar companies or studies that forecast an industry-wide
growth rate. This statement should indicate to the reader the potential of your business to generate cash
and its profitability over time. For an existing business, also submit an income statement for at least three
prior consecutive years. Lenders may look at this statement to determine whether your business can
support the additional debt you are requesting.
Balance Sheet
A start-up business probably will not have any assets or liabilities at the time you are drafting the business
plan. Provide a copy of the balance sheet of the business’s sponsoring organization or individual.
Describe in your narrative any assets that will be allocated to the start-up of the business.
7 Financial Information and Start up Timeline
Capital Requirements
Describe the amount and type of financing you are seeking for your business. Are you looking for debt
from a lender or equity from an investor? Refer to your start up budget and cash flow statement presented
earlier. Discuss how and when you will draw on these funds and how they will affect the bottom line.
Also describe any commitments or investments that you may have already secured. If you are seeking
investors, such as venture capitalists, describe what they will receive in return for their capital. What is
the repayment period and the expected return on investment? Also discuss the nature of their ownership
share and how it may change with future investments. Equity investors are looking for rates of return
higher than rates offered by banks or other business lenders. The level of risk in your business and
industry will help to determine the actual market rate, as will the availability of equity dollars. Check with
other businesses (although not direct competitors) to see what return on investment their investors
demanded. Be prepared to negotiate. And make sure you research the investment market carefully;
several socially minded investment pools exist and more are in development. or lenders, describe the type
of financing you are seeking: · Seed Capital – Short-term financing to cover start-up costs. · Fixed Asset
Financing – Longer-term financing for property, building improvements, equipment or vehicles. The
asset being purchased is usually pledged as security for the loan. · Working Capital – Short-term
financing to cover operating expenses and to bridge gaps in cash flow.
Initial Start-up Timeline
Provide a timeline of tasks and events necessary to get your business operational. Be sure to describe the
current stage you are in and what steps you have taken to date. Include deadlines for task completion. Set
realistic deadlines according to your capacity to complete these tasks. The following is a list of some of
the steps you may wish to include: · Filing legal incorporation documents · Identifying and securing
suitable space · Designing and developing the product · Obtaining required licenses or permits · Securing
necessary financing · Leasing or purchasing equipment · Hiring key staff · Hiring and training of
production or support staff · Purchasing materials and production supplies · Beginning marketing
activities · Opening Although it is impossible to know exactly what will go wrong in starting and running
your business, thinking about different challenges will strengthen your plan. Potential problems could
include: · Insufficient public subsidy available to new home owners or residents · The competition drops
its prices · Not enough customers · Production costs exceed estimates · Difficulty in finding qualified
employees · Environmental or governmental changes such as tax increases, additional regulations or
population changes For each potential problem, discuss its likelihood and describe possible solutions or
actions you might undertake to mitigate the problem.

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Risks and their Mitigation
Although it is impossible to know exactly what will go wrong in starting and running your business,
thinking about different challenges will strengthen your plan. After you have completed all of the
elements of your business plan, you should focus its presentation. A well-organized plan will assist you in
communicating the most important elements of your business plan to the reader, and a persuasive plan
will help you to convince the reader to invest in your business.
Executive Summary
As mentioned earlier, this section should be written last. However, if you have already written the
executive summary, review it to make sure it embodies the following characteristics. Because it is the
first and possibly the only section of the plan that many readers may see, the executive summary should
provide an overview of the plan and entice the reader to read the whole plan or to agree to meet with you.
The executive summary should be no more than three pages and should briefly describe the most
important elements of the plan. Review the Executive Summary section of this manual for more tips on
this critical introduction to your business.

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2. Write short notes on : a) sales projections (10 marks). Sol. Sales Projections
Present an estimate of how many people you expect will purchase your product or service. Your estimate
should be based on the size of your market, the characteristics of your customers and the share of the
market you will gain over your competition. Project how many units you will sell at a specified price over
several years. The initial year should be broken down in monthly or quarterly increments. Account for
initial presentation and market penetration of your product and any seasonal variations in sales, if
Steps for Developing Sales Projections
Your business plan is not just a funding tool, but also a blueprint for how your business should operate.
The following are steps for developing sales projections.
Step I:
For each product or service, estimate the number of people who are likely to buy and when they will buy
it. You can get this information from asking your likely customers about their possible use of your
business, or you can base your estimates on your knowledge of the market.
Step 2: Use a Calendar
Estimate your sales and number of customers served during one week. Using the totals for a week, make
projections for each month. For the first few months, keep in mind that business will start off slowly
before people become more aware of your business. Use will most likely increase as people learn about
your products and services. Seasonal variations may affect your business as well. You will use these
numbers to project your equipment, supply and staffing needs, as well as income.
Cost Account Heads:
· Organizational Start up Costs · Product Design/Development · Research & Development ·
Legal/Licensing Expenses · Property & Facilities · Land/Building Purchase · Initial Lease Deposit ·
Building Repairs/Improvements · Equipment/Machinery · Production-related · Administrative/Office
Equip. · Materials & Supplies · Personnel · Key Employees · Contract Labour/Temps · Training Expenses
· Marketing Expenses · Advertisements · Brochures/Literature/Other · Insurance Premiums · Distributor
Contracts · Contingency (5%)

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Expenses: Costs of Goods Sold
· Materials/Supplies · Labor · Rent · Utilities · Insurance · Admin. Exp. (PT Sec.) · Legal & Accounting ·
Marketing · Equipment Maintenance/Supplies · Facility Maintenance · Fees/Miscellaneous
Debt / Equity Investment:
· Equipment Loan · Building Rehabilitation Loan · Grants · Owner Equity
· Cost of Goods Sold · Wages & Benefits · Materials · Supplies Overhead Expenses: · Rent · Utilities ·
Building Maintenance/Security · Marketing · Accounting · Legal · Administrative Expense · Interest
Expense · Depreciation The Business Priorities are based upon six top-level objectives; these are: · To
make Business data available both to decision-makers and as much as possible available in the public
domain; · To ensure all holders of Business information are able to participate. · To ensure that the data
available through the NETWORK are of known quality; · To ensure that the NETWORK Gateway gives
access to data on Location and species used to inform decisions affecting Business at local, regional,
national and international levels; · To promote knowledge, use and awareness of the NETWORK; · To
enhance the skills base and expertise needed to support and develop the NETWORK. i) The objectives
have cross-cutting themes which are:

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A. Infrastructure development
B. Data standards and tools
C. Capacity building
D. Working with the wider public
E. Co-ordination and promotion i) In addition, the partners will contribute to the overall realisation of the
objectives through work that they initiate on their own account, but which does not necessarily fall under
the focussed objectives for the Network. ii) A series of assumptions have been made in formulating the
Business Priorities and their associated work programme. These are: · It is assumed that the present way
of working, i.e. a lead partner approach for each project will be retained; · The plan is not intended to
represent all the work that could be undertaken; · It is anticipated that other work towards the principal
aim of adding content and providing a fully functional gateway will be adopted by the NETWORK as
part of its programme, but this work would have to be prioritised against this core activity and separately
resourced; To give additional focus to the challenging nature of the task that the NETWORK is setting
itself, a series of principle drivers have been recognised. The drivers are: · Processes – This driver relates
to facilitated targeted action on the ground through providing knowledge of resource location, extent,
pattern of distribution, data quality and gaps. It also has the potential for engaging more partners in the
NETWORK; · Environmental Impact Assessment (EIA) and Strategic Environmental Assessment – This
driver is concerned with providing ready access to data on location, extent, pattern and quality of
Business. · Data contributor engagement – This driver is concerned with accessing sources of data for the
NETWORK enabling the assessment of actions and continual improvement in the targeting of actions
from the two previous drivers; · Operational use – This relates to the use of the NETWORK within the
day to day business of agencies as a source of data relevant to local reporting or casework; · Generic
enhancement – This driver encompasses capacity building and Recording Schemes and other contributing
organisations and user groups, in order to ensure the continued and enhanced supply and use of
information. These lead naturally to three broad areas of work: · Developing the recording network; ·
Enhancing the Internet Gateway in terms of its functionality and the data it accesses; · Ensuring that the
benefits already secured through the earlier work are maintained. The plan also acknowledges the need to
co-ordinate activity between the members of the NETWORK and their partners, and to communicate the
progress and successes of the work programme.
b) importance of creativity in Business Sol. Creativity
Everyone in business is creative. Some of most creative people are in manufacturing. They actually
CREATE products that change the world.

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Some of the least creative people perhaps are in advertising. They spend most of their creative energy
telling manufacturers that they…aren’t creative! Salespeople Are Creative – They are natural born
story-tellers. Accountants are creative. Best Creative Exercise Ever
Write down your ideas. You have a ton every day. But most of the time, you
can’t remember them by the day’s end. Don’t let spelling and grammar issues
or relentless self-editing stop you. Get your ideas on paper (Let someone else
edit it.) Go retro: Carry a notebook, pen, and calendar into your meetings.
Look up at people.
Story First, Technology Last.
Don’t invest in a presentation class called “How to Use PowerPoint”….…until you’ve taken a class
called “How to Tell Stories and Connect with Your Audience”.
2 A Simple Creative Exercise…
Simplify everything. Your life, your home, your office, your desk, your processes, vision, policy,
procedures. Everything.
Fixing Problems is Creative.
Your job is to fix problems, not to complain. Brainstorming Don’t tell people that their ideas are bad,
especially if you don’t have a better one.
It’s only your life’s work.
Never say, “It’s not my job to be creative.” How to Lose an Audience… · Show your audience slides with
columns of numbers. · Refuse to tell them a story about the meaning of the numbers. · Do not read your
speech or presentation. · Instead, read your audience. How about a Show? Try “giving a performance”
instead of merely “giving a presentation.” Everyone in Sales Knows… · Tell stories. · Don’t just provide
Avoid Meetings.
Do not attend more than two meetings a day, or else you will never get any real creative work done.
Get Fresh Ideas.
Leave the office building at least once a day. Another Lame Excuse… Designers should put more of their
passion into designing great work, instead of endless (boring) discussions about the superiority of the
Macintosh over the PC! The Lame Excuse … “I can’t [write/design/create] because I don’t have the latest
[software/hardware/ upgrade]….” You can’t let a machine take credit for your creativity. And you can’t
blame a machine for your creative failures, either.

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Don’t Blame the Tool! The more you become a master of your particular creative form…. ….the fewer
tools you will use. Master carpenters use fewer tools than novices. So do cooks. Use what works.
Creativity: Use it or Lose it.
Create something every day. Creativity takes place every day, not once in a while. It’s not rare. It’s just
been mystified – Own your creativity.
Facts and observations
Giga-investments made in the paper and pulp industry, in the heavy metal industry and in other base
industries, today face scenarios of slow growth (2-3 % p.a.) in their key markets and a growing over-
capacity in Europe. The energy sector faces growing competition with lower prices and cyclic variations
of demand. Productivity improvements in these industries have slowed down to 1-2 % p.a . Global
financial markets make sure that capital cannot be used non-productively, as its owners are offered other
opportunities and the capital will move (often quite fast) to capture these opportunities. The capital
markets have learned “the American way”, i.e. there is a shareholder dominance among the actors, which
has brought (often quite short-term) shareholder return to the forefront as a key indicator of success,
profitability and productivity. There are lessons learned from the Japanese industry, which point to the
importance of immaterial investments. These lessons show that investments in buildings, production
technology and supporting technology will be enhanced with immaterial investments, and that these are
even more important for re-investments and for gradually growing maintenance investments. The core
products and services produced by giga-investments are enhanced with life-time service, with gradually
more advanced maintenance and financial add-on services. New technology and enhanced technological
innovations will change the life cycle of a gigainvestment. Technology providers are involved throughout
the life cycle of a giga-investment. Giga-investments are large enough to have an impact on the market
for which they are positioned: A 3,00,000 ton paper mill will change the relative competitive positions;
smaller units are no longer cost effective. A new teechnology will redefine the CSF:s for the market.
Customer needs are adjusting to the new possibilities of the giga-investment. The proposition that we can
describe future cash flows as stochastic processes is no longer valid; neither can the impact be expected to
be covered through the stock market.
Types of options
· Option to Defer · Time-to-Build Option · Option to Expand · Growth Options · Option to Contract ·
Option to Shut Down/Produce · Option to Abandon · Option to Alter Input/Output Mix

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Table of Equivalences:

Fuzzy numbers (fuzzy sets) are a way to express the cash flow estimates in a more realistic way. This
means that a solution to both problems (accuracy and flexibility) is a real option model using fuzzy sets.
Self Assessment Questions I State whether the following statements are True or False:
1. The
project’s operating cash flows. S Stock price. Investment costs X Exercise price Length of
time the decision may be deferred. t Time to expiry. Time value of money. rf Risk-free
interest rate Risk of the project. σ Standard deviation of returns on stock

involved in manufacturing actually create products that change the world.

2. In the rapidly changing world of global markets, e-commerce, evolving tele-communications and
internet, the secrets of Complex System evolution offer us a basis on which to reflect on the
management of our businesses.
3. Complex Systems thinking informs us how to achieve a high rate of delivery of new products and
services and rapid adaptation to changing conditions.
4. The creativity and imagination of a business will come from the dynamic interaction of diverse
5. Efficiency of execution must precede imagination and creativity.

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3. What factors are to be taken into account in a crisis communications strategy?(10 marks). Sol.
The following items should be taken into account in the crisis communications strategy: ·
Communications should be timely and honest. · To the extent possible, an audience should hear news
from the organization first. · Communications should provide objective and subjective assessments. · All
employees should be informed at approximately the same time. · Give bad news all at once – do not
sugarcoat it. · Provide opportunity for audiences to ask questions, if possible. · Provide regular updates
and let audiences know when the next update will be issued. · Treat audiences as you would like to be
treated. · Communicate in a manner appropriate to circumstances:
.1 Face-to-face meetings (individual and group)
.2 News conferences
.3 Voice mail/email
.4 Company Intranet and Internet sites
.5 Toll-free hotline
.6 Special newsletter
.7 Announcements using local/national media. Preplanning for communications is critical. Drafts of
message templates, scripts, and statements can be crafted in advance for threats identified in the Risk
Assessment. Procedures to ensure that communications can be distributed at short notice should also be
established, particularly when using resources such as Intranet and Internet sites and toll-free hotlines.

Official Spokesperson
The organization should designate a single primary spokesperson, with back-ups identified, who will
manage/disseminate crisis communications to the media and others. This individual should be trained in
media relations prior to a crisis. All information should be funneled through a single source to assure that
the messages being delivered are consistent. It should be stressed that personnel should be informed
quickly regarding where to refer calls from the media and that only authorized company spokespeople are
authorized to speak to the media. In some situations, an appropriately trained site spokesperson may also
be necessary.

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4. What elements should be included in a Marketing Plan under Due Diligence while seeking
investment in for your Company? (10 marks). Sol. The Process of Due Diligence
A business which wants to attract foreign investments must present a business plan. But a business plan is
the equivalent of a visit card. The introduction is very important – but, once the foreign investor has
expressed interest, a second, more serious, more onerous and more tedious process commences: Due
Diligence. "Due Diligence" is a legal term (borrowed from the securities industry). It means, essentially,
to make sure that all the facts regarding the firm are available and have been independently verified. In
some respects, it is very similar to an audit. All the documents of the firm are assembled and reviewed,
the management is interviewed and a team of financial experts, lawyers and accountants descends on the
firm to analyze it.
First Rule:
The firm must appoint ONE due diligence coordinator. This person interfaces with all outside due
diligence teams. He collects all the materials requested and oversees all the activities which make up the
due diligence process. The firm must have ONE VOICE. Only one person represents the company,
answers questions, makes presentations and serves as a coordinator when the DD teams wish to interview
people connected to the firm.
Second Rule:
Brief your workers. Give them the big picture. Why is the company raising funds, who are the investors,
how will the future of the firm (and their personal future) look if the investor comes in. Both employees
and management must realize that this is a top priority. They must be instructed not to lie. They must
know the DD coordinator and the company’s spokesman in the DD process. The DD is a process which is
more structured than the preparation of a Business Plan. It is confined both in time and in subjects: Legal,
Financial, Technical, Marketing, Controls.
The Marketing Plan
Must include the following elements: · A brief history of the business (to show its track performance and
growth) · Points regarding the political, legal (licences) and competitive environment · A vision of the
business in the future · Products and services and their uses · Comparison of the firm’s products and
services to those of the competitors · Warranties, guarantees and after-sales service · Development of new
products or services · A general overview of the market and market segmentation · Is the market rising or
falling (the trend: past and future) · What customer needs do the products / services satisfy · Which
markets segments do we concentrate on and why · What factors are important in the customer’s decision
to buy (or not to buy) · A list of the direct competitors and a short description of each · The strengths and
weaknesses of the competitors relative to the firm · Missing information regarding the markets, the clients
and the competitors · Planned market research · A sales forecast by product group · The pricing strategy
(how is pricing decided) · Promotion of the sales of the products (including a description of the sales
force, sales-related incentives, sales targets, training of the sales personnel, special offers, dealerships,
telemarketing and sales support). Attach a flow chart of the purchasing process from the moment that the
client is approached by the sales force until he buys the product. · Marketing and advertising campaigns
(including cost estimates) – broken by market and by media · Distribution of the products · A flow chart
describing the receipt of orders, invoicing, shipping. · Customer after-sales service (hotline, support,
maintenance, complaints, upgrades, etc.) · Customer loyalty (example: churn rate and how is it monitored
and controlled).

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Legal Details
· Full name of the firm · Ownership of the firm · Court registration documents · Copies of all protocols of
the Board of Directors and the General Assembly of Shareholders · Signatory rights backed by the
appropriate decisions · The charter (statute) of the firm and other incorporation documents · Copies of
licences granted to the firm · A legal opinion regarding the above licences · A list of lawsuit that were
filed against the firm and that the firm filed against third parties (litigation) plus a list of disputes which
are likely to reach the courts · Legal opinions regarding the possible outcomes of all the lawsuits and
disputes including their potential influence on the firm
Financial Due Diligence
· Last 3 years income statements of the firm or of constituents of the firm, if the firm is the result of a
merger. The statements have to include: · Balance Sheets · Income Statements · Cash Flow statements ·
Audit reports (preferably done according to the International Accounting Standards, or, if the firm is
looking to raise money in the USA, in accordance with FASB) · Cash Flow Projections and the
assumptions underlying them
· Accounting systems used · Methods to price products and services · Payment terms, collections of debts
and ageing of receivables · Introduction of international accounting standards · Monitoring of sales ·
Monitoring of orders and shipments · Keeping of records, filing, archives · Cost accounting system ·
Budgeting and budget monitoring and controls · Internal audits (frequency and procedures)

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· External audits (frequency and procedures) · The banks that the firm is working with: history,
references, balances
Technical Plan
· Description of manufacturing processes (hardware, software, communications, other) · Need for know-
how, technological transfer and licensing required · Suppliers of equipment, software, services (including
offers) · Manpower (skilled and unskilled) · Infrastructure (power, water, etc.) · Transport and
communications (example: satellites, lines, receivers, transmitters) · Raw materials: sources, cost and
quality · Relations with suppliers and support industries · Import restrictions or licensing (where
applicable) · Sites, technical specification · Environmental issues and how they are addressed · Leases,
special arrangements · Integration of new operations into existing ones (protocols, etc.) A successful due
diligence is the key to an eventual investment. This is a process much more serious and important than the
preparation of the Business Plan.

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5. Distinguish between Joint Ventures and Licensing, explaining the relative advantages and
disadvantages of each.(10 marks). Sol. Licensing and Assigning IP rights
One basic choice is whether you should actively exploit your IP rights yourself, or to keep your IP rights
and license them to others to use, or sell or assign the rights to another person. You can, in principle,
make different choices in different countries for exploiting IP rights for the same underlying invention. If
you are based in Malaysia, you could in theory decide to exploit your patent yourself in the East Asian
region, grant a licence a Canadian company to use the invention in North America, and sell or assign the
rights in Europe to a Danish company – whether or not this is the best approach in practice is a different
matter, of course. A licence is a grant of permission made by the patent owner to another to exercise any
specified rights as agreed. Licensing is a good way for an owner to benefit from their work as they retain
ownership of the patented invention while granting permission to others to use it and gaining benefits,
such as financial royalties, from that use. However, it normally requires the owner of the invention to
invest time and resources in monitoring the licensed use, and in maintaining and enforcing the underlying
IP right. The patent right normally includes the right to exclude others from making, using, selling or
importing the patented product, and similar rights concerning patented processes. The license can
therefore cover the use of the patented invention in many different ways. For instance, licences can be
exclusive or non-exclusive. If a patent owner grants a non-exclusive licence to Company A to make and
sell their patented invention in Malaysia, the patent owner would still be able to also grant Company B
another non-exclusive for the same rights and the same time period in Malaysia. In contrast, if a patent
owner granted an exclusive licence to Company A to make and sell the invention in Malaysia, they would
not be able to give a licence to anyone else in Malaysia while the licence with Company A remained in
force. Licenses are normally confined to a particular geographical area – typically, the jurisdiction in
which particular IP rights have effect. You can grant different exclusive licences for different territories at
the same time. For example, a patent owner can grant an exclusive licence to make and sell their patented
invention in Malaysia for the term of the patent, and grant a separate exclusive licence to manufacture and
sell their patented invention in India for the term of the patent. Separate licences can be granted for
different ways of using the same technology. For example, if an inventor creates a new form of
pharmaceutical delivery, she could grant an exclusive licence to one company to use the technology for
an arthritis drug, a separate exclusive licence to another company to use it for relief of cold symptoms,
and a further exclusive licence to a third company to use it for veterinary pharmaceuticals. A licence is
merely the grant of permission to undertake some of the actions covered by intellectual property rights,
and the patent holder retains ownership and control of the basic patent. An assignment of intellectual
property rights is the sale of a patent right, or a share of the patent.

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It should be remembered that the person who makes an invention can be different to the person who owns
the patent rights in that invention. If an inventor assigns their patent rights to someone else they no longer
own those rights. Indeed, they can be in infringement of the patent right if they continue to use it. Patent
licences and assignments of patent rights do not have to cover all patent rights together. Licences are
often limited to specific rights, territories and time periods. For example, a patent owner could
exclusively licence only their importation right to a company for the territory of Indonesia for 12 months.
If an inventor owns patents on the same invention in five different countries, they could assign (or sell)
these patents to five different owners in each of those countries. Portions of a patent right can also be
assigned – so that in order to finance your invention, you might choose to sell a half-share to a
commercial partner. If you assign your rights, you normally lose any possibility of further licensing or
commercially exploiting your intellectual property rights. Therefore, the amount you charge for an
assignment is usually considerably higher than the royalty fee you would charge for a patent licence.
When assigning the rights, you might seek to negotiate a licence from the new owner to ensure that you
can continue to use your invention. For instance, you might negotiate an arrangement that gives you
licence to use the patented invention in the event that you come up with an improvement on your original
invention and this falls within the scope of the assigned patent. Equally, the new owner of the assigned
patent might want to get access to your subsequent improvements on the invention.
Licensing Advantages
• An Inventive Incentive
• "Licensing", tried and true
• Fair and Balanced
• Product Exclusivity
• Inventions of interest to you
• You are free to view our inventions
• An informed business decision
• A production head start
• We are vitally committed to your success
• A resource for future projects

Joint Venture Agreements and Start-up Companies

Rather than simply exploit your IP rights by licensing or assignment, you might choose to set up a new
legal mechanism to exploit your technology. Typically this can be a partnership expressed through a joint
venture agreement or a new corporation, such as a start-up or spin-off company. These options require
much more work on your part than licensing or assigning your intellectual property rights. This could be a
desirable choice in cases where:
•1 you want to keep your institute’s research activities separate from the development and
commercialisation of technology, especially when your institute has a public interest focus or an
educational role; or
•2 you need to attract financial support from those prepared to take a risk with an unproven
technology (‘angel investors’ or ‘venture capitalists’), and they will only take on a long-term risk if they
can get a share of future profits of the technology. In working out the right vehicle for your technology,
you will normally need specific legal advice from a commercial lawyer, preferably one with experience in
technology and

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commercialisation in your jurisdiction. The laws governing partnerships and companies differ
considerably from one country to another, and this discussion is only intended to give a general flavour of
the various options. A joint venture agreement involves a formal, legally binding commitment between
two or more partners to work together on a shared enterprise. It is normally created for a specific purpose
(for example, to commercialise a specific new technology) and for a limited duration. For instance, you
might sign a partnership agreement with a manufacturing company to develop and market a product based
on your invention. Before entering into a joint venture agreement, you need to check out possible
commercial partners and make sure that the objectives of your potential commercial partners are
consistent with your objectives. In the joint venture agreement, the partners typically agree to share the
benefits, as well as the risks and liabilities, in a specified way. But this kind of partnership isn’t normally
able in itself to enter legal commitments, or own IP in its own right, so that the partners remain directly
legally responsible for any losses or other liabilities that the partnership’s operations create. In other
words, a partnership which is not a corporation, a company or a specific institution doesn’t really
separately exist as a legal entity. By contrast, a company is a new legal entity (a ‘legal person’ recognised
by the law as having its own legal identity) which can own and license IP and enter into legal
commitments in its own right. A spin-off company is an independent company created from an existing
legal body – for example, if a research institute decided to turn its licensing division or a particular
laboratory into a separate company. A start-up company is a general term for a new company in its early
stages of development. If a company is defined as a limited liability company, the partners or investors
normally cannot lose more than their investment in the company (but officeholders in the company might
be personally responsible for their actions in the way they manage the company). This separate legal
identity means that a start-up company can be a useful way of developing and commercialising a new
technology based on original research, while keeping the main research effort of an institute focussed on
broader scientific and public objectives, and insulated from the commercial risks and pressures of the
commercialisation process. At the same time, the research institute can benefit from the
commercialisation of its research, through receiving its share of the profits and growth in assets of the
spin-off company, thus strengthening the institute’s capacity to do scientific research. The company is
normally owned through shares (its ‘equity’). These effectively represent a portion of the assets and
entitlement to profits of the company. Investors can purchase shares in the company, which is one way of
bringing in new financial resources to support the development of the technology – in exchange, the
investors stand to benefit from the growth in the company’s worth, as their shares proportionately rise in
value, and to receive a portion of any profits produced by the company’s operations, commensurate with
the number of shares they own. If it is a public company, shares in the company can be bought and sold
on the open stock market. An initial public offering is when the shares in a start up company are first
made available to the public to purchase. A private company’s shares, by contrast, are not traded on the
open market (but can still be bought and sold). The option of starting up your own company to
manufacture and market your patented invention requires you to have business skills, marketing skills,
management skills and substantial capital to draw on for factory premises, hiring staff and so on. But it
also can offer a mechanism for attracting financial backing for research, development and marketing,
which can improve access to the necessary resources and expertise.

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Which model of commercialisation is best for you? Each new technology and associated package of IP
rights is potentially difference, and the mechanism you choose for commercialisation should take into
account the particular features of the technology. One basic consideration is to what extent you, as
originator of the technology, wish to be involved and to invest in the subsequent development of the
technology. You will need to compare the advantages and disadvantages of each model of
commercialisation. Generally speaking, the higher degree of risk and commitment of finance and
resources you can invest, the higher the degree of control you can secure over exploitation of the
technology invention, and the higher the financial return to your institution may be. There are many
possible variations on each of these general models, and in practice they can overlap. In deciding which
model of commercialisation is best for you, it is always a good idea to seek commercial or legal advice.
Remember that IPRs alone do not guarantee you a financial return on your invention. You need to make
good commercial decisions to benefit financially from your intellectual property rights. Properly
managed, intellectual property rights should not be a burden but should yield a return from your hard
work in creating an invention.
Advantages of Joint ventures:
• Provide companies with the opportunity to gain new capacity and expertise
• Allow companies to enter related businesses or new geographic markets or gain new
technological knowledge
• access to greater resources, including specialised staff and technology
• sharing of risks with a venture partner
• Joint ventures can be flexible. For example, a joint venture can have a limited life span and only
cover part of what you do, thus limiting both your commitment and the business' exposure.
• In the era of divestiture and consolidation, JV’s offer a creative way for companies to exit from
non-core businesses.

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• Companies can gradually separate a business from the rest of the organisation, and eventually,
sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one partner to the

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• 6. You wish to commercialize your invention. What factors would you weigh in choosing an
appropriate course? (10 marks). Sol. Following are the ways to commercialize my invention.
Licensing and Assignment - Defined The difference between licensing and selling your invention is
comparable to leasing vs. selling house. When you sell your house, you transfer your title, making
someone else in charge of and liable for the house from that point on. When you sell your invention, the
scenario is the same, except that the process is called “assigning” rather than selling. You, the inventor
would be the “assignor” and the person receiving the title or ownership of the patent would be the
“assignee.” Instead of selling, though, you may choose to rent out your house. In this case, you retain the
title to the house and give someone permission to use it for a limited period of time. In consideration for
this, they pay you on a monthly, yearly or other basis. The terms of this lease are entirely up to you and
the person leasing your house. It is up to you to negotiate within the boundaries of the law. When you
license an invention, it’s nearly the same as leasing. You’re offering a manufacturer, for example, the
right to manufacture and sell your invention for a period of time, and in consideration for this they pay
you on a quarterly basis. In this case you are the “licensor” and the company is the “licensee.” It is up to
the parties to negotiate the terms of the license within the boundaries of antitrust laws and other
regulations that would affect licenses and similar business arrangements. Should I Sell or License? You
will generally have a better chance of licensing your invention instead of assigning (selling) your rights
for two reasons: First, it is initially hard to ascertain what the eventual value of an invention will be. This
will almost invariably result in a win/lose situation. If the value is estimated high, the inventor wins and
the company loses. On the other hand, if the estimates are low, the inventor loses out. Second, companies
don’t like to pay cash up front unless they absolutely have to. Generally, when a company makes a
commitment to manufacture and promote an invention, they are already anticipating a substantial
financial commitment for tooling, manufacturing setup, engineering expenses, advance purchases of raw
materials, marketing, and promotional expenses. A company that is savvy with licensing negotiations will
state that the more money they pay the inventor up front, the fewer resources they will have available to
put into the promotion. This is a hard point to argue against, particularly if you’re interested in the long-
range commercial success of your invention. At this point, Inventors have often already incurred
substantial initial expenses for patenting, prototyping and research, and need to be reimbursed as soon as
possible. Therefore, the inventor can argue that the potential licensees should at least reimburse them for
these out-of-pocket expenses. After all, these are expenses the company would have normally paid if they
had developed such a product on their own. At that point, the company may very well come back to the
table and agree to reimburse you for such initial expenses. However, they may want to make it an
advance against future royalties. Bear in mind that all negotiations are unique and this is just an example.
When you assign (sell) your invention, you will typically lose control of it. Although you may have cash
in hand from the sale of your invention, the company has the prerogative to ditch your technology and
simply “sit on it” unless you’ve made other arrangements. In some cases it is just as important to the
inventor to see his invention commercialized as it is to receive the cash from it. Having an invention
commercialized can give an inventor a substantial head start in attracting interest in his additional
inventions. This may eventually be worth more to an inventor than the initial cash he would receive from
his first commercialized invention. Should I Go It Alone? Some inventors prefer to keep their inventions
close and go into business for themselves, which comes with its own set of risks and rewards. There are
several different elements at play during the commercialization of an invention: the company, the
management, the technology, the market, and the marketing team. Each of these is a variable. The more
variables you introduce, the greater the risk of failure. If you start with a new company under new
management with a new product, your chance of success is obviously much slimmer than an existing
company already in the field with experience and knowledge in a similar product line. Even when you
look at an experienced company like 3-M, which brings many new products to market, you’ll find that the
company’s new products fail often. With all its resources, 3-M’s success rate is said to be only 30%.

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Unless you have greater resources, your success rate may be even less. Because there are significant
startup risks, it’s important to seriously investigate the distinct advantages of having your invention
introduced by an existing company with experience in your field can promote your product effectively
and already has a skilled sales force with an existing client base. These factors can greatly reduce the
amount of time it takes to introduce your invention to the marketplace. What you lose in control when
you license can be gained tenfold from a timing standpoint, and in reducing your risk. Licensing offers
another strong advantage when it is time to sell your manufactured invention to customers. Manufacturers
who introduce only one invention or a very small product line often have a hard time selling to large
accounts. Large retail outlets prefer to deal with companies where they can do one-stop shopping. Buyers
(or purchasing agents) for the big outlets want to reduce the number of bills they get and the number of
vendors they see each week. This is why the introduction of a new invention to retailers by a new
company is particularly challenging. Licensing also has advantages over starting your own company
because few products have an unlimited life cycle. In time, your invention may be replaced by new
technology. What will your company sell then? Most single-item companies that are still around after five
years have done so by introducing new products and expanding their product line. Companies need new
products to survive. Sometimes starting your own company is the only way to go. If you’ve attempted the
licensing route and no manufacturer is interested in your invention at its current stage of development,
you may need to do a small market test with a limited production run to prove your invention has sales
potential. Then if your sales results are positive, you may pique the interest of a potential licensee who
can take your invention to the next step. It is easy to get ‘upside down’ financially with invention
projects. This is especially true since inventors have a tendency to overestimate the ultimate value of their
inventions. Get some realistic market research as early in the game as possible. If you find that you must
make a substantial investment to actually manufacture an invention to prove its commercial viability and
to interest potential licensees, keep careful track of your expenses and constantly weigh these expenses
against any royalty potential that may result. There are too many sad stories of inventors pouring money
into inventions that can never provide a return on their investment. Inventors always take a risk when they
spend time and money on an idea and if they’re lucky, it’ll pay off quite well. The lesson is to minimize
your risks so you can bail out or put the project on hold if warranted. It will save you time, money, and
the personal energy you’ll need for future successes.