STRATEGIC MANAGEMENT

MIDTERM EXAMINATION

1. Explain using examples the importance of strategic management and its triggering factors.

Strategic management is defined by Smith (1991) as the way toward looking at both present
and future situations, planning the organization’s targets, and making, actualizing, and controlling
choices concentrated on accomplishing these goals in the present and future conditions. Its two-fold
objective is to gain competitive advantage to achieve dominance in the market and to act as a guide to
the organization to help surviving the changes in the business environment. Importance of strategic
management includes helping the organization move in a specific direction. It defines an
organization’s goals and fixes realistic objectives, which are in alignment with the company’s
vision. As an example, different opportunities are available in the organization to enter different
product markets. Strategic management helps in assessing the options available and determining the
best product market to pursue considering the mission, vision and could best assist in obtaining the
overall objectives of the firm. Strategic management also assists the firm in becoming proactive,
rather than reactive, to make it analyze the actions of the competitors and take necessary steps to
compete in the market, instead of becoming spectators. In order to obtain a competitive edge in the
market which the organization operates, analysis should be made to determine the actions of the
players in the market, whether a competitor plans to expand or venture into new territory, develop
new product lines for differentiation, or consider retrenchment of their operations. Actions of
competitors, including the industry’s customers and suppliers should be considered in developing
strategies for the company. Strategic management also attempts to prepare the organization for
future challenges and play the role of pioneer in exploring opportunities and also helps in identifying
ways to reach those opportunities. Aside from the actions of the market, the overall macroeconomic
environment could present additional opportunities and threats to the organization. For bank
organizations, government regulations and overall condition of the economy play a crucial part in the
decisions to be made by the management. Lastly, strategic management assists in the development
of core competencies and competitive advantage that helps in the business survival and growth.
Internal capabilities of the organization are the most important aspect in formulating strategies. It
determines what are the current strengths and weaknesses of the company. For a manufacturing
company, managers should assess the productivity levels of the supply chain and support processes,
and analyze on what areas improvements should be made. Development of appropriate strategies
creates value for the company, thus obtaining sustained-strategic competitiveness.
GOLDEN CAPSULES, INC.
 2. Describe with analysis the external and internal factors evaluation using the appropriate model
or tool

SWOT Analysis with Internal and External Factors Evaluation

Golden Capsules, during 1992, is experiencing difficulty in securing contracts with Super
Drugs, a major purchaser of empty capsules in the Philippines, leading to losses in the company. A
restructuring has been made to provide the company one last chance to obtain a significant market
share in the industry. Management changes have also been made in order to perform needed
improvements in the company and avoid further building up losses. The company has been committed
in providing fast and reliable delivery of its products, and competitive pricing schemes (special prices
and discounts) for different kinds of customers. The new management also effected some changes in
the company. Weekly meetings were conducted in order to gain updates from the entire team on the
production status. Incentives were also provided to employees for meeting set levels of reduced
production cost. However, the company has no significant marketing strategy during the transition
stage, and fails to consider its position in the market – a new and unknown company, with relatively
low brand awareness during its first years. Contacts with its target customer, Super Drugs, are also
limited to managers with no decision-making authority in purchasing capsules. Internal factors of
Golden Capsules, as determined and evaluated, interpret an average position for the company.
Internal factor evaluation of Golden Capsules is presented on the table below:
 On the other hand, the competition for the empty gelatin capsules is considered high due to
the presence of Panacaps, holding 40% of the market, and has an extensive marketing, customer and
distribution network. This makes them the main competitor of Golden Capsules. The market for the
capsules include: (1) local drug manufacturers who are active bidders for government tenders, (2)
Super Drugs, and (3) multinational companies from different countries. The Werner group, which has
98% equity interest in Golden Capsules, has reputation and contacts with different manufacturing
and distribution companies which can be utilized by the Golden Capsules. Alternative source of high
quality capsules needed by multinationals, and proposing for a just-in-time supply can open
opportunities for the company. Customers, however, perceive that locally made capsules are inferior
than imported ones. Duty rates for the finished capsules have also been reduced, allowing customers
to import at a higher volume. Chua and Co, did not extend its exclusive arrangement with Golden
Capsules, forcing the company to offer incentive schemes to Chua and Co to encourage volume
purchases. Based on the evaluation of the external factors identified for the company, it is determined
that Golden Capsules have below average ability to respond in the external factors surrounding them.
The external factors for Golden Capsules, and its evaluation, are presented on the table below:
 3. What would be your recommended direction and why?

SWOT Matrix and Strategy Selection

Based on the future directions available for Golden Capsules, the most suitable option, which
can maximize the company’s internal and external factors and formulated strategies, is to invest on
pinbars that would allow the company to produce new sizes of capsules that are inquired by
export customers. Considering that the empty gelatin capsule industry is a large market, generic
strategies applicable according to Porter’s model, is to have Cost Leadership or Differentiation
strategies. However, for Golden Capsules, it is necessary to take advantage of the opportunity of export
inquiries for these products. If the company can meet all the orders from these customers, 12% of the
total market for the empty gelatin capsules will be captured by the company. Also, these orders can
also serve as the starting line for the company in venturing deeper into the multinational company
sector of the market, aiming as high as 30-40% export sales from the current 14%. Being able to
participate in the international market for the product would be beneficial in the long-term success of
the company. With the company’s commitment towards fast and reliable delivery of products and an
aggressive pricing scheme, it has the potential to meet the required specifications of multinational
customers. This direction would be the best option in taking advantage of the opportunities available
in the market, while countering the threats. In addition, the strategy would require a third hard
capsule machine and plant expansion of 50% to produce 900 million capsules. This would benefit the
company in the long-term due to further obtaining economies of scale leading to decrease in average
total cost per unit of production and increase in gross margin for the product. Significant investments
in terms of financial capital and human resource are necessary; thus, requiring the company to
perform significant amount of analysis and feasibility studies to optimize the resources available or
acquire additional funds from investors and/or creditors. Marketing promotional efforts, however,
should also be prioritized and continued to protect existing market share in the local industry.
Additional promotional efforts such as advertising through printed media (magazines, newspapers,
etc.) could be explored by the company to further expand awareness to potential local customers.
Lastly, promotions should also highlight the technology employed by the company that can produce
high quality capsules at par or above the quality from imported ones.
SWOT Matrix, with the corresponding strategy formulation from internal and external factors,
are presented on the table below.