INSTITUTE OF ACCOUNTANCY

ARUSHA(IAA- DAR CAMPUS

[DIRECTORATE OF POST GRADUATE STUDIES]

MODULE NAME:OPERATIONS MANAGEMENT

MODULE CODE:PSG 09102

PROGRAMME: MBA – (PSM, ITM & GENERAL)

TOPIC TWO:
DESIGNING BUSINESS OPERATIONS
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 Aspects to be
Covered:
a. Introduction to concept of
strategy, Operations Strategy,
and competition
b. Scanning the
Environment business
. the of
c. operations
Evaluating imp
strategy act firms
competitiveness on ’
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Cont.…
d. Analyzing Competitive
priorities of the firms operations
e. Analyze the Global operations

strategy
f. Practice of Global operations
strategy
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 Introduction:Operations
strategy:
Organizations produce goods and
services for sale into the
international and local markets
making the world very competitive.
o Within the organization inputs are
converted via operations to get
the output which is finally
absorbed by the environment.
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.Generally:

o The world has become a very

competitive place, making it very
difficult for firms to exist and
grow.
o The positions in companies are
perpetually changing, sometimes
very fast & drastically.
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. Many companies are disappearing
from the business scene while new
companies are making an
entrance because of dynamism in
the environment.
 Even MNC’s with turnovers bigger
than the GDPs of most developing
nations are passing through periods
of huge losses.
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 Cont…

 As the business environment

changes, companies need to
change the vision, objectives
,structure, portfolio of
business,
markets and competitive
strategies

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Cont.…

One of the competitive strategy is

the “operations strategy” as part of
functional strategy.
 Operations strategy support the
overall business or corporate
strategy and it is crucial for
competitiveness and success.
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Cont..

Operations strategy is an aspect

of operations management that
is concerned with long term
planning for a company’s
customer service and business
strategies.

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 Cont..
• The role of operations strategy is to
provide a plan for the operations
function so that it can make the
best use of its resources.
• Operations strategy specifies the
policies and plans for using the
organization's resources to support
its long-term competitive strategy.
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Cont..

•
Operational strategies focus on the goals
and aspirations of the company, as well
as the actual plans for getting the
business to achieve their goals.
• These strategies are tasked with
ensuring that proper processes and
technology are in place to support the
business in reaching its goals.

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 Cont.….

Hence, Operational strategy is the

total pattern of decisions and
actions which shape the long term
capabilities of the firm and
contribution to the overall
strategy.

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Cont.…
 Operations strategy has long
term concern for how best to
determine and develop firms’
major operations resources so
that there is a high degree of
compatibility between these
resources and the business
strategy.
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 1

Cont.
1

…
 Generally organizations needs
for its and
strategies competitive
growth the
attaining
advantage from production
process up when the product or
service reach the market.

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Cont..

Strategy is a long-term course of action

through which an organization relates
itself with the environment so as to
achieve its objectives and attain a
competitive advantage.
 It is a comprehensive master plan stating
how the corporation will achieve its mission
and objectives.
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Cont.…
According to Glueck strategy is a:
“….…unified, comprehensive and
integrated plan relating the
strategic advantages of the firm
to the challenges of the
environment”.

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Cont….

Chandler defines it as:

 “…the determination of the long-
term goals & objectives of an
enterprise & adoption of course of
action & allocation of resources
so as to achieve these goals”.
(Competitive advantage)
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Cont…

 Competitive advantage; firms

A
resources and capabilities that
enable it to overcome
competitive forces in its industry.
Therefore, A strategy refers to the
ideas, decisions, and actions that
enable a firm to succeed.
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 Cont.….
 Without a strong operations
strategy, companies fail to keep
up with changing markets and
lose out to more strategic
competitors.

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Formulating/Designing the
Operations strategy
 Operations Strategy
formulation begins with
situation analysis.
 i.e. the process of finding a fit
between external opportunities &
internal strengths while working
around external threats & internal
weaknesses.
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Cont.…

In designing or formulating successful

operations strategy, the organization must
take into account both Order Winners and
Order Qualifiers.
 Order Qualifiers are characteristics that
consumers perceive as minimum standards of
acceptability to be considered as a potential for
purchase.
 Order Winners are characteristics of
organization’s good and services that cause it to be
perceived as better than that of the competitor.
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Cont.…
• An order qualifier is the
characteristic/attribute of the
particular product or service that is
required for the product or service to

be considered by the customer.

• Order winners, however, are the 'winning'
attributes that lead to customers
buying a product. ... As customers'
expectations are continuously increasing,
today's order winner becomes tomorrow's
order qualifier.
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 Cont….

. Order:
1. Environmental 2. • Winner
Scanning Strategy • Qualifiers
Formulation

4. Evaluation 3. Strategy
& Control Implementation

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A. strategy is divided into three levels
These are:-
i. Corporate level strategy-The strategy
which give the overall direction of
ii the firm level strategy-The strategy which
Business
. detail how the firm will compete in the
market and gain competitive advantage
iii. Functional level strategy-The approach a
functional area takes to achieve corporate
and business unit objectives and strategies
by maximizing resource productivity.

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Generally,Functional strategy includes:

 Marketing strategy
 Operations strategy
 Financing strategy
 HR strategy
 R&D strategy
 Operations strategy specifies how the firm will
employ its operations capabilities to support the
business strategy.
25
 Cont.….
The core operational strategy areas
includes:
i. Corporate: Overall company
strategy, driving the
mission
c ompany and interconnected
departments. E.g increase
organization
size
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 Cont.…
ii. Customer Driven: Operational
strategies to meet the needs of
the targeted customer
segment.Eg More products
iii Core competencies: Strategies
. to develop the company’s
strengths
key and resources.
e.g increase in production
capacity
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27
Cont.…
iv. Competitive Priorities: Strategies that
differentiate the company in the market
to better provide a desired product or
service e.g quality, cost advantage, delivery speed
etc.
 Competitive Priorities are capabilities that
Operations function can develop in order to
give a company competitive advantage in its
market.

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 Cont.….
 The firm wil implement
operations strategy
l its in
environmen which businessalways
t changing. is

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Hence
 In business world, before an
organization design and evaluate
the impact of operations strategy
to firms’competitiveness,it should
analyze the business environment
in which the firm operates or
expect to operate.

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Scanning the Business Environment

 Business Environment means a

collection of all individuals,
entities and other factors, which
may or may not be under the
control of the organization, but
can affect its performance,
profitability, growth and even
survival.
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 Cont…
 Ever busines organization
operates
y s in a distinctive
environment, as it cannot exist in
isolation. Such an environment
influence business and also gets
affected by its activities.

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Why Business Environment Analysis?
i. It allows a business organization to
understand better trends, changes and
drivers that may impact the business
organization
ii. It enables the firm to identify
opportunities and get the first mover
advantage
iii.It helps the firm to identify threats
and
early warning signals 33
.
iv. It helps in taping useful
resources
v. It assist the firm in planning and policy
formulation.
vi.It helps in improving performance

vii.Helps in developing effective

strategies to cope with changes in
target market. (Proactive than
Reactive)
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Components of Business
Environment

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 The Business/marketing environment
Macro-environment
Legal
Micro-
Natural environment
environment
Customers
Suppliers Economic

Demographic Company
Interest
Distributors groups
Political

Competitors

Social/Cultural
Technological
Internal-
environment
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 Cont…
Internal environment are factors
and forces within the organization
that influences its long-run and
short-run profitability ,success ,
survival and sustainability.
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 Cont…
 The purpose of environmental
scanning is to identify strategic
factors that will determine the
future of an organization.

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 Framework for analyzing
Business environment
 An environmental scan is done
using a SWOT analysis as one of
the three methods.

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S-Strength
(Internal)
A strength can be a skill, resource,
asset or other conditions possessed
by the company which gives power
or competitive edge over rival
companies.E.g.
 Management skills or competencies

 Adequate resources i.e. financial,

human,
assets etc.
 W-
Weakness(Internal)
o These are situations, conditions or
materials which gives a company a
disadvantage position in the
industry or business in which it
operates.
E.g. Lack of clear strategic direction
- Lag behind in R&D or technological changes
- Lack of qualified and competent staff e.tc
41
O-Opportunity(External)
o An opportunity - any attractive
event, trend, or situation in which
the company would enjoy benefit
by pursuing it .

42
 Cont.….
E.g.
oA market vacated by
ineffective competitors
oEmergence of new and
useful technology
oGovernment regulations or policies
favorable to businesses

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 T-Threat(External)
o A threat - is a challenge
posed by unfavorable trend or
development in the
environment
that would lead to the
decline/erosion the
of company’s position.

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 Cont.…..
E.g.
i. Entry of a new in
competitor market your
segment
ii. Rising sales of substitute products
iii.Changing buyers’ needs and
preferences

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 A SWOT
Framework
Strengths 1. Weaknesses 1.
Internal

2. 2.

3. 3.

Opportunities Threats
1. 1.
External

2. 2.

3. 3.

42
 Cont.…
The TOWS matrix can be used
as an alternative approach to
SWOT.
 The TOWS matrix shows
how external
can opportunities
be matched &
with
threats
company’s strength
weaknesses. s a

&
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TOWS Matrix can be interpreted
as a framework to assess,
create, compare, and finally
decide upon the business
strategies.

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 Generating alternative strategies using
a TOWS matrix
.
IFAS
Strengths (S) Weaknesses (W)
EFAS

SO WO
Opportunities (O)
(Maxi – Maxi) (Min – Maxi)

ST
WT
Threats (T) (Maxi – Min)
(Min – Min)

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 The aim of a Maxi-Maxi Strategy is to utilize internal strengths to
make optimum use of the external opportunities available to the
company.
The aim of a Maxi-Mini strategy is to maximize the strengths of a
company while minimizing the threats with the support of these
strengths.
The Mini-Maxi strategy attempts to minimize the weaknesses
and to maximize the opportunities. The aim is to revamp internal
weaknesses by making use of external opportunities.

The aim of the Mini-Mini strategy is to minimize weaknesses and

minimize threats. This is definitely the most defensive spot in
the TOWS Matrix. It is mostly utilized when a company is in a
deplorable position.

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 Cont.…
Other method of
scanning includesenvironmental
i. PESTEL Analysis - Macro
environmental or societal
forces)
ii. Michael Porter’s Five Forces for
competitive analysis-
Task environment
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 Cont..
 Analysts look within
corporation
must itself
the to identify
internal strategic factors – those
critical strengths and
weaknesses that are likely to
determine if the firm will be
able to take advantage of
opportunities while avoiding
threats.
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 Cont.…
 This scanning is
internal often as
analysis and isorganizational
referred concerned with
identifying and developing an
to
organization’s resources.

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A resource is an asset,
competency, process, skill or
knowledge that is controlled by the
organization.
 A resource is a strength if it
provides an organization with a
competitive advantage.
 It is something that the
organization can do particularly
well.
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E.g.
: i. Valuable competencies or know-
how
ii. Valuable physical assets
iii.Valuable human assets
iv. Valuable intangible assets-
e.g. “Image”
v. Important
competitive
capabilities
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vi. An attribute that places
an organization in a position
of competitive advantage

vii.Alliances with capable

partners
 Cont.…
A resource is a weakness if it
something the organization
is does
poorly or does not have the
capacity to do although
other organizations have that
capacity.
E.g.:
 Deficiencies in know-
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Cont.…
 Lack of physical,
important
organizational, intangibl
or assets.
 Missing e
capabilities in key
areas.

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 .

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 .
Barney proposes 4 questions that
evaluate
help an organizations
resources key
: Does it provide an
1. Value: advantage?
2. Do others possess
added
Rareness: it?
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 Cont.…..
3. Imitability: Is it costly
to imitate?
4. Organization: Is the
organization organized to
exploit it?

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 Cont..

 If the answer to these questions

is ‘yes’, for a particular resource,
that resource is considered a
strength and a distinctive
competence.
o Distinctive competencies are
capabilities which superior to
those of competitors.
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Cont..
To ascertain if these resources are
internal strategic factors it is
important to compare the measures
of these resources with:
 The past performance of the
firm
 The firm’s key competitors
 The industry as a whole
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 Cont..
 If a resource e.g. firm’s financial
situation is significantly different
from the firm’s past, key
competitors or the industry’s
average, the resource is likely to
be a strategic factor & should
be considered in strategic
decisions.
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Identifying what the organization does
best helps in determining a firm’s
core capabilities.
 A core capability or core
competence is what the company
is best at doing that others cannot
do.
 When these capabilities
are superior those of
to
they are competitors
called
competencies. distinctive
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Cont..
Core capabilities are described in
terms of:
 Customer benefit
 Competitive advantage
 Individual skills
and technologies

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Cont.…
Grant proposes a 5 step,
resource based approach to
strategy analysis:
1. Identify and classify the
organization’s resources in terms
of strengths and weaknesses.
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 Cont..
2. Combine the strength
organization’s into specific s
capabilities or –distinctive capabilities
corporate

3. Appraise the profit potential of these

resources and capabilities in terms of
their potential for sustainability.

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Cont.….

4. Select the strategy that best

exploits the firm’s and
capabilities resources
relative to
external opportunities.
5. Identifyresource gaps and
invest in upgrading weaknesses.

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 Determining the sustainability of
an
advantage

 Just because a firm is able to

use its resources and
ca pabilities to develop
competitive advantage does
not mean it will be able to
sustain it.
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Cont.….
Two characteristics determine the
sustainability of a firm’s distinctive
competency:
 Durability
 Imitability

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Cont.…
Durability:
This is the rate at which a firm’s
underlying resources & capabilities
(core competencies)
depreciate or become obsolete.
E.g. new technology can make a
company’s competency obsolete
or irrelevant.
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Cont …
 E.G Intel’s skills in using basic
technology developed by others to
manufacture & market quality
microprocessors was a crucial
capability until management realized
that the firm had taken current
technology as far as possible with the
Pentium Chip.
 Without basic R&D of its own, it would
slowly lose its competitive advantage to
others.
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 Cont.…
Imitability:
 Thisis the rate at which a
firms
underlying and
resources capabilities
competencies)
(core be duplicated by others
can
(reverse engineering, hiring
employees from the competitors,
patent infringement).

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 Cont..
A core competency can be
imitated if is:
 Transparent – the speed with
which other firms can
understand the relationship of
resources and capabilities
supporting a firms strategies.

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E.g.:

Gillette has always supported its

dominance in the marketing of
razors with excellent R&D.

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Cont..
A competitor would
never understand how the Sensor
of Mach
3 razor was produced by
simply taking one apart.
Why?
o Because the manufacturing
equipment needed to produce
it
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Cont..
Transferability – the ability of a
competitor to gather the resources and
capabilities necessary to support a
competitive challenge.
 E.g. it may be difficult for a wine
maker to duplicate a French winery’s
key resources of land & climate
especially if the imitator is located in
Tanzania.
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 Cont..
Replicability – the
competitors ability of to use
resources and capabilities
duplicated
to imitate another firms success.

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 Cont..
E.g. Many companies have tried to
imitate P&G success with brand
management by hiring brand managers
away from P&G.
 However they have been unsuccessful
because they failed to identify the LESS
visible P&G coordination mechanisms
or to realize that P&G managing style
conflicted with their own corporate
culture.
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 Cont…
 It is relatively easy to
another company’s
imitate core
capability if it comes from
explicit knowledge.
 That is knowledge that ca n
easily articulated be
communicated and
.
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Cont.….
 In contrast, tacit knowledge
cannot be easily communicated
it is deeply rooted in employee
because
experience or in a corporations
culture.

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 An Analysis of Internal Environment

This section takes a closer look at

some of the internal factors that
may influence an organizations
strategic position.
o Generally the
internal environment is divided
into two categories as follows:

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 Cont…
1. Corporate/ Factors:
These are non-marketing internal
Business
factors such as culture,
structures, resources, mission and
objectives of the firm.

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Cont.…..
o Other factors are
functional in natur
business and
include; eand engineering
they
R&D
factors, production and
operations management factors,
finance and accounting factors,
human resources and personnel
factors
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Cont.…..
2. Factors- includ
marketing These
Marketing aspects which
e an
organization can control and
enable it to compete effectively.
These include:
o Market Segmentation
o Market targeting and
Positioning
o Products and Pricing
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Cont.…
 All these variables of the internal
environment form an area in
which the organization can
exercise greatest control.

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 1. Corporate Value
Chain
The position of a firm’s product in
the overall value chain:
 A value chain is a linked set of value-
creating activities:
 Sourcing raw materials from
suppliers.
 Engaging in value-added activities in
(production & marketing).
 Distributing the product to
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the final
Value chain for a manufactured
product

.
Raw Primary Fabrication
materials manufacturing

Product
Retailer Distributor
producer

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 Cont…
According to Michael Porter, each
corporation has its own internal
value chain of activities.
E.g. a manufacturing firm’s primary activities
range from:
i. Inbound logistics (Raw material
handling & warehousing)

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Cont.….

ii. Manufacturing of the product

iii.Outbound
logistics (warehousing &
distribution)
iv. Marketing & sales
v. Service (repairs
& maintenance & sale of
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There would however be
support
se.rvices to ensure that the
value-chain activities operate
primary
effectively & efficiently.
e.g.:
 Procurement (purchasing)
 Technology development (R&D)
 HRM
 Finance, accounting &
strategic
plan
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 Cont…

 The systematic examination of

individual value activities leads
to better understanding of a
corporations strengths &
weaknesses.
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Cont.…
Corporate value-chain analysis involves
3 steps:
1. Examine each product line’s
value in terms of various
activities
producinginvolved
the in
product. be considered
 Which activities
 ca
Donany
strengths?
of the strengths provide
competitive advantage?

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 Cont…
2. Examine the linkages within each
product line’s value chain.
 Linkages are the connections between the
way one value activity (e.g. marketing) is
performed and the cost of performing
another activity (e.g. quality).

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 Cont..

E.g.:
 Quality inspection of 100% of
output by the workers instead of
the usual 10% by quality control
inspectors.
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 Cont…
o Although this may increase the cost of
production, this increase can be more
than offset by the savings obtained from
reducing the number of repair people
needed to fix defective products &
increasing the amount of salespeople’s
time devoted to selling instead of
exchanging already-sold, but defective
products.

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 Cont…
3. Examine the potential synergies
among the value chains of
different product lines or business
units.
 E.g. economies of scope where
separate products can share activities
(e.g. marketing channels or
manufacturing facilities).

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2. Corporate
Culture
Corporate culture is the collection
of beliefs, expectations and
values learned & shared by a
corporations members and
transmitted from one generation
to another.

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Cont…

 It reflects the values of

the founders & the mission of
the firm.
 It gives the firm a sense of
identity
– this is who we are & what we
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Cont..

The culture includes the dominant

orientation of the company – e.g.
customer care, quality, R&D.
 It includes a number of informal
work rules.

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 Cont…
Corporate culture has 2 distinct
attributes:
 Culture intensity: the degree to which
members of a unit accept the norms &
values – reflects culture depth.
 Culture integration: the extent to which
units throughout an organization share
a common culture – reflects culture
breadth.
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 Cont…
Corporate culture fulfill several
functions: s
i. Conveys a sense of identity
for employees
ii. Helps generate employee commitment
iii. Adds to the stability of the organization
as a social system
iv. Serves as a frame of reference
for employees
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Cont.…

 Thus corporate culture shapes

the
, of people in a
behavior
corporation.
A strong culture promotes
survival as well as a basis for
superior competitive positioning.

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 3. Strategic Marketing
Issues
The marketing manager is the
company’s primary link to the
customer & the competition.
 Thus, the manager must be
concerned with the marketing
position & marketing mix of the
firm.

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Cont…

Marketing position and segmentation:

 Market position deals with the question:
“Who are our customers?”
 It refers to the selection of specific
areas for marketing concentration & is
expressed in terms of market, product &
geographical location.
 Market segmentation means dividing
the total market into small market
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Cont…

 Market segmentation also refers to the

development of market niches & new
products so that a company’s products
do not directly compete with one
another.

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Cont..
Marketing mix:
This refers to the particular
combinations of key variables under
a firms control that can be used to
affect demand & gain a
competitive advantage.
 Product, Place, Promotion and
Price(4P’s of the marketing mix)

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 Cont.…
PRODUCT PLACE ROMOTION PRICE

 Quality  Channel  Advertising o List Price

 Features  Coverage  Personal o Discounts

Selling
 Options  Locations  Sales o Allowances
promotion
 Brand  Inventory  Publicity o Payment
Name periods
 Packaging  Transport o Credit terms

 Size

 Warranties
Cont.…
Product Life Cycle(PLC):
The product life cycle is a graph
showing time plotted against sales of
a product as it moves from
introduction to growth , maturity
and finally decline.
 Kotler (2003) : Defined a product as anything
that can be offered to a market for attention,
acquisition,
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u se or consumption.
Cont.…..
Sales Product Life Cycle

Introduction Growth Maturity Decline Time

Cont.….
PLC is a graphic depiction of a
product sales and profitability history
from its introduction in the market to
its withdrawal.
 This concept enables a marketing
manager to examine the marketing
mix of a particular product in terms
of its position in the life cycle.
11/20/2023
 4. Strategic Financial Issues:

 The financial manager must

ascertain the best sources of
funds, use of funds & control of
funds.

11/20/2023
 Cont…
i. Financial leverage:
 This is the ratio of total debt
to total asses.
 A high leverage may be
perceived as a firms strength (if
the firm is in a stable
environment).
11/20/2023
 Cont..
ii. Capital budgeting:
o This involves analyzing & ranking
possible investments in fixed assets
(buildings, land, equipment) using
a given hurdle rate (years to pay
back investment, rate of return,
time to break-even).

11/20/2023
5.Strategic R&D issues:

 The R&D manager is responsible

for suggesting & implementing
a company’s technological
strategy.

11/20/2023
 .i. R&D intensity:
Measures a company’s spending on
R&D as a % of sales revenue.
Simply spending money on R&D
will not ensure attaining a
competitive advantage.
A company’s R&D unit is
evaluated on the basis of
technological competence.

11/20/2023
Cont…

 That is a company should

be proficient in managing
personnel &
research integrating
innovation their in its
s day-to-day
operations.
11/20/2023
Cont.…
ii. Technological discontinuity:
 The R&D manager must also
be able to determine when
to abandon present
technology, develop or adopt
new technology.
 This is key to competitiveness.

11/20/2023
 Cont…..
Technological discontinuity
Product performance

Old technology New technology

Research Expenditure
11/20/2023
 6. Strategic HRM
issues:
The HRM needs to how
improve
know the match between to
individuals & jobs in order for HR to be
a strength.
 A corporation must know the kinds
of people it employs & the skills
they posses

11/20/2023
 Cont….
 A corporation als
conduct frequent attitude
must o
surveys & feedback devices to
assess employees’ satisfaction
with their jobs & with the
corporation.

11/20/2023
 Cont…

 HRM need to be aware of work

options such as part-time work,
job sharing, flex-time, extended
leaves, contract work & proper
use of teams.
11/20/2023
Cont.….
In the international markets,HRM
need to understand different IHRM
approaches:
o Ethnocentric: key positions filled
by nationals of parent company
o Polycentric: host country
nationals recruited to
manage subsidiary in
their own country
11/20/2023
IHRM
approaches

o Geocentric: Best people recruited,

whatever their nationality
o Regiocentric: Best people
recruited within region in which
the subsidiary operates (e.g. EU,
USA).

11/20/2023
7. Strategic Information Systems
Issues
Strategic information
A current systems
trend in issues:
corporation
information systems is the increasing
use of:
o The internet for marketing
o Intranets for
internal communication
o Extranets for logistics &
distributions
11/20/2023
 The Strategic Audit using IFAS
Table
After strategists have scanned the
internal
organizationand identified factors, they
summarize this information using an
Table. IFA
 This table is built in the same way asS
the EFAS Table.

11/20/2023
Table :
Weighted
Internal Factors Weight Rating Score Comments
(1) (2) (3) (4) (5)

Strengths:
Good information systems 0.30 3.0 0.90 Easy
(extranet) communication
 Vertical integration Access to
0.05 1.0 0.05
 Experienced employees
0.20 2.0 0.40 market
Skills
Weaknesses:
 Financial position
0.15 1.0 0.15
 Poor R&D High debt load
0.10 2.0 0.20
 Global positioning No new
0.20 2.0 0.40
products
Weak outside
Total 1.00 2.10
 Analysis of the External
Environment

Definition:
 External Business environment are
the factors and forces outside
the firm that influences its
performance.

11/20/2023
 Cont.…
Externa business environment
divided
l into
is two categories:
i. Societal factors ca lled
Macro environment
ii. Task environment called
Micro environment

11/20/2023
 Cont…
. External Business Environment

Task Environment(Micro): Societal Environment(Macro):

 Customers  Political Factors
 Competitors  Economic Factors
 Channels  Social Cultural Factors
 Company  Technological Factors
 Public  Environmental Factors
 Legal Factors
Cont…

o Before an organization can

begin strategy formulation, it must
scan the external environment to
identify the possible opportunities
and threats and its
environment for internal
strengths and
weaknesses

11/20/2023
 Cont…
 Research has shown that there is a
positive relationship between
environmental scanning and
profits.
 When undertaking an external
environmenta scan, we scan
l a
corporations societal and
environment. task
11/20/2023
1. Scanning the Societal
Environment
i. P-Political forces provide
– constraining
and environment unstabl
incase of unrest. e
 E.g. Ideological political
between
differences
ruling part and opposition parties may
bring business problems and sometimes
business decision and investments are
politically oriented that pose risk to the
business.
11/20/2023
 Cont…
ii. E-Economic forces – regulate
exchange of the money,
energy and information.
materials,
 Trends in the economic as part of
the societal environment can have
an impact on business activity.
 E.g. an increase in interest rates
means fewer sales of say
major
11/20/2023 home appliances. Why?
 Cont…
3. S-Socio-cultural forces – regulate the
values, morals and customs of
society.
 Increasing environmental awareness
– recycling & conservation are
becoming more than slogans.
 Growth of the seniors market – the
1950 baby boom has affected
market
demand in many industries.
11/20/2023
 Cont…
 Decline of the mass market – &
development of the niche market
to meet personalized needs e.g.
cosmetics.
 Changing household composition
– single-person households are
becoming the most common
household type.

11/20/2023
 Cont…

iv. T- forces
generate
Technological problem –
inventions solving
. improvements
 Electronic – in computer
developments have led to the
widespread
microprocesso use of home
rof computers.
11/20/2023
 Cont..
 Alternative energy sources –
solar,
biomass fuel.
 Precision farming – computerized
management of crops to suit
variations in land characteristics.

11/20/2023
Cont…

v. E-Environmental Forces:
environment encompasses living
Natural
and non living things occurring
naturally.
 E.g. Ecology, biodiversity, ecosystem
affects the availability and distribution of
the product.

11/20/2023
vi. L-Legal and Regulatory
environment
 The relationship between an
organization and its customers,
competitors, suppliers, distributors,
and the public could be strengthen
or constrained in various ways by
existing or planned and
laws
regulations/regulatory
framework

11/20/2023
 Cont.…
 Health and safety
legislations (enforc ed by TMDA)
 regulations
Quality/standard
(enforced by TBS)
 Tax lawsand other dues on
business (Income tax, VAT)
 Fair competition regulations etc .

11/20/2023
o The legislations/regulations varies
from one country to another, thus
the legal environment differs across
countries.
o This difference mostly affects companies
conducting international business, as
they must obey regulations of the
markets they serve.
137
Mr Germanus S.Chole(IAA)
Summary
: Economic Technological Political-legal Socio-cultural

GDP trends Total government Antitrust regulations Lifestyle changes

spending for
R&D
Interest rates Total industry Environmental Career expectations
spending for R&D protection
laws
Money supply Focus of Tax laws Consumer activism
technological efforts
Inflation rates Patent protection Special incentives Rate of family
formation
Unemployment levels New products Foreign trade Growth rate of family
regulations population
Wage/price controls New developments in Attitudes toward Age distribution of
technology transfer foreign companies population
from lab to market
place
Devaluation/revaluation Productivity Laws on hiring & Regional shifts in
improvements promotion population
through automation
Energy availability & cost Internet availability Stability of government Life expectancies
Disposable income Telecommunication Birth rates
infrastructure
2. Analyzing the Task
Environment
Task environment are the
forces nearest or proximate
organization
to theenvironment.
 Sometimes they are called Micro
environmental factors . They includes
4C’s of business positioning and
public.

11/20/2023
o The micro cover
environment impact
s a
.factors that may directly
firm and its operations when
interacting with its market or set of
markets.
o The firm can influence the
elements in this environment as a
result it represent “the
Controllable environment” of the
business
11/20/2023
The elements in the Micro
environment
1.
Suppliers
Supply side an
is
component of important Th
marketing
marketing. power of suppliers, their
e
number and size determine the price
of the final product and the degree
of flexibility in pricing.
Mr Germanus S.Chole(IAA) 141
2. Consumers/Customers:
These are key of a
stakeholdersand the success of a
company
company depend on them.
oUnderstanding their buying decision
and behavior is crucial for a
company to operate profitably.
oAlso, an understanding of how
consumers buy is important to create
selling strategies.
148
3. Competitors = Competitive
environment
 Constant monitoring of competitors
is important, including monitoring
their current market position,
strengths and weaknesses.

149
 COMPETITION CAN BE IN THIS FORM………
Desire Generic Product Brand
competition competition form
competition
(What desire (what type of competition (What type of
do I want to drink do I (what type of soda do
satisfy?) want?) soft drink do I want?)
I want?)
Eating Hard drinks Soda √ Cocal-Cola,
Drinking √ Soft drinks Juice Water Fanta, Pepsi, Mirinda
√
Leisure

150
4. Distributors/distributive network
o This involve an understanding of
the pattern of current distribution,
how the channel can be used
and the extent to which they can
influence consumers buying
behavior.
151
 Cont.…..
 Similar to suppliers, distributors will
have important implication for
marketing strategies, particularly
pricing strategies.

152
11/20/2023
5. Interest
groupsinclude the general public, the
These
media, the government etc. that may
influence (directly or indirectly) the
success of a marketing strategy.
oAttitudes of these group should be
studied and monitored to assist in
marketing aspects.
Mr Germanus S.Chole(IAA) 147
 Cont…
 In its industry, a
scanning must the
corporation of assess its
importance usin
success g
Porters Five Forces Analysis and
also focus on other stakeholders.

11/20/2023
 Cont…
Michael Five Forces of
Porter
Competitive analysis are:-
i. Threats of new entrants
ii. Bargaining power of buyers
iii. Threat of substitute products
iv. Bargaining power of
suppliers
v. Rivalry among existing firms
11/20/2023
Cont…

 Also power of
,Relative governments
stakeholders
trade unions influences
, the
e.g.
business performance.
 Hence , Micro environmental factors
need to be analyzed to take into
account its effects on profitability and
general performance of the firm.

11/20/2023
P. orter Five Forces
Model
Potential
 Other entrants
Threat of new
stakeholders entrants

INDUSTRY
C O MPETITOR  Buyers
Bargaining
S power of
buyers
 Suppliers
Bargaining
power
of suppliers
 Substitutes
Threats of substitute products

11/20/2023
 Cont…
1. Threats of new entrants:

 New entrants to an industry bring

to it new capacity, a desire to
gain market share & substantial
resources.

11/20/2023
Cont.….
An entry barrier is an obstruction that
makes it difficult for a company to enter
an industry. E.g.
Economies of scale – low average
total costs as corporation grows e.g.
TANESCO
Product differentiation – e.g.
Procter & Gamble have high levels
of advertising & promotion create
a barrier to entry.
11/20/2023
 Cont…
Capita requirements – the
l
requirement to huge
invest
capital in the manufacturing &
mining sectors create a
significant barrier to entry.

11/20/2023
Cont…
Switching costs – Once a software
program e.g. Excel or Word
becomes established in an office,
office managers are reluctant to
switch to a new program because
of the high training costs.
Government policy – governments
can limit entry through the licensing
requirement & restricting access to
raw materials
11/20/2023
 Cont…
2. Rivalry among existing firms:

 In most industries, corporations

are
mutually A
dependent. one
firm
competitive
results move by
in counter
efforts.
11/20/2023
 Cont…
Porter attributes intense rivalry to:
Number of competitors –
whencompetitors are few in
e.g.
automobile industry, the
watch
they other very carefully.
each
Rate of industry growth – a slowly
growing industry tends to set off
price wars because the only path
to
11/20/2023growth is to take sales away from a
157
competito r .
Mr G ermanus
 . Product/service characteristic –
rivalry amongst products whose
high
characteristics are the same.
Amount of fixed costs – e.g. of
transportation companies who
willingly offer cheap prices for free
seats because their routes are
scheduled even if the bus is full or
not.

11/20/2023
 Cont…
Height of exit barriers – firms with
specialized assets find it very
difficult to leave an industry e.g.
breweries, mining firm, private
hospital.

11/20/2023
 Cont…
3. Threat of substitute product/service:
Substitute products satisfy the same
need as another product.
 E.g. Tea & coffee
 Substitutes limit the potential returns
of an industry by placing a ceiling
on the prices firms can charge.

11/20/2023
 Cont…
4. Bargaining power of buyers:

 Buyers can affect industr

the y
through their ability to force down
prices, bargain for higher quality
or more services & work with your
competitors .

11/20/2023
 Cont…
A buyer is powerful if:
i. They are few in number who
purchases the firms product
ii. The buyer purchases a large
proportion of the seller’s
product/service.
iii. The buyer has the potential to
integrate
backwards.
11/20/2023
 Cont….
iv. Alternative suppliers are plentiful
because the product is standard or
undifferentiated (e.g. of many gas
stations).

v. Changing suppliers costs very little

(e.g. office supplies are easy to find).

11/20/2023
 Cont…
5. Bargaining power of suppliers:

 Suppliers can affect the industry

through their ability to raise prices
or reduce the quality of
goods/services.

11/20/2023
Cont.…
A supplier is powerful if:
 The supplier industry is dominated
by few companies, but it sells to
many (e.g. petroleum industry).
 Its product is unique & has built up
switching costs (word processing
software).

11/20/2023
 Cont….
 Substitutes are not readily
available (e.g. electricity).
 Suppliers are able to integrate
forward & compete directly with
their present customers.

11/20/2023
Cont..
 A purchasing industry buys only
a small proportion of the
suppliers’ goods and is thus
unimportant to the supplier
(e.g. sales of lawn mower tyres
are less important to the tyre
industry than are sales of
auto
tyres).
11/20/2023
 Cont….
6. Relative power of other stakeholders:
 These groups include the
government, local communities,
creditors, trade associations,
shareholders & complementors (a
company whose product works
well with another industry’s/firm
e.g. motor vehicles & fuel).

11/20/2023
Strategic
groups:
 In order to understand more the
competitive environment of an industry,
it is also useful to group firms in an
industry into a set of strategic groups.
 These are firms that pursue similar
strategies with similar resources.
 Firms belonging to the same
strategic group tend to be strong
rivals.

11/20/2023
 Cont….
 E.g.: McDonalds and Pizza Hut are part of
the same industry but have different
missions, objectives & strategies.
 Thus, they belong to different strategic
groups.
 But, McDonalds and Burger King have a
great deal in common & belong to the
same strategic group.

11/20/2023
  Identifying external strategic factors

No firm can successfully monitor all

the external factors.
 Thus, choices must be made
regarding which factors are
importantare &
factors not which
whilst aiming
at avoidingstrategic myopia
rejectin (i.e. unfamiliar/negative
g
information).

11/20/2023
 Cont..
 One way to identify & analyze
developments in the external
environment is to use the issues priority
matrix.

11/20/2023
 Cont…
Steps to
follow: numbe of likely
i. Identify r in the trends
a
environments – those societal
important&trends if
emerging
they occur determine what task
the industry
would look like.
ii. Assess the probability of these trends
actually occurring from HIGH to LOW.

11/20/2023
Cont…
iii. Attempt to ascertain the likely impact
(from HIGH to LOW) on the
organization.
 Cont…
Issues Priority Matrix
Probable impact on corporation

High Medium
Probability of occurrence

Low
High

High High Medium

priority priority
priority
Medium

High Medium Low

priority priority
priority
Medium Low Low
Low

priority priority priority

11/20/2023
Cont…
Using this matrix a corporation will be able
to identify its external strategic factors.
 These are key environmental
trends
that are judged to have both a
medium to high of
probability occurrence &
impact.
Note: External strategic factors deal
with a particular firm only in an
industry.
11/20/2023
 Cont…
 After a corporation has identified its
external strategic factors, it is useful to
also identify key success factors within
an industry and Key Performance
Indicators (KPIs)

11/20/2023
 Cont…
Key success factors are those variables
that can affect significantly the overall
competitive positions of ALL firms within
any industry.

11/20/2023
Cont….

They vary from industry to industry & are

important in determining the a company’s
ability to succeed within that industry.
 They are determined by the
economic & technological
characteristics of the industry & by
the competitive weapons on which
the firms in the industry have built
their strategies.

11/20/2023
Cont….
Hence, An industry matrix can be used
to summarize the key success factors
within a particular industry.
  Competitive intelligence

Much external environmental scanning is

done on an informal & individual basis.
 Information is obtained from a variety
of sources:
 E.g. suppliers, customers, industry
publication, employees, industry experts,
industry conferences & the internet.

11/20/2023
 Cont….
 Competitive intelligence is a formal
program of gathering information on a
company’s competitors & is one of
the fastest growing fields within
strategic management.
 E.g. At General Mills, all
employees are trained to
recognize & tap sources of
competitive information.
11/20/2023
  Analysis of the International
Environment

The international environment is

going through a historic
transformation.
 We are moving away from a world
in which national economies were
relatively isolated from each other
by different barriers, towards a
world in which national economies,
are merging into an
interdependent
 Cont..

The emerging global economy

creates opportunities as well as
presents challenges and threats to
the business

11/20/2023
Cont.…

A firm may decide to go to the

international environment using
different approaches .
 It may face the challenges and
threat as in domestic
environment.

11/20/2023
 International Business entry Modes
There are number of ways to
internationalizing the business. Business can
choose among these five basic activities
to start.
1. Importing & exporting
Imports: a good or service brought into one
country from another
. Exports: a good or service produced in one
country then get marketed to other country
 Cont..
Import-export is the
fundamental and mostthe largest
international business activity, and
it is often the first choice when
the businesses decide to expand
abroad as it is the easiest way to
enter the market with a small
outlay of capital.
11/20/2023
2. Foreign Licensing &Overseas by
. Mktg by Firm
• Licensing is the arrangement
between a firm, called licensor,
allows another one to use its
intellectual property such as
brand name, copy right, patent,
technology, trademark and so on
for a specific period of time.

11/20/2023
 Cont.…
 Foreign Licensing: Instead of
exporting the firm chooses
,
provide a tolicense to foreign
manufacturers.
 Overseas marketing by the firm: A
firm establishes a sales or marketing
office abroad

11/20/2023
 Cont.…
3. Strategic partnerships &
Joint venture:
 A strategic partnership or
alliance
a is
positive aspect of
cooperation the of two
companies or more different
in
joined together for mutual countries
gain.
11/20/2023
 Cont.…
 A joint venture is a special type
of strategic alliance, where the
partners across globe collectively
found a company to produce
goods and services.

11/20/2023
 Cont.…
 The cooperation between the
companies allow them to share
the production cost, technologies,
development, and sales
networks.
 The resources will be pooled to
mutual advantages and put the
companies in win-win situations.
11/20/2023
 Cont.…
For example, Motorola and Toshiba
joined a strategic partnership to
develop manufacturing processes
for microprocessors.

11/20/2023
 Cont.…
4. Foreign Direct Investment (FDI)
 Foreign direct investment is a
company’s physical investment
such as into the building and
facilities in the foreign country,
and acts as a domestic business
with a full scale of activity.

11/20/2023
 Cont..
 Companies practice FDI to get
benefits from cheaper labor
costs, tax exemptions, and other
privileges in that foreign country.
 The host country will get
benefits
by the introduction of
new products, technologies
services,
and managerial
skills.
11/20/2023
 Cont.…
 Also, FDI helps
facilitate
progressive internal policy reforms
of the host country, and
enhance the economic
situation. For example, Intel,
which is United States based
company, has made the FDI in
many countries in Southeast
Asian.
11/20/2023
 Cont.…
5.
Franchising
Franchising is closely related to
licensing. Franchising a
is
company (franchiser) givesparent
right to
another company (franchisee) to
do business using the franchiser’s
name and products in a
prescribed
manner.
11/20/2023
 Cont.
.

 Franchising different from

licensing
is in termsthe
of the franchisees
have to follow much stricter
guidelines.
 Moreover, licensing is more about
the manufacturers while franchising
is more popular with restaurants,
hotels, and rental services.
Mr Germanus S.Chole(IAA) 198
11/20/2023
 Planning and Host
Country
Relations

Pre-entry planning:

1. Avoid threaten countries

2. Negotiate with host

government

3. Buy insurance 205

Post-entry
operations
1. Have a monitoring system
2. Develop corporate
communication program
3. Develop local stakeholders (employee
, suppliers , customers)
4. Have appropriate local executive
and advisory board
5. Have contingency plans

206
11/20/2023
 Other Post-entry
operations:
1. Licensing
2. Joint ventures
3. Expanding investment base in the
host country(investors , banks)
4. Corporate citizenship : Share profit with
citizens , use local language , sponsor
public projects , train local staff ,
executive positive behavior.
207
11/20/2023
Classification of International
Business Environment

1. Internal Foreign Busines

Environment s
and
Business Environment Externa
l
2. Domestic Foreign andGlobal
Environment

208
11/20/2023
 1. Internal and external
business environment

o Internal Foreign
Business environment means
forces within the firm affecting
its performance when operating
in host country environment.

209
11/20/2023
Cont.….
It includes:
i. Organization structure and design
ii. Organizational culture and values
iii. Human resource skills , capability
iv. Financial regulations
and availability

210
11/20/2023
Cont..
 External Foreign Business
environment means forces outside
the firm affecting its
performance when operating in
host country environment.
They are categorized as:-
a. Macro environment
b. Micro environment
211
11/20/2023
Micro Environment:

 Micro environment can

be defined as the forces in the
immediate environment which
firm’s
directly influence firm’s
the decisions and
operations.

212
11/20/2023
 Cont..
These include suppliers, various
market intermediaries and service
organizations such as
transporters,
middlemen, advertising and
marketing research agencies,
competitors and
customers
general
public.
213
11/20/2023
 Macro environment:
 Macro environment consists of
broader forces which affect the
firm as well as the other forces in
the firm’s micro environment.
 These include factors such as political,
legal, economic, social,
technological etc.

214
11/20/2023
 Cont..
o Firms need to c ontinuously
monito changes in
r
these
environmental forces and devise
strategies to cope with them.

215
11/20/2023
 2. Domestic, Foreign and
Global Environment
This classification is based on
the
location at which
environmental
Domestic forces exist consists
and of
operate.
environment factors competitive
such as
structure, economic climate,
political and legal factors which are
essentially uncontrollable by a firm.
216
 Cont..

 These factors operate at the

national level and the firms are
generally familiar with them.

217
11/20/2023
 Contd…
 Foreign environment consists of
factors social, political,
like
economic, legal and cultural
prevailing in a foreign country.
 The firm can neglect them only at
the cost of losing business in the
foreign markets
218
11/20/2023
Cont..
 Global environmen transcend
national tboundaries ands is not
confined in its impact to just one
country.
 Global environment exerts
influence over domestic as well as
foreign countries.
219
11/20/2023
Cont..

 It comprises of forces like world

economic conditions , international
financial systems , international
agreements and treaties and
regional economic groupings.

220
11/20/2023
Components of International
Business Macro
Environment
International Business Macro
environment can be viewed into
two perspectives . These are:-
 Home country perspective:
o Major areas of government activity
that are concerned to international
business manager.
221
11/20/2023
Cont..
o Sanctions –Gvt actions that distort
free flows of trade in goods and
services
o Embargoes are typically broader in
that they prohibit trade entirely.
o Export controls and import controls
o Regulation of international

222
11/20/2023
Cont.…
 Host country perspective
o Import controls
o Global Political Environment
o Legal and regulatory
environment(WTO,IMF,EU,REI
)
o Political and economic risks

223
11/20/2023
Cont.…

The following are the components

of international Macro
business environment
o Political Environment
o Legal Environment
o Economic Environment
o Socio-cultural Environment

224
11/20/2023
Cont..
o Technological
Environment
o Natural Environment

o Demographic Environment

225
11/20/2023
 International Political
Environment

 At the basis of international law

and international relations:
and (self determination
independence
sovereignty from
external
interference, over all authorit
nationals). y
226
11/20/2023
 Cont..
 International trade limits sovereignty.

 Governments can invoke

sovereignty and jeopardize firm’s
operations

227
11/20/2023
Cont…
 Risks Related to Government Trade
policies:
i. Tariffs,
ii. Exchange-rate controls,
iii. Quotas,
iv. Export/import license
requirements,
v. Other trade barriers
(embargos, sanctions)
228
11/20/2023
 cont.….
 Risks Related to
Economic Government
Policy
i. :
Controlling foreign
investment through taxes
ii. Transfer of assets from
company to local ownership:

229
11/20/2023
Cont.…
 Confiscation-Gvt over
take
without to the
compensation
owner.
government takeover in which
Expropriation-A
 owners are of
form
compensated(some
reimbursement)
230
11/20/2023
 Cont..
 Creeping expropriation-
Paperwork judicial
systems,
,
 regulations
Nationalization-This is the
local government takes over

231
11/20/2023
 Cont..
 Domestication-The government
demands transfer of ownership and
management responsibility(transfer
to local enterprises)

232
11/20/2023
 Cont..
 Risks to Labor and Action
Related
Groups treatment against
 Discriminator in the application of
regulation
y foreign or
laws.
firms
233
11/20/2023
 Cont..
 Risks Related to
Terrorism
ATTACKS:
 Lahore, 65
Packstan dead
 Istanbul, Turkey 5 dead
 Brussels,
 Iskanderia, Iraq 4131dead
dead
 Beligium
Maiduguri, Nigeria 22
dead

234
11/20/2023
 Cont…
 Peshawar, Pakstan 16 dead
 Ankara, Turkey 37 dead
 Grand basam, Ivory cost 16
dead
 Kenya,Slanka

235
11/20/2023
Minimizing Political Risk

i. Understand both ruling

and opposition parties.
ii. Remain politically neutral.
iii. Be exemplary corporate
citizens.
iv. Sell a quality product or service
that is essential for local
development.
11/20/2023
236
 Cont..
v. Partner with local companies and
create local expertise.
vi. Use local suppliers.
vii.Obtain insurance coverage against
expropriation,
nationalization, confiscation, and
terrorism

237
11/20/2023
 Intellectual Property
Rights
 Violation of intellectual property rights
is
a threat to
competitivenes
significant of the
international
s corporations.
 Losses to the violation of
intellectual
attributed property rights are
estimated to be $60 billion a year.

238
11/20/2023
 Cont.…
(e.g. Software $11 billion,
entertainment $8,
pharmaceuticals
$1 billon) There is a saying in
Shanghai: “We can copy anything
except your mother” (even fake
239
11/20/2023
Intellectual Property
Protection
 Patent
 Protection of the rights of the
inventor or of the firm to use and
sell the invention for a specified
period of time.
 Copyright
 Rights of owner of original work of
art (literature, music, film, design) to
reproduce, sell, perform, or film the
work.
240
11/20/2023
Cont.…
 Trademark
 Brand name, mark, symbol,
motto, or slogan that
and identifies a brand
it fro
competitors’
distinguishes brands. (E.g. m
Rolex,
Gucci, Fendi/ Design
c opying without the trademark is
legal)

241
11/20/2023
 Cont..
 Trade Secret

 Know-how, formulas, and special

blends that are not registered and
are thus not protected by law

242
11/20/2023
  Counterfeiting

243
11/20/2023
 Factors Influencing
Intellectual Property
Violations

 Lack of appropriate
legislation
 Lax enforcement
 Unavailability of authentic
products
 High prices for authentic products
that
11/20/2023
limit their accessibility to local
244
Cont..
Cultural Factors:
o Values that perceive imitation as
a form of flattery
• Feelings of interpersonal distrust
and not getting fair deal
• Emphasis on material wealth
• Belief that technology is
common domain
245
11/20/2023
 Protecting Intellectual Property

 TRIPS Agreement (Trade-Related

Aspects of Intellectual Property
Rights,): member countries of the
World Trade Organization, must
sign the TRIPS agreement:
minimum standards for the legal
protection of property rights.

246
11/20/2023
 Cont.…
 Bilateral and
multilateral conventions
 Enlisting home and host-country
government support

247
11/20/2023
Home Country
Legislation
 Antitrust Legislation
 Prevent anticompetitive activities such as the
creation of monopolies and ca rtels.
 Anti-Corruption Legislation
 Prevent multinational corporations from using
unethical means to obtain competitive
advantage in a particular market
 Foreign Corrupt Practices Act makes it illegal
to bribe politicians.

248
11/20/2023
  Economic Environment
o Per capita income and size
of population
o Stages of economic development
o Consumption pattern
o Economic system
o Product demand analysis
o Competition analysis
249
11/20/2023
Economic risks in foreign country

Risks of confiscation and

expropriation are occurring less
often since the desired benefits
never materialize.
i. Exchange rate controls
ii. Local content laws-Any product
sold to contain local made parts
250
11/20/2023
.iii. restrictions-Selective
restrictions on imports of primary
Import
products so that firms buy them
from within to boost local
markets
iv. Tax controls-Raising tax beyond
agreements
v. Price controls-Price ceiling and
floors
vi. Labor problems-Unions can get
support
251
11/20/2023
 Socio-Cultural Environment
International business
means operating in a cross
cultural environment.
This makes the business
more complex because the
business firm must
appreciate how different the
foreign culture is from their
own and how this difference
is to be reflected in their business
252
11/20/2023
strategies.
 Culture
Culture is defined as a continuously
changing totality of learned and
shared meanings, rituals, norms,
and traditions among the
members of an organization or
society.
 Culture is also defined as a
society’s
11/20/2023
personality. 253
 Cont..
 Culture
 Has general influence on
consumption
a
 Has an on the
stakeholders
influence
 Determines the manner in
which individuals respond to
Marketing strategies

254
11/20/2023
Elements of
C ulture

Language

Religion

Cultural Values

Cultural Norms
255
11/20/2023
 Technological Environment

 New product development

 New organizational styles
 New management
techniques
 New marketing techniques

256
11/20/2023
 Cont..
 New production techniques
 Networks , warehouse
management , electronic
data interchange (EDI)
 Web/Internet

257
11/20/2023
 Technological Environment as
an influencing factor for
IM
 Threats Web/Internet
The payment mechanism
is sometimes difficult.
 Different currencies
 Different method of payments
(credit cards, debit cards)
 Accepting credit cards
from unknown buyers
258
11/20/2023
  Natural Environment

 Geology and natural

resources (access to resources,
 e.g. oil)
Topographies and access to
Markets
 Hydrology
259
11/20/2023
Cont.…
 Climate

 Population/ Human Capital

 Environmental Quality (regulations

on the natural environment, e.g.
hormones, pesticides, CO2-Levels
260
11/20/2023
 Demographic environment:
This environment all
encompasses
relating to the size, factors of
structure and distribution
the population.
o The potential market for any product is
affected by:
 Size of the population
 World population is projected to be 9bn
by 2040
 84% of this population reside in
developing countries.
 Age structure of the market
 Mexico has a very young and rapid growing population while
Italy is the countries with the world’s oldest population. So
would you sell Milk,Mrdiapers, school supplies in Italy or 255
Germanus S.Chole(IAA)
 Cont.…....
 Regional distribution
By the year 2015 the distribution was:
 Asia: 4.3 billion (China and India alone >2.6 billion
people)
 Africa: 1.2 billion
 Europe: 0.7 billion
 America 0.9 billion
 The growth rate of the population
 Population of developing countries grow at a rate of
between 1% to 2% annually as compared to 0.3% of
developed countries
262
Mr Germanus S.Chole(IAA)
Ethnic
 Ethnic and racial diversity varies across
countries e.g. In Japanese almost everyone is
Japanese while in USA, 25million people (9%
of the population) were born in another
country.
 72% white, 13% African American, 11% Hispanic
(Mexican, Puerto Rican,
Cuban etc.
 Education groups (Illiterate, basic education, high school,
college/universities).
 785 million adults are illiterate (by 2010) and 2/3 of them
are found in only 8 countries (India, China, Bangladesh,
Pakistan, Nigeria, Ethiopia, Indonesia, Egypt). Again, 2/3 of
them are women.
263
 Ethical and social
responsibility
When global operations strategy is
in operation, the firm face two
categories of challenges:
i. Ethical challenges in
internationalization.
ii. Social responsibility
challenges in
11/20/2023 internationalization.
Ethical responsibility:
o Avoiding corruptions and other
unethical behaviors which might
harm the community, its people
and the environment.
o Doing what is right, just and fair ,
avoiding harm
11/20/2023
 Cont..
Social responsibility:
o Being good corporate
citizens , contributing to
and
the community
quality of life.
o Obeying the of the
laws country host

11/20/2023
Cont.…..
Looking ahead, it appears that in the
changing economic scenario
international business is a way of life.
 The global corporations have become the
central forces of the world economy and
in linking foreign direct investment, trade,
technology etc..

11/20/2023
 Cont..
 They a driving force of
world’s
are growth. The firms will
succeed or fail would depend
on their ability to deal with the
dynamic
international environment.

11/20/2023
 Operations strategy and
Forecasting

Environmental scanning requires that

predictions are made on current
given trends so that operations
strategy may be in place.
o A number of useful forecasting
techniques may be used.

11/20/2023
 Cont…
Forecasting techniques:
1. Trend extrapolations techniques:
This involves the extension of
present trends into the future by
making the assumptions that the
world is reasonably constant &
changes slowly in the short run.
 E.g. Time series methods.

11/20/2023
 Cont…
2. Brainstorming: is a
non- quantitative approach
requiring simply the presence of
people with some knowledge
of the situation to be
predicted.

11/20/2023
 Cont….
o The basic rule is to first pose
ideas without mentally
thinking about them.
o No criticism is made & ideas
build on previous ideas until
a consensus is reached.

11/20/2023
Cont.…
3. Expert It’s a
quantitative technique
opinion: non-in which
experts in a particular area
attempt to predict likely
developments.
o It is based on the ability of a
knowledgeable person to construct
probable future developments.
11/20/2023
 Cont….
 E.g. Delphi technique
where separated experts are
asked to
independently the
assess
likelihoods of specified events.
These assessments are
combined & sent back to each
expert for fine tuning until an
agreement is reached.
11/20/2023
Cont.…
4. Statistical This is a
quantitative
modeling: technique that
attempts to discover causal or
explanatory factors that link 2 or
more time series together.
 E.g. Regression analysis.
 Just like extrapolation it is based on
historical data.
11/20/2023
Impact of Operations Strategy
on Firms’ Competitiveness
Operations strategy support the
business level strategy which is
either
1.Competitive (battling for
advantage)
2.Cooperative (working with a few
competitors to gain advantage
over other competitors)
Mr Germanus S.Chole(IAA)
270
11/20/2023
 Cont.…….
o Business level strategy is a
strategy at the business unit or
product level that emphasize
improvement of the competitive
position of the of a corporations’
products or services.

277
11/20/2023
 Cont.…
o Operational strategy specifies
the policies and plans for using
the organization’s resources to
support its long term competitive
strategy.

278
11/20/2023
 Porter’s generic competitive
strategies
. Competitive Advantage

Low cost Differentiation

Competitive Scope

Cost
marke
Broad

Differentiation
leadership
t

Differentiation
market

Cost focus
Narro

focus
w

Mr Germanus S.Chole(IAA)
273
11/20/2023
 Cont……..
1. Cost leadership:
 Is low-cost competitive strategy that
aims at the broad mass market and
requires vigorous pursuit of cost
reductions.
2. Differentiation:
 Is aimed at the broad mass market
and involves the creation of a
product or service that is perceived
throughout the industry as unique.
(charge a premium).
Mr Germanus S.Chole(IAA)
11/20/2023 274
 Cont……..
a. Low cost strategy
 Refers to the ability of a firm to design,
produce and market its product at a
lower cost than its rivals.
 i.e. overall costs not specific
segments of
the firms production chain.
 Objectives of a low cost strategy are:
 Under price products so as to gain market
share.
 Earn higher profit margins by selling at
market price.
281
11/20/2023 Mr Germanus S.Chole(IAA)
 Cont……..
 How do firms become low cost
leaders?
a. Make the achievement of low cost a
theme.
b. Find ways to drive costs out of
business
 e.g.1: promote efficiency and control
costs along the value chain,
 E.g.2: reorganize a firm’s value chain so
as to bypass some cost producing
activities.
Mr Germanus S.Chole(IAA)
282
11/20/2023
A low cost forces
competitive strategy provides defenses against
e.g.:
.
1. Rival c ompetitors – best
positioned to compete offensively on
price basis.
2. Buyers – better protected from negotiating
power of large customers.
3. Suppliers – more insulated than
rivalsfrom powerful suppliers.
4. Potential Entrants – low cost providers
pricing is a significant entry barrier.
5. Substitutes – better positioned to
use low price as a defense against
substitutes.
Mr Germanus S.Chole(IAA)
283
11/20/2023
Cont.……..
 However, low cost strategies have their
own weaknesses e.g.:
1. Technical breakthroughs open up cost reductions
for rivals, negating a low cost providers efficiency
advantages.
2. Low cost methods are easy or inexpensive to
imitate by rivals.
3. Low cost providers become fixated on reducing
costs that they fail respond to:
a. Increased buyers desire for added quality
or service
features.
b. New developments in related products.
c. Declining buyer sensitivity to price.
Mr Germanus S.Chole(IAA) 278
11/20/2023
.When do we use a low cost
i. When price competition is a dominant
strategy?
competitive force.
ii. When the industry’s product is a
commodity-type item readily available.
iii. When there are few ways to achieve
product differentiation that have value to
buyers.
iv. When buyers incur low switching costs in
changing sellers.
Mr Germanus S.Chole(IAA)
285
11/20/2023
b.. Differentiation
This is
strategy: the ability to provide unique and
superior value to the buyer in terms of
product quality, special features or after-
sale service.
 E.g.:
 Superior service – Federal Express
 Spare parts availability – Toyota
 More for your money – M cDonalds Fast Foods
 Engineering, design & performance – Mercedes
 Prestige – Rolex

Quality – Honda MVreGehrimcalneuss
286
11/20/2023 S.Chole(IAA)
Cont.……..
Three approaches can be identified
to a differentiation strategy:
1. Add product attributes and user features
that lower buyers costs in using product.
2. Add features that raise performance that
the buyer gets out of the product.
3. Add features that enhance
buyers satisfaction in non economic
ways. Mr Germanus S.Chole(IAA)
287
11/20/2023
Cont.……..
Competitive advantages of a
differentiation strategy:
1. Rival competitors - buyers develop loyalty to
brands
they like best.
2. Buyers - reduces bargaining power of large buyers since
other products are less attractive.
3. Suppliers - seller may be in better position to withstand
efforts of other suppliers to raise prices.
4.
5. Potential entrants
Substitutes- - buyer
better loyalty to
positioned acts as entry
fend barrier. of
off threats
substitutes based on customers’ attachment to
differentiating attributes.

Mr Germanus S.Chole(IAA) 282

11/20/2023
. Disadvantages of a
differentiation strategy:
1. Trying to differentiate on a feature buyers
do not perceive as lowering their costs or
enhancing their well-being.
2. Over differentiating such that product
features exceed buyers needs.
3. Charging a price that buyers think is too
high.
4. Not identifying what buyers will c onsider
as value.
Mr Germanus S.Chole(IAA)
289
11/20/2023
 Low cost vs. differentiation strategies
 A low cost producer strategy can
defeat a differentiation strategy
when buyers are satisfied with a
standard product and do not see
extra attributes as worth paying
additional money to obtain.

Mr Germanus S.Chole(IAA)

290
11/20/2023
 Cont……..
3. Cost
focus:
 Is a low- competitive
that
strateg cost on a
particula focuses
y buyer groups
g
r eographic or market
and
attempts to serve only this
niche.
Mr Germanus S.Chole(IAA)
291
11/20/2023
 Cont……..
4. Differentiation focus:
 Concentrates on a particular
buyer group or geographic
market.
 E.g.: of fast food chains in inner
cities offering African specialties.

Mr Germanus S.Chole(IAA)

292
11/20/2023
Cont.……..
Risks of cost Risks of Risks of focus
leadership differentiation

Cost leadership is not Differentiation is not The focus strategy

sustained: sustained: is
 Competitors imitate  Competitors imitate imitated.
 Technology changes  Bases The target segment
for
differentiation becomes unattractive.
become less n/b to buyers.

Cost focusers achieve Differentiation focusers New focusers

even lower cost in achieve even greater sub- segment the
segments. differentiation in segments. industry.

Mr Germanus S.Chole(IAA)

293
Cont.……..
 To be successful, a firm must achieve 1
of the generic strategies
 Moving between a narrow & broad target
strategy is difficult & may lead to a firm
being stuck in the middle in the competitive
market place with no competitive
advantage.
 However, firms can pursue both a low-
cost & differentiation strategy.
Mr Germanus S.Chole(IAA)
294
11/20/2023
Cooperative
strategies
 These are strategies involv
that
working with firms toe gain
other
competitive advantage within an
industry by limiting sales volumes and
raising prices.
 There are two general types of cooperative
strategies:
1. Collusion
2. Strategic alliance
Mr Germanus S.Chole(IAA)
295
11/20/2023
 Approaches to cooperation
strategies:
1. Collusion
 Active cooperation of firms in an
industry to reduce output and raise
prices.
 There are two types of collusions:
2. Explicit Collusion
 Firms cooperate through direct communication and negotiation
(illegal in most countries).
2. Tacit Collusion
 Firm’s cooperate indirectly an informal system of
through signals.
 There are few identifiable competitors
 Costs are similar among firms
 One firm tends to act as price leader
 Common industry culture of cooperation
 High entry barriers
290
11/20/2023 Mr Germanus S.Chole(IAA)
Cont.……
2. Strategic alliance
 A partnership of two or more firms to
achieve strategically significant objectives
that are mutually beneficial to achieve
growth and attain higher revenues.
 E.g.:
 Studies show that firms involved in Strategic
alliance had 11% higher revenue and 20% higher
growth rate than those that did not.
 Alliances can be for a short or long term.

Mr Germanus S.Chole(IAA) 291

11/20/2023
. Reasons for strategic
1.alliance
Obtain technology & manufacturing capabilities
 o E.g.: Intel formed partnership with Hewlett-Packard
2. Obtain Access to Specific Markets
o E.g.: Breweries
3. Reduce Financial Risk
o E.g.: Airbus
4. Reduce political risk:
o E.g.: Maytag Corporation formed a joint venture with a
Chinese appliance maker RSD so as to gain access to China
while ensuring a positive relationship with Chinese
government.
5. Achieve competitive advantage
o E.g.: General Motors and Toyota formed Nummi Corporation
as a joint venture to provide Toyota a manufacturing
facility in the United States and GM access to Toyota’s low-
cost, high quality manufacturing expertise.

292
11/20/2023 Mr Germanus S.Chole(IAA)
Cont.…
 Continuum of strategic alliance
 Cooperative arrangements between
firms fall along a continuum from
weak and distant to strong and
close.
 Types of alliances range from mutual
service consortia to joint ventures and
licensing arrangements to value-chain
11/20/2023
Mr Germanus S.Chole(IAA)
partnerships.
299
 Continuum of Strategic
Alliance

Mutual Service Joint Venture & Value-Chain

Consortia Licensing
Arrangement Partnership

Weak and Distant Strong and Close

Mr Germanus S.Chole(IAA) 300

11/20/2023
Mutual service
consortia
 A partnership of firms in
similar industries who pool their
resources to gain a benefit that is
too expensive to develop alone
e.g. technology.
 E.g.: IBM of the USA, Toshiba of Japan, and
Siemens of Germany formed a consortium to
develop new generations of computer chips.

Mr Germanus S.Chole(IAA) 301

11/20/2023
Joint
venture
o An independent business entity
created by two or more companies
in a strategic alliance.
 Allocates ownership, operational responsibilities
and financial risks and rewards to each member.
 To pursue an opportunity that needs a capability
from two firms e.g. technology of one and
distribution of the other.
 Disadvantages:
 Loss control, lower profits, conflicts with
of transfer of technology advantage to
partners,
partner.
Mr Germanus S.Chole(IAA) 302
11/20/2023
Licensing
arrangement
An arrangement in which licensing
firm grants rights to another firm in
another country to produce and sell
a product.
 Licensee pays compensation to the licensing
firm.
 Works well when brand is well known.
 It is possible for the licensee to
develop competence and become a
competitor.
11/20/2023 Mr Germanus S.Chole(IAA)
297
Value-chain
partnership
 A firm forms a long-term arrangement with
key suppliers or distributors for a mutual
advantage so as to acquire new technology
and / of reduce costs.
 Activities that were previously done by a
firm are outsourced to suppliers specializing
in those activities.
 E.g.: Companies in the US auto industry work closely
with some suppliers to the point of involving them in
product design decisions.
Mr Germanus S.Chole(IAA)
298
11/20/2023
Some strategic alliance success
factors
 Some strategic alliance success
factors include:
 Have a clear strategic purpose
 Find a compatible partner
 Identify likely partner risks
 Allocate tasks a c c ording to capability
 Give each other cooperation incentives
 Minimize conflicts
 Agree on a monitoring process
 Be flexible
 Agree on an exit strategy
305
11/20/2023
Competitive priorities of the
firms operations(Description and
analysis)
 According to
Leong,within manufacturing there
are actually five dimensions of
competitive priorities in which the
firm need to make trade –off
within competitive priorities.
1. COST 2.FLEXIBILITY 3.QUALITY 4.DELIVER
PERFORMANCE

5.INNOVATIVENESS
306
11/20/2023
Competitive Priority Manufacturing Implications
. Cost Monitoring costs and distribute it effectively
on different products

 Quality Making sure that the product and its

process performance and comply with
specification

 Flexibility Capability to manage volume and product

mix changes , equipment and workforce
related

 Delivery performance Reliable and quick delivery of goods

, stock availability

 Innovativeness Time-to-market , how quickly new

products can be implemented
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Cont…
Issues Priority Matrix
Probable impact on corporation

High Medium Low

Probability of occurrence

High

High High Medium

priority priority
priority
Medium

High priority Medium Low

priority
priority
Medium Low Low
Low

priority priority priority

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Analysis of Global Operations
Strategy
Basic Concepts of Global Operations
strategy includes transitions:
i. From Strategy to
manufacturing strategy
ii. Manufacturing strategy to
Service operations strategy
iii. From Operations strategy to
global
operations strategy
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Rationale: Operational
globalization
i. Growth of the
firmCost
ii.
reduction generation and
iii. Knowledge
iv. Competitive leverage
acquisition
v. Customer satisfaction
vi. Social and value
environmental chain
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Global competency Fundamentals:
In global perspectives there
are competences needed by
a firm in order to succeed. The
includes:
i. Cost competency
ii. Flexibility competency
iii. Quality competency
iv. Time competency
v. Value-Based
Competency
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Global Resource Based
Fundamentals
At the global level we have also:
i. Resource Size Management
ii. Resource Type Management
iii. Location Strategy
iv. Dynamic Capacity
Management
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Global Process-Based
Fundamentals
i. Process –Based Global
Operational Strategy
ii. Global Supply Chain Management
iii. Global Revenue
Management Strategy
iv. Global Technology Strategy
v. Global Operational Risk
Management
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Practice of Global Operations
strategy:
Global Operations strategy
across
separations:
a. Cross border Global
Practice Operations
o Political Separation
o Cultural Separation
o Physical separation
o Developmental
separation
o
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Relational Separation 314
 Cont.…
b. Cross Function global operation
Practice
o Global Operation Strategy with
Marketing
o Global Operations Strategy with
Finance
o Global Operations Strategy with
Taxation
o Global Operations Strategy with MIS
o Global Operations Strategy with HRM
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 Cont.….
c. Cross Value –Global
Operations Strategy:
- Different practices across values
- Social Responsible
operations
- Sustainable global operations

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 THANK YOU
END OF TOPIC TWO

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