Thinking Made Easy

Forecasting

 

Forecasting

 

 

            Different literatures state that forecasting has consistently been a critical organizational capability for both strategic and tactical business planning ( 2001;  2001). In recent years, the role of forecasting has become particularly important as competitive market pressures increasingly create the need for improved forecast accuracy. As customers increasingly demand shorter response times with improved quality, effective forecasting becomes critical in helping organizations identify new market opportunities, anticipate future demands, schedule production more effectively, and reduce inventories.

            According to  (2001), there have been advancements in data analysis, modeling, and data mining, coupled with today's software capabilities which have the potential to offer greater forecast accuracy and business insights than ever before. Some authors suggest that use of formal forecasting methodologies in business has been at a plateau level for some years ( 2000).

             (2000) concluded that forecasting as a field of study is not just responsible for creating methodological advancements but rather it is responsible for addressing forecasting problems in practice by developing solutions to these problems and bridging the gap between theory and practice.

 

            There are two broad categories of forecasting methods: quantitative methods and qualitative methods. The Qualitative forecasting method is based on educated guessing. It is a method which includes expert opinions and opinion polls.  Moreover, these are also techniques used to forecast future trends when there is little meaningful data to use as the basis of statistical techniques, or when it is considered necessary to triangulate the results of statistically based projections (2002). Under qualitative method are Delphi Method and Nominal Group Process.

            The Delphi method is a qualitative approach in which a panel of experts is used as a source of information to forecast the likelihood and timing of future events. The objective of the Delphi method is to combine expert opinions concerning the likelihood of realizing the proposed technology as well as expert opinions concerning the expected development time into a single position. In Delphi method, a sequence of individual interrogations is followed by information and opinion feedback derived from analyzing the initial response data. This feedback, which includes the reasoning and/or justification behind each individual expert's forecast, allows the other experts to revise their forecast in light of the new information. A single acceptable forecast is typically agreed upon after several rounds of this process.

            In the other hand, nominal group process is like the Delphi method in which a panel of experts is also use. This method is developed as an alternative to Delphi method. In this method, each expert first writes his or her opinion regarding various aspects that may affect the likelihood of realizing the proposed technology and the expected development time. This information is then shared among all panel members.

            However, unlike Delphi method, the nominal group process involves intensive discussion among members regarding each member's initial opinion in which a leader is chosen to coordinate a group discussion. With this method the leader of the group may affect the opinion of the panel consensus. This is contrary to Delphi method since there is no group leader in that procedure.

            However, documentations shows that qualitative methods typically lead to lowered forecast performance due to biases inherent in human decision making (2001;2001;  2001). These biases, in turn, lead to organizational consequences such as lost orders, inadequate customer service, and poorly utilized organizational resources. Biases inherent in qualitative forecasting include optimism, wishful thinking, lack of consistency, political manipulation, and overreacting to randomness. According to (2000), numerous authors have discouraged the use of judgment in forecasting, pointing to the large literature base on the shortcomings of human decision making. Another disadvantage of qualitative forecasting is people's limited ability to consider and process large amounts of information.

            In contrast to qualitative method, quantitative methods are techniques used to forecast future trends based on manipulation of historical data.

        Quantitative forecasting methods may be classified into two categories: causal methods and time series methods. Causal methods establish methodologies for identifying relationships between dependent and independent variables and attempt to incorporate the interdependencies of various variables in the real world. However, the most common difficulty of applying the causal methods is identifying the independent variables that affect the forecast variables.  concluded that the reliability of final forecast outputs depends on the quality of other variables (2003).

            On the other hand, time series quantitative methods offer many advantages. pointed out that "the use at time t of available observations from a time series to forecast its value at some future time t + 1 can provide a basis for economic and business planning, production planning, inventory and production control, and control and optimization of industrial processes" (2003). According to ,time series methods offer concepts and techniques that facilitates specification, estimation, and evaluation; often yielding more accurate forecasting results than causal quantitative approaches (2003). The most important assumption of the time series methods is that the observations made at different time points are statistically dependent.  states that accurate forecasts made using suitable time series methods and based on appropriate data may yield benefits in destination marketing and the scheduling of resources (2003).

            Forecasting results are typically influenced by the forecasting method used, it is important to determine the forecasting method that will be most appropriate to a given situation.

            Take for example the health care organizations (2001). Forecasting demand for health services is an important step in managerial decision making. This task first requires the compilation and examination of historical information. The healthcare organization used four methods. These are percent adjustment, 12-month moving average, trendline, and seasonalized forecast. These four methods are all based upon the organization's recent historical demand.

            Forecasting demand for healthcare services represents the essential possible projections of the demand for services in setting the healthcare organization’s future direction. In choosing what method to be used by the healthcare organization, there are concerns being considered first. First, the chosen forecasting method should be able to use the financial records which typically the best source of historical data regarding utilization. In addition, the existing staff members should be equipped with readily available tools and be able to perform forecasting in house. Moreover, the forecasting method and its results should be understandable not only to financial management staff but also to those who use the results for decision making.

 

Four Forecasting Methods

            The four forecasting methods can be illustrated by projecting patients' demand for visits to a hypothetical primary care group practice. The objective is to provide a reasonable forecast of monthly visits for the third year.

Percent adjustment

            The percent-adjustment method is based upon a simple percentage adjustment of the past 12 months of historic demand. Although this method is commonly used, it can give inaccurate results because it ignores a considerable amount of historical data and fails to recognize any seasonal effects.

 

12-month moving average

            The 12-month moving-average forecasting method averages the number of patient visits for the previous 12 months to forecast the number of visits for the next month. The moving-average forecasting method more accurately predicts demand for each month in the 12-month period and works well for short-term forecasting, but this method tends to yield results that lag behind any changes in the data and does not account for trends or seasonal effects.

 

Trendline

            Using a trendline determined from the recent demand for the service is more accurate than the percent adjustment and 12-month moving average methods. This method provides the best-fitting straight line, in terms of a regression analysis, between the past months and the actual utilization experienced during those months.

            Although the trendline obtained is not as easy to calculate or explain as the two previous methods, it can be computed using the statistical functions included in any standard spreadsheet program. While the trendline forecasting method recognizes historical demand, it assumes that the trend of the recent past will continue into the near future, and seasonal effects have not been considered.

 

Seasonalized forecast

            The seasonalized forecast method recognizes the seasonal variations in demand during the year and provides projections of demand that include seasonal variation. Of the four forecasting methods, this is the one that requires the most computations. Three processes, with a total of five steps, are involved.

            First, the effects of seasonal variation in demand are determined. Second, the trendline of historical demand for the service is determined with the seasonal variations removed from the data. Last, forecasts are calculated by using the trendline, and each month's forecast is adjusted to account for the seasonality of the demand for services during the historical period upon which the forecast is based. Here again, computations are facilitated by the capabilities of standard spreadsheet programs.

            Although the process and results of this forecasting method are somewhat more difficult to explain, this method offers a significant gain over the other forecasting methods: it recognizes both the overall trend in demand for the service and the inherent seasonality of the demand for many healthcare services.

            The seasonal forecasting method here differs from traditional seasonal forecasting methods since it is based on two years of historical data. This difference recognizes the dynamic nature of the healthcare environment. For many healthcare organizations, so many significant changes, particularly in the external environment, have occurred recently that historical data older than two years not only may yield little relevant information, but also may distort the forecasting results. Although the use of data from a shorter time period lowers the degree of mathematical certainty of the results obtained from using this model, it increases its market relevance.

            Forecasts based on historical demand provide baseline data for making final forecasts of demand for the organization's services. But such forecasts assume that other factors will be unchanged. Healthcare financial managers know that change is perhaps the only constant for the future. Therefore, knowledge of both the internal and external environments must be factored into final forecasts.

            Financial managers will draw upon their experience and knowledge on the organization and its environment in analyzing environmental factors that affect demand. This information needs to be considered in selecting the most appropriate forecasting method to project demand for the organization's services in a dynamic market.

Economies of Scale

Economies of Scale

 

Economies of scale have been defined concisely as advantages resulting purely from size (1989) and have been studied extensively (1982; 1971; 1975).

Further, scale economies have been categorized by source,  identified seven of them: cost indivisibilities, economies of increased dimensions, economies of specialization, superior techniques or organization of production, the learning effect, economies through control of markets, and economies of massed resources which is also known as statistical economies of scale (1971).

According to  (2003), economies of scale are achieved when more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realized.

While cost reduction efforts appear to be extremely popular among companies attempting to strengthen their competitive position, the effect of traditional cost reduction strategies on company productivity is less clear, and may in some cases be detrimental to long-term financial performance.

Particularly during times of economic recession, it is important for companies to identify cost-reduction strategies that create long-term benefits for the company. It is hypothesized that reducing unit costs through the use of volume and learning economies of scale can provide significant productivity benefits to a company, provided policies regarding flexibility and innovation do not create barriers to strategy implementation.

The importance placed on increasing company productivity has gained considerable momentum in recent years as companies struggle to keep pace with increased competitiveness and consumers' increasing awareness of product quality. Since company productivity is generally defined as a ratio of output to input (for example, revenues divided by costs) management strategies for improving productivity have usually included some form of cost-reduction effort.

While many of these efforts are necessary and indeed enhance company productivity, some cost reduction strategies actually reduce the company's ability to be less able to provide customer service, to react quickly to changes in customer tastes, to maintain an innovative approach to process/product design and marketing and to simply maintain product output levels at some adequate level of quality.

Learning economies of scale are created when technical knowledge gained through company experience permits changes to be made to existing plant, equipment and labor, leading to better and more efficient use of existing resources. The learning effect is the term used to represent this impact of technical innovation on the cost function of the company. In this context, technical innovation is referred to as the implementation of any value-enhancing techniques to the transformation process of the company (examples include supply-base reduction, storage consolidation, use of shop floor control policies, group technology plant layout changes and just-in-time production techniques).

Extensive research indicates that as the cumulative output of a product doubles, the real, value-added unit cost of manufacturing that product tends to be reduced by a constant percentage.

Learning economies of scale include labor and organizational production and planning advancements that accrue with time throughout the company's transformation process. (1964) describes three types of learning economies:

 

Ø  labor improvements in the performance of tasks;

Ø  improvements in managerial planning and control; and

Ø  product and process innovations that reduce unit costs or increase value

 

There are two aspects of economies of scale. Economies of scale that appear at the aggregate level are described as external economies while economies of scale that appear at the individual or firm level are called internal economies of scale which the focus of this paper.

 

There are some types of internal economies of scale which includes technical, commercial, managerial, and risk bearing. Internal economies of scale relate to the lower unit costs a single firm can obtain by growing in size itself.

Technical economies are when businesses are able to benefit from improved techniques involved with large scale production. For example, a company like Gillette or BIC operates with very large modern factories using automated production technology. The result of using these technologies is that costs of production are reduced significantly while quality control is kept to a very high level with virtually zero defects.

Similarly, electronic and electrical goods industry can also acquire such modern and automated production technology. Technical improvements include simultaneous product and process design, setup time and batch size reduction efforts, automated group technology layouts and new product designs that use part commonalities to reduce design costs and improve manufacturing quality.

In addition, commercial economies are concerned with the purchase of stocks and the selling of end products using a large scale approach. Modern production plants are able to operate using components and materials that are purchased just-in-time for their use. The production line is managed at the speed required to meet the needs of end consumers just-in-time.

Electronic/electricity goods industry can use mass production techniques in which they are able to operate their plant at high levels of capacity, while benefiting from bulk purchasing of components, equipment and materials.

Moreover, managerial economies of scale involve these firms in employing skilled production managers with the experience of working with modern technologies enabling them to manage highly sophisticated state-of-the-art factories. As a firm grows, there is greater potential for managers to specialize in particular tasks such as marketing, human resource management, finance. Specialist managers are likely to be more efficient as they possess a high level of expertise, experience and qualifications compared to one person in a smaller firm trying to perform all of these roles.

In the case of the electronic/electrical goods industry, these companies should employ specialist on the field of marketing, human resource management or finance.

Management improvements used in many electronic/electricity goods companies include fewer levels of management with greater decision-making authority given to line workers and shop floor managers and new systems of control, such as total preventive maintenance and total quality control programs that improve company performance. These companies should place a great deal of emphasis on employee skills development through extensive training programs. Fewer job classifications and multi-functional employees contribute to productivity improvements and enhanced labor flexibility.

Furthermore, risks spreading economies of production mean that plants are able to produce a wide variety of products. For example, in a modern confectionery plant run by Cadbury Schweppes, it is possible to switch part of factory capacity from lines where demand is falling, to lines where demand is rising through well organized production management. Similarly, electronic/electricity goods industry must be able to identify their risks and appropriately mitigate them to avoid more damage to company.

 

Disadvantages of Economies of Scale on Consumers

However, in spite of numerous advantages which economies of scale have mentioned, there are still disadvantages. The first disadvantage would be that the products of the same type could virtually all be the same. Consumers would be hard pressed to find unique items either for gifts, personal pleasure or to fulfill a unique need.

A second and related is that the possible low cost of such mass-produced items might diminish the market for new and competing items. Eventually, this could lead to a virtual monopoly on some products, which may lead to higher future costs and even less innovation in that area.

Moreover, according to (1999), “the disadvantages to the customers is clear cut.” He commented that the greater the imbalance of the power between seller and buyer, the less responsive the market will be with the demand. For example, when a company has one hundred customers, it listens carefully to what each of them wants. However, when it has one million, it responds to the lowest common denominator (1999).

Inappropriateness of Economies of Scale

According to  (2003), the theory of economies of scale was set off by the British economist which includes and . These economists had suggested that larger companies would have likely to achieve economies of scale due to greater opportunities for division of labor.

Technically, a scale curve measures production costs as a function of facility capacity (2003). Plotted on a logarithmic scale, the slope of the curve shows the fixed percentage reduction in cost for each doubling of capacity. Businesses with operations that offer significant economies of scale, such as wafer fabrication for integrated circuits, have steep scale curves where costs drop significantly when facility capacity increases which is why the Intel Corporation and other chip makers regularly invest upward of a billion dollars in new higher-capacity facilities.

However, other businesses, such as apparel-producing plants, exhibit very limited scale economies. Since there is little opportunity to automate the process of sewing a dress or shirt, a larger apparel plant simply contains more sewing machines. A plant with 200 sewing machines run by individual operators doesn’t produce shirts and dresses much more cheaply than one with only 100 machines. There is little value in having a bigger apparel factory.

Firms achieve economies of scale when their operating costs increase at a lower rate than their output. In manufacturing operations, plant volumes must reach a certain minimum level for a firm to achieve economies of scale. In industries, such as aircraft, automobile, chemical production and petroleum refining, plant volumes needed to achieve economies of scale are so high that only a few firms can attain them without foreign sales (1990).

 (1989) suggests that multinational service firms, like manufacturing firms, can benefit from global economies of scale in personnel specialization, financial management, and common governance.  (1994) propose that service firms can achieve global economies of scale in marketing or image-building. Furthermore,  (1996) theorize that information-based service firms, such as insurers, can achieve global economies of scale by providing global customers with standardized insurance products and by centralizing upstream value chain activities.

However, firms still incur fixed costs in their operations that do not increase with output. For example, computer systems and software cost the same whether they process ten or ten thousand dollars in premiums each day.

In addition, with the response to opportunities in the foreign market and globalization, there has been increasing number of companies expanding internationally. Most of these companies believe that only very large firms will have economies of scale to remain competitive. However, expanding internationally may offset the advantages of economies of scale by the higher costs of foreign operations.  Buckley and  (1976), and  (1981), commented that costs for firms in the foreign markets may be higher than in home markets.

Moreover, as firms increase their size through internationalization, they increase the complexity of their operations and the cost of coordinating those operations. This may cause diseconomies as scale increases (1985). In addition, a firm must manage all aspects of its value chain and the interaction between them to achieve low costs ( 1985). The firm must take care that actions in one area do not create barriers to economies of scale in another area (1985). For example, geographic differentiation as opposed to concentration of activities and product differentiation as opposed to standardization, while creating market advantages, may hinder economies of scale in services (1996).

 

Minimum Efficient Scale

            Minimum efficient scale is the output for a business in the long run where the internal economies of scale have been fully exploited. It corresponds to the lowest point on the long run average total cost curve. The minimum efficient scale varies from industry to industry depending on the nature of cost structure in a particular sector of the economy. When the ration of fixed to variable costs is very high, there is a great potential for reducing the average cost of production.

In industries with monopolistic bottlenecks, like network industries, the question arises whether and how to regulate these essential facilities. Electronic and electricity goods are vital for the health of the European economy. This industry increases productivity throughout the economy, generates new consumer services and creates jobs for the European work force.

In connection with this,  (2005) points out the importance to establish regulation right after liberalizing the market. Nevertheless, by designing the regulation authority it is important to keep in mind whether regulation serves as a precondition of competition or rather as a substitute of competition. If regulation is a precondition and the final goal is the competitive market, one should probably strive in the very long run for replacing sector regulation by general competition rules.

Based on the experience, policy makers believe that extending competition and ensuring opportunity and reward for innovative companies is the key to promoting technological advance.

Generally, the difficulty of the regulatory authorities has originated in state-run monopolies, leaving a legacy of imperfect competitive conditions. Continued regulation is therefore essential for as long as these former monopolists have market power, to ensure a level playing field for new market entrants.

In addition, another reason is that market forces alone may lead to the exclusion of some social groups from essential public services. The regulatory system therefore recognizes a universal service obligation to ensure basic services at affordable prices to all in cases where the market alone does not provide.

Regulatory authorities has pursued it s regulation on competition in order to regulate the state run monopoly which has been happening as experienced. A general authorization procedure for operators to enter new markets replaces individual licenses. This drastically cuts red tape for enterprises, which no longer face frustrating delays as national regulators check compliance with license conditions.

In addition the regulators applies light regulations which is the framework that builds upon general concepts of competition law, as applied to normally functioning markets.

Regulation is seen as essentially a temporary phenomenon, required to make the transition from the monopolistic industry to a fully functioning market system. To develop in the short term, new market entrants need regulatory support to gain access to the networks of incumbent operators and to provide the benefits to end users which the market would offer if it were effectively competitive.

However, as the sector evolves, operators will increasingly build their own infrastructures and compete more effectively. As normal market conditions develop, regulation can be rolled back, and competition law, as applied to industry in general, will replace sector-specific intervention.

Moreover the regulatory authorities are concerned with the technological authorities. The primary principle is to apply the same principles regardless of which kind of existing or potentially new technology is involved. This “technological neutrality” is essential to provide the necessary flexibility to deal with emerging technologies and their convergence in fields such as media, internet and mobile communications.

Furthermore, concerns are also pointed to the consistency in the market. Operators need to be assured that their investments can be planned in a regulatory environment that is stable, consistent and predictable throughout the market. Such a regime allows companies to operate on a scale.

The regulatory framework establishes new processes permitting collaboration among the national regulatory authorities of the Member States and between national authorities and the Commission. This extensive collaboration plays a key role in achieving the necessary coherence within the regulatory process at European level. In key areas, each Member State submits its draft national measures to the Commission and to other national authorities for consideration, and discusses common approaches in the European Regulators Group, established by the Commission in 2002. In this way, a consistent approach is developed throughout the single market while permitting maximum flexibility to deal with national markets and conditions.

The framework explicitly recognizes the need for regulators to allow adequate cost recovery on existing assets, and to properly reward innovation and new, risky investments.

Regulatory intervention is required for a variety of reasons. Regulatory intervention is required in the success of the transformation of a monopolistic market into a competitive market. Without it, viable competition is not likely to emerge. Typically, regulators must authorize or license new operators. They must remove the barriers to market entry of new operators. In addition, regulators may also be required to ensure competitive markets do not fail to serve high cost areas or low income subscribers. Where competitive markets do not exist or fail, there would be abuses of market power such as pricing and anti-competitive behavior by dominant firms.

Primarily the main objectives of the regulators is to foster competitive markets to promote efficient supply of goods and services, supply of good quality of goods and services, and efficient prices.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost and Benefit of Regulation on Competition

Cost and Benefit of Regulation on Competition

 

Introduction

In a market economy, which is a system of private property rights and competitive markets, there is an evolution of institutions, rules and standards that further regulates the behavior of the economic agents. Generally, prices regulate the behavior of consumers and produces so as to allocate resources.

 

Regulations are developed to jointly coordinate behavior especially on scarce resources. Government intervention is the correction of an apparent market failure. It is now widely recognized that market failure, such as pollution, results from incompletely specified property rights. In the case of air pollution, for example, individuals do not have an enforceable and tradable right in air quality (2001).

 

It is widely recognized that regulatory intervention attenuates private property rights. Governments can theoretically define property rights where they do not exist, but public choice theory would predict that the process would end up in rent seeking rather than law making (1973). In any case, rather then creating property rights in the face of apparent externalities, governments typically turn to regulating economic activity.

Government regulation alters the allocation of resources and, indeed, is designed to accomplish just that reallocation. Along with attenuating property rights, government regulation can also undermine the complex system of market-based institutions, rules, and standards that enhance and strengthen property rights. That system, or institutional framework, is as an integral part of a market economy as is the price mechanism.

All economies have elements of both self-regulation and government regulation. Government regulation reinforces, supplants, or undermines market-based regulation. Accordingly, government intervention is efficacious, redundant, or counterproductive. We address classic textbook cases of public goods and externalities that suggest the case for "good" government regulation. We also present a number of cases in which bad government regulation suppresses the self-regulating mechanisms in a market economy.

Regulation is necessary for a well-functioning market economy, but that insight provides no necessary role for government intervention. Some additional factor must be adduced to justify government intervention because markets evolve self-regulatory mechanisms

Hayek, however, viewed the regulation of economic activity as the product of legislation or human design. He observed that "a free system does not exclude on principle" regulation of economic activity, including regulation of production techniques and 'factory legislation'" ( [1960] 1972). He advocated a cost-benefit approach to evaluating government regulations.

 

Thus, it can be asserted that regulations may have its advantages or disadvantage in the competition of the businesses on an economy.

 

Impact of Regulations on Competition in the Airline Industry

Airline Industry has been noted to be the most competitive industry in the world. In the airline industry, several regulations could affect its level of competition. A central policy choice is the mechanism for allocating airport boarding gates and facilities. Many airport commissions rely on non-market mechanisms to allocate these scarce resources. Changes in policies by these commissions to allow for competitive bidding for boarding gates and landing rights might encourage competition among airlines, and it also might encourage airport authorities to increase supply when bid values are higher than costs.

In addition, antitrust policy also may affect the level of competition. Like for example, United announced plans to acquire US Airways. These plans were later abandoned after the government decided to challenge the merger. Most observers anticipate that future merger attempts are likely. There is significant statistical evidence that airfares increase as market concentration increases, thereby harming consumers. However, concentrated markets also benefit some consumers by creating bigger networks with more frequent and convenient flights. Moreover, mergers also provide incentives for efficient managerial skills and business practices to dominate. In that mergers lead to concentrated markets, antitrust policies must balance these conflicting needs when deciding whether to approve a merger.

A third significant policy dimension involves restrictions on substantial foreign ownership of airlines and on domestic flights by foreign-owned airlines. Allowing foreign ownership of airlines could increase the level of competition for both international and domestic flights.

Like for example, As foreign airlines already fly to the United States, they are subject to U.S. safety and security regulations. However, while the current open-skies agreement between Canada and the United States allows Canadian carriers to pick up passengers in the United States, it does not allow Canadian carriers to pick up passengers in Portland and drop them off in Seattle; rather, they can only pick up passengers in Portland and drop them off in Vancouver. This limits the ability of a Canadian carrier to gain the hub-and-spoke economies of scale that might improve its competitive edge on the Portland to Vancouver market or the Seattle to Vancouver market, and also potentially on the Portland to Seattle market.

Accordingly, less competition would likely lead to an increase in fares
and a decrease in service. In domestic markets, most concern has centered
around the growth of dominant or fortress hubs, with particular concern
about the very aggressive competitive responses by the major airlines when
low- cost new entrant carriers try to serve markets involving these hubs.
While the ability and willingness of incumbent airlines to respond to competitive
entry is central to competition, at some point that response may cross
the line of fair competition and become an unfairly exclusionary practice
intended to drive the entrant from the market. When that happens, the result
is insufficient competition to discipline the incumbent with resulting
higher fares and possibly lower service compared with a situation where
the entry had been successful.

In the perspective of the buyer, government regulation would leads to or protects a position of monopsony or oligopsony for a particular good or service. A firm might be the only buyer of that good or service in a specific geographical marketplace, because it has been granted an exclusive right in a business that requires specialized supplies. Such a situation might occur in a business like electricity generation and supply where there is a single vertically integrated firm providing power across a country or a region. By virtue of its position as a monopoly electricity supplier, this firm would also be a monopsonist for items of equipment with a use specialized to the electricity industry.

While in the perspective of a supplier, government regulation leads to or protects a position of monopoly or oligopoly (one or a few suppliers with many interchangeable buyers). This occurs, for example, when the state grants an exclusive license or a patent, both of which have the effect of impeding competitive imitation in the supply of a particular good or service for a specified period. Assuming that there is an effective demand for this good or service, the licensed supplier might be expected to have a significant power advantage in its dealings with buyers.

Monopoly or oligopoly might also occur as a result of state intervention to encourage consolidation in a particular industrial sector. A good deal of this kind of activity has occurred in the European Union (EU) in recent years. The European Commission and the Member States have sanctioned substantial cross-border mergers and acquisitions in key sectors such as telecommunications, pharmaceuticals, and transport equipment in an effort to address the twin issues of overcapacity and declining competitiveness (1995; 2001).

Turning to the issue of disruptive government regulation, from a buyer's perspective this constitutes actions that substantially erode, remove, or prevent a situation of monopsony or oligopsony. In the electricity industry, the government will use disruptive regulation if it liberalizes the market for electricity generation and supply. By moving from a situation in which only one electricity supplier is licensed to a situation in which several firms are allowed to operate, the government has effectively destroyed the monopsony for items of equipment with a use specialized to the electricity industry. In this situation, the power advantage of each individual equipment buyer over its supplier might be expected to decline.

From a supplier's perspective, disruptive government regulation constitutes those actions that substantially erode, remove, or prevent a situation of monopoly or oligopoly. This occurs, as in the electricity example, when the state intervenes to promote greater competition in a supply market. It also occurs when the state removes or refuses to renew an exclusive license or patent, thereby allowing either imitative competition or the transfer of the monopoly to another supplier. Either way, the important point is that an individual supplier has lost the basis of its power advantage over particular buyers.

Regulation on the demand side of a market is necessarily a good thing from the perspective of the buyer, because it generates a situation of monopsony or oligopsony. From the perspective of a supplier, however, this is largely unfavorable, because the supplier is heavily dependent upon and is likely to be exploited by the buyer. The same line of argument can, of course, be applied to creative regulation on the supply side of a market. This would be favorable for a supplier, but unfavorable for a buyer.

Regulations, however, is important on regulating competition. Regulation is necessary for a well-functioning market economy. According to the Standard market-based economic theory is based on the premise that for markets to operate at economic efficiency (to produce the most product at the lowest price to consumers), in most cases there should be many competitors within the market who, through competition with each other, drive down prices and drive up supply to the economically efficient production point.

Regulations on competition greatly benefited the economy through more efficient and quality products and services. In aggregate, efficiency gains have been made.  (2002), in a review of national competition policy, makes the point that it is not easy to evaluate the actual progress on efficiency and costs.

Over the past ten years, Australia has experienced strong rates of economic growth. When compared to other OECD countries, Australia has done very well. For example, during the past seven years Australia's annual rate of growth, at constant prices, averaged 3.8 per cent. This compares to 3.2 per cent in the United States, 1.4 per cent in Germany and 2.3 percent in France.

It is true that that some have felt that this strong performance was the result of a long time American expansion and technological change. While this may in part be true, it should also be noted that the Australian economy has, in recent years, continued to grow, while the United States economy has been stagnant, and that Australians have enjoyed no monopoly on capital equipment or technology.

Sharper competition, a greater openness to trade, investment and technology, and increased business flexibility have boosted Australian productivity (2002). Unlike the 1960s and 1970s, our productivity performance during the 1990s was not part of a world-wide productivity boom. Australia was one of only three countries to experience a strong acceleration during the 1990s (2002).  has previously pointed out: If Australia's productivity had grown in the 1990s at its previous trend rate, annual income in 2000 would have been reduced, on average, by around $2,700 per person, or about $7,000 per household (2001).

As well as generating income benefits, there is evidence from the OECD that suggests that anti-competitive market restrictions may act to reduce the employment rate by three percentage points from the OECD average. Such a result would accord with our a priori expectation that anti-competitive restrictions cost jobs ( 2001).

 

Conclusion

It has been discussed the benefits and the cost of regulation on competition. It has been asserted that regulations affect the competition of the companies in an industry in an economy.  Regulations may be advantageous or disadvantageous depending on the type of industry regulations may be implemented. Through regulations, the market activities are being well defined. However, these regulations may also be a disaster to some consumers and suppliers. Regulations being imposed in a particular economy affect the level of competition. Anti-competitive restrictions may reduce employment rate since imitation is restricted causing a lower number of companies establish and lower number of people hired. Competition in the market gives companies a challenge to be more efficient and effective on their products and services. Thus, more quality products and services are being developed which is to the benefit of the consumers as well as the producers since efficiency means less costs.

 

Fair Trade as CSR Tool

Fair Trade as CSR Tool

Introduction

Every company owns their rights to explore on the available possibilities to make the business performed well in the industry where they belong. An ideal business firm is consisted with the effective and just propeller that serves as the key people. They are fueled with the knowledge, skills and related leadership experiences. All of them are part of the organization that believe in delivering the products to the consumers, where the return of not profit is not below their expectation and have strong bond with their stakeholder to help their business running smoothly.  Having all the ideal corporate characteristics is hard to obtain especially if the people did not dedicated their effort and committed to accomplish the entire given task.

What is CSR?

CSR stands for the corporate social responsibility that was introduced in various terms such as triple bottom line, level playing field, sustainability reporting, trickle-down effect, socially responsible investing, community involvement, corporate citizenship and many other names that reveals the benefits of the CSR within an organization. The CSR is the starting point of the firms to publish the social and environmental reports, acquire an expert corporate consultants and stakeholders that can pro-long the life of the business (2005).

Understanding the concept of sustainability is acknowledging the presence of true CSR. The firms’ that includes the practice of involving the stakeholders in every activity is a good indication of corporate citizen (2007). Moreover, the CSR is considered as an essential element of the contemporary and future social policies. The strategy in developing the multinational economic and financial groups is a crucial internal crisis in any corporations. Availing an appropriate strategy is placing a standard practices that in return can help avoid or lessen the possibilities of bankruptcies, fraudulent actions, and low morale among the workforce.

The aim of corporate social responsibility or CSR is to have a positive impact upon the company’s integration on social and environmental concerns towards the commercial activities and having a good relationship with the stakeholders (2003). For the firms, having the CSR can help them increase the contribution to society and to have a sustainable development. Specifically, the CSR goes beyond the legal obligations or responsibilities in every corporate operations that involves the issues of health and safety of the workforce; employment policies and exercising the rights and; environmental protection (2008). Recognizing the role of the CSR within the organization is also contributing in the development of the community in which the business operates. This norm of applying the responsibility is pushing the initiatives for the business to keep the business on-going and be a successful one in the nature of the business industry (2003).

What is Fair Trade?

Fair trade is identified through the nature of the commercial activity and significantly, there are a number of participants that process a raw material into a finished product and being compensated in form of their monetary currency. The participants range from the suppliers down to the producers that transform the raw materials. After the finished product has been prepared, the distributors will deliver it down to the retailers, and at that point the buying and selling happens between the retailers and the consumers or the final users. It was called fair trade because the price paid to the actual producers is a fair price above the price used to trade in the commodity-exchange markets. Thus, it also offers a floor price which provides some measure of stability just in case the market price drastically fell down.

 The basic idea is to bridge the distance between producers and consumers by eliminating all or at least some of the intermediaries in order to provide a more direct access to consumers with a better share in the value chain to the producer. The entities that actually bridge producers with retailers pay the higher price above the commodities market to then pass it on to consumers either directly or through their retail channel. Consumers in turn, knowingly and willingly, pay the premium retail price in support of a good cause and of a high moral standard, which is the fair transaction for the product of the producer (2007).

While there is a representation in being fair in a trade, the lack of awareness of labor rights might be abused by some corporate leaders. The idea of fair trade can add the value of the little awareness towards the right on the labor and in the industry ( 2006).

Fair Trade and Corporate Social Responsibility

The holistic concept of combining the two type of market strategy both seeks to generate the profit through the fair sustainable transactions. It presumably provides dignified livelihoods to all stakeholders involved. Because its distinctive characteristic is its fair and regulated environment for disadvantaged producers, it is assumed to be socially and environmentally responsible. Acquiring the fair trade as a tool in CSR is promoting a responsible practice. It guarantees the moral obligation to be responsible in adding every kind of practice for the business (2007).

Consequently, fair trade is only one of many ways in which a corporation can presumably become a responsible corporate citizen. It does not mean that all other trade and all other areas of activity of a company are irresponsible and unfair; nor does it mean that by practicing fair trade a company must automatically be deemed as a responsible entity. Fair Trade, as an area of business, is inextricably a part of CSR and, thus, of sustainability. Nonetheless, what makes a company a truly responsible corporate citizen is if every single aspect of its behavior is judged to be performed in a truly sustainable manner.

In summary, both CSR and fair trade must act as a whole to be a good corporate citizen. In a sustainable manner, the social, economic, and environmental dimensions in different activities in all countries should be in a comprehensive manner. The state of the fair trade in area of business activity falls under the category of CSR and together promotes sustainability. The idea of participation involved in the fair trade addresses the manner of fair transactions. Consequently, without a pre-existing culture of corporate social responsibility, it would be difficult for fair trade to have an impact without significant efforts to educate management, workers, and monitoring the standards or production within an industry (2006). The combination of the fair trade and the corporate social responsibility is a good strategy where a company can prove themselves in the market and gradually improve their business performance. Maintaining or sustaining the market positions are the available options of the company within the competition.

Conclusion

Corporate social responsibility does not exist in isolation from the society in which companies operate. It is another way to response the needs in different societies with different expectations. The corporate social responsibility and fair trade are not only obliged to the business strategy, partnered the willingness of management to deliver it, but also people who are prepared to accept the kind of responsibility in their personal career and action. The corporate social responsibility is more effective with the communication and readiness to learn more and using their skills efficiently. 

It is for the company to freely decide about the best strategy for their business. The numbers of corporate social responsibility that are available for the company are flexible in the business actions and circumstances. The extent of corporate social responsibility for the company has practical limits that influencing the different functions and operations. However, many companies see solutions and value the good practices and promotion of their own values and key initiatives. The corporate social responsibility can contribute in developing the competitive marketplace where there is a presence of fair trade.

 

 

External Business Environment

External Business Environment

 

Scramble for Africa

            The Scramble for Africa was the proliferation of conflicting European claims to African territory during the New Imperialism period between the 1880s and the start of World War I ). The Scramble for Africa began in 1881, when France moved into Tunis with  encouragement. After centuries of neglect, Europeans began to expand their influence into Africa. Soon, it took on a full-fledged land grab in Africa by European Powers. This came to be called the Scramble for Africa. There are many reasons why this occurred.

            The Scramble for Africa was powered not so much by conditions in Africa, but by the economic, social and political conditions in Europe during the second half of the nineteenth century. In economic terms, it was "not so much as an overproduction of goods in Europe as an undersupply of raw materials".
            The scramble was fierce by July 1884 as France, Britain, Germany and Portugal had all staked claims on African territory within the previous five years.
            From November 15, 1884 to January 20th, 1885, The Berlin Conference, under the chairmanship of , was convened to set up the rules of the Scramble. On February 26, 1885, the decision had been made that first of all, any sovereign power which wanted to claim any territory should inform the other powers in order to make good any claim of their own. Secondly, any such annexation should be validated by effective occupation. Third is that treaties with African rulers were to be considered a valid title to sovereignty. In addition, the powers were free to navigate the Congo and Niger Rivers.

            In the past, according to (2000), African states were robbed of their natural and human resources by the colonial powers. Belgium's King Leopold II built his fortune on the wholesale extraction and export of rubber, hardwoods, and metals from the Congo. Zambia, Zimbabwe, and South Africa, met a similar fate, as did the oil-rich states of West Africa. However, since the fall of the colonial powers, resource extraction has been largely the province of the post independence leaders in which many of whom followed the lead of their former colonial masters to create vast personal fortunes (2000).

            For a fact, Africa is vastly rich in natural resources but the continent has paid a terrible price for this wealth. In the past decade horrendous wars in Angola, Sierra Leone, the Democratic Republic of Congo, Sudan and Liberia have been fuelled by fighting for control over diamonds, timber, gold, minerals and oil.

            Private interests from warlords to unscrupulous corporations to arms dealers and organized crime have helped to fuel African conflicts over the past decade as they vie for control over valuable resources. According to  (2001), globalization has added a key dimension to contemporary warfare and armed groups from some of the world's most remote places can be directly linked with commerce in the technological heartland of metropolitan society. He added that a complex international network of smugglers, brokers and traders means that everything from diamond rings and garden furniture to the components of mobile phones and Play stations may have originated as the booty of Africa's conflicts.

             Sierra Leone's UN ambassador, said in July 2000, “We have always maintained that the conflict is not about ideology, tribal or regional difference. The root of the conflict is and remains diamonds, diamonds and diamonds” (2000). According to (2002), in a quarter of the roughly 50 wars and armed conflicts active in 2001, resource exploitation has played a key role.  (2000) concluded that a poor country with weak infrastructure, few options for making money and possessing significant lootable resources is four times more likely to experience war than a similar country without them.

 

Mcluhan’s Concept of Global Village

 

            In  concept of Global Village, he theorized that because of rapid electronic communication systems, the Earth has become a village in which we have all become neighbors (1999).

            The concept of a global village by  (1964) is interconnected by an electronic nervous system, part of our popular culture well before it actually happened.  was the first person to popularize the concept of a global village and to consider its social effects. His insights were revolutionary at the time, and fundamentally changed how everyone has thought about media, technology, and communications ever since. In addition, the underlying concept of  view of electronic technology is that it has become an extension of our senses, particularly those of sight and sound. The telephone and the radio become a long distance ear as the television and computer extend the eye by projecting further than our biological range of vision and hearing.

            McLuhan argues that it is the speed of these electronic media that allow us to act and react to global issues at the same speed as normal face to face verbal communication. He concludes we are forced to become aware of responsibility on a global level rather than concerning ourselves solely with our own smaller communities because as he states, “we are electrically contracted; the globe is no more than a village. Electric speed at bringing all social and political functions together in a sudden implosion has heightened human awareness of responsibility to an intense degree” (1964).

            In addition,  (1967) states that time has ceased, space has vanished and we now living in a global village in a simultaneous happening.  suggests that through our extended senses we experience events, as far away as the other side of the world, as if we were there in the same physical space. McLuhan assumed that the entire population of the globe is plugged in to communications technology to the same extent.

Anti-globalization Movement

            The anti-globalization movement is an effort to counter perceived negative aspects of the current process of globalization. Although adherents of the movement often work in concert, the movement itself is heterogeneous and includes diverse, sometimes opposing, understandings of this process, alternative visions, strategies and tactics.

            According to n (2001), the current anti-globalization movement has roots in the nonviolent direct action movement, with which it shares a structure based on small autonomous groups, a practice of decision-making by consensus, and a style of protest that revolves around mass civil disobedience. Each of the major organizations of the nonviolent direct action movement began with great promise but soon went into decline, in large part due to the structural and ideological rigidities associated with insistence on consensus decision-making and reluctance to acknowledge the existence of leadership within the movement.

            Epstein argued that anti-globalization movement’s main focus is not on stopping globalization but transforming the terms on which it takes place, and it shades into the domestic anti-corporate movement. She added that the main target of the anti-globalization movement is corporate power, not capitalism, but these perspectives do not necessarily exclude one another. Moreover, the anti-globalization movement provides focus and momentum, and holds out more hope for a revival than any other movement.

 

Laissez-faire Economics

            Laissez-faire Economics is defined as an approach to economics that asserts the importance of the free, competitive market of individual suppliers and individual purchasers to the efficient production, distribution, and allocation of goods and services as well as to the maximization of individual choice, and emphasizes the need to keep state regulation to a minimum (1998). In The Wealth of Nations,  (1776) argued that though individuals in the market would pursue their own self-interest, the market's ‘invisible hand’ would lead to the realization of the common good.

            However, this view is criticized because it takes no account of considerations such as environmental degradation except in so far as it might increase costs or social justice. Furthermore, the models of the workings of the free market, on which laissez-faire economics are based, bear very little relation to reality; in the real world, markets are distorted by monopolies, lack of choice through cultural constraints, and imperfect information ( 2004).

             ([1949] 1966) refers laissez-faire as an ideology of the old liberal economists. This ideology, in his view, helped to eliminate the restrictions of medieval times, facilitates the emergence of a private property system and free enterprise. He states that laissez faire philosophy had opened the way for capitalism by utterly destroying the fallacies of restrictionism. Similarly, he added that "the laissez faire ideology and its offshoot, the 'Industrial Revolution,' blasted the ideological and institutional barriers to progress and welfare" ([1949] 1966). Mises notes that laissez faire is as an ideology and that he speaks of progress.

 

Ways in which the phenomenon of globalization has changed and evolved over the past 120 years

            Globalization is an umbrella term for a complex series of economic, social, technological, cultural and political changes seen as increasing interdependence, integration and interaction between people and companies in disparate locations. The phenomenon has been noted since the 1980s in the context of sociological study on a worldwide scale ()

            Globalization could be defined simply as the decline in costs of doing business internationally. One of its key effects is to enhance the international integration of markets for goods, services, technology, ideas, financial and other capital, and labor. An indicator of its progress is reducing differences in prices for those products and factors across space ( 1995).

            According to  (1999), there have been three technological revolutions in transport and communication costs in modern times. The cost of transporting goods was lowered enormously in the nineteenth century with the advent of the steam engine, which created the railway and steamship. Steel hulls for ships and refrigeration further lowered the real cost of ocean transport late last century, particularly for perishable goods. The telegraph has also helped. Second, the technological revolution also hugely lowered the cost of moving people. The third and current revolution in transport and communications technology, beginning towards the end of the twentieth century, is digital. Aided by the deregulation of telecom markets in many countries, it is lowering enormously long-distance communication costs and especially the cost of rapidly accessing and processing knowledge, information, and ideas from anywhere in the world.

            Market liberalization has also begun with the lowering of import tariffs on trade in manufactures between industrial economies. In the 1980s, trade reform was followed by extensive liberalization of foreign exchange markets and of restrictions on financial capital flows, leading to the development of new varieties of internationally tradable financial security instruments. The 1980s also saw the deregulation of domestic markets in a growing number of countries, which reinforced the effects of deregulating transactions at national borders.

            Economic reforms have included the better assignment of property rights. These reforms benefit most the countries making them, but they also benefit virtually all of their trading partners (1992;  1993). Hence the more countries open up and reform, the greater are the gains to other countries from doing likewise. In particular, they expand the opportunities for developing and transition economies to access goods and services markets, investment funds, and technologies, thereby raising the pay-off to those economies from joining the bandwagon of liberalization. According to  (1991) and  (1999), the reasons for faster growth of more open economies are related to the dynamics of trade liberalization, something which is not just an abstract idea from new trade and growth theory.

 

Meltdown or the implications of climate change for the wine industry

Meltdown or the implications of climate change for the wine industry

 

Introduction

            The greatest threat facing our planet today is climate change or global warming. Climate change is a global issue whose causes and consequences require action at local, national and global levels. As the atmosphere and oceans warm, climate change will bring uncertainty and threats to the agriculture sector, to the economy and almost every activity of the human kind. Just as nuclear Armageddon would have resulted from human failures, global warming is the product of the activities and decisions of humankind.

            According to  (2001), scientists have ascertained that global warming is under way, and they believe that climate change is very likely happening now. It causes increased frequency of severe weather events like floods and droughts, the spread of pathogens to new areas, adverse changes in agricultural yields, increased human mortality from heat and cold, coastal erosion and damage from the rise in sea level, melting glaciers, and a host of other troubles (2001). These problems will harm the poorest countries and peoples the most due to their vulnerable locations and limited resources, which make it difficult or impossible for them to adapt (2001).

 

 

 

Climate Change Research and Projection

            Climate change refers to the variation in the Earth’s climate or in regional climates overtime (). It describes changes in the variability or average state of the atmosphere or average weather over time scales ranging from decades to millions of years. These changes may come from processes internal to earth, be driven by external forces or be caused by human activities.  In the context of environmental policy, climate change is define as the ongoing changes in modern climate, including the rise in the average surface temperature known as global warming.

            (1995) concluded that human activities are changing the atmospheric concentrations and distribution of greenhouse gases and aerosols. These changes can produce a radiative forcing, that is, a change in the energy available to the climate system by changing either the reflection or absorption of solar radiation, or the emission and absorption of terrestrial radiation. He addressed climate change as any change in climate over time whether due to natural variability or as a result of human activity.

            In addition, (1986) concluded that the addition of carbon dioxide in the atmosphere is not the only influence of mankind in the climate but also that there are other infrared-absorbing trace gases that can cause a greenhouse effect, such as the chlorofluoromethanes, nitrous oxide, and methane.

            Climate change generally is caused by the increased of carbon dioxide and other polluting gases in the atmosphere. Figure 1 shows the process by which gases trap heat by forming a blanket around the Earth like the glass of a greenhouse. Once released the greenhouse gases stay in the atmosphere for many years. As they build up, the planet's temperature rises. Greenhouse gases are released by burning fossil fuels such as coal, oil and gas and by cutting down forests.

            A string of recent research findings points to a high probability of serious consequences of climate change if we remain complacent.

            For example, NASA and other scientists have observed rapid recession of Arctic sea ice and several research groups have also documented rapid melting of permafrost in the northern hemisphere (2006). These reduce the albedo, or reflectivity of the surface, as bright snow is replaced by darker vegetation and soil, and this, in turn, leads to more global warming, an early positive feedback that makes things progressively worse.

            Among the most affected regions of climate change are those at the high latitudes (2001). The extreme forecast is that fundamental ecosystems will be modified as the continuous and discontinuous permafrost boundaries move northwards by several hundred kilometers, along with attendant shifts in the tree-line. Moisture loss, resulting from the melting of the currently impermeable permafrost layer underlying northern wetlands, would be exacerbated by increased evaporation resulting in the rapid loss of wetlands, the foundation of complex ecological systems. Sea-ice cover will shrink, substantially affecting the habitat of marine species such as ringed and bearded seals, sea-lions and walruses which require ice for breeding. It has been estimated that fresh-water fish will migrate pole ward by 150km for every 1°C increase in temperature, possibly displacing current resident species ( 2001).

            In addition, according to  (2006), observations now indicate that the world's forests, long regarded as important sinks for carbon dioxide could be transformed into treacherous sources of greenhouse gases as global warming proceeds, a disturbing turnaround and, again, one that means global warming will feed itself.

             (2005) states that a number of scientists have recently observed vegetation and soils acting as sources rather than sinks and this could mean an earlier-than-expected positive, that is undesirable, feedback in the terrestrial carbon cycle.

            Heat waves and other extreme events are predicted to become more frequent with climate change. News at Nature reported that a team of European scientists had found that the stifling 2003 heat wave in Europe caused the continent's grasslands and forests to release massive amounts of carbon dioxide into the atmosphere. The carbon dioxide released as a result of the heat wave was equivalent to the amount of carbon stored in plants over the previous four years of normal growth.

            In addition, global warming is expected to lead to a more vigorous hydrological cycle, including more total rainfall and more frequent high intensity rainfall events (1995). These rainfall changes, along with expected changes in temperature, solar radiation, and atmospheric carbon dioxide concentrations, will have significant impacts on soil erosion rates. The processes involved in the impact of climate change on soil erosion by water are complex, involving changes in rainfall amounts and intensities, number of days of precipitation, ratio of rain to snow, plant biomass production, plant residue decomposition rates, soil microbial activity, evapotranspiration rates, and shifts in land use necessary to accommodate a new climatic regime. Soil erosion rates may be expected to change in response to changes in climate for a variety of reasons, the most direct of which is the change in the erosive power of rainfall (2001; 2002a). A second dominant pathway of influence by climate change on erosion rates is through changes in plant biomass. The mechanisms by which climate changes affect biomass, and by which biomass changes impact runoff and erosion, are complex ( 2002b).

            Climate change also affects the sea water level. One of the more-certain predictions associated with global climate warming and the melting of polar ice caps is a rise in sea level (1989). Sea level rise for the last century is estimated at 4-6 inches, in part due to thermal expansion of water. Most estimates project a rise of about three feet over the next one hundred years, corresponding to 10-15 inches for each one-degree rise in temperature. Such a rise in sea level can be expected to have serious consequences, especially if at least some preventive measures are not implemented. The major impacts are permanent inundation, beach erosion, increased flooding and saltwater intrusion. Continual development along coastal regions will not only increase the probability and extent of flood damage, but will result in the destruction of some of the natural barriers that help to mitigate these effects.

            The globally averaged surface temperature is projected to increase by 1.4 to 5.8°C over the period 1990 to 2100 (I 2001). In addition, global average water vapor concentration and precipitation are projected to increase during the 21st century. By the second half of the 21st century, it is likely that precipitation will have increased over northern mid- to high-latitudes and Antarctica in winter. At low latitudes there are both regional increases and decreases over land areas. Larger year to year variations in precipitation are very likely over most areas where an increase in mean precipitation is projected.

            Moreover, Northern Hemisphere snow cover and sea-ice extent are projected to decrease further. Glaciers and icecaps are projected to continue their widespread retreat during the 21st century. The Antarctic ice sheet is likely to gain mass because of greater precipitation, while the Greenland ice sheet is likely to lose mass because the increase in runoff will exceed the precipitation increase. Further, global mean sea level is projected to rise by 0.09 to 0.88 metres between 1990 and 2100.

            Emissions of long-lived greenhouse gases have a lasting effect on atmospheric composition, radiative forcing and climate. After greenhouse gas concentrations have stabilized, global average surface temperatures would rise at a rate of only a few tenths of a degree per century rather than several degrees per century as projected for the 21st century without stabilization.

Impact on the wine industry

            The hotter days and warmer nights that global warming may bring could compel most premium wine grape growers to lower their quality. Premium wine grapes are usually defined as such because they are used to make wine. Lower-quality grapes end up in jug or fortified wine, as table grapes and as raisins. Growing premium wine grapes requires the right climate: hot during the day and cool at night. Temperature extremes can ruin otherwise good wine grapes.

            However, some level of climate change is nothing new to wine-growing regions, according to Greg Jones, climate scientist at Southern Oregon University and another study author (2006). According to  winemaker at Bogle Vineyards in Clarksburg, lengthening the growing season is a good thing for wine grapes, because the best spend a long time slowly maturing on the vine and this gives the grapes enough time to develop the correct balance of flavor and sugar ( 2006). However, according to Leon Sobon, of Shenandoah Vineyards in Amador County, when temperatures get too high, about 95 to 100 degrees, the grapes pretty much shut down. If you get to about 100 degrees, the vine shuts down, and if you get to 100 day after day, the leaves start burning ( 2006).

                According to (2004), growing season temperatures have increased for most of the world's high quality wine regions over the last 50 years by an average of 2°C. In tandem with this rise in temperatures, the quality of vintages has also improved. There is a significant relationship between the vintage ratings and monthly average growing season temperatures in most regions. Jones accepts that there is a chance that the rise in vintage quality might not just be because of the temperature increases, but points out that his data show that between 10% and 62% of vintage quality can be explained by growing season temperature variability, with the greatest effects seen in cool climate regions such as the Mosel.

            In the prediction of Jones, wine regions can expect an average growing season temperature increase of 2.04°C by 2049, on top of the 2°C rise of the last 50 years. The largest predicted change was for southern Portugal which is 2.85°C and the lowest was for South Africa which is 0.88°C ( 2004).

            According to Jones, it would appear that the currently cool climate regions would benefit the most ( 2004). If the climate warms as the models predict, then these regions will be better able to ripen the fruit, and may even be able to consider other varieties that could not ripen there today.

            However, global warming is detrimental to some of the warmest wine regions, including most of the vineyard areas in California. For, according to Jones, many of the warm-to-hot regions the negative impacts are already being felt. In hot regions, grapes ripen to a 'sugar ripe' condition, but lack flavors that can take time to develop (2004). Other regions, somewhat in between cool and hot growing climates, will likely have to consider other varieties that will produce better in a new climate regime. For example, in California's Napa and Sonoma valleys, the climate has become so warm that ripening fruit is not an issue but retaining acidity and developing flavor have become increasingly difficult in the warmer conditions ( 2004). This issue could become very critical in already warm areas like Chianti, Barolo, Rioja, southern France, the Hunter Valley, parts of Chile and the Central Valley of California.

            In addition, negative effects of increased temperatures could include harvest periods being brought forward into the warmest parts of the year, reduced water availability and increased pest and disease burden.

            Moreover, one of the common predictions of climate models also has implications for wine with rising temperatures come an increased frequency of extreme weather events and a rising unpredictability of climates. Winegrowers don't want unusual weather; understandably, they like things to be predictable and stable, because large fluctuations will almost always be detrimental for vintage quality. Even if growing season temperatures are very good, a vintage can be easily ruined by extended rain during harvesting, or hailstorms, or a late snap of frost in May.

Response of the wine industry

            In response to climate change, there will be a local adaptation by each environment, a possibility for planting new varieties in regions not previously suitable. Varieties only grown 500km south of a region may be possibly planted further north.

            According to (2004), the observed warming of the past 50 years appears to have mostly benefited the quality of wine grown worldwide. However, the average predicted warming in the next 50 years has numerous potential impacts on the wine industry including changes in grapevine phenological timing, disruption of balanced composition in grapes and wine, alterations in varieties grown and regional wine styles, and spatial changes in viable grape-growing regions.

            Potentially even more important is that climate change, through its direct impact on grape and wine production, has the ability to indirectly bring about cultural change by altering long-held regional identities.

            The wine industry likely can adapt to the possible changes in climate, but not without help. Today many of the Old World wine regions in Europe have stringent standards by which varieties, yields, growing and winemaking techniques, and wine styles are regulated to assure quality and maintain identities ( 2004).

            For example, the summer heat wave of 2003 in Europe produced very early harvests and some challenging growing conditions that without irrigation resulted in lower yields and out-of-balance flavors (2005). Although New World wine regions have fewer governmental constraints, growers and winemakers worldwide will need the freedom to adapt to the potential changes in climate in both the short and long term.

 

Conclusion

            Climate change affects almost every aspect of living of the human kind. It affects the agriculture industry with the unpredictable change in the weather. It also affects the temperature of the globe which causes the permafrost to melt down increasing the sea water level and loss of inhabitants of some animals. Global warming is threatening to the future of the humankind. With the wine industry it is particularly important to be able to predict the climate because wine grape are particularly affected with changing weather. Extreme weather conditions affect the quality of the grapes. Vintage quality of grapes is easily ruined even with extended rainfall, or when temperature reached 95°F the grapevine will shut down.

 

 

 

 

 

 

 

Guides To Doing Business in China

Doing Business in China

 

            China is the fourth largest country in terms of size and the largest in terms of population.  China has awakened. It is now one of the fastest growing markets in the world and is becoming the world's factory floor. Driven by domestic demand and supported by World Trade Organization accession, China economy continues to grow robustly. China today represents staggering potential business opportunities for Western firms with its enormous population and expanding economy. Developing and implementing a successful business strategy for the Chinese market requires an accurate, pragmatic understanding of both the risks and rewards The (2006) stated that China acceded to the WTO five years ago and is very currently in the process of completing a seven – year transitional period. Overall, the Chinese economy has shown exceptional economic growth over the last five years, closely associated with China’s increased integration with the global economy. Many Americans have benefited from Chinese economic growth, as evidenced by rapid and sustained increases in U.S. exports to China. U. S. exports to China increased 28, 22 percent and an estimated 19 percent in 2003, 2004 and 2005, respectively. In 2005, China surpassed the U.K. to become the fourth largest export market.

 

            According to China adopted a variety of measures to promote both imports and exports. Foreign trade organizations were established or reorganized, trading corporations were decentralized, and trade restrictions resulting from planning and import-export controls were liberalized (1997). These leads to a highly focused agreements specifically including: intellectual property, textiles and agriculture; in the hope of that the opening of the Chinese economy would create a series of opportunities for the Americans. A specific example of intellectual rights was given by , wherein he stated that in the early 1990's, China's failure to protect intellectual property rights was one of the most problematic aspects in our trading relationship. Piracy of films, software, CDs, and other intellectual property-based products cost our industry hundreds of millions of dollars and led to trade confrontations with China, including invocation of sanctions on two occasions. The United States ultimately negotiated agreements in 1995, and then won further commitments in 1996 that led China to close over 70 pirate production facilities; cease the export of pirated products and significantly improve enforcement - the principal focus of the agreements (2000).

 

            In the case of China, (1997) argue that the implementation of the opening policies, which involved much more than export promotion, created an increasingly attractive trade and investment environment for international business firms. This improving environment resulted in significant inflows of foreign capital, entrepreneurship and technology as well as growth in exports. Dynamic forces unleashed by the creation of an environment conducive to international business operations have thus played an important role in the process of rapid economic growth and development in China. Allen Maber notes that there are three main reasons why American companies are so eager to answer China's call for investors: low-cost labor, an extensive new market, and government tax breaks (2001). The U.S. Commercial Service enumerated the challenges foreign investor may face in doing business in China. First of all, China often lacks predictability in its business environment. Its current legal and regulatory system can be opaque, inconsistent, and often arbitrary. Their implementation of the law is inconsistent.  There is lack of effective Chinese government protection of intellectual property rights which is a particularly worrisome issue for many American companies. In addition, China has a government that tends to be mercantilist.  China still tends to protect local firms, especially state-owned firms, from imports. Further, China retains much of the apparatus of a planned economy.  The government owns all of the major banks and other financial intermediaries and directs loans to state owned enterprises. 

 

            Moreover, the State and the Communist Party of China directly manage the only legal labor union and understanding of free enterprise and competition is incomplete.  Certain industrial sectors are prone to over-investment.  Excessive investment leads to over production, bad debt and declining prices in affected industries. Finally, foreign businesses tend to under-estimate the challenges of establishing operations in China.  Encouraged by a government eager for foreign capital and technology, and entranced by the prospect of 1.3 billion consumers, but without even having full investigation on the market situation, have not perform the necessary risk assessment, and fail to get legal counsel often stumble into bad business deals, resulting in trade complaints and lost investments (2005).

 

            According to  Chinese business climate is influenced tremendously by the government and its many agencies and regulations.  And because of the strong government control, one must deal with the various bureaucracies. In most instances, government approvals will be needed before opening a business in China (2001).  (2001) added that another significant restriction on foreigners has been China's currency, the renminbe (RMB), otherwise known as the yuan. It was difficult to take RMB out of the country. A foreign company doing business in China had to keep its profits within that country. Until recently, restriction has been loosened, and with certain governmental approvals the RMB can be converted to other currencies.

            Generally, foreign companies are not permitted to trade or market directly in China, with the exception of products they manufacture in China. This has resulted in foreign companies doing business through various third-party relationships (2001). In addition, as China's consuming population continues to grow, so will the market for foreign products. For American companies, high-value products, technology products and products otherwise unavailable in China present good opportunities. It will be difficult to compete on the basis of pricing; therefore, American products will need to establish their market by other means, such as by high-end or high-tech superiority or by unavailability in the Chinese marketplace through internal production. Culturally, Chinese companies and workers do not like to say no. The solution is to get as much in writing as possible and structure meetings so there is a short review or quiz at the end of the meeting to confirm everything ( 2006).

            According to , in China, “yes" does not always mean "yes." Chinese companies and suppliers may act in meetings as if they understand and agree with what is being discussed, but in truth they may not, which can create major potholes down the road. Nodding of the head does not, in fact, indicate that they can provide the products or services you're asking about—only that they are listening and following you (2006). Language is another issue when a U.S.-based company is doing business in China.

 

                According to  survey, very few buyers (less than 2%) polled going to China consider themselves fluent in the language before going there. Most said they knew a few expressions in Mandarin or Cantonese and about one in five hired a translator for their first trip (2006). The U.S. Commercial Service suggests that in meeting Chinese people, short handshakes are usual with the Chinese greeting of “ni hao” which mean “How are you?. In formal meals, at least sample every dish. In giving a toast, the politest way is to say “sui yi,” which means “cheers, but I will drink a little.” Tipping is forbidden in China as what Westerners do (2006). To establish contact with business professionals in China, the U.S. Commercial Service advice that making expansive gestures and using unusual facial expressions should be avoided. Chinese do not use their hands when speaking, and will only become annoyed with a speaker who does. In Chinese business culture, conservative suits and ties in subdued colors are the norm. Bright colors of any kind are considered inappropriate. Women should wear conservative suits or dresses; a blouse or other kind of top should have a high neckline. Stick with subdued, neutral, colors such as beige and brown (2006).

 

            Today, the U.S. Commercial Service states that official policy in Chinese business culture forbids giving gifts. This gesture is considered bribery, an illegal act in this country. Consequently, your gift may be declined. In any case, you will have to approach giving gifts with discretion, as outlined in the following points. If you wish to give a gift to an individual, you must do it privately, in the context of friendship, not business. The Chinese will decline a gift three times before finally accepting, so as not to appear greedy. Express gratitude once the gift is accepted. You will be expected to go through the same routine if you are offered a gift. If possible, have your gifts wrapped in red paper, which is considered a lucky color. Pink and gold and silver are also acceptable colors for gift wrap. Wrapping in yellow paper with black writing is a gift given only to the dead (2006).  (1996) points out one of the most challenging of these barriers facing American public relations firms is dealing with China's Guanxi which is defined as "a strategically constructed network of personal relationships." This Chinese network is close to a private or invisible set of relations. In contrast to American PR ethics, the Chinese Guanxi is based on often-secret personal ties ( 2001).   argue that the key to public relations is its management function that establishes and maintains mutually beneficial relationships between an organization and the various publics on whom its success or failure depends (2000).

 

            In short, American public relation is based on reputation management. Guanxi, on the other hand, has been pervasive in the Chinese business world for the last few centuries. It binds literally millions of Chinese firms into a social and business web. No company can go far unless it has extensive guanxi ( 1987,  1990).  (1995) suggests that in doing business with the Chinese, westerners need a basic understanding of guanxi dynamics even if they don't want to play by Chinese rules.

DOs and DON’ts

            To be successful in doing business with the Chinese and prevent from stumbling to nothing or on bad business deals, here are the DOs and DON’Ts of doing business in China as enumerated from the results of the P (2006) from the respondents asked.

DOs

1.    DO handle all business cards (yours and theirs) with two hands and delicately. Chinese businesspeople equate the way you treat their card with the level of respect you have for them personally.

2.    DO have a set of your own business cards printed with English on one side and Chinese lettering on the other. And be sure that lettering is proofread by someone that not only understands Chinese language, but also Chinese business customs.

3.    DO dress conservatively for business meetings. China is still a very conservative nation culturally

DON’Ts

1.    “DON’T be in a rush”. China happens to be at a much slower pace than it does back home. Do not rush into a deal without having a better understanding in their business climate.” (purchasing.com).

2.  DON'T give a Chinese businessman a green hat as a gift. As Pam Trunca, director of purchasing at Delta Education, points out: "When a man wears green in China it indicates his wife has been unfaithful.”
3.  DON'T show up to a business meeting late if you're hoping to make a positive impression. Chinese companies take tardiness more seriously than U.S. businesses do.
4. DON'T use terms or expressions that may be considered slang or euphemisms. Telling a supplier you think this partnership will be a "home run" doesn't mean much to someone who doesn't know the difference between a "home run" and a "foul ball." Other expressions or topics survey respondents suggested avoiding (based on personal experience). Example of terms to avoid includes “split the difference”, “on the same page”, “bottom line”, “cost downs”, “guys” instead of “men”, “yeah” instead of “yes” and acronyms. And examples of topics to be avoided in conversations includes politics, religions and ultimatums.

            The U.S. Commercial Service states that the legal issues of contracting with a Chinese supplier can be very different than those in the U.S. or Europe. It is advisable not to rely on the legal advice from your Chinese partner. Having own legal counsel is important. China is cracking down on its notorious corruption in business, in an effort to bring more business to the country. Beware of claims that the Chinese law requires specific covenants in your contract. You must be ready to obey all Chinese laws and regulations, even if you initially can successfully avoid them. Seriously question any agreement where you are told you can ignore or avoid the law. It is illegal to exchange Chinese money for dollars (2006). There are several different types of Zones in China, beginning with the largest, `Special Economic Zones' (SEZ) which includes the specific individual; cities in the South China. These cities retains enacts to its own legislation and offer reduce Corporate Income tax rates 15% of profit against national standard of 33%. But these cities are expensive. Open Cities', originally 14 Eastern seaboard cities, already advanced in infrastructure and trade and originally designed to operate as gateways into China's interior.

            Furthermore, investment zones are an important part of the playing field for foreign investors in China and it is wise to shop around-a good consultant with a national presence should be able to assist. Quality and incentives do vary, but the best zones are a great help in dealing with China's bureaucracy and in getting you started although it is still a good idea, as always, to seek professional advice when getting into contractual arrangements in China.

                Investment Zones have been an important vehicle both for Foreign Investors to gain preferential treatment for certain businesses, but also for China to experiment with new business concepts and the opening of markets in a controlled fashion. There are several different types of Zones in China, are closed areas and special permission is required by mainland Chinese to enter such cities. They have typically attracted some of China's best young talent and entrepreneurial skills, but are also comparatively expensive areas.

 

ECONOMIC AND TECHNICAL DEVELOPMENT ZONES

Far better regulated, and proven by foreign investors, are the `Economic and Technical Development Zones' (ETDZ) which are far wider in geographical scope, covering major Northern Cities as well as smaller coastal regions. Like SEZs, they have the right to create their own regulations concerning business activities, but are targeted more at the technology-intensive industries. Local authorities have the right to approve projects valued at up to US$30M. Tax incentives for investments with a term in excess of ten years can be at 15% of Corporate Income Tax and at 24% for projects less than this. While some of the more established zones can be fairly expensive at the moment, ETDZs in the second tier cities are often more welcoming to the foreign investor and can be a source of good service at a still reasonable price.

 

HIGH-TECH DEVELOPMENT ZONES

`High-Tech Development Zones' (HTDZ) are permitted within Open Cities to offer tax incentives to foreign investors specifically in the `High-Tech' area, however, this has not really been the case as the local Governments often have a very loose definition of `High-Tech'. Some, such as the HTDZ in Beijing (Zhong guancun) and Xiamen though, have maintained high standards. HTDZ offer again, similar investment criteria to SEZ's, but the Ministry of Science and Technology rather than the Local authorities administer the tax incentives here. HTDZ are also often placed close to Universities, which can make them a good source of young talent. Prospective investors should shop around, the quality of HTDZ varies between excellent and poor.

LOCAL LEVEL ZONES

`Local Level Zones' of which there is a proliferation in China, are a more risky proposition as many of the Open Cities and other urban areas rushed to offer their own incentives to lure foreign investors. Only ten so far have been centrally approved with others being unofficial zones offering unauthorized incentives. It is wise to ensure that the policies of such zones are accepted by the Central Government; otherwise they may run the risk of being withdrawn later. Check also on the financial status of the local Government’s investment vehicle as Income Tax discounts in unofficial zones is not authorized meaning this is coming out of the pockets of the local Government.

PRIVATE INVESTMENT ZONES

`Private Investment Zones' have also increased in numbers over the past few years, often recognizable by being designated as investment `parks' or `cities'. These are often joint Foreign-China operations with negotiated leases for large tracts of land that then offer improved management and infrastructure due in part to the experience of the foreign investor. Regulatory activities typically remain with the local Government, and they are commonly seen adjacent to EDTZ's as a sort of `sub-zone' where for an increased premium or management fee service is superior. These are winning approval from the Central Government and are increasing in numbers across the country as their popularity spreads.

FREE TRADE ZONES

China currently has 15 centrally approved `Free Trade Zones' (FTZ) all along the Eastern seaboard again, and all sited on or next to major ports with customs and import/export facilities. The main activity of such zones is warehousing and export processing. They offer duty free status on imports and exports and additionally provide RMB or Foreign Currency settlement on transactions conducted with the Zones.

 

 

 

            Most of the different types of Zones are offering similar types of deals on tax incentives, tax holidays, etc to varying degrees. Other items to look out for include the ability to cut through red tape, the quality of the infrastructure, proximity to customers or to other necessary infrastructure such as airports, roads and rail, ability to hire labor, price of land, other specific industry related benefits (some zones offer specific benefits for particular industries, such as pharmaceutical, agriculture, computing, etc). China's variety of different zones act both as an incentive for Foreign Investors and as a barometer for China to manage and understand on a local basis how to develop their market economy, and thus can offer some unique flexibility that may not be available for the time being elsewhere. Despite doom laden talk surrounding them with the advent of WTO accession and the restructuring of some of the tax incentives, Investment Zones in China are here to stay and have an on-going and vital role to fulfill as part of China's development with some of the Inland, Northern and Western provinces now beginning to offer excellent incentives through the continuing use of such Zones.

 

 

            According to, the three most important factors in any meaningful and successful business relationship with China are mutual trust and respect, mutual benefits and a meeting of the minds. However, these tasks are easily said than done. There are the inherent cultural and language differences and barriers. China's own inability to properly predict and manage the dynamic factors of its own economy and its lack of clear guidelines have made penetrating and securing the China market a formidable task. The lack of skilled labor measured by the Western standard, from blue collar all the way to executive levels, has made it difficult to find qualified people to conduct so-called normal people business (1996).

             

 

 

 

 

 

 

 

Apple Computer’s Business Model

Apple Computer’s Business Model

 

Introduction

“A business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.Therefore we must consider which concepts and relationships allow a simplified description and representation of what value is provided to customers, how this is done and with which financial consequences.” (2005)

 

 (2004) describes a business model as consisting of nine related business model building blocks. These building blocks describe the company’s business model which includes:  

1. Value proposition. This is the value that bundles the products and services in which the company offers to the customers. A value proposition creates utility for the customer.
2. Target customer segments. The customer segments a company wants to offer value to. This describes the groups of people with common characteristics for which the company creates value. The process of defining customer segments is referred to as market segmentation.
3. Distribution channels: The various means of the company to get in touch with its customers. This describes how a company goes to market. It refers to the company's marketing and distribution strategy.
4. Customer relationships: The links a company establishes between itself and its different customer segments. The process of managing customer relationships is referred to as customer relationship management.
5. Value configurations: The configuration of activities and resources.
6. Core capabilities: The capabilities and competencies necessary to execute the company's business model.
7. Partner network: The network of cooperative agreements with other companies necessary to efficiently offer and commercialize value. This describes the company's range of business alliances.
8. Cost structure: The monetary consequences of the means employed in the business model.
9. Revenue model: The way a company makes money through a variety of revenue flows.

 

 

 

Apple Computer’s Traditional Business Model

Innovation is, and always has been, at the core of Apple Computer. Innovation remains a potent force but has limits, can be misused, and carries risks. Apple has followed the integrator approach, the “model with the highest costs and highest risks”. The integrator model is a traditional model in which a company assumes responsibility for the entire innovation process from start to finish, including the design, manufacture, and sale of a new technology. The company chooses to be an integrator in the ambition of the founders of Apple to build perfect machines. In addition, the pursuit of perfection also has lead the founder’s to opt for a closed operating environment.

Apple's obsession with controlling the entire process of innovation has also demonstrated the truth of Voltaire's dictum that the perfect is the enemy of the good. Today, the company has just 300,000 independent and in-house developers writing programs and making products for its operating systems, including the latest, OS X. More than 7 million developers build applications for the Windows platform worldwide.

Fewer developers mean fewer new products to run on Apple machines. That means fewer options for end users, which influences purchasing decisions, and therefore sales and profits.

 

Apple has consistently rejected opportunities to adjust its innovation strategy to another model. Licensing its operating system to hardware manufacturers would have been an obvious choice. Yet when Jobs returned to Apple in 1997, he terminated the first and last licensing program. The licensing issue was claimed by many to be the central explanation for Apple’s financial and market share decline. However, others have argued that Apple’s problems can be attributed to other strategic and operational errors (1997a;  1999; 2000).

 

 

Advantages and Disadvantages

Apple’s integrator approach and closed operating environment for computing brought advantages in terms of elegance, ease of use, and reliability (within the Apple environment). It was the least appropriate choice for a startup with scant financial resources and a nonexistent customer base. However, on the other hand, it came at the heavy cost of less choice and higher prices for customers, and far fewer developers.

A closed source strategy exposes the company to serious business risk. The company’s supplier might suddenly decide to be a competitor. No company can survive with a critical component totally controlled by a competitor.

 

 

 

Apple’s Direct Business Model

Recently, Apple Computer Inc. is selling its bulk of equipment through distributors and resellers. Just like Dell which has gained market share by cutting out its cost and selling its computers prices lower than its competitors selling through indirect route, Apple Computer also has offer direct sales as a way of delivering custom-configured systems not available from other retailers.

Apple has launched its e-commerce which is called Apple Club which is accessible to fee-paying members, offers discounts on refurbished hardware and some new systems as well as software upgrades. The website can quickly ran into problems when users report complaints about registration delays and trouble entering the site and other privacy concerns. The site is an online reseller with its product on fronts and with the posting current prices and configurations for the systems.

With the history of Apple’s decline in the 1990s, the company has finally shifted from its traditional business model to a direct business model. With its recorded decline, the company changed the company’s business strategy and focused on improvements in operational efficiency.

In the mid 1998, Apple has shifted its target market to primarily three groups of customers. This includes graphics/designs, education, and home users. Apple’s strength in this comparatively high end professional market was complemented by its remaining customers in education and consumer segments. According to (2000), existing consumer market remained because of high switching costs. Early in the year 1998, Apple has successfully targeted new computer users by offering an easy-to-set-up internet computer. In addition, Apple had increased its distribution channels from traditional computer retailers to consumer electronics dealers and office supply dealers.

Amongst the major changes in Apple Computer is on its operations and manufacturing. Apple Computer has shifted from integrator strategy to outsourcing manufacturing for all orders except custom build-to-order. Since Apple Computer has shifted its assembling to outsource plants, the company needed no forms of build up in their inventory. The company reduces its costs on inventory management.  

 

In addition, Apple Computer has also give emphasis on the simplification of their products. Having their products simplified, this is reducing the number of products and also subassemblies, Apple’s desktop computer are reduced from four motherboards to one. Thus, this change has improved the use of common components across the product line. In addition, the volume of the company’s production has increases and also its bargaining power (1998). Use of standard industry components such as CD-ROM and disk drives also allowed Apple to leave inventory in supplier warehouses until it was needed (1999)

 

The product line simplification “allowed the Company to more accurately forecast demand, reduce inventory carrying levels and related costs, lessen the financial exposure resulting from inventory obsolescence and excess inventory levels, and reduce the component cost of obtaining certain standardized parts” (1998). Apple reduced its reported supply in inventory from 31 days in 1997 to 6 in 1998 and finally to 2 in 1999. (1998)

 

One of the areas in which Apple Computer has maintained inventory and assembly was on its build-to-order systems. According to  (2000), “while this potentially raised inventory costs, it also improved the accuracy of Apple’s forecasts and thus the supply chain management by providing an up-to-date window on the latest consumer demand trends. Managing both the customized and standard product production and distribution required entirely new supply chain process.”

 

“In late 1998, Apple adopted the Rhythm sales forecasting system from i2 Technologies. In December 1998, Apple adopted a new enterprise-resource-planning system (ERP) based on SAP AG’s R/3. These new systems allowed Apple to tie daily product production to weekly sales forecasts. Apple’s supply chain management systems also extended to resellers such as CompUSA, allowing Apple to fine-tune its distribution channel to avoid both excess inventory and out-of-stock dealers.” (1999; 2000).

 

“In 1997, Apple tightened distribution polices even further. In anticipation of the launch of its direct retail web site, in September 1997 Apple had announced new dealer policies which was made effective December 1997 that allowed smaller retailers to buy product directly from Apple eliminating distributor mark-up and also adding a four-week price protection policy. At the same time, it restricted product returns and reduced its co-marketing allowance to 0.5% of product purchases” ( 1997a). Apple’s direct retail web site helped address its lack of shelf space and mindshare in the traditional retail channel.

 

“In May 2001, Apple finally confirmed its long-rumored plans to open its own stores, with its first stores in affluent D.C. and Los Angeles suburbs. However, Apple planned a more limited presence in upscale shopping malls” (2001; 2001).

 

Beginning in 1995, the major catalog vendors opened online stores for personal computers, software and accessories. According to Apple management, the catalog vendors played both a competing and complementary role to Apple’s own direct strategy (2000). With their customer databases and centralized inventory they were ideally suited to serve a niche market like the Macintosh, capturing the most knowledgeable and profitable customers from the limited product lines available in retail stores. The Internet brought efficiency improvements by reducing the demand for printing and postage and simplifying ordering and fulfillment.

Apple’s Internet commerce efforts are designed to address customer demand to buy directly from Apple and to be able to order specific configurations. It is not a way to compete with our current distribution channels, but a means to complement them. The Apple Store will be a neutral proposition as far as pricing and product allocation is concerned 1997b). Through ease of use and other aspects of the online shopping experience, Apple also sought to use the store as a role model to improve the standard for its other dealers ( 2000). Apple’s e-commerce sites were used to reach existing market segments and offer them a wider array of configuration options.

 

Apple, through its direct business model, designs, manufactures and customizes computer hardware, including desktops, servers, and laptops.  Having this direct relationship will improve order accuracy, reduce delivery time, and provide better pricing for institutional orders.

 

Apple’s direct model remains a powerful differentiator in the global business, providing a unique relationship with their customers and a clear cost advantage over competitors. Apple’s direct model enables the company to excel at demand management. The process of selling directly to customers and building product to order creates opportunities for true real-time collaboration and synchronization between manufacturing and sales.

 

By being in direct contact with the market, Apple can quickly see changes in customer demand. Synchronization then allows the company to respond more quickly to customer demand than its competitors can. Additionally, this true internal collaboration allows for highly accurate forecasts.

 

The direct model has proven to be compelling for customers. The direct model has enabled the company to pass on the reduction in operating expenditure and declining component costs to customers by reducing the PC prices.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Governance

Table of Contents

Introduction

 

Overview of the Topic

 

Discussion

            Definition of Effective Governance

            Corporate Social Responsibility

            Case Study Analysis

Conclusions

 

 

Introduction

Corporate Governance, is an act that helps regulate the corporate industries in order to ensure protection for the shareholders and also to regulate behavior and performance within a company. In this paper, we shall focus on the effects of good governance to a company’s performance and behavior, and also the theories that relate to this topic.

Every business organization or company has different internal organizations, having a variety of functions. The internal organizations that comprise the whole business are interrelated and are working together to ensure the company’s success in profiting from the market. The more functions each of the organization perform; the better is the performance of the company as a whole. This gives each of the companies their corresponding advantages and benefits from the market and their consumers.

Also, every company has a need to be overseen by something much greater. This is where corporate governance comes in.  In this paper, we shall view the different theories that are part in explaining and proving the connection between effective corporate governance to the behavior and performance of the company.

 

Overview of the Topic

Competition, typically the most powerful external force, is increased by the advent of globalization. The number of companies and the number of countries where these companies operate and the way governments are dealing with the impacts of globalization is accelerating. The interaction of changes in government policy and business innovation has actually made globalization even faster. If a company does not become a global, it would simply be shut out of new markets. This is what pushed firms around the world to adopt Corporate Governance. Also, a company must be able to make contact with its consumers. According to most theories on strategic management, the customer is the ultimate judge of competitiveness; that is, by buying the products of a firm, the customer indirectly decides which firms will continue to exist and which firms will go bankrupt. (2002). The reasons for the turmoil are numerous: a sputtering economy, increased global competition, the implementation of new technologies that displace jobs, the deregulation of certain industries, and the general consolidation of other industries, such as banking and health care. Observers will see a continuing progression in the ruinous steps which have forced the industry into a socio-politico-economic corner. The industry is likewise linked closely to the policies of governments, the earnings of banks. The industry’s approach to dealing with political institutions has not always been brilliant. It tends to be good on technical issues, although it has not always fully presented the longer-term options, in order to make the choices and their implications clear.

             Globalisation around the world – has been one of the most hotly-debated topics in international economics over the past few years. Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of globalisation. But globalisation has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. The most common interpretations of globalisation are saying that the world is becoming more uniform and standardized through a technological, commercial and cultural synchronisation coming from the West.  These perspectives equate globalisation with Westernisation.  However, there are other assessments that argue from viewing globalisation as the process of hybridisation, which gives rise to a global melange.

            The process of globalisation is commonly recognised to be characteristic of contemporary international developments.  Contemporary processes of globalisation have several dimensions or faces: technological, cultural, religious, economic and political. None of these is in itself good or bad. All should be understood as ambiguous, with potential for good and evil, but in the current phase of globalisation it is important to distinguish the different faces of globalisation and identify with a potential to pursue the good. Globalisation implies two distinct phenomena. First, it suggests that political, economic and social activity is becoming worldwide in scope. Secondly, it suggests that there has been an intensification of levels of interaction and interconnectedness among the states and societies (1991). Among these relations are those created by the progressive emergence of a global economy, the expansion of transnationals links which generate new forms of collective decision-making, the development of intergovernmental and quasi-supranational institutions, etc. (1990). Consequences of globalisation are controversial and not necessarily positive. Severe questions rise about the accountability of such diverse international organisations and agencies as the International Monetary Fund (IMF) and North Atlantic Treaty Organization (NATO), which challenge the very idea of sovereign state.

Globalisation is a term frequently used by many but is vaguely defined. One finds trouble in even finding two authors who defines globalisation in the same, exact way.  But even that being the case, there is no denying that global markets, in particular emerging ones, offer attractive potential. For many organisations it is the only approach for growth as existing markets mature with few chances for profitable opportunities. As global markets open through the increasing use of the Internet and with improved supply chains, it is likely that there are many untapped segments around the world that would open to a multinational company, regardless of the industry. More and more, the world is becoming an available global market place. To stop marketing activities at one’s home-base borders is not only arbitrary, but also short-sighted. International marketing is often defined largely in terms of the level of involvement of the company in the global marketplace, and export, multinational and global marketing are most widely considered. Multinational enterprises (MNEs) develop international marketing strategies in order to improve corporate performance though growth and strengthening their competitive advantage. However, MNEs differ in their approach to international marketing strategy development and the speed and the progress they make in achieving an international presence.

In this paper, good corporate governance will be subjected to research.

But before tackling the topic of good governance, first, one must define what corporate governance is.            

“Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.” (2007).

            In another definition, this time by Shann Turnbull, “Corporate governance describes all the influences affecting the institutional processes, including those for appointing the controllers and/or regulators, involved in organizing the production and sale of goods and services. Described in this way, corporate governance includes all types of firms whether or not they are incorporated under civil law.” (1997).

Good corporate governance includes many aspects. One major aspect of corporate governance handles matters that are greatly concerned with “accountability and fiduciary duty”, making sure that policies and guidelines be followed so that protection of shareholders can be ensured. One other major aspect is “economic efficiency view”, in which, the corporate governance system’s main goal should be “to optimize economic results, with a strong emphasis on shareholders welfare.”(2007).

 

Definitions of Effective Corporate Governance

            What is effective governance? Effective governance, in the context of this paper, may be defined as an act which enhances the overall performance of a firm, lessens the threat to the downfall of the firm and ensures the safety and continuity of the firm.

According to Peter Little, there are expected outcomes of effective corporate governance. Some of them are:

“• enhanced organisational performance

• effective risk management

• improved investor and stakeholder confidence

• enhancing an organisation’s reputation

• benchmarking accountability

• assisting in the prevention and detection of fraud, dishonesty or unethical behaviour “ (2003).

In another reference, it was sighted that in an effective corporate governance scheme I banks, the director strengthens the system by:

·         “Understand their oversight role and fiduciary responsibility

·         Meet regularly with senior management and internal auditors to establish and approve policies and procedures and to monitor progress toward corporate objectives

·         Serve as checks and balances

·         Feel empowered to question management

·         Provide dispassionate advice

·         Absent themselves from decisions when they are incapable of providing objective advise

·         Avoid conflicts of interest

·         Do not participate in the bank's daily management. “().

Corporate Social Responsibility

            Corporate Social Responsibility is one of the leading topics in the issue of corporate governance and even marketing effectiveness. Corporate Social Responsibility is a theory on corporate governance which states that the firm has a great responsibility upon his shareholders, comprising mainly of the employees, the consumers, the environment, the stockholders and other people who are, in one way or another, part of the whole business process.

            Corporate Social Responsibility entails with it the idea of corporate citizenship. Being a corporate citizen, a firm must include in its steps the welfare and well-being of its shareholders. In essence, it is the idea of “not compromising the well-being of the environment and others for the sake of profit”.

            Corporate Social Responsibility can bring a bounty of benefits to a firm.

Ø  By reducing risks

Ø  By enhancing brand value

Ø  By opening doors and creating goodwill with host governments or in the local community.

Ø  And by improving staff efficiency and morale (2007)

In the theory of Corporate Social Responsibility, it is stated the organization has the responsibility of taking into consideration the interests of its stakeholders. It must incorporate in its goals the needs of its stakeholders. Family firms are said to follow the theory of Corporate Social Responsibility, taking into consideration not only the profit to be made, but also the best things for its stakeholders. Corporate Governance as was mentioned is the method of regulating and monitoring the behaviour and practices of the company.  This idea may relate in many ways in the aspect of corporate social responsibility. Corporate Social Responsibility or CSR is one of the leading theories relating to corporate governance. The theory talks about the responsibility of the corporation, or any organization for that matter, to all its stakeholders, which comprises mainly of its customers, employees, etc. The theory mainly states that the organization should keep in mind the interests of their shareholders and not only the possibility of making higher profit. The following is made to compare and illustrate the differences between the publicly owned companies and the family firms.

Another aspect is to adopt the Theory of Corporate Social Responsibility. Corporate Social Responsibility deals with the responsibility of the firm to put the best interests of its stakeholders before any profitable step. Corporate Governance is the action taken in order to help regulate and monitor the behavioural aspects and practice of the company. It also helps keep in check the needs and the interests of the shareholders. Corporate governance is adopted into many aspects of the corporate world. This strategy should be adopted by publicly owned corporations. The stakeholders, which comprises of the employees, the customers, the environment and the shareholders, should be the main focus of the company.

            In the theory of Corporate Social Responsibility, it is stated the organization has the responsibility of taking into consideration the interests of its stakeholders. It must incorporate in its goals the needs of its stakeholders. Family firms are said to follow the theory of Corporate Social Responsibility, taking into consideration not only the profit to be made, but also the best things for its stakeholders. Corporate Governance as was mentioned is the method of regulating and monitoring the behaviour and practices of the company.  This idea may relate in many ways in the aspect of corporate social responsibility. Corporate Social Responsibility or CSR is one of the leading theories relating to corporate governance. The theory talks about the responsibility of the corporation, or any organization for that matter, to all its stakeholders, which comprises mainly of its customers, employees, etc. The theory mainly states that the organization should keep in mind the interests of their shareholders and not only the possibility of making higher profit. The following is made to compare and illustrate the differences between the publicly owned companies and the family firms.

Corporate Social Responsibility and sustainability are often used interchangeably such as in Marks & Spencer as there were views on CSR as the management process by which they move towards a more sustainable business model. CSR helps to secure investment because investors will increasingly reward companies that can demonstrate that they are able to make long term, sustainable returns. Responsible business practice helps the company to attract and retain employees because they are proud that they have a responsible business and secures the right business partners whether they be suppliers or franchise owners.

Pressures & Suggestions

            Suggestions have a great impact on decisions. Suggestions can also be used with a good corporate governance strategy. Of course, many factors may affect the decision making capability of an individual. They are somewhat referred to as pressures. The growth of the company may be one pressure that a high ranking individual must deal with. The recent demise of Harris Scarfe has brought about new light in the pressures that a company head faces. A number of other pressures, such as return to shareholders, Environment, Culture differences, Bottom line (legislation), Political, Economic conditions, Knowledge management, & Resources are just a few of the pressures that could have a great impact on the company. Take for example cultural differences. Differences in culture can often times bar the potential growth of a product in a certain area. This, however, could be remedied if the company seniors would know how and where to take action on. If the company would chose to remove cultural barriers (i. e., include the host area’s culture in the promotion of the product), then it may work to the company’s advantage. Good Corporate governance not only entails keeping the company alive, but also to keep the company in good hands with good decisions.

            Many strategies can be adapted in order to remedy a situation or pressure. One must always come up with a mission statement. This may sound very easy, but it is in fact very vital to the survival of the company. Having a vision statement would mean that the company has a direction. No matter what pressures entail in making a decision, a mission statement would always keep decision makers on track.

Consulting is another way of good governance. In the year 2000, over 60% of companies and firms based in the United States of America adopted the use of enterprise resource planning. Because of the recent upheaval in the corporate industry, sales of the ERP software has reached to more that 150% increase year after year. Due to the sudden demand for the said software, sales per annum amounted to a total of $30 billion in the year 2004 (2004). According to Hitt, companies who adopted the use of ERP’s were said to exhibit an increase on overall performance concerning finance related processes (2002).

Due to the above-mentioned obstacles, external practitioners often are recruited to aid firms on the said issues (1998). Because ERp generally focus on giving out a certain level of pragmatic interoperability which is said to pose certain mechanical and financial obstacles which would be difficult to overcome ”with stand-alone custom-built systems" (2002), dependence on external practitioners is very much understandable (1998).With technological advancements and complexity of information being put out, greener pastures are opening up for external practitioners in the context of information systems.

In recruiting the aid of external practitioner, organizations not only have operational success in mind but also goals such as training skills, information dissemination. Acquiring such needs often help and benefit the client organization in the long run (1998).

            Outsourcing can become a great resource for an international company in the long run. Outsourcing can assure that the company would continue to have a good number of manpower but for a lesser and cheaper cost.

 

Conclusion

            Therefore, suggestions have great impacts on good corporate governance. In the light of the recent downfalls of many companies and corporate organizations due to lack of good judgment, the effects of the pressures that corporate heads are exposed to, are now taking greater attention. Because of this, it is vital to note that there exist a number of solutions to corporate problems.

We are on the verge of the 21^st century. Entrepreneurs should create and make better the strategies that they have now in order to have the edge in the competitive world. They must be able to recognize and meet the consumer’s needs. Having said so, someone wanting to be an entrepreneur must be able to have the needed skills and abilities.

 

Would both an importing country and an exporting country benefit from forming a customs union?

Question: Would both an importing country and an exporting country benefit from forming a customs union?

 

            A Customs Union is  and International organization whose goal is to remove all trading barriers for members of the organization and to have an unvarying tariff for nations who are not members of the said organization. Usually, countries set up customs unions to speed up economic efficiency and to strengthen ties between member nations. According to the Mission Statement of the European Union (EU), “One of the primal roles of the Customs is to facilitate trade and to protect the interests of the community and its citizens. “

            Yes, both an exporting and importing country would benefit from forming a Customs Union if it is part of the Union. Forming a Customs Union would mean that if you are part of it, you would greatly enjoy regulated tax, tariffs and other existing charges. You would be ensured that you have a regular trading partner. The country would also be protected from illegitimate business activity and would enjoy the benefits of legal trade with other member nations. And, not only large scale businesses benefit from a customs union but also small scale businesses as well. in the long run, nations who have established customs union will eventually have better economies and will have established better bonds with other trading nations as well.

            Part of the mission statement of the European Union (EU) is stated in the following:

“Customs in the European Union - A Joint Mission Statement:

                                                                                                    

 

Customs is responsible both for protecting society and facilitating international trade through the management of external borders and by ensuring overall supply chain security. We are committed to

 

Ensuring the safety and security of citizens

Protecting the financial interests of the Community and its Member States

Protecting the Community from unfair and illegal trade while supporting legitimate business activity

Increasing the competitiveness of European Business through modern working methods supported by an easily accessible electronic customs environment.

To carry out these duties, we shall co-operate nationally and internationally to combat fraud, organized crime and terrorism in collaboration with other authorities, notably with other law enforcement agencies. Our aim is to operate with integrity and provide the highest possible level of service.”

            With the above statement of the EU, we could see that all the member nations, whether exporting or importing, would greatly benefit from forming a customs union. Let’s try to discuss the different points of this proposition.

            Ensuring the safety and security of citizens. Here is a feature that will greatly benefit a member nation. The customs is, according to the mission statement of the European Union (EU) the Union ” are in front line in the fight against fraud, terrorism and organized crime.” The customs is not only concerned with business, they are also concerned with the welfare of the citizens of their member nations. This feature of the mission statement is clearly designed to protect the people from illegal businesses that may cause a fall-out on their own businesses and also to protect them from terrorism and other such vicious attacks.

Protecting the financial interests of the Community and its Member States. The union can give people better protection from illegal businesses that may cause problems for their businesses as well. The community or the member nation has a higher chance of having a very good trading partnership with other nations because it may have the capability to solely address the needs of the other member nation. And, the member nation’s interests in trade are protected from illegal traders.

Protecting the Community from unfair and illegal trade while supporting legitimate business activity. As mentioned earlier, the member nation is ensured of a trading partner and is rid of the fear that an illegal trading group may take away its chances of having that trade with that target nation. The business activity of this member nation will eventually flourish with the help and aid of the customs union. Other illegal activity is suppressed in the said union and the member nations are assured of fair and legal trade with each other.

Increasing the competitiveness of European Business through modern working methods supported by an easily accessible electronic customs environment. If this mission statement is applied to other unions as well, it may mean the same thing. Through modern technology, business may further flourish and would be easily accessible by member and even non-member nations. Through the advent of computers and the electronic mailing system, business of unions can be easily brought to the world and further trade would be done through this.

Having customs union is like being part of a group and being sure that you don’t get left out. Customs Unions around the world are facilitating agreements for easier trade with each other and for combating and finally eradicating illegal underground businesses. They are also aiming to suppress terrorism which is, as of the moment, very much at large. Negotiations on countries that have long closed their borders to foreign trade are slowly gaining pace and are well on the way to once again, open to foreign trade.

Commerce existing at the micro level is also benefited from this undertaking. Due to the fact that macro traders depend on small scale industries to provide them with the necessary materials for their own production, micro scale businesses aren’t necessarily left out of the foreign trade industry. Instead, the products that they are producing might be exhibited internationally and may have a potential buyer.

Therefore, as shown in the presentation of the data that I gathered above, customs union is a really very good thing to have for both exporting and importing countries due to the fact that it may not only reduce or even abolish trading barriers within the union, it may even also find for a member country a potential trading partner which will in ways more than one, elevate the state of their economy.

 

 

 

Business Manual

Situational Analysis: Analytical Tools

 

            A Situational Analysis considers two aspects: the internal and the external environment. The Internal or Micro-environment of a business pertains to its competencies, capabilities, resource strengths and weaknesses, and competitiveness. The External or Macro-environment on the other hand, refers to industrial and competitive conditions. Below are some analytical tools used for situational analysis.

 

Internal:

 

Marketing Mix (4P’s Product, Price, Place, Promotion)

 

Product

-          Description and assessment of the company’s product lines, their features and function

 

Price

-          Description and assessment of the company’s pricing strategy

 

Place

-          Description and assessment of the company’s distribution channels (e.g. direct selling, online retailing)

 

Promotion

-          Description and assessment of the company’s marketing strategy (e.g. advertisements, media channels)

 

 

SWOT (Strengths, Weaknesses, Opportunities, Threats)

 

Strengths

 

• Organizational strengths

-          Skills and abilities enabling an organization to conceive of and implement strategies.

• Distinctive competencies

-          Useful for competitive advantage and superior performance.

• Sustained competitive advantage

-          Occurs when a distinctive competence cannot be easily duplicated and is what remains after all attempts at strategic imitations have ceased.

 

 

Weaknesses

• Organizational weaknesses are skills and capabilities that do not enable an organization to choose and implement strategies that support its mission.

• Weaknesses can be overcome by:

-          investments to obtain the strengths needed.

-          modification of the organization’s mission so it can be accomplished with the current workforce.

 

Opportunities

• Areas in the organization’s environment that may generate high performance.

 

Threats

• Areas in the organization’s environment that make it difficult for the organization to achieve high performance.

 

BCG Matrix

• A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market.

• The matrix classifies the types of businesses that a diversified organization can engage as:

•         “Dogs” have small market shares and no growth prospects.

•         “Cash cows” have large shares of mature markets.

•         “Question marks” have small market shares in quickly growing markets.

•         “Stars” have large shares of rapidly growing markets

 

 

•      BCG matrix suggests

-          Hold stars;

-          Sell off dogs; and

-          Milk cash cows for funds to

-          Invest in question marks

 

•      BCG matrix assumptions:

-          Cash cows have lower costs than industry competitors, based on their superior position on their industry’s learning curve.

-          Cash cows generate higher cash flows but have fewer investment opportunities than other businesses in the portfolio.

-          The excess funds of cash cows are allocated into investments in new businesses to promote their growth.

-          The firm has the entrepreneurial capability to grow the startup to dominance in its market.

-          The firm has the general management talent to retain the value of the dominant startup as its industry matures.

-          New cash cows are sufficiently successful to support a new round of new business development.

External:

Porter’s 5 Forces Model

 

 

 

 

 

 

 

 

 

 

 

 

• Rivalry/Competition

-          typically the most powerful all forces

-          is the threat of established firms competing away their economic profits

-          the big factor that determines the strength of rivalry is how actively and aggressively rivals employ various weapons of competition in order to acquire a stronger market position and bigger sales.

 

Some sources of strong Rivalry:

•         Large number and similar size of competing firms.

•         Lack of product differentiation.

•         Rivals are active in making fresh moves to increase sales and market share.

•         Buyer demand grows slowly.

•         When rivals have diverse strategies and objectives.

 

• Entrants

-          the threat on entrants are dependent on barriers of entry

-          the threat on entrants is low when barriers of entry are high

 

A barrier to entry is any factor that

 

-          the threat on entrants are dependent on barriers of entry

-          Increases the costs born by potential entrants (relative to incumbents), after they enter the market

-          Decreases the market share potential entrants might receive upon entering the industry

 

Common Examples of Barriers of Entry:

•         Trade restrictions (tariffs, quotas, voluntary export restraints, infant industry protection, embargoes)

•         Government regulation of industries

•         Industry certification boards (CPAs, Actuaries)

•         Difficulties in gaining access to distribution channels.

•         Strong brand preferences and customer loyalty.

•         Inability to gain access to specialized technology.

 

 

• Buyers

- this factor pertains to the power of the buyers over the producer/company

 

Sources of Buyer Power:

•         Many substitutes are available.

•         Products sold to customers are undifferentiated

•         The importance or value of the product to the buyer.

•         Buyer concentration (few/many).

•         Product demand.

 

• Suppliers

-          this factor pertains to the power of the suppliers over the producer/company.

 

Sources of Supplier Power:

•         Product demand.

•         Supplier industry is highly concentrated.

•         Suppliers are not threatened by substitutes.

•         Supplier products are highly differentiated.

•         Short supply of needed inputs (e.g. materials, technology, labor).

 

• Substitutes

-          this factor pertains to the availability of product alternatives to the market

-          the threat of the substitute factor increases when available alternatives are high

 

Threat of substitutes is higher when:

•         Good substitutes are readily available or new ones are emerging.

•         Substitutes are lower priced to the performance they deliver.

•         Consumers grow more comfortable with using substitutes.

 

 

PEST (Political, Economic, Socio-cultural, Technological)

-          is an analytical too used to assess the macro environment of the company or business organization

-          in order to effectively use this tool, one must know the country where the business is located and/or the location of its aimed international market/s

 

Political

 

•         Monetary and fiscal policies: Marketing efforts are affected by the level of government spending, the money supply and tax legislation.

•         Social legislation and regulations: Legislation against pollution, insider trading etc.

•         Government relationships with industries: subsidies in agricultural, shipbuilding, and passenger rail transportation etc. Deregulation continues to have an effect on financial institutions, public utilities and telecommunications etc. 

 

Examples of political factors involved in US marketing:

 

To regulate competition:

-          Sherman Antitrust Act (1890). Prohibits monopolies and combinations in restraint of trade.

-          Federal Trade Commission (FTC) Act (1914). Prohibits unfair competition.

-          Lanham Trademark Act (1946). Regulates brands and trademarks.

-          Various deregulation laws:

•         Natural Gas Policy Act (1978)

•         Airline Deregulation Act (1978)

•         Drug Price Competition and Patent Restoration Act (1984)  

 

To Protect Consumers:

-          Pure Food and Drug Act (1906). Regulates labeling of food and drugs and prohibits manufacture or marketing of adulterated food or drugs. Amended in 1938 by Food, Drug and Cosmetics Act.

-          Fair Packaging and Labeling Act (1966). Regulates packaging and labeling.

-          Cigarette Labeling and Advertising Act (1966, 1969). Require manufacturers to label cigarettes as being hazardous to health and prohibit TV advertising of cigarettes.

-          Children’s Television Act (1990). Limits the number of minutes of advertising that can be shown on programs designed for children.

 

Economic

-          pertains to the income, employment and other related factors of the market (in order for the market to support the product, they must have the money and willingness to buy it)

-          also includes the current economic status of the country and its past crises

 

Socio-cultural

-          refers to lifestyles, values and beliefs.

-          consumer behavior (e.g. consumers emphasis on the quality of life rather than on the quantity of goods consumed

-          social issues (e.g. changing gender roles: increasing number of two-income households, a growing number of “house husbands”, women’s attitudes towards careers, shopping and products continue to evolve).

 

Example of socio-cultural analysis:

 

•         A premium on time: consumers with less time are willing to pay for greater convenience, e.g. ease of preparation of food; less learning time for using a new computer; convenient locations and store hours; and internet shopping etc.

•         Physical Fitness and Health: Participation in fitness activities from aerobics and yoga is on the rise. A large number of consumers have become more interested in diets for weight loss; foods low in salt, additives and cholesterol; and foods high in vitamins, minerals and fiber content.

 

Technological

-          has a tremendous impact on people’s lifestyles, consumption patterns, and economic well being, e.g. airplanes, plastics, televisions, computers, internet, antibiotics and video games.

-          technological breakthroughs can affect the markets:

–        Starting entirely new industries, e.g. computers, lasers, and robots.

–        Radically altering, or virtually destroying, existing industries, e.g. computers replace typewriters.

–        Stimulating markets and industries not related to the new technology. New home appliances and microwavable foods give people additional time in which to engage other activities. 

 

 

Explain how the structure of an industry in which a firm is operating can determine the performance and conduct of that firm

 

Table of Contents

Introduction

 

Overview of the Topic

 

Discussion

            A. Definition of Industry Structure

A.1. How can it determine the performance and conduct of that firm?

 

B. What is Price Elasticity of Demand? How does industry structure affect it?

 

C. What are the different supply and demand factors?

C.1. What are their significance and implications to decisions relating to pricing and output factors?

Conclusions

 

 

 

Introduction

            There are a number of definitions for an industry’s structure. There is a model, created by the British Computer Society which describes the different roles that exists and defines every role in all levels. This model was called Industry Structure Model or ISM. Its primary use was for the computer industry and identifies each possible role and function of each role in each level.

            In the context of this paper, the definition of “industry structure” would be, “the convergence of the firm’s shares in the market.”

            Price elasticity of demand is an elasticity which deals with the relationship in the changes in the demands of a certain product to the changes in the price.

            “Price elasticity of demand describes the relationship between changes in quantity demanded of a good (or service) and changes in the price for that good (or service.) When prices fall, the quantity consumers demand normally rises--if it costs less, consumers buy more. If price drops 10% but the quantity demanded increases by 20%, the good (or service) is relatively elastic. More specifically, the price elasticity of demand would be 20 %/10 % = 2. Any number above 1 indicates relative elasticity. (In determining elasticity, absolute values govern--negative and positive signs may be omitted.) Numbers between 0 and 1 indicate relatively inelastic demand.” (2007).

 

Overview of the Topic

            Competition, typically the most powerful external force, is increased by the advent of globalization. The number of companies and the number of countries where these companies operate and the way governments are dealing with the impacts of globalization is accelerating. The interaction of changes in government policy and business innovation has actually made globalization even faster. If a company does not become a global, it would simply be shut out of new markets. The reasons for the turmoil are numerous: a sputtering economy, increased global competition, the implementation of new technologies that displace jobs, the deregulation of certain industries, and the general consolidation of other industries, such as banking and health care. Observers will see a continuing progression in the ruinous steps which have forced the industry into a socio-politico-economic corner. The industry is likewise linked closely to the policies of governments, the earnings of banks. The industry’s approach to dealing with political institutions has not always been brilliant. It tends to be good on technical issues, although it has not always fully presented the longer-term options, in order to make the choices and their implications clear.

A firm is the most basic part of an industry. This is why one must be able to recognize its structure to be able to point out its relationships to the performance and conduct of a firm and also to the price elasticity of demand of that firm.

            In this paper, we shall examine the relationships between the industry’s structure to the performance, conduct and price elasticity of demand to that firm’s products.

Discussion

A. Definition of Industry Structure

            In the context of this paper, we shall define industry structure as

“the convergence of the firm’s shares in the market.”

 

A.1. How can it determine the performance and conduct of that firm?

            In a school of thought presented by  in the 1940’s to 50’s, they argued that there was a direct link between the industry structure to the conduct and performance.

“1. Structure-Conduct-Performance (SCP)

The structure of an industry determines its conduct which determines its performance.

• Structure: Number and size distribution of buyers and sellers, product differentiation, entry conditions. The fewer the number of sellers the more likely is the market to perform as a monopoly. A market with a very large firm and several small ones is more likely to perform as a monopoly. The number and the size of buyers determine their countervailing power and hence affect the ability of firms to gain monopoly power.

Product differentiation increases monopoly power. Entry conditions determine the nature of potential competition

• Conduct: Pricing and product policy, advertising, R&D innovation in products, mergers, collusion.

• Performance: Profitability; allocative and productive efficiency; dynamic efficiency, quality, rate of technological change

 

  

In another definition of the paradigm illustrates in the following:

The paradigm was based on the following hypotheses:

i) Structure influences Conduct:

Lower concentration ⇒ more competitive the behavior of firms.

(Illustration: In repeated Bertrand game, smaller the number of firms, more likely it is to be collusive.)

ii) Conduct influences Performance.

More competitive behavior>>less market power (i.e., greater social efficiency).

(Illustration: Betrand pricing with no capacity constraints - severest

form of competition - leads to zero market power

Different from Cournot - less competitive - some positive level of market power)

Collusion: leads to high market power

i) & ii) implies that: STRUCTURE>>CONDUCT >>PERFORMANCE

i.e., STRUCTURE>>PERFORMANCE

iii) Structure influences Performance directly:

lower concentration leads to lower market power

[Illustration: Cournot symmetric n-firms oligopoly:

As number of firms increase (i.e., market concentration falls), market power declines (i.e., price gets closer to marginal cost).

i), ii) & iii) imply that directly and indirectly, structure determines performance

STRUCTURE>>PERFORMANCE

i.e.,

CONCENTRATION>>MARKET POWER

Structure (Concentration) is exogenous, the explanatory variable

Performance (Market power) is the dependent variable.

When comparing industries, we should observe that industries

with lower concentration have less of market power. (Source: faculty.smu.ed)

 

 

 

But there are also arguments which argue that relationship between structure conduct and performance is highly complicated.

 

Basically, the structure conduct paradigm argues that:

Ø  Market power has direct relationship to market concentration;

The strength of the relationship is determined by the elasticity of demand.

Ø  If market demands are elastic, then the variance in concentration would have lesser impact on pricing.

Ø  If demand is not elastic, variance in concentration would have a huge impact on pricing. (Waldman and Jensen)

 

B. What is Price Elasticity of Demand?

            In the highly globalized markets of today, firms actually coax their consumers to show their high demands for a certain product of that firm. When a customer does name his price, however, is very close to a demand curve. But what is Price Elasticity of Demand? This describes the relationship between the changes in the demands for the product and the changes in the price of the product.

Price elasticity >>ratio between the percentage change in quantity

>> the percentage change in price when there is a (small) change in price.

 

 

C. What are the different supply and demand factors?

            What is supply and demand? The supply is the product that the seller is able to produce and sell at an already named price while demand is the product that the consumer is willing to buy at an already determined price. The theory revolves around the relationship “between a product’s accessibility and the interest shown in it.” ().

            Likewise, the law of supply and demand states that:

“…the market price of a good is the intersection of consumer demand and producer supply. If the price for a good is at a low level where consumers demand more of the good than producers are prepared to supply, there will be a shortage of the good, and consumers will be willing to pay more for it. The producers will increase the price until it reaches the level where consumers would not buy any more if the price was increased. Conversely, if the price for a good is at a high level where the suppliers would like to produce more than the consumers will buy, the producers will be willing to lower the price. The price will fall until it reaches the level where consumers would be willing to pay more for the good.” (2007).

 

 

 

 

The following table summarizes the types of supply and demand factors and their characteristics.

Table 2.1

Supply and Demand Factors

 

 

Type of Factor	Factor	Characteristic
Supply	Youth population	Size, composition
	Recruiting resources	Recruiters, advertising, educational benefits, cash bonuses
	Civilian opportunities	Unemployment rate, pay, job security, educational opportunities
Demand	Military opportunities	Occupations, terms of service
	Recruiting resource management	Allocation of resources, recruiting quotas (quality, quantity), recruiter incentive programs

 

C.1. What are their significance and implications to decisions relating to pricing and output factors?

            Of course, the factors mentioned above greatly influences the decisions relating to pricing and output factors since they are most usually the basis of production. A firm must always consider these factors since they govern the production rate. For example, if the firm caters to the youth population. Let’s say the firm sells Caps. The firm must consider the number of the youth population in the area. Not only that but also the capacity of these people to purchase the caps. Many factors also need to be considered, like the number of caps last sold, and other such related factors. After which, they could then take further steps in making decisions in order to meet the demands of the consumers.

 

Conclusions

            Therefore, it is possible that the structure of a firm can affect the conduct and performance of the firm. As was mentioned, structure is defined as, “the convergence of the firm’s shares in the market.”

Also, the structure not only affects the performance and the conduct of the firm but also the trend in the supply and demand.  Wherein the law of supply and demand states that:

“…the market price of a good is the intersection of consumer demand and producer supply. If the price for a good is at a low level where consumers demand more of the good than producers are prepared to supply, there will be a shortage of the good, and consumers will be willing to pay more for it. The producers will increase the price until it reaches the level where consumers would not buy any more if the price was increased. Conversely, if the price for a good is at a high level where the suppliers would like to produce more than the consumers will buy, the producers will be willing to lower the price. The price will fall until it reaches the level where consumers would be willing to pay more for the good.” (2007).

Pricing

Pricing and pricing objectives

Pricing strategies generally fall into one of two groups: cost-based and market-based. The market-based approaches tend to focus either on the competition, customer demand, or both. There is no one best price to charge for a given product. Once the need to set or change a price has been recognized, the manager must determine what he or she is trying to accomplish with this particular price. The answer might seem obvious: to sell more products or services. But this response is too general, and may not even be the case. In fact, companies can have a number of different pricing objectives (1990).

 

 There are various pricing objectives. This includes penetration pricing, skimming, investment pricing, pricing for stability and competitive pricing. Among the different pricing objectives there are three that can be given consideration. This include penetration pricing, pricing for stability, and competitive pricing. These 3 are considered due to it giving more notice to clients and competitors. The clients and pricing go together. Clients depend on pricing for what product to buy. A company needs to have more clients to increase its income and improve its market status. Pricing affects competitors. When one company increase prices others follow so they won’t lose clients.  Competitors can base their products on another companies’ price. When a products price is too low a competitor may have no choice but to cease to match a company’s price thus advantages can be acquired.

Among the different Pricing objectives penetration pricing is the one chosen. Penetration pricing is a market strategy whereby a company initially sets a low price, in order to gain a market share in a mature market by persuading customers to try the product. Penetration pricing is often adopted when a firm launching a new product expects its competitors to launch similar products. A company can then build up market leadership by being first in the market (1971).Penetration pricing refers to the establishment of price levels low enough to penetrate markets deeply, and to discourage potential competitors from entry. Although prices are set relatively low, expanding markets arc recognized. Pursuit of this policy slows down the recouping of investments and expenses. Which policy to use depends on the total marketing plan and an assessment of cost-revenue market factors (1971).

 

Penetration pricing was chosen because with it a company can give its attention on two things namely clients and competitors. Through penetration pricing companies can satisfy consumer wants of buying products that costs less. Through penetration pricing, more clients will avail the companies’ products and they can become more popular to clients. Through penetration pricing prevention of new competitors can be made thus the company can have lesser worries about competitors. Although penetration pricing can bring good to the company it causes problems. One disadvantage is the value of the product is lowered. A product’s value maybe ignored in this pricing objective just to make sure that the wants of the clients is satisfied and no new competitors can enter the market.

RECOMMENDATIONS ON THE BEST PROCUREMENT STRATEGY

 

RECOMMENDATIONS ON THE BEST PROCUREMENT STRATEGY

 

For the case of Canaletto development, in order to consistently deliver the best possible services into the market for its business through effective procurement and partnerships as it essential to take into account whole life costing, innovation and continual improvement for the strategies used. (1994) Thus, the process of its procurement ways can be realized through providing leadership and building capacity for procurement though effective management, training and support. Aside, it is useful to have better process delivering excellent structures and procedures to facilitate effective procurement process and compliance. There has the environment stimulating the way it deals to the procurement matters working with the organizations both internal and external to execute and apply best practice of the procurement strategies involved. There should be certain guidelines as contained elements of strategy but the authority for the development of best practice and the utilization of procurement skills may possibly be an unclear notion. (1994)

 

 

There has to be a well developed strategy providing:

 

Ø  A clear description of its procurement arrangements

Ø  Authority for the timely application of procurement expertise

Ø  For its application to all non-payroll expenditure wherever it may potentially add value and give assurance on propriety and regularity

Ø   strategy approved at Management Board and participation of procurement staff

Ø  Development of supplier base and modern procurement practice

Ø  Restriction of right to negotiate prices, enter into contracts and to amend or alter contracts to procurement staff trained to exercise the necessary skills

Ø  Management and enforcement of contracts to completion

Ø  Standards and behavior in connection with procurement

Ø  Setting of targets & performance monitoring

 

 

Moreover, it can be proper to imply certain assessment and evaluation of the procurement strategy used indicating facets of better resource planning and its respected procurement management that may cause such challenges for the Canaletto development as it is crucial for those procurement strategies for the people to adopt freely within best opportunities in line with the fact that there could be possible risks involved in using the procurement that cannot be easily measured in terms of cost, time, quality and money and be able to adhere complete assumptions of the process. (1994)

 

There need to have good procurement planning and enough strategic ways to achieve good tendering as well as payment strategy reflected in the situation.

 

Procurement Planning

Identify all potential acquisition transactions; discuss contracting approach, administrative requirements, and lead-times for each contract action.

Develop list of procurements; identify cost, schedule, type and quality requirements; and performance, specification, administrative, and delivery issues.

Develop structured approach for incorporating procurement management tasks into project plans, schedules, and budgets; include procurement issues in risk assessment and risk management plan.

Identify all contract actions, requirements, dollar estimates, lead times, issues, and risk management actions; obtain sponsor approval for plan; use peer review to verify realism and identify additional risks.

 

The bottom line in the procurement process is making decisions and to be effective, it is important to arrive into a correct or improved decision for the procurement strategy, taking the time to analyze the procurement in order to determine whether or not it is a good move being decided upon. Aside, effective procurement planning provides avenue for those strategies to advance such objectives and the procurement planning must focus on: ( 1994)

Ø  Advancing priorities of development and goal process

Ø  Achieving value for cost, time and quality

Ø  Ensuring probity and accountability

The purpose of procurement ways is to enable the development to meet its specific objectives as the strategy measures includes the following activities: (2000).

Ø  Specifying the objectives to be achieved in development techniques

Ø  Identifying several procurement risks being associated with constraints

 

 

Meanwhile, there implies a knowledgeable, great in strategic and competent in tactical procurement, willing to take calculated risks and that design and construction should overlap and that the geological survey completed in which it allows for early completion of foundation design and reduces ground conditions uncertainty and the design structure must be flexible to adapt to change during and after construction. The duration must be finished on the specified allocated time frame while the cost must cap project budget. ( 2000) There needs to have proper execution of the potential procurement routes in relation to the chosen route which involves a novated design and built with partnering, the final cost is fixed and fast program with flexibility is required, able to distribute risks as there facilitates Integrated approach to project delivery. The traditional Route could not be chosen because it can be lengthy and no scope for overlapping as it is required aside, it is not effective on large projects, possible design uncertainty as well as high client risk and that cost driven may not add value to the process. Thus, client organisation structure does not lend itself to high involvement in project monitoring and financial commitment is less certain, supply chain was not chosen because tendering process too long. The chosen Tendering Strategy is negotiated and price is fixed, long standing working relationship with reputed contractors. There is a need to remove adversarial attitude through partnering, hence negotiated contract, client financial commitment is clear.

 

 

Moreover, the chosen payment strategy is Target Cost (Open Book) since, the uncertainty in contract scope requires flexible payment terms, non adversarial based on trust and openness, incentive system can be put in place to reduce waste hence higher return as risk sharing is potential The Lump Sum was not chosen because there can be inflexible for changes in scope, cost driven and not conducive for partnering, overlapping of design and construction required and that the actual cost may not be known. The corporate procurement function is no longer all about controlling costs and ensuring availability as the procurement executives are moving to boost their teams' skill levels, adopt new organizational structures and employ useful strategies and systems infrastructures. (2000) While, the procurement organizations are still focused on reducing costs and ensuring process availability, there's now a heightened emphasis on contributing to market expansion, product innovation and regulatory compliance. There can be such advances in procurement process, data sanctions and goal classification that have helped in supporting the procurement adjustment for the decisions being made. (2000)

 

  

 Henceforth, there needs to improve use of sourcing, procurement and planning methods to comply with the situation as there can be an increasing adoption and integration of strategies involved in their source to pay operations and the activities associated with initiating the procurement decisions through tendering and payment procurement matters. (1998) Overall, these strategies can extend procurement processes and intelligence across the development while it adheres to the improving coordination and control of procurement flows and proper execution of the strategies. Aside, procurement team can possibly identify the clear procurement patterns in reflecting to the ways of procurement integration as well as its respected strategic role and effectiveness of procurement as part of the overall transition to centered procurement that may emphasize leverage technology to accelerate centered procurement in order to provide essential decision as it covers the ways how to procure Canaletto development. ( 2002) In addition, such advanced workflow capabilities embedded within these tools can also be used to configure unique processes at the local level. To foster support across business units, procurement teams must be able to set better sourcing of materials and commodity plans that will draw relatively to the cost, time and quality for the central focus of the management process in procuring the specified development agenda from within its organization capabilities. (2002)

 

The procurement in its strategy plans address organizational structures, services as it controls the development of the project to achieve success guided by its financial and operational processes for a better outcome of procurement within the common attribute among procurement teams in the ability to communicate cost, performance and process improvements to business sectors across the development of the plan. (1998) Secure policy changes and mandates to foster adoption and compliance this only be seen without backing from top procurement management as the procurement group may possibly lacks the clout to increase spend under management and drive enough duration of the compliance. (1998) Furthermore, procurement strategies through teams have prioritized reserves in the instances given to the management systems and be able to adjust and communicate approved procurement processes to stakeholders, track and control the best procurement strategy for every assumptions terms. Thus, the importance of identifying certain optimal procurement organizational structure for the development that will include staffing and training requirements and then create a detailed roadmap for moving toward this desired structure. (1998)

 

Therefore, there has to develop the rule of basics from the procurement strategies, identify operational improvement plans and be able to define the organizational and system savings required to support the management of its respected procurement as well as providing clear access upon the recent infrastructure for procurement strategy systems and identify gaps in process support, information analysis and integration of development. (1994) There defines requirement for a more cohesive and integrated procurement platform in order to determine and decide a practical and rollout procurement strategic planning as useful as possible within the new functionality of the development realization as it focuses particularly on unifying strategic layers that the process have spend and by acting out on the desired information from the best strategy can be improved continuously from its   transactions and application drives for the process of procurement systems. ( 1994)

 

 

 

 

____________________

 

 

 

 

Wal-Mart Case

Wal-Mart Case

 

Pro 1: Wal-Mart Provides Meaningful Economic Opportunities to America’s Working Families.

 

(1)At Wal-Mart, they are proud of the positive economic impact they have on communities—from the job opportunities they provide to the money they save working families; and from the tax revenue they generate to the contributions they make to local charitable organizations.  Wal-Mart is a good neighbor that benefits local economies and makes positive contributions to the thousands communities they serve and have a presence in nationwide. (4) Last year, Wal-Mart earned $244 billion in revenue -- more than any other U.S. company.

 

Pro 2:  Wal-Mart Gives back to the Communities they Serve.

 

Despite of the controversy that Wal-Mart is facing,(1) Wal-Mart donated more than $22,000 an hour or $6 a second in 2005.In the wake of Hurricanes Katrina and Rita, they donated more than $18 million in cash and more than $3 million in merchandise to relief efforts Wal-Mart donated $1 million or more to numerous charitable organizations. Among them: The American Cancer Society, The American Legion, The American Red Cross, The Boy Scouts, Boys & Girls Clubs of America, Children’s Miracle Network, Girl Scouts of America, The National Council of La Raza, The National Fish and Wildlife Foundation, The National Minority Supplier Development Council Business Consortium Fund, The Salvation Army, The United Negro College Fund, The United Way and The Veterans of Foreign Wars Foundation.

 

 

 

Con 1: Wal-Mart fails to provide health insurance to over half its employees.

 

(2)Wal-Mart health care spending actually dropped in the latest public filing with the Internal Revenue Service (from 2003-2004). (3)Despite Wal-Mart’s mammoth profits, the company actually burdens taxpayers with its workers’ health care costs. In a disturbing nationwide trend, more state studies are revealing

that Wal-Mart employees are the top recipients of taxpayer-paid health care. The scope of this corporate failure is massive: Wal-Mart is the largest private employer in the United States, with over 1.2 million employees, yet they fail to provide health insurance to over half their employees.

 

Con 2: A Substantial Number of Wal-Mart Associates earn far below the poverty line.

 

(2)In 2001, the year for which Wal-Mart has released figures for most occupations, sales associates, the most common job in Wal-Mart, earned on average $8.23 an hour for annual wages of $13,861.(3) The average pay for a Wal-Mart sales associate is $1,000 below the poverty line for a family of three. Business as usual? Not necessarily. Retail rival Costco pays its workers 65% more on average than Wal-Mart, yet earns more profits per employee.

 

 

 

 

 

Reflection

(2)Wal-Mart has become much more than just a small corner store in rural America. In the past 10 years, Wal-Mart has grown into the largest retailer in the world -- number 1 among the Fortune 500 -- and is America's largest employer. With more than 1.4 million employees and over $10 billion in profits, Wal-Mart is a giant company with giant responsibilities. First and foremost, Wal-Mart has a responsibility to all Americans to set the standard for customers, workers and communities, and to help build a better America. The truth is that Wal-Mart has let America down by lowering wages, forcing good paying American jobs overseas, and cutting costs with total disregard for the values that have made America great. Wal-Mart has needlessly exploited illegal immigrants, faces the largest gender discrimination lawsuit in history, forced workers to work in an unsafe environment, and -- incredibly -- broken child labor laws. I think they need to change.

 

 

 

 

Business Manual

Situational Analysis: Analytical Tools

 

            A Situational Analysis considers two aspects: the internal and the external environment. The Internal or Micro-environment of a business pertains to its competencies, capabilities, resource strengths and weaknesses, and competitiveness. The External or Macro-environment on the other hand, refers to industrial and competitive conditions. Below are some analytical tools used for situational analysis.

 

Internal:

 

Marketing Mix (4P’s Product, Price, Place, Promotion)

 

Product

-          Description and assessment of the company’s product lines, their features and function

 

Price

-          Description and assessment of the company’s pricing strategy

 

Place

-          Description and assessment of the company’s distribution channels (e.g. direct selling, online retailing)

 

Promotion

-          Description and assessment of the company’s marketing strategy (e.g. advertisements, media channels)

 

 

SWOT (Strengths, Weaknesses, Opportunities, Threats)

 

Strengths

 

• Organizational strengths

-          Skills and abilities enabling an organization to conceive of and implement strategies.

• Distinctive competencies

-          Useful for competitive advantage and superior performance.

• Sustained competitive advantage

-          Occurs when a distinctive competence cannot be easily duplicated and is what remains after all attempts at strategic imitations have ceased.

 

 

Weaknesses

• Organizational weaknesses are skills and capabilities that do not enable an organization to choose and implement strategies that support its mission.

• Weaknesses can be overcome by:

-          investments to obtain the strengths needed.

-          modification of the organization’s mission so it can be accomplished with the current workforce.

 

Opportunities

• Areas in the organization’s environment that may generate high performance.

 

Threats

• Areas in the organization’s environment that make it difficult for the organization to achieve high performance.

 

BCG Matrix

• A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market.

• The matrix classifies the types of businesses that a diversified organization can engage as:

•         “Dogs” have small market shares and no growth prospects.

•         “Cash cows” have large shares of mature markets.

•         “Question marks” have small market shares in quickly growing markets.

•         “Stars” have large shares of rapidly growing markets

 

 

•      BCG matrix suggests

-          Hold stars;

-          Sell off dogs; and

-          Milk cash cows for funds to

-          Invest in question marks

 

•      BCG matrix assumptions:

-          Cash cows have lower costs than industry competitors, based on their superior position on their industry’s learning curve.

-          Cash cows generate higher cash flows but have fewer investment opportunities than other businesses in the portfolio.

-          The excess funds of cash cows are allocated into investments in new businesses to promote their growth.

-          The firm has the entrepreneurial capability to grow the startup to dominance in its market.

-          The firm has the general management talent to retain the value of the dominant startup as its industry matures.

-          New cash cows are sufficiently successful to support a new round of new business development.

External:

Porter’s 5 Forces Model

 

 

 

 

 

 

 

 

 

 

 

 

• Rivalry/Competition

-          typically the most powerful all forces

-          is the threat of established firms competing away their economic profits

-          the big factor that determines the strength of rivalry is how actively and aggressively rivals employ various weapons of competition in order to acquire a stronger market position and bigger sales.

 

Some sources of strong Rivalry:

•         Large number and similar size of competing firms.

•         Lack of product differentiation.

•         Rivals are active in making fresh moves to increase sales and market share.

•         Buyer demand grows slowly.

•         When rivals have diverse strategies and objectives.

 

• Entrants

-          the threat on entrants are dependent on barriers of entry

-          the threat on entrants is low when barriers of entry are high

 

A barrier to entry is any factor that

 

-          the threat on entrants are dependent on barriers of entry

-          Increases the costs born by potential entrants (relative to incumbents), after they enter the market

-          Decreases the market share potential entrants might receive upon entering the industry

 

Common Examples of Barriers of Entry:

•         Trade restrictions (tariffs, quotas, voluntary export restraints, infant industry protection, embargoes)

•         Government regulation of industries

•         Industry certification boards (CPAs, Actuaries)

•         Difficulties in gaining access to distribution channels.

•         Strong brand preferences and customer loyalty.

•         Inability to gain access to specialized technology.

 

 

• Buyers

- this factor pertains to the power of the buyers over the producer/company

 

Sources of Buyer Power:

•         Many substitutes are available.

•         Products sold to customers are undifferentiated

•         The importance or value of the product to the buyer.

•         Buyer concentration (few/many).

•         Product demand.

 

• Suppliers

-          this factor pertains to the power of the suppliers over the producer/company.

 

Sources of Supplier Power:

•         Product demand.

•         Supplier industry is highly concentrated.

•         Suppliers are not threatened by substitutes.

•         Supplier products are highly differentiated.

•         Short supply of needed inputs (e.g. materials, technology, labor).

 

• Substitutes

-          this factor pertains to the availability of product alternatives to the market

-          the threat of the substitute factor increases when available alternatives are high

 

Threat of substitutes is higher when:

•         Good substitutes are readily available or new ones are emerging.

•         Substitutes are lower priced to the performance they deliver.

•         Consumers grow more comfortable with using substitutes.

 

 

PEST (Political, Economic, Socio-cultural, Technological)

-          is an analytical too used to assess the macro environment of the company or business organization

-          in order to effectively use this tool, one must know the country where the business is located and/or the location of its aimed international market/s

 

Political

 

•         Monetary and fiscal policies: Marketing efforts are affected by the level of government spending, the money supply and tax legislation.

•         Social legislation and regulations: Legislation against pollution, insider trading etc.

•         Government relationships with industries: subsidies in agricultural, shipbuilding, and passenger rail transportation etc. Deregulation continues to have an effect on financial institutions, public utilities and telecommunications etc. 

 

Examples of political factors involved in US marketing:

 

To regulate competition:

-          Sherman Antitrust Act (1890). Prohibits monopolies and combinations in restraint of trade.

-          Federal Trade Commission (FTC) Act (1914). Prohibits unfair competition.

-          Lanham Trademark Act (1946). Regulates brands and trademarks.

-          Various deregulation laws:

•         Natural Gas Policy Act (1978)

•         Airline Deregulation Act (1978)

•         Drug Price Competition and Patent Restoration Act (1984)  

 

To Protect Consumers:

-          Pure Food and Drug Act (1906). Regulates labeling of food and drugs and prohibits manufacture or marketing of adulterated food or drugs. Amended in 1938 by Food, Drug and Cosmetics Act.

-          Fair Packaging and Labeling Act (1966). Regulates packaging and labeling.

-          Cigarette Labeling and Advertising Act (1966, 1969). Require manufacturers to label cigarettes as being hazardous to health and prohibit TV advertising of cigarettes.

-          Children’s Television Act (1990). Limits the number of minutes of advertising that can be shown on programs designed for children.

 

Economic

-          pertains to the income, employment and other related factors of the market (in order for the market to support the product, they must have the money and willingness to buy it)

-          also includes the current economic status of the country and its past crises

 

Socio-cultural

-          refers to lifestyles, values and beliefs.

-          consumer behavior (e.g. consumers emphasis on the quality of life rather than on the quantity of goods consumed

-          social issues (e.g. changing gender roles: increasing number of two-income households, a growing number of “house husbands”, women’s attitudes towards careers, shopping and products continue to evolve).

 

Example of socio-cultural analysis:

 

•         A premium on time: consumers with less time are willing to pay for greater convenience, e.g. ease of preparation of food; less learning time for using a new computer; convenient locations and store hours; and internet shopping etc.

•         Physical Fitness and Health: Participation in fitness activities from aerobics and yoga is on the rise. A large number of consumers have become more interested in diets for weight loss; foods low in salt, additives and cholesterol; and foods high in vitamins, minerals and fiber content.

 

Technological

-          has a tremendous impact on people’s lifestyles, consumption patterns, and economic well being, e.g. airplanes, plastics, televisions, computers, internet, antibiotics and video games.

-          technological breakthroughs can affect the markets:

–        Starting entirely new industries, e.g. computers, lasers, and robots.

–        Radically altering, or virtually destroying, existing industries, e.g. computers replace typewriters.

–        Stimulating markets and industries not related to the new technology. New home appliances and microwavable foods give people additional time in which to engage other activities. 

 

 

Briefing Paper on Rolland’s Manufacturing Company plan to supply clothing apparel to Wal-Mart Company

Briefing Paper on Rolland’s Manufacturing Company plan to supply clothing apparel to Wal-Mart Company

 

 

Rolland’s Manufacturing Company

 

Ronald’s Manufacturing Company has been in the business for quite sometime, manufacturing high-end clothing apparels. Business has been good so far until three years ago when the company faced with the challenge to regain its market share in a competition with cheaper clothing products being imported into the UK (United Kingdom) from the From East. At that time the company’s board of directors made a decision to have its product move to the up market in terms of quality. Because the company sees that they could not afford to compete at the lower end of the market against lower-wage economies.

Over last two years, the Rolland’s Design team has developed an innovative range of outdoor clothing that is both stylish and the materials used were technically advanced. More impressively, the new garments can be produced at a very competitive price even though they have made a lot of all-weather performance qualities of much more expensive outdoor clothing that is currently available. With this new products unique in the market both ASDA and Wal-Mart want to retail the new range of clothing in their outlets.

But, the problem lies when in some early negotiations Wal-Mart group saw some indications that Rolland’s have some problem in sustaining a long-term relationship with big-players in the retail sectors. Although Wal-Mart has been impressed with the products yet they are less enthusiastic with their initial impressions of the company’s capability to be a type who can manage to play with big-players in the market. One primary factor is the type of a traditional working organization the company has.

Rolland’s ambition to become a world class manufacturer is almost palpable, if not the only way to push forward.  Initially the company has always been regarded as a dynamic driven organization and was largely successful in supplying the UK and European markets until the increasing influx of cheaper overseas threaten its market share in recent years. The question whether Rolland’s ability to produce consistently quality standards demanded at the premium end of the market, especially at the growing volumes and tight deadlines remain to be a struggle to the company’s chance to be Wal-Mart’s next supplier.

 

Wal-Mart Store

 

Wal-Mart Stores, Inc. operates retail department stores selling a wide range of non-grocery products. Founded by Sam Walton in 1962, it is the largest retailer in the world and was the largest corporation in the world based on revenue ranked by the Fortune Global 500 in 2005.

Wal-Mart store has core beliefs: respect for the individual; service to the customer; and strive for excellence. The company is committed to increasing and promoting the sourcing of merchandise. Its mission is to enhance and integrate its supplier’s diversity programs into all procurement practices.

The company has its own standards of acquiring suppliers in order to have harmonious relationship with them, and in effect to have quality service to their customers.  One of these is that suppliers must have competitive prices, financial stability, and a proven success in the marketplace, and offer excellent products and/or services.

As suppliers keep up the demand, Wal-Mart can provide quality products and services to customers at the absolute lowest prices, which, in turn, improve the supplier’s lives, too.

Wal-Mart established its Ethical Standards program in 1992 and has worked to strengthen and make it an effective tool for improving conditions for workers in their suppliers’ factories that make products sold.

Wal-Mart Ethical Standards team is dedicated to verifying that these suppliers’ factories are in compliance with our Standards for Suppliers. These standards cover health and safety, environment, compensation and benefits, working hours, forced and underage labor, discrimination, compliance with applicable laws and regulations, and the right of audit. The program covers factories from which the store directly sources products and suppliers’ factories in five high-risk categories: apparel, footwear, toys, sporting goods, accessories and select proprietary brands.

And rather than discontinue accepting from suppliers’ factories where these problems occur, the store believe that it is better to work for improvement, a position widely endorsed by the ethical standards community. If the store finds that any suppliers’ factories are unwilling to correct problems after multiple attempts, the store cease accepting products from that factory. For certain serious problems or an uncooperative attitude by such factories, the store will stop accepting products from them immediately.

 

Summary

 

This paper identifies the major issues confronting Rolland’s Manufacturing Company of its declining profitability and its narrowing chance to be one of Wal-Mart’s garment suppliers. It would also cite positive effects on some of the company’s strengths, analyzes its weaknesses. It further delves into the task of identifying the different problems associating the company’s production system, and of what causes its poor production outputs and of what’s the result of this to the company’s plan to be Wal-Mart’s garment supplier.

More over, the paper cites the standards set by Wal-Mart stores to their different clients, how such standards can be met by Rolland’s Manufacturing Company.

The paper also intends to solve, offers solutions, ideas, and suggestions how to lessen, if not eradicate these predicaments. And it also argues the present system of Rolland’s Manufacturing Company, how such system alone holds back the company from pushing forward.

 

Issues

 

According to the preliminary analysis carried out by a firm of consultants called in to examine the state of Rolland’s Manufacturing Company they have found a host of different causes why the company’s profitability and competitiveness decline.

            One of them is factory design and organization. Consultants noticed that the company does not have a well-planned factory design organization. One time they have found out almost everything in topsy-turvy. There are products labeled Work-in-Progress cluttering around the work area and some spaces with which should have been empty in regular days. Not that it is unexpected in a factory. But workplace was severely disorganized and chaotic to say the least. And the workforce were put into an immense pressure to increase their daily output, if not idle, waiting for the additional batches to be provided for by harassed supervisors and progress chasers.

                        This disorganized system is evidenced by what the consultants noticed: supervisors and progress chasers dilly-dally in checking the batch labels, trying to keep track of the many orders currently in the system and also trying to advance orders that were behind schedule. Occasionally the factory manager could be heard intervening to push batches through the system in response to customer’s complaints or pressure. And when factory manager did this, she was met with complaints coming from the section workers grumbling about the “double handling” and “double setting-up” he had caused. 

            Another serious predicament the company is facing is that while the workforce is exhorted to produce quality outputs closed inspection revealed that a significant percentage of the completed garments were either brought for corrective work, others are set aside for sale as “seconds” and some are scrapped as “rejects.”

            The complete orders, on the other hand, are sent to a dispatched warehouse that would be eventually be forwarded to customers, and which they share also with incoming material intended for storage. This warehouse is just as overcrowded with materials and shows non-existent systematic organizations. It shows that a lot of completed orders seemed to have been in the storage and was not forwarded; other rush orders were being packaged and dispatched everywhere with no proper location.

            Production planning of the company seemed to be heavily inconsistent. The company practices FIFO (first come, first serve basis), but this, too, would not be followed as soon as the customers become increasingly irate; workers have to push orders so they could forward it to them.

            Some rejected problems of the outputs can be attributed to different sub-standard materials being used.  This being the case because raw materials were either low in storage or there is none.

            Another serious problem the company should look into is the frequent machine breakdown in the production area. Maintenance staff was often forced to remove the sewing machines from the production area for repair, and temporarily replace them with reconditioned old machines from the maintenance stores.  These replacement machines, it turned out, were less accurate than the latest models that operators normally use.

            All of the direct production workers were on individual incentive schemes: the more they produced, the greater their earnings. This leads to a certain amount of friction in the allocation of jobs, some of which were regarded as “good earners” whereas the others seemed to make the achievement of top bonuses almost impossible. Further animosity was evident in the access to the range of industrial sewing machines in use throughout the production lines.  Some of the machinery is ‘state-of-the art’ technology and seems to confer great advantage in increasing earnings, whereas other equipment is distinctly past its best and slows the workers down considerably. Those sound and best machines seem to be attached to the luckiest workers who are allocated the newest machines, and there is a noticeably competitive air about increasing individual performance so that an operator can progress to the ‘elite’ group who get the best machines.  And somehow, management seem to encourage rivalry between sections by publishing current performance figures on notice boards showing which section is achieving highest outputs.

Furthermore, there seem to be growing animosity between the workers and the managers. Production workers almost always blame their managers for the tightening production targets and the constant pressure to work harder. They argue that the managers overlooked one simple fact why there are a lot of scrapped products is because of poor materials, such as cheap thread and damaged sewing machines.

            First line supervisory staff, on the other hand, felt they were caught in the middle. They were harassed by the production workers of the delayed and rush orders, and were pressured by their senior management to achieve higher production and at the same time meddled with the production flow especially when there are rush orders to ship.

 

            To sum it up, the working atmosphere in the factory is some sort of “disinterested briskness”. Staff do their jobs but without enthusiasm.

 

Production and System Strategies

 

Given the acknowledged problem Rolland’s Manufacturing Company is facing the study finds out that there is more substantial intervention in order to review and develop the company and return it to long-term profitability.

One thing the consultant finds out in the Rolland’s Manufacturing Company is that its workplace is disorganized. The study offers the solution of designing process layout.

One main issue in design of process layouts is that it concerns the relative positioning of the departments involved. Those departments that are interconnected to each other should be placed near. For example, the production line of the garments should be arranged in such a way that there is a smooth flow of progress up until the product is finished.

Layouts can also be influenced by external factors such as the location of entrances, loading docks, elevators, windows, and areas of reinforced flooring. Also important are noise levels, safety, and the size and locations of restrooms.

One advantage of process layouts is their ability to satisfy a variety of processing requirements. Materials in these systems require different operations and different sequences of operations, which causes them to follow different paths through the system. Material-oriented systems necessitate the use of variable-path material-handling equipment to move materials from work center to work center. In such case, transportation costs or time can be significant. Because of this factor, one of the major objectives in process layout is to minimize transportation cost, distance, or time. This is usually accomplished by locating departments with relatively high interdepartmental work flow as close together as possible. ( 2002)

Also, the need for the company to allocate locations for its different systems is needed. The clutter of work-in-progress outputs need to be stocked up somewhere but the production lane where the unfinished and finished products are being accumulated and worked.  More so, the storages or spaces for the finished products, the raw materials and those products labeled as scraps.

 

Cross Functional Approach

 

            Likewise, with the Cross-Functional approach, the benefits are the same. Organizational hierarchical can be associated according to their roles in the company, thus prevent from overlapping of duties. First line supervisors should work among the production workers. Any updates, new systems to be followed, or memos shall be their duty to inform their subordinates. More so, should there be backlogs in the production, it will be their duty to inform their subordinates. Those in the higher organizational structure like the managers only have first line supervisors accountable to their questions and other queries. This way, managers and supervisors do not have to constrict their lower employees with different management styles. Managers can, however, impose or overlap his duty towards the productions workers when such grave situation arises.

 

Lean Production

 

Furthermore, the need for the company to adopt lean production in its system is required more than ever, should the company plans to be flexible in its production.

            Lean production defines to be a system that uses minimal amounts of resources to produce a high volume of high-quality goods with some variety. The system are so name because it utilizes lesser amount of certain resources than mass production uses – less space, less inventory, and fewer work-skilled workers  - to produce a comparable amount of output. Lean production systems use a highly skilled workforce and flexible amount of output. ( 2002)

            With this application in the Rolland’s Manufacturing Company, it is expected that quality is more emphasized, moderate to high volume of output, with more variety than mass production, fewer mass production buffers such as extra workers, inventory or time.

            High-skilled workers would mean that they will be flexible enough because they will be assigned to different tasks. This would also mean that the company’s storage of raw materials must always be filled and that the company should forecast its daily materials in order for the workers to perform well without being idle. Because lean production goes with lesser amounts of inventory, additional emphasis is placed on anticipating when problems might occur before they arise, and avoiding problems through careful planning. It is expected of the workers that they participate in both the planning and correction stages. Technical experts are still used, but more as consultants, rather than substitutes for workers. The focus is on designing a system (products and processes) so that workers are encouraged to maximize their daily outputs.

The downside though of this system is that more tasks are being carried to the workers. They now not only sew, but it is expected of them that they can do other tasks as well.

 

Quality Assurance

 

On different note, the need for the company to highlight its quality should be re-emphasized. It is important for management to recognize the different ways that quality of a firm’s products or services can affect the organization, and, in this case, the chance of the company to tie up with one of the biggest retailer in the world today, Wal-Mart stores. Some of the major ways that quality affects an organization are – loss of business, liability, productivity, and costs.

The argument that there are a lot of scrapped products being made is daunting as it is alarming. The company should provide Quality Assurance personnel in its production. While the employees are driven to work so they can have maximum outputs they are also being watched over for their quality output. It should be emphasized that productivity and quality should go together.

 

Information Technology

 

On the other hand, the problem with the overly delayed batches of orders, or the long past due orders can be solved with the use of Information Technology system. 

Electronic communications system occupies the critical path in the organization’s work flow. Communication by electronic is essential to inter organizational integration and can proceed only at the pace permitted by communication technology. Restructuring work to use technology effectively will, in turn, lead to changes in organizational form. Basic structures are changing with the production of multiple lines of reporting, team management, parallel decision making, the integration of suppliers and vendors, and attempts to reduce in-process inventory and to introduce new forms of industrial relations.

The company can provide a high-end workflow computer program to monitor the daily flow of raw materials, products and the shipping out of the finished outputs. The system should have a “daily monitoring”, tapping with the elements and the principles of forecasting and accounting. For example the system can provide for today’s orders, it can also shows which products that are needed to be shipped soon by placing it as “first priority”. This way, the management, as well as those in the production lanes know what orders to be manufactured first. The system need not to limit itself as to how many products being made as well as their corresponding shipments, but it can also monitor the daily flow of raw materials being ordered by the company. This way the shortage of raw materials and the lacking of the right materials will be lessened, if not eliminated.

One thing good about the system is that it will prevent “friction” from the management and the production workers. The management would only notify the production workers’ lead what to finish first should there be rush orders being neglected and production workers can just follow through.

And as for the machine breakdowns, it is high-time for the company to consider modernizations. Equipments that are considered obsolete should be taken out and be replaced with the new ones.

 

Conclusion

 

With Rollands’ Manufacturing Company plan to tie up with Wal-Mart, it is but necessary that the suggestions pointed above shall be given due importance and be acted upon.

Given the Wal-Mart’s standards for their suppliers like the ability to keep up with its productivity, organizational standards, and capability to maintain its quality Rolland’s Manufacturing Company should be drastic in its changes – both organizational and physical. Because only then can the company’s keep up with its quality and gain its profitability and earn as Wal-Mart’s garment suppliers.

 

Services Marketing

1. From a marketing services perspective it may be said that the best customers are not the ones that generate the most profit. Please describe the customer characteristics that may be more important than profitability.

 

 

Mostly, according to  (1985), customers of a service company seldom receive only one service from a particular company, as the traditional definition for productivity assumes. They can also directly influence the company's production process and outcomes. Several researchers have pointed out that customer participation in the service production process is strongly connected with service productivity (1968,   1979;  1985; G1990,  1999). Customers are often present and active participants in service production, so viewing them as input resources is clearly a primary difference from the way inputs are understood traditionally. Due to customers' increasing opportunities to participate in and influence the production of a service, they cannot be regarded as passive recipients of the provider's outputs, but should be seen as an integrated part of the organization ( 1994).

An essential characteristic of service production is the complexity of relationships between service provider and customer ( 2000). Rather than specifying a single type of provider-customer relationship as the production input, four general types can be identified (1993 and 1994): the provider may produce the service in isolation from the customer; the customer may self-serve; the provider and the customer may produce the service in interaction with each other; and the customers may produce the service between themselves. According to (1990), in such a boundary-free organization, the traditional way of defining productivity is clearly no longer valid

Generally, business operates to gain profit in which in return drives operators to produce products and services that can satisfy their customers changing needs. Customers have four essential characteristics which business organization should know. Customers have a particular need and preferences. Customers have enough money to buy products and services. Customers also have the decision making power. Lastly, customers need to have easy access of your products and services. Having acknowledged these characteristics gives business organization the edge to be profitable.

However, there is such other characteristics of customers in which are more important than having profits. Loyalty, for example is an important characteristics of customers in which business organization should gain. Customer loyalty is the practice of finding, attracting, and retaining your customers who regularly purchase from you. Every business organization wants to develop loyal customers that buy consistently over time, generally at regular prices, commonly ignoring the pleas and platitudes of competitors. Everyone knows customer loyalty is good.

Keeping existing customers costs less than having new customers. Getting new customers need business organizations extensive promotion. However, having good personal relationship with loyal customers can also mean referrals in which customers recommend your services to their peers when they like your service. In addition, they could be a testimony on new customers. Moreover, they will be encouraged to use more of your services. There would be fewer expenses especially in promotions because loyal customers can do it for you.

According to  (2000), “in a business context loyalty has come to describe a customer’s commitment to do business with a particular organisation, purchasing their goods and services repeatedly, and recommending the services.”

According to (2001), “It is commonly known that there is a positive relationship between customer loyalty and profitability. Today, marketers are seeking information on how to build customer loyalty. The increased profit comes from reduced marketing costs, increased sales and reduced operational costs. Finally, loyal customers cost less to serve, in part because they know the product and require less information. They even serve as part-time employees. Therefore loyal customers not only require less information themselves, they also serve as an information source for other customers”.

 

2. A friend of yours is setting up a math tutoring service. She asks, "Do all services need to offer guarantees?" Please provide a detailed answer to the question and explain why your friend should or should not offer a guarantee.

 

 

There have been various definitions of service guarantees can be found in the literature.  (1992) define a service guarantee as "a statement explaining the service customers can expect (the promise) and what the company will do if it fails to deliver (the payout)."  (1996) define a service guarantee as “a policy, express or implied, advertised or unadvertised, that commits the operation to making its guests happy."  (1998) state that, "a service guarantee can be represented as a promise to the customer and is often advertised as such."

From the definitions of guarantee, we can understand the importance of guarantee. Thus, all services must have guarantees to provide the best services whether explicit or implicit in order to gain customers. My friend should give a guarantee that after the tutor I can gain knowledge and be satisfied with what has being taught.

Service promises can foster and strengthen customer-firm relationships ( 1995;  1998) due to their attention to specific attributes such as price or delivery time (2001), or because of unconditional assurances aimed at increasing customer satisfaction (1996). (1998) suggest that service guarantees serve as external cues just like price or brand reputation that are used by customers to evaluate service quality and reduce risk. Service guarantees improved customer evaluations only in the absence of other quality information. Perceptions of risk were lower when a guarantee was offered. Service guarantees had a greater impact on customer evaluations when quality variation was perceived to be high among service providers. In addition, the uniqueness of a guarantee has been found to amplify its effect on customer evaluations (1998).(1998) notes that in general, service guarantees favorably influence customer attitudes and beliefs, thereby increasing purchase intention.

 

 

 

 

3. Please comment on the following statement: "The development of new services is best pursued as a linear process."

 

 

Competition in rapidly changing service markets often requires the ability to quickly develop and deploy new service offerings. Firms pursuing a strategy reliant upon innovation are under constant pressure to develop more effective new service development methods, make better use of their resources, and beat their competitors to market with the next great idea. Related research has previously demonstrated that certain organizational, technological, and process design choices have significant strategic influence on the firm's ability to rapidly and effectively develop new services ( 2000).

Services marketing is built on carefully understanding the deeper needs of your customers, and then providing services that will help to make them more successful. In developing a new service it should follow a service development cycle. It should not be in a linear process.

Source: (2004)

 

The starting point is the market research phase of Identifying the Customer Pain Point. During this phase the customer pain points and requirements are captured. The next phase, Developing the Service Definition, takes these needs and casts them into a set of service components that form the heart and soul of the customer engagement. The third phase, Marketing & Selling, develops the customer-facing portfolio used to communicate and sell the service product to a customer. Once the service is purchased by a customer, the fourth phase, Delivering & Supporting, is used to implement the service. Insight gained during this implementation phase is used as input into the identification of new customer pain points, leading to the development of additional services.

(1996) focused on design quality in which they posit that the goal of any new service development effort should be "to create the prerequisites for services which the customer perceives have an attractive added value."  (2000) add non-linear elements to the new service development model, emphasizing the interdependence on design and development as well as the cyclical aspects of the new service creation process. Their work is among the first to critically examine the non-linear nature of the new service design process. A non-linear model has also been developed by considering the organizational learning that can occur during the development of new services ( 2004).

 

4. The manager of an electrical contracting company that does repair work, remodeling and new construction for homeowners understands the need to set customer-defined standards in order to close the gap between customer expectations and what the company currently delivers. List and define the two major types of customer-defined standards presented in our text and give three examples of each.

 

 

Customer-defined standards are operational standards based on pivotal customer requirements that are visible to and measured by customers.

 

Major Types of Customer-Defined Standards

 

1.    Hard customer-defined standards are standards that can be counted, timed or observed through audits. 

Examples:

·         On time delivery

·         Reliability

·         Compliance with Commitment

 

2.    Soft Customer-defined standards are standards that are opinion-based measures that can not be directly observed.

Examples:

·         Responsiveness in which human voice on the line during report of problem

·         Resolve problem at first contact no transfers, other calls or multiple contacts

·         Treat Me with Respect    

5. The owner/manager of an independent video rental store wants to develop new tactics to get customers into his store and induce them to browse store offerings when they get there. He is thinking of specializing in science fiction and horror movies. Please explain how the servicescape may be used to increase store traffic using the four different strategic roles mentioned in our text. Provide at least one specific example of a servicescape design appropriate for each strategic role.

 

 

 

Servicescape is defined as the environment in which the service is delivered and where the firm and the customer interact ( 1996). The servicescape has received renewed attention in the services marketing literature ( 2000); social-servicescape (2003); servicescape failures (2003); the physical environment and hedonic consumption at sporting events and leisure settings (2002;  1999); and hedonic motivations and aesthetic appeal in the retail servicescape ( 2003). Furthermore, the servicescape has been identified as an important factor in shaping the consumer’s experience in a retail setting (1992; 2003; 1999; 1998). From a practical perspective, millions of dollars are invested each year in an effort to make these retail environments appealing to customers.

Service environments are specifically designed to influence shoppers’ emotional responses aimed at enhancing the buying experience and increasing purchase probability ( 1994). It is acknowledged that for many consumers their first level of response to their environment is affective, in that it guides the kinds of experiences a person expects and seeks in their environment (1973). Further,  (1980) proposed that an environment has affective quality defined as its emotion-inducing quality that persons attribute to that place.

Successful retailers have learned to structure their internal environments to create a positive customer experience through a variety of strategies that include decor, displays, customer amenities, and customer services. These organizations know that customers also expect an environment that anticipates and fulfills their other basic desires for comfort, convenience, safety, entertainment, and information. These environmental factors, termed "atmospherics," were defined by  (1973) and describe the physical and controllable environmental components that can affect the buyer's "purchasing propensity" to consummate a marketing exchange.

Other researchers have proposed and found that atmospherics lead to consumer satisfaction, patronage, word-of-mouth advertising, and an improved image for the organization ( 1990; 1992; 1990). These researchers have noted that the physical environment is the least studied but perhaps one of the most important and controllable dimensions of customer satisfaction.

There are four strategic roles of servicescape. These are packaging, facilitator, socializer and differentiator. Servicescape act as a packaging in a way that it is the outward appearance of the organization that forms the initial impression. It is the visualization of the intangible service product. It initially wraps the service product and projects an image of what is inside the wrapping waiting to satisfy the consumers. For example, Malaysian Maritime Institute offers inspection of ship as one of the services we provide for ship owners. Their servicescape includes a display of individual ship file, a core fleet list of ships on display with last inspection date, an-online computer system of the list of ships and their status and the inspection guidelines in use and the ship inspection charges. Thus, the servicescape of the organization packages the inspection services product that they offer to the customers.

Also, servicescape as a facilitator can make the service a pleasure to experience from the customer’s point of view and a pleasure to perform from the employee’s point of view. For example, in a maritime institute, they have a trading house with complete office facility for effective communication through e-mail, facsimile machine and desk telephones. They also have a long cum operation room in which customers could come and interact to get shipping and marine operations services. Both customers and the team were well facilitated by the servicescape to perform for customer’s satisfaction.

In addition, the design of the servicescape helps to socialize the employees and the customers in the sense that it conveys the expected roles, behavior and relationship between them. For example, designing a facility to house service product in a servicescape that can reflect to customers what their role is in relation to the organization, what parts of the facility are for employees only, how they should behave while inside the facility and what type of interactions are encouraged to produce high level of performance in service for the customers.

Lastly, as a differentiator, servicescape can also be used to position an organization to attract new market segments. Variation in the physical facility of the organization could signal price differentiation. For example, a large shipping company would have an established corporate headquarters with ample parking bays and shipshape landscaping of a nautical look with life size ship propeller inserted amongst the water fountains. While a small shipping company with a couple of operational small ships would be having a small office situated amongst the shop lots of a shopping centre. The servicescape of the large shipping company differentiates it from the small shipping company. It goes on to differentiate the market segments, service quality, after-sale service and service pricing.

 

 

Core Competency

            The concept of core competence is a key for business strategic development and competitive advantage. According to some literatures, it drives restructurings, divestitures, mergers and strategic partnerships to produce new levels of profitability and shareholder value (1990; 1995; 1996, 2000;  1996;1998; 1998). According to (1996), core competences are often presented as arising from unique resources that give rise to distinct capabilities.

            Much of definitions are exemplified by many literatures.  (1994) describe core competence as “a unique bundle of skills and technologies that enables a firm to provide particular benefits to customers.” It is also a transformational learning process and a discovery and deep reflection that leads to profound shifts of values, assumptions, strategy, behaviors, structures, and processes.

In addition, according to (1997) core competency refers to skills within the firm that competition cannot match or imitate. These skills mentioned may exist as the firm’s main function. In connection,  (1996) stated that, such skills are typically expressed in product offering that other firms find difficult to match or imitate. Moreover, these skills are considered to be the most significant of a firm’s competitive advantage. 

Another definition is given by  (1985). He referred core competency as one of the critical success factors which includes those activities that are key to achieving a competitive advantage. According to him, a firm's identity is derived from its combination of core knowledge competencies and core performance capabilities.

According to  (1989), the general nature of competency is that the skills in the firm cannot be matched irrespective of its position in the value-added chain, however, it is bound to manifest itself in the firm's competitive strategy in the market place. Core competence is not just product specific but rather contributes to the competitiveness of a range of products or services. For a skill to be considered core competence, it must meet the three tests that are customer value, competitor differentiation and extendibility.

In the context of the continuous trend of international business, the issue of core competency becomes acute since globalization of business creates exposure to competition from foreign firms. According to  (1963) and  (1983), these reactions to globalization can be viewed as an offensive or defensive adaptation of firms to market imperfection.  Thus, the key to successful competitive strategy requires ownership, control and management of substantive and non-duplicatable assets which may be usable in the domestic markets and yet transferable internationally.

In the reviews of  (1991) and  (1992), they have found out that the term core competency indicated many facets. One of the facets discovered is comprised of "resources," which is referred by (1984) and  (1991) as specific knowledge and specialized assets. According to them, resources include the tangibles and the intangibles. Tangibles include brand names and patents. Intangibles include knowledge on particular process and the skills. 

The second facet comprises capabilities, which are defined as the ability to make use of resources (1994). In the theories of  (1990) and Nonaka (1994) on organizational knowledge and learning, they distinguish the difference between know-that and know-how.

Finally, the third facet mentioned is culture. According to (1991), managing the cognitive decision rules should also be included in the management of competence and not just acquiring the right resources. According to her, the organization’s identity or what people define as central, distinctive, and enduring about their organization is embodied in the shared decision rules (1991). Moreover, she concluded that identity can highlight the interpretive and the meaning-giving side of core competencies.

Core competency is comprised of the four factors which include knowledge/skills, technical systems, managerial systems, and value/norms. In the study of  (1992), she discovers how core rigidity can enter the corporate system.

According to  (1992), the dynamics of core competencies and ventures are rather complicated.  According to her argument, core competencies have its flip side which she termed as “core rigidities”. This phenomenon arises when certain areas of knowledge and skills are emphasized over others. In addition, according to  (1992), core competencies are institutional in nature, so we can use well-understood institutional dynamics to frame this problematic connection.”  (1967) added that through institutionalization, shared behaviors become "typified" into habituated actions in which come to be taken for granted according to  (1988).

Moreover, in the argument of  (1988), they also pointed out that improvements in existing competence may make experimentation with other procedures less attractive. The result is that the firm develops a narrow set of abilities, called a competency trap. In which according to  (1993), could perpetuate the success and stability in this narrowness. As a result, simplification turns strategies into simplistic recipes, and constrains the culture to reflect only one group's ideas (1993). According to  (1993), firms whose managers are removed from basic operations also evolve "core incompetencies," that are difficult to assemble, and are vulnerable to failure.

In spite of the emerging concepts of core incompetencies, core competence as a key to establishing competitive advantage remains evident as what the literatures shown.

Philippine Pharmaceutical Companies

            According to the  2006, the Bureau of Food and Drugs (BFAD), in its latest edition of number of licensed establishments, includes a count of drug retail outlets, along with a slightly modified categorization system of establishments. As of April 2003, there are a total of 20,649 pharmaceutical-related establishments nationwide, including drugstores and pharmacies. In fact, drugstores make up almost 75% of the total number of pharmaceutical establishments.  As of December 2001, there have been a total of 8,071 new product registrations for drugs. This count includes medical devices, diagnostic reagents, biologicals, veterinary products, household remedies, and herbals. The total number of pharmaceutical product brands in the market has been decreasing since 1997. As of 2002, there are 3,647 brands. This is a further shrinkage of 16% in the brand list, from 3,707 in 2001. Number of brands available reflect the top categories in terms of sales (see section 3.2), as the classes with the most number of brands are Systemic Anti-Infectives (class J), with 811, and Alimentary Tract and Metabolism Products (class A), with 600. Despite the shrinking total number of available brands in the market, there have been a total of 83 new product introductions in 2002, of which 73 were branded, and 10 were unbranded products. The class with the most number of new products introduced is cardiovascular products (Class C), with a total of 14 new items (11 branded and 3 unbranded). Class A follows with 13 (10 branded and 3 unbranded). Systemic Hormonal Preparations (Class H), Hospital Solutions (Class K), Parasitology (Class P), and Diagnostic Agents (Class T), did not have any new products introduced in 2002. Twenty-three percent (23%) of the total number of establishments are in Metro Manila. Drugstores, however, are the more well-distributed class across the different regions of the country; drug distributors and medical devices distributors are highly concentrated in Metro Manila. Excluding retail outlets, as much as 41% of the rest of pharmaceutical establishments are in Metro Manila.

            Along with the overall trend of decreasing number of brands in the total market, the number of brands belonging to the top 20 pharmaceutical corporations has also been decreasing. As of 2002, 1,316 brands, or 36% of the total number of brands, belong to the top 20 corporations. United Laboratories (Unilab) has the largest share of brands among the individual corporations, owning 7% of the total number of brands.

The top corporation in terms of sales has consistently been the local company United Laboratories (Unilab). Unilab has ranked number 1 in sales since 1998, and last year attained PhP12.3 billion, or 18.68% of the total market. Following Unilab, but by a very large gap, is Glaxo SmithKline (GSK), with only a little over half of Unilab’s value, at PhP6.8 billion. These 2 corporations, along with Pfizer (3rd, at PhP4.3 billion), and Wyeth Philippines (4th, at PhP3.6 billion), have consistently held their respective positions in the top 4 since 1998. Bristol Myers-Squibb (BMS) has held the 5th place from 1998 to 2001, but was overtaken by Astra Zeneca by the end of 2002, having sales worth PhP3.1 billion.

Ventolin, GSK’s anti-asthma drug, has consistently been the top selling product of all in the total market since 1993, only occasionally eclipsed by other products, such as Therapharma’s Alaxan, which was briefly number 1 in 1997. In 2002, Ventolin registered sales of up to PhP1.2 billion. Alaxan, on the other hand, has consistently been in second place since 1998, and registered sales of up to PhP777 million in 2002. Other top brands as of 2002 are Norvasc by Pfizer (3rd), Enervon by Unilab (4th), and Augmentin by GSK (5th). Top brands have relatively stabilized since 2001, after some fast climbers entered the top 10 since 1996 and caused major shuffles in brand positions (with the exception of course of Ventolin). Norvasc was one of these fast climbers, being out of the top 50 a decade ago, and now securely in the top 10. Lipitor by Pfizer has also dramatically shot up in sales, ranking only 68th in 1998, but now in 9th place. Ceelin by Pediatrica is also notable for its climb from number 20 in 1998 to 7 in 2002. In contrast, brands such as Ponstan by Pfizer dropped out of the top 10 list by 2000. Biogesic by Biomedis has also been steadily falling down the list since 1998, and fell to 10th place by 2002, from 3rd place in 1997.

Pollard price indices are used to provide indications of price movements. The index is based on virtually the whole population rather than a small sample, with measurements taking place every six months. At the beginning of the six-month period, measurements are obtained by multiplying the quantity of each item sold by its price to obtain a beginning total. At the end of the six-month period, similar measurements are taken on the same products in order to obtain an ending total. The comparison of the ending total to the beginning total gives the weighted average price increase during that period. Products launched during a semester are not included, as well as those discontinued within the semester. The index uses a base date of December 1989.

 

Appendices:

 

 

‘

 

Managing Your Business

Managing Your Business

 

Part A

The Trade Practices Act

“The Trade Practices Act introduced a strict liability test for unacceptable business behavior”

            The Trade Practices Act is an act of the Parliament of Australia. The act provides wide-ranging protection to consumers from undesirable business acts and practices, making relief readily available through both new and traditional enforcement mechanisms. It also prevents some restrictive trade practices of companies. It is the key antitrust law in Australia. It is administered by the Australian Competition and Consumer Commission and also gives some rights for private action. Parts of the Act are mirrored in Fair Trading Acts in each Australian State and territory to extent regulations to individuals.

            The restrictive trade practices provisions in the TPA are aimed at the deterring practices by firms which are anti-competitive in which they restrict free competition. The ACCC can litigate in the Federal Court of Australia and seek pecuniary penalties of up to $10 million from corporations and $500,000 from individuals.

            Most of the proscriptions in the TPA are directed at corporations. For the same reasons, 'corporation' is defined in section 4 of the Act to include only those that can be characterized as being 'foreign', 'trading', 'financial', 'incorporated in a Territory', or as a holding company of such a corporation. Of these possibilities, in practice, the most important is ‘trading corporation' and in a number of early TPA cases, a central issue was whether the respondent was a corporation of this nature. This is determined having regard to the current activities of the company, not by reference to its principal activity, or the reason it was established.

These provisions prohibit:

1.    Most Price Agreements (Cartel and Price-fixing).

It is an offence, punishable by the imposition of a 'pecuniary penalty' of up to $10m, for competitors to engage in price fixing. Price fixing is defined as contractual agreement and arrangement or understanding which extends beyond the price of goods or services to also include discounts, allowances, rebates and credit. It also includes controlling or maintaining prices as well as actually fixing it.

For example, ACCC v Real Estate Institute of Western Australia Inc (1999) in which a license agreement between a university and a private college authorizing the college to use the university’s current teaching materials and setting the price that the college is to charge its students for the course, or subjects, in which they are used. 

 

 

2.    Boycotts

There are two types of boycotts. These are the primary boycott that is, an agreement of two parties to exclude another and secondary boycott whose purpose is to cause substantial lessen competition.

The TPA prohibits two or more competitors from agreeing not to deal with a third party (Hughes v Western Australian Cricket Association Inc., 1986). This prohibition is also expressed in very broad terms and is capable of extending to boycotts designed to advance popular public policy objectives, such as ending apartheid(TPA, s 45(2)), as well as to traditional boycotts involving commercial bullying.

For example, it would be unlawful for universities to agree not to purchase library books from a publisher that they considered guilty of price exploitation, or not to enroll fee-paying students guilty of civil rights abuses or of academic offences such as plagiarism.

3.    Misuse of market power

Misuse of market power is defined as taking advantage to eliminate or damage an actual or potential competitor, preventing entry into a market, or lessening competition. This is also a kind of agreement between two organizations

The TPA, however, also prohibits unilateral anti-competitive conduct. In particular, s 46 proscribes firms with substantial market power from using that power for the purpose of damaging other firms, or competition generally.

4. Exclusive dealing

Exclusive dealing is an attempt to interfere with freedom of buyers to buy from other suppliers, such as agreeing to supply a product only if a retailer does not stock a competitor’s product

Firms often seek to deal with customers or suppliers on terms that restrict the ability of the latter to deal with whom, or where ever, they wish. Arrangements such as these are prohibited by s 47 of the TPA. However, because it is recognized that they can be pro-competitive as well as anti-competitive, they are unlawful only if they substantially lessen competition.

5.    Third-line forcing

Under the rubric of exclusive dealing, s 47 (10) of the TPA prohibits a firm from making it a condition of supplying a customer that the latter acquires goods or services from a third party. 'Third line forcing', as this practice is known, is an offence regardless of whether it has an adverse effect on competition.

 

 

6.    Resale price maintenance

Resale price maintenance is fixing a price below which resellers cannot sell or advertise.

Section 48 of the TPA, prohibits firms from engaging in re-sale price maintenance (RPM). It applies to conduct stretching across the moral spectrum, from conduct designed merely to enhance the appeal of the firm’s products to that designed to eliminate price competition.

 

 

Consumer protection

The consumer protection part of the act, contained in Part V and Part VC, is based on the proposition that low consumer power or lack of information is a market failure which needs to be addressed by interference in the market.

These parts deal with:

·         Unfair Practices (including unconscionable conduct and misleading and deceptive conduct) —Part V, Division 1 and Part VC, Division 2

·         Product safety and information —Part V, Division 1A and Part VC, Division 3

·         Conditions and Warranties in Consumer Transactions — Part V, Division 2

·         Actions Against Manufacturers/Importers of Goods — Part V, Division 2A

·         Product Liability — Part VA

Misleading or Deceptive Conduct

Misleading and deceptive conduct (s52) is one of the most important consumer parts of the act. It allows both individuals and the ACCC to take action against corporations who engage in conduct that is misleading or deceptive, or likely to mislead and deceive.

Unconscionable Conduct

The inclusion of unconscionable conduct in the Trade Practices Act is a codification and extension of the equitable principle of unconscionability which was clarified as a cause-of-action in the case of Commercial Bank of Australia v Amadio (1983) 151 CLR 447. The High Court of Australia held that an act was unconscionable if a party to a transaction is under a special disability, the other party is or ought be aware of that disability, and that other party acts in a way that makes it unfair or unconscionable to accept the offer of the weaker party.

Section 51AA codifies the common law by referring to the ‘unwritten law’ that is the common law. However, s51AA allows access to TPA remedies.

Section 51AB bans unconscionability in consumer transactions, and gives factors that indicate unconscionability. This clarifies the application of unconscionability and circumstances where a consumer is at a “special disability”.

The inclusion of s51AC, added in 1998, extends unconscionability by, in effect, classing ‘small business’ as a ‘special disability’.

Other Unfair Practices

The Trade Practices Act also prohibits a range of other unfair practices including bait advertising, pyramid schemes, and certain misrepresentations.

Liability is strict in the sense that fault is not required on the part of the respondent for liability to arise. Consequently, for example, it is no defense to an action based upon a false statement for the speaker to show that all reasonable care had been taken to ensure that it was correct. Likewise, it is no defense that the speaker had innocently relayed false information provided by a third person, unless at the time of doing so it was made clear that the speaker was not adopting that information but was merely passing it on to the recipient.

The action can be taken against a party guilty of misleading conduct by its rivals and the Australian Competition and Consumer Commission (ACCC), as well as by those actually misled by that conduct. Furthermore, action can be maintained by a rival, or the ACCC, regardless of whether it has suffered loss as a result of the conduct complained of. Importantly for universities, this means that promotional claims, for example, are actionable at the suit of other universities even though they have not been misled by them. In the case of a rival university, if it can establish that it suffered loss attributable to the respondent’s conduct, damages will be recoverable under s 82; this could include, for example, the income, or profit, that the rival would have earned from fee-paying students who enrolled with the respondent, rather than with it, because of the former’s conduct. If loss cannot be established, the rival university may still be able to obtain a remedy in the form of an injunction under s 80, restraining the respondent from persisting with the conduct in question.

Finally, the remedy and penalty provisions of the TPA extend liability beyond the business that is regarded as having engaged in misleading conduct, to all those individuals who were accessories to that conduct. In this context, s 82 is particularly relevant because it enables damages to be recovered from 'any person involved in the contravention'. The potential of this provision is shown by ACCC v Black on White Pty Ltd. In this case a 'part-time accreditation officer' was held liable because he had been actively involved in making what he knew to be misleading statements about the accreditation of courses offered by his employer. Indeed, a notable aspect of Mathews, Fennell and Dudinski (all noted above) is that in each case, a personal action was brought against the university employees involved in the subject matter of the complaint, as well as against the university itself.

 

 

 

Sample Cases

Unconscionable conduct and door to door sales

The Lux case involved a sale of a vacuum cleaner. The sale took place in the consumer’s home and no one else was present other than the salesman and the customer. The customer asked the salesman to assist her in filling out the credit application form as she could not spell very well. She also stated that she couldn’t read the form. The salesman knew that the customer and her husband were on disability benefits. The court found that the customer was unable to understand commercial matters in any depth. The salesman admitted he had wondered whether the customer should get independent advice before signing the contract but did not suggest this to her. The customer gave evidence that although the salesman was friendly enough, she felt uncomfortable and scared and wanted him to leave—she did not tell the salesman this and thought that the only way to get him to go away was to sign the contract.

The Keshow case involved the sale of educational material for children and household goods to indigenous people in the Northern Territory. The customers were asked to sign open-ended authorizations for debits from their bank accounts which were not designed to terminate when the goods had been paid for. The products in question were not needed or useful having regard to the age of the children concerned. Frequently the goods were not supplied or not supplied in their entirety. The customers were living in generally impoverished communities and were receiving Centrelink or similar benefits. Many had only limited English and little experience in business dealings. For cultural reasons, the customers were not likely to directly question the salesman about the transactions they were entering into. The court found that the salesman was a mature person who understood the transactions he was entering into and was able to appreciate the things which a customer of normal commercial acumen might inquire about or expect.

In both cases, the court found that the circumstances surrounding the sales were unconscionable.

Not surprisingly the consequences for unconscionable conduct can be severe. Financial and other consequences can include:

• injunctions
• refunds to customers
• damages payments to customers
• payment of the ACCC’s legal costs, and
• the implementation of a new or external review of an existing, trade practices compliance program.

In addition, there is the consequential inconvenience of being party to a court case, your own cost of legal proceedings, as well as the negative publicity and reputational damage which almost inevitably accompany losing a court case.

 

 

Part B

X & Y were partners in a wholesale meat business called “Macs” supplying meat to the fast food industry.

X has a degree in marketing and food handling. X duties are to supervise the handling of the produce and the marketing operations of the business. As part of X‘s duties they frequently visit customers advising them of new products. They visit a long-standing customer Big M a major fast food hamburger chain that is interested in buying all their meat from Macs. X informs Big M that Macs beef is “100% beef and healthy”.

Bing M buys 1000 kg of meat to be used for hamburgers. K is a customer at the Big M Kingsford branch. He is keen to buy an all beef burger. He reads the menu at Big M which says “Big M Burgers are 100% Australian Pure Beef” K subsequently becomes ill after eating the burger. Big M discovers that almost half the of the meat content is not beef but beef fat and other ingredients including bacteria.

After 25 years in the business X decides to retire and become a part-time entertainer. The partners agree to dissolve the business by mutual agreement, they notify the bank and all those dealing with the business, but there was no notice published in the daily newspaper.

After the business was dissolved X orders goods from Jack Pty Limited using the old letterhead of the business which shows Y as a partner. Jack Pty Limited did not know that Y was a partner before the date of the dissolution. X failed to pay for the goods and Jack Pty Limited now demands their money.

What should the parties do? (X, Y, Big M, K and Jack Pty Ltd)

From the situation above, X has committed misleading and deceptive conduct in which he had advertise to his customer that the beef he is selling is pure beef and healthy. In the Trade Practices Act, section 52 allows both Big M and ACCC to take action against X or the Mac’s. X has a liability to Big M for his misleading and deceptive actions.

In addition to the damages K, a customer of Big M was subsequently become ill because of eating the beef in which Big M has advertise as “100% Australian Beef.” K can also allege Big M with misleading and deceptive conduct. Big m also has a liability to K.

            In the Trade Practices act, misleading and deceptive conduct is subject as a criminal action. Misleading and deceptive conduct may lead to loss or injury to the other party. As with the case above, it is clearly that X has mislead and deceive Big M with his advertisement of 100% pure beef and healthy.

However, with the case of Big M, the company may be become deceptive and misleading to their customers but Big M has no ability to know if the beef they are selling is pure beef or not. In this case Big M becomes unconscionable. But either way, the company still needs to pay the damages he had for the K which may include financial medication for K.  

In the case of Jack Pty Ltd., they can sue X due to the liability he incurred from the company that he has not paid.

X should pay all the damages he had for Big M and should pay his liabilities to Jack Pty Ltd.

Getting in the Business

Getting in the Business

 

Part A

Business Risks

            In all types of undertaking, there is a potential for events and constitute opportunities for benefit or threats to success. Every business faces risks that could present opportunities and threats to its success. Risk can be defined as the combination of the probability of an event and its consequences. Common risks include financial risks, operational risks and environmental risks.

 

Different types of risks are all around. Risk is both an opportunity and threat to manufacturing companies. Risk identification, assessment, mitigation, and elimination for all manufacturing and control processes should become the basis for thinking about product development and life-cycle management for every product.

 

When a company completely understands the manufacturing process for its product and can mitigate or eliminate altogether the risk factors for failure through materials and process controls, and show assurance of consistency and value, it will ensure greater consumer confidence and overall cost reduction for risk-related problems like rewards for damage. Moreover, this understanding must extend to all of the materials, facilities, personnel practices, and procedures that contribute to the manufacture of the product.

Risk: defined

Risk is a small word with a large connotation. Definitions of risk vary and give little guidance for quantification. For example, some dictionary definitions include: possibility of loss or injury; a dangerous element or factor; and the degree of probability of loss (1980).

On the latter definition provides an idea that risk can be calculated according to a probability algorithm. Nonetheless, all the definitions connote a negative outcome whether or not it is quantifiable, and that further implies an element of action or process that might result in a negative result.

In an Internet research, risk yielded a definition as a potential harm that may arise from some present action or an expected after-the-fact level of regret (). These definitions also imply the negative consequence of a process or action.

The banking industry in 2004 recognized and defined risk associated with organizational interactions in the following definition: “Operational risk is the loss resulting from inadequate or failed internal processes, people and systems, or from external events.” ()

In general, risk is a negative possibility that would happen. It is negative potentiality of loss, harm or injury.

 

 

Types of Risks

 

            There are 4 main categories of risks in which businesses may face. These are strategic risk, compliance risk, operational risk and financial risk. Companies may face risks that fall not just one of these categories but rather most of the times a combination of these risks.

            Strategic risks are those risks associated with operating in a particular industry. In addition, this also includes risks arising from merger and acquisition activity, changes among customer or in demand, industry changes, and research and development.

            Compliance risks are those associated with the need to comply with laws and regulations. They also apply to the need to act in a manner which investors and customers expect.

            Financial risks are associated with the financial structure of your business, the transactions your business makes, and the financial systems you already have in place.

            Operational risks are associated with your business’ operational and administrative procedures. These include recruitment, supply chain, accounting controls, IT system, regulations and board composition.

            In addition, there are also other types of risk. These include environmental risk (natural disaster), employee risk management (retaining employees, employee safety and development), political and economic instability of foreign market (if you are exporting), and health and safety risk.

Risk Management

Executive management understands that a company's failure to plan, measure, and mitigate risk factors can negatively affect product quality, customer retention, brand strength, and corporate earnings. Particularly for products that provide high profit margins, risk management takes on an increasingly important role.

According to (2006), a good risk management strategy has several key components.

1.    It must identify risks for the entire life cycle of every product or service the company provides from initial research and development through commercialization.

2.    It must be able to predict the financial impact.

3.    It must offer strategies that can mitigate the effects of any disruption with costs and benefits associated with each alternative.

Risk management is the process whereby organizations methodically address the risks attaching to their activities with the goal of achieving sustained benefit within each activity and across the portfolio of all activities.

The focus of good risk management is the identification and treatment of these risks. Its objective is to add maximum sustainable value to all the activities of the organization. It marshals the understanding of the potential upside and downside of all those factors which can affect the organization. It increases the probability of success, and reduces both the probability of failure and the uncertainty of achieving the organization’s overall objectives.

 

Risk Management Process

 (2002)

 

 

 

Risk Assessment

            Risk Assessment is the first step of the risk management process. This is the overall process of risk analysis and evaluation.  A good assessment must take the subjectivity out of the data-gathering process and place it where more consistent and informed opinions can be formed. The goal is to make the data gathering "fact-based," allowing senior staff to later apply subjectivity when they interpret those facts.

            Risk Analysis involves three process which includes risk identification, risk description and risk estimation. Risk identification is the process in which the company identifies its certain exposure to uncertainty and risks. Risk description has the objective to present the identified risks in a structured way. Risk estimation is to can be quantitative, semi quantitative or qualitative in terms of the probability of occurrence and the possible consequence.

            Risk evaluation is the comparison of the estimated risk from the criteria set by the company. Risk evaluation therefore, is used to make decisions about the significance of risks to the organization and whether each specific risk should be accepted or treated.

 

Risk Reporting

            After risk assessment, risk reporting comes after. Reporting involves to types which are the internal and external risk reporting. Internal risk reporting involves the dissemination of the risk information on the different levels of the organizations. External risk reporting involves the dissemination of information to the stakeholders.

 

Risk Treatment

Risk treatment is the process of selecting and implementing measures to modify the risk. Risk treatment includes as its major element, risk control/mitigation, but extends further to, for example, risk avoidance, risk transfer, risk financing, etc.

 

Risk Monitoring

Effective risk management requires a reporting and review structure to ensure that risks are effectively identified and assessed and that appropriate controls and responses are in place. Regular audits of policy and standards compliance should be carried out and standards performance reviewed to identify opportunities for improvement. It should be remembered that organizations are dynamic and operate in dynamic environments. Changes in the organization and the environment in which it operates must be identified and appropriate modifications made to systems.

 

The monitoring process should provide assurance that there are appropriate controls in place for the organization’s activities and that the procedures are understood and followed.

 

Part B

            Protecting investments is a concern for every business. Whether assets are physical (such as inventory, property, plant, equipment) people or financial, management should anticipate the risk of loss. The challenge for each business is to manage the risk of any major loss in the optimum manner for the company.

            In the case of the new company producing frozen fat free instant dinner, there was an intellectual property since the technology was first design by them. Moreover, the employees also are property of the company since they are bound on the company. Eventhough the employees work on the other company on their spare time it is still not right because they are still property of the new company

In protecting business assets, risk management started with buying insurance for the business. "Historically, risk management has consisted of obtaining enough insurance coverage to properly insure the plant, property and other items for which there was a risk of loss, in addition to implementing an employee safety program. The management of risk, however, largely involved financing the risk rather than avoiding losses or managing them."(1984) In recent years, risk management has evolved into a distinct profession involved in assessing the ways to limit the effects due to risk of loss. Risk management has been defined as "the process of planning, organizing, directing and controlling the resources and activities of an organization so that the possibility of loss or injury is reduced to the lowest possible level at the lowest cost."(1984)

Good internal controls will reduce the risk of loss due to theft or employee defalcation. Questions should especially address concerns regarding proper cash management. The following are the ways in order to mange risks which involve theft of business assets.

 

Eliminate or Avoid Risk

After measurable loss is assessed, the next step is to try to eliminate avoidable loss. Management needs to measure the benefits of their decisions against the cost of eliminating risk. For example, a company trying to decide whether to build in an area known to experience earthquakes or floods needs to weigh the benefits of locating in that area against the risk of damage, or complete loss. Sometimes companies determine that some products are not worth manufacturing solely because of the liability risks involved. For example, a manufacturer may decide against producing a chemical product which poses too great a threat to humans or the environment.

With the case of the new company, they can either decide to eliminate the employees from the company to avoid the risk of transferring more information to be extended to other company.

Reduce Risk

The methods used to reduce risk will depend on each company's unique situation. This is where the risk manager must use creative abilities to reduce the chance of occurrence and costs of an identified risk. For example, a sprinkler system could be installed to reduce the spread of fire. This differs from risk avoidance where the risk is totally eliminated. In the case of a sprinkler system installation, the sprinkler system will help reduce the damage caused by a fire, but it will not avoid the possibility of a fire occurring. A management action is taken to reduce the severity of a specific risk.

Companies may also provide a company-wide safety awareness program. Training employees in proper safety procedures reduces injuries to employees which in turn reduces workers' compensation insurance costs.

In addition, companies may also provide health and physical fitness for their workers as a way of reducing employee stress, illness and injury.

In the case of the frozen fat free dinner-producing company, risk reduction may involve the appropriate safeguarding of assets and security against theft of company assets. Examples of specific activities to reduce the risk of losses involving employee defalcation include hiring competent employees, controlling the access to the assets of the business, segregating the duties of employees to create checks on each other and periodic comparison of assets to the records.

Risk reduction plans have to be customized for each company. The risk manager must analyze each identified risk to determine what can be done to reduce the chance of experiencing a loss.

 

 

Transfer of Risk

Risk may also be transferred to someone outside of the company. Usually this means transferring to or sharing a specific risk with an insurance company. This is the first method of risk transfer that is thought of when risk management is mentioned.

Other methods of transferring risk are by the use of "suretyship, hedging (use of commodity markets and puts and calls), guarantees and warranties, type of business ownership, and hold harmless agreements."(1978)

Under a hold harmless agreement, one party to a contract assumes the specified liability of the other party. For example, the owner of a building can be held harmless for liability in a lease agreement. A hold harmless clause that may benefit one party may be costly for the other party. Therefore, contracts, leases and other similar documents should be entered into with an awareness of risk management.

 

Retain Risk

The degree to which a company will retain its risks depends on the individual company's management philosophy and ability to self insure. How much liability a company can afford to cover by itself is a critical question each organization must ask. For some companies, this will mean establishing a self insurance mechanism. For other companies, it means an election of an insurance policy with a deductible provision. In other cases, the loss may be so small that if it occurred, it would be of little consequence to the company, and so the company deliberately chooses to absorb the risk.

In recent years, new developments have occurred in self insurance mechanisms due to the high cost of insurance or difficulty in finding insurance. These self insurance programs have arisen as alternatives to the traditional insurance policy. These include captive insurance subsidiaries, group captives and risk retention groups. Some companies have found the groups to be very beneficial while others have found it to be an expensive undertaking.

In the case of the new company, risk managers should be aware of the security of their assets especially the technology and the employees. Managers should give contracts to their employees to be aware that company trade secrets should remain in the company and should not be shared to anybody.

 

 

 

 

 

 

 

 

 

 

PROFIT

 Profit

 

 

            For centuries businesses exist with a sole purpose of making profits.  Businesses that are not earning are either shut down, or sold to other large businesses.  However I for one think that the purpose of business is not just merely to make profit.  As Henry Ford puts it “A business that makes nothing but money is a poor kind of business”.  Businesses should help improve the community surrounding them, showing compassion, impacting their community.

 

            Businesses that produce drugs that cure diseases have lots of opportunities to show compassion to their community.  By lowering drug prices for poorer countries, these companies are helping poor nations afford these drugs.  Lowering drug prices, however could sacrifice profits that a company aims to achieve.  Without profits, how could a company strive in this cut-throat business?

 

            I however think that there are still more creative ways to gain profit and still maintain lower drug prices in poorer countries.  They could create their own manufacturing firms in these poor countries so as to manufacture them locally and perhaps could cut cost in shipping them to these countries.  Other companies like GlaxoSmithKline and Merck, have cut their Aids drug prices in poor countries and launched other programs to help with diseases in developing countries.  The general public has praised these companies.  By reducing their Aids drug prices, they create new ways to promote their company and the general public in their based countries might be buying their products since the general public believe that they are helping Aids afflicted countries.  Also the government where these companies are based together with several other sectors and countries are also pressuring drug companies to lower drug prices in poor countries.

 

            Another purpose of business is also to create customers.  There are lots of needs in poor countries which if companies meet, they could ensure significant market share in these countries.  Long term stability is far more important than short term profits.

 

 

 

Analysis on Diversity and Organizations in Global Market

 

 

 

 

 

 

 

 

 

 

 

Business Plan

Kids & Child International

 

 

 

 

Executive Summary

            Organizational success is dependent on the efficiency of the people involved. Often, people who are not really in the organization may have huge contributions for its development and success. The proposed business plan shall consist of the analysis for Kids and Child International.

Internet is rapidly adding another tool used to interact within the social circles, most favorably in customers and in the companies. The internet is defined as the electronic network that links people and information through computers and other digital devices allowing peer to peer communication and information retrieval. The internet could be considered one of the most liberating media forces in the world today. The Internet, has an impact on consumer marketing and it affects some of the marketing tasks. It discuss two important aspects of consumer marketing that the Internet is capable of transforming; (1) the communication process, and (2) the consumer need fulfillment through new consumer processes .As the Internet was transformed in the 80s from a “research only network” to allow commercial activities, organizations realized that the sheer number of users connected to the network and the very low cost of reaching out to them, made the Internet an attractive medium for advertising.  Almost all media planners now consider the Internet as a viable advertising vehicle and almost all marketers agree. The number of people who have access to the internet has risen exponentially.

            This paper also reviews the potential benefits of consultancy, possible clients, barriers and strategic management for Kids and Child International.

Table of Contents

 

Introduction

Business Plan sections

Ø  Company Profile

Ø  Mission, Vision, Values, Purposes, Key to success

Ø  Marketing

§  Competition

§  SWOT Analysis

§  Development, production, and location

Ø  Management

§  Financial plans & projections

§  Risk factors

 

Introduction

Despite the various challenges in which children’s products face, there is always an opportunity for e-business. It has been known today that even baby products and the Internet have a natural association. Kids and Child has the potential of this partnership and be successful in consumer e-commerce. Kids and Child forged ahead with an ambitious goal to become the world’s leading e-business children’s products company and promptly set up a new cross-functional department staffed by experienced people who have been dealing with the meticulous planning and production of baby products and newly recruited e-business professionals.

Kids and Child International is committed to invest in services that enhance value to their customers while improving productivity and reducing information technology costs. With this, the company has leveraged to e-business.

            Kids and Child International, known to be one of the world’s leading kid’s products producer, gives them the opportunity to acquire more customers and generate more revenues.     In addition, with Kids and Child International online selling, they give more convenience to their customer giving them the chance to attract more customers especially with people that have no time to go to shops and branches to buy such products.

            The company also has an opportunity of technology advancement for easier transaction and operations and for more convenience for customers and employees. Moreover, with its recognition, the airline attracts more opportunities of expansion.

            Furthermore, the company has design learning experiences for the employees to deliver consistent good services to customers. The company has encouraged a culture of self responsibility, courage to innovate and openness to collaborate within the organization.

 

Business Plan Sections

Company Profile

Kids and Child International is a company specializing in the production of children’s safety products. The company focuses on many aspects of children’s products, most recently, safety bracelets.

Innovation and entrepreneurship are some of the most highly valued skills of today. While some may rely on their talents in other fields, entrepreneurship is slowly making its way as a highly valued ability. Entrepreneurship cannot be learned. One is born with the ability of being an entrepreneur. But just what exactly is an entrepreneur? In a definition taken from Wikipedia, an entrepreneur is someone who has an eye for unheard of, new, risky and possibly profitable undertakings. This person capitalizes on these endeavors and seems to be able to profit from it. In another definition, this person seemingly is able to keep a positive outlook, despite fallbacks on chosen businesses. The company, Kids and Child International, highly values these skills.

 

Mission, Vision, Values, Purposes, Key to success

In accordance with previous reports and essays regarding Innovation and Entrepreneurship, I would once again recommend making and reviewing Vision, Mission and Goals. Vision, Mission and Goals can give one a sense of direction. One can be able to keep track of what he is doing, whether he is moving forward or not. Mission, Vision and Goals can help shape a person’s future, depending on how he perceives it. But having mission and vision statements, as well as goals are not only limited to large organizations. One can also have goals and mission and vision statements. As was mentioned, these things help define one’s personal journey into advancement. Also, by doing such, a person can be able to know what his intended undertakings are. In the context of entrepreneurship, these can help point out profitable and possible good business undertakings. The following tips are taken from the article entitled, “Mission and Vision Statements: Envision your Business, Realize your Goals” by Carly Foster:

Convey your company values;

 

Inspire and motivate your organization toward objectives that are

 

fundamentally key to the culture that you wish to establish;

 

Use long-lasting ideals, not fashionable statements based on current

 

business or market trends; and

 

Keep your statements clear and easy to understand for anyone coming

 

on to your organization.

 

            As for Kids and Child International, they foster innovation and entrepreneurship. Furthermore, with the safety and happiness of children in mind, they have inculcated these values into their mission and vision statements, which are:

            “To present quality and safe products to children around the world”

            Furthermore, the company’s goal is: “our trademark safety products recognized as a quality seal that guarantees that our chain of specialized exclusive branches only sell high quality products.”

 

Marketing

            Strategy is very important for any organization as it offers the direction the organization would like to pursue to attain its objectives. In the recent years, the integration of strategic planning and functional marketing has been perhaps the most relevant development in the field of marketing management as marketing managers have all the more realized that tactical marketing decisions must be made within a wider strategic framework.

In addition, it is necessary that management of the marketing function be built upon purposively defined and analytically based marketing strategies. Strategic marketing planning offers the analytical process which develops efficient marketing strategies. The strategic marketing planning, according to (2006), involves basically three stages: (1) segmenting the market; (2) profiling the market segments; and (3) developing the market segment marketing strategy. Please refer to figure 1 for the outline.

            After analysing the market segments, customer interests and the purchase process, the firm must then establish the strategic marketing plan. This strategic marketing plan document usually constitutes (2006): (1) situational analysis – Where is the company now? – i.e., characteristics of the market, key success factors, competition and product comparisons, technology considerations, legal environment, social environment and problems and opportunities; (2) marketing objectives – Where does the management want the company to go? – i.e., product profile, target market and target volume; and (3) marketing strategies - What should the initiatives be taken in order to attain its objectives? – i.e., product strategy, promotion strategy, pricing strategy, distribution strategy and marketing strategy projection.

 

Competitor Analysis

Understanding the competitors of a business in a given industry and developing methods as to distinguish it from them is a very relevant and critical aspect which influences the development of the competitive strategy of the firm. In addition, it is also an important aspect of the strategic planning process as it (1) facilitates the management to understand their competitive advantage or disadvantages associated to their competitors; (2) creates understanding of the competitors past, present, and future strategies; (3) offer an informed basis to develop strategies to gain and maintain competitive advantage in the future; and (4) to facilitate the firm in forecasting the returns that may be made from future investments ( 2005).

 (2000) notes that understanding competitors is the core to making marketing plans and strategy. A firm has to compare its products, prices, channels of distribution and promotional methods with those of its competitors on a regular basis to make sure that it is not at a disadvantage. The process of the competitor analysis basically constitutes three steps. The first step is to identify the firm’s competitors. As for Kids and Child International, the main competitors are Chicco and other companies who produce baby products.

            The second step of the competitor analysis is the assessment of its competitors. This may be done through benchmarking as the firms will first have to determine the objectives of its competitors as well as their objectives, then later on assessing the strengths and weaknesses of its competitors.  (1997) notes that benchmarking sustains organizational growth as well as facilitates world-class competitive status.

            Finally, the third step in the competitor analysis is the selection of competitors to avoid or to attack. After the assessment of the firm’s competitors, the firm will have to formulate the specific strategies that will give them the competitive advantage against its competitors.

            It must be noted that during the process of competitor analysis and the implementations of its strategies, the firm will have to assess which of the competitors’ strategies that they will have to follow or not. The second stage which allows the company to compare their operations with others will necessitate some degree of change within the organization. Thus it should be very well noted that the company only as to follow the strategies that will apply to their business as every business is unique in their own nature. These strategies will have to be in lined with the company’s philosophies as well.

Department stores who sell baby and children products and other distributors are the main competitors of Kids and Child International. These competitors sell a different variety of products that may well have a huge impact on the sales of our trademark baby products. However, due to the birth of the Internet, it is already feasible to set up an online store that caters solely to the company’s products, therefore lessening the possibility of competition and increasing the possibility of buyers, if we consider those people who no longer have time to go retail stores.

 

SWOT Analysis

            To formulate an effective strategy, one must take into account the distinctive competencies of the organizations, competition, and the environment. They must determine what competitors are doing, or planning to do, and take that into account. They must critically examine other factors that could have either positive or negative effects. This is sometimes referred to as the SWOT approach.

Strengths:

Ø  There are enough financial resources that are allocated for the operation

Ø  Innovative, quality and safe products

Ø  Appealing to children of all ages

Ø  Good competitive skills

 

Weaknesses:

Ø  Not yet adept to newer and more innovative approaches to management

Ø  High prices may push potential customers to competitors with affordable prices

Ø  Poor uses of promotional strategy, as consumers were not properly introduced on possible benefits of a certain product

 

Opportunities:

Ø  Opportunity to capitalize financially

Ø  Develop an admirable/exceptional goodwill that can have monetary value in future

Ø  Opportunity for fast market growth

Ø  Growing market trend

Ø  Fast growing technological advancements that may aid the growing demands for quality products

 

Threats:

Ø  The threat of not appealing to target market at all therefore generating a loss as opposed to profit

Ø  Entry of imitators

Ø  Vulnerable to the business cycle

Ø  Tough laws and policies being placed

Ø  Possible competition

 

Development, production, and location

            There are many possible areas as to where these products can be made and sold. One possible solution is through global expansion. Globalization has been the trend nowadays. Its main concept is that not only Americans get to enjoy eating burgers of McDonald’s, munching the famous chicken of Texas, wearing the trademark of USA sports but other cultures as well. Not only the Italians famous for their delectable pizza get to eat them but Indians, Chinese, Filipinos, and other nationalities as well. More so, MTV will not only be aired around the States, but in Europe and Asia in fact.

            But delving into the technical concept of globalization, it is defined to be the umbrella term for the collective effort and change. It is caused primarily by four fundamental forms of capital movement throughout the global economy. The four fundamental capital flows are: Human capital (Immigration, Migration, Emigration, Deportation), Financial Capital (Aid, Equity, Debt, Credit, & Lending), Resource Capital (Energy, Metals, Minerals, Lumber), Power Capital (Security Forces, Alliances, Armed Forces).

Outsourcing can become a great resource for an international company in the long run. Outsourcing can assure that the company would continue to have a good number of manpower but for a lesser and cheaper cost.

 

Product Description

The main objective of this business plan is to launch a new Kids & Child product for the purpose of company expansion. Kids & Child International, the product manufacturer, aims to introduce the first safety bracelet in China. This product has a number of distinct features that represents its competitive advantages. The safety bracelet is made into different sizes (small, medium and large) and colors suitable for children ages 1 to 5 years. The main part of the safety bracelet will be made of 100% plastic.  To create a smooth and easy to wear on the babies & children’s wrists, it will be also made with elastic.

A wireless micro speaker powered by two button batteries will also be placed on the outside part of the bracelet which looks like a watch. The micro speaker will work by means of using an infrared device placed on the wrist section of the product. Safety bracelet also installs an electronic radio frequency to protect the baby & child from mosquitoes. 

The mechanism behind the safety bracelet is similar to that of a baby monitor ( 2005). Kids & Child safety bracelet works like a radio transmitter which allows parents or home helper to keep a close watch on their children even without being near them. The product is made up of a transmitter (bracelet) and a receiver (infrared device); through these, sounds that babies make can easily be transmitted to the receiving device carried by the mother or home helper. In this way, parents can do something else at home without worrying about their children.

 

Outline of Operating Environment

The manufacturing facility of Kids & Child will be established in Guangzhou Province, China. As Guangzhou Province is the country’s biggest province and has the most useful resources Kids & Child needs, this geographic location is most appropriate. Specifically, Kids & Child needs a business location were retailers are very accessible. In addition, the population in China is high compared to other countries, which in turn increases the number of potential consumers. The province is also a home for other baby product manufacturers implying the location’s efficacy. In addition, being a main province in China, Kids & Child will not have any problems on suppliers and deliveries.

            In order to succeed, the company should have other key success factors. Hence, in addition to geographic location, the company also intends to employ effective strategies for superior customer satisfaction. Considering that brand loyalty is a major barrier in the baby product industry, Kids & Child should implement ways on how to obtain the interest of the target markets. In order to support this objective, the company will establish a customer service department where consumers can forward their inquiries and concerns about the product.

The main distribution channel of the Kids & Child safety bracelet will be through retailers. In addition to the subsidiaries of the company, Kids & Child will also distribute its innovative product through major supermarkets. In this way, the company will be able to cover a higher level of market coverage. The level of profitability in this distribution channel is relatively high as products are directly made accessible to the consumers. In addition to retailers, the safety bracelet will also be distributed through online retailing. By developing a company website that will cater to purchases placed online, Kids & Child will be able to distribute its product at an even greater market range. This will also allow the active mothers target segment to be aware of the safety bracelet.

Expected Source of Competitive Advantage

As the Kids & Child safety bracelet is a new product, the customer service of the company will focus on giving instructional guidelines to the consumers. This will ensure that the customers are using the product effectively. This will also help the company in marketing the product. The customer care system of Kids & Child will employ four channels: by telephone, post mail, online chat rooms and electronic mails. By increasing the customers’ access to the company, Kids & Child can provide its services to a larger market.

Certain company standards will be developed by Kids & Child as well in order to create competitive advantages. One of these standards will focus on quality management and control. A quality assurance team who will ensure the quality production of the safety bracelet will be assigned. A quality reporting system will be employed so as to track down defective products, malfunctioning machineries or personnel shortage. For the human resource, screening policies will be employed. This in turn will help in selecting the right employees for specific job positions. All of these will be done in order to ensure the high level of satisfactions among consumers. In addition, these will also help the company overcome the competition in the baby product industry.

 

 

Management

The term “management” is a broad concept which can not be limited to any of the specific areas. Management is part of the everyday life. Management starts with managing oneself. It is the combination of planning, organizing, controlling, directing and coordinating.

 

Additionally, some other literatures defined management as ‘organizational direction based on sound common sense, pride in the organization and enthusiasm for its works’. More recently still, management is described as ‘coping with change and uncertainty.’ It is clear that management is partly the process of getting things done through people; and partly the creative and energetic combination of scarce resources into effective and profitable activities, and the combination of the skill and talents of the individuals concerned with doing this.

 

Financial plans & projections

Business outcomes are difficult to predict by just looking at them. An entrepreneur must be cautious enough to pore into its possible growth rate. He must try to look into other entrepreneurs who entered this type of businesses and if possible, should conduct interviews in order to view the growth rate of his chosen venture.

Another way in which an entrepreneur can ensure the stability of the industry his company may choose to venture in is to review past sales rate and revenues of the industry. If the industry chosen seems to have a lot of sales in the past decade, it would be a worthwhile investment. Though maybe at times industries tend to fluctuate, it may get back up on its own.  That is a good signal of a good industry to invest in.

A rising entrepreneur must also come up with long term goals in order to have direction to which the company can veer its attention and energy. The following are some recommended long-term goals that a company must have:

Long-term strategies must include:

• Implementation of new information systems
• Development of employees who are well rounded and well capable of multi-tasking
• Must have a program that would address key issues ad complaints involving the employee and the company
• Translate desired culture into specific employee behavior
• Have a back-up plan on the undertaking chosen. If in any case the chosen plan fails, there would be an alternative plan
• Knowing several languages (incorporation in curriculum)
• Improvement, development and innovation of infrastructure of all centers

 

Risk factors

            In all types of undertaking, there is a potential for events and constitute opportunities for benefit or threats to success. Every business faces risks that could present opportunities and threats to its success. Risk can be defined as the combination of the probability of an event and its consequences. Common risks include financial risks, operational risks and environmental risks.

 

Different types of risks are all around. Risk is both an opportunity and threat to manufacturing companies. Risk identification, assessment, mitigation, and elimination for all manufacturing and control processes should become the basis for thinking about product development and life-cycle management for every product.

 

When a company completely understands the manufacturing process for its product and can mitigate or eliminate altogether the risk factors for failure through materials and process controls, and show assurance of consistency and value, it will ensure greater consumer confidence and overall cost reduction for risk-related problems like rewards for damage. Moreover, this understanding must extend to all of the materials, facilities, personnel practices, and procedures that contribute to the manufacture of the product.

 

            However, risks should not be avoided since one always has a 50/50 chance of gaining the bountiful consequences of the risks taken. For example, if Kids and Child would venture into making an online store, it may bring with it a huge risk, since it may not work and thus bring loss to the company, however, it may also bring potential growth to the company if it does work.

 

Conclusion

The childcare industry has already extended throughout the world. Firms that operate within the childcare industry are categorized as a market structure that is highly competitive. Kids and Child International and its strategic marketing planning have been the focus of this research as Kids and child International is the market leader in the childcare industry.

The strategic marketing planning provides the company a methodical and logical process that develops efficient marketing strategies. This strategic marketing planning has three stages namely: (1) segmentation of the market, (2) summarization of the market segments, and (3) development of the market segment marketing strategy.

Upon close examination of the childcare industry, using Porter’s five forces model, the researcher has assessed that: (1) the competition or the rivalry in the specific industry is very strong; (2) the threat of new potential entrants is weak; (3) the bargaining power of buyers is strong; (4) the bargaining power of suppliers is weak; and lastly, (5) the threat of substitutes is strong.

This paper has strongly recognized the importance of understanding competitors in strategic marketing planning for the benefits that it gives to the successful planning of marketing activities. These benefits and advantages include the following. First, understanding competitors will facilitate the firm’s management to understand their competitive advantage and disadvantages in relation to their competitors. Second, understanding competitors will also generate understanding of the past, present and future strategies of the firm. Third, it offers the firm an informed basis to develop strategies in order to gain or maintain competitive advantage against their competitors in the future. Lastly, understanding competitors will also facilitate the firm in forecasting or predicting the financial returns that they made from future investments.

 

Discuss the main challenges faced by a company producing products or services in China for sale on the domestic market.

Discuss the main challenges faced by a company producing products or services in China for sale on the domestic market.

 

Introduction

            Competition, typically the most powerful external force, is increased by the advent of globalization. The number of companies and the number of countries where these companies operate and the way governments are dealing with the impacts of globalization is accelerating. The interaction of changes in government policy and business innovation has actually made globalization even faster. If a company does not become a global, it would simply be shut out of new markets. This is what pushed firms around the world to adopt Corporate Governance. Also, a company must be able to make contact with its consumers. According to most theories on strategic management, the customer is the ultimate judge of competitiveness; that is, by buying the products of a firm, the customer indirectly decides which firms will continue to exist and which firms will go bankrupt. (2002). The reasons for the turmoil are numerous: a sputtering economy, increased global competition, the implementation of new technologies that displace jobs, the deregulation of certain industries, and the general consolidation of other industries, such as banking and health care. Observers will see a continuing progression in the ruinous steps which have forced the industry into a socio-politico-economic corner. The industry is likewise linked closely to the policies of governments, the earnings of banks. The industry’s approach to dealing with political institutions has not always been brilliant. It tends to be good on technical issues, although it has not always fully presented the longer-term options, in order to make the choices and their implications clear.

                        Globalization is a word often used but vaguely defined. Globalization is understood as the integration of the economic, technological and social advancements of the countries around the world. The advancements in the aspects of technology and science have brought the world together. The first attempt of globalization was in the era of colonization and discovery. Today, globalization plays a major part in the betterment of the economy of many countries. But many have also failed to see the gap that globalization can bring to underdeveloped countries.

The impacts of globalization on the business world are many, but the most important is competition. All of this competition is pushing multi-national companies into strategic responses. As global competition increases, many companies are forced to reevaluate their position in the global marketplace. For some companies this entails strengthening their domestic position against competing foreign products. Other firms respond by expanding their undertakings into foreign markets. For many, collaborative/cooperative agreements with other businesses are an effective alternative to the more traditional approaches (1993). In effect this would create a problem for those who are responsible for the management of companies. Management of companies, especially multi national companies, has to apply the appropriate strategies needed to respond to the opportunities and pressures created by the process of globalization of business.

Globalization is universal and inescapable. It affects economic, political, social, cultural, technological, and environmental conditions. Increased integration of the world’s economies offers widespread opportunities for development of nations across the world. This enforces on countries, institutions, business organizations and individuals to conform to universal standards, rules, norms, expectations, and requirements.

Countries have embraced outward-oriented economic policies and have lowered barriers such as import tariffs and open themselves up to investment and trade with the rest of the world. This increases the integration of economies around the world, particularly through trade and financial flows. The formation of a universal market open to all countries around the world, on all continents, facilitates increased international trade in goods, services and foreign investment.

Some countries are becoming integrated into the global economy more rapidly than others. Most countries that have been able to globalize their economies are experiencing reduced poverty and faster economic growth. As living standards increase, it became possible to make progress on other issues such as social equality, environmental and labor standards and other economic issues.

            The same goes true for businesses. International business is increasingly developing multi-national networks composed of alliances, affiliates, licensees, and other partnerships. The most rapidly changing route for large multi-national companies entering overseas market / international business is through a growing variety of joint ventures and strategic alliances (1993).

Multi-national companies have come to characterize global business, and to dominate industries and national economies. Multi-national companies evolve from domestic firms that go beyond simple exporting and importing activities to acquire foreign affiliates. The growth and prosperity of the company become interlinked with business linkages to foreign firms. As the business linkages deepen between the two companies, the need for broad coordination and cooperation emerges (1995).

Many companies increasingly understand the significance of a growing global marketplace. They realize that exporting and establishing overseas ventures are no longer the only choices they have in participating in international business. Cooperation, like in the form of an alliance, with businesses abroad is becoming significantly evident as an alternative response (1993). Alliances have become an important strategic option in international business (2002).

            The presence of an emerging worldwide market underscores the necessity for firms to develop strategies that will enable them to compete successfully on a global scale. Although many strategies are available for companies to pursue -- cooperative contractual relationships, strategic alliances and joint ventures, and the establishment or acquisition of overseas production facilities -- the need for globally oriented companies to get their products into foreign markets is paramount ( 1993).

A strategic alliance means forming a long-term collaboration between at least two firms without one firm fully owning the other. A strategic alliance presents two distinct properties: long-term commitment and contribution to strategic performance of the partnering firm(s) (2002).

Strategic alliances are not a guaranteed formula for successfully competing in international business. Many companies believe that alliances are necessary to reduce the risks associated with operating in an uncertain and fast-changing global marketplace. Yet the nature of alliances is essentially one of a trade-off between risk-sharing and innovation. Risk-sharing may help ensure that a company obtains or maintains a competitive position in the short run, but innovation and the ability to adapt to changes in the world market are far more important in determining a company’s position in the long run ( 1993).

In collaborations and alliances there may well be factors that remain hidden. Not all technologies are disclosed to the partners and some knowledge will remain confidential. For example, Coca Cola has many franchise bottlers whose job is to process and bottle the condensed Coca-Cola syrup, but the recipe for which is never disclosed. The bottlers understand this and make a profit by working at the lower end of the value chain (2001).

 

China’s Markets

            Despite many years of development, risk management remains problematic for the majority of organizations. One common challenge is the human dimension, in other words, the way people perceive risk and risk management. Risk management processes and techniques are operated by people, each of whom is a complex individual, influenced by many different factors, the problem is compounded by the fact that most risk management involves people working in groups. The issue of corporate social responsibility is increasingly becoming the object of attention from government, opinion formers and institutional investors. Until now, the way in which environmental liabilities should be reported has been rather vague. ‘Managing Environmental Risk’ looks at the different types of risk, the legal issues, and how risk can be mitigated using insurance and other financial measures. It clearly explains the relationship between environmental issues and business performance and how companies can meet the challenges.

            Given the influence of economic and political factors, there is a risk that regulatory attitudes may stiffen again. Some people believe that in good economic times the public becomes more concerned about the quality of the environment, with politicians and regulators following suit, and that in lean economic times, jobs and the economy become the primary concern with the environment suffering. If so, one can expect the attitude of environmental regulators to swing back and forth like a pendulum in sync with the ebb and flow of the economy. The environment change pose distinctive challenges to the creation of an adequate knowledge base concerning both the environmental perturbations and the vulnerability of human and ecological systems to the shaping of appropriate societal responses, and to the enhancement of the capability of the current global state system to respond effectively (1999). The capabilities are important because in many industries environmental issues can significantly affect companies' financial results (1995). Unless environmental issues are handled in ways similar to those used to manage other business risks and opportunities in those companies, then environmental control will remain an internal regulatory function superimposed on the company's core business concerns rather than become part of the process of maximizing shareholder value ( 1992).

            Competition between business organizations put pressure on the company to produce products of excellent quality at a competitive price which won’t bring about a negative return of investments. Sometimes, the lack of resources, manpower and capital and the high demands for a product would influence business organizations to employ strategic collaboration. As stated, two obvious examples of this would be increasing adoption of global products standards in IT industry and homogenization of consumer demand through the world.

Globalization in effect raises the expenses needed to run a company into staggering amounts. Sometimes, the company won’t be able to cope up with such financial demands and thus would rather collaborate with other companies than suffer loses or worse be closed.

The motivations for strategic alliances are complex and varied. The major external forces behind international strategic alliance formation are often interrelated and may stem from varying causes. The key identifiable current factors seem to be the globalization of markets and technologies, the shortening of product life cycles, and the consequent need for enterprises large enough to take advantage of scale and scope economies, and to be able to access adequate resources and competencies. Other factors exist in specific situations (1998).

A motive behind the conclusion of strategic alliances is the need for speed in reaching the market or the need to compete in all major markets. In the economic world of the 1990s, first-mover advantages are becoming dominant, and often the conclusion of an alliance between a technologically strong company with new products, and a company with strong market access is the only way to take advantage of an opportunity in time.

Alliances are the fastest means of achieving market goals to meet an opportunity, if the partners each have strong resources and competencies, but alone insufficient to achieve critical mass.

A second reflects the continued importance of national boundaries: government preferences for 'local' firms in industries such as aerospace where an alliance with a national or regional firm may be a necessary requisite of sales to either the military or a national airline.

The most important motivation for alliance formation, however, is the increasing cost, risk, and complexity of technology. The high cost of technological development has encouraged companies to collaborate to share both the costs and the risks of this activity. The need to limit financial risk is a further factor advancing alliance formation as opposed to merger/acquisition or organic development. Even the world's largest and most international companies can no longer 'bet the company' on the next generation of semiconductors or jumbo jets; in many industries the cost of a competitive R&D budget has risen to the point where it is no longer possible to 'go it alone' (1999).

In other cases, collaboration may take the form of interaction between assemblers and component suppliers - a common situation in the automotive and electronic appliance sectors.

            The need for strategic environmental management will only intensify as affluent consumers demand better environmental quality while economic growth presses increasingly on ecological constraints.

Business managers and analysts could use this approach to:

- uncover hidden liabilities or risks in potential acquisitions;

- estimate the value of investments that would reduce environmental exposures;

- measure the self-insurance value of environmental control programs;

- benchmark a company against its competitors; and

- communicate its environmental strategy to financial analysts.

 

There prioritizes issues according to their likely significance for future earnings and risks. Companies have positioned themselves differently with respect to these environmental issues mainly through decisions taken in years past for broader business reasons. Where mills and forestlands are located, what products they turn out and what technologies are imbedded in the capital stock are historical factors that largely determine companies' exposure to impending environmental issues. Just as a company's present exposures are determined by past decisions, a company's current environmental management decisions will determine its future exposures.

There was a study at Yale School of Management signifies that companies can affect the way financial analysts evaluate their environmental issues by developing a consistent internal position on how the environment adds value to their business by linking environmental performance data to key financial valuation criteria by collecting broader data on the financial implications of environmental risk and opportunity by developing better techniques for quantifying and comparing the financial impacts of environmental risks and opportunities and by placing relevant environmental financial data into the mainstream of their communications with analysts and investors (1997). To be useful, the financial implications of environmental issues must be expressed in a way that can be incorporated into the valuation frameworks currently used to assess conventional business risks and future prospects. For each company and each scenario, the financial impacts on revenues, production costs, investment spending, and the value of owned assets were estimated individually for all years of the forecast period and then reduced to discounted present values using an estimate of the firm's weighted average cost of capital. Thus, the scenario was related to each company's shareholder value. Thus, environmental issues create winners and losers among companies, depending on their exposures and potential compliance costs. When industry and environmental experts participated in scenario development, they were asked to use their best judgments to assign probabilities to the occurrence of each scenario. Since many of the impending environmental issues are one-time occurrences, the use of judgmental probabilities of this type is appropriate and unavoidable.

            An example of an international business in china is the Ocean Park. Obviously, the tourism industry plays an important role in the world, no matter environmentally or on the economy. It is believed that the tourism planning within the industry is extremely significant. In Hong Kong, tourism has been a very important aspect in their economy. For this paper, one of Hong Kong’s main tourist attractions, the Ocean Park will be examined with regards to its core competencies and competitive advantage.

            Since its opening in January 1977 as a non-profit organization, the home-grown Ocean Park has developed itself into an attraction connecting people with the nature by attracting more than 76 million tourists by the end of last year. Ocean Park has also been named one of the "10 Most Popular Amusement Parks in the World" by Forbes.com ( 2006). The company sees this recognition as a source of pride for their staff and the people of Hong Kong. The park will continue to offer new and exciting attractions as well as events and programs to bring people closer to nature. It was also chosen by Hong Kong citizens as the most favorite scenic spot in Hong Kong last year.

There prioritizes issues according to their likely significance for future earnings and risks. Companies have positioned themselves differently with respect to these environmental issues mainly through decisions taken in years past for broader business reasons. Where mills and forestlands are located, what products they turn out and what technologies are imbedded in the capital stock are historical factors that largely determine companies' exposure to impending environmental issues. Just as a company's present exposures are determined by past decisions, a company's current environmental management decisions will determine its future exposures.

 

CONCLUSION

Therefore, the pervasiveness and complexity of risk presents strong challenges to managers. Perhaps the most important challenge is to coordinate the management of risk across areas within an organization. There is based on developing scenarios for significant future environmental issues and seeing how companies are likely to be exposed and financially affected under each scenario. It uses probabilities derived from past experience and expert judgment to weight the possible scenarios and uses these weights to forecast a likely financial impact and to construct measures of financial risk. In constructing scenarios, the first step is to identify environmental developments that are likely to have significant financial impacts that are significant environmental issues might emerge throughout the product life cycle.

 

Doing business domestically versus internationally

Market Entry Strategies

            In this section, I will discuss some of the different entry strategies that organizations employ in entering overseas markets.

1. Portfolio Investment

            At the simplest level of involvement, a firm may just decide to make financial investments in foreign firms, buying shares of stock, much as it could do within its own domestic equities market.

2. Export

            Historically, exporting has been the initial step of internationalization. Owing to a foreign inquiry as to the possibility of buying or selling the firm’s products, or the desire by the firm to expand beyond its domestic markets, many firms begin to export their products or services to foreign markets through the use of direct sales to foreign customers or they sell through import/export firms or through foreign distributors. Exporting is the mode of entry that is characterized by the process of marketing and direct selling of domestically-produced goods in another country.

3. Franchising

            Franchising is a method of organization that combines large and small business into a single administrative unit. A franchise is usually permission or a license granted by the franchiser to the franchisee to sell a product or service in an agreed upon territory. Franchising is typically a continuing relationship in which the franchiser provides assistance in organizing, training, merchandising, systems, and management in return for payments from the franchisee. There are two general types of franchise organizations (1992). Franchising is helpful to some entrepreneurs who are planning to start a business, but lack vision, creativity, resources, or skill to start a completely new venture (2001).

4. Licensing

            One of the primary methods of participating in new markets through cooperative contractual means is by licensing the firm’s products, services, or technology to another company (1993). 

            Licensing the rights to manufacture and/or market one’s product(s) is an option for internalization of business. In this strategy, the firm usually locates foreign firms that have the experience to manufacture and to market its products with minimal technology transfer, in order to bypass import duties and to provide the simplest avenue to local sales (2004). One of the primary methods of participating in new markets through cooperative contractual means is by licensing the firm’s products, services, or technology to another company. Under this arrangement, the firm sells a limited right to produce and market the product in return for royalty payments. The typical limit is a specified geographic area in which the original firm does not market, at least to any significant degree ( 1993).

6. Shared Equity/ Joint Venture

            Shared-equity alliances entail the foundation of a new business, commonly referred to as a joint venture ( 1998). Joint ventures are the most common form of strategic alliances, which means that two or more firms create an independent business unit by contributing their share of equities. Joint ventures are considered independent legal entities from their parents.

            International joint ventures (IJVs) are legally and economically separate organizational entities created by two or more parent organizations that collectively invest financial as well as other resources to pursue certain objectives (2003). (1987) defines an international joint venture as a separate legal organizational entity representing the partial holdings of two or more parent firms, in which the headquarters of at least one is located outside the country of operation of the joint venture. This entity is subject to the joint control of its parent firms, each of which is economically and legally independent of the other. 

            Joint ventures are often part of combination market entry strategies such as licensing and joint venture; franchising and joint venture; and foreign manufacturing and joint venture. Starbucks International have been reported to combine licensing and joint ventures. Most Starbucks stores in the United States are corporate-owned, and all of the stores outside the United States are either corporate-owned or partially company-owned joint ventures (2005).

 

            Majority of companies consider the way they enter new markets as one of the most significant international marketing decisions. The market entry strategy that a company employs will affect every aspect of the business. According to  (1994) there is no ideal market entry strategy, and different market entry methods might be adopted by different firms entering the same market and/or by the same firm in different markets. There are different considerations that must be considered in choosing the appropriate market entry mode, so it is obvious that there is no ideal market entry strategy. In deciding on the most appropriate entry mode for a particular product and target foreign country, managers need to consider several, often conflicting external forces in the target country as well as several factors internal to the company. Target country factors include market factors such as sales potential, competition, and distribution channels; production factors such as the quality, quantity, availability, and cost of inputs for local production; and political, economic, and socio-cultural factors such as government policies toward international trade and investment, geographic distance, attributes of the economy, and cultural distance between the home and target-country societies. How a company responds to external country factors in choosing an entry mode depends on factors to the company. They include product factors such as degree of differentiation; pre- and post-purchase services, technological intensity, and the need for adaptation; and resource/commitment factors such as resources in management, capital, technology, and functional skills, and the willingness to commit to foreign markets ( 1988).

 

            To illustrate this let us consider the case of Starbucks. Starbucks has come a long way from a coffee bean retailer to one of the world’s most recognized coffee houses. All throughout the years, Starbucks have expanded both domestically and internationally. Starbucks has evolved into a firm known for its coffeehouses, where people can purchase beverages and food items as well as packaged whole bean and consumer coffee. Starbucks has changed the way people around the world consume coffee. Before entering a new market, Starbucks conducts extensive research and investigations. Starbucks uses different market entry modes depending on the external and forces that may affect the operations in a particular market/country. Take for example the market entry strategy used by Starbucks in entering Korea. The entry strategy used by Starbucks in Korea is licensing. First, it coordinated with a licensee and then opened stores in Korea. Starbucks gave licence to ESCO Korea to operate stores in South Korea. In the year 2000, Starbucks entered into a joint venture with Shinsegae Department Store Co. the parent company of Starbucks International’s licensee in South Korea. This is move was driven by the success of the success of Starbucks in South Korea.

            We can see that Starbucks International’s entry mode in South Korea was through licensing. When the licensing strategy became successful Starbucks entered into a joint venture agreement with the parent company of the licensee.  The mode of entry used by Starbucks in Korea was licensing. After the licensing strategy has been successful, Starbucks entered into a joint venture agreement with a local company. This strategy has proven effective and efficient considering the characteristics of the Korean market. The Korean economy can be considered hostile to Multinational companies from other countries. In entering the Korean market, it is advisable that a multinational company look for a Korean partner with market knowledge and expertise. The strategy was advantageous for Starbucks. The market entry of Starbucks in South Korea was successful. However, the company knows that the market entry strategies that it used in South Korea may not be applicable to other countries like Argentina. In 2007, Starbucks entered into a joint venture with a Mexican company called Alsea. The partnership gave birth to Café Sirena, a venture that will focus on the Argentine market. This move is a part of Starbucks’ expansion strategy in Latin America. Café Sirena will operate coffee shops throughout Argentina. Alsea and Starbucks are also in the process of creating a new venture that will be focused in Chile. In entering the Argentine market, Starbucks entered into an International Joint venture agreement with Alsea. This strategy was advantageous for Starbucks because it was able to build a strong relationship with a big company in Latin America with the knowledge and expertise of different markets in the region. The partnership has proven successful as Starbucks and Alsea are now in the process of creating another joint venture that will focus on Chile. In Argentina (and other Latin American countries) the market entry mode used by Starbucks is joint venture.

            The case above illustrates that there is no ideal market entry strategies for all situations. There are different factors that may affect the market entry strategy that a company will be using.

 

Stock

The spread on the deal widened from 25 cents to 80 cents – having just lost a ton of money on the Hibernia deal, these guys were looking at another major hit if Zions blew the deal or cut it,

 

            There are a couple of reasons why the deal spread from 25 cents to 80 cents.  Even though taking-over a company will cause the price of its target stock to go up higher from its offering price, arbitragers consider the risk involved in closing the deal on time.  Delayed deals can heap up another risk, that is to say, the force of nature.  This causes the company’s target stock price to settle down at the contractor’s price plus the discount to its value.  This discount increases with the apparent risk of the deal. 

           

            The spread brings about a threat or affluence for the arbitragers.  In one way or another, the deal is a very risky one bearing in mind the cause of these companies’ downfall - the force of nature.  Notwithstanding the factor, arbitragers are in suspense of getting a very good rate of return if it will set out their way. 

 

              The Hibernia deal was put off a month after the proposed time.  From the above statements, time allotted in closing the deal was an inevitable issue.  It took out a lot from the arbitragers and they don’t want it to happen again.  So in the next deal with other corporation, arbs are precautious than ever before that it causes the spread.

Profit

PROFIT

 

 

            People make business to make profit. Without any profit no business will survive because practically speaking no one will venture on something that he thinks he won’t benefit anything from it especially when it comes to money matter. In this world where money plays a very important role for survival, taking a risk for someone to put up a big amount for a business without taking any consideration of what he could get in return is such a foolish thing to do. Spend your money wise is an statement that should be taken seriously by everybody because nowadays almost everything if not everything is being manipulated by money that even your right as a human being can be bought by money. But money alone cannot make a person survive in this world. There are things that money can’t buy. That’s why in business making profit is not the only one that should be considered. One should also consider the good that it will give to the people like giving better employment to the jobless. Another thing also that should be considered is if whether it could contribute something good to the society and it cannot harm the environment. So therefore, I disagree on the statement that the purpose of business is to make profit.

            For the benefit of those living in a poor country, I think it would just be right to lower the prices on drugs as a way of helping the people. As what we know, most people living in poor countries especially in Africa are very prone to diseases and worst is different incurable diseases are very rampant. For them to have atleast an affordable medicines is already a big help. Lowering the prices means sacrificing their profits but for as long as companies do both things, helping and making profit at the same time, I don’t think they can think of themselves as losers because helping these poor people alone already makes them a winner.

 

 

Traditional Business Model versus Direct Business Model

Traditional Business Model versus Direct Business Model

I. Introduction

            The Internet supported the development of a number of functions for business firms. These functions are obtainable through the wide-ranging connectivity of the World Wide Web. ( 2001) This means that enterprises now have a venue for directly interacting with their existing and potential consumers. Concurrent to the development of Internet functionalities to business firms is the emergence of the development of new business models encompassed by the general terms e-commerce, e-marketing and e-business. The ease of online transactions has opened the possibility for the direct selling and purchasing of products from any part of the world to by a consumer in another part of the world. Consumers and business firms now become linked through the emergence of a global market since business firms can complete sales transactions using linkages with the banking sector and fulfil sales obligations through logistics collaborations.  Business firms now offer products and services in the international market widening its target market and opening expansion possibilities. Prior to the business functions of the Internet, business firms engaging in the international market commonly adhered to the traditional model of using wholesalers and retailers to distribute their products to consumers. However, with online networking functions, enterprises gained the benefit of having to eliminate intermediaries in its link to end-consumers, either fully or partially. Due to the minimisation or elimination of intermediaries means greater revenue for companies and cost-savings for consumers.

II. Company Background

            Dell Inc. is one company that has always relied upon the direct sales business model to achieve global leadership. The company emerged in 1984 by Michael Dell and developed into a computer manufacturing and assembly firm meeting the customised computer needs of its consumers around the world. By applying the direct sales method, the firm places a high value to its direct relationship with consumers. After taking customer specifications, Dell Inc. meets these through its manufacturing and assembly plants in Texas and Tennessee for the North American market, Brazil catering to the Latin and South American market, Ireland meeting the demands of the European Market, and China for the Asian market. Apart from directly selling to individuals and household consumers, Dell Inc. also sells directly to corporate clients, educational institutions, and government departments. In terms of the diversification of its sales channels, Dell Inc. directly receives and meets at least fifty percent of orders and support service requests through its website and the remaining percentage covers sales through wholesalers and retailers. (2007)

            In 1984, when Dell Inc. was established, it became the first computer firm to operate through direct sales through the Internet. Currently, Dell Inc. has become the leading international company catering to the sales of computers and accessories. To support its online sales activities, the company has employed the concept of virtual organisation by using its online-networked system as a means of managing and monitoring the performance of its manufacturing and assembly plants around the world. Moreover, Dell Inc. has also outsourced its technical and after-sales services to countries such as India and the Philippines by using the virtual organisations principle. Apart from its networked management system, Dell Inc. has also improved its supply chain management to increase efficiency. Dell Inc. does not manufacture all the computer parts so that it has collaborated with computer parts manufacturers able to take advantage of cost-saving strategies to be able to sell to Dell Inc. its products at lower prices that meet the company’s quality standards. Apart from sourcing computer parts from low-priced but reliable firms, Dell Inc. also applies a warehousing strategy that allows the company to monitor with ease the parts that are low on supply and locate these parts in its huge warehouse. Apart from this, Dell Inc. also built its warehouse contiguous or near its assembly plants to save to the time of transporting parts. Dell, Inc. also has a strong logistics strategy to decrease delivery time relative to its competitors. (. 2007) Through the aggregate of these strategies, Dell Inc. has achieved a leadership position in computer sales in the international market. It also expresses the success of combining traditional and direct sales models to enhance revenue generation.

            However, Dell Inc. is experiencing changes as it seeks to put in place its long-term strategy. This finds expression in the decision of Dell Inc. to increase its focus on traditional marketing channels such as retailing (2007) in widely accessible channels such as Wal-Mart in the United States and other large retailers in other countries (2007). This decision was based on the saturation of its current market resulting to the need for new markets and competition is also intensifying for international computer manufacturing and sales firms.   

III. Advantages and Disadvantages of the Traditional and Direct Business Models of Dell Inc

 

Differences between the traditional and direct business models lie in the type of sales network or channelling applied by the company in building a relationship with consumers. In a traditional business model, a business firm collaborates with wholesalers and retailers to bring their products to the market. (1998) This means that the company develops an indirect relationship with its consumers via wholesalers and retailers. This also implies that the company relies in part on its wholesalers and retailers in developing a good relationship with consumers. If wholesalers and retailers are able to meet the value expectations of consumers, then this creates a positive relationship with the firm resulting to repeat purchases translating into increased revenue. However, if wholesalers and retailers are not able to meet the expected value offering of the company through the damaged or expired goods, then this adversely affects the relationship of the firm with its consumers. In applying this model, business firms need to find intermediaries able to meet its value offering to consumers. In a direct e-business model, the business firm creates a relationship with consumers in a straightforward manner by directly making offers to consumers and addressing consumer demands ( 2001;  2001). A direct relationship becomes possible through Internet functionalities. Companies with websites usually provide information of their products and services directly accessible by consumers together with the availability of transaction options so that the websites also constitute a point of sale for the company. This means minimised reliance on intermediaries allowing the company to concentrate on direct relationship building.  

            Traditional and direct business models offer both advantages and disadvantages to Dell Inc. in terms of product and service accessibility, relationship building, market expansion, revenue generation, and cost savings. Observation of the core benefits derivable from these two models indicates that it is often the case that the advantage of one model is a disadvantage of the other and vice versa. This means that a combination of both models provides a promising model for business firms such as Dell Inc., which wants a long-term strategy.   

            In terms of the accessibility of the products and services of the company, the advantages and disadvantages of these models depends upon the target market of the company and changes to its intended market. Previously, Dell, Inc. targeted a diverse international market from the high to the lower income groups. Since it wanted to gain a large market as possible, it applied the direct sales model through its website. Orders, technical support, and after-sales transactions occurred through the company’s website. Its initial target market coincided with the market reached by the World Wide Web. However, market reach of direct sales have its limitations including the inability to reach populations without access to the Internet or those with limited use of the Internet and computers but constituting potential market based on the economic development in these areas. This resulted to the shift of Dell Inc. to the traditional model of selling through wholesales and retailers. Recently, Dell Inc. has made available two computer models at Wal-Mart within the less than $700 price to target previously untapped markets. This means that Dell Inc. is creating or developing a market to sustain increases in its sales to ensure viability. Dell Inc. is also communicating with large wholesalers in India, China, Japan, and Australia ( 2007). However, traditional sales also carry certain disadvantages such as the non-exclusivity of the distribution agreement since large wholesalers sell a number of brands for the same products without necessarily promotion one of the other. This means that Dell Inc. may not be able to achieve its desired market expansion and revenue generation targets through direct marketing. Nevertheless, through a combination of the traditional and direct models and applying traditional model for its low-cost computers as a first-mover strategy in these new and promising markets, Dell Inc. could support its continued leadership position in the world market.

            With regard to relationship building, Dell Inc. started out as concerned with relationship building by using the direct model. This allowed the firm to take orders and specifications, transmit these to the assembly plant, and from there ship the finished product to the consumer. Apart from this, technical and after sales support are made available to consumers directly through e-mail, fax, or telephone links. However, this offers a number of disadvantages such as communication problems such as the difficulty in understanding customer questions and orders especially on technical matters through electronic means. This is particularly so for customers with limited knowledge on the hardware and software features they need making customisation difficult. This together with the need to look for potential market segments led to the ongoing shift of Dell Inc. to the traditional model. In applying this model, particularly when the Dell Inc. has its own display site with exclusive sales agents who are able to address the questions of customers to satisfy their queries on whether the computers on sale meet their needs and requirements. However, this also involves the disadvantage of limiting customisation since consumers could only select from the two computer models and packages displayed at Wal-Mart ( 2007). Consumers with more or specific requirements would end-up not making the purchase. Again, a combination of the two methods to balance advantages and disadvantages would support the long-term strategy of Dell Inc.

            In relation to market expansion, Dell Inc. experienced the advantage of the direct model in expanding its global market that allowed the company to achieve a top position among the international computer manufacturers. The direct model allowed Dell Inc. reach diverse market segments due to its online accessibility and low prices. However, there is also a downside to direct marketing through the Internet, specifically the difficulty of concentrating on particular market segments or niche markets to develop a customer base. Although Dell Inc. is able to increase its sales, this does not mean that it is able to expand its market to segments untapped by the Internet. In China, ninety percent of the population still do not have computers or access to the Internet (2007). Through the traditional model, Dell Inc. establishes wholesale and retail points that introduce Dell computers and Internet functions to consumers as well as sell assembled computers. This allows Dell Inc. to target or rather to create new market segments starting with informative relationships that should end up in actual purchases, a process that is less possible through the direct e-business model. Capitalising on the benefits of both models supports the goal of Dell Inc. to maintain its competitive position.         

            In terms of revenue generation and cost savings, Dell Inc. increases its sales through the direct model through volume by tapping into the large online market. Since online sales involve lesser cost than the traditional model, the company is able to increase its revenue while minimising sales allowing for optimised profit generation and lower costs for consumers. The company also stands to increase its revenue by moving its focus to the traditional model. Sales largely depend upon the market reach of the retailers so that by selecting popular and reputable points of distribution, Dell Inc. would maximise the exposure of consumers to its products that could result to actual sales. This involves greater cost on the part of consumers. This means that the advantages and disadvantages to the company and consumers of these models in terms of revenue generation and lower cost respectively depends upon the strength of these models in creating new customer relationships and maintaining its existing  consumer base.

IV. Improving Direct Business Model

            Since Dell Inc. is currently solidifying its engagement in the traditional model after starting and developing through the direct business model, this means that while this move supports the achievement of the long-term goals of the company, there are areas in its direct business model that requires improvements, specifically on its online linkages with intermediaries instead of relying exclusively on its website.

            A new trend in e-business is emerging that involves the engagement in a new type of intermediary such as blog service providers and technical or marketing blogs sponsored by Dell Inc., which provide information, tips, reviews and comments on computers and the Internet. Sponsored blogs also provide links to the company website for recommended computer models, accessories and specifications. Blogs provides a number of benefits to the company. First is its interactive set-up that allows readers to make comments or post questions to the blogger (2006). This allows potential Dell consumers to ask any questions they want on any topic that relates to the company or its products. Second is the informal nature of blogs that provides a relaxed and conversational atmosphere for consumers allowing for greater and longer interaction (2006). This allows Dell Inc. to expose readers to its advertisements and links. Third is the ability of blogs to reach niche markets (2005). Even if Dell Inc. initially targets technical blogs, it could later on establish links to other blogs catering to various topics and segments.

            By widening its network partnerships, Dell Inc. is able to increase its market reach through the direct model. Establishing a relationship with new consumers and maintaining existing relationships involves the communication and fulfilment of firm, brand and product comparative value. Communications occurs through enhanced network partnerships. With a wider market reach, all that Dell Inc. has to do is to fulfil these value communications with its products and services. If Dell Inc. wants to engage a greater number of the Chinese market to purchase from the company, it can tap into Chinese blogs for communicating its values and providing links to the company.

V. Conclusion

            The relative advantages and disadvantages of the traditional or direct model depend upon the context of the business firm. In the case of Dell, it emerged and developed through the direct model by capitalising on the growing online market. This means that as the company was growing, the direct model offered more advantages relative to its disadvantages or the advantages of the traditional model. As Dell is moving towards the next decade, it recognised the need to apply the traditional model to tap into an even wider market, especially with the intensifying competition among computer manufacturers and assemblers. Much like business developments in other areas, this shift implies the need to develop holistic models that incorporate both traditional and direct models as an alternative approach. This is supported by the experiences of Dell Inc. of experiencing greater actual and potential benefits from combining these two models to optimise its networking activities to reach wider markets and continuous increase its revenue generation. 

 

 

 

 

ANALYSIS OF THE STRATEGY OF HSBC USING THE MULTINATIONAL CORPORATION FRAMEWORK

ANALYSIS OF THE STRATEGY OF HSBC USING

THE MULTINATIONAL CORPORATION FRAMEWORK

 

I. Introduction

Looking at attach 1, there are two kinds of firms: namely; small firms and multinational corporations or MNCs, trying to pass the criteria of stakeholders to be able to access markets.  These markets are dispersed geographically and have their own unique demographics.  Gaining access or rights to operate within them have positive effects to their operations such as higher revenues, economies of scale, etc.  However, stakeholders are meticulous and have their specific “demanding” standards that firms should follow.  Stakeholders can be within the firm, within the home country, within the host countries and the international community.  The discussion presented in this paper will revolve on this model to prove or otherwise the proposition that “Multinationals exist because of the difficulty of carrying out transactions through markets”.  

 

II. The Pre-Access: Government as the Main Stakeholder

Entering a new market involves several pre-access transaction requirements.  One major stakeholder that a firm should please is the political factors that execute international laws and economic policies as well as drives society towards a certain “balance”.  Firms are expected to perform their share of societal responsibilities that can reinforce and improve the balance.  In this view, MNCs has certain characteristics that small firms do not have which can make resolution of pre-access transaction easier.  Typically, MNCs require large number of employees as they serve larger market base.  With this, unemployment can be minimized with indirect positive effect on poverty levels and crime rates.  As a result, the workload of authorities is mitigated which can be a motivating factor to accept foreign firms.

 

In addition, MNCs needs larger and more sophisticated infrastructure to be able to operate outside its headquarters.  It has to acquire land, construct buildings, install communication technologies, and other necessary infrastructures.  Aside from using local labor and raw materials to realize establishing a subsidiary, the capital deployment has long-term benefits for the host country.  It can promote research and education and stimulate local production.  In summary, the government can save the public budget because pump-priming comes from private entities.  The former can focus on basic needs like health, transportation and security.  This can be another motivation to encourage foreign firms for local investment.

 

Third, pre-access difficulty can also arise in transactions that call for foreign firms’ knowledge about the host country explicit and implicit policies.  The latter symbolically refers to “under-the-table” contracts formed between a local authority and foreign firms.  Being unaware of the prevalence of “grease money” particularly on imported goods makes local authorities de-motivated to allow the trade.  In this respect, the experience of MNCs counts.  The years of international trade gives them the advantage to operate in different environment and adjust their actions according to political cultures.  As their contract is polished accordingly, local authorities feel MNCs are less threat to disrupt the continuance of implicit policies.  In addition, MNCs have more cash for grease compared to small firms that can intensify the trade support of local authorities.  This practice, however, distorts contract provisions regarding societal responsibility.

 

            Due to years of operation and exposure in the international trade, the learning curve of MNCs is comparatively longer and more substantial.  They have more to offer when the host country demands knowledge transfer.  The skills of local employees can increase that can rejuvenate human capital for the benefit of the quality of local products and services.  The “globalized” processes of MNCs could also propose best practices within the industry that can improve efficiency of local industries as well.  Innovation or continuous improvement, which is also a global mind-set, can also stimulate local trade towards quality emphasis.  The economic development feats of the government is supported which eventually leads to promoting quality of life for the citizens.  The learning curve of MNCs can adapt to maintain, within the allowable level, the social balance without loosing these implications.

 

            Further, MNCs has relatively lower probability of business failure.  The subsidiaries established in different countries are typically listed as public companies.  This has direct impact to the financial depth of MNCs, as their capital markets tend to be broader.  Financial difficulty would necessitate cross-border support not only financially but also on business processes, which are largely strategic in nature.  The host country government prefers foreign firms that can sustain their societal responsibilities in the long-term basis.  However, without financial depth and history of business success, it is unlikely that firms will be seen as “political allies” in a longer future.  Limited capital can also lead for firms to overly focus their funds in their operations undermining social concerns.  To avoid abrupt changes in the host country that can “shock” social balance, firms with high successful rate will be largely preferred.

 

            Basically, MNCs have diverse set of activities, processes and actions to be able to operate strategically.  The host government is confident that local resources will be used.  Entrance and exit of goods/ services will also result to economic stimulation and growth.  More importantly, the goals of MNCs would be diverse for the maximum benefits that can be derived by the society.  International exposure is suggested above as the cause of a substantial learning curve.  Learning from different countries has provided the “multi-cultural” backbone for MNCs that leads to goals, which address an optimal amount of social needs.  As globalization generally created a borderless world, host country would place a premium remark for foreign firms who have already dwell in such environment and obtain them for the host country to be included within the international community.  Thus, MNCs stands as the bridge for global imagery.

 

            Lastly, MNCs are simpler to oversee because they are “concentrated” that constitutes a characteristic resembling “lean but mean”.  The number of MNCs in the host country is generally a minority compared to local small firms.  While the authorities wanted foreign firms who can maximize societal responsibilities, the selection becomes stricter due to administration limitation.  As such, although numerous small foreign firms can provide the needed maximum societal benefits, MNCs would rather be selected because their number is underestimated by what they can actually offer socially.  It can be said that MNCs are like a set of small foreign firms that are acting within the direction of single governance.  In effect, overly multiculturalism of foreign firms can be prevented as well as administration required to monitor their actions can be minimized.  As a result, the local host government would have the preceding motivations without increasing the number of authorities or customizing the content of contracts to adjust to the quantity and quality of foreign firms that have cost-saving relevance.  More importantly, social benefits will abound minus unnecessary shocks to social balance. 

 

II. The Actual Operations: Customers as the Main Stakeholders

            After passing political and economic regulations, firms are now responsible to transactions necessary to serve the root of their existence --- the market itself or customers.  The market will basically help firms to maintain the impressions and expectations of the host government regarding social responsibilities.  However, the problem is that the market has varying needs and wants, and unlike local authorities, has largely “privatized” goals.  This calls for operational flexibility among foreign firms.  Small firms generally have isolated goals that is unlikely to resemble social responsibility to the level MNCs can offer.  Although this feature is not the primary concern of customers when dealing with small firms, the fact that a firm can inject this on its operations justify positive aspects of its business, and consequently, its products.   Flexibility is a universal term used to define how firms can adjust to market expectations without loosing in business.  But small firms have comparatively limited financial as well as business flexibility.  Since their goals are relatively restricted, their core competencies are  “dedicated” and less complex, which opens the door to corporate inertia and imitation, that run counter to market dynamism and their perception on value.

 

            Small firms also tend to deepen the liability of foreignness in the host market.  In the case of exporting companies (which is the likely case for small firms), their production are done outside the boundaries of the local market.  Domestic inputs are undermined which not merely labor factor but more importantly raw materials that are particularly crucial on consumer goods such as food.  Local standards and norms are neglected, at least, partially that could open the perception that imported products are to some extent dangerous.  The host market is meticulous on certain products traded across boarders as the saying applies, “health is wealth”.  Not only food falls into this category but also medicines, apparel, beverages and expensive goods.  Without the ability to use local resources and ultimately build local subsidiaries, small firms and their products will continuously be treated alien to local embeddedness making it hard for them to prove that they possess rare foreign quality in the eyes of the natives.  Qualifications developed in the home country are with little support.   

 

            The liability of foreignness is also evident in the host country’s tendency for product discrimination.  Small firms have tiny to zero voice when it comes to press releases that exclude their rights to limit adverse globalization issues (like mad cow disease) existing in their products.  On the other hand, marketing is impractical to their scale.  As a result, they undergo almost instant outcast clauses from the host market when foreign trade is under quality scares.  Unlike MNCs that can lure microphones and videos on their executive’s faces, small firms can merely sell their products at a bargain to loosing price in order to obtain part of the capital.  Another, the latter product lines are likely to be on the same industry or class that ultimately creates a domino effect for their business failure in the host country.  Their business is more vulnerable to global issues with very limited likelihood of alternative. 

 

            In addition, small firms have plain structure of their value chains that make economies of scale inexistent reducing their business-level strategy to differentiation.  They cannot engage on mass production and compete on price.  Most imported products are generally competing for value due to limited operations in the home country.  They have limited infrastructure, plants, machineries and labor.  If any, they prioritize on R&D but improvements in product features and processes are bounded by lack of technology or experts conducting the research.  This happens because minimal production capability would not rationalize the endeavor and failure to turn findings into “next big thing” would ultimately lead to business demise.  Further, they cannot afford marketing campaigns to emerge on top of the competition amidst local producers and foreign counterparts.  The effort is costly and impractical for products that are intended to a small number of host markets.                                   

 

            Small firms have basically low product image and market awareness of their brands.  This leads to the inability to saturate the market, stimulate local consumption and maximize potential revenues.  Globalization is a recent phenomenon and cross border relations are on the verge of negotiation and adjustments.  Therefore, to enjoy opportunities in the host country, small firms should prove their worth in a sustaining and improving manner to solicit the trust of the local market.  However, as explained in the preceding paragraph, their operations are segmented while advertising is costly.  With these, attesting the features of the firm and its products is available to a minimal number of concerned and interested customers.  Maintaining the perception from this action is another challenging task since globalization is on the move.  Products and services are deemed temporary amenities of the present time as technology have the surprising ability to change preferences instantly creating fad and trend but not a way of living.  Accepting this, small firms are bound to suffer the consequences (at best, being always a low profile) as they undermine domestic conventions and local embeddeness in the host country.

            Lastly, small firms have limited financial depth.  This goes back to their inflexibility discussed in the first paragraph of this section.  They generally do not have public shares to prevent interest rate fluctuations and revenue pressures in debt financing.  At times of increasing liability of foreignness, low margin due to niche marketing and seasonal variability of brand image, they are not equipped with other options usually provided by cash and other assets.  They have no security to get the initial market share upon entrance, worst, in a continuous manner.  Their venture is relatively risky in which returns are blurred with not only host market factors that are taken in consideration but also global ones.  They are already confronted with adverse effects of intense competitor retaliation even though they are not completely “planted” in the host market systems.  Financial depth can imply control or deterrence of outside factors that can attack the structure and strategy of small firms.  Inadequacy of which would alternatively lead to huge holes in the firm’s sinking ship aggravating business tragedy.

 

Conclusion 

            So far, we have succeeded to prove the proposition about MNCs superiority to execute market transactions at both pre-access and actual operations.  The former is explicit on MNCs qualities while the latter is implicit and gives rise to active comparison of MNCs and small firms.  The section on pre-access and government intervention has provided a finding that MNCs can maximize benefits of the host country through imparting social responsibilities without disrupting instead reinforcing social balance.  On the other hand, the section on actual operations and customer preference implied that MNCs have the optimal qualities to offer products and services that have the potential to resolve all quality conventions of the market.  Such conventions include domestic (trust, traditional mode of production), public (recognition consumers give to trademarks/ brands), civic (societal benefits), industrial (efficiency and reliability) and commercial (price and commercial qualities).

 

            However, to establish the other side of argument is undermined because the proposition has piloted us towards mental mode bias due to our awareness of cross border success of big companies.  For this purpose, it is helpful to mention some factors where margin for errors may emanate that could provide substantial doubt about our findings, or ultimately, suggest default.  One is the economic state of the contracting parties.  A host country that belongs under developed nations (United Kingdom) or closed countries (China) would be more particular with social balance rather social responsibilities.  In effect, social influences of foreign firms to local traditions (especially on political or religious ideologies) are more important than socio-economic offerings.  Another is that MNCs are also applying niche marketing especially when they are catering to high-end markets.  This can dilute explanations such as MNCs’ inherent attribute for complex processes, economies of scale, larger market base and incentives to advertising.

 

Further, political structures of the host country can impede or support foreign firms.  When the former are under capitalist economy, MNCs would not be able to compete and gain markets as their pre-access contract have provisions for evasion in favor of state-owned companies.  In effect, their inherent attributes would also be non-operational.  In addition, small firms can be competitive in industries where their home country holds comparative advantage.  For example, France is known for quality wines where a local manufacturer can export its products with the French brand and profit due to both domestic and commercial conventions.  The impracticality of marketing to its scale does not connote business failure since this is supplanted by worldwide distinction.  Lastly, the free flowing of goods as well as foreign direct investments in-and-out of a country would terminate the intrinsic advantages of MNCs.  Economies of scale and price competitiveness can be disrupted through dumping practices and distributor’s price discrimination while trade secrets can leak due to insider job of an employee from the host country.

 

Broad Differentiation Strategy

            Broad differentiation strategy comprise firm activities seeking to present products, services or brands in a manner that positively set these as different from its competitors but executed in a way that appeals to a wide range of consumers ( 2004). The strategy involves two considerations, one is the point of differentiation ( 2007) and the other is mass appeal. On the surface, this strategy seems simple enough for execution. However, actual implementation involves difficulties or complexities.  (2007) provides that most often than not, firms become caught up in drawing the attention of a wide range of consumers but fail to integrate the point of difference in its marketing strategies. This leads to a product and service or brand with high consumer recognition but fails to develop a consumer base or prevent consumers from shifting to other products, services or brands because of a weak point of differentiation. The article points out the differentiation strategy of Coke that started as a focused broad differentiation strategy revolving around the catch phrase ‘real thing’ that turned into an activity with mass appeal less this point of differentiation. Cokes competitive strategy resulted to the persisting evolution of the cola wars, instead of coke taking the leadership position. Although the author was able to point out that focusing on the point of differentiation is the way to go when relying on broad differentiation as a competitive strategy, doing so still does not make this strategy easy to implement. This is the reason why many companies tend to focus on mass appeal. The article failed to consider the common reasons why companies deviate from the point of differentiation to aid in easing the complexity of the implementation of the broad differentiation strategy.  

Innovation & Competitive Advantage

 

Innovation & Competitive Advantage

 

 

 

 

 

 

 

 

 

 

 

 

Is it correct that innovation is essential to competitive advantage? Illustrate the answer with examples of successful organizations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Abstract

 

Based on the consideration of existing literature on the relationship of innovation and competitive advantage together with the experiences of actual corporations, it can be determined that innovation comprise a relative instead of an absolute necessity to competitive advantage, implying that necessity depends upon the market and industry context of individual businesses. Relative necessity further means that innovation may be necessary to some companies while unnecessary in other firms in their quest to achieve competitive advantage. In addition, necessity also depends upon the extent that individual businesses engaged in innovative endeavours are able to maximize the benefits from the factors determining the relationship between the innovation and competitive advantage. The cases of General Electric, Motorola, Sony Corporation and Dell Computer Corporation exemplify instances where innovation necessitated the company’s achievement of competitive advantage.

 

 

  

 

 

Introduction

            Innovation and competitive advantage are business operation elements characterised by multidimensional and complex relationships essentially boiling down to the relative necessity of innovation for business firms to gain competitive advantage (1998;2000). The relationship becomes more salient in the modern business context where competition is strong and competing firms are increasingly looking for factors that would increase their advantage in the competitive global arena, especially in situations where the industry is experiencing a rapid pace of technological change ( 2002;  2002). Business firms have great dependence upon the access and utilization of high technology, especially those involved in multinational competition become vulnerable to the fast and continuous modification of product and service features as well as in the techniques and strategies applied in the conduct of business. This implies that a significant global competitive strategy covers the acceleration of the speed in which innovations translate into viable commercial ventures. This strategy means that business firms seeking competitive advantage from technology need to enhance their creativity in areas of operations management as well as product and production processes by taking into consideration technology strategies. In industries or business sectors highly revolving around product and process development, a core strategic requirements is advancement in technology and technology-based knowledge and translate these into innovative expertise and competencies for further expression through firm efforts implemented to gain market acceptability of new concepts, processes, and products and services.   

 

Understanding the Relationship between Innovation & Competitive Advantage

 

            Understanding the relationship of innovation and competitive advantage with the former deemed necessary to the achievement of the latter involves the consideration of the factors that define the relationship and determining whether these factors provide evidence of the necessity of innovation in gaining competitive advantage. Generally, there are four factors that define the link of innovation to competitive advantage, which are 1) capitalization on strategic configuration ( 1999); 2) creation of product or market choices emphasizing on the high value factors together with the concurrent exclusion of low value factors together with excessive differentiation (1998); 3) capitalization on timing advantages specifically occuring in the industry ( 2001); and 4) nurturance of the capabilities specific to the organization enabling the business firm to take advantage of the benefits derived from innovative activities (2002).

            In terms of the capitalization on strategic configuration, the viability of the research and development approach to innovation highly depends upon the information processing and decision-making skills and expertise of the business firm, the dominant perspectives on technology funding, and the extent of effort accorded to creativity in the development, utilization and assessment of measurement tools to determine the contribution of the technology-based efforts on the development of competitive advantage (1999). This means that despite the existence and accessibility of innovative products and techniques, this would not support the achievement of competitive advantage when the decision-makers are not willing to allocate necessary funds for the acquisition of  necessary technology in boosting the production or service offering of the business firm. Apart from funding, business firms also need to reorganize the business firms and enhance its processes in order to gain fully the benefits from the innovative activity. This includes the determination of appropriate success measurements for application in monitoring the improvements and benefits derived from the technological endeavour.

            With regard to the derivation of choices inluding high value factors while excluding low value factors and excessive product differentiation, innovation becomes necessary to the achievement of competitive advantage in instances where the business firm is able to recognize the high and low values and avoid low values as well as prevent excessive differentiation, affecting the operations of the organization and the acceptability of the market of its innovative products and services, processes and marketing strategies (Porter 1998). This means that the relationship between innovation and competitive advantage as defined by operational and marketing choices becomes advantageous only to companies able to distinguish and emphasize only on the high value factors of the innovation. This implies that the failure to exclude the low values offsets the benefits of high value factors and excessive differentiation mostly results to low marketability or market acceptability. Business firms failing in this endeavour are likely to experience uncontrollabe disturbances in its operations with its innovative activities characterized by advanatges as well as disadvanatges with the latter nearly equiavalent to the former resulting to the non-maximization of potential benefits. Companies thrown towards excessive differentiation find their innovative products, processes, techniques and concepts achieving low acceptability in the market because the market may not be ready for the extreme innovation, this is not suitable to the target market, or the marketing strategies are too radical for the goal of achieving high degrees of marketability.

            In terms of capitalization on timing advantages, innovation allows business firms to achieve competitive advantage by directing the efforts of the company towards new developments in the market allowing the firm to gain information on changes in market factors crucial to decision-making processes covering what innovations to introduce or utilize, what market to target, when to introduce the technology and how to market the innovation to target consumers. In industries highly reliant upon innovativeness, timing is everything. An important consideration for business firms in exploiting the timing advantages of innovation include the determination of the appropriate and inappropriate features of technology and timing. This is achieved through the identification and understanding of the relevant market and industry features comprising the context of the decision-making on timing. ( 2001) There are instances when introducing a product, service or concept as a pioneer works to the advantage of the company by achieving exclusive intellectual property rights to the technology such as in the computer and automobile industries but there are also instances when it is better to hold the position of a follower in adopting or enhancing  an innovative product, service or concept to establish competition and gain a market share for a product, service or concept that has already gained acceptability in the market. The decision involves timing and timing depends upon an understanding of the market and industry context. Again, innovation becomes necessary to competitive advantage only in instances where the timing advantage is optimized.

            In terms of the nurturance of the capabilities of the company enabling it to exploit the benefits of innovation, this links innovation as a necessity in competitive advantage in instances where the organizational competencies are aligned with the goal of innovation. This means that even with access to innovations, the lack of organizational support for the endeavour would cause the failure of the innovative activity. Capability alignment supports the identification and understanding of the problems occuring in the organization that discourages innovativeness or creativity leading to the determination of ways to improve the organizational support accorded to the technology-based endeavour. Depending upon the context of the organization, alignment could result to different consequences placed in a spectrum. On one extreme end, changing the organization to coincide with the innovative process could contribute to the revitalization of the business firm changing its gravitational direction towards greater innovative efficiency that could constitute its competitive advantage relative to its competitors but on the other extreme end, alignment involving organizational changes opens the business firm to the risk of loosing its identity in the process as well as its corporate focus due to uncontrollable consequences of the change, when it is identity and focus that sustains competitive advantage in the long term. (2002) This means that capability alignment links innovation as a necessity to competitive advantage when the business firm is able to retain or achieve its desired identity change together with business focus throughout the process of alignment.

            Overall, understanding the factors defining the relationship between innovation and competitive advantage shows that innovation is not an absolute but a relative necessity to competitive advantage depending upon the context of individual business relative to its market and the industry where it belongs. This means that innovation is not always necessary to the achievement of competitve advantage. Relative necessity is exemplified by the consideration of the four factors identifying the relationship between innovation and competitive advantage. Capitalization on strategic configuration relates innovation as a necessity to the achievement of competitive advantage in instances where the business organization is able support the viability of the innovative project through the the development of information processing and decision-making skills expressed through the allocation of capital, finances and human resources towards the endeavour. Product or market choices links innovation as a necessity to competititve advantage only in instances where the business firm is able to focus on high value factors together with the concurrent exclusion of low value factors and excessive differentiation. Timing advantages relates innovation as a necessity to the achievement of competitive advantage in instances where the business firm is able to distinguish appropriate and inapprorpiate conditions in accomplishing an innovative project. Organization-specific capabilities links innovation as a necessity in instances where the business firm is able to successfully align its organizational competencies to support the success of its technology-based activities.   

  

Emperical Links of Relative Necessity of Innovation to Competitive Advantage

            Based on the understanding of the relationship between innovation and competitive advantage, there are four themes in considering this relationship in the context of actual business experiences. The relative relationship between innovation and competitive advantage revolve around four themes, which are: 1) innovations difficult to immitate lead to greater sustainability of competitive advantage; 2) innovations reflective of market realities in an accurate manner  results to sustainable competitive advantage; 3) innovations that are timely based on the industry realities results to sustained competitive advantage; and 4) innovations reliant upon the competencies of the business firm and technologies highly accessible to the business firm results to long term competitive advantage.

General Electric & Motorola

            General Electric and Motorola are manufacturing firms engaged in the production of home products and electronics and communications products respectively. Both firms are engaged in global competition in industries that are highly dependent upon innovativeness to achieve competitive advantage. These business firms engaged in different levels of innovative activities from developing or enhancing product technology to innovations in the production process and even to organizational innovations. The area of innovation that these companies are known as pioneers encompasses the quality assurance management system of Six Sigma to address their problems of the high production cost minimizing their competitive edge over industry competitors in terms of price and quality. Six Sigma comprise a technology-based innovation because it developed out of specialized knowledge and best practices addressing real firm problems.

Six Sigma constitutes an innovative quality assurance management strategy that place customers first, in the priority list and utilises facts and data to achieve better solutions for problems in quality. Six Sigma activities target three major areas, which are 1) improving customer satisfaction; 2) minimizing cycle time; and 3) minimizing defects. The objective of implementing Six Sigma is the reduction of cost while optimizing the retention of a customer-base, the expansion into new markets, and the enhancement of brand equity.   The distinguishing aspect of Six Sigma is the nature of the former as a business initiative, more than just a quality initiative. This is because as a business initiative it covers all areas of operation so that products are made and processes are implemented almost without defects. Six Sigma involves a long term management commitment towards the achievement of excellence by focusing on the customer and improving operational processes through the application of a quality reduction measure. Since Six Sigma is concerned with the change and the enhancement of the business operations of the organisation, the application of the strategy involves meeting the changing needs of customers and the market. Six Sigma emerged from the failures of previous improvement-focused programs so that its thrust targets the weaknesses of these programs. Three core characteristics are intrinsic to Six Sigma. First is customer focus or the consistent consideration of changing customer needs as target and evaluative measure for improving performance. Second is the capability of this method to result to major investment returns expressed on the cost versus returns measures of the business firm. Third is management change because Six Sigma not only helps in the improvement of projects but also teaches organisation leaders to develop new approaches and perspectives to thinking, planning and executing appropriate activities to achieve desired results. ( 1991; 1998)

Six Sigma was created and developed by General Electric and Motorola because these companies had to find a way to hold an edge over competitor firms that were able to manufacture high quality products while incurring lower costs. Motorola’s problem was attributed to its relatively low quality (2002) while General Electric experienced the problem of incurring higher costs for the similar quality of products of its competitors (2007). Six Sigma developed as a concept that would help these companies earn more money through a bigger customer base, which the company will gain through the improvement in product quality concurrent with cost effectiveness. The derivation of Six Sigma included the redefinition of quality as value added for every production endeavour and classified into potential and actual quality, with potential quality referring to the maximum possible value added per unit of input while actual quality is the present value added per unit of input. The difference between potential and actual value refers to waste, something that the business firm seeks to minimize. Six Sigma addressed the issues of defect prevention, cycle time reduction and cost savings in both General Electric and Motorola. It identifies and removes cost that does not translate to value for customers. At present, General Electric is experiencing market leadership in some regional markets as well as quality leadership for some of its home products ( 2007) while Motorola has become one of the leaders in the global communications industry offering mobile phones and network services with its main market in the Asia-Pacific region (2002). For both companies, product defects have become minimal or rare and production costs are at the targeted level for each company. (1991;1998)

            In the case of General Electric and Motorola, innovation is a necessity to the achievement of sustainable competitive advantage because it was through their development and enhancement of the Six Sigma initiative that paved the way for their present status in their respective industries and market. Six Sigma is an innovation that is difficult to imitate because it came about from the experiences of these companies in production and application of production processes and systems but it is replicable by other business firms to their particular business context. However, General Electric and Motorola have achieved industry recognition for their pioneering efforts towards the development of the Six Sigma quality management strategy. Six Sigma comprises the innovation that resulted to the sustainable competitive advantage of these companies because the quality management strategy reflects the realities of the respective markets and industries of these business firms. The innovation may be considered as exploitation of time-based advantages based on the context of these firms. Both General Electric and Motorola were experiencing problems in quality and cost efficiency potentially adversely affecting their competitive positions in the market and the industry. Through Six Sigma, these companies were able to address these issues in a timely manner resulting to the sustenance of their leadership positions in particular markets worldwide and in certain products in the market. Six Sigma also constitutes an innovation that relied upon the accessible competencies to General Electric and Motorola. These firms took advantage of best practices derived from the previous quality management strategy of total quality management and expanded this to include a performance measurement tool enabling these firms to determine the viability of their operations.

            Although, innovation is a relative necessity to competitive advantage, the case of General Electric and Motorola shows that for these individual businesses and perhaps extending to the industries where these firms belong, innovation necessitated their achievement of sustainable competitive advantage through their pioneering efforts towards the development and enhancement of the Six Sigma quality management strategy.     

Sony Corporation & Dell Computer Corporation

Other companies exemplifying the relationship between innovation and competitive advantage are Sony Corporation and Dell Computer Corporation. The market of PCs constitutes one of the fastest growing industries today due to rapid technological change. The environment is a fast-paced as product life cycles are short so that logistics and distribution models must be efficient, as there is not much room for error with products of short life cycles (2005). Computer companies today are global as competition is extremely intense. A company must know how to differentiate its products, formulate unique strategies and attract customers that will provide profit and revenue to the company ( 2000). Due to the intense competition in the PC manufacturing industry, strategies of companies should result to the achievement of competitive advantage over the other. The most common strategy of PC makers is pricing strategy. Companies often tried to be cost efficient with their operations to offer the lowest possible product to the customers and to address the issue of economic downturns (1998).

            Another major strategy is differentiation (1998). Differentiation in the industry is very moderate and because the industry is a technology-driven sector, differentiation will depend on the research and development activities of the company. Product differentiation and innovation is very important in order to attract customers especially those who are adept to technology. One example of product differentiation is what Sony did with its laptops. Sony added innovative features to its laptops such as portable memory sticks that are not common to most laptops. This made its laptop products hold a competitive edge over the laptops of its competitors and by enhancing this product feature together with the constant introduction of other innovative features, Sony has sustained its leadership status in the global market for computer and electronic products as well as top market picks for some of its particular products. ( 2007)

In the case of Sony, it introduced a product technology innovation expressed in the enhanced features of its laptops. This innovation resulted to the short-term achievement of competitive advantage but because of the high turnover rate of technological innovations in product features in the computer and electronics industry, the company would not be able to sustain competitive advantage with just a single innovation. The company has to improve continuously the features of its products by enhancing innovation upon innovation so that it is the extent of engagement in this continuous process that comprises the unique innovative characteristic of the business firm and ensures the sustainable competitive advantage of the company. In the case of Sony products, it has engaged in the enhancement of unique features of its products resulting to its retention as a leader in electronic products. This type of innovation is reflective of the market and industry context of Sony Corporation as well as time-based benefits of innovation enabling the company’s innovation endeavour to support sustained competitive advantage. This type of innovation also taps on the competencies easily accessible to Sony including available technology and research and development prowess. Based on the factors relating innovation to competitive advantage, the case of Sony again indicates the necessity of innovation to the company’s achievement of competitive advantage based on its market and industry context and the ability of the innovative endeavours to ensure sustained competitive advantage.   

            Another differentiation strategy is what Dell did. The company has established competitive advantage through its build-to-order manufacturing system (1997).                                                                                                                                       

Originally, the vision of Michael Dell for the company is to be able to sell computers directly to customers decreasing the cost to consumers by eliminating the chain of retailers. Because of this innovative strategy, he was able to sell computers similar to IBM products at prices much lower than IBM’s. By the year 2000, company sales via the internet reached $50 million a day. By the next year, Dell ranked No. 1 for the first time in global market share and No. 1 in the United States for standard Intel architecture server shipments. By 2002, Dell Computer Corporation was the world’s largest direct-selling computer company and the fastest growing computer company as the result of persistent focus on delivering the best possible customer experience. In 2005, Dell Computer Corporation was included in the most admired companies in Fortune 500. Dell has been able to achieve its goal of being the number one computer maker. Accompanied by its fast growth and market expansion is also the expansion and development of new products, which has been Dell’s way of achieving its goal and making profit for the company. The key component of its strategy is the direct-selling concept, from manufacturer to consumer. In less than two decades, Dell became the number one retailer of personal computers, outselling IBM, HP, and Compaq. (2007)

            Dell Computer Corporation aimed to be the first to volume, not first to market. This means that their primary objective is not to be innovative in computer technology but to be innovative in mass production and sales of computers. With this direct sales business model, it also aimed to remove resellers in its supply chain process and sell directly to customers to have a direct link to consumer demand. Dell ‘s innovative endeavour is the development and enhancement of the direct sales business model enabling the company to eliminate the mark-up of reseller’s as well as risks associated with large inventories and finished goods. Dell sales 90% of its PCs directly to the final customers, largely bypassing reseller channel that accounts for most of the world’s PC sales. The company’s direct relationship with the customer allows it to tailor its offerings to customer needs, offer add-on products and services, and use the internet to the customer a variety of services such as having their PCs built according to their specifications. This built-to-order model and direct sales of Dell has achieved superior performance in the PC industry in terms of inventory turnover, reduced overhead, cash conversion, and return on investment (2000).

            The case of Dell exemplifies the relationship of relative necessity of innovation to competitive advantage. The direct sales model although replicated by Dell’s competitors proves difficult to imitate relative to the success that the company has achieved since the inception of its innovative business strategy. The innovation is also context specific and timely in allowing Dell to be the first to introduce low priced computers purchased online and delivered at the home of consumers together with after sales services allowing the company to gain a huge share in the PC market. The innovation also derived from experiences of the company on sales factors that could bring about revenue through the mass production and online marketing strategy unique to Dell Computer Corporation.

 

Conclusion

            Since innovation is a relative necessity to the achievement of competitive advantage, business firms engaged in the decision-making process over innovative endeavours need to consider the factors defining the relationship between these two business factors, which are: 1) capitalization on strategic configuration; 2) creation of product or market choices emphasizing on the high value factors together with the concurrent exclusion of low value factors together with excessive differentiation; 3) capitalization on timing advantages specifically occuring in the industry; and 4) nurturance of the capabilities specific to the organization enabling the business firm to take advantage of the benefits derived. It is only when these factors exist in the business context of the firm as inevitable factors resulting to competitive advantage that innovation comprise a necessity to the achievement of sustainable competitve advantage by the firm. 

 

 

 

 

 

 

 

 

 

 

Advances in Business

The tyranny of the stock market prevents plc’s learning from family firms that the best way to maximise profit is to aim to achieve something else entirely such as the well-being of employees. Discuss.

 

Introduction

 

            Companies Act 1985 refer to public limited companies as firms limited by shares and explicitly registered with the Companies House as public company. Public limited companies hold capitalisation, which should not be lower than £50,000. In addition, a minimum of one-quarter of the nominal value of every share and the full value of all premiums on this have to be paid before allocation. Moreover, there should be at least two shareholders, otherwise having a single shareholder continuously for six months makes that shareholder liable jointly with the company. (2003) In the United Kingdom, the shares of public limited companies are traded usually in the London Stock Exchange that challenges listed companies to evaluate the manner they conduct business in the form of regulations primarily to ensure the liquidity of business firms that serves the interest of both companies and their shareholders. (2001)

            In general, this means that public limited companies have to operate within the regulations existing in the stock market whether these regulation compliance expectations emanate from the government, financial trading institutions, or shareholders.  Specifically, this implies that public limited companies carry the regulatory measures imposed by the Companies Act 1985, the regulations of the London Stock Exchange where they trade their shares, and meet the regulatory compliance expectations of their shareholder. With regulation, better results are expected of public limited companies. However, with the rise of a number of successful private companies and the failure of public limited companies, this assumption has been questioned by academics and business analysts leading to indications that private firms perform better due to higher flexibility resulting to greater profitability relative to public limited companies. It deserves investigation whether the better performance expected of public limited companies remains true relative to the performance of private companies.

PLCs vs. Private Companies

            Investigating the performance of public limited companies and private companies requires a comparison of these two types of companies followed by the determination of implications of the results. A number of modes of comparison exists which are 1) the manner of forming these companies; 2) the benefits promised by these types of companies; 3) the goal, business value or operations approach; 4) the capitalisation and profitability performance; 5) accountability; and 6) innovation.

Formation of PLCs and Private Companies

            The greatest difference in the formation of public limited companies and private companies is the existence of defined or specific statutory and regulatory requirements for public limited companies while private companies are formed as long as these do not fit with the requirements for the formation of public limited companies ( 2003). The requirements for forming public limited companies encompass financial and organisational factors such as share capitalisation, mode of payment, and share offerings together with the election or selection of company officers. This implies that at the onset, public limited companies are already concerned with financial and organisational regulation compliance while private companies have the leeway to determine these factors as long the company meets the basic statutory requirements. This further implies that these factors primarily drive the organisational and operating decisions of public limited companies while private companies have the option to prioritise other driving factors.  

            Forming public limited companies necessitates a minimum share capitalisation of £50,000, a quarter of which should have been paid for. Share capital refers to the amount contributed by the shareholders for use by the company. During the formation of this type of company, the people establishing the firm decide on whether the liability of the shareholders should be limited by shares. If this is the case, the amount of shares reflecting the firm’s division should be contained in the company association memorandum and the shareholders should agree to take on these shares upon the registration of the company. The names of subscribers, the people owning shares, should be identified together with the number of shares they own. This process is referred to as allotment, when people subscribing to shares become owners of the firm upon the incorporation of the business organisation. As the company commence its operations, more people become part of the company and allotted with shares but this is done with the authority or permission of existing shareholders and through a resolution presented for approval by the shareholders. (2001; 2003)

            In addition, the public limited company should also comply with the requirement that the amount of capital it has issued should not be more than the amount of the capital it has authorised. Issued capital refers to the value of shares issued by the company to its shareholders. This pertains to the nominal value instead of the actual worth of shares. Public limited companies may not necessarily issue its capital at one time as long as it has a minimum of £50,000 allotted share capital. Before being allowed to commence business or borrow from financial institutions, the company should have paid premiums for a quarter of the minimum allotted capital. Share capital authorised by the firm is divided according to shares representing a nominal value but real value of these shares varies over time with the change reflecting the trend in the worth of the company even if the nominal value is still the same. In case the company sells its shares for a value that exceeds the nominal value, the sum received is recorded in two categories, which are the nominal value and the share premium. ( 2001;  2003)

            Moreover, public limited companies should comply with the mode and calculation of payments of shares. There is no rule that shares should be paid up only in cash so that public limited companies have the option to pay in cash or in kind as long as the mode of payment is specified in the allotment. This means that a share worth £1 may be paid through 50 percent cash and the remaining 50 percent in the form of services. This constitutes a 100 percent payment of the share. If share allotment were based on premium, then the calculation of payment into percentages considers the premium and the nominal value of the share. The mode of payment and calculation are recorded in forms for submission to the Companies House. (2003)

            The specific and encompassing requirements imposed upon public limited companies means that these companies become engrossed in the regulatory aspects of its operations due to the need to comply while at the same time achieving its financial viability objectives to meet its obligations to shareholders in order to maintain capital or obtain additional capital from banking institutions when it is able to regularly pay up a quarter of its authorised share capital. This is the underlying reason why public limited companies have been closely associated with the direction towards the monetary aspects of business operations linking efficiency with regulation compliance and financial viability. This intensity of prioritisation often shifts the attention of the company to other areas of efficiency such as human resource management.

            Forming a private company is by having the characteristics that does not match the requirements for public limited companies. Generally, a company that is not a public limited company is likely to be classified as a private company. There is a wide range of characteristics for private companies that are necessarily existent in all private companies. However, there are some characteristics common to all private companies relative to public limited companies. First is that private companies cannot offer shares to the public at large ( 2003). This means that its shares are not publicly traded, except only for certain exceptions. Second is that private companies may have only a single director and stockholder to qualify as a private company while two directors and shareholders are required for public limited companies (2001). Third is the ability of private companies to purchase back shares on capital through profit, something that public limited companies cannot do (2002). Fourth is the longer period given for private companies to complete their accounts within ten months while public utility companies should complete their accounts within seven months. Small and medium sized companies may also seek exemption from account auditing through the filing of modified accounts. (2001) Fifth is the ability of private companies to provide financial assistance for the acquisition of shares allotted to them through a special resolution covering the solvency of the directors involved together with a report from the auditors ().   

            The requirements for private companies are permissive relative to the restrictive requirements for public limited companies. This results to the characteristics of private companies of having greater leeway to decide on the direction of the company in terms of the number of shareholders and directors, the buy back of shares, the filing of accounts, and the involvement of directors in the acquisition of the shares allotted to them. With this freedom, private companies are able to consider different areas of efficiency and competitive advantage from the financial aspects of capitalisation to the organisation of the company and even to the highly neglected areas of personnel engagement.

 

Benefits Promised by these Types of Companies 

            Due to the characteristics of public limited companies, the benefits promised by these types of company involve financial and management contributions to efficiency while the benefits offered by private companies involve financial, management and personnel benefits.

            The first benefit is access to capital. While both public limited companies and private firms are able to obtain capital from offering shares, these obtain access to capital through different means. Public limited companies are able to obtain access to capital by having a benchmark price for its stocks known to the public that investors can compare with other companies to determine firms on which they can place their confidence translated into the infusion of capital into the particular company. Forming a public limited company provides the firm with a wide option for capitalisation through the public offering of stocks as well as the option of converting its debts into equity. (1998) Private companies may also obtain capital through shares but not through public offering or borrowing together with other means of raising capital ( 2004).

            Although both types of companies are able to access capital through the stock offerings, public limited companies have wider channels for allotting shares. It seems like public limited companies have an advantage over private limited companies in terms of capital access. On one hand, having the ability to offer stocks publicly mean that the company is able to obtain more share takers translated into more capital. One the other hand, the difference in the mode of accessing capital between these types of companies fits their respective purposes. Private companies have limited access to capital relative to public limited companies but the process of obtaining capital is less restrictive while public limited companies obtain greater capital but with the necessity to comply with greater regulatory restrictions. Limited restrictions then allows private companies to utilise the capital they acquired, although less than the capitalisation that public limited companies are able to raise, in different investment activities that focuses not only on return on capital but also on the improvement of its personnel engagement systems and other factors contributing to organisational soundness ( 2001).

            The second benefit is liquidity. Again, these different types of companies achieve liquidity in different ways. Public limited companies develop a market for their stocks through its public offering option. This means that usually, stocks offered by public limited companies hold greater degrees of liquidity relative to the stocks offered by private companies. Liquidity is enhanced for investors since venture capitalists and institutional investors require companies to become public before engaging in the firm’s stocks. Moreover, liquidity is also offered by public limited companies as incentive for stockholders to exit the company. ( 1998) Private companies also offer levels of liquidity for investors but not in the same degree as public limited companies. However, this lesser degree of liquidity is due to the nature of private companies of offering other incentives to stockholders. Private companies provide alternative incentives such as company culture, values and policies as value for its stocks ensuring returns to stock purchasers ( 2001).

            This means that although, public limited companies hold greater degrees of liquidity as a contributing incentive for stockholders, private companies provide other incentives to potential stock buyers apart from liquidity. Liquidity pertains to financial incentives. Although financial security through liquidity is important, security is not only achieved through liquidity. There are also valuable and large-scale stockholders preferring companies with strong corporate values derived not only from rate of returns but also on non-monetary firm characteristics.

            The third benefit is enhanced firm valuation. This is commonly measured through the net earnings of companies because of the difficulty in measuring non-monetary factors. Generally, the market value of public limited companies based on net earnings is significantly higher relative to the market value of private companies. Data published by the US Chamber of Commerce provides that private companies obtain stocks sales at a rate of four to six times more than their net earnings while public companies obtain stock sales value that is twenty-five times more than their reported net earnings. ( 1998)

            If monetary valuation is considered, then public limited companies seem to offer greater benefit relative to private companies but if non-monetary benefits are included, then private companies are able to provide additional benefits apart from monetary value. Private companies are able to provide additional value by discounting its equity securities value through non-liquidity or limited liquidity because of the non-existence of a market ready to purchase stocks. Limited liquidity works when the company is able to offer incentives for the investors to maintain their investments in the company. Private companies are able to provide additional incentives through non-monetary benefits such as the implementation of personnel engagement activities that result to motivated employees. (2001) This then translates to the enhanced productivity of the company that ensures returns on the investments of stockholders in the company.

            The fourth benefit is compensation through stock options. Both public limited companies and private companies may have stock options for their employees. This is an incentive plan intended to attract as well as retain talented, skilled and experienced employees. It has become common practice for companies to compensate their employees with both salary and stocks. With this plan, companies are able to maintain the contribution of skilled employees while at the same time motivating employees to develop company loyalty by valuing the contributions of employees in treating them as co-owners of the company. Apart from these gains, firms are also rewarded with tax advantages in treating their employees as part owners of the firm. Moreover, stock option plan shows corporate goodwill and a means of linking the financial future of employees with the success of the firm. ( 2002)

            Although, stock options are available for both public limited companies and private companies, these two firms offer different stock values to employees. Public limited companies primarily offer liquidity as the strength of its stocks ( 1998). To employees, this means that they can convert stocks through sales since there is a ready market for the stocks. Private companies offer altruistic value to its stocks (2001). This means that although, stocks have limited liquidity the value of the stocks are ensured through the motivation that employees gain from their co-ownership status. Employees enhance their contribution to the firm because of the understanding that the value of stock will likely increase with heightened profitability of the firm. Moreover, employees expect greater shares for longer service and quality output.

Goal, Business Value or Operations Approach

            In terms of the business goal or operations approach, the stark difference between public and private companies is the interest advocated by the companies. In theory, public companies advocate the interests of stockholders. However, in practice, the advocacy of the interests of shareholders relative to that of the company may be highly misunderstood. According to  (2001), the perspective that private activities have strong links with self-interest while public endeavours have strong relations with altruism is a misguided perception. This is because self-interest constitutes a common factor in human activities so that even in public endeavours the element of self-interest remains intact. This is expressed through the public companies that failed despite the idea that public companies perform better due to the removal of self-interest. In addition, there is also the limited understanding of the reasons why public endeavours are preferred over private activities. The issue is not actually pitting self-interest against altruism but instead understanding that the difference between the approaches of these two types of companies is in the fact that in private firms the goals of the company are self-chosen while the goals of public companies are chosen centrally. In this sense, the issue of self-interest is contextualised so that the decision of the individuals involved in these companies to follow a particular interest or advocate the common good constitute a moral option that could lead either way. This means that enforcing a private interest as the goal of the private company or going for the common interest by public companies could result to either the success or failure of the endeavours of the company. The factor that determines the success or failure of the goals determined by the company is in the manner that the companies handle the conflict of interest that arises in the process. Conflict of interest exists in all companies whether this is a private or public company.

            Even with the consideration of the interests of shareholders in a public company, there may still be conflict of interest in areas such as decisions requiring the consideration of interest preferences. On one extreme end, favouring the stockholders’ interests may result to the significant losses of the company affecting its viability while on the other extreme end, favouring more the interests of the company may mean losses for the stockholders that affects the capitalisation of the company. ( 2001) This then means that finding that point that balances the conflicting interest works better than just favouring simply one interest over another. Again, since the issue is contextual, there is no definite rule on finding that balance and oftentimes the end justifies the decision made over this issue.

            Even if private interests abound in the case of private companies, there could still be conflict of interests among the particular interests of the managers or owners of the company regarding the direction of company operations. In practice, the board of directors of a company form advocacy groups to forward the interests they support. It is up to the Chairman to decide the conflict in interest. (2001) Again, balance of interests necessarily comes into play to derive a unified decision, which is understood by all the members because this is justified by the context of the company. Moreover, it is important that the final decision become justified by the intended and actual results.

            Nevertheless, even if the implementation of self-chosen or centrally-chosen goals may work for or against a company depending upon the resolution of the issue of conflict of interest, it is important to point out that another important factor is the mechanisms existing in these companies that allows flexibility in the resolution of the conflict of interest. Public companies have a less flexible mechanism for conflict resolution because the conflict is between its interests and that of its stockholders and one cannot be prioritised over the other because one cannot exist without the other in this type of company organisation. The conflict is greatly heightened in public companies. Private companies hold greater flexibility because it has to settle the conflicting interests of its members and there will always be a point of balance based on the common interest of the members to achieve firm viability measured through revenue generation and profit. While public companies deal with the conflict between internal and external interests, private firms only have to deal with internal conflict. (2001)

            This suggests that even if both public and private companies have to deal with conflict of interest in the process of goal determination, private firms carry the advantage of having to deal with internal conflict coupled with greater degrees of flexibility because there will always be a meeting point for all conflicting parties based on revenue generation and profitability measures that express the viability of the firm.  

            The implication of this is that private firms carry an advantage over public firms in the area of resolving conflicting interests that influences the success of the activities of the company. This advantage comes from the nature of the conflict faced by private companies and the flexibility they have in options for deciding the issue.

            The advantage of private companies is expressed through family-owned business firms. In this instance, conflict of interest arises with differences in opinion on the goals of the company. However, the differences in opinion are settled through the determination of bottom line goal of establishing the company. This would always remain as the balancing factor for conflicting interests. Moreover, family members also have the tendency to centre on family values making it easier to settle conflicts.

Capitalisation & Profitability

            With regard to capitalisation and profitability, the differentiating factor between public and private companies is the size of capitalisation and the expected level of profitability.

            Public companies are mandated by law to have a minimum capitalisation of £50,000 before registering as this type of company. This means that small and medium companies are not likely to become public limited companies so that public companies have a definite floor level of capitalisation increasing the propensity for public companies to have a higher capitalisation on the average relative to private companies. Private companies fall under the different categories of small, medium or large business firms but there are more small to medium private businesses making the capitalisation of private companies less than public companies. ( 2001)

            In the case of profitability, there is a general perception that bigger capital yields to greater profitability because of scale. Bigger amounts of investment lead to larger profits. This is due to the multiplier effect in investments so that multiplying greater amounts results to bigger values. (2002) While this is true in math, the application in actual business settings does not always follow this rule so that even with greater investments, the resulting profit may be lesser or higher. In both public limited companies and private companies, profitability depends upon the investment decisions of the company. The multiplier effect may represent a profit or a loss in actual business settings. If the area of investment chosen becomes successful then the company expects profit but if the investment fails because of factors linked with business decision then failed investments mean larger losses.

            Successful business activities are dependent upon the dynamics of the resources of the company and the manner that these become integrated and directed towards the objectives of the company (2002). If public companies achieve profitability through the application of the multiplier-effect on its capitalisation earned from stock offers, private companies gain profit through the operation of the multiplier effect on its capitalisation together with employee satisfaction and other non-monetary multiplicands. Although, public limited companies may be able to obtain greater amounts of capitalisation, this does not necessarily mean that these companies are more profitable than private companies.

Accountability

            Accountability pertains to the situation where the company is answerable to its stockholders for the activities where capitalisation obtained from stock offerings was invested. (2000), provides that modern business settings have placed greater demands for corporate disclosures. This was due to the intensity in competition with the rise of a number of competing firms. Contemporary settings caused the department of trade and industry to find ways of balancing commercial freedom with business transparency. The balance was set through the distinction between public and private companies and the determination of the nature of accountability for these two firms. Public companies were imposed with substantial levels of accountability while private companies held large degrees of privacy.

            Accountability is necessary in all kinds of companies because of the need to maintain a certain degree of answerability in the activities of the firm to provide insurance to stakeholders of the viability of the business. Although public limited companies are required to have higher degrees of accountability relative to private firms, the latter ensures answerability in a different way. While public limited companies ensure accountability through the filing and accessibility of accounts to the public, private companies achieve accountability through financial reports together with consistency in company values. This means that private companies have greater freedom to determine modes of accountability apart from its accounts such as through employee well-being, loyalty and motivation that ensures the profitability and overall viability of the firm. (2000)

Innovation     

            Innovation is defined by  (2002) as the “change that creates a new dimension of performance”. Another definition by  (1995) considers innovation as “getting ideas adopted”. These definitions highlight the importance not only of the development of an idea but also the placement of these ideas into practice in a manner that adds value to the company. This implies that innovation is all about creating new ideas, understanding the way that these cause changes to the organisation, and the manner that this new ideas are diffused throughout the organisation to achieve comprehensive changes.

            Innovation can occur in any type of organisation. Commonly, innovation is linked to capital because of the necessity of monetary allocation in the development and implementation of new ideas intended to create positive change for the company. However, this is not always true. Prior to budget allocation, the development of new ideas involves the engagement of the company with the evaluation of its aggregate performance. Without doing this, it cannot be able to determine areas requiring change and the means of achieving these changes. Moreover, innovation involves risks because of the introduction of new ideas into the company, which may lead to expected and unexpected results. Public companies are likely to have the capital to fuel innovation and absorb risk while private companies have limited capital for expenses linked to innovation so that it is motivated to allocate greater value to the diligent assessment of its needs and the formation of new ideas that is sure to work. ( 2002)

Conclusion

            The similarities and differences between public limited companies and private companies point out the fact that the characteristics of public limited companies results to their tie-up in regulatory issues arising from the workings of the stock market so that oftentimes, this type of company tend to neglect other areas of efficiency that contributes to profitability. In this sense, private companies tend to have comprehensive areas of achieving their profitability targets relative to public limited companies engrossed with financial and regulatory matters. Thus, public companies can learn from private companies that profitability is not only dependent upon regulation compliance and financial measures but also on non-monetary aspects that hinge upon the persistence and viability of the company.

            An example of a private company that reflects the benefit of integrating non-monetary issues into its operations is the family business. (2004) have considered family businesses as universal and enduring institutions because prior to the rise of the multinational corporation there were family owned and operated firms. Hundreds of family businesses have persisted for centuries and passed on from one generation to the next proving that this type of business is enduring. Family businesses abound in different cultures indicating that this type of business organisation is also universal. The persistence of family businesses, which are run as private companies, prove that operating private businesses can outdo public limited companies in terms of firm endurance and profitability amidst changing market environments.

            The ability of family businesses to remain profitable for long periods is attributed to several factors unique to this type of business organisation. First is the perspective of family businesses towards long-term growth. This is due to the fact that the family business becomes a legacy of the family to future generations so that plans for the company are always long-term. (1999; 2004) This means that decisions on investment are intended to sustain the company for decades. In the case of Chinese business firms, the performance of the family business reflects the honour of the family so that decisions are carefully developed and implemented in honour of the family. Other family businesses in different cultures depend on the firm for sustenance not only of needs but also of social status so that there is also high motivation for sustaining the company in the long run.

            Second is the concern for human factors such as employee well-being. This is because the family is closely linked to the business and family values are associated with the business in the same way business values are linked to the family. Moreover, a number of family members serving as heads or organisation members usually run the family business.  Due to this reasons, there is a higher degree of concern for the well-being of the members of the organisation resulting from the business values of the company as well as from familial concerns translated into the business environment. (2004)

            Third is the comprehensive approach of family businesses towards profitability. This is not only measured through the financial performance of the company but also through the overall welfare of the organisation. This leads to the maximisation of the areas that the business firm can tap to boost its profitability. In doing so, the company not only gains optimum profitability but also firm endurance through the consideration of organisational welfare. (2004)

            Considering family businesses shows the reasons why private companies are recognised as outperforming public limited companies. Public limited companies could achieve optimum levels of profitability by considering all possible areas it can use to gain profit including non-monetary investments into employee welfare. Public companies can also achieve endurance or longevity by boosting organisational culture that leads to loyal employees and investors.

Corporate Communication

1. Introduction

            Engagement in effective corporate communication transcends mere concern terminology because the process involves the dynamic integration of a number of important factors such as the people involved, building of relationships, formulation of content based on needs and objectives, targeting of appropriate communication channels, and evaluation of implementation. This means that businesses engaged in corporate communication should take the operational and holistic approach.

            Due to the broad scope of corporate communication, a number of conceptualizations emerged. A commonly accepted definition comes from (1995) that describes corporate communications as a tool of management in consciously harmonizing internal and external modes of communication within the highest degree of effectiveness and efficiency to develop a favourable foundation for building relationships with groups on which the business firm depends. The definition applies the operational and holistic approach because it covers the various aspects of corporate communication as a tool, process and system. The description of corporate communication implies a number of important considerations. First is corporate communication as an instrument that involves the effort of the business firm to utilize this tool based on its strategic foundations and organizational underpinnings for the application to have a significant impact. Second is corporate communication as the harmonization of internal and external communication so that this involves appropriate integration of content, form, systems and channels. Third is corporate communication as a support for relationship building and maintenance by consciously directing communication efforts in a manner that catalyses relational value formation.  

            Apart from understanding the concept of communication management to facilitate its effective application, there are other elements to consider. Language management covers the use of terminology and mode of delivery.  (2001) provides that lexicographic communication offer economic benefits. (1995) adds that language management plays an important role in the creation of linguistic identity of the firm, brand or product. This means that the words used should communicate clearly and accurately the message or content that the business intended to communicate.

            Corporate culture also constitutes an important element of corporate communication. (1998) provides that corporate culture influence corporate communication in the same way that corporate communication defines corporate culture. Corporate communication comprises the artefact through which members of the organization identify with the firm, brand or product while corporate culture defines the direction and pace of corporate communication.

            One of the emerging values covered by corporate communication is sustainability and sustainable development as the business environment is drawing firms to consider long-term viability through a consciousness of its responsibility in addressing the emerging value needs and demands of consumers such as socio-cultural tolerance and natural resource conservation. Although a number of industries and firms engage in corporate communication covering sustainability and sustainable development, best practices supported by empirical evidence are still in the process of development. In this light, the paper seeks to contribute to this knowledge gap by investigating the comparative corporate communication on sustainability and sustainable development of two retail giants, Walmart and Target. Content, form, and delivery of their value communications are subjected to comparative analyses to draw conclusions on lessons derivable from the experiences of these two business firms.       

2. Definition of Sustainability & Sustainable Development

            Sustainability and sustainable development are highly complex or ambiguous concepts. However, the effort to understand or clarify these concepts to achieve applicability resulted to the general agreement that the realization of these concepts involve the integration of economic, political, social, cultural and economic aspects (2001;  2001). The multi-faceted perspective of these concepts provide that these should be viewed as having macro and micro elements, global and facets, temporal and spatial dimensions, top-down and bottom-up implications, and inter and intra-generational aspects. In relation to business, a holistic approach means that in the policy and decision-making, implementation, and assessment of the corporate communication of the company, economic, political, social, cultural and economic aspects need dire consideration.

2.1 Sustainability

            Sustainability and sustainable development are different but closely linked concepts.  (2005) explains that the concept of sustainability emerged concurrently with the rise of environmental organizations during the 1970s and achieved general use in 1987 with the publication of ‘Our Common Future’ by World Commission on Environment and Development (WCED). Sustainability is the ability to maintain characteristics, processes or systems in the long-term. In the context of environmental movements, this is the ability to maintain ecological balance of diversity to sustain future populations.

            In the context of business firms, sustainability finds a two-fold application based on micro or macro perspective. From a micro perspective, sustainability involves the ability of the firm to consider multi-faceted aspects of its operation, processes, systems and relationships in decision-making and policy implementation directed towards ensuring the long-term viability of the company and its market. From a macro perspective, sustainability is the capability of a business to make its strategies compliant with the concerted effort of various sectors towards the maintenance of resources, processes, systems and relationships to support future generations.

2.2 Sustainable Development

              Sustainable development evolved from the concept of sustainability to become “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (2006). Based on this definition, business firms engage in sustainable development by incorporating the idea of sustainability in the management of the technical and social aspects of the business as well as changing its manner of exploiting resources. By adopting sustainable development in its strategies, businesses expect to ensure its future viability.

2.3 Sustainable Business Practices

            Sustainable businesses are companies consciously aware of the present and future needs of stakeholders and consumers and able to anticipate and meet these needs and demands as these arise. Sustainable enterprises cover three bottom line aspects. First is economic prosperity and long-term viability of the business to meet the interests of its stakeholders and consumers. Second is concern for the social well-being and equitable treatment of its employees and the immediate community that hosts the business or that which the company serves. Third is environmental protection through resource conservation. With the growing awareness of the business sector of sustainable enterprises, individual business firms tap into opportunities to meet the changing expectations of stakeholders and consumers by changing their products, services and value offerings as a means of ensuring competitive advantage and ultimately long-term viability. (2001)

3. Comparison of Walmart & Target

            In comparing the corporate communication of Walmart and Target the situational analysis of their markets, competitive position and corporate communication to determine the extent of engagement of these businesses in ensuring the long-term economic viability of the business, application of equitable employee practices, and involvement in environmental protection.

3.1 Markets   

            Walmart and Target are both large discount retail stores in the United States. This means that both of these companies emerged to target a wide segment of the population, even the lower income groups since these companies based their competitiveness on their ability to offer low prices for the same products to consumers. Moreover, Walmart and Target also adhere to the one-stop-shop concept by offering a wide selection of products from clothing, shoes and other dry goods to home appliances and hardware products and even consumable products. This means that the target markets of these companies are households ranging from low to high-income groups. Due to the broad scope of their target markets, these firms were given the opportunity to expand their consumer base across the United States and then eventually to other international markets.

            However, as these companies grew, distinctions emerged. Walmart targeted small towns as part of its market expansion while Target concentrated on urban areas. Due to this difference, Walmart eventually catered to lower to middle-income markets while Target made the mode to target primarily middle to high-income groups. The divergence is observable in the focus of Target to supply branded products at lower prices to its consumers while Walmart also supplied branded products but not in the same volume as Target because demand from small towns cannot support this move.

            The wide-ranging markets of Walmart and Target have important implications on their sustainable business practices. One implication is their close ties with the community, small town communities for Walmart and the urban communities for Target. This means that for the company to ensure viability, it has to meet community expectations such as support for the welfare of the communities by supplying the needs and wants of the population, providing jobs to the members of the community, and engaging in environmental conservation in building its stores and developing the market especially when the interest of small retail stores at stake.

3.2 Competitive Position

            Walmart and Target constitute two of the three large retail firms in the United States. The competitive positioning of these three firms has resulted to the losing out of Kmart to make Walmart and Target, the two remaining competitors in the retail industry, as observed from the decline in number of stores and store sales of Kmart from 2000 to 2004 based on the Annual Industry Report.

            Stores are either discount stores or super stores. In terms of the number of stores, Walmart has more discount and super stores than Target. However, Walmart experienced a decrease in the number of discount stores while Target increased its number of discount stores. Both Walmart and Target increased their super stores, Supercenters for Walmart and Super Targets for Target. With regard to store sales, Walmart also receives a greater aggregate income compared to that of Target because it has more stores. However, Both Walmart and Target experienced increases in revenue from its discount and super stores.

            Based on the number of stores and store revenue, Walmart holds a competitive advantage over Target in terms of the consumer accessibility to its stores because of the greater spread of its stores across the country. Although, it concentrated its market expansion in small towns, the number of stores was able to support revenue generation in proportion to the more stores that it operates. Target had lesser room for market expansion since it focused its marketing strategy to tap into urban households.

            However, although the number of stores and revenue generation determines the long-term viability of these companies, the other part that defines viability is the ability of these companies to create effectively strong relations with consumers to maintain a market base through corporate communications. This means that even if Walmart holds a better position in terms of number of stores and revenue generated the extent that these companies deal with sustainability issues may lead to a different conclusion.

3.3 Corporate Communication

            There are similarities and differences in the corporate communication of Walmart and Target. Sustainability is encompassed by Walmart’s sustainability program while this is covered by the corporate social responsibility of Target.

            The similarity of the corporate communication of these companies is their consideration of environmental protection. Walmart (2007a) explains that its effort towards environmental leadership ensures its future growth as a company. As such, the company practice a number of environmental sustainability practices including the gradual shift to sustainable energy in its stores, waste reduction, and offering of environment friendly products. Target (2007a) launched its Leadership in Energy and Environmental Design (LEED) program to over its environmental concerns. This program applies through the company’s engagement in a number of sustainable activities such as conservation of energy in its stores, application of water efficiency practices, selection of store sites that do not greatly encroach upon natural ecosystems, use or renewable materials, and improvement in the environmental quality of stores. Both companies engaged in practical sustainability practices to support environmental protection.

            The difference in the corporate communication of these companies is in their other targeted sustainability areas aside from environmental protection. Walmart (2007b) other major sustainability practice is the engagement of small suppliers from the communities as suppliers to support the revenue generation and growth of these small companies by giving these small suppliers with a national distribution channel. Through its partnership with small manufacturers, the company was able to support small to medium industries survive their large competitors. Target’s (2007b) other primary sustainable practice is the support of its employees. The company has developed a program that offers leadership training and development to its employees together with team-building coaching. It also applies the philosophy that its employees no longer need to engage unions to air their concerns since employees can go directly to their immediate superior to raise an issue. The difference in focus indicates that Walmart applies an external perspective on sustainable enterprise by prioritizing the development of good supplier relations while Target holds an internal view of sustainable business by developing its employee training and development programs.    

            Although both companies engage in sustainable practices, it is surprising that these companies communicate this to consumers minimally when compared to their marketing messages. Walmart’s focus is the communication of the message that the company remains the top company retailing quality products at low prices. This means that Walmart still focuses on its discount store value communication as the primary means of ensuring enterprise sustainability. Target hones on its brand retailing concepts in its communications. This means that it also prioritizes this message as its communication content to ensure its long-term viability. Due to these corporate communication directions, it is not surprising that Walmart and Target are not known as strong examples of sustainable companies even if these have joined the sustainable enterprise bandwagon.

            In relation to modes or channels of communication, these companies engage in radio and television advertising, in-store promotions, and website communications. Direct communication with the community is minimal when compared to the activities of other companies in hosting or sponsoring community activities to develop direct relationships with the community. 

 

4. SWOT Analysis of Walmart & Target

SWOT analysis constitutes a marketing instrument used to determine these decision-making factors: strengths, weaknesses, opportunities, and threats (2001) Using this analytical tool enables the derivation of data necessary in police formulation and decision-making to maximize strengths, address weaknesses, arrest threats, and capture opportunities. In relation to sustainable enterprises, the analysis would determine the comparative strengths, weaknesses, opportunities and threats surrounding in their involvement in sustainable business practices.

4.1 Strengths

 Both Walmart and Target have established community relations in different ways. On one hand, Walmart has established a working relationship with the communities it serves by networking with small producers to supply its retail stores. Through this conscious effort, Walmart is able to provide income to small companies to provide income to small town households they can use in purchasing from Walmart stores. Company viability is ensured by providing its target consumers with purchasing power. On the other hand, Target has established a social relationship with the immediate urban communities where it operates through its employees. By implementing a leadership training and development program, the idea is to enhance the knowledge and experience of employees for purposes of career development and to become entrepreneurs. With efficient employees, Target ensures its future viability in the form of expected growth in revenue generation. Entrepreneurs offer the company with future networks or business partners.

Although, these companies were able to establish community relations, the underlying company interest in these sustainable practices remains economical. This explains the limited involvement of these companies in communicating other value contents to consumers. These firms are yet to tap into sustainability communication extending beyond economic concerns, even if these firms have integrated environment protection into their sustainability agenda.

4.2 Weaknesses

            A common weakness for these companies is their failure to recognize the benefits of engaging in a holistic corporate communication. These companies remain tied to the traditional perspective that merely focuses on the economic aspect of business viability. Since the business environment is shifting towards a multi-faceted approach to long-term viability, Walmart and Target are underutilizing their existing sustainability practices as value communications to their target markets to ensure a future customer base. These companies are not active in developing other areas of sustainable practices as value communications.

            In addition, the weakness of Walmart appears to be the strength of Target and vice versa in relation to their sustainability communications. Walmart has a weak spot in its dealings with employees. It has received criticism for the low wages it gives to its employees. Its effort to provide low prices for its retail products was viewed as offering some detriment to the welfare of its employees. In the website of Walmart, apart from diversity, no other employee concerns were highlighted. This means Walmart has a weakness in the social area of employee relations that could form part of its value communications. Target has a weak spot in strengthening its supplier relations. Since it caters to branded products, it usually retails known brands. It could enhance its supplier network by developing a brand development program of sponsoring new brands by small companies to develop closer relationship with the community.   

4.3 Opportunities

            Walmart and Target both face the opportunity to expand their value communications to become sustainable enterprises. This involves holistic changes in tying corporate culture and communications strategies to support the sustainability practices of these companies. There are a number of specific opportunities available to these companies.

            In the case of Walmart, it has the opportunity to change building public impression of its employment practices by changing its corporate culture that includes the social welfare of its employees in order to include this as a value communication to the immediate communities it serves. Another opportunity open to Walmart is to engage in direct communications with the immediate community by sponsoring community activities or taking a pro-active stand in not only ensuring ecological sustainable practices within the organization but also leading sustainable community practices.

            With regard to Target, the company has the opportunity to expand its supplier network by tapping into and developing community talents and skills in introducing new but promising brands in its stores. This allows the company to include as its value communication concern for the social welfare of the community as well as acquire a direct channel of communication. Ultimately, its partners would propel future growth of the company in terms of market and product diversity.

            Overall, these companies would benefit from their ability to match their value communications with actual value delivered to consumers and stakeholders. Through the consistency in value communication and value delivery, these firms will be able to develop strong corporate or brand value. Engaging in holistic sustainable practices allows these firms to provide added value to their consumers while at the same time ensuring their future business viability.

4.4 Threats 

                With changes in the business environment, the failure of these companies to develop holistic sustainable practices to support their value communication would affect their future viability. Consumers are also changing because of their increased recognition of their ability to use purchasing power in influencing business to develop greater social and environmental consciousness (1999). In some industries, businesses engaged in holistic sustainable practices are growing so that pressure is mounting on previous competitors to change their business values and change their value communications. This could also happen in the retail industry.

5. Discussion

            Corporate communication of these companies primarily revolves around economic concerns as expressed through the extent of their involvement in sustainable practices that constitutes their value communication. These companies fail to recognize the importance of changing the organizational values from those that are resource-intensive and volume-focused to value leaning towards ecological efficiency, social responsibility, and value maximization. Through a change, the companies will be able to gain more economic benefits from stronger sustainable value communications.

            Nevertheless, the experiences of Walmart and Target provide various lessons for business firms. First is the need for holistic sustainable practices based on a changed organizational structure, culture, and resource allocation. Sustainability does not usually fit the tradition business practice focusing only on economic or financial aspects making organizational change inevitable. Second is the necessity of matching value communication and delivery. Walmart cannot include employee welfare in its value communications without addressing the criticisms on its low wage policy. Third is the equal importance of direct channels of communicating sustainable value messages and pro-active sustainable practices. Most of the companies popular as champions of sustainable practices are actively engaged in social or environmental activities in the community and using these company achievements as value communications to its consumers. Walmart and Target need to engage in the resolution of community issues such as low wages, displacement of small retailers with the entry of these large retailers, and other ethical issues, the resolution of which determines the perception of consumers on the value of business firms. Consumer perception then determines the ability of business firms to achieve long-term viability.

6. Conclusion

            Business sustainability and sustainable development are closely related. Amidst the complexity of these concepts, a stark relationship emerges in the context of business. Sustainability in the context of business is considered akin to long-term viability, which is achieved through firm involvement in the sustainable development concerns of consumers and stakeholders. By engaging in sustainable development issues, business firms are able to communicate strong value offering with concurrent delivery that influence consumer purchasing decisions in favor of the company. Greater involvement in community concerns leads to higher benefit that the business has to offer to consumers. Sustainable development is a comprehensive term encompassing the sustainable activities of business firms. However, this concept is not self-operating, it needs implementing bodies or entities. Business firms constitute important parties necessary in actualizing the achievement of common goals for sustainable development such as environmental protection and social welfare development.

            From a business perspective, corporate communication serves as the tool or process in sharing the values emerging from this relationship in a manner that influences multi-level change directed towards the actualization of general and specific goals. This feat involves difficulties and complexities, largely because this constitutes a new development for business firms so that this involves costs and risks. However, the change targeted by corporate communication on sustainable development offers long-term benefits to business firms such as repositioning of the firm towards a leadership position in the industry, expansion into new markets, growth, and sustained viability. Business firms need to realize that including sustainable development issues in its corporate communication, covering holistic sustainability areas, plays an important role in supporting its achievement of long-term goals.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Role of Environmental Analysis

The Role of Environmental Analysis

 

            Planning ahead enables a person to think about the future. As a result, planning allows one to establish direction and purpose, which eventually leads to enhanced performance. The same principle applies when creating a marketing plan. This concept is vital as the development and implementation of market plans are natural parts of a progressing business. However, even if planning is integrated into the formulation of a market plan, success is still not guaranteed. Lack of ability to amend a plan, poor implementation techniques and absence of accurate market trend foresights are among the common causes of failure. Due to several reasons, businesses tend to fail in spite of their developed plans. Thus, most managers begin to lose their confidence over the whole planning mechanism.

            In spite of the variety of reasons, a common similarity shared by these failed plans is their failure to coordinate strategies with their objectives (2002). When analyzed, such concept is simple to comprehend and yet it remains a wonder how businesses tend to overlook it. The inability of the company to align its marketing objectives with their strategies is perhaps attributable to their lack of discipline, more specifically to their lack of appropriate market planning guidelines.

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