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Q1. Select a company of your choice.

Recollect the current events and ide


ntify the important macro environmental factors which had an impact on the
company. Try to study the opportunities and the threats posed to the
company due to the macro environmental factors.

The organisation I am referring to, was facing


a problem of declining sales/ market share for 2
consecutive year.
-a large manufacturer/ marketer of safety products
-the products are used as [personal protection safety] [ industrial safety
]
-the products are distributed through the distributors as well as sold direc
tly
-the products are sold to various industries like mining/fireservices/defe
nce/
as well as to various manufacturing companies.
-the company employs about 235 people.
-the company has the following functional departments
*marketing
*manufacturing
*sales
*finance/ administration
*human resource
*customer service
*distribution
*warehousing/ transportation
*TQM
==============================================
THE COMPANY ANALYSES THE FOLLOWING DATABASE
AND APPLYS THE PROBELM SOLVING/ DECISION
MAKING APPROACH / FINALIZES THE PLAN.
-apply the pestel analysis with respect TO ITS BUSINESS
1.Political (incl. Legal)
-Environmental regulations and protection
ENFORCEMENT OF SAFETY /PROTECTION LAWS
-Tax policies
TAX INCENTIVES FOR THE USE OF PERSONAL SAFETY
PRODUCTS.
-International trade regulations and restrictions
REDUCTION IN TARIFFS ON IMPORTS OF
PERSONAL SAFETY PRODUCTS.
-Contract enforcement law/Consumer protection
The government enforcement on consumer protection

-Competition regulation
NO LIMITS ON COMPETITION
-Safety regulations
the government adopted some of the
modern safety regulations
=================================================================
2.Economic
-Economic growth
SOUND ECONOMIC GROWTH
-Interest rates & monetary policies
interest rates under control / a sound monetary policies]
-Government spending
government spending is significant and is it under control
-Taxation
the taxation HAS encouraged the industry .
-Exchange rates
there well managed exchange controls and is it helping the industry.
-Inflation rates
[ THE inflation is well under control ]

==================================================
3.SOCIAL
-Health consciousness & welfare, feelings on safety
the people are becoming safety / health consciousness.
=========================================================
4.Technological
Industry focus on technological effort
the industries focused on using improved technology.
New inventions and development
new inventions are being encouraged for developments.
=========================
THE NEWLY ADOPTED OBJECTIVES
-to increase sales volume by 20% every year
over the next 5 years.

THE STRATEGIES ADOPTED BY THIS ORGANIZATION TO


ACHIEVE ITS OBJECTIVES.

1. Basic question: How is organizational direction determined? Every organizat


ion takes on some direction, in terms of what customers/clients it serves and wh
at functions it performs for these customers. This direction is often called its
purpose, Mission or realized strategy. An organization's mission is a set of st
atements that define the exchange relationship between the organization and its
stakeholders or claimants. More specifically a mission defines the population se
rved and the function it fulfills or the need it satisfies for that claimant. Th
is direction, or mission, may be the result of a deliberate planning process or
it may emerge as the result of a set of incremental decisions.
THIS ORGANIZATION Realized Strategies are the result of a combinations of Pur
ely Deliberate and Purely Emergent Strategies.
1.THIS ORGANIZATION'S Deliberate Strategy-
This process starts with an analysis of a company's current mission and strategi
es. The most popular tool used in this process is the SWOT (Strengths, weaknesse
s, opportunities, threats) model. The external environment in terms of opportuni
ties and threats, is analyzed by examining threats to the company's current posi
tion and new opportunities (new customers, new applications, unfulfilled custome
rs needs, etc.). The analysis proceeds by examining the company's internal envir
onment in terms of its strengths and weakness. A mission and competitive strateg
y is formulated that matches opportunities with strengths and plans are made to
strengthen areas of weakness.
The next step is to develop functional strategies that support the overall busin
ess level competitive strategy. Marketing, Human Resource, Financial, Operations
, Information Systems, and R & D strategies are developed that support the busin
ess unit strategy. Finally, a control system (organizational structure) is desig
ned to insure that operational decisions are made consistent with the business a
nd functional strategies.
2. Emergent Strategy
- Emergent Strategies are the result of incremental decision making that achieve
some degree of consistency over time and launch the organization into a directi
on. When decisions are made or problems are solved, they have potential strategi
c impact.

2. Levels of Strategy
1. Mission/Domain- Before identification of strategy can occur, one must
clearly identify the mission or domain of the organization. The domain of an o
rganization consists of the population it serves and the functions it performs (
satisfies) for that population. Sometimes the domain is defined in terms of pro
ducts or services offered (rather than functions performed), but this tends to b
e more limiting because it defines the mission more in terms of means rather tha
n ends.

2. Corporate Level Strategy.

1. Market Penetration STRATEGY


- Seeking increased market share for present products through greater marketing
efforts
2. Market Development STRATEGY
- Introducing present products in new markets
3. Product Development STRATEGY
- Seeking increased sales by improving present products
4. Diversification STRATEGY
1. Concentric- Adding new or related product lines
2. Conglomerate- Adding new, but unrelated product lines

3. Competitive or Business Level Strategy


- How should we compete in our chosen business(es)? Competitive strategies invol
ve determining the basis of costumer or client decision making. Generally, they
are based on some combination of quality, service, cost, time, and quality of t
he experience.
1. Cost Leadership Strategies
- With this strategy you are competing on price. Your various functional strateg
ies all emphasize cost reduction. This is an effective strategy when the market
is comprised of many price sensitive buyers, when there are few ways to achieve
product differentiation, when buyers do not care much about differences from bra
nd to brand , or when there are a large number of buyers with significant bargai
ning power.
2. Differentiation Strategies
- Differentiation strategies rely on some basis of product differentiation such
as flexibility, specific features, service, time and availability, low maintenan
ce, etc. as the basis for competition. Product development and market research a
re generally necessary components of a differentiation strategy. Generally, a su
ccessful differentiation strategy allows a firm to charge a higher price for its
product. Organizations generally need strong R & D departments with strong coor
dination between R & D and marketing departments. Human Resource strategies must
place emphasis maintaining a competitive skill base and motivating employees to
ward the basis for differentiation.
3. Focus or Niche Strategies
- A successful focus strategy depends upon an industry segment that is of suffic
ient size, has good growth potential, and it not crucial to the success of other
major competitors. Focus strategies are pursued in limited markets in conjuncti
on with cost leadership and/or differentiation strategies. Focus strategies are
the most effective when consumers have distinctive preferences or requirements a
nd when rival firs are not attempting to specialize in the same target segment.

4. Functional Strategies
- How do organizational functional units contribute to the business level strate
gies? How can functional strategies be integrated to achieve competitive advanta
ge?
1. Marketing Strategies- How do we communicate our strengths to th
e customer? How do we identify customer requirements and changes in customer req
uirements?
2. Human Resource Strategies- How do we recruit, train, develop, m
otivate, compensate, and place employees so that behavior is directed toward the
competitive strategy and works to build competitive advantage?
3. Financial Strategies- How do we secure financial resources nece
ssary to carry our competitive strategy?
4. Operations Strategies- How do we design our processes to produc
e products and/or service that meet customer requirements as specified in our st
rategy?
5. Information System Strategies- How do we provide decision maker
s, at all levels, with information necessary to make decisions consistent with s
trategy?
6. Technological (R & D) Strategies- How do we develop products co
nsistent with customer requirements as specified in strategy?
#######################################################
Q2. What do you understand by SWOT analysis? Explain how it is important
for the organizations in taking strategic decisions. Illustrate your answer with
the help of an example.
Definition of SWOT
SWOT analysis is a general technique which can be applied across diverse functio
ns and activities, but it is particularly appropriate to the early stages of pla
nning for CORPORATE STRATEGY . Performing SWOT analysis involves generating and
recording the strengths, weaknesses, opportunities, and threats relating to a g
iven task. It is customary for the analysis to take account of internal resource
s and capabilities (strengths and weaknesses) and factors external to the organi
sation (opportunities and threats).
THE NECESSITY FOR SWOT
Strengths
Strengths usually describe things that the company excels at doing. All strength
s listed should support a competitive advantage that the corporation has over it
s rivals. These can be tangible (fast delivery of products to customers) or inta
ngible (excellent customer service promotes very high customer satisfaction). As
these are internal attributes they should all be within the company s control. As
k questions such as:
What does the company do well?
What resources (physical and personnel) does the company possess?
What advantages does the company have over its rivals?
Do not forget to include key strengths that the people in the organization posse
ss which includes things such as their experience, knowledge, educational backgr
ound, business connections, and job skills. Tangible assets such as plant capaci
ty, state of the art equipment and facilities, strong supply chains, available c
apital (or access to credit), loyal customers, patents, copyrights and superior
information systems.
Strengths
The Strengths can be considered as anything that is favourable towards the busin
ess for example:
Currently in a good financial position (few debts, etc)
Skilled workforce (little training required)
Company name recognized on a National/Regional/Local level
Latest machinery installed
Own premises (no additional costs for renting)
Excellent transport links (ease of access to/from the Company)
Little/non-threatening competition
THE SWOT ANALYSIS --STRENGTHS
-helps to identify the core compentences
-helps how to maximize the strengths to gain
the maximum results --sales/profit/market share/competitive position.
========================================
Weaknesses
Weaknesses are factors that the company controls that impair its ability to comp
ete with other firms. Weaknesses are any areas in which you need to improve to m
aintain a competitive edge in your market. Ask questions such as:
Which departments need to be improved?
What resources does the company lack?
What skill sets do the employees lack that competing firm s workforces have?
What services does the company fail to offer?
Weaknesses
Recognizing the Weaknesses will require you being honest and realistic. Don t leav
e anything out as this is an important part as to realize what needs to be done
to minimize this list in the future. Here are a few examples:
Currently in a poor financial position (large debts, etc)
Un-Skilled workforce (training required)
Company name not recognized on a National/Regional/Local level
Machinery not up to date (Inefficient)
Rented premises (Adding to costs)
Poor location for business needs (Lack of transport links etc)
Stock problems (currently holding too much/too little)
Too much waste
THE SWOT ANALYSIS --WEAKNESS
-helps to identify the weak points in terms of skills/manpower/
resources etc
-how to improve / overcome these weak factors.
==================================================
Opportunities
Opportunities are the external factors that will allow your business to succeed
against its rivals. Since these are external factors, they may not be under cont
rol of the company. Ask questions such as:
What opportunities for new products or services exist in your market?
Are new markets available that could provide opportunities for growth?
Have new technologies been developed that will allow us to compete more effectiv
ely?
Have consumer lifestyles, wants and desires shifted?
Are the target customers economically healthy?
Do previously resolved internal problems give the company a competitive edge?
Usually, opportunities reflect the areas where you can excel by changing the com
pany s marketing strategy. Should new products be launched? Should existing produc
ts be promoted to new customer groups? If possible, identify the time frame for
each opportunity. Is it something the company must capitalize on by a certain da
te or will the opportunity last indefinitely?
Opportunities
Keeping in mind what you have listed as your Company Strengths, SWOT Analysis ca
n now influence the Opportunities for the business. These can be seen as targets
to achieve and exploit in the future for example:
Good financial position creating a good reputation for future bank loans and bor
rowings
Skilled workforce means that they can be moved and trained into other areas of t
he business
Competitor going bankrupt (Takeover opportunity?)
Broadband technology has been installed in the area (useful for Internet users)
Increased spending power in the Local/National economy
Moving a product into a new market sector
THE SWOT ANALYSIS -- OPPORTUNITIES
-helps to identify gaps in the market which can be converted into
opportunities.
-helps to identify the gaps in performance , which can be exploited.
=======================================
Threats
Threats are factors beyond the control of the company that reduces its competiti
veness in the marketplace, adversely affect marketing strategy, or in a worst ca
se scenario, potentially lead to the total demise of the business (think buggy w
hip manufacturers when automobiles became popular). Although the company has no
control over external factors, the key is to identify the threats and draw up co
ntingency plans to negate the threat or soften the impact should an event arise.
Ask questions such as:
Are consumer preferences shifting away from company business lines?
Is price competition from competitors affecting company profit margins?
Are new technologies making the company s products or processes obsolete or unaffo
rdable?
Are new competitors entering the market space?
Are suppliers increasing prices?
Are raw material costs going up due to scarcity or catastrophic events?
Is the general economy on the downswing?
Classifying threats by the degree of impact and the likelihood of their occurren
ce is often useful to help identify which threats need to be planned for immedia
tely.
Threats
The final part of the analysis will also be seen as the most feared- the Threats
. It has to be done and therefore taking into account what you have listed as yo
ur weaknesses, the threats will now all seem too clear. Examples
Large and increasing competition
Rising cost of Wages (Basic wage, etc)
Possible relocation costs due to poor location currently held
Local authority refusing plans for future building expansion
Increasing interest rates (increases borrowing repayments, etc)
End of season approaching (if you depend on hot weather, etc)
Existing product becoming unfashionable or unpopular
THE SWOT ANALYSIS --THREAT
-helps to identify the various threats like
competition/social /political/economic/technological etc
and to take preventive action.
=========================================
THE SWOT ANALYSIS --STRENGTHS
-helps to identify the core compentences
-helps how to maximize the strengths to gain
the maximum results --sales/profit/market share/competitive position.
THE SWOT ANALYSIS --WEAKNESS
-helps to identify the weak points in terms of skills/manpower/
resources etc
-how to improve / overcome these weak factors.
THE SWOT ANALYSIS -- OPPORTUNITIES
-helps to identify gaps in the market which can be converted into
opportunities.
-helps to identify the gaps in performance , which can be exploited
THE SWOT ANALYSIS --THREAT
-helps to identify the various threats like
competition/social /political/economic/technological etc
and to take preventive action.

The Benefits of these FOUR SWOT Analyses


The main thrust of the exercise is to determine how the company s strengths can be
used to take advantage of opportunities and minimize critical threats. Eliminat
ing weaknesses can also provide resources to capitalize on opportunities or ward
off threats. Identifying the most critical issues provides a game plan for the
business to follow based on an honest assessment of the firm s potential.
THIS HELPS TO DEVISE THE MOST EFFECTIVE CORPORATE STRATEGY.
WHICH IN TURN HELPS TO DEVELOP THE MOST EFFECTIVE
STRATEGIC PLANNING.
SWOT analysis can provide:
A framework for identifying and analysing strengths, weaknesses, opportunities a
nd threats.
The impetus to analyse a situation and develop suitable strategies and tactics.
A basis for assessing core capabilities and competences.
The evidence for, and cultural key to, change.
Benefits of Strategy / its associated plan.
Strategic planning serves a variety of purposes in organization, including to:
1. Clearly define the purpose of the organization and to establish realistic goa
ls and objectives consistent with that mission in a defined time frame within th
e organization s capacity for implementation.
2. Communicate those goals and objectives to the organization s constituents.
3. Develop a sense of ownership of the plan.
4. Ensure the most effective use is made of the organization s resources by focusi
ng the resources on the key priorities.
5. Provide a base from which progress can be measured and establish a mechanism
for informed change when needed.
6. Bring together of everyone s best and most reasoned efforts have important valu
e in building a consensus about where an organization is going.
7. Provides clearer focus of organization, producing more efficiency and effecti
veness
8. Bridges staff and board of directors (in the case of corporations)
9. Builds strong teams in the board and the staff (in the case of corporations)
10. Provides the glue that keeps the board together (in the case of corporations
)
11.Produces great satisfaction among planners around a common vision
12. Increases productivity from increased efficiency and effectiveness
13. Solves major problems
==========================================================
Business SWOT Analysis
What makes SWOT particularly powerful is that, with a little thought, it can hel
p you uncover opportunities that you are well placed to take advantage of. And b
y understanding the weaknesses of your business, you can manage and eliminate th
reats that would otherwise catch you unawares.
More than this, by looking at yourself and your competitors using the SWOT frame
work, you can start to craft a strategy that helps you distinguish yourself from
your competitors, so that you can compete successfully in your market.
How to use the tool:
To carry out a SWOT Analysis, , and write down answers to the following question
s:
Strengths:
What advantages does your company have?
What do you do better than anyone else?
What unique or lowest-cost resources do you have access to?
What do people in your market see as your strengths?
Consider this from an internal perspective, and from the point of view of your c
ustomers and people in your market. And be realistic: It's far too easy to fall
prey to "not invented here syndrome". Also, if you are having any difficulty wit
h this, try writing down a list of your characteristics. Some of these will hope
fully be strengths!
In looking at your strengths, think about them in relation to your competitors -
for example, if all your competitors provide high quality products, then a high
quality production process is not a strength in the market, it is a necessity.
Weaknesses:
What could you improve?
What should you avoid?
What are people in your market likely to see as weaknesses?
Again, consider this from an internal and external basis: Do other people seem t
o perceive weaknesses that you do not see? Are your competitors doing any better
than you? It is best to be realistic now, and face any unpleasant truths as soo
n as possible.
Opportunities:
Where are the good opportunities facing you?
What are the interesting trends you are aware of?
Useful opportunities can come from such things as:
Changes in technology and markets on both a broad and narrow scale
Changes in government policy related to your field
Changes in social patterns, population profiles, lifestyle changes, etc.
Local Events
A useful approach to looking at opportunities is to look at your strengths and a
sk yourself whether these open up any opportunities.
Alternatively, look at your weaknesses and ask yourself whether you could open u
p opportunities by eliminating them.
Threats:
What obstacles do you face?
What is your competition doing?
Are the required specifications for your job, products or services changing?
Is changing technology threatening your position?
Do you have bad debt or cash-flow problems?
Could any of your weaknesses seriously threaten your business?
Carrying out this analysis will often be illuminating - both in terms of pointin
g out what needs to be done, and in putting problems into perspective.
Strengths and weaknesses are often internal to your organization. Opportunities
and threats often relate to external factors. For this reason the SWOT Analysis
is sometimes called Internal-External Analysis and the SWOT Matrix is sometimes
called an IE Matrix Analysis Tool.
If a clear objective has been identified, SWOT analysis can be used to help in t
he pursuit of that objective. In this case, SWOTs are:
Strengths: attributes of the organization that are helpful to achieving the obje
ctive.
Weaknesses: attributes of the organization that are harmful to achieving the obj
ective.
Opportunities: external conditions that are helpful to achieving the objective.
Threats: external conditions that are harmful to achieving the objective.
Creative Use of SWOTs.--- If, on the other hand, the objective seems attainable,
the SWOTs are used as inputs to the creative generation of possible strategies,
by asking and answering each of the following four questions, many times:
1. How can we Use each Strength?
2. How can we Stop each Weakness?
3. How can we Exploit each Opportunity?
4. How can we Defend against each Threat?
==================================
Examples of SWOTs
Strengths and weaknesses
Resources: financial, intellectual, location
Customer service
Efficiency
Infrastructure
Quality
Staff
Management
Price
Delivery time
Cost
Capacity
Relationships with customers
Brand strength
Local language knowledge
Ethics
principles
patents
strong brand names
good reputation among customers
cost advantages from proprietary know-how
exclusive access to high grade natural resources
favorable access to distribution networks
Opportunities and threats
Political/Legal
Market Trends
Economic condition
Expectations of stakeholders
Technology
Public expectations
Competitors and competitive actions
Bad PR
Criticism (Editorial)
Global Markets
Errors to be avoided
The following errors have been observed in published accounts of SWOT analysis:
1. Conducting a SWOT analysis before defining and agreeing upon an objective (a
desired end state). SWOTs should not exist in the abstract. They can exist only
with reference to an objective. If the desired end state is not openly defined a
nd agreed upon, the participants may have different end states in mind and the r
esults will be ineffective.
2. Opportunities external to the company are often confused with strengths inter
nal to the company. They should be kept separate.
3. SWOTs are sometimes confused with possible strategies. SWOTs are descriptions
of conditions, while possible strategies define actions. This error is made esp
ecially with reference to opportunity analysis. To avoid this error, it may be u
seful to think of opportunities as "auspicious conditions".
4. "Make your points long enough, and include enough detail, to make it plain wh
y a particular factor is important, and why it can be considered as a strength,
weakness, opportunity or threat. Include precise evidence, and cite figures, whe
re possible.
5. Be as specific as you can about the precise nature of a firm s strength and wea
kness. Do not build content with general factors like economies of scale.
6. Avoid vague, general opportunities and threats that could be put forward for
just about any organisation under any circumstances.
7. Do not mistake the outcomes of strength (such as profits and market share) fo
r strengths in their own right.
==============================================================
#############################

merger ang aquitiom

An entrepreneur may grow its business either by internal expansion or by externa


l expansion. In the case of internal expansion, a firm grows gradually over time
in the normal course of the business, through acquisition of new assets, replac
ement of the technologically obsolete equipments and the establishment of new li
nes of products. But in external expansion, a firm acquires a running business a
nd grows overnight through corporate combinations. These combinations are in the
form of mergers, acquisitions,amalgamations and takeovers and have now become i
mportant features of corporate restructuring. They have been playing an importan
t role in the external growth of a number of leading companies the world over. T
hey have become popular because of the enhanced competition, breaking of trade b
arriers, free flow of capital across countries and globalisation of businesses.
In the wake of economic reforms, Indian industries have also started restructuri
ng their operations around their core business activities through acquisition an
d takeovers because of their increasing exposure to competition both domesticall
y and internationally.
Mergers and acquisitions are strategic decisions taken for maximisation of a com
pany's growth by enhancing its production and marketing operations. They are bei
ng used in a wide array of fields such as information technology, telecommunicat
ions, and business process outsourcing as well as in traditional businesses in o
rder to gain strength, expand the customer base, cut competition or enter into a
new market or product segment.
Mergers or Amalgamations
A merger is a combination of two or more businesses into one business. Laws in I
ndia use the term 'amalgamation' for merger. The Income Tax Act,1961 [Section 2(
1A)] defines amalgamation as the merger of one or more companies with another or
the merger of two or more companies to form a new company, in such a way that a
ll assets and liabilities of the amalgamating companies become assets and liabil
ities of the amalgamated company and shareholders not less than nine-tenths in v
alue of the shares in the amalgamating company or companies become shareholders
of the amalgamated company.
Thus, mergers or amalgamations may take two forms:-
¦Merger through Absorption:- An absorption is a combination of two or more compa
nies into an 'existing company'. All companies except one lose their identity in
such a merger. For example, absorption of Tata Fertilisers Ltd (TFL) by Tata Ch
emicals Ltd (TCL). TCL, an acquiring company(a buyer), survived after merger whi
le TFL, an acquired company (a seller), ceased to exist. TFL transferred its ass
ets, liabilities and shares to TCL.
¦Merger through Consolidation:- A consolidation is a combination of two or more
companies into a 'new company'. In this form of merger, all companies are legall
y dissolved and a new entity is created . Here, the acquired company transfers i
ts assets, liabilities and shares to the acquiring company for cash or exchange
of shares. For example, merger of Hindustan Computers Ltd, Hindustan Instruments
Ltd, Indian Software Company Ltd and Indian Reprographics Ltd into an entirely
new company called HCL Ltd.
A fundamental characteristic of merger (either through absorption or consolidati
on) is that the acquiring company (existing or new) takes over the ownership of
other companies and combines their operations with its own operations.
Besides,there are three major types of mergers:-
¦Horizontal merger:- is a combination of two or more firms in the same area of b
usiness. For example, combining of two book publishers or two luggage manufactur
ing companies to gain dominant market share.
¦Vertical merger:- is a combination of two or more firms involved in different s
tages of production or distribution of the same product. For example, joining of
a TV manufacturing(assembling) company and a TV marketing company or joining of
a spinning company and a weaving company. Vertical merger may take the form of
forward or backward merger. When a company combines with the supplier of materia
l, it is called backward merger and when it combines with the customer, it is kn
own as forward merger.
¦Conglomerate merger:- is a combination of firms engaged in unrelated lines of b
usiness activity. For example, merging of different businesses like manufacturin
g of cement products, fertilizer products, electronic products, insurance invest
ment and advertising agencies. L&T and Voltas Ltd are examples of such mergers.
Acquisitions and Takeovers
An acquisition may be defined as an act of acquiring effective control by one co
mpany over assets or management of another company without any combination of co
mpanies. Thus, in an acquisition two or more companies may remain independent, s
eparate legal entities, but there may be a change in control of the companies. W
hen an acquisition is 'forced' or 'unwilling', it is called a takeover. In an un
willing acquisition, the management of 'target' company would oppose a move of b
eing taken over. But, when managements of acquiring and target companies mutuall
y and willingly agree for the takeover, it is called acquisition or friendly tak
eover.
Under the Monopolies and Restrictive Practices Act, takeover meant acquisition o
f not less than 25 percent of the voting power in a company. While in the Compan
ies Act (Section 372), a company's investment in the shares of another company i
n excess of 10 percent of the subscribed capital can result in takeovers. An acq
uisition or takeover does not necessarily entail full legal control. A company c
an also have effective control over another company by holding a minority owners
hip.
Advantages of Mergers & Acquisitions
The most common motives and advantages of mergers and acquisitions are:-
¦Accelerating a company's growth, particularly when its internal growth is const
rained due to paucity of resources. Internal growth requires that a company shou
ld develop its operating facilities- manufacturing, research, marketing, etc. Bu
t, lack or inadequacy of resources and time needed for internal development may
constrain a company's pace of growth. Hence, a company can acquire production fa
cilities as well as other resources from outside through mergers and acquisition
s. Specially, for entering in new products/markets, the company may lack technic
al skills and may require special marketing skills and a wide distribution netwo
rk to access different segments of markets. The company can acquire existing com
pany or companies with requisite infrastructure and skills and grow quickly.
¦Enhancing profitability because a combination of two or more companies may resu
lt in more than average profitability due to cost reduction and efficient utiliz
ation of resources. This may happen because of:-

Economies of scale:- arise when increase in the volume of production leads to a r


eduction in the cost of production per unit. This is because, with merger, fixed
costs are distributed over a large volume of production causing the unit cost o
f production to decline. Economies of scale may also arise from other indivisibi
lities such as production facilities, management functions and management resour
ces and systems. This is because a given function, facility or resource is utili
zed for a large scale of operations by the combined firm.
Operating economies:- arise because, a combination of two or more firms may resul
t in cost reduction due to operating economies. In other words, a combined firm
may avoid or reduce over-lapping functions and consolidate its management functi
ons such as manufacturing, marketing, R&D and thus reduce operating costs. For e
xample, a combined firm may eliminate duplicate channels of distribution, or cra
te a centralized training center, or introduce an integrated planning and contro
l system.
Synergy:- implies a situation where the combined firm is more valuable than the s
um of the individual combining firms. It refers to benefits other than those rel
ated to economies of scale. Operating economies are one form of synergy benefits
. But apart from operating economies, synergy may also arise from enhanced manag
erial capabilities, creativity, innovativeness, R&D and market coverage capacity
due to the complementarity of resources and skills and a widened horizon of opp
ortunities.
¦Diversifying the risks of the company, particularly when it acquires those busi
nesses whose income streams are not correlated. Diversification implies growth t
hrough the combination of firms in unrelated businesses. It results in reduction
of total risks through substantial reduction of cyclicality of operations. The
combination of management and other systems strengthen the capacity of the combi
ned firm to withstand the severity of the unforeseen economic factors which coul
d otherwise endanger the survival of the individual companies.
¦A merger may result in financial synergy and benefits for the firm in many ways
:-

By eliminating financial constraints


By enhancing debt capacity. This is because a merger of two companies can bring s
tability of cash flows which in turn reduces the risk of insolvency and enhances
the capacity of the new entity to service a larger amount of debt
By lowering the financial costs. This is because due to financial stability, the
merged firm is able to borrow at a lower rate of interest.

¦Limiting the severity of competition by increasing the company's market power.


A merger can increase the market share of the merged firm. This improves the pro
fitability of the firm due to economies of scale. The bargaining power of the fi
rm vis-à-vis labour, suppliers and buyers is also enhanced. The merged firm can
exploit technological breakthroughs against obsolescence and price wars.
Procedure for evaluating the decision for mergers and acquisitions
The three important steps involved in the analysis of mergers and acquisitions a
re:-
¦Planning:- of acquisition will require the analysis of industry-specific and fi
rm-specific information. The acquiring firm should review its objective of acqui
sition in the context of its strengths and weaknesses and corporate goals. It wi
ll need industry data on market growth, nature of competition, ease of entry, ca
pital and labour intensity, degree of regulation, etc. This will help in indicat
ing the product-market strategies that are appropriate for the company. It will
also help the firm in identifying the business units that should be dropped or a
dded. On the other hand, the target firm will need information about quality of
management, market share and size, capital structure, profitability, production
and marketing capabilities, etc.
¦Search and Screening:- Search focuses on how and where to look for suitable can
didates for acquisition. Screening process short-lists a few candidates from man
y available and obtains detailed information about each of them.
¦Financial Evaluation:- of a merger is needed to determine the earnings and cash
flows, areas of risk, the maximum price payable to the target company and the b
est way to finance the merger. In a competitive market situation, the current ma
rket value is the correct and fair value of the share of the target firm. The ta
rget firm will not accept any offer below the current market value of its share.
The target firm may, in fact, expect the offer price to be more than the curren
t market value of its share since it may expect that merger benefits will accrue
to the acquiring firm.
A merger is said to be at a premium when the offer price is higher than the targ
et firm's pre-merger market value. The acquiring firm may have to pay premium as
an incentive to target firm's shareholders to induce them to sell their shares
so that it (acquiring firm) is able to obtain the control of the target firm.
Regulations forMergers & Acquisitions
Mergers and acquisitions are regulated under various laws in India. The objectiv
e of the laws is to make these deals transparent and protect the interest of all
shareholders. They are regulated through the provisions of :-
¦The Companies Act, 1956
The Act lays down the legal procedures for mergers or acquisitions :-
Permission for merger:- Two or more companies can amalgamate only when the amalga
mation is permitted under their memorandum of association. Also, the acquiring c
ompany should have the permission in its object clause to carry on the business
of the acquired company. In the absence of these provisions in the memorandum of
association, it is necessary to seek the permission of the shareholders, board
of directors and the Company Law Board before affecting the merger.
Information to the stock exchange:- The acquiring and the acquired companies shou
ld inform the stock exchanges (where they are listed) about the merger.
Approval of board of directors:- The board of directors of the individual compani
es should approve the draft proposal for amalgamation and authorise the manageme
nts of the companies to further pursue the proposal.
Application in the High Court:- An application for approving the draft amalgamati
on proposal duly approved by the board of directors of the individual companies
should be made to the High Court.
Shareholders' and creators' meetings:- The individual companies should hold separ
ate meetings of their shareholders and creditors for approving the amalgamation
scheme. At least, 75 percent of shareholders and creditors in separate meeting,
voting in person or by proxy, must accord their approval to the scheme.
Sanction by the High Court:- After the approval of the shareholders and creditors
, on the petitions of the companies, the High Court will pass an order, sanction
ing the amalgamation scheme after it is satisfied that the scheme is fair and re
asonable. The date of the court's hearing will be published in two newspapers, a
nd also, the regional director of the Company Law Board will be intimated.
Filing of the Court order:- After the Court order, its certified true copies will
be filed with the Registrar of Companies.
Transfer of assets and liabilities:- The assets and liabilities of the acquired c
ompany will be transferred to the acquiring company in accordance with the appro
ved scheme, with effect from the specified date.
Payment by cash or securities:- As per the proposal, the acquiring company will e
xchange shares and debentures and/or cash for the shares and debentures of the a
cquired company. These securities will be listed on the stock exchange.

¦The Competition Act, 2002


The Act regulates the various forms of business combinations through Competition
Commission of India. Under the Act, no person or enterprise shall enter into a
combination, in the form of an acquisition, merger or amalgamation, which causes
or is likely to cause an appreciable adverse effect on competition in the relev
ant market and such a combination shall be void. Enterprises intending to enter
into a combination may give notice to the Commission, but this notification is v
oluntary.But, all combinations do not call for scrutiny unless the resulting com
bination exceeds the threshold limits in terms of assets or turnover as specifie
d by the Competition Commission of India. The Commission while regulating a 'com
bination' shall consider the following factors :-
Actual and potential competition through imports;
Extent of entry barriers into the market;
Level of combination in the market;
Degree of countervailing power in the market;
Possibility of the combination to significantly and substantially increase prices
or profits;
Extent of effective competition likely to sustain in a market;
Availability of substitutes before and after the combination;
Market share of the parties to the combination individually and as a combination;
Possibility of the combination to remove the vigorous and effective competitor or
competition in the market;
Nature and extent of vertical integration in the market;
Nature and extent of innovation;
Whether the benefits of the combinations outweigh the adverse impact of the combi
nation.
Thus, the Competition Act does not seek to eliminate combinations and only aims
to eliminate their harmful effects.
¦The other regulations are provided in the:- The Foreign Exchange Management Act
, 1999 and the Income Tax Act,1961. Besides, the Securities and Exchange Board o
f India (SEBI) has issued guidelines to regulate mergers and acquisitions. The S
EBI (Substantial Acquisition of Shares and Take-overs) Regulations,1997 and its
subsequent amendments aim at making the take-over process transparent, and also
protect the interests of minority shareholders
Aim:
The aim of this resource is to enhance your understanding of integration in busi
ness. By the end, you should be able to:
Identify the types of integration that takes place in markets
Understand the difference between horizontal and vertical integration
Identify the main types of economy of scale
Resources:
PowerPoint Presentation - Mergers and Takeovers [55K]
Activity:
There is over-capacity in the global car industry. This means that there are too
many firms with factories producing too many cars for which there is insufficie
nt demand from consumers to buy. In the face of such market conditions, car manu
facturers have to decide how to operate. Should they cut production and rely on
strong branding or reputation to survive, or should they become more aggressive
in the market, perhaps buying up rival companies in an effort to be 'the last on
e standing'?
In this Activity we look at the strategy of General Motors, as they attempt to r
etain their status in the market.
General Motors' (GM) Expansion Strategy
GM is a mass market car producer and US multinational. The company owns Saab, a
Swedish upmarket car maker which, when they wanted a new small car without the d
evelopment time and cost that is usually involved, turned to Subaru, a Japanese
manufacturer. GM also owns 20% of Fuji Heavy Industries, who are the owners of S
ubaru.
Now that's what you call 'globalisation'. The upshot is that the Saab model that
came out in 2004 was produced in record time. But then, the new Saab was expect
ed to be a very similar car to the Impreza, Subaru's rally-inspired saloon.
This has been the deliberate policy of GM: to buy up small stakes in rival car p
roducers' businesses. In fact GM have spent nearly $5 billion in recent years, f
ollowing this strategy. The following table illustrates the policy in detail:
Image: The Subaru Impreza STi. Copyright: Tim Spence, stock xchng
Company Date Strategy
Suzuki (Japan) 1998 onwards Long-standing links with GM who bought a 3, then 10,
then 20% stake
Isuzu (Japan) 1998 Long term alliance led to GM paying $420 m for business
Subaru (Japan - Fuji Heavy Industries) 1999 20% stake worth $1.5bn held in Subar
u's parent company
Fiat Auto (Italy) 2000 20% stake bought for $2.4 bn
Daewoo Motor (S Korea) 2003 42% stake held by GM
In addition, GM bought Saab outright. It had previously owned 50% of the Swedish
firm.
Why has GM embarked on such a strategy? What are the benefits that the company e
xpects to flow from building strategic alliances with smaller competitors? Here
we list some of the key advantages:
Joint production of engines and new models saves costs
Production economies of scale
Managerial economies of scale
Technical economies of scale
Speedier development times
GM is not alone in this strategy; many of the other large car makers have starte
d similar projects.
Daimler-Benz took over Chrysler and also control Suzuki and Mitsubishi
Renault and Nissan merged in 1999 and bought Samsung in 2001
Ford owns Volvo cars and Land Rover
But these have tended to be outright takeovers or mergers, involving greater cos
t and commitment from the predator firm. GM's policy has been to acquire parts o
f smaller competitor car makers. Their aim has been to achieve a better 'fit' be
tween themselves and the smaller firm. These so-called 'synergies' between the t
wo companies in a merger/takeover enable the predator firm to broaden the base o
f its product range, so that it has a car for every segment, or type of customer
, in the market. These products can then be given the merged company's 'brand' (
reputation for quality, status in the marketplace and so on), and can therefore
appeal to the different target customers. This process of 'differentiation' is o
ne of the key ways in which firms compete in oligopoly markets.
The advantages that can flow from GM's plan are not guaranteed, though. There ca
n be big problems that acquisitive firms can have with mergers and takeovers. Th
is is recognised by GM. Their chairman and chief executive, Rick Wagoner, was qu
oted as saying that it only needs a few successful results to prove the value of
their strategy. Out of 30 joint projects between GM and Subaru, 20 didn't work
out, he estimated.
Conclusion
There has been significant structural change in the car production industry in r
ecent years. The EU certainly expects this to continue in the near future. On it
s Europa Web site, the EU reckons that the six existing global car manufacturing
companies (GM, Ford, DaimlerChrysler, Toyota, Volkswagen, and Renault-Nissan-Sa
msung) are likely to become stronger, as they continue to extract savings from t
heir strategic alliances with the likes of Fiat, Mitsubishi, Subaru, Isuzu and S
uzuki. The analysis goes on to assert that three other car firms are likely to c
ontinue outside these alliances: BMW, Honda and PSA (Peugeot and Citroen).
Task
1.Assign students in groups to each look at one of the merger examples below.
2.Carry out research and prepare a presentation to be made to the whole group.
3.The groups looking at merger examples 3 and 4 (Procter & Gamble/Gillette and M
orrisons/Safeway) can carry out further Web or newspaper research into the outco
mes of the cases.
Merger Examples
1.Cameron Balloons merger worksheet (http://www.bized.co.uk/virtual/cb/factory/a
ccounts/worksheets4.htm)
2.At your Leisure feature on Procter & Gamble and Gillette (http://www.bized.co.
uk/current/leisure/2004_5/140205.htm)
3.Symantec in $13bn Veritas merger - from the BBC (http://news.bbc.co.uk/1/hi/bu
siness/4102789.stm)
4.Mind Your Business features on mergers and acquisitions:
?Morrisons' takeover of Safeway(http://www.bized.co.uk/current/mind/2003_4/13100
3.htm), also In The News feature on the same story (http://www.bized.co.uk/cgi-b
in/chron/chron.pl?id=2151)
?Fullers' acquisition of Gales Brewery(http://www.bized.co.uk/current/mind/2006_
7/041206.htm)
5.Mergers and Takeovers(http:www.bized.co.uk/dataserv/chron/news/2469.htm) - In
The News feature on various recent takeovers.

5 .What is turnaround management? Describe various steps to be followed in using


turnaround management. Give an example where turnaround was used. Briefly descr
ibe the organization you are referring to.
TURNAROUND MANAGEMENT
is a process of devising , executing and managing a plan of
corporate renewal. The process involves identifying the key drivers
of an unstable business and implementing a sustainable recovery
change strategies which rapidly improves the business.
THE TURNAROUND MANAGEMENT involves a number
of steps:
STEP 1.
INDENTIFY THE ROOT CAUSES.
-sales down due to weak economy.
-overly optimistic sales projections
-poor strategic choices
-high operating costs
-high fixed costs that decrease flexibility
-insufficient resources
-unsuccessful R&D projects
-high successful competitor
-excessive debt burden
-inadequate financial controls.
----------------------------------------------
STEP 2
CONDUCT A SITUATION AUDIT / ANALYSIS.
-------------------------------------------------
STEP 3
DEVELOP A STRATEGIC CORPORATE OBJECTIVE
--------------------------------------------------------
STEP 4
DEVELOP A CORPORATE STRATEGY
--------------------------------------------------------------
STEP 5
DEVELOP A CORPORATE BUSINESS RESTRUCTURING PLAN
Strategic restructuring: The focus lies on core markets and promising business
segments. Corporate divisions destroying value are divested.
Operational restructuring: It focuses on leaner organization and leaner proces
ses, on the simplification of manufacturing networks and corporate structures, a
s well as on maximizing efficiency and effectiveness.
Financial restructuring: A combination of cost reduction, more flexible struct
ures, and the development of a sustainable financial concept.
-------------------------------------------------------------
STEP 6
DEVELOP A CHANGE MANAGEMENT PROGRAM
--------------------------------------------------------------
STEP 7
DEVELOP AN EMERGENCY ACTION PLAN.
-------------------------------------------------------------
STEP 8
DEVELOP AN IMPLEMENTATION PLAN.
------------------------------------------------------------------
THINGS TO REMEMBER:
the overall financial situation is as transparent as possible and that the inf
luence of the identified restructuring measures becomes clear,
rapid analysis and concept development considering the information needs of t
he stakeholders are conducted,
the most relevant people from the organization are involved in order to achie
ve acceptance for the implementation of improvements,
consistent project management and controlling are established during the imple
mentation phase to ensure that the pursued improvements are actually achieved,
all stakeholders are continuously informed and involved in order to identify r
isks and avoid counterproductive conflicts.
================================================================
TURNAROUND MANAGEMENT --CASE STUDY
The organisation I am referring to, was facing
a problem of declining sales/ market share for 2
consecutive year.
The organization, I am familiar with is a
-a large manufacturer/ marketer of safety products
-the products are used as [personal protection safety] [ industrial safety
]
-the products are distributed through the distributors as well as sold direc
tly
-the products are sold to various industries like mining/fireservices/defe
nce/
as well as to various manufacturing companies.
-the company employs about 235 people.
-the company has the following functional departments
*marketing
*manufacturing
*sales
*finance/ administration
*human resource
*customer service
*distribution
*warehousing/ transportation
*TQM
==============================================
STEP 1.
INDENTIFY THE ROOT CAUSES.
-poor strategic choices
-high operating costs
-insufficient resources
-high successful competitor
-inadequate financial controls.
----------------------------------------------
STEP 2
CONDUCT A SITUATION AUDIT / ANALYSIS.
-the demand for the market was growing at 13%
-the company sales was growing at 7%
-the company was selling directly to the customers, using the salesforce.
-lack of adequate product range.
-lack of market coverage
-lack of skills among the salesforce
-demand for technical products
etc etc
-------------------------------------------------
STEP 3
DEVELOP A STRATEGIC CORPORATE OBJECTIVE
-go for 20% growth ----per annum over the next 5 years.
-enter new market segments. [ 15% additional sales volume]
-offer new product [ 15% additional sales volume ]
--------------------------------------------------------
STEP 4
DEVELOP A CORPORATE STRATEGY
-restructure the marketing department [ 3 product group management]
-to achieve 80% sales through distributors in 5 years time.
-to conduct more marketing development for new products.
-to train all staff in the product knowledge.
etc
--------------------------------------------------------------
STEP 5
DEVELOP A CORPORATE BUSINESS RESTRUCTURING PLAN
Strategic restructuring: The focus lies on core markets and promising business
segments. Corporate divisions destroying value are divested.
-3 new product groups.
-development a new salesdepartment to develop distributor sales.
--------------------------------
Operational restructuring: It focuses on leaner organization and leaner proces
ses, on the simplification of manufacturing networks and corporate structures, a
s well as on maximizing efficiency and effectiveness.
Financial restructuring: A combination of cost reduction, more flexible struct
ures, and the development of a sustainable financial concept.
-reorganizing the sales territories.
-appointment of new distribtors --geographically.
-pay for performance systems.
--------------------------------------------------------------------------------
-----------
STEP 6
DEVELOP A CHANGE MANAGEMENT PROGRAM
-implementation of the change management program
over the 6 months period.
--------------------------------------------------------------
STEP 7
DEVELOP AN EMERGENCY ACTION PLAN.
which included
-new product sourcing
-new product development
-new sales policies development
-new distributors policies development
-new training for salesforce - to manage the distributors.
-new training for customer service staff.
-new order processing / servicing system.
etc etc
-------------------------------------------------------------
STEP 8
DEVELOP AN IMPLEMENTATION PLAN.
A PHASED PROGRAM OF IMPLEMENTATION.
==========================================
OVER THE NEXT 5 YEARS, THE COMPANY
-MAINTAINED A 20 % GROWTH
-IMPROVED THE MARKET SHARE SIGNIFICANTLY.
-IMPROVED THE CUSTOMER COVERAGE BY 100%
-MAINTAINED A STEADY SALES / PROFIT GROWTH.
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