Business challenges of a liberalized economy Indian perspective Introduction The formation of WTO Basic objective of the WTO is a creating

a border less economy Means allowing free access to global players in various economic activities such as Reduction in tariff and other protectionist measures (including modification in government policies and various Acts as and where required). The WTO shall also lay emphasis in enforcement of agreements in a timely manner. The agenda is likely to widen in future covering other issues like environment and labour etc. India ready to face the challenge Opening of the Indian economy to global competition has brought superior products to the country, and has made Indian industry more competitive in general than what it was earlier, before the economic reforms. 1. The destabilisation arising from entrepreneurial freedom Cocoon of protection enjoyed so far by existing players disappears. Existing notions on economic size are challenged. Industry structure too alters radically in many businesses, forcing players to change gear. Economic Darwinism becomes the order 2.The MNC onslaught With majority equity stake for the parent MNCs, their Indian subsidiaries gain a new strategic advantage. MNCs also gain majority equity stake in their joint ventures with Indian firms and start controlling the show. (ex: Japanese carmakers in India, economic times Dec 18, 06) The takeover threat. The overall unequal battle. 3. The all pervasive competition Competition from Indian players. Competition from MNCs. (Indian retailers- international giants like Walmart and Tesco.) Competition from imports. Competition on account of easier access to technology. Global character of competition.

4. The exacting demands of a buyers market From shortage to surplus; the challenge of being price competitive. Buyers market causes sharp change in business style. (ex: banks, financial services) From shoddy products to excellent products; the quality challenge. 5. The new compulsion to find export markets The new trade policy, linking of imports to exports and market driven exchange rate, constitute the main compulsion. Heat of competition at home, another compulsion. However, exporting remains a difficult game. (ex: Surat textile industry) Indias lack of competitiveness as a nation compounds the problem. 6. Challenges on the technology front Competitive advantage and core competence becomes technology based. Investment in R&D and innovation becomes inescapable. 7. Corporate vulnerability A variety of factors have led to vulnerability, they are: 1. Capital inadequacy. 2. Lack of product clout and brand power. 3. Variety of problems faced by PSUs. 4. Problem of one product syndrome. 5. Loss of monopoly. 8. The challenge of discontinuity Past ceases to be an indication of the future. It is no longer business as usual; managements at the crossroads. Problem of managing mega change; need for new approaches, new systems and structures, new leadership. Indias position The liberalization and globalization policies effected have eased India's balance of payment difficulties and improved the Forex reserve position. However, it has not increased or strengthened the country's international competitiveness as reflected in increasing trade imbalances. India is gradually moving towards becoming more of a global market, which is reflected by increasing inflow of all kinds of consumers goods and inability of domestic players to

combat competitions from the Multinationals, their erstwhile technology suppliers), rather than emerging as a global player. If a small pressure of adverse balance of trade has led to a crisis of the order that the country had to reverse some of fundamental policies; like opening the Indian economy, making several changes in the industrial regulation policies, albeit without success in correcting the balance of trade; what would be the scenario when the WTO provisions; including the reduction in Tariff Barriers, treatment of the Most Favoured Nation (MFN), National Treatment (NT), Removal of Quantitative Restrictions (QR's), Trade Related Intellectual Property Rights, etc. on the one hand, and Pressure for quick removal of all legislative and other barriers that come in the way of these provisions start applying to the county in full bite in the very near future New Product Development and International Trade: Need for a Strategic Shift The increase in the international competitiveness requires somewhat different approach than the one pursued so far. Till a decade back Indian firms were under no pressure to develop international competitiveness, as they could remain profitable by feeding a very large domestic market by products manufactured through import of technology in a protected economy. Structural analysis of industries Part 2 Part 2: Structural analysis of industries Competition is the core of the success or failure of firms. Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition. Two questions underlie the choice of competitive strategy: 1. The attractiveness of industries for long term profitability. 2. Determinants of relative competitive position within an industry. Industry attractiveness and profitability Understanding the rules of competition that determine the industrys attractiveness. The aim of strategy is to cope with and change these rules in the firms favour.

Five competitive forces: Michael Porter Any industry, whether domestic or international, producing a product or service, complies with five basic forces of competition. These are explained by Porters model: Five forces: 1. Entry of new competitors. 2. Threat of substitutes. 3. Bargaining power of buyers. 4. Bargaining power of suppliers. 5. Rivalry among existing competitors. The collective strength of these five forces determines the ability of firms in an idustry to earn, on average, rates of return on investment in excess of the cost of capital. The strength of the five forces varies from industry to industry and can change as an industry evolves. Those industries in which the forces are favourable earn better returns. Strategy- a double edged sword Strategies can change the industry structure. But they have to be formed and implemented taking into consideration the long term consequences. The ability to shape the industry structure usually lies with the industry leader. Industry structure and buyer needs Satisfying the buyer needs is the core of industry structure. Buyers must be willing to pay a price for a product that exceeds its cost of production, or an industry will not survive in the long run. Creating and sustaining value The crucial question in determining profitability is whether firms can capture the value they create for buyers. Industry structure determines who captures the value. The threat of entry determines the likelihood that new firms will enter an industry and compete away the value, either passing it on to buyers in the form of lower prices or dissipating it by raising the cost of competing

The power of buyers determines the extent to which they retain most of the value created for themselves, leaving firms in an industry only modest returns. The threat of substitutes determines the extent to which some other product can meet the same buyer needs, and thus places a ceiling on the amount a buyer is willing to pay for an industrys product. The power of suppliers determines the extent to which value created for buyers will be appropriated by suppliers rather than by firms in an industry. Finally the intensity of rivalry acts similarly to the threat of entry. It determines the extent to which firms already in an industry will compete away the value they create for buyers among themselves, passing it on to buyers in lower prices or dissipating it in higher cost of competing. What proportion of value can be captured by whom? If industry product does not create much value for the buyers, there is little value to be captured by firms. If product creates lot of value, structure becomes crucial. The catch is to create high value for customers as well as grab a good portion of it. Industry structure and demand supply balance Demand and Supply change according to industry structure in the long run. This affects the profitability of the firm. Supply > demand: low profitability Supply < demand: good profitability The catch is to tackle the five competitive forces in such a way that demand and supply are almost equally balanced in the long run. Fundamentals of strategic management Part 3 Strategy Strategy : a concept, process or way of thought? Definition: strategy is concerned with the most important decisions made in an enterprise. The central thrust of these decisions is the future of the organisation. While the horizon of a strategy is long term, if implemented properly, it should also consider short and medium term decisions and actions.

Strategic planning is a behaviour and way of thinking, requiring diverse inputs from all segments of an organisation. Everyone must be involved in the strategic planning process. Ultimate responsibilty Ultimate responsibility of strategic planning resides with the top management. However all the line and staff members are involved in implementing it. Strategic planning process 1. Assessment of changes in the environment. 2. Evaluation of company capabilities and limitations. 3. Assessment of expectations of stakeholders. 4. Analysis of company, competitors, industry, domestic and international economy. 5. Formulation of the missions, goals and policies for the master strategy. 6. Development of sensitivity to critical external environmental changes. 7. Formulation of internal organization performance measurements. 8. Formulation of long range strategy programs. 9. Formulation of mid range programs and short range plans. 10. Organization, funding and other methods to implement all of the preceding elements. 11. Information flow and feedback system 12. For continued repetition of preceding and for adjustments and changes at each stage. 13. Review and evaluation of preceding processes. Diversity in strategic planning process Monitoring environments Stakeholders Organizational cultures Alternative strategy methodologies Alternative analytical frameworks Alternative strategy methodologies SWOT analysis Gap analysis Top down Vs. Bottom up forecasts Computer models Competitive analysis

Synergy Logical incrementalism Muddling through Comparative histories Delphi techniques Discussion group technique Adaptive processes Alternative analytical frameworks Product life cycle Learning curves Competitive analysis Cost leadership Differentiation Value chain analysis Niche opportunities Growth share matrix Product breadth Correlations with profitability Market share Product quality Technological leadership Relatedness matrix Focus matrix Product market matrix

Description One axis shows the market share relative to the industry leader which is always the leftmost circle. The other axe shows market growth for the industry

A circle is drawn for each competitor. The size of each circle represents that company's dominance.

Description of the Model This matrix measures the health of the market and your strength to pursue it. The results indicate the direction for future investment. The recommendation may be to invest, grow, harvest or divest. Approaches to formulating strategy BCG APPROACH PORTER APPROACH ADAPTIVE PROCESSES Formulating a competitive strategy Business goals Aligning the firm to the changing environment Generic competitive strategies In his book, Competitive Strategy (Free Press: 1980), Michael Porter identifies three fundamental competitive strategies and lays out the required skills and resources, organizational elements and risks associated with each strategy. The table below is a shorthand way of referring to what Por-ter has to say.

Competitive advantage Competitive scope