indian economic environment 4. business growth & strategy
TRANSCRIPT
� Strategic management
� strategic and day-to-day management
� the components of strategic management
� strategic analysis
� strategic choice
� strategic implementation
� Importance of the business environment
� PEST analysis
Strategic Analysis
Strategic Analysis
� Porter's five forces model
� the five forces
� the bargaining power of suppliers
� the bargaining power of buyers
� the threat of potential new entrants
� the threat of substitutes
� the extent of competitive rivalry
Industry competitors
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Industry competitors
Rivalry amongexisting firms
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Substituteproducts
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Threat ofsubstitutes
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Suppliers
Substituteproducts
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Bargaining powerof suppliers
Threat ofsubstitutes
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
BuyersSuppliers
Substituteproducts
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Bargaining powerof suppliers
Bargaining powerof buyers
Threat ofsubstitutes
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Strategic Analysis
� Porter's five forces model
� the five forces
� the bargaining power of suppliers
� the bargaining power of buyers
� the threat of potential new entrants
� the threat of substitutes
� the extent of competitive rivalry
� factors affecting each of the forces
Strategic Analysis
� Porter's five forces model
� the five forces
� the bargaining power of suppliers
� the bargaining power of buyers
� the threat of potential new entrants
� the threat of substitutes
� the extent of competitive rivalry
� factors affecting each of the forces
� limitations of the five forces model
Strategic Analysis
� Value chain analysis� nature of value chain analysis� primary activities
� inbound logistics� operations� outbound logistics� marketing and sales� service
� secondary activities� procurement� technological development� human resources management� firm infrastructure
Inboundlogistics
The value chain
Operations
Outboundlogistics
Marketingand sales
After-salesservice
Fir
min
fras
truc
ture
Tech
no
log
ical
develo
pm
ent
Hu
man
res
ourc
e
man
agem
ent
Pro
curem
ent
Strategic Choice
� Environment or market-based strategy� types
� cost leadership� differentiation� focus
� importance of establishing:-� the basis of a firm's competitive advantages� the nature of the target market
� Resource-based strategy� exploiting core competencies� defining & establishing core competencies
� Growth by internal expansion
� product differentiation
� vertical integration
� diversification
� Growth by external expansion: mergers and takeovers
� horizontal mergers
� vertical mergers
� conglomerate mergers
Growth Strategy
Alternative growth strategy
GROWTH OF A FIRM
Internal expansion External expansion
(1) DifferentiationHorizontal expansion
(same product, increasein market share)
(1) Horizontal integrationMergers of firms
producing the sameproduct
(2) Vertical integrationDifferent products, butbelonging to different
stages of same product
(2) Vertical integrationMergers of firms producing at different stages of same
process
(3) ConglomerateDiversification -
introduction of totally different products
(3) ConglomerateDiversification - merger of
firms producing totally unrelated products
Growth Strategy
� Growth by internal expansion
� financing internal growth
� borrowing
� share issue
� ploughing-back profit
� the takeover constraint
Growth Strategy
� Growth by internal expansion (cont.)� growth through vertical integration
� backward integration ('upstream' integration)� forward integration ('downstream' integration)
� why vertically integrate? � economies of scale� reduced uncertainty� monopoly power
• barriers to entry
� growth through diversification� advantages
• when existing market is saturated• spreads risks
Growth Strategy
� Growth through mergers and takeovers� types of merger and takeover
� horizontal� vertical� conglomerate
� motives for mergers and takeovers� growth� economies of scale� monopoly power� increased market valuation� reduced uncertainty� other motives
� effects of mergers on consumers
Financing Growth and Investment
� Sources of business finance� internal sources
� ploughed-back profit
� external sources
� banks
• mainly short- and medium-term finance
� stock market
• longer-term finance
� problem of 'short-termism'
� international sources
� The role of the Stock Exchange� primary market� secondary market� advantages
� brings together savers & firms seeking finance� regulates firms and helps encourage confidence� facilitates mergers and takeovers� reduces transaction costs of investment finance
� disadvantages� cost of getting listed� possible short-termism and instability
Financing Growth and Investment
� Is the stock market efficient?
� the efficient market hypothesis
� share prices reflect information about companies' current and expected future performance
� implications of stock market efficiency
� benefit of speculation diminishes as efficiency increases
� perfect efficiency and share prices following a 'random walk'
Financing Growth and Investment
Staying Small
� EU definition of SMEs
� by number of employees
� micro enterprises
� small enterprises
� medium enterprises
� by turnover