Question Paper

Business Policy & Strategy (MB311): October 2006

Section A : Basic Concepts (30 Marks)

• This section consists of questions with serial number 1 - 30.

• Answer all questions.
• Each question carries one mark.
• Maximum time for answering Section A is 30 Minutes.

< Answer >

1. After eleven years of testing his strategic success paradigm empirically, Ansoff translated it into a diagnostic
instrument called
(a) Competitive strategic diagnosis
(b) Competitive readiness diagnosis
(c) Strategic readiness diagnosis
(d) Strategic management diagnosis
(e) Management readiness diagnosis.
< Answer >
2. Which of the following represents a difference between equity carve-out and a spin-off?
(a) In an equity carve-out, shares in the holding company are transferred to the subsidiary company and in a
spin-off the vice-versa happens
(b) In equity carve-out the proportion of debt increases whereas in spin-offs, the proportion of debt comes
down
(c) In an equity carve-out a certain proportion of the shares in subsidiary company is offered for sale to
general public while in spin-off a company distributes its shares on a pro-rata basis to the shareholders
(d) In equity carve-out shares are re-purchased by the general public at a price below the market value while
in a spin-off the shares are repurchased at a price above the market price
(e) In equity carve-out the leverage ratio of the firm increases while it decreases in a spin- off.
< Answer >
3. A mission is the fundamental and enduring purpose of an organization that sets it apart from other organizations of
a similar nature”. Which of the following are the indispensable components of a mission statement?
I. The basic product.
II. The primary market.
III. The product price.
IV. The principal technology used in production or delivery.
V. The company size.

(a) (I), (II) and (III) above

(b) (I), (II) and (IV) above
(c) (I), (II) and (V) above
(d) (II), (III) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
< Answer >
4. Who among the following determines the policies of an organization?
(a) Stakeholders/founder
(b) Top management
(c) Business unit together with top management
(d) Individual managers, in conformity with other business unit policies
(e) Each organizational level, in conformity with other business unit policies.
< Answer >
5. Which of the following is not a social responsibility that managers of business organizations have?
(a) Political
(b) Economic
(c) Legal
(d) Ethical
(e) Discretionary.
 < Answer >
6. The intensity of rivalry is usually high in an industry when
I. There are many competitors of the same size.
II. Gradual increase in industrial growth.
III. Lack of differentiation among the products.
IV. Presences of switching costs.

(a) Only (I) above

(b) Both (I) and (II) above
(c) Both (I) and (III) above
(d) (I), (II) and (III) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
7. Which of the following segregates a firm into strategically relevant activities to understand the cost behavior of
each activity?
(a) Centralization
(b) Decentralization
(c) Strategic business units (SBUs)
(d) Value chain
(e) Segmentation.
< Answer >
8. Goals indicate a desired future state that a company attempts to realize. The characteristics of a goal, which make it
meaningful are
I. The goals should be precise and measurable.
II. The goals should address important issues.
III. The goals should be common to everyone.
IV. The goals should specify a time period in which they should be achieved.

(a) Both (I) and (III) above

(b) Both (II) and (IV) above
(c) (I), (II) and (IV) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
9. Which of the following is not a principle of a good policy?
(a) Policies should reflect objectives
(b) Policies should be consistent
(c) Policies should be rigid
(d) Policies should be communicated, taught and understood
(e) Policies should be controlled.
< Answer >
10. Whose role is both symbolic and substantive in a strategy implementation from the following?
(a) Managers
(b) General Managers
(c) Board of Directors
(d) Chief Executive Officer (CEO)
(e) Chairman.
< Answer >
11. The operating strategy for recruitment, selection and orientation is the basis for personal managers’ decisions.
Which of the following is not true with respect to the questions to be dealt under the operating strategies?
(a) What are the key human resource requirements for the grand strategy chosen?
(b) How should the company recruit to meet these needs?
(c) How sophisticated should the selection process be?
(d) How should new employees be introduced to the organization?
(e) Should there be hiring preferences?
 < Answer >
12. If a firm believes in and prefers an internal emphasis for maximizing strengths, four alternative strategies hold
considerable promise in Quadrant III of the strategy selection matrix. Which of the following is not a strategy in
this Quadrant?
(a) Concentration
(b) Joint Venture
(c) Market Development
(d) Product Development
(e) Innovation.
< Answer >
13. A threat refers to an extremely unfavorable situation in the firm’s environment. Which of the following is not a
threat for a firm?
(a) Slow market growth
(b) Entry of resourceful multinational companies/competitors
(c) Improved buyer or supplier relationships
(d) Quick rate of obsolescence due to major technological change
(e) Adverse changes in government policies, rules and regulations.
< Answer >
14. Which of the following may not be true with regard to a bumper sticker strategy of an organization?
(a) It must be different from competitor’s strategies
(b) It must promise something of value, to the organization, its employees, or owners, but to
the world
(c) The core competencies of the business must underpin it
(d) The business must be organized distinctively, to make the organization able to deliver it
(e) Normally it is expressed in one sentence summarizing the direction and purpose of the
organization.
< Answer >
15. Problems of the new business are often more complex and resistant to solution than expected. Connections between
the new and old businesses are often superficial and only marginally related to the problems of the new venture.
Which of the following reasons for change of a firm from concentration strategies does relate to the above
statements?
(a) Impatience to grow
(b) Overconfidence
(c) Misjudging success requirements
(d) Siren song of integration
(e) Underestimation of present opportunities.
< Answer >
16. Which of the following is a business factor to be considered in choosing a foreign manufacturing site as per
Business International Corporation?
(a) Foreign exchange position
(b) Degree of antiforeign discrimination
(c) Proximity of site to export markets
(d) Cost of local borrowing
(e) Competitive situation in the firm’s industry.
< Answer >
17. The directing of activities towards the accomplishment of corporate objectives is referred to as
(a) Transformational leadership
(b) Executive leadership
(c) Managerial leadership
(d) Prospective leadership
(e) Proactive leadership.
< Answer >
18. Technological variables in the societal environment include
(a) Inflation rates
(b) Patent protection
(c) Tax laws
(d) Rate family formation
(e) Protection rights.
 < Answer >
19. The speed with which other firms can understand the relationship of resources and capabilities supporting a
successful firm’s strategy is known as
(a) Durability
(b) Imitability
(c) Replicability
(d) Transparency
(e) Delicacy.
< Answer >
20. Which of the following is not a criticism against the SWOT analysis?
I. The generation of lengthy lists.
II. Ambiguity of words and phrases.
III. No weights to reflect priorities.
IV. Multiple levels of analysis.

(a) Only (I) above

(b) Only (IV) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) (I), (II) and (III) above.
< Answer >
21. A firm enters into coalitions to gain certain advantages. Which of the following is/are the advantages of coalition?
I. Broaden the scope of operations without broadening the firm.
II. Firms get an opportunity to share its activities without entering new industry segments.
III. Involves the short term relationships.
IV. Entering the Coalition is a simple process.
V. Does not involve coordination problems.
(a) Both (I) and (II) above
(b) Both (II) and (IV) above
(c) (I), (II) and (III) above
(d) (I), (II) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
< Answer >
22. Which of the following is not a motive for divestiture in India?
(a) Focus on core business for the divesting firm
(b) Declining profitability of business(es) in which the firm is operating
(c) Getting rid of unprofitable businesses
(d) Need for funds for other activities
(e) Gain endorsements from government authorities.
< Answer >
23. Which of the following is not one of the major sourcing strategies that companies pursue as they move into foreign
buying as part of procurement strategy?
(a) Diversify into new business categories
(b) Use foreign subsidiaries or business agents
(c) Establish international purchasing offices
(d) Integrate and coordinate worldwide sourcing
(e) Recruitment of manpower.
< Answer >
24. Focusing on opportunities and not on problems, highlights the important entrepreneurial characteristic of
(a) A sense of urgency that makes them action oriented
(b) Ability to identify potential venture opportunities
(c) A detailed knowledge of the industry keys to success
(d) Access to outside assistance
(e) A change in business strategy.
< Answer >
25. A program which has the purpose of subsidizing primary service programs is called
(a) Strategic privatization
(b) Strategic maneuvering
(c) Strategic piggybacking
(d) Strategic centralization
(e) Strategic killing.
 < Answer >
26. One of the first steps in analyzing financial statements is to
(a) Compare historical statements over time
(b) Calculate changes that occur in individual categories from year to year
(c) Adjust for inflation
(d) Scrutinize historical income statements and balance sheets
(e) Provide smooth operationally sound budget plan.
< Answer >
27. Firm X plans to sell off a part of the firm via an equity offering to outsiders giving them ownership of a portion of
the previously existing firm. Which of the following means shall be applied by the company for executing its plan?
(a) Equity Carve Out
(b) Spin-off
(c) Split Up
(d) Divestiture
(e) Tender Offer.
< Answer >
28. Vertical scope is described by
(a) Range of region, countries or group of countries in which a firm operates
(b) Serving buyers by variety of products
(c) Serving a particular segment
(d) Extent to which activities were performed in house instead of by independent firms
(e) Firms vie with a Co-ordinated strategy in a range of related industries.
< Answer >
29. Analyse, how HLL’s decision not to sell its soap manufacturing unit but to buy ITC agro division is different from
its strategy of running its cosmetic division?
(a) The first one is a business level strategy while the second one is a corporate level strategy
(b) The first one is a strategy implementation while the second one is a strategy formulation
(c) The first one is a deliberate strategy while the second one is an emergent strategy
(d) The first one is a corporate level strategy while the second one is a business level strategy
(e) The first one is an emergent strategy while the second one is a deliberate strategy.
< Answer >
30. Political activities in an organization can be described as
I. Legitimate or illegitimate.
II. Vertical or lateral.
III. Internal or external.
IV. Machiavellianism.

(a) Only (I) above

(b) Only (II) above
(c) Both (I) and (II) above
(d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.

END OF SECTION A

Section B : Caselets (50 Marks)

• This section consists of questions with serial number 1 – 7.

• Answer all questions.
• Marks are indicated against each question.
• Detailed explanations should form part of your answer.
• Do not spend more than 110 - 120 minutes on Section B.

Caselet 1
Read the caselet carefully and answer the following questions:
 1. When technology was introduced in the banking sector for the first time, its adoption was resisted.
What are the various steps that the banks could follow in order to successfully welcome the
technological changes? How were the banks able to introduce the technological change?
(8 marks) < Answer >

2. In India, the main forces affecting the introduction of new technology have been the unions,
management and the workforce. Why do you think that they have the resistance for the change?
(6 marks) < Answer >

3. With reference to this caselet, explain the various reasons for the need of technological change in
the banking sector? Also, explain why there was a slow rate in technological innovation.
(7 marks) < Answer >

The antiquated Indian banking system has its roots in the nineteenth century. The character and structure of the system has, however,
changed substantially since 1969, when the major banks were nationalized. Prior to nationalization, banking was concentrated in
urban areas. It was clear that a better banking system was needed to promote the economic goals of the new Indian state. Rural
markets for industrial goods could not be developed so long as money lenders, charging usurious rates of interest were the main
source of rural credit. Moreover, the 'green revolution' depended on farmers finding substantial sources of credit to pay for fertilizers
and hybrid seeds.
Since the mid-1970s, there has been a spectacular growth in the spatial distribution of bank branches and in the size of their deposits
and advances. According to experts in banking this transformation has no parallel anywhere in the world. After nationalization, there
was also a change in recruitment policy. For the first time, the doors of the banks were opened to everyone, irrespective of family
status, caste, community, religion or gender. Recruitment was placed on a more systematic basis, with merit assessed by aptitude
tests conducted by an external agency in a relatively impartial manner.
As the size of the banking sector increased, the industry became difficult to manage. Computer technology offered a possible
solution. In India, a small number of industrial houses and a few educational, research and development institutions started using
computers in the early 1960s. During the late 1960s and 1970s, service-oriented industries such as airlines, railways and insurance
companies introduced computers to 'improve their functioning' and 'to provide better customer service'. Banks in India did not,
however, introduce computers on a large scale because of the fear that these would result in retrenchment and unemployment. For a
long time, Indian banks faced very little competition and operated in a protected economy. Thus no long-term policy or perspective
for the banking sector was formulated: it was simply treated as part of the public sector. This is now changing. Well-computerized
foreign banks are beginning to compete seriously with the nationalized banks. They aim at a profitable and wealthy part of the
market and, in contrast to the nationalized banks, do not recognize any social responsibilities to small account holders or to a rural
and semi-urban clientele.
In India, the main agents affecting the introduction of new technology have been the unions, management and the workforce. The
government has played a very indirect role in the process. In the early days of the massive introduction of computer technology into
industry and services, union policies on new technology were basically defensive. They focused almost entirely on the immediate
consequences of technological change on the workforce, especially the aspect of possible job losses.
However, these attitudes and the strategies of unions’ vis-à-vis computerization have begun to change, especially since the 1980s.
Management in many places has been able to convince workers and unions that competition is becoming increasingly harsh, and
computerization is not only inevitable for the health and survival of the unit but also beneficial to employees, because it may
improve the competitiveness of the enterprise, enhance job security and improve employment conditions. Many unions which have
consistently opposed computerization have had to face their members who are keen on technological changes. As one EDP
employee who is also a unionist put it, 'As a unionist I would oppose computerization, as an employee I would welcome it. That is
my dilemma.'
Consequently, unions today are increasingly seeking to influence the process of technological changes so that new technology can be
introduced in such a way as to benefit workers and minimize its adverse consequences. The last decade has seen several 'technology
agreements' or 'computerization agreements', along with routine collective bargaining agreements which contain clauses related to
technology. Despite these agreements, most managers in India, including those in the public sector, have consistently regarded all
aspects of technological changes as matters falling within the area of managerial prerogative. When consultation with unions has
occurred, these have been far from fair since unions have lacked the requisite know-how and information.
The Reserve Bank of India (RBI) installed its first computer in 1968, and a larger one in 1979. But the United Commercial (UCO)
Bank, the Standard Chartered Bank, Lloyds' Bank, Grindlays, and others had installed accounting and other machines before 1966.
Operations such as payrolls had been computerized fairly early on. Some head offices began to use computers by the beginning of
the 1980s.1 In September 1983, two of the major banking unions - the All India Bank Employees Association (AIBEA) and the
National Confederation of Banking Employees (NCBE) signed an agreement with the Indian Banks Association (IBA), representing
58 bank managements. The unions wished to maintain surveillance of the process and to protect job prospects in the banking sector,
but the final settlement was self-contradictory. On the one hand there were restrictions on computerization, with numerical limits on
the numbers of mainframe computers, and even on the number of accounting machines which might be used in rural branches, but
there was also a loop-hole which allowed the banks to use 'such number of mini-computers as are warranted by their needs and
exigencies'.
However it would be misleading to look at the unions alone in explaining the slow rate of technological innovation. A highly-placed
bank executive commented that the management of the banks lack perspective, because of the protection they had enjoyed, and were
not really serious about computerization. There is also uncertainty among bank managers about the implications of computerization
in terms of the hierarchy and their own positions. Employees of many Indian banks, including the State Bank of India and Bank of
Baroda, said that management 'just dumped these machines here. They are hardly used, and some don't work.' A comprehensive
policy seems completely absent. In contrast, the multinational banks have computerized almost totally, with the unions unable to
have any say.

Caselet 2
Read the caselet carefully and answer the following questions:

4. The organizational structure of HP was changed several times under various heads. What are the
structural choices available with HP and which according to you is the best structure for HP?
Justify your answer.
(8 marks) < Answer >

5. Under Carly Fiorina, there were dynamic changes in organizational structure of the company to
accommodate the needs of strategy. With reference to the case, discuss the relationship between
strategy and structure.
(6 marks) < Answer >

HP followed a highly centralized organizational structure till 1950s. In 1960s the company adopted a divisional
structure as the top management thought that the divisional structure would give considerable autonomy to its
employees. The company brought in certain changes in 1968. With increasing number of operating divisions and
product lines, the company adopted a group structure. Under the group structure, related divisions were combined
and a group manager headed the group. The company's orientation towards decentralization process enabled it to
improve its field marketing activities.
In early 1970s, the company moved towards decentralization from its traditional centralized structure. A new
concept 'local decentralization' has emerged. The objective of this concept was to reduce the level of bureaucracy
and enable the company take decisions immediately. With the increase in the number of divisions there seemed to be
lack of synergy between the divisions. However, the then CEO, John Young, further decentralized the decision-
making process.
In the mean time, there were reports that innovation was getting bogged down by high level of bureaucracy.
Revenues stagnated and profits started declining. This was the time when Carly Fiorina took the mantle at HP.
Immediately after taking over, Fiorina brought in certain changes. Some of the changes were demanding regular
updates on key units, inculcation of discipline in salesforce, focus on breakthrough projects, etc. Finally, in 2000,
Fiorina dismantled the decentralized organization structure. At that time, there were 83 independent product
divisions. Fiorina reduced the number to 6 centralized divisions. Fiorina expected that there will be more
collaboration between sales and product development executives. However, according to experts, this approach
requires focus and superb coordination between thousands of product lines of HP. The new approach smoothened the
company's operations.
Previously, the product chiefs used to take care of operations from designing to selling of products. Now, the onus of
marketing and selling of the product was on sales department of the organization. Therefore, R&D people were
unable to allocate R&D funds due to lack of authority to set sales forecast.
According to analysts, the R&D product designers would not be able to deliver products as per the requirements of
customers since, they were not involved in the interaction process with customers. Further, there was no clear
assignment of responsibility for profits and losses. Even there were many complaints from HP customers about the
operations of the company. One of the customers said, “It’s beyond my ability to communicate our frustration. It’s
painful to watch them mess up million-dollar deals.”
There was not much improvement with regard to structural problems and the company's business performance under
Fiorina. According to one HP manager, “The people who deal with Fiorina directly feel very empowered, but
everyone else is running around saying, “What do we do now?” Even there were accusations by some analysts that
Fiorina is over ambitious with regard to tackling of all HP’s problems at one go. Analysts feel that bringing such
substantial changes were tough anywhere and specifically in the case of HP, which was traditional and further
suffered from slowdown in the technology sector.

Caselet 3
Read the caselet carefully and answer the following questions:
6. What is the economic rationale for the major types of mergers?
(8 marks) < Answer >

7. What are the various reasons for ‘DaimlerChrysler’ not doing well as expected prior to the
merger?
(7 marks) < Answer >

When Daimler-Benz Ag bought Chrysler Corp. in 1998, the German luxury carmaker was hoping the American
mass marketer could show it how to cut spending, squeeze costs and boost profits. Back then, at least on paper, the
$36 billion pairing, the biggest-ever among carmakers, seemed unbeatable. Chrysler had $7.5 billion in cash on
hand, there was little overlap in the two companies' respective product lines—luxury cars versus mass-market
compacts and minivans—and Chrysler was lean and mean, earning more per vehicle than any other major carmaker
in the U.S. Best of all, in an industry seeking ever-larger economies of scale, the merger offered an opportunity for
cost-cutting, by an estimated $1 billion over the first three years on the cost of parts, alone. At a press conference
announcing what was then being proclaimed as a "marriage of equals," Chrysler Chairman Robert Eaton offered a
rationale: "This is all about speed and flexibility. It's about converting ideas into profits and doing it faster than our
competitors." Crowed Daimler Chairman Jurgen Schrempp: "The two companies are a perfect fit of two leaders in
their respective markets."
So much for a perfect fit. Since Eaton and Schrempp, as new co-chairmen, shared the balcony of the New York
Stock Exchange in November 1998 to ring in the first day of trading for the new company's stock, DaimlerChrysler
shares have lost more than the equivalent value of the entire Chrysler Corp. prior to the merger. Market and industry
watchers now describe the deal as a sly German takeover that has not only come close to hollowing out the old
Chrysler but has endangered the new company's profitability to boot: Last year, Chrysler lost nearly $2 billion—and
by its own calculations probably won't make a dollar of profit until 2003. DaimlerChrysler, meanwhile, lost $589
million, and despite offering Chrysler car buyer’s discounts of as high as $2,000 per vehicle, Chrysler's American
market share continues to shrink, from 16.2 percent at the time of the merger to around 13.5 percent. Management
has also taken a beating: Chrysler's Eaton is gone, along with dozens of top U.S. managers responsible for the
marketing, product and design savvy Daimler had originally sought from Chrysler—the kind of smarts Schrempp
said were needed to help the new DaimlerChrysler develop a vehicle for every kind of driver, from Buenos Aires to
Beijing.
Company executives admit now that they greatly underestimated the cultural problems that would form the core of
the company's present-day woes. For the past three years, mistrust between Auburn Hills and Stuttgart has made
cooperation difficult on even the simplest of matters. Until recently, deciding which parts and, in some cases, which
technologies the image-conscious Mercedes will share with Chrysler has been all but impossible. "We initially
underestimated what it would take" to understand one another, concedes Vince Morrotti, DC's chief technology
officer and previously the top Information technology (IT) executive at Mercedes-Benz of North America Inc.
Morrotti and other top DC executives insist the company is getting on track after plenty of detours, but there remain
numerous skeptics. Says veteran auto analyst Maryann Keller: "I can't imagine two more different cultures. Some 70
percent of mergers don't work, and this one isn't working, either."
Still, while much has gone wrong, the task of tying the two former companies' technologies together in a push to cut
costs and boost efficiencies has marched forward. DaimlerChrysler Chief Information Officer (CIO) Susan Unger, a
29-year finance and technology veteran of the old Chrysler, is one of the few Chrysler execs to survive the merger.
Her efforts have saved the new company close to $200 million so far, and many of her team-building techniques are
being copied throughout the new corporation.
It has helped hugely, of course, that throughout, Unger has had strong support from the top. When Schrempp pulled
Unger in during early merger talks and named her CIO, it was clear that whatever DC would become, the Germans
saw IT—and Unger, with her track record of using IT to cut costs—as a cornerstone of the new company. "The
position of the leaders," recalls Unger, was that "IT is absolutely an essential ingredient for making this merger
successful. There was a lot of talk about how the Germans took over everything, but they recognized Chrysler's
value on IT."
She had to move fast: Unger was given little more than two months before the merger was formalized in November
1998 to tie together 16 different European e-mail systems to Chrysler's one—"just to enable everyone to share
information and best practices," she says—and then to patch together a way for all design teams to start using one
global network, and all with no increase in spending, other than what she could squeeze from cost-cutting.
But the cultural challenges have been just as daunting, if not more so. In the critical, time-crunched weeks before the
merger, Unger recalls, even the simplest differences between American English and the British English used by DC's
German engineers could lead to frequent misunderstandings.
Unger and Chrysler had faced tough obstacles before. It took a federal bailout to save Chrysler in 1979 and a
complete product overhaul—accompanied by technology-led efforts to cut costs, boost quality and accelerate
productivity—to recover from near-bankruptcy a decade later. Today, General Motors Corp. claims to be the biggest
vendor of microprocessors in the world, thanks to the computing power of today's cars. Ford Motor Co. says its
internal computing power is second only to the Pentagon's. But Chrysler has long had a leg up on both, thanks to its
history of financial turmoil. "We didn't have the luxury of being anything but efficient," Unger says.
END OF SECTION B

Section C : Applied Theory (20 Marks)

• This section consists of questions with serial number 8 - 9.

• Answer all questions.
• Marks are indicated against each question.
• Do not spend more than 25 -30 minutes on section C.

Michael E. Porter developed a framework to view the basic strategic alternatives of a firm < Answer >
8.
competing internationally. The analysis initially involves understanding of the industry or
industries in which the firm competes. International industries can be characterized along a
continuum from multi-domestic to global. In this light, explain multi-domestic and Global
industries.
(10 marks)
1. st
At the start of the 21 century, we find that there is an increasing need for managers < Answer >
9.
who understand their role under conditions of rapid change. What are the various considerations
for the strategists in the 21st century?
(10 marks)
END OF SECTION C

END OF QUESTION PAPER

Suggested Answers
Business Policy & Strategy (MB311): October 2006
Section A: Basic Concepts
1. Answer : (c) < TOP >
Reason: After eleven years of testing his strategic success paradigm empirically, Ansoff translated it into a
diagnostic instrument called “Strategic readiness diagnosis”.
2. Answer : (c) < TOP >

Reason : The difference between equity carve-out and spin-offs.

Discussion: The correct option is (c). In a equity carve-out certain proportion of the subsidiary’s shares
are offered to the general public, bringing an infusion of cash to the parent company without the loss
of control. However in a spin-off a company distributes all the shares of its own subsidiaries to its own
shareholders on pro-rata basis.
Option a) is false as in equity carve-out shares of an wholly owned are offered to the general public
and not transferred to any subsidiary. However, in spin-off the shares of subsidiary are distributed to
its own shareholders and not to public in general.
Option b) is incorrect as the management policy affects the change of debt in the company.
Option d) is incorrect as in an equity carve-out shares of a wholly owned are offered to the general
public and in spin-offs shares of subsidiary are distributed to its own shareholders and not to public in
general.
Option e) is incorrect as there is no effect on the leverage ratio be it either in equity carve-out or spin-
offs.
3. Answer : (b) < TOP >

Reason: The three indispensable components of a mission statement are:

• The basic product
• The primary market
• The principal technology used in production or delivery.
4. Answer : (e) < TOP >

Reason: Each organizational level, in conformity with other business unit policies, determines the policies of an
organization.
5. Answer : (a) < TOP >

Reason: Managers of the business organizations should have four social responsibilities:
• Economic
• Legal
• Ethical
• Discretionary.
Hence the option (a), political responsibilty is the wrong answer.
6. Answer : (c) < TOP >

Reason: The intensity of rivalry is usually high when:

• There are many competitors of the same size.
• Slowdown industrial growth.
• Lack of differentiation among the products.
• Absence of switching costs.
Hence the option (c) is the correct answer.
7. Answer : (d) < TOP >

Reason: A value chain segregates a firm into strategically relevant activities to understand the cost behavior of
each activity. By performing these activities economically and efficiently, a firm can gain competitive
advantage.
8. Answer : (c) < TOP >

Reason: Goals indicate a desired future state that a company attempts to realize. To be meaningful, goals
should have three main charecteristics. They are:
• The goals should be precise and measurable.
• The goals should address important issues.
• The goals should specify a time period in which they should be achieved.
Hence the option (c) is the correct answer.
9. Answer : (c) < TOP >

Reason: The principles of a good policy are:

• Policies should reflect objectives
• Policies should be consistent
• Policies should be flexible
• Policies should be communicated, taught and understood
• Policies should be controlled
Hence the option (c) is not a principle of a good policy, hence the answer.
10. Answer : (b) < TOP >

Reason: In strategy implementation, the nature of the General Manager’s role is of both symbolic and
aubstantative.
11. Answer : (e) < TOP >

Reason: The operating strategy for recruitment, selection and orientation is the basis for personal managers’
decisions. It covers the following questions:
• What are the key human resource requirements for the grand strategy chosen?
• How should the company recruit to meet these needs?
• How sophisticated should the selection process be?
• How should new employees be introduced to the organization?
Hence the option (e) is the wrong answer as it comes under functional strategies.
12. Answer : (b) < TOP >

Reason: If a firm believes in and prefers an internal emphasis for maximizing strengths, four alternative
strategies hold considerable promise in Quadrant III. The strategies are:
• Concentration
• Market Development
• Product Development
• Innovation.
Hence the option (b) is the answer.
13. Answer : (c) < TOP >

Reason: A threat refers to an extremely unfavorable situation in the firm’s environment. Which of the
following are the threats for a firm:
• Slow market growth
• Entry of resourceful multinational companies/competitors
• Increased bargaining power of key buyers or suppliers
• Quick rate of obsolescence due to major technological change
• Adverse changes in government policies, rules and regulations.
Hence the option (c) is the answer, as it is a opportunity for a firm.
14. Answer : (b) < TOP >

Reason : Every business should be able to summarize its direction, purpose and strategy in one sentence and
preferably in a few words. This has nicely been described as the ‘bumper sticker strategy’. It is only
valid if the following points are followed:
1. They must be different from competitors’ strategies.
2. They must promise something of value, not to the business, its employees, or owners, but to the
world.
3. The core competencies of the business must underpin the strategy.
The business must be organized distinctively, to make it peculiarly able to deliver the strategy and the
business must be absolutely committed in doing so. So the answer is alternative (b).
15. Answer : (c) < TOP >

Reason : The statements are appropriately pointing towards the reason, which is often called as misjudging
success requirements. So the alternative (c) is the answer.
Other reasons are explained as follows: (a) Small firms often feel they are too small to be important in
their field. (b) A company doing well may conclude that it has superior ability and can be successful in
almost any business. Management often forgets the years of experience it took to earn the success
being achieved. Such firms lack this experience in the new business. (d) Forward and backward
integration creates opportunities to control resources or markets. (e) Spreading resources too thin may
cause an organization to overlook opportunities in its existing field.
16. Answer : (e) 1. <
TOP >
Reason : The appropriate business factor is the competitive situation i.e. alternative (e). Alternative (a), (b), (c)
and (d) are respectively economic factor, political factor, geographic factor, and capital source factor.
So the corrective answer is alternative (e).
17. Answer : (b) < TOP >

Reason : Executive leadership directs the activities toward accomplishment of corporate objectives. Executive
leadership sets the tone for the entire corporation. Answers a, c, d, e are incorrect since,
transformational leadership deals with the activities to turnaround a business from wrong direction to
align towards the objectives. Managerial leadership deals those activities pertaining to operations of
the enterprise.
18. Answer : (b) < TOP >

Reason : Patent protection is a technological variable in the societal environment. Improvements in technology
result in advances in several areas, including the manufacturing, agricultural, and service sectors.
Answers a, c, d, e are incorrect since, inflation rates pertain to economic environment, and tax laws
relate to financial and legal environment.
19. Answer : (d) < TOP >

Reason : The speed with which other firms can understand the relationship of resources and capabilities
supporting a successful firm’s strategy is known as transparency. Transparency is a component of
imitability. Answers a, b, c, e are incorrect due to the understandability factor described in the correct
answer.
20. Answer : (b) < TOP >

Reason : I, II, and III are valid criticisms of SWOT. SWOT does not have multiple levels of analysis. The
SWOT analysis has been criticized for the issue that it only accounts for a single level of analysis.
21. Answer : (d) < TOP >

Reason: A firm enters into coalitions to gain certain advantages. The various advantages are:
• Broaden the scope of operations without broadening the firm.
• Firm gets an opportunity to share its activities without entering new industry segments.
• Does not involve coordination problems.
Hence the option (d) is the correct answer.
< TOP >
22. Answer : (e)
Reason: The following are the the motives of divestiture in India:
• Focus on core business for the divesting firm
• Declining profitability of business(es) in which the firm is operating
• Getting rid of unprofitable businesses
• Need for funds for other activities
• Gain endorsements from government authorities
Hence the option (e) is not a advantage of divestitures.
< TOP >
23. Answer : (a)
Reason : The major sourcing strategies that companies pursue as they move into foreign buying as part of
procurement strategy, includes using foreign subsidiaries or business agents, establishing international
purchasing offices, and integrating & coordinating worldwide sourcing.
24. Answer : (b) < TOP >

Reason : The entrepreneurial characteristic that makes an entrepreneur focus on opportunities and not on the
problem is the ability to identify potential venture opportunities. Entrepreneurs are goal oriented and
have a strong impact on the emerging culture of an organization. Answer a, c, d, e are incorrect since
they do not pertain to the question in discussion.
25. Answer : (c) < TOP >

Reason : Strategic piggybacking deals with subsidizing the primary service programs. The program is related
typically in some manner to the not-for-profit's mission. Answers a, b, d, e are incorrect.
26. Answer : (d) < TOP >

Reason : The first step is to scrutinize historical income statements and balance sheets. Historical income
statements and balance sheet statements provide most of the data needed for financial analysis.
Answers a, b, c, e are incorrect since they are not pertaining to the first step.
27. Answer : (a) < TOP >

Reason : Firm X shall apply the equity carve out for executing its plan. Equity carve out is a variation of
divestiture and involves the sale of a portion of the firm via an equity offering to outsiders, giving
them ownership of a portion of the previously existing firm. A spin -off creates a separate legal entity,
wherein shares are distributed on a pro rates basis to existing shareholders of the parent company. It
represents a form of dividend to existing shareholders. It represents a form of dividend to existing
shareholders. A split-off is a variation of a spin-off. In a split-off, a portion of existing shareholders
receives stocks in a subsidiary in exchange for the parent company stock. Divestiture involves sale of a
portion of the firm to an outside third party. The buyer is an existing firm and divestiture simply
represents a form of expansion by the buying firm. No new legal entity results.
28. Answer : (d) < TOP >

Reason : Vertical scope is described by the extent to which activities were performed in house instead of by
independent firms rather than the range of region, countries or group of countries in which a firm
operates, servicing buyers by variety of products, serving a particular segment and firms vie with a
coordinated strategy in a range of related industries.
29. Answer : (d) < TOP >

Reason : HLL’s strategy for running its cosmetic or food products is a business level strategy which is
formulated to meet the goals of a particular business also called line of business strategy while its
decision to buy ITC agro division is a corporate level strategy which addresses what business the
organization will operate, how the strategies of these business will be co-ordinated to strengthen the
organization’s competitive position and how resources will be allocated.
30. Answer : (e) < TOP >

Reason: Political activities in an organization can be described in terms of legitimate or illegitimate, vertical or
lateral, internal or external and machiavellianism. Hence all the options are correct.

Section B : Caselets
1. CHANGE PROCESS
Change frequently disrupts normality whilst the organization may be facing strong external pressures, it is unrealistic to expect
managers and employees not to query or resist the need to change. The change process becomes difficult when individuals
perceive that they are losing out rather than benefiting or are not being rewarded for cooperating when managers engage in
planned change, they typically follow a process.
Change involves actions based on a carefully thought-out process that anticipates future difficulties, threats and opportunities.
The various steps in the change process are:
Recognition of Need for Change
In the first step, the senior management must develop an early awareness of the need for change. Information leading to such
awareness can come from the various stakeholders of the firm. For example, Canon entered the U.S. copier and office
equipment markets by asking secretaries what attributes they prefer in photocopiers. Another source of information is scientific
associations, which may know more about developments in product and manufacturing technologies. Moreover, examining the
actions of competitors gives an additional lens to managers through which they can monitor the environment.
Building Awareness of Need to Change
Once senior managers have gained a general idea of the kind of change required, they must build awareness of tins need among
employees in the firm. Awareness can be built among employees during routine contacts with them. These conversations will
stimulate people’s thoughts about possible change without raising anxieties too quickly. Thus, sharing information and
establishing trust are critical in building support for change.
Foster Debate
Stimulating debate about alternative solutions and a diversity of perspectives is essential. Diversity of ideas raises the chances
that both the best and worst aspects of each alternative are brought to light. The debates and various perspectives contribute
towards building a commitment to new goals.
Create Consensus
Au evidence will accumulate in favor of particular approach by analyzing the results of debates. This evidence will help in
creating a consensus about the direction change should take. In this process, opposition is likely and retaining entrenched
opponents to a change initiative can result in trouble. In this stage, continuous training and management development can reap
big dividends in implementing change. By teaching new skills to employees, the management can eliminate fear, the major
source of resistance to transformation.
Assign Responsibility
Once the appropriate response to change has been determined, responsibility for earning it out must be assigned. In this
context, a new effort towards change can be placed within an existing department. Also, the firm can set a new autonomous
unit. To ensure that an initiative receives proper attention, it max need to be established as a separate unit headed b someone
who has only its welfare in mind,
Allocate Resources
A variety of resources may be needed to carry out a new initiative Management must ensure that sufficient resources are
available for the initiative. Otherwise, the initiative will atrophy for the lack of sustenance. Allocating these resources is the
final step of the change process.
Management in many places has been able to convince workers and unions that competition is becoming increasingly harsh,
and computerization is not only inevitable for the health and survival of the unit but also beneficial to employees, because it
 may improve the competitiveness of the enterprise, enhance job security and improve employment conditions.
< TOP >
2. ESESTANCE TO CHANGE
Managers promoting change often possess insufficient knowledge to determine, as to how a firm should respond to change. A
senior manager interested in bringing about change must rely on employees to implement the new response once it has been
developed. Therefore, they need to support managers and employees in designing a change initiative and implementing it, In
certain organizations, employees withhold such support. Certain reasons for withholding support are:
Lack of Awareness
Change requires a broad view of both the competitive and general environment. Manager (at middle and lower level) and
employees are often too focused on current activities to develop this kind of perspective. They become narrowly Focused to be
aware of potential changes over the horizon. They fail to appreciate the need for change, especially if change means learning
new methods, processes or techniques.
Lack of Interest
Even when managers and employees recognize the need for change, they often perceive it with lack of interest, This kind of
reaction is common even with new developments:
Incompatibility with Cherished Values
Mostly firms develop their own sense of shared values and corporate cultures. Managers and employees oppose new strategies,
products or approaches that appear to conflict with established practices. Therefore, strongly held values and corporate cultures
can become significant obstacles to change.
Fear of Cannibalization
Developing new products that are distinct from those of the firm’s current lineup means admitting the possibility that
alternative or substitute products exist. Facing the threat of substitute products is hard for any company. Therefore,
cannibalization is one of the main reasons that prevent companies from investing in new technologies/products before
competitors compel them to do so.
Fear of Personal Loss
The fear of restructuring that would eliminate entire divisions or businesses, along with people involved in it, makes corporate
change painful. Moreover, change may reduce the career opportunities for employees and ma even cost them their jobs.
Different Perception
A manager may make a decision and recommend change based on his/her own assessment of a situation. Others ma resist the
change because they’ may perceive the situation differently. As a result of different perception, it becomes difficult for
organizations to implement change.
The opposition to change must be overcome, if it is to be implemented successfully. Casualties are possible and sometimes
inevitable. Moreover, some people will leave because they are uncomfortable with the changes. But there are several
techniques to overcome resistance. They are:
Participation
Change
Change occurs when people who perceive the need for change try out new ideas. Changes could be introduced gradually or it
may be dramatic. Organizations in difficulty often appoint a new strategic leader to introduce fresh ideas and implement the
changes. Changes need to be planned and everyone must be reassured that these changes will be for the betterment of the
company and its stakeholders.
Refreezing
This takes place when change patterns are accepted and followed willingly. Often, rewards are influential in ensuring that
refreezing takes place.
Throughout the change process, it is essential that people are aware of why are being proposed and are taking place, and that
they understand the reasons.
< TOP >
3. Various reasons for the need of technological change in the banking sector are:
• As the size of the banking sector increased, the industry became difficult to manage.
• Computer technology offered a possible solution.
• Well-computerized foreign banks are beginning to compete seriously with the nationalized banks.
• They aim at a profitable and wealthy part of the market and, in contrast to the nationalized banks, do not recognize any
social responsibilities to small account holders or to a rural and semi-urban clientele.
• Competition was becoming increasingly harsh, and computerization was not only inevitable for the health and survival of
the unit but also beneficial to employees, because it may improve the competitiveness of the enterprise, enhance job
security and improve employment conditions.
Reasons for the slow rate in technological innovation are:
• The management of the banks lack perspective, because of the protection they had enjoyed, and were not really serious
 about computerization.
• There was also uncertainty among bank managers about the implications of computerization in terms of the hierarchy and
their own positions.
• Management just dumped these machines in the banks. They were hardly used, and some did not work.
• A comprehensive policy seemed completely absent.
• In contrast, the multinational banks have computerized almost totally, with the unions unable to have any say.
< TOP >
4. A structure can be described as the division of tasks for efficiency and clarity of purpose and coordination between the
interdependent divisions of the organization to ensure organizational effectiveness. The structural choices available with HP
are:
• Simple organizational structure
• Functional organizational structure
• Divisional organizational structure
• Strategic business unit
• Matrix organizational structure
Simple organizational structure – This structure generally prevails in small business units. In simple structure, all the strategic
and operating decisions are under the control of the owner-manager. Further, responsibility is always vested in the hands of
owner-managers. This model is suitable when there is low range of volume.
Functional organizational structure – This model exists in firms that concentrate on one or few related products or markets.
Functional structure does grouping of similar tasks as a separate functional units. This structure encourages greater efficiency
and refinement of particular expertise. However, coordination of separate functional units is the strategic challenge in this
model.
Divisional organizational structure – This form is required for coordination and decision making in organizations which are
diverse products and huge in size. This structure helps the management to delegate authority for the strategic management of a
distinct business entity.
Strategic business units – Here, various divisions in terms of common strategic elements are grouped together. This form is
used when the organization's operations increase in diversity, size and number of divisional units increase and it becomes
difficult to evaluate and manage the various divisions.
Matrix organizational structure – This form has the advantage of both functional and product specialization.
In 1950s, HP followed a highly centralized organizational structure. However, with growing size of the company, it became
difficult for the top management to monitor various operations and take quick decisions. Therefore, in 1960s the company
adopted a divisional structure. However, the divisional structure did not work well in HP. In the case it has been clearly
mentioned that there was complete lack of synergy between the various divisions during the regime of John Young. When
Fiorina took over the mantle from Young, there was high level of bureaucracy in the organization. The bureaucracy was partly
due to too many independent product divisions. Further, there was stagnant revenues and declining profit growth rate. This
conveys that the existing decentralization was not suitable for the organization. For a company of HP’s magnitude, there should
be clear cut responsibilities and decision-making power. And the existing bureaucracy can be removed only when there are
lesser number of divisions and also synergy between the divisions.
HP can reorganize itself into strategic business units. Strategic business units are suitable for companies that are huge and have
diverse products.
< TOP >

5. The structure of a company helps in tying up key activities and resources of the firm. The structure of a firm needs to be
aligned with the strategies of the organization. In many cases, the structure of an organization does not match the requirements
of strategy. This happens more in large organizations. Structural changes are required when an organization diversifies its
products or markets.
Research on corporate stages of development can help understand the structure-strategy relationship better. Researchers are of
the opinion that companies move through many stages as size and diversity increases. To compete effectively, they need to
have different structures at various stages.
In the case also when Fiorina became the CEO of the company, she immediately realized that there is a need to bring certain
changes in the existing strategy of the company. To implement new strategies, she realized that the existing organizational
structure needs to be changed.
< TOP >

6. ECONOMIC RATIONALE FOR MAJOR TYPES OF MERGERS

Increased Market Power
The primary reason for firms going in for mergers and acquisitions (M&As) is their desire to increase their market power. A
firm gains market power, when it is able to sell its goods or services at a price lower than its competitors or the cost of
producing the product or service is much less as compared to its competitors. A firm may have core competencies but may lack
the required resources and site to compete in the market. Thus, most M&As which take place with the intention of increasing
market power larger competitors, suppliers, distributors, or businesses in related industries. In order to expand the size of time
firm, firms go for horizontal, vertical and conglomerate mergers.
Horizontal mergers
If two firms operating and competing in the same business activity merge. it is known as a horizontal merger. Combining two
business entities results in a larger firm and thus, greater economies of scale. But it is not the only reason for tile popularity of
horizontal mergers. Though horizontal mergers benefit from large scale operations, not all firms merges horizontally to achieve
economies of scale, Firms may merge horizontally to share resources and skills and to derive synergy. Governments make
efforts to regulate horizontal mergers as they can minimize competition. By decreasing the number of firms in an industry, a
horizontal merger may create a monopoly market and the consumer suffers.
Vertical mergers
When two firms in the same industry but in different stages of the value chain. merge. it is called a vertical merger. The merger
between Merck & Company and the drug distributor, Medco Containment Services is an example of a vertical merger. This
merger ensured that Merck’s products were distributed as it managed its prescription drug plans. There are different reasons for
companies entering into vertical mergers. They are:
• reducing costs of communication
• coordinating production
• better planning for inventory and
• production
Conglomerate mergers
When two firms from unrelated business activities merge, it is known as a conglomerate merger. Conglomerate mergers can be
categorized into three different. types:
• Product extension merger
• Geographic extension merger and
• Pure conglomerate merger.
When two firms in a related business activity merge, it is called a product extension merger. It helps broaden the product line of
firms. When two firms operating in non-overlapping geographic areas merge it is known as geographic extension merger.
When two firms from unrelated business activities merge, it is known as a pure conglomerate merger. Apart from increasing
the market power there are many other reasons that have contributed in the increase of M&A activity,
Overcoming Entry Barriers
When firms try to enter new’ markets they often face many problems, some of which may act as barriers to its entry. Well
established firms in a market may sell their products and services in large volumes thereby gaining economies of scale.
Economies of scale become a barrier to entry. Another barrier that a new entrant in the 1narket faces is product loyalty.
Creating enduring relationships with customers leads to product loyalty which may be difficult to overcome by a new entrant.
Moreover, a new’ entrant has to spend huge amounts on advertising. The cost of advertising increases further when a new
entrant in the market prefers differentiating its products from its competitors. Thus economies of scale, product loyalty and
high advertising expenses act as barriers for a firm trying to enter a new market. The greater the barriers to entry, the more the
likelihood that firms will take to M&As to overcome these barriers.
Cost of New Product Development
Developing new products and launching them successfully in the market requires commitment of the firm’s resources and the
return on investment may take a long time. Moreover, the market acceptance of the new product is also unpredictable.
‘According to a research 88 percent of the new products fail to achieve expected results, And 60 percent of innovative products
are copied within four years being patented.
Firms prefer M&As to avoid the internal costs of developing new products. Moreover, M&As also reduce the risks associated
with the launch of a new product, as the product is already tested in the market. If a company acquires a company that already
has an established product in the market, the acquiring company can enter the market more quickly.
Pharmaceutical companies use M&As to gain a quick entry into the market and overcome the high costs of product
development. As patents on many key drugs expire after a certain period, firms which do not have a strong R&D center are
likely to be left behind. Thus. M&As seem to be the preferred option for such companies.
Increased Speed to Market
As discussed earlier, M&As lead to faster market entry when compared to the time taken for new product development.
Research has shown that M&As are the quickest route to new markets and new capabilities. The new capabilities can be used
to introduce new products and enter markets and this can create an advantageous market position. However, how long the
advantage may last, depends upon the rivals’ competitive responses.
Lower Risk Compared to Developing New Products
As we have seen earlier, developing a new product involves a lot of risk, Managers view M&As as risk—free method of
getting entry into new markets, But one major drawback associated with increasing M&As activities is that they prevent
 investments in new product development. Research shows that M&As have become a means to avoid risky internal ventures.
Many firms would not like to incur heavy expenses in developing new products. as acquisitions often seem to provide an
economically more viable option.
Increased Diversification
Finns find it easy to develop and introduce new products in markets, in which they have, some experience. On the contrary, if a
firm launches a product that has 110 relation to its existing portfolio of the products there are lower chances of its success.
Thus, in order to diversify, firms would prefer M&A route. M&As can be used for both related as well as unrelated
diversification. M&As are more common when firms want to diversify on a global level.
Before undertaking any M&A activity to diversify its product lines, a firm needs to study and evaluate the fit between the
acquiring and the acquired firm. If the acquired firm and the acquiring firm are similar, there are greater chances of the
acquisition being successful. Many multinational companies ‘engaged in the production of household appliances used M&A
excessively to diversify their product portfolio in India.
Reshaping the Firm’s Competitive Scope
The intensity of competition affects the profitability of a firm. To reduce the negative effect of competition, and reduce their
dependence on a single or a few products, firms acquire other firms. If a firm is dependent on a single product for all its
revenues and profits, the competitive scope of the company is likely to be reduced. To avoid dependence on a single product,
many firms are venture into new industries through acquisitions. < TOP
>
7. The various reasons for ‘DaimlerChrysler’ not doing well as expected prior to the merger are:
• Management took a beating as Chrysler's Eaton is left, along with dozens of top U.S. managers responsible for the
marketing, product and design savvy Daimler had originally sought from Chrysler, the kind of smarts needed to help the
new DaimlerChrysler develop a vehicle for every kind of driver, from Buenos Aires to Beijing.
• DaimlerChrysler greatly underestimated the cultural problems that would form the core of the company's present-day
woes.
• For the past three years, mistrust between Auburn Hills and Stuttgart has made cooperation difficult on even the simplest of
matters.
• Decision on which parts and, in some cases, which technologies the image-conscious Mercedes will share with Chrysler
has been all but impossible.
• Though the task of tying the two former companies' technologies together in a push to cut costs and boost efficiencies has
marched forward. But the cultural challenges have been just as daunting, if not more so.
• German and American styles of management differed sharply.
• In the critical, time-crunched weeks before the merger, even the simplest differences between American English and the
British English used by DC's German engineers led to frequent misunderstandings.
<TOP>
Section C: Applied Theory
8. MULTIDOMESTIC INDUSTRIES AND GLOBAL INDUSTRIES
Michael E. Porter developed a framework to view the basic strategic alternatives of a firm competing internationally. The
analysis initially involves understanding of the industry or industries in which the firm competes. International industries can
be characterized along a continuum from multi-domestic to global.
Multi-domestic Industries
A multi-domestic industry is one in which the competition within the industry is essentially segmented from country to
country. Thus, although multinational corporations are involved in the industry, competition that occurs internally in a country
is independent of the competition in other countries. Retailing insurance and consumer finance are examples of such industries.
The subsidiaries of an MNC should be managed as distinct entities in a multi-domestic industry that is each subsidiary should
be rather autonomous by making independent decisions to respond to local market conditions. Thus, an international strategy in
a multi-domestic industry actually becomes the sum of the strategies developed by subsidiaries operating in different countries.
Multinational firm and the domestic firm competing in a multi-domestic industry can be primarily distinct in their decisions
related to what countries the company competes in and to how it conducts business abroad.
The degree to which a market is multi-domestic is determined by the following factors.
The need for customized products to meet the tastes or preferences of local customers.
• A very fragmented industry with many competitors in each national market.
• The lack of economies of scale in the functional activities of the business.
• Distribution channels unique in each country.
• A low technological dependence of each subsidiary on R&D provided by corporation.
Global Industries
 A global industry is one in which competition within the industry crosses national borders. The strategic moves of a firm in one
country can affect significantly its competitive position in another country. However, the competition occurs on a world basis.
Industries such as commercial aircraft, automobiles, mainframe computers and electronic consumer equipment are few
example& of global industries. So, a multinational firm in such industries must link its subsidiaries together by leading to the
maximization of its capabilities through a world4de strategy. A high degree of centralized decision-making is necessitated in
corporate headquarters so that trade-off decisions across subsidiaries can be made.
The creation of the global market is influenced by the following factors.
• The presence of economies of scale in functional activities of the business.
• A high level of R&D expenditures on products that require more than one market to recover development cost.
• Predominantly multinational companies in the industry, anticipate the same consistent product and service across markets.
• Homogenous product needs, which reduce the requirement of customizing the product for each market.
• A small group of global competitors in the industry.
• A low level of trade and foreign direct investment regulation. <TOP>
9. CONSIDERATIONS FOR STRATEGISTS IN THE 215T CENTURY
At the start of the 2 l century, we find that there is an increasing need for managers who understand their role under conditions
of rapid change. In certain situations, there are forces which are beyond the control of managers. These situations require
managers who can adjust to new developments. Managers are also themselves involved in initiating and directing change.
Some of the challenges that managers face at the start of the new century are described below:
Corporate Strategy
The last decade of the twentieth century is likely to be viewed by historians as an era in which a remarkable redefinition of
business took place. Mans’ companies reengineered operations in order to become more efficient, but often less dependent on
people than in the past. Massive dislocation of people from all levels of companies has taken place as a result of waves of
restructuring, during the past decade. As a result of restructuring many of the middle- and senior-level managers lost their jobs,
and upon failing to find comparable jobs in other large firms, these managers were instrumental in founding new companies.
The 1990s, thus saw a great burst of new business formation. The effects of restructuring and layoffs also affected a new
generation of employees. Many talented people who might have once strived to join large companies began to view better
opportunities and more happiness in smaller, independent businesses of their own.
It has become necessary for managers to consider whether, and how, their companies can integrate commitments towards their
employees with the changing needs and demands of customers for products and services. Further, the need for high
performance workplace environments has made it essential for companies to invest in education of its employees, development
of their skills, and process changes to effectively empower employees. Although some companies have made significant efforts
in creating an environment encouraging excellent performance in the workplace, others have been excessively cautious in this
regard. The trade-off between the benefits of initiating these changes relative to the costs is one of the key strategic issues
managers have to face.
Ethics, Public Values and Social Responsibility
The ever-changing conditions in which business is conducted test the ability of companies to adhere to core values and
principles. Technological changes, for example, are throwing up a host of new issues regarding the ownership, use and
distribution of intellectual property.
Managers can expect further complications in ethical issues, many of which will relate to global business activity. These issues
will culminate in one central question for strategic managers-- how can business be conducted within a framework of ethical
ideals, norms and standards that are understood and accepted by people globally? Social responsibility and environmentalism
are important related issues in this contest.
Global Challenges
Strategic managers in the twenty first century are likely to face one central question:
How can businesses operate in a global environment in ways that serve societal objectives by meeting real needs, yet
accommodate the diverse demands and often conflicting interests of stakeholders?
Role of the Government
Governments around the world are in the process of redefining and reinventing their role in the global economy of the 21st
century. The choices of individual nations will be influenced by many factors, including the new reality of global financial
markets that react instantaneously to financial news in any part of the world.
Ecological Challenges
In the twenty-first century, ecological challenges have emerged as the most important vector of change. Understanding the
interconnectedness of economic and demographic variables will be crucial in the twenty-first century.
Quality and Productivity
Another challenge faced by strategy managers in recent years has been issues of quality, productivity and their relationships.
Companies in the US have come to understand that the success of the Japanese and German firms lies in the edge in quality of
their products. As a result, US firms are moving towards the enhancement of the quality of their products and services.
Products of higher quality using fewer resources are developed by globally competitive companies. More and more interest is
therefore, being shown by US Managers on ways to improve the productivity of American workers.
Workforce Diversity
Workforce diversity is another issue that managers today must learn to deal with. Various factors such as globalization, aging
population, influx of workers into new careers and occupations and influx of women into organizations, have made the
workforce much more heterogeneous than at any time in the past. The workplace, likewise, is very different from what it was in
the past. It has, therefore, become important for managers in every organization to become more sensitive to the needs,
perceptions and aspirations of mans different kinds of workers. Managers of today must also be in a position to utilize the
talents of all their employees.
Change
Managers of today face more change than their predecessors did. The requirements, demands and expectations from managers
and their organizations, as well as the complexity of the competitive environment, is far greater than was the case in the past. In
the past, managers viewed change as something to be addressed periodically, whereas it has become a fact of everyday life for
present day managers.
Empowerment
Issues dealing with empowerment of the organization’s human resources are another challenge for managers in the 21st
century. The various techniques and methods of empowerment range from increased participation in decision making to the use
of integrated work teams. < TOP
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