UNIVERSITY QUESTIONS AND ANSWERS

Q. 1. Distinguish between the following concepts with suitable illustrations:(a) Core Competence v/s Distinctive Competence
Core Competence

Distinctive Competence

1.
They are activities that a
corporation
can
do
exceedingly well or better
than others in its area of
competition.
It is an advantage which it
enjoys over its competitors.

1.
When a core competency
provides the organization with
a competitive advantage over
its rivals it is termed as
distinctive competence.

2.
A core competence may or
may
not
provide
competitive advantage.

2.
A
distinctive
competence
always provides competitive
advantage to the firm.

3.
Example: superior quality in
a particular attribute like
fuel efficiency

3.
Example:
superior engine
technology of Honda giving it a
competitive advantage of its
rival.

(b) Offensive v/s Defensive Strategies in Mergers & Acquisitions

(2003)
What are mergers?
A merger is a combination of two or more organizations in which one
acquires the assets and liabilities of the other in exchange for shares or
cash, or both the organizations are dissolved, and the assets and
liabilities are combined and new stock is issued.
For the organization which acquires another, it is an ACQUISITION.
For the organization which is acquired, it is MERGER.
The types of mergers: Horizontal merger
Vertical merger
Concentric merger
Conglomerate merger
Types of acquisitions: Hostile takeovers
Offensive strategy
Defensive strategy
Offensive Strategies
1.
They are basically employed to
achieve competitive advantage
that cannot be easily broken by
rivals in areas of cost advantage,
differentiation advantage and
resource advantage.

Defensive Strategies
1.
The purpose of defensive
strategy is to lower the
risk of being attacked
weakening the impact of
any attack that may occur.
However the foremost
purpose
of
defensive
strategy is to protect
competitive advantage and
fortify firms competitive
position.

2.
They are used to CREATE AN
ADVANTAGE &
SUSTAINABLE EDGE.

2.
The basic approaches are: Block challengers
option for initiating
an attack by may be
introducing
new
features
and
broaden
product
lines to close of
gaps and niches.
Signaling
that
retaliation
is
imminent by may be
cutting
price,
increasing
capacities
and
generally announce
management
commitment
to
defend its present
share.

(c) Primary v/s Secondary Value Chain Activities

(2003)
Primary Value
Activities

Chain Secondary
Activities

Value

(d) Vertical integration v/s Horizontal Diversification

(2003)
Vertical Integration
1.
When an organization
starts
making
new
products thats serve its
own need.

(e) Vision v/s Mission

Horizontal Diversification

Chain

(2003), (2004)
Vision

Mission

1.
1.
Vision has been defined in A mission statement describes
several different ways.
what the organization is now.
A vision statement describes A mission statement often answers
what the organization would like basic questions like:
to become.
What business are we
in?
A vision therefore articulates the
Who are we?
position that a firm would like to
What are we about?
attain in the distinct future. Seen
from this perspective the vision
encapsulates the basic strategic
intent.
Understanding Vision:-

Understanding Mission:-

A vision is more --- than it is

articulated. By its nature, it could
be as hazy and vague as a dream.
One would experience the
previous night and is not able to
recall perfectly in broad day
light.
Yet it is a powerful motivator to
action and it is from the action
that vision could be often
derived.

Organizations
relate
their
existence to satisfy a particular
need of the society. They do this in
term of their mission. Mission is a
statement which defines the role
that an organization plays in a
society.

Definition of vision:
Kotler (1990)
Description of something (an
organization, corporate culture, a
business, a technology, an
activity) in the future.

Definition of mission:Thompson (1997)

Defines mission as the essential
purpose of an organization
concerning particular --- why it is
in existence, the nature of
business, it is ---- and the
customers it seek to serve and ----

Miller and Den (1996)

Hunger and --- (1999)
Category ------ that are broad, all Purpose or reason for
inclusive and forward thinking.
organizations existence.

an

A
vision
expresses
an
organizations
fundamental
aspiration and purpose, usually
appealing to its members hearts
and minds.
2.
2.
Vision is generally broad and Mission is more targeted.
general.
3.
Benefits of a vision:
Good vision are inspiring
and -- Good vision foster long
term thinking
Good vision foster risk
taking
and
experimentation
Good vision help in
creation
of
common
identity and --- ----- of
purpose.

3.
In order to be effective, a mission
statement should possess the
following characteristics:a)
b)
c)
d)
e)
f)

It should be feasible
It should be precise
It should be clear
It should be motivating
It should be distinctive
It should indicate major
components of the strategy
g) It should indicate how
objectives are to be
accomplished

(f) Divestment v/s Demerger

(2002)
Divestment

Demerger
1.
De-merger is a major
restructuring activity for
delivering value to share holder.
It involves spinning of part of the
diversified co. into a new co. an
undertaking free distribution of
the shares of the spun off co. to
the original shareholders of the
original co.
Eg. Sandoz demerged its
industrial chemical business into
a new co. Clariant India Ltd.
Unlike divesting, the parent co.
does not receive any proceeds of
the de-merger since the demerged co. shares are directly
distributed to co. shareholders.
Hence, the major motives of demerger are to close the value
gap, improve mgmt.
Focus
and
avoid
cross
subsidisation between business
portfolio.

(g) Entry Barrier v/s Exit Barrier

Entry Barrier
1.
New entrants to the market
bring with them a new
production capacity, a desire to
establish a secure place in the
market
and
some
time
substantial
resources
to
compete.

Exit Barrier

1.
Restrict the firm in an industry
and prevents from leaving even
though the returns might be low
or might even be sometimes
negative.
The exist barriers are the
economic ---- or emotional
factors which prevent companies
A barrier to entry exists from moving out after the
whenever it is hard for a new disinvestment of business.
comer to break into the market
or the economic factors that
need to be surmounted which
poses a disadvantage to the
new entrant relative to the
competition.
Entry barriers may be classified
as:1) Economies of scale deter
enter because they force new
players to enter

Effects of Entry Barriers and Exit Barriers on

Industry Profits
Exit Barriers
Low

Low

High

Low, Stable Returns

Low, Risky Returns

High, Stable Returns

High, Risky Returns

Entry Barriers
High

(h) Joint Venture v/s Strategic Alliance

Joint Venture
1.
A joint venture (often abbreviated
JV) is a strategic alliance between
two or more parties to undertake
economic activity together.
The parties agree to create a new
entity
together
by
both
contributing equity, and they then
share in the profits, losses, and
control of the enterprise.
The venture can be for one
specific project only, or a
continuing business
relationship such as the Sony
Ericsson joint venture.

2.

http://en.wikipedia.org/wiki/Joint_venture

Strategic Alliance
1.
Lando Zeppei, defines strategic
alliance as a co-operative
arrangement between two or
more companies where:a) A common strategy is
developed in unison and a win
win attitude is adopted by all the
parties.
b) The relationship is reciprocal,
which each partner prepared to
share specific strengths with
each other, thus lending power to
the enterprise.
c) A pooling of resources,
investments, and risks occurs for
mutual (rather than individual)
gain.
2.
Types of strategic alliances
Procompetitive alliances
(low interaction / Low conflict)
These are generally inter
industry.

Reasons for forming a joint venture

Internal reasons
1.
2.
3.
4.
5.

Spreading costs and risks

Improving access to financial resources
Economies of scale and advantages of size
Access to new technologies and customers
Access to innovative managerial practices

Competitive goals
1.
2.
3.
4.
5.
6.

Influencing structural evolution of the industry

Pre-empting competition
Defensive response to blurring industry boundaries
Creation of stronger competitive units
Speed to market
Improved agility

Strategic goals
1. Synergies
2. Transfer of technology/skills
3. Diversification

Examples

AutoAlliance International between Ford Motor Company and Mazda

Cingular between SBC and BellSouth
Equilon between Texaco and Royal Dutch Shell
LG.Philips Components between LG Group and Royal Philips Electronics
NUMMI between General Motors and Toyota
Penske Truck Leasing between GE and the Penske Corporation
Sony Ericsson between Sony and Ericsson
Verizon Wireless between Verizon Communications and Vodafone
CW Television Network between CBS Corporation and Time Warner
The Baseball Network between ABC, NBC, and Major League Baseball
The Prime Time Entertainment Network from the Prime Time Consortium, a joint
venture between Warner Bros. Domestic Television and the Chris-Craft group of
independent stations.

http://www.tata.com/tata_international/releases/20000926.htm

SITEL and Tata International to form joint venture

http://news.moneycontrol.com/india/newsarticle/stocksnews.php?autono=205271
Bharti to start life insurance joint venture

Q. 2. As a corporate planner of an Indian Co. create a document for formalizing

the strategic management process in your company.
Please explain the framework and key elements of this process. (2003)
Answer 2.
Definition of strategy
Kenneth Andrews: Strategy is the pattern of objectives, purposes or goals
and the major policies and plans for achieving these goals, stated in such a
way as to define what business the company is in or is to be in and the kind
of company it is or is to be.
What is Strategy?
1. A companys strategy consists of the set of competitive moves and business
approaches that management is employing to run the company
2. Strategy is managements game plan to
Attract and please customers
Stake out a market position
Conduct operations
Compete successfully
Achieve organizational objectives
The three big strategic questions
1) Where are we now?
2) Where do we want to go?
Businesses to be in and market positions to stake out/
Buyer needs and groups to serve?
Outcomes to achieve?
3) How do we get there?
Or
****
Strategic management consists of four basic elements. These are :
Environmental scanning: monitoring, evaluating and
disseminating information from the external and internal
environment to key people in the organization in order to
identify factors that will determine the future of the
organization. This is done through a SWOT analysis.
Strategy formulation: development of long range plans for the
effective management of environmental opportunities and
threats, in the light of corporate strengths and weaknesses. It
includes defining the corporate mission, specifying achievable

objectives developing strategies (courses of action) and setting

policy guidelines.
Strategy implementation: the process by which strategies and
policies are put into action through the development of
programs, budgets and procedures.
(a) Programs: statement of activities needed to accomplish a
plan. This makes strategy action oriented. It may also involve
restructuring, changing the companys internal culture or new
research efforts.
(b) Budgets: a statement of a companys program in terms of
money that lists the detailed costs of each program.. It serves as
a detailed plan of the new strategy and specifies its expected
impact on the firms financial future.
(c) Procedures: a system of sequential steps or activities that
describe in detail how a particular task or job is to be done.

Evaluation and control: the process in which corporate

activities and performance results are monitored so that actual
performance can be compared with desired performance in
order to take corrective action and improve performance.
****
Or
The term STRATEGIC MANAGEMENT refers to the managerial process
of forming
a)
b)
c)
d)
e)

strategic vision
setting objectives
crafting a strategy
enabling it to implement and execute the set strategy
evaluating performance

As on ongoing process overtime one has to initiate whatever corrective

adjustments that may be deemed necessary in the above parameters may be
carried out.
Five components in the strategic process are typically called as the 5 task
framework

Develop
Mission
and Vision

Set
Objective

Crafting
strategy to
achieve the
objectives

Implement
and execute
strategy

Evaluating
performance
continuous
improvement
Monitoring
new
developments
and initiating
corrective
measurements

a) develop strategic vision

what is the long term direction

where are we headed to as a company
what type of future should we embrace in terms of
technology / product / customer focus
what is the industry standing we wish to achieve in the
next five years

Managers need to take look at the companys internal and external

environment in order to arrive at views and conclusions on the future
scope and focus that it intends to pursue.
This pursuit constitutes the strategic vision for a company and reflects on
the managements aspiration for the organization and its business. The
strategic vision generally helps direction setting and strategy making
value enabling organization leader to make clear business courses in
terms of resource allocation and strategy to reach the company to its
logical goal of being an industry leader.
b) setting objectives
The purpose of setting objectives is to convert statements of strategic vision
and business mission into specific result oriented targets which has to be
achieved.
Objective setting is required by all managers.
Every functional unit in a company needs concrete and measurable
performance target that contribute meaningfully towards achieving company
objectives.
All managers of each unit are held accountable for achieving them.

Thus building a result oriented climate towards the enterprise.

c) crafting a strategy
d) enabling it to implement and execute the set strategy
e) evaluating performance

Q. 3. What are the key elements of change process? How will you handle the
change process in the following situations: - (2003)
a) Your Company wants to go ahead with the implementation of ERP
Package for better inventory management and JIT.
b) Your Company wants to change incentive systems for sales which
are focused more towards new products.
Ans.
Change is a process that can be schematically represented as
Present
State

Pain

Transition
state

Remedy

Desired
state

For eg Liberalization, downsizing with VRS, merger & acquisition (change

culture)
The pre-requisites of change are
1. Pain critical mass of information breaks the current status quo.
2. Remedy certain desirable & accessible action solve the problem or take
advantage of the current status of the situation.
The key issues are
Will the people choose to accept change
If not should you force change
If you do force change will people value the benefit
The major requirements to effect change are

Continuous commitment & involvement of top management

High degree of trust at all levels of organization facilitates change
Patience in terms of time frame to allow benefits of change
Change is always expensive but has to be done if maintaining current status
is even more prohibitive.
Change will result in significant disruptions of peoples expectations,
resulting in loss of control over some important aspects of their lives &
environment.
Change consistent with current organization cultures are usually successful

Change Process
Stage 1- Choosing the target actions

Identify possibilities/opportunity
Select the best one
Gain sufficient commitment to initiate the process
Set a target & general direction for efforts by clearly describing future
situation

Stage 2- Setting Goals

Test feasibility of making change
Develop specific goals & action plans to achieve targets
Develop clear understanding of future requirements in terms of resources,
skills, tools & timing.
Gain substantial commitment to time & resources required
Stage 3- Implementing action

Initiate the plan

Involve all those who must change. tell them how & why
Shift the working pattern
Demonstrate effectiveness of plan & progress towards goals & tangible
proof of benefits of change.

Stage 4 Review
Complete the implementation process
Encourage & support people who are making efforts to change
Improve upon the approach based on feedback
Stage 5 Re balancing & accommodating change
Identify ripple effects of change on department , systems, organization
structure
Integrate changes with existing attitudes & systems
Stage 6- Consolidation
Audit accomplishments against original goals
Identify what worked & what didnt & analyze why
Share the learning process

Leadership in the change process

An effective leader will be a visionary & a catalyst with creativity & intuition
who will be the key driver in the change process. He will effectively target
change by planning an effective path with a conducive climate to initiate the
process. He will involve all concerned to realize the benefits of change & with
continuous communication & commitment with adequate flexibility, he would
lead the organization on the path way of change.
****
Or
****
Change takes place as a process through certain channels and involves social
roles of members
The change decision process involves:
A decision maker
Obtaining information about the need for change
Promoting a positive attitude toward the change
Making a decision to adopt or reject
Implementing the idea
Confirming the decision

Workforce
World
Politics

Social
Trends

Technolog
y

Forces For
Change Economic
Shocks

Competitio
n

Change is an integral part of any business or process. Without change there is

no growth.
My business is about distribution of Travelers cheque (TC) and travel plastic
card to various banks and non banking institutions, who in turn sell them to the
end customer.
Our business has its headquarter in UK with a total base of $ 400 million. We
have offices all over the world. From India we manage the business of South
East Asia, Bangladesh and Pakistan.
In India we have our offices in all the four metros.
Our products i.e. Travelers cheque (TC) and travel plastic card are printed and
designed in U.K. Hence
Q. 4. Mergers & Acquisitions have now become a major corporate
restructuring tool in the Indian Corporate Scene.
Discuss this statement in relation to current scenario. What are the
objectives based on which company can initiate Mergers & Acquisition
process. Illustrate your answer with examples. (2003)
Acquisition stands for taking over the management of the firm.
Merger stands for amalgamation of the firm with the existing parent firm or
joining hands between friendly companies.

Since the motives of merger and acquisition are the same and both involve the
transfer of ownership and control of assets and the right to manage
corporate cash flows and the difference between them is only a matter of
technical detail, the term mergers and acquisitions are often used
interchangeably.
Merger
In business or economics a merger is a combination of two companies into one
larger company. Such actions are commonly voluntary and involve stock swap
or cash payment to the target. Stock swap is often used as it allows the
shareholders of the two companies to share the risk involved in the deal. A
merger can resemble a takeover but result in a new company name (often
combining the names of the original companies) and in new branding; in some
cases, terming the combination a "merger" rather than an acquisition is done
purely for political or marketing reasons.

Classifications of mergers

Horizontal mergers take place where the two merging companies produce
similar product in the same industry.
Vertical mergers occur when two firms, each working at different stages
in the production of the same good, combine.
Conglomerate mergers take place when the two firms operate in different
industries.

A unique type of merger called a reverse merger is used as a way of going

public without the expense and time required by an IPO.
Motives behind M&A
These motives are considered to add shareholder value:

Economies of scale: This refers to the fact that the combined company
can often reduce duplicate departments or operations, lowering the costs
of the company relative to theoretically the same revenue stream, thus
increasing profit.
Increased revenue/Increased Market Share: This motive assumes that the
company will be absorbing a major competitor and increasing its power
(by capturing increased market share) to set prices.
Cross Selling: For example, a bank buying a stock broker could then sell
its banking products to the stock broker's customers, while the broker can

sign up the bank's customers for brokerage accounts. Or, a manufacturer

can acquire and sell complementary products.
Synergy: Better use of complementary resources.
Taxes: A profitable company can buy a loss maker to use the target's tax
write-offs.
Geographical or other diversification: This is designed to smooth the
earnings results of a company, which over the long term smoothes the
stock price of a company, giving conservative investors more confidence
in investing in the company. However, this does not always deliver value
to shareholders (see below).

These motives are considered to not add shareholder value:

Diversification: While this may hedge a company against a downturn in

an individual industry it fails to deliver value, since it is possible for
individual shareholders to achieve the same hedge by diversifying their
portfolios at a much lower cost than those associated with a merger.
Overextension: Tend to make the organization fuzzy and unmanageable.
Manager's hubris: Oftentimes the executives of a company will just buy
others because doing so is newsworthy and increases the profile of the
company.
Empire Building: Managers have larger companies to manage and hence
more power
Manager's Compensation: In the past, certain executive management
teams had their payout based on the total amount of profit of the
company, instead of the profit per share, which would give the team a
perverse incentive to buy companies to increase the total profit while
decreasing the profit per share (which hurts the owners of the company,
the shareholders); although some empirical studies show that
compensation is rather linked to profitability and not mere profits of the
company.
Bootstrapping: Example: how ITT executed its merger.

Examples for Major Mergers and Acquisitions

DaimlerChrysler; Daimler Benz and Chrysler (Announced May 1998 - Final
1998) ($35 billion)
Procter & Gamble buy Gillette (2005, $54 billion)
Walt Disney Company and Pixar, announced January 2006, $7 billion

Q. 5. Global players are entering the Indian consumer durable market in a big
way with heavy investment.
How they can achieve sustainable competitive advantage given the fact
that they have different levels of experience and different entry modes.
Can they apply Porters Model of generic strategies? (2003)
Answer 5.

Porters Generic Strategies

Competitive Advantage
Lower Cost
Differentiation
Strategy 1

Broad
Target
Competitive
Scope
Narrow
Target

Strategy
Strategy22

Cost
Leadership
Strategy
Strategy3A
3A

Differentiation
Differentiation

Strategy
Strategy3B
3B

Cost
CostFocus
Focus

Differentiation
Differentiation
Focus
Focus

Generic Strategies
STRATEGIC ADVANTAGE
Uniqueness Perceived
by the Customer

STRATEGIC
TARGET

Industry wide

Particular
Segment only

DIFFERENTIATION

Low Cost Position

OVERALL
COST LEADERSHIP

FOCUS

3
Source: Michael Porter, Competitive Strategy, 1980

Differentiation strategy involves competing with all other firms in the industry
by offering products that customers perceive to be unique
Cost leadership strategy means competing in the industry by providing a
product at a price as low as or lower than competitors prices

 This strategy requires a constant concern for efficiency, and

High volume and / or rapid growth are needed
Focus strategy involves competing in a specific industry niche by serving the
unique needs of certain customers or a specific geographic market
Porters Five Forces Model

Threat of new entrants

Rivalry among existing firms
Threat of substitute products / services.
Bargaining power of buyers and suppliers.
Relative power of other stakeholders

Q. 6. Deregulation of insurance sector is a key change in the business

environment of insurance in the country today?
You are retained as a consultant to conduct environmental scanning for a
new entrant for the insurance sector.
What are the different aspects of analysis that you will carry out for your
Client? (2003)
Answer 6.
INSURANCE SECTOR IN INDIA
The insurance sector in India has come a full circle from being an open
competitive market to nationalisation and back to a liberalised market again.
Tracing the developments in the Indian insurance sector reveals the 360-degree
turn witnessed over a period of almost two centuries.
http://www.mindbranch.com/products/R459-85.html
EXECUTIVE SUMMARY:
With an annual growth rate of 15-20% and the largest number of life insurance
policies in force, the potential of the Indian insurance industry is huge.
Total value of the Indian insurance market (2004 - 05) is estimated at Rs. 450
billion (US$10 billion).

According to government sources, the insurance and banking services

contribution to the country's gross domestic product (GDP) is 7% out of which
the gross premium collection forms a significant part.
The funds available with the state-owned Life Insurance Corporation (LIC) for
investments are 8% of GDP.
Till date, only 20% of the total insurable population of India is covered under
various life insurance schemes, the penetration rates of health and other non-life
insurances in India is also well below the international level. These facts
indicate the of immense growth potential of the insurance sector.
The year 1999 saw a revolution in the Indian insurance sector, as major
structural changes took place with the ending of government monopoly and the
passage of the Insurance Regulatory and Development Authority (IRDA) Bill,
lifting all entry restrictions for private players and allowing foreign players to
enter the market with some limits on direct foreign ownership.
Though, the existing rule says that a foreign partner can hold 26% equity in an
insurance company, a proposal to increase this limit to 49% is pending with the
government. Since opening up of the insurance sector in 1999, foreign
investments of Rs. 8.7 billion have poured into the Indian market and 21 private
companies have been granted licenses.
Innovative products, smart marketing, and aggressive distribution have enabled
fledgling private insurance companies to sign up Indian customers faster than
anyone expected. Indians, who had always seen life insurance as a tax saving
device, are now suddenly turning to the private sector and snapping up the new
innovative products on offer.
The life insurance industry in India grew by an impressive 36%, with premium
income from new business at Rs. 253.43 billion during the fiscal year 20042005, braving stiff competition from private insurers. RNCOSs report, Indian
Insurance Industry: New Avenues for Growth 2012, finds that the market share
of the state behemoth, LIC, has clocked 21.87% growth in business at
Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was
still not enough to arrest the fall in its market share, as private players grew by
129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04.
Though the total volume of LIC's business increased in the last fiscal year
(2004-2005) compared to the previous one, its market share came down from
87.04 to 78.07%. The 14 private insurers increased their market share from
about 13% to about 22% in a year's time. The figures for the first two months of
the fiscal year 2005-06 also speak of the growing share of the private insurers.
The share of LIC for this period has further come down to 75 percent, while the
private players have grabbed over 24 percent.
There are presently 12 general insurance companies with four public sector
companies and eight private insurers. According to estimates, private insurance
companies collectively have a 10% share of the non-life insurance market.

Though the focus of this market research report is on the potential growth on the
Indian Insurance Sector, it also talks about the market size, market
segmentation, and key developments in the market after 1999. The report gives
an instant overview of the Indian non-life insurance market, and covers fire,
marine, and other non-life insurance. The data is supplied in both graphical and
tabular format for ease of interpretation and analysis. This report also provides
company profiles of the major private insurance companies.
REPORT HIGHLIGHTS:
Gains of Liberalization in Indian Insurance Sector
Indian Insurance Market Segmentation By Products
Size of the Market and Market Share Of Life Insurers, In INR (crore)
Market Share Of Non-Life Insurers
Forecast of Life Insurance Growth Up to 2012
Forecast of Non-Life Insurance Growth Up to 2012
Market Revenue of Both Public and Private Insurers
Policies and Measures Taken By IRDA To Develop The Insurance Market
Research and Development Activities
Regulation of insurance and reinsurance companies
Major Challenges That Indian Insurance Sector is Facing
Profiles of the Major Players
REPORT FEATURES:
In the globalize market scenario, companies need to understand and challenge
the competitive markets they operate in. RNCOSs Indian Insurance Industry:
New Avenues for Growth 2012 is a complete analysis of the market that will
help you in decision making. Chapter 2, 3, and 4 of this report discussed the
impact of liberalization of the market, market shares of public and private sector
companies and polices implemented by IRDA to develop the insurance market
in India. Chapter 5, 6, and 7 deals with market revenue of private and public
players, opportunities and forecasts and Government policies. Regulation of
insurance and reinsurance companies, international cooperation and major
challenges of Indian insurance sector along with profiles of major players are
discussed in Chapter 8 and 9. Similarly, the level of competition among the
existing players and their strategies are also discussed.

Q. 7. Liberalisation & Globalisation has virtually changed the scenario for the
Financial sector.
Perform an external analysis for SBI covering the environmental scanning
and five forces model. (2002)
Answer 7.
The financial sector in India has been changing rapidly over the years with
liberalization and globalization, playing a very important part in the
development of the country.
The public sector banks which primarily enjoyed a very important role in the
banking sector in India have now taken a back stage wherein private players
like HDFC Bank, Kotak Mahindra Bank and ICICI Bank who have emerged
since the last decade with latest Technology, improvised customer focused skills
and timely services has started enjoying an important share in the banking
sector. Recently with Foreign Direct Investment in banking to -- % foreign
banks who are looking for an Indian partner such as HSBC who holds more
than 49% in UTI bank, Goldman Sachs who holds nearly 25 % in Kotak
Mahindra Bank Ltd having changed the banking face in India. Hence if SBI,
which in itself is a giant in banking and financial sector in India want to
maintain the said position it would then have to revamp itself in totality.
Environment Scanning
One would have to understand the information from external and internal
environment which can bridge the gap between profitability and long term
benefits.

External Environment:
Environment would play a very important role in understanding why such a
giant like SBI has taken a back stage and what it would require to do to come to
the front stage.
Economic forces:

GDP trends
Interest Rates
Money supply and Monetary Policy of RBI
Inflation
Unemployment

These indicators would throw light on how banks ------ how they survive and
achieve level of trust and satisfaction.

Technology:

Intra city banking

Clearing house setup
Specialized cell for investment
High technology and --- technology

These would be the parameters on which SBI would have to look on before ----Political and Legal: Lack or no influence of politics or minister
Favourable environment for new players to enter the market with increase
in FDI limit
This would help bank to learn new technology which are followed by the
foreign players---Social Environment: Changing life style
--- expectation
Consumer --Changing in the demand and need of the customer in terms of quickness,
efficiency, prompt customer service -------

Porters model is based on the following:1)

2)
3)
4)
5)
6)

Threat of new entrants

Rivalry among existing firms
Threat of substitute product / services
Bargaining power of buyers
Bargaining power of suppliers
Relative power of the stakeholders

Or
Porters Five Forces Model

Threat of new entrants

Rivalry among existing firms
Threat of substitute products / services.
Bargaining power of buyers and suppliers.
Relative power of other stakeholders

Threat of new entrants

SBI would be seriously faced with this factor because of liberalization and
globalization the world is known as a Global Village and with the level of
foreign direct investment --- the foreign players would like to --- emerging
market ---- economies of scale.
SBI could look at opening more branches abroad or go on acquisition mode
where SBI could acquire some foreign banks and start business --Rivalry among existing firms
Competition which is healthy is always important for any business as this helps
business to grow and keep it self --- and changes in the environment
Threat of substitute product / services
SBI would have to --- approach towards it on business partners internally and
externally. They would have to get in ---- latest technology and also have their
staff to handle customer ---Bargaining power of buyers
Since the banking industry is now more opened where in private players are into
pampering their client by offering them under one roof entire banking and

financial --- these clients are more aware of their rights and then they would
demand similar from others banks where they have their accounts.
Thus SBI should be more prompt to adapt to these changes in the industry.
Bargaining power of suppliers
Here SBI should be more focused in the --- and subsidiary banks by flowing
down the information of banking by teaching new banking procedures and
guidelines.
Relative power of the stakeholders
The stakeholder and promoter of the co. are very important for any company
without which any company is not ----. In fact sometimes due to stakeholders
influence, company changes their decision and practice. It would be high time
that SBI would want to consider its stakeholder and undergo a revamp in the
structure.
***
Environmental scanning - screening large amounts of information to detect
emerging trends and create a set of scenarios it often scans and throws light
on:
Events
Trends
Issues
Expectations

Porters (1980) Five Forces

Model of Competition
Threat of

Threat of New
New
Entrants

Entrants

Bargaining
Power of
Suppliers

Rivalry Among
Competing Firms in
Industry

Bargaining
Power of
Buyers

Threat of
Substitute
Products

Porters 5 Forces Model

Potential
Entrants
Threat of new entrants

Suppliers

Bargaining Industry Competition

power
of suppliers
Rivalry Among
Existing Firms
Threat of substitute
goods and services
Substitutes

Bargaining
power
of buyers

Buyers

Banking: The GOI increased the FDI limit for private banks to 74 percent in
March 2004, but the Reserve Bank of India has not yet issued implementing
guidelines. For state-owned banks the FDI limit remains at 20 percent. The 74
percent cap includes all foreign portfolio investments. At all times, at least 26
percent of the paid up capital must be held by residents. Wholly-owned
subsidiaries of foreign banks are exempt from this requirement. The Foreign
Institutional Investment (FII) limit remains at 49 percent. Foreign banks in India
have the option to operate as branches of their parent banks or as
subsidiaries. Shareholders of banking companies may exercise their voting
rights to a maximum of 10 percent.
http://www.hinduonnet.com/thehindu/biz/2002/03/28/stories/2002032800140100.htm
Thursday, Mar 28, 2002

FDI in the banking sector

With FDI investments of up to 49 per cent of equity and supported by substantial FII investments,
foreign banks can control nearly the entire equity of taken over private sector banks, says Abhijit Roy
THE LAST few weeks have seen substantial activity in the banking sector. The position is not entirely
clear yet, but it is obvious that the Government has decided to encourage foreign banks wishing to enter
India in order to strengthen the banking sector.
The Reserve Bank of India announced on February 16 a major policy change with regard to foreign direct
investment (FDI) in the Banking Sector. The guidelines are:
Limit for FDI under automatic route in private sector banks:
FDI up to 49 per cent from all sources will be permitted in private sector banks on the automatic route.
(b) For the purpose of determining the ceiling of 49 per cent FDI under the "automatic route'' in respect
of private sector banks, the following category of shares will be included IPOs; private placements;
ADRs/GDRs; and acquisition of shares from existing shareholders {zcaron}subject to (d) below.
(c) However, as per government guidelines, issue of fresh shares under the automatic route is not
available to those foreign investors who have a financial or technical collaboration in the same or allied
field. This category of investors requires the Foreign Investment Promotion Board approval.
(d) Further, the automatic route is not applicable to transfer of existing shares in a banking company
from residents to non-residents. This category of investors require approval of FIPB, followed by "in
principle'' approval by the Exchange Control Department (ECD) of the RBI. The "fair price'' for transfer of
existing shares is determined by the RBI, broadly on the basis of SEBI guidelines for listed shares and
erstwhile CCI guidelines for unlisted shares.
(e) Under the Insurance Act, the maximum foreign investment in an insurance company has been fixed
at 26 per cent. Application for foreign investment in banks which have joint venture/subsidiary in
insurance sector should be made to the RBI. Such applications will be considered by the RBI in
consultation with the Insurance Regulatory and Development Authority (IRDA).
(f) Foreign banks having branch in India, are eligible for FDI in the private sector banks subject to the
overall cap of 49 per cent mentioned above, with the approval of the RBI.
Limit for FDI in public sector banks In the case of nationalised banks as well as SBI and its associate
banks, the overall statutory limit of 20 per cent as FDI and portfolio investment will continue.
Voting rights of foreign investors
In the case of private sector banks, no person holding shares, in respect of any share held by him, shall
exercise voting rights in excess of 10 per cent of the total voting rights of all shareholders.
Budget announcements
Further, the Finance Minister has made the following announcements in the budget 2002.

* It has been decided to give an option to foreign banks to either operate as branches of their parent
banks or to set up subsidiaries. A foreign bank will have to choose one of the two options. It has also
been decided to relax the maximum ceiling of voting rights of 10 per cent for such subsidiaries.
* New FII portfolio investments will not be subject to the sectoral limits of FDI except in specific sectors.
Guidelines in this regard will be issued separately.
Earlier, it had been interpreted that FII investments in private sector banks could be made up to 49 per
cent of equity, at the same level as FDI limit. However, after the Finance Minister's announcement one
has to wait and see as to the level that FII investment will be allowed in this sector.
Interesting possibilities
With FDI investments of up to 49 per cent of equity and supported by substantial FII investments,
foreign banks can control nearly the entire equity of taken over private sector banks. If this is the
intention of the Government/RBI, then what happens to branch restrictions applicable to foreign banks?
We may then witness a dual policy of foreign banks with branches not being allowed to open new
branches, while foreign banks controlling private sector banks being allowed to operate all over the
country.
In case foreign banks convert their branch operations in India into a subsidiary, then in the normal
course the new legal entity should be treated as a domestic company and not a foreign company. In
addition to the issue of differential taxation, would such a conversion enable more freedom in
geographical expansion?
Trends in banking
The scheduled commercial banks operating in India are classified into public sector banks, old private
sector banks, new private sector banks and foreign banks. In the last few years, the new private sector
banks have outperformed the other three groups. Between 1995-96 and 1999-2000, the share in assets
of public sector banks fell from 84.5 to 80.2 per cent, while the share of foreign banks during the same
period fell from 7.9 to 7.5 per cent. The share of the old private sector banks rose modestly from 6.2 to
7 per cent during the same period, while the new private sector banks increased their share from 1.4 to
5.3 per cent. The main disadvantage that the foreign banks face is the restriction on branch expansion
imposed by the RBI.
Vulnerability of old private banks
The 23 old private sector banks represent a vulnerable section of the commercial banking sector. They
have a comparatively high level of non-performing assets. They also have a low capital base, inadequate
technology infrastructure and limited branch network. Over a period, they need to be merged with
stronger players. Till now the new private sector banks were in the best position to take them over.
However, with the new guidelines, the Government/RBI has introduced a new set of players, namely,
foreign banks, in this consolidation game. The capital market has already realised this; witness the
recent rise in shares of listed private sector banks.
Public sector banks
In the case of public sector banks, the Government had earlier announced that it is planning to reduce
its stake in such banks to 33 per cent in a phased manner. This is mainly because the Government does
not have enough money to contribute the additional capital that would be required over a period. Private
domestic capital may not be enough to fill the gap in capital requirements, which means that foreign
capital would have to be accessed. Such foreign capital can be either FII or FDI investments. The moot
point is whether sufficient capital from overseas investors would be forthcoming if there were no change
in management in the public sector banks. Induction of FDI in public sector banks would probably have
to be accompanied by change in management style in public sector banks. Politically such decisions are
not easy to take. Therefore, lack of capital in addition to other well known impediments may constrain
the growth of public sector banking segment as a whole.
Consolidation
Consolidation of the banking industry is expected to proceed apace. The banking industry in India has
witnessed many changes since the early 1990s. Initially the Government contributed substantially to the
equity of a large number of public sector banks in order to improve their capital adequacy levels. Then
the Government sought to change the structure of the Indian banking industry by granting licences to a
new generation of private sector banks. This step has been quite successful, as these banks have
introduced the latest technology to differentiate themselves, opened ATMs and branches at a rapid pace
and successfully weaned away customers from other banks.

The Government has now taken the next step by allowing foreign banks to take over private sector
banks. The next few years will show whether foreign banks are really interested in doing business in
India. We have seen that some of them have been quite unpredictable in their business decisions.
Foreign banks must have the tenacity to overcome the rigidities of the banking system in India. The road
ahead is not clear, but one can be sure that commercial banking in India will continue to witness
changes.

Q. 8. Your company is a number of large business group with a AAA + rating

from CRISIL.
Your company is considering three options:a) Enter into insurance sector with an alliance from foreign partner
b) Joint venture with global telecom giant
c) Takeover a major sick competitor
What are the parameters of diversification will you apply to arrive at best
Strategic option for your company. (2002)
Answer 8.

Q. 9. India will usher in a free economy with the provisions of WTO agreement
coming into force
Your MD wants the strategic planning group of your company to perform
environmental scanning (industry and competitive environment) of the
emerging scenario.
What analytical tools you can use as a part of the strategic planning
committee to carry out this study.
Illustrate your answer by taking any industry or sector of your choice
(2004)
Answer 9.
The factors of environment to be covered under environment survey:1) Macro Environmental Factors
Demographic environment
Socio cultural environment
Economic environment
Political environment
Natural environment
Technology environment
Legal environment
Government policies

2) Environmental factors related to business

The market / demand
The consumer
The industry
The competition
Government policies
The supplier related factors

***
Environmental scanning - screening large amounts of information to detect
emerging trends and create a set of scenarios it often scans and throws light
on:
Events
Trends
Issues
Expectations

Q.10. Fiat India Ltd. despite launching 3 models UNO, Sienna and Palio
within the last seven years is facing a crisis in the Indian automobile
industry.
As a CEO of Fiat India Ltd. conduct strategic audit for the company.
As a management consultant what are the critical questions that you would
like to cover in the audit process and how will you get answers to make
recommendations. (2004)
Answer 10.
Fiat India is wholly managed by Fiat Auto Spa of Italy, to give India truly world
class cars.
Fiat has achieved a high level of localization for all its cars, and is making
world-class cars available in India at even more competitive and affordable
prices.
Market Share (2004-05)
Passenger Vehicles
Commercial Vehicles
Three Wheelers
Two Wheelers

13.44
4.03
3.90
78.63

Strategic Audit
1. Current Situation
A) Current performance
B) Strategic Posture
2. Strategic managers
A) Board of Directors

B) Top Management
3. External Environment
A) Societal Environment
B) Task Environment
4. Internal Environment
A) Corporate Structure
B) Corporate Culture
C) Corporate Resources
5. Analysis of Strategic Factors
A) Situational Analysis (SWOT) (SFAS)
B) Review of current Mission and Objectives

6. Strategic alternatives and recommended strategy

A) Strategic Alternatives
B) Recommended Strategy
7. Implementation
8. Evaluation and Control

Additional questions
Distinguish between
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

Concentration and integration Strategy

Concentration and diversification Strategy
turnaround and divestment strategy
divestment and liquidation strategy
cost and focused cost strategy
cost leadership and differentiation strategy
horizontal and vertical mergers
concentric and conglomerate mergers
CSFs and distinctive competencies
functional and divisional structure
SBU and functional structure
divisional and matrix structure
divisional and network structure
customer based and product based structure
traditional and emerging organizational design

Strategic Management - Distinguish between

Topic

Year

competence and core competence

vertical integration and horizontal integration

2001, 2002, 2003,

2005
2001, 2004

strategic alliances and joint ventures

suppliers value chain and forward value chain
stars and cash cows in BCG matrix
entry barriers and exit barriers
offensive and defensive strategies
strategies of market leaders and market challenger
divestment and demerger
portfolio management and restructuring in
diversification
global and multi country operations
declining markets and fragmented markets
primary and secondary value chain activities
vertical integration and horizontal diversification
vision and mission statements
high velocity markets and fragmented markets
mergers and amalgamations
financial objectives and strategic objectives
competence and distinctive competence
embryonic industries and fragmented industries
divestment and spin off
growth markets and high velocity markets

2001, 2002
2001, 2005
2001
2001, 2002, 2005
2001, 2003
2001
2002
2002
2002, 2003, 2005
2002
2003
2003
2003, 2004
2003
2004
2004
2004
2004
2005
2005

Stars and cash cows in BCG matrix 2001

Companies that are large enough to be organized into strategic business units
face the challenge of allocating resources among those units. In the early
1970's the Boston Consulting Group developed a model for managing a
portfolio of different business units (or major product lines). The BCG growthshare matrix displays the various business units on a graph of the market growth
rate vs. market share relative to competitors:

Resources are allocated to business units according to where they are

situated on the grid as follows:
Cash Cow - a business unit that has a large market share in a mature, slow
growing industry. Cash cows require little investment and generate cash that
can be used to invest in other business units.
Star - a business unit that has a large market share in a fast growing industry.
Stars may generate cash, but because the market is growing rapidly
they require investment to maintain their lead. If successful, a star will
become a cash cow when its industry matures.
Question Mark (or Problem Child) - a business unit that has a small market
share in a high growth market. These business units require resources to
grow market share, but whether they will succeed and become stars is
unknown.
Dog - a business unit that has a small market share in a mature industry. A
dog may not require substantial cash, but it ties up capital that could better
be deployed elsewhere. Unless a dog has some other strategic purpose, it
should be liquidated if there is little prospect for it to gain market share.
The BCG matrix provides a framework for allocating resources among
different business units and allows one to compare many business units at a
glance.
However, the approach has received some negative criticism for the
following reasons:
The link between market share and profitability is questionable since
increasing market share can be very expensive.
The approach may overemphasize high growth, since it ignores the potential
of declining markets.
The model considers market growth rate to be a given. In practice the firm
may be able to grow the market.
These issues are addressed by the GE / McKinsey Matrix, which considers
market growth rate to be only one of many factors that make an industry
attractive, and which considers relative market share to be only one of many
factors describing the competitive strength of the business unit.
Short Notes
1. Vision, mission and objectives.
2. Environmental scanning

Involves studying & interpreting the sweep of social, political, economic,

ecological & technological events in an effort to spot emerging trends &
conditions that could become key driving forces.
It involves time frames in excess of three to five years for e g Forecasting
demand for electric power 10 years hence or how will people communicate in
the future or how will income levels & consumer habits change .
Environment scanning thus attempts to spot futuristic possibilities & their
implications.
The purpose of environment scanning is to raise consciousness of managers
about potential developments that could have an important impact on industry
& pose new opportunity or threats.
Environment Scanning can be accomplished by systematically monitoring &
studying current events & constructing future scenarios.
These methods are highly qualitative & subjective & despite its speculative
nature it helps managers lengthen the planning horizon, translate vague issues
for future opportunities or threats into clearer strategic issues.

3. strategic audit
4. SWOT analysis
5. Organizational appraisal
6. strategic alliances
7. Hostile takeovers
8. GE corporate portfolio matrix
9. regulatory framework of Indian industry
10.leadership and strategy
11.strategy and culture
12.strategic control
Strategic Management - Short notes

Topic

Year

scenario analysis
value chain analysis
generic strategies for growth
product differentiation
strategic business unit
competitive advantage strategies
strategic audit
corporate objectives
global strategies
benchmarking
diversification strategic options

1998
1998, 1999, 2000, 2001, 2005
1998
1999
2000
2000
2000, 2005
2000, 2001
2001
2001
2001, 2005

strategies for fragmented industries

vision and mission statements
balanced score cards
competitive capability analysis

2001
2005
2005
2005

Global strategies (2001)

Companies expand into foreign markets for the following reasons:

To gain access to the new customers

To achieve lower cost and enhance firms competitiveness
To capitalize a core competencies
To spread business risk across the wider mkt. base

A Company is considered as a global competitor when it is pursuing or has mkt.

presence in most continence and virtually in all major countries.
The main concerns faced by companies competing in foreign mkt. are cross
country variation in culture, demographic and mkt. conditions besides having
into customized their offerings in each country differently in order to match
local preferences. Global companies however offer standardized product
worldwide which leads to scale economies and experience curve effects
contributing to low cost advantage.
Global competition exists when competitor conditions across national mkt. are
linked together strongly enough to form a truly international mkt. In global
competition a firms competitive advantage grows out of its worldwide
operations, a competitive advantage created at home is supplemented by
advantages growing out of its operations in other countries. E.g. of global
competitions are, automobiles, t.v. tyres, watches and aircraft.
The key strategic options for competing globally are,
Export from single country production base or license to foreign firms or
employ franchising. These are generic strategies wherein country to country
variation is minimum.
Employ a global low cost strategy to gain cost leadership over global and
local rivals.
Opt for global differentiation strategy, thus endeavoring to set itself apart
from rivals and create an image and mkt. position on this basis.
Follow a global best cost strategy and strive to provide bias the best value.
Adopt a global focused strategy serving certain select niches in each
strategically important mkt.

Hence key aspects of global strategy are aimed at,

Same strategy and product standards worldwide
Plans located on the basis of maximum competitive advantage i.e. low cost
countries, close to major mkt. and dispersed in order to minimize transport
cost.
Additional questions
Q1.

To anticipate and manage change, you need a visionary leader,

Comment with examples. (1998)

Q2. Describe how corporate objectives are influenced by vision and mission of
an organization. (1999)
Q3. Managing change is the most challenging area of Strategic management
and has proved to be a benchmark for judging the performance of a
company in implementing strategic plans. Discuss the statement in the
light of factors affecting change management. How can we manage
change effectively in an organization?