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Lecture 4, Unit 4, Week 4
External Analysis
By:
Dr. Obi Berko
Question 1
St Sound is a small record company. Representative from St Sounds scour music clubs for new bands to promote. Once a band signed contract (with St Sounds) it makes a recordings. The recording process is subcontracted to one of a number of recording studio firms which St Sounds
uses regularly. (At the moment St Sounds is not large enough to invest in its own equipment and studios).
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St. Sounds also subcontracts the production of records and CDs to a number of manufacturing companies. St Sounds then distributes the discs to selected stores, and engages in any promotional activities required.
Required
What would you say were the activities in St. Sounds’ value chain?
Question 3
A university which derives most of its funds from the
government provides undergraduate courses (leading to bachelor’s degrees) and post-graduate courses (leading to master’s degrees). Some of its funds come from
contributions from student fees, consultancy work and research. In recent years the university has placed
emphasis on recruiting lecturers who have achieved
success in delivering good academic research. This has led to the university improving its reputation within its
national academic community, and applications from prospective students for its courses have increased.
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The university has good student support facilities in
respect of a library which is well stocked with books and journals and up-to-date IT equipment. It also has
gymnasium and comprehensive sports facilities. Courses at the university are administered by well-qualified and trained non-teaching staff who provide non-academic
(that is, not learning-related) support to the lecturers and students. The university has had no difficulty in filling its courses to the level permitted by the government, but has experienced an increase in the number of students who have withdrawn from the first year of their courses after only a few months.
An increasing number of students are also transferring from their thee-year undergraduate courses to other
courses within the university but many have left and gone to different universities. This increasing trend of student withdrawal is having a detrimental effect on the
university’s income as the government pays only for students who complete a full year of study.
You are the university’s management accountant and
have been asked by the Vice-Chancellor who is the Chief Executive of the university) to review the withdrawal rate of students form the university’s courses.
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(Candidates do not require any knowledge of university admission and withdrawal processes to answer this
question).
Required:
Apply Value Chain analysis to the university’s activities, and advise the Vice-Chancellor how this analysis will help to determine why the rate of student withdrawal is increasing.
Learning Objectives
1. Describe the three tiers of environmental factors that affect firm performance
2. List and explain the five factors in the remote environment
3. Give examples of the economic, social, political, technological, and ecological influences on a business
4. Explain the five forces model of industry analysis and give examples of each force
5. Give examples of the influences of entry barriers, supplier power, buyer power, substitute availability, and competitive rivalry on a business
6. List and explain the five factors in the operating environment
7. Give examples of the influences of competitors, creditors, customers, labor, and direct suppliers on a business
External Environment –
meaning?
•
Good knowledge of the external environment
can help to improve planning;
•
Identify threats;
•
Identify opportunities;
•
Decrease the likelihood of major surprises.
The Firm’s External Environment
Components:
1) Remote environment
2) Industry environment
3) Operating environment
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Analysis of the components
1. Type and nature
2. Sources
3. Impact
4. Strategy and management
5. Monitoring
Industry Analysis & Competitive Analysis
Key questions to ask:
1. What are the boundaries of the industry?
2. What is the structure of the industry?
3. Which firms are our competitors?
Globalization
Globalization refers to the strategy of pursuing
opportunities anywhere in the world that enable a
firm to optimize its business functions in the countries in which it operates.
Globalization
(contd.)• Awareness of the strategic opportunities faced
by global corporations and of the threats posed to them is important to planners in almost
every domestic U.S. industry
• Understanding the nuances of competing in
global markets is rapidly becoming a required competence of strategic managers
Development of a Global
Corporation
Four Levels
1. Level 1 – export/import activity has minimal effect on the existing management orientation or on existing product lines
2. Level 2 – foreign licensing and technology transfer requires little change in management or operation
Development of a Global
Corporation
(contd.)3. Level 3 – direct investment in overseas operations –is characterized by large capital outlays and the
development of global management skills
4. Level 4 – substantial increase in foreign investment – the firm begins to emerge as a global enterprise with foreign assets comprising a significant portion of total assets
Reasons for Going
Global
PROACTIVE
Additional resources Lowered costs
Incentives
New, expanded markets
Exploitation of firm-specific advantages Taxes
Economies of scale Synergy
Power and prestige Protect home market
Reasons for Going
Global
(contd.)REACTIVE
Trade barriers
International customers International competition Regulations
4 Strategic Orientations of Global
Firms
Ethnocentric orientation
• When the values and priorities of the parent organization guide the strategic decision making of all its international operations
Polycentric orientation
• When the culture of the country in which the strategy is to be implemented is allowed to dominate a company’s international decision making process Regiocentric orientation
• When a parent company blends its own predisposition with those of its international units to develop region-sensitive strategies.
Geocentric orientation
• When an international firm adopts a systems approach to strategic decision making that emphasizes global integration.
At the Start of
Globalization
External and internal assessments are conducted before a firm enters global markets
External assessment involves careful examination of critical features of the global environment
Internal assessment involves identification of the basic strengths of a firm’s operations
Complexity of the Global
Environment
Five factors affecting the increasing complexity of global strategic planning:
Multiple political, economic, legal, social, and cultural environments as well as various rates of change
Interactions between the national and foreign environments are complex
Geographic separation, cultural and national
differences, and variations in business practices all tend to make communication and control efforts difficult
Complexity of the Global
Environment (cont.)
Global face extreme competition
Global are restricted in their selection of
competitive strategies by various regional
blocs and economic integrations
Competitive Strategies for Firms in
Foreign Markets (cont.)
Complexity
refers to the number of critical
success factors that are required to prosper
in a given competitive arena
When a firm must consider many such
factors, the requirements of success
increase in complexity
Competitive Strategies for Firms in
Foreign Markets
(contd.)Franchising
Franchising is a special form of licensing which allows the franchisee to sell a highly publicized product or service, using the parent’s brand name or
trademark, carefully developed procedures, and marketing strategies
Joint Ventures
JVs begin with a mutually agreeable pooling of capital, etc. Consequently, they offer more permanent cooperative relationships than export or contract manufacturing.
Wholly Owned Subsidiary
This involves making the highest investment commitment to the foreign
market. These can be started either from scratch or by acquiring established firms in the host country.
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Question 3.
Swan cruises was formed in 2014 by a group of four friends who each owned a cabin cruises and used redundancy payments to purchase additional four. From their own boating activities and contacts they concluded that there were a good opportunities in the market for family cruising holidays on the canal system. They produced rough budget and drew up an advertising plan.
Because they wanted to start quickly and catch the spring season, the partners did not give time to business planning. However, after their publicity leaflets and advertising in the press, they received a good number of bookings, but sooner than later they began to run into problems.
a. The waterway authority demanded more safety measures and so their insurance premiums were more than budgeted for;
b. Customers found the cruises too small for family parties to live for week;
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c. Customers regularly got into difficulties with running
the boats and at the locks and the partners had to spend much time teaching and helping customers;
d. There were a lot of complaints and demands for refunds from customers;
e. Three of the boats were damaged by novice sailors;
f. The waterway authority threatened to withdraw the licence because of speeding by young customers.
Required
Write a short memorandum to the partners setting out the external factors affecting them and how they would have benefited from using business planning.
