STRATEGIC MANAGEMENT KMBN301

UNIT III

MEANING OF CORPORATE STRATEGY

A business organization operates under the influence of various environmental forces /

factors. In order to survive and grow, an organization has to constantly interact with
various environmental forces and adapt and adjust its strategies accordingly. So
environmental and organizational analysis acts as the foundation for generating strategic
alternatives that an organization can consider for adoption.

The corporate level strategies refer to identifying the businesses the company shall be
engaged in. They determine the direction that the firm takes in order to achieve its
objectives. For a small business firm, the corporate strategy can identify the courses of
action for improving profitability of the firm. In case of the large firm, the corporate
strategy means managing the various businesses to maximize their contribution to the
achievement of overall corporate objectives.

Corporate level strategy is concerned with two main questions

1) What business areas should a company deal in so as to maximize its long term
profitability?

2) What strategies should it use to enter into and exit from business areas?
In other words, corporate level strategies are basically about decisions related to
allocating resources among the different businesses of a firm, transferring resources from
one set of businesses to others and managing a portfolio of businesses in such a way that
the overall corporate objectives are achieved.
Corporate strategy typically fits within four categories- stability, growth, retrenchment
strategy and combination
I. Stability strategy- This strategy is adopted by the firm when it tries to hold on to their
current position in the market. It also attempts at incremental improvement of its
performance by marginally changing one or more of its businesses in terms of their
respective customer group, customer function and technologies either individually or
collectively. it does not mean that the firm don’t wants to have any growth. Its attempts
are at the modest growth in the same business line. For example any company offers a
special service to a institutional buyers to increase its sale by encouraging bulk buyer so
it is companies strategy of stability by improving market efficient.

TYPES

1. Pause/Process with caution strategy – Some organizations pursue stability strategy

for a temporary period of time until the particular environmental situation changes,
especially if they have been growing too fast in the previous period. Stability
strategies enable a company to consolidate its resources after prolonged rapid growth.
Sometimes, firms that wish to test the ground before moving ahead with a full-
fledged grand strategy employ stability strategy first.
2. No change strategy – No change strategy is a decision to do nothing new i.e continue
current operations and policies for the foreseeable future. If there are no significant
opportunities or threats operating in the environment, or if there are no major
new strengths and weaknesses within the organization or if there are no new
competitors or threat of substitutes, the firm may decide not to do anything new.
3. Profit strategy – Profit strategy is an attempt to artificially maintain profits by
reducing investments and short-term expenditures. Rather than announcing the
company’s poor position to shareholders and other investors at large, top management
may be tempted to follow this strategy. Obviously, the profit strategy is useful to get
over a temporary difficulty, but if continued for long, it will lead to a serious
deterioration in the company’s position. The profit strategy is thus usually the top
management’s short term and often self serving response to the situation.

II Growth Strategy - When growth strategy is adopted, it can lead to addition of new
products / or new markets or functions. Even without a change in business definition,
many firms undertake major increases in the scope of activities. Growth is usually
considered as the way to improve performance in terms of market share, sales turnover
and profitability of the firm. Growth strategies can be given with the help of the
following chart.
It is possible for the firm to grow through the use of
a) Internal growth strategies
b) External growth strategies

A) Internal Growth Strategies – Internal growth is within the organization or with the
help of its internal resources. i.e. the capital, employees, the technique used for
production etc. There are no major changes in the management and operations of the
organization, if it focuses on internal growth. Internal growth can take place either by

a) Intensive Strategy b) Integrative Strategy c) Diversification of business.

a) Intensive Strategy - In this strategy, a firm intends to grow by concentrating on

its existing businesses. This strategy involves three alternatives.
1) Market Penetration Strategy - This strategy involves using aggressive sales
promotion techniques for promoting the sale of existing products in existing markets. In
order to capture higher share of the market, a firm may cut prices, improve distribution
network and adopt sales promotion techniques to increase the sale to existing customers,
convincing the non users to purchase the products and also attracting the users of
competing brands.

2) Market Development Strategy - This strategy involves finding out new markets for
the existing products. It aims at reaching new customer segments within an existing
geographic market, or it may aim at expanding into new geographic areas, including
overseas markets.

3) Product Development Strategy - This strategy involves developing new products for
existing markets or for new markets. In product development, the firm may improve its
product’s features or performance or it may extend its product line.

b) Integrative Strategy –
Horizontal integrative
Horizontal integration is the acquisition of business activities that are at the same level of
the value chain in similar or different industries.

In simpler terms, horizontal integration is the acquisition of a related business: a fast-food

restaurant chain merging with a similar business in another country to gain a foothold in
foreign markets.

Advantages of horizontal integrative

 Economies of scale: The bigger, horizontally integrated company can achieve a

higher production than the companies merged, at a lower cost.
 Increased differentiation: The company will be able to offer more product
features to customers.
 Increased market power: The new company, because of the merger of
companies, will become a bigger customer for its old suppliers. It will command a
bigger end-product market and will have greater power over distributors.
 Ability to enter new markets: If the merger is with an organisation abroad, the
new company will have an additional foreign market.

Vertical integrative

Vertical integration is a competitive strategy by which a company takes complete control

over one or more stages in the production or distribution of a product.

A company opts for vertical integration to ensure full control over the supply of the raw
materials to manufacture its products. It may also employ vertical integration to take over
the reins of distribution of its products.

A classic example is that of the Carnegie Steel Company, which not only bought iron
mines to ensure the supply of the raw material but also took over railroads to strengthen
the distribution of the final product. The strategy helped Carnegie produce cheaper steel,
and empowered it in the marketplace.
Advantages of vertical integrative

 smoothen its supply chain (by ensuring ready supply of tyres and electrical
components in the exact specifications that it requires)
 make its distribution and after-sales service more efficient (by opening its own
showrooms)
 absorb for itself upstream and downstream profits (profits that would have gone
to the tyre and electrical companies and showrooms owned by others)
 increase entry barriers for new entrants (by being able to reduce costs through its
own suppliers and distributors)
 invest in specific functions such as tyre-making and develop its core
competencies

Disadvantages of vertical integration

 The quality of goods supplied earlier by external sources may fall because of a
lack of competition.
 Flexibility to increase or decrease production of raw materials or components
may be lost as the company may need to sustain a level of production in pursuit
of economies of scale.
 It may be difficult for the company to sustain core competencies as it focuses on
the integration of the new units.
c) Diversification Strategy - In this strategy, the firm enters into the new line of
business. It involves expansion or growth of business by introducing new products either
in the same market or in different markets. The firm may diversity for various reasons
such as to spread the risks by operating in various businesses, the make optimum use of
resources, to face competition effectively etc.

The reasons are as under

a. Spreading of risk: - Diversification enables to spread the risk. In this the business
operates in a different markets. where in one market business suffer a loss, that can be
compensated in other market and the levels of profit will be maintained.

b. Improves corporate image: - Corporate image is creating mental picture of the

company in the peoples mind. Through the diversification company as changes products
and knowledge gives better quality product and services with which it creates positive
impact on peoples mind.

c. Face competition effectively: - Due to the diversification company introduce wide

range of products and services. This enables company to maintain it’s a sale in the
market.

d. Utilization of resources: - Diversification enables company to use the resources

optimally as it has excess capacity manufacturing. If facilities managerial man power and
other resources to production dept and other activities.

e. Economies of scale: - Diversification brings economies of scale especially in the area

of diversification. The company can combine the distribution old product as well as new
products with the help of same distribution chain.

f. Customer satisfaction: - When the company entered into new business it assured to
give qualitative product and good services. This leads to customer’s satisfaction.

g. Synergistic advantages: - Synergistic advantages are those which are gained by

putting little bit improvement in the same product or process which are related to old
product and gain new products. This will be easily attained in diversification.

Diversification strategy involves the following forms/Types

1) Vertical Diversification - In this case, the company expands its activities or product
lines vertically i.e. by forward or backward integration.

i) Forward Integration - In forward integration, the firm may start marketing its
products by its elf i.e. by establishing its own retail outlets. The purpose is to reduce
the dependence on distributors and to enjoy control over marketing of its products.

ii) Backward Integration - In backward integration, the firm may start manufacturing its
own raw materials, spare parts and components. The purpose is to reduce the
dependence on suppliers and to enjoy control over its supplies.
2) Horizontal Diversification - In this case, a company expands its activities by
introducing new products or product lines which are related to a certain extent to the
current line of business. The products are related because they perform a closely related
function, or are sold to the same customer groups, or are marketed through the same
distribution channel. For example, a company manufacturing refrigerators may enter into
manufacturing of air conditioners or a truck manufacturing company may set up a car
making unit.

3) Concentric Diversification - In involves diversification into such areas or products,

which are indirectly related to its existing line of business. In concentric diversification,
the new business is linked to the existing business through process, technology or
marketing. For example, a car dealer may start a finance company to finance hire
purchase of cars.

4) Conglomerate Diversification - It involves entry in a totally new area or business. It

is an attempt to diversity outside the present market or product. In conglomerate
diversification, there are no linkages between the new business and the existing business.
New line of business is quite different as far as process, technology or functions are
concerned. For example, a computer software company may enter into insurance business

B) External Growth Strategies: Growth with the help of external resources or

organisations is called external growth. The external growth strategies can be broadly
divided into four groups.
1) Mergers and Acquisitions
2) Amalgamations
3) Joint Ventures
4) Strategic Alliances
Amalgamation - An amalgamation is an arrangement in which the assets and liabilities
of two or more companies become vested in another company. In other words, it is a
process of combining two or more companies and a new company is formed. The
shareholders of the amalgamating companies become shareholders of new entity
(amalgamated company)

Amalgamations are governed by the companies Act and require consent of the
shareholders and creditors.

The major objectives of adopting of growth strategies are –

 Survival: - This is natural tendency of every business to grow. if it does not then
new entrants will be there in the market and its life will be in danger. Survival is
also necessary to face challenges of business environment.
 Innovation: - Innovation is important to business as it gives new product, new
methods, new schemes with which business can grow to a desirable extent. With
this business gets high performance, high results which are indication of growth.
 Motivation to employees: - growth strategy generates higher performance and it
enables the firm to motivate employees with monetary and non-monetary
incentives.
 Customer satisfaction: - Growth strategy enables the firm to give more
satisfaction by providing good quality products at reasonable price.
  Corporate image:- corporate image means creating good image of the
organization in the minds of the all stakeholders. This will be made possible only
with growth strategies of the firm as it gives quality goods to people, good return
to investor, fair wages and salaries to employees with its increased volume of
output and enhance performance.
 Economies of scale: - Due to growth strategy there is increase demand to a
products which results in large scale production, which in turn brings economies
of large scale. It may be in saving labour cost or material cost.
 Efficiency:- Efficiency is the ratio of returns to costs. Due to growth strategy
there is innovation, up gradation of technology, training and development of
employees and research and development all these leads to improvement in
output and reduction in cost and increases profit.
 Optimum use of resources: - Due to growth strategy there is increased demand
to a product. This leads to large scale production and distribution. Therefore the
firm can make optimum use of resources.
 Expansion of business: - The growth strategy facilitates expansion to business
unit. Because the performance of business units improves in terms of sales,
market share and profit. Therefore

III Retrenchment Strategies –

Various external and internal developments create the problems to the prospects of
business firms. In declining industries, companies face such risks as falling demand,
emergence of more attractive substitutes, adverse government policies, and changing
customer needs and preferences. In addition to external developments, there are company
specific problems such as inefficient management and wrong strategies that lead to
company failures. In such circumstances, the industries, markets and companies face the
danger of decline in sales and profit and thereby intend to sub statically reduce the scope
of its activity. For this purpose, the problem areas are identified and the causes of the
problems are diagnosed. Then, steps are taken to solve the problems that result in
different types of retrenchment strategies.

The retrenchment strategies can be of the following forms:

1) Turn around strategy
2) Divestment strategy
3) Liquidation strategy
1. Turnaround Strategy: Turnaround strategy can be referred as converting a loss
making unit into a profitable one. According to Dictionary of Marketing ‘Turnaround
means making the company profitable again.’ Normally the turnaround strategy aims at
improvement in declining sales or market share and profits. The declining sales or market
share may be due to several factors both internal and external to the firm. Some of these
factors may include high cost of materials, reduction in prices of the goods and services,
increased competition, recession, managerial inefficiency etc

Turnaround is possible only when the company can restructure its business operations.
Certain strategies which can be used for turning around include changing the
management, redefining the Co’s strategic focus, divesting for closing unwanted assets,
improving profitability of remaining operations, making acquisitions to rebuild core
operations and so on.

2 Divestment Strategy - Divestment involves the sale of a division or a plant or a unit of

one firm to another. From seller’s point of view, it represents contraction of port folio,
and from the buyer’s point of view, it represents expansion.
There is certain reason for divestment

a. Withdrawal of obsolete products:- Those products which do not give adequate return
to the firm will be removed. And the products which are having good market share and
profitable will be continued.

b. Problem of Mismatch:- The business which is undertaken by the company is not

matching with the existing business line. Therefore the company may take initiative to
gate red of newly acquired business.

c. Problem of competition:- Some times due to tough competition company may

withdraw some products from the market or sell the units producing such products.

d. Negative cash flows:- When business gets negative cash flows from a particular
business. The revenue collected from such a business is lower as the expenditure incurred
on it therefore it is to be divested.
e. Technology Up-gradation:- Technology Up-gradation is important for survival of
business. But the cost of up-gradation is so high which is not affordable to business
therefore that business activity is to be divested.

f. Concentration on Core Business:- When business undertake number of activities at a

time, then it may be difficult to the business to manage all activities satisfactorily. Due to
this business ignore its over activity which leads to loss in business therefore to
concentrate on core business divesting other activities is essential.

h. Returns to Shareholders: - Company, by divesting may increase shareholders return

by giving shareholder hefty dividend.

i. Attractive Offers from Other Firm: - Sometimes it happens company may get offer
from another company. To invest in a good return giving from company may divest
current activity.

3) Liquidation Strategy: This is extreme case of divestment strategy and is undertaken

in the situation when all the efforts of reviving the company have come to an end. There
is no possibility that the business can made profit making unit again. In such situation
business takes decision to sell its entire business and the amount realized from it can be
invested in another business. When it is done it is known is liquidation. This is generally
done by small businesses.

There are certain reasons because of the liquidation has taken place that reasons are –
 When the business continuously suffered loss and all efforts have failed to make it
profitable again.
 When there is good offer from other businesses
 When business found that there are difficulties to deal with the present business
 When the business unit has taken over new business and the current business is
not coping with or matching and current business is not profitable.

Whenever such type of situation has occurred, business, as per company act 1956 can go
for liquidation. The relief gained on the part of liquidation to the company is
It gives relief to financial institution as financial institutions are able to get their funds
back.
 It enables the firm to enter into new business.
 It enables to the acquirer to consolidate its market.
 The shareholders of liquidating company may get shares or compensation from
new company or acquirer.
 The employees may not lose their job as the new management can continue them
in new business.

D) Combination Strategies: When an organization adopts a mix of stability,

expansion and retrenchment either simultaneously or sequentially for the purpose of
improving its performance, it is said to follow the combination strategies.
Combination strategies are applied at the same time in different businesses or at
different times in the same business. No organization has grown or survived by
 following a single strategy. The complex nature of businesses requires that different
strategies be adopted to suit the situation i.e. as companies divest businesses, they
also need to formulate expansion plans focused on strengthening remaining
businesses, starting new ones or making acquisitions. An organization following a
stability strategy for quite some time has to consider expansion and one that has been
on expansion path for long has to pause to consolidate its businesses. Multi business
firms have to adopt multiple strategies either simultaneously or sequentially.

Reasons for following combination strategies can be given as follows:

1) When the organization is large and faces a fast changing complex environment.
2) The products are in different stages of the life cycle.
3) A combination strategy is suitable for a multiple industry firm at the time of
recession.
4) The combination strategy is best for firms, divisions which perform unevenly or do
not have the same future potential.

MEANING OF MERGER AND ACQUISITIONS

Merger refers to the mutual consolidation of two or more entities to form a new
enterprise with a new name. In a merger, multiple companies of similar size agree to
integrate their operations into a single entity, in which there is shared ownership, control,
and profit. It is a type of amalgamation. For example M Ltd. and N Ltd. Joined together
to form a new company P Ltd.

The reasons for adopting the merger by many companies is that to unite the resources,
strength & weakness of the merging companies along with removing trade barriers,
lessening competition and to gain synergy. The shareholders of the old companies
become shareholders of the new company. The types of Merger and acquisitions are as
under:

 Horizontal
 Vertical
  Concentric
 Conglomerate

1. Horizontal Mergers
Horizontal mergers happen when a company merges or takes over another company that
offers the same or similar product lines and services to the final consumers, which means
that it is in the same industry and at the same stage of production. Companies, in this
case, are usually direct competitors. For example, if a company producing cell phones
merges with another company in the industry that produces cell phones, this would be
termed as horizontal merger. The benefit of this kind of merger is that it eliminates
competition, which helps the company to increase its market share, revenues and profits.
Moreover, it also offers economies of scale due to increase in size as average cost decline
due to higher production volume. These kinds of merger also encourage cost efficiency,
since redundant and wasteful activities are removed from the operations i.e. various
administrative departments or departments suchs as advertising, purchasing and
marketing.

2. Vertical Mergers
A vertical merger is done with an aim to combine two companies that are in the same
value chain of producing the same good and service, but the only difference is the stage
of production at which they are operating. For example, if a clothing store takes over a
textile factory, this would be termed as vertical merger, since the industry is same, i.e.
clothing, but the stage of production is different: one firm is works in territory sector,
while the other works in secondary sector. These kinds of merger are usually undertaken
to secure supply of essential goods, and avoid disruption in supply, since in the case of
our example, the clothing store would be rest assured that clothes will be provided by the
textile factory. It is also done to restrict supply to competitors, hence a greater market
share, revenues and profits. Vertical mergers also offer cost saving and a higher margin
of profit, since manufacturer’s share is eliminated

A. Backward Integration- A vertical integration where a company acquires the suppliers

of its raw materials.

B. FORWARD INTEGRATION- A vertical integration where a company acquires the

distribution channels of its products.

3. Concentric Mergers
Concentric mergers take place between firms that serve the same customers in a
particular industry, but they don’t offer the same products and services. Their products
may be complements, product which go together, but technically not the same products.
For example, if a company that produces DVDs mergers with a company that produces
DVD players, this would be termed as concentric merger, since DVD players and DVDs
are complements products, which are usually purchased together. These are usually
undertaken to facilitate consumers, since it would be easier to sell these products
together. Also, this would help the company diversify, hence higher profits. Selling one
of the products will also encourage the sale of the other, hence more revenues for the
company if it manages to increase the sale of one of its product. This would enable
business to offer one-stop shopping, and therefore, convenience for consumers. The two
companies in this case are associated in some way or the other. Usually they have the
production process, business markets or the basic technology in common. It also includes
extension of certain product lines. These kinds of mergers offer opportunities for
businesses to venture into other areas of the industry reduce risk and provide access to
resources and markets unavailable previously.

4. Conglomerate Merger
When two companies that operates in completely different industry, regardless of the
stage of production, a merger between both companies is known as conglomerate merger.
This is usually done to diversify into other industries, which helps reduce risks.

A. MARKET EXTENSION MERGERS

A merger between companies that have same products to offer but the markets are
different. The reason behind such mergers is access to bigger markets and an increase in
client base.

B. PRODUCT EXTENSION MERGERS

A merger between companies that have different but related products but the markets are
same. Such mergers allow the companies to bundle their product offerings and approach
more consumers.

REASONS FOR MERGER AND ACQUISITIONS

Economies of Scale:
An amalgamated company will have more resources at its command than the individual
companies. This will help in increasing the scale of operations and the economies of large
scale will be availed. These economies will occur because of more intensive utilisation of
production facilities, distribution network, research and development facilities, etc.

These economies will be available in horizontal mergers (companies dealing in same line
of products) where scope of more intensive use of resources is greater.

The economies will occur only upto a certain point of operations known as optimal point.
It is a point where average costs are minimum. When production increases from this
point, the cost per unit will go up.

Operating Economies:
A number of operating economies will be available with the merger of two or more
companies. Duplicating facilities in accounting, purchasing, marketing, etc. will be
eliminated. Operating inefficiencies of small concerns will be controlled by the superior
management emerging from the amalgamation. The amalgamated companies will be in a
better position to operate than the amalgamating companies individually.
Synergy:
Synergy refers to the greater combined value of merged firms than the sum of the values
of individual units. It is something like one plus one more than two. It results from
benefits other than those related to economies of scale. Operating economies are one of
the various synergy benefits of merger or consolidation.

The other instances which may result into synergy benefits include, strong R &D
facilities of one firm merged with better organised production facilities of another unit,
enhanced managerial capabilities, the substantial financial resources of one being
combined with profitable investment opportunities of the other, etc.

Growth:
A company may not grow rapidly through internal expansion. Merger or amalgamation
enables satisfactory and balanced growth of a company. It can cross many stages of
growth at one time through amalgamation. Growth through merger or amalgamation is
also cheaper and less risky.

A number of costs and risks of expansion and taking on new product lines are avoided by
the acquisition of a going concern. By acquiring other companies a desired level of
growth can be maintained by an enterprise.

Diversification:
Two or more companies operating in different lines can diversify their activities through
amalgamation. Since different companies are already dealing in their respective lines
there will be less risk in diversification. When a company tries to enter new lines of
activities then it may face a number of problems in production, marketing etc.

When some concerns are already operating in different lines, they must have crossed
many obstacles and difficulties. Amalgamation will bring together the experiences of
different persons in varied activities. So amalgamation will be the best way of
diversification.

Utilisation of Tax Shields:

When a company with accumulated losses merges with a profit making company it is
able to utilise tax shields. A company having losses will not be able to set off losses
against future profits, because it is not a profit earning unit.

On the other hand if it merges with a concern earning profits then the accumulated losses
of one unit will be set off against the future profits of the other unit. In this way the
merger or amalgamation will enable the concern to avail tax benefits.

Increase in Value:
One of the main reasons of merger or amalgamation is the increase in value of the
merged company. The value of the merged company is greater than the sum of the
independent values of the merged companies. For example, if X Ld. and Y Ltd. merge
 and form Z Ltd., the value of Z Ltd. is expected to be greater than the sum of the
independent values of X Ltd. and Y Ltd.

Eliminations of Competition:
The merger or amalgamation of two or more companies will eliminate competition
among them. The companies will be able to save their advertising expenses thus enabling
them to reduce their prices. The consumers will also benefit in the form of cheap or
goods being made available to them.

Better Financial Planning:

The merged companies will be able to plan their resources in a better way. The collective
finances of merged companies will be more and their utilisation may be better than in the
separate concerns. It may happen that one of the merging companies has short gestation
period while the other has longer gestation period.The profits of the company with short
gestation period will be utilised to finance the other company. When the company with
longer gestation period starts earning profits then it will improve financial position as a
whole.

Economic Necessity:
Economic necessity may force the merger of some units. If there are two sick units,
government may force their merger to improve their financial position and overall
working. A sick unit may be required to merge with a healthy unit to ensure better
utilisation of resources, improve returns and better management. Rehabilitation of sick
units is a social necessity because their closure may result in unemployment etc.

MEANING OF ACQUISITION

The purchase of the business of an enterprise by another enterprise is known as

Acquisition. This can be done either by the purchase of the assets of the company or by
the acquiring ownership over 51% of its paid-up share capital.

In acquisition, the firm which acquires another firm is known as Acquiring company
while the company which is being acquired is known as Target company. The acquiring
company is more powerful in terms of size, structure, and operations, which overpower
or takes over the weaker company i.e. the target company.

Most of the firm uses the acquisition strategy for gaining instant growth, competitiveness
in a short notice and expanding their area of operation, market share, profitability, etc.

Examples of Mergers and Acquisitions in India

 Acquisition of Corus Group by Tata Steel in the year 2006.

 Acquisition of Myntra by Flipkart in the year 2014.
 The merger of Fortis Healthcare India and Fortis Healthcare International.
 Acquisition of Ranbaxy Laboratories by Sun Pharmaceuticals.
 Acquisition of Negma Laboratories by Wockhardt
DIFFERENCES

BASIS FOR MERGER ACQUISITION

COMPARISON
Meaning The merger means When one entity purchases the
the fusion of two or business of another entity, it is known
more than two as Acquisition.
companies
voluntarily to form a
new company.

Formation of a new Yes No

company

Nature of Decision The mutual decision Friendly or hostile decision of

of the companies acquiring and acquired companies
going through
mergers.

Minimum number of 3 2
companies involved

Purpose To decrease For Instantaneous growth

competition and
increase operational
efficiency.

Size of Business Gerenaly the size of The size of the acquiring company
merging companies will be more than the size of acquired
is more or less same company.
Conclusion
Nowadays, only a few numbers of mergers can be seen; however, acquisition is getting
popularity due to extreme competition. The merger is a mutual collaboration between the
two enterprises in becoming one while the acquisition is the takeover of the weaker
enterprise by the stronger one. But both of them gain the advantage of Taxation, Synergy,
Financial Benefit, Increase in Competitiveness and much more which can be beneficial,
however sometimes adverse effect can also be seen like an increase in employee
turnover, clashing in the culture of organizations and others but these are rare to happen

JOINT VENTURES

Joint venture could be considered as an entity resulting from a long term contractual
agreement between two or more parties, undertaken for mutual benefits. It is a type of
partnership and when both parties establishing new units that time they are exercising
supervising and control over the new business. Joint venture also involves the sharing of
ownership. Now a days joint ventures are very popular as there is sharing of development
cost, risk spread out and expertise combined to make effective use of resources. It is best
way to enter into foreign collaboration. Generally, Indian firms are entering into foreign
collaboration with the help of joint ventures.

TYPES OF JOINT VENTURES

1. Between two Indian organizations in one industry (e.g joint venture between National
Thermal Power Corporation (NTPL) Ltd and the Indian Railways for setting up a
thermal power plant to meet the requirements of the rail network across the country.
2. Between two Indian organization across different industries (e.g Action Aid India and
Tata Institute of social sciences (TISS) in a joint venture offering degree courses for
rural communities in India)
3. Between an Indian organization and a Foreign organization in India(e.g DLF Ltd
forging a 50:50 joint venture with Nakheel, a large property developer of the UAE,
for setting up integrated townships in India)
4. Between an Indian organization and a foreign organization in that foreign country
(e.g Kirloskar Brothers Ltd having a joint venture with Sigmund Pulsometer Pumps
(SPP Pumps Ltd, UK, for catering to the European Union market)
5. Between an Indian organization and a foreign organization in a third country (e.g
Apollo Tyres of Indain and Continental AG of Germany setting up a tyre
manufacturing joint venture in Malaysis).
6. Between government and private sector organization in the form of public private
partnerships (e.g equity participation and modernization of airports in India through
partnership between Airports Authority of India and private companies such as GMR
Infrastucture.
ADVANTAGES

a) Huge capital
b) Better use of resources
c) Goodwill and reputation.
d) Risk sharing.
e) Economies of scale
f) Expansion and diversification.
g) Helps to face competitions
h) Customer satisfaction.
i) Motivate employees

MEANING OF STRATEGIC ALLIANCES

The term alliance can be derived from the word ‘ally’ or the old French word aligre
which mean to associate with or to bind or to co-operate with another with some common
cause or interest. An alliance therefore is an association that involves co-operation and
collaboration and merging of complementary interests to achieve individual and mutual
goals and objectives.

Strategic alliance is a relationship between corporations that is characterized by merging

of complementary interests, the sharing of privileged information and meaningful
collaboration and co-operation to achieve strategic goals and objectives. The strategic
alliance may provide technical, operational and / or financial benefits to the corporations.

Strategic alliances include non-equity agreements, and joint ventures which undertake
joint R & D, joint product - development, knowledge sharing, marketing and distribution
sharing and joint quality control and research.

TYPOLOGY
1. Procompetitve alliances: (low interaction/low conflict): These are generally
interindustry, vertical value-chain relationship between manufacturing and their
suppliers or distributors, such alliances offer the benefits of vertical integration
without firms actually investing in resources for manufacturing inputs or distributing
semi-finished or finished goods. Suppliers and buyer firms entering upon long term
contracts constitute procompetitive alliances.

2. Non-competitive alliances (high interaction/low conflict):these are intra industry

partnerships between non competitive firms, such alliances can be entered upon by
firms that operate in the same industry yet do not perceive each other as rivals. Their
areas of activity do not coincide and they are sufficiently dissimilar prevent feelings
of competitiveness arising. Firms that have carved out distinct areas in the industry-
geographically or otherwise adopt the non competitive alliances

3. Competitive alliances (high interaction/high conflict):these are partnerships that

bring two rival firms in a corporative arrangement where intense interaction is
necessary. These alliances may be intra- or inter- industry. Several cases of foreign
companies operating interpedently in India and also entering into cooperative
arrangement with local rival companies for specific purposes, have taken the
competitive alliances route.

4. Precompetitive alliances: (low interaction/high conflict):these partnerships bring

two firms different, often unrelated industries to work on well-defines activities such
as new technology development, new product development, or creating awearness
about new product or idea for acceptance among the potential customers. Example:
Joint research and development activities and mass awareness campaigns.

ADVANTAGES IN INDIAN STRATEGIC ALLIANCES

Advantages

Strategic Political
Economic
Organizational

Learn Enhance Credibility

Productivity
 Econom ic benefits
Strategic benefits
Organizational benefits Rival join together

Scalability Virtual
Integration Maruti No Competition
Risk Reduced Toyoto
(partner in Suzuki With each other
supply
Increased in chain)
Reduce in cost per Production volume
unit
Pool of the Resources Business opportunities &
New Development of
Product& Technology

Po lit ical Be ne fits

Join
Foreign business Hands Local Business

Gain Entry
PROBLEMS IN INDIAN STRATEGIC ALLIANCES

1. Conflict between Partners - Joint ownership can result into conflict between Partners.
Conflict is more common when management is shared equally. In such case, neither
partner’s managers have the final say on decisions. This problem can be solved by
establishing unequal ownership whereby one partner maintains 51% ownership and has
the final say on decisions.

2. Government Interference - The loss of control over a joint venture’s operations can
result when the local government is a partner in the Strategic Alliance. This situation
occurs in industries considered important to national security such as broadcasting,
infrastructure and defense. The profitability of the Strategic Alliance could suffer because
the local Government would have motives that are based on national interest, which may
compel them to interfere in the operations of the Strategic Alliances.

3. Delay in Decision Making - Decision making is normally slowed down due to

involvement of a number of parties. This may lead to inefficient - operations.
Opportunities may be lost which may affect the growth of the business.

4. Differences in Work Culture - The work culture of the companies forming Strategic
Alliances are different. MNCs who generally are parties to the Strategic Alliances are
profit centered. All decisions are taken from economic angle. This may conflict with the
culture of the local company it’s decisions may be socially oriented. This may make
functioning of the Strategic Alliances difficult.

5. Losing of Secrecy - There is a risk of losing control over proprietary information,

especially regarding complex transactions requiring extensive coordination and intensive
information sharing.

6. Expensive and Time Consuming - The procedure for formation of Strategic Alliances
is lengthy, complicated and time consuming. The formation of Strategic Alliance can
increase costs because of the absence of a formal hierarchy and administration within the
strategic alliance. Even costs can rise due to the element of hidden costs and activities
outside the scope of original agreement and inefficiency in management.

7. Problems Due to Changes in Government Policies - The changes in government

policies relating to foreign exchange and technology transfer may create problems in the
formation of Strategic Alliances.

8. Unfair Terms and Conditions - The terms and conditions laid down in the agreement
may not be fair and reasonable to both partners.

TYPES OF STRATEGIC ALLIANCES

 # 1 Joint Venture
A joint venture is established when the parent companies establish a new child company.
For example, Company A and Company B (parent companies) can form a joint venture
by creating Company C (child company).
In addition, if Company A and Company B each own 50% of the child company,
it is defined as a 50-50 Joint Venture. If Company A owns 70% and Company B owns
30%, the joint venture is classified as a Majority-owned Venture.
 
#2 Equity Strategic Alliance
An equity strategic alliance is created when one company purchases a certain equity
percentage of the other company. If Company A purchases 40% of the equity in
Company B, an equity strategic alliance would be formed.
 
#3 Non-equity Strategic Alliance
A non-equity strategic alliance is created when two or more companies sign a contractual
relationship to pool their resources and capabilities together.
RELATIONSHIP BETWEEN INTERNATIONAL STRATEGY AND CORPORATE
STRATEGY

Corporate level strategies basically refer to taking key decisions related to allocating of
resources among the different businesses of a firm, and ultimately managing a portfolio
of businesses so that ultimately organizational objectives are achieved. In this process the
company may adopt stability strategy, expansion strategy, retrenchment strategy or a
combination of these strategies.

International strategy is a kind of expansion strategy in which firms market their products
or services beyond the domestic market.

For this purpose, a firm requires to asses the international environment, evaluate its own
capabilities and devise strategies to enter foreign markets. Some firms are required to
enter new markets in other countries when they face slower growth rates at domestic
market. Sometimes firms can introduce new products successfully in a foreign market
than in domestic market.

Sometimes firms may find that producing the goods in other countries can be more
beneficial than exporting to those countries due to some import restrictions by a host
government Cheap supply of raw materials, labour or availability of latest technology can
also be reasons for starting production facilities in other country. It should be noted that
movement towards international markets is a gradual process.

Most firms begin by exporting that involves relatively low investment and risk. Then a
firm may engage in a joint marketing venture with a foreign local firm who will act as its
agent. Once a foreign presence is established, the firm may decide to expand its activities.
Expansion at this stage may take place with the development of specialized products new
investments in local manufacturing facilities or direct investment in the foreign market.

BENEFITS OF A DIGITAL STRATEGY

A digital strategy aligns your online activities with your business goals and will help you
stay on track in this constantly changing environment. A digital strategy will help you:

 stay competitive online

 improve customer service
 help businesses to expand and grow
 improve quality control
 streamline your business
 free you up from process-driven activities
 improve redundancy (disaster recovery)
 increase your customer base
 enable 24/7 sales
 Automate aspects of your staff training/induction.

Business Strategy: Competitive Strategy

Competitive advantage is a favourable position a business holds in the market which

results in more customers and profits. It is what makes the brand, product, or service to
be perceived as superior to the other competitors.
A brand can create a competitive advantage if it is clear about these three determinants:

 Target Market: The perfect knowledge of who buys from the brand, what they
desire from the brand, and who could start buying from the brand if certain
strategies are executed is essential for the business to create a competitive
advantage over the competitors.

 Competition: The business should have an answer to these two questions: Who is

the present competition and who could be a prospective competition in the
coming years? What are the production, pricing, marketing and branding
strategies they’re using to develop and market their products?

 USP: The unique selling proposition is usually the chief trigger of the competitive

advantage and separates the business from the competition. It is the reason why
the customers choose the concerned brand over others. The USP should be clear
to both the business and the customers in order for a brand to create a competitive
advantage.

Dynamics of Competitive strategy

1. Competitive Landscape: It tends to identify and understand the
competition deeply while cognizing the vision, mission, objectives,
strengths, weakness, opportunities and threats of the enterprise. While
analysing the competition, the firm also keeps an eye on the competitor’s
overall position in the market, to choose the right strategy for the enterprise.
 2. Strategic Analysis: It implies the detailed examination of various components of
the firm’s business environment. It is important for strategy formulation,
strategy implementation and strategic decision making.
Industry and Competitive Analysis: The analysis in which a number
of methods are used to have a clear view of the basic industry practices, the
intensity of competition, strategies of competitors and their share in the
market, change drivers, profit prospects and so forth, is called as Industry and
Competitive Analysis. It assists the company in strategically observing the
condition of the industry.
3. Core Competence: Core competencies of the company are those capabilities
which help the company in defeating its competitors by gaining a competitive
advantage. It is a blend of company’s technical and managerial know-how,
skills, knowledge, experience, strategy, resources, manpower, etc.
4. Competitive Advantage: Competitive Advantage assist the firm in defeating its
rival organization, through its core competencies which include a combination of
distinguishing characteristics of the firm and the product offered by it, which is
considered as outstanding, that has the edge over its competitors.Simply put,
competitive advantage is when the profitability of an organization is
comparatively higher than the average profitability of the other companies
operating in the same industry.
5. Portfolio Analysis: It is a management tool which helps the company to analyse
its product lines and business units, from which good returns are expected. In
other words, it identifies and evaluates those products and strategic business
units which help the company to survive and grow in the market.
6. SWOT Analysis: SWOT Analysis is the analysis of the firm’s strengths,
weakness, opportunities and threats, to generate strategic alternatives. It aims
at facilitating the management in developing a business model, which
accurately aligns the firm’s resources and capabilities, according to the
business environment.
7 Globalization: In basic terms, globalization refers to the process through which
a business or any other organization creates its presence across the world and
begins its operations on an international scale. A competitive strategy is used to
attract customers, gain an edge over its competitors, increase market share and
strengthen its position, and expand the business to a larger scale.

Types of Competitive Advantages (Generic competitive Strategy)

Even though the definition of competitive advantage remains the same,
different marketers have stated different types of competitive advantages.
Michael Porter, a Harvard University graduate, wrote a book in 1985 named –
Competitive Advantage: Creating and Sustaining Superior Performance, which
identified three strategies which businesses can use to tackle competition and create a
sustainable competitive advantage. According to him, these three generic strategies
are:

1. Cost Leadership: It is a strategy where a business produces the same quality of

the product as of the competitors’ but sells it at a lower price. Cost leadership is
achieved by continuously improving the operational efficiency (using less but more
efficient workers or outsourcing to places where the costs are less), and getting the
advantage of economies of scale (in the case of bigger businesses like Aldi, Walmart,
etc.).

2. Differentiation: A differential advantage is when the product or service offered by the

business deliver different benefits than the products offered by the competitors. It
involves defining the offering’s unique position in the market by explaining the unique
benefit it provides to the target group. This unique position can refer to the high quality,
better delivery, more features, or any other specific attribute of the product or service.
Differentiation is usually achieved by innovation and big innovation usually result in disruption
of the industry and creating a sustainable competitive advantage for the business. An example of
the creation of differential advantage through disruption is Uber. It differentiated the service it
was offering by providing it on demand.

3. Focus: Also called the segmentation strategy, the focus strategy involves
targeting a pre-defined segment rather than everyone. It involves understanding
the target market better than everyone else and use the data for better offering crafted
according to the target market’s needs. This strategy was initially used by small
businesses to compete with the big companies, but with the advent of the internet and
the introduction of microtargeting, even big businesses like Amazon,
Facebook, & Google use the focus strategy to differentiate themselves from others.

However, modern competitive advantages aren’t limited to these three. A strong brand,
big pockets, network effect, patents, and trademarks are few other competitive
advantage strategies businesses use to outdo their competitors.
Brand: Brand loyalty is one of the biggest competitive advantages any business
can capitalize on. An effective brand image and positioning strategy leads to
customers becoming loyal to the brand and even paying more than usual to own the
brand’s product. Apple is a perfect example when it comes to brand-related
competitive advantage.
Big Pockets: Some companies enter the market with huge funding and disrupt the
 ecosystem by providing some really enticing offers or providing the products at really
low prices. This acts as a competitive advantage as other companies often fail to
respond to such tactics.
Network Effect: The network effect makes the good or service more valuable when
more people use it. For example, WhatsApp enjoys a competitive advantage over
other players because its users are reluctant to try other applications as most of their
contacts use WhatsApp.
Barriers to Entry & Competition: Businesses often make use of natural and
artificial barriers to entry like Government policies, access to suppliers, patents,
trademarks, etc. to stop others from becoming a close competition
FUNCTIONAL (OPERATIONAL) LEVEL STRATEGIES

Functional strategies are derived from business and corporate strategies and are
implemented through functional implementations. Functional strategy deals with
relatively restricted plan designed to achieves objectives in a specific functional area,
allocation of resources among different operations within that functional area and
coordination among different functional areas for optimal contribution to achievement of
business or corporate level objectives.

The key task of strategy implementation is to align activities or capabilities of the

organization with its strategies. For this, there is a need to have coordination among the
strategies at different level.

The operational strategy mainly includes production strategies, marketing strategies,

financial strategy and human resources strategy.
A. PRODUCTION STRATEGIES. Production strategies are mainly aimed at
improving quality, increasing quantity and reducing cost of production. For this purpose
there is need to consider following activities.
Production capacity: an organization must decide its production capacity. This is
subjective and depends on demand of the product in market and fluctuations in the
market due to competition, recession, boom in market etc. however some organization
decides it on the basis of its sales forecast. Now a day some firms are producing some
part of production and partially they purchasing from others. So with the consideration of
all these aspects the business should fix its production capacity.

Location and size of plants: While taking decision on location the business considers
certain points from the view of place safety and security, local conditions availability of
raw materials nearness to market law and order situation at the place, availability of
infrastructure facilities as well as competent work force.

Size of the plant will be decided on the basis of projected demand for product and
dependency of the firm on other firms which are supplying partially manufactured goods.

Technology:- it refers to the know-how and equipment, machinery, tools etc. while
deciding on production these things are to be consider as its effects is there on capital
manpower, and cost of production.
Research and development:- R&D helps to improve the quality reduces the cost of
production etc. so it should be consider from the investment point of view, its processes
and centralized or decentralized nature.
Quality of product:- production strategies are concerned with the quality of the product.
Quality means fitness of the product. And this differs from customer to customer. Here
the firm needs to know its customer first and then decide the quality of the product that a
customer may find it suitable or not. They may like its quality, price etc. and then go for
production.

B. MARKETING STRATEGIES. Marketing refers to thorough understanding of

customer that how he desire the product (from the view point of his perceptions to the
products.) It is important aspects of any organization as its success is mostly attributed to
the performance of the marketing. Therefore every business needs to frame suitable
marketing strategies in respects of the following.

1. Product strategy:-product means anything available for consumption purpose of the

people. And generally they desire quality products. Therefore, under this strategy the
business unit takes decision in regards of product line/mix. If it found that there is no
need to think of about diversified product then it continues stressing on core products.
Then business unit may consider the development of new products. Here the business
unit decides about the development of new products or modification of the product to
face the competition in the market and to meet the needs of the customer. And under
same strategy business may think of other product policies like product’s packaging,
branding, or its positioning.
 2. Pricing strategy:-price is very sensitive part of marketing. With a minor change in
price there would be greater set back to sales. Therefore the business unit considers
various sub variables of the price element such as credit period, discount, competitor’s
price list etc. and fix price to the product. After that business unit should consider the
different methods of charging price to product and as per customer’s convenience and
market situation the price should be charged to the product. Besides this, there will be
other strategies, consider by business units are as under:

a) Skimming pricing strategy:- In this case at the initial stage of product the prices of
products are very high and as the sales volume increases in that proportion the price of
the product will be reduced. This type of pricing is adopted for recovering heavy
expenditure incurred on the part of research and development by earning huge profit.

b) Penetration pricing strategy:-in this case low prices are charged at initial period of
launch of the product and as there is good response to the product and its sales increases
in that proportion the price of the product will be reduced. This is done to capture the
market.

c) Other pricing strategies:- in this case the business use to adopt other methods of
charging price to the products like

 Leader pricing method

 Cost plus method.
 Psychological pricing method.

3. Distribution strategy:- distribution means supple of goods from manufacturer to

customer. If the supply of product good, regular, on time then only here will be smooth
and efficient functioning of marketing. From this point, marketer takes decision on
channels of distribution, area of distribution, dealer’s network, and policies regarding
dealer’s efficiency like incentives, commission rates etc.

4. Promotion strategy:- promotion means communication or supply of information to

the customer about products and services. For this firm uses various means o tools of
promotion like advertising, sales promotion, publicity, personal selling and so on. Here
marketer’s responsibility is to see every mean keenly and then design strategies in
regards of each respective means. For example in case of advertising he should have
think from the point of its budget, media selection strategies, media scheduling strategies
etc. in the same way with other strategies.

C. FINANCIAL STRATEGY. Finance is the back bone of each and every business
unit. Therefore the financial management of the business units deals with planning,
raising, utilizing and controlling functions of the organization’s financial resources to
attain its goal. Generally financial policies are design from the view point of

a. Mobilization of funds:- the funds are required to undertake various business activities.
There a decision has to be taken in regards of purchase of fixed assets as well as current
assets requirement and any other long them investment. While taking decision on fixed
assets it is mostly taken on the basis of
Nature of business:- it means that whether it is manufacturing unit or trading unit. If it is
manufacturing it requires more amount and vice versa.

Size of business unit: - that is large size or small size. If it is large then more capital and
if it is small then it requires less amount.

Technology used: -if lets developed technology is used the more amount and labour
intensive firms requires fewer amounts.

Scope of business activities: - that is more goods are produced then more amount is
required and only one or two products are produced the low amount is required.

In case of current assets or working capital the decision is to be taken on the ground of
i.Nature of business:-here the firms are using expensive raw material may require more
funds and vice-versa.
ii.Operating cycle :-the firms having long operating cycle and selling goods on credit
basis requires more capital and vice versa
iii.Growth and expansion of business:-if the firms are growing rapidly then require
more funds.
iv.Seasonality of operations:- the products of the firm are seasonal then during the
period only the fund requirement will be more and in slack season there is no more fund
requirement.

Capital structure:-Capital structure refers to the composition of firm’s long term funds
comprising of equity, preference and long term loans. There should be proper ratio
between owned and borrowed funds. It is to be noted that one should not place too much
emphasis on borrowed fund because it puts burden on company’s financial aspects as
there should be regular payment of interest and repayment of loan. Also too much
emphasis on equity capital is not good as it dilutes the equity capital. In shot there should
be balance between borrowed and owned capital.

Depreciation policies:- Depreciation is a activities which provides compensation to the

risk of wear and tear. There are two methods of depreciation known as

 Fixed line method and

 Reducing balance method.
Under the company law both methods are accepted but for income tax purpose, in certain
cases written down method is accepted and in some cases straight line method is
accepted.
Dividend strategy:- dividend is a return on investment given to the investors. No doubt
every investor wants to have a good rate of return on their investment and most of the
companies are willing to do so. Here as per financial strategy company should think of its
effects on financial aspects and then go for either liberal dividend policy or conservative
dividend policy.
Retained earnings strategy:- it means keeps earned income with company itself.
Generally whatever amount of profit is earned is to be spent (used/utilized) for different
purposes by company. Here the company should have to think of that what portion of
profit is to be kept for future activities like:

 Future needs of funds for development.

 To provide stable dividend to the shareholders or
 To meet the restrictions of financial institutions etc.

D. HUMAN RESOURCE STRATEGY: Human resource is the most important

resource among all resources required by an organization. This is the only alive and
sensational resource. So every organization those who want to develop and grow rapidly
should be very cautious about these resources and should plan for their best uses and
performances. If business is able to do so then it will attain its apex level of success
without any hurdles. For this the organization has to take decisions in regards of

 Recruitment and selection strategy.

 To make employees more competent, the training strategy.
 Their performance appraisal strategy.
 Promotion strategy.
 Employee’s motivation strategy.
 Transfer strategy

E PRODUCTION
Production strategies focus on enhancing product quality and reduce production costs
through managing manufacturing and operating system, as well as logistics and supply.

F RESEARCH AND DEVELOPMENT

Research and Development (R&D) strategies cover steps to improve existing products and
develop new ones.

R&D strategies are often related to Cost Leadership and Differentiation strategies. If your
company intends to occupy a certain segment, you must find out the right product for that
segment and how to beat existing competitors, whether with a unique difference or with a
cheaper price.

OUTSOURCING AND OFFSHORING

OUTSOURCING OFFSHORING
Relocating a portion of
Delegating non-core business business operations to a
DEFINITION
activities to a third-party. different geographical
location.
Can be the same as the hiring Different than the parent
LOCATION
country. country.
PROJECT Less control over outsourced Higher control over the
 CONTROL processes. production.
Cost reduction
More resources to focus on core
functions Lower costs
BENEFITS Increased production capacity Lighter regulations
Improved service quality Tax and tariff relief
Access to specialized talent
Quicker business transformation
Social and cultural
differences
Communication issues
Difficulties with quality
DRAWBACKS Possible intellectual property
checks
fraud and theft
Geopolitical risk
Time-zone difference

BENEFITS OF OUTSOURCING
Reduce Costs
Companies often seek to outsource to obtain cheaper services and still retain high quality.
Hiring in-house specialists generate overhead and additional costs associated with the
hiring process. With outsourcing, hiring costs, as well as workspace and equipment
expenses, are decreased. A team can also be hired to perform a specific one-time task,
which frees the human resources department from preparing the onboarding process for
an in-house team.

Access to Specialized Talent

By outsourcing highly specialized tasks to a third-party provider, a company can access
innovative solutions and technologies at a fraction of the cost compared to setting up the
process and technology in-house. Outsourcing activities that require skilled labour can
also help the company focus on core functions.

Increased Efficiency
By outsourcing work to experts, you’re eliminating the period necessary to train
employees and familiarize them with the project. The production time is thus decreased,
which can positively impact both the output’s quality and quantity.

Drawbacks of Outsourcing
Intellectual Property Risks
When companies outsource, they usually share proprietary information regarding
business operations with a third-party provider. While there are measures that can protect
companies from intellectual property fraud or theft, a possible disclosure of sensitive
business information must be taken into account.
Doing a due diligence check of a potential contractor, it’s one of the necessary steps
when considering outsourcing any business processes. Signing a non-disclosure
agreement before commencing work is another prerequisite.
Communication Issues
Depending on the location of the outsourcing partner, effective communication could
potentially be problematic. If the contractor is located in a different time zone, time gaps
can make real-time communication cumbersome. Also, language differences can
sometimes lead to misunderstandings.

Less Control
Because you’re delegating work to another company, you have less control over the
execution, which can cause minor discrepancies in how the goals are reached.
 
Advantages of Offshoring

Lower Cost
Offshoring offers companies an opportunity to hire specialized talent or to produce goods
at a lower price. For example, when a United States company accesses resources in India
or the Philippines, where labour costs are cheaper, the impact of that decision on cost
efficiency can be considerable. Simultaneously, the quality of services received can be on
par with what’s available domestically.

Lighter Regulations
Some countries make it easier for manufacturers or companies to conduct business by
having lighter regulations. Offshoring core activities can thus involve fewer production
restrictions, allowing organizations to deliver services or products according to plan.

Taxes and Tariffs

Taking advantage of tax and tariff relief present in some countries offers companies
significant cost-saving opportunities.

Higher Control
By choosing to offshore operations rather than outsource them, companies retain full
control over their internal processes. Strictly adhering to the execution of critical business
operations is often crucial to meet business objectives.

Disadvantages of Offshoring
Cultural and Social Differences
Cultural customs can have a noticeable impact on operations conducted in an offshoring
location. For example, public holidays that occur on different days than those in a
domestic country can result in days-long delays in production or delivery of services.

Quality Check
Companies offshoring their operations can usually expect to have more control over the
production. However, many factors can still influence the quality of the finished product
or delivered service, even if the offshore location follows guidelines and
recommendations.