THE ARAB ACADEMY FOR SCIENCE AND TECHNOLOGY

GRADUATE SCHOOL OF BUSINESS

MBA PROGRAM –GENERAL TRACK

2007

COMPREHENSIVE EXAM
A CASE STUDY OF

STUDENT NAME

EXAM DATE
INDEX

Situation Analysis............................................................4
Multinationals....................................................................................................4
Globalization......................................................................................................4
Egypt's business environment at a glance....................................................5
External Environmental factors: (extract from the case)..............................6
Societal environment:......................................................................................7
Task Environment (Porter’s 5 forces)............................................................10
TWOS Matrix....................................................................................................11

Vision Mission and objective of the new entity............13

COMPANY Vision:...........................................................................................13
COMPANY Mission:.......................................................................................13
COMPANY objectives:....................................................................................13

Corporate Strategy........................................................14
Grand Strategy................................................................................................14
- Growth.........................................................................................................14
- Stability........................................................................................................14
- Retrenchment..............................................................................................15
Boston Consulting Group Matrix..................................................................16
SPACE Matrix..................................................................................................17
Grand Strategy Matrix.....................................................................................18

Competitive Business Strategy.....................................20

Cost Leadership Strategy..............................................................................20
Differentiation Strategy..................................................................................20
Focus Strategy..............................................................................................21

Functional Strategy.......................................................22
Marketing Strategy..........................................................................................22
 Market segmentation.....................................................................................22
Targeting........................................................................................................23
Product positioning........................................................................................23
Marketing Mix – Component Factors............................................................25
Military Strategy.............................................................................................25
Ansoff Matrix..................................................................................................26
Financial Strategy...........................................................................................27

Operational Strategy.....................................................28
Research and Development R&D..................................................................29
Management Information System MIS..........................................................29
Focus on Quality.............................................................................................29

Organization Structure..................................................30
Simple structure:.............................................................................................30
Functional structure:......................................................................................30
Divisional structure:.......................................................................................31
Matrix Structure...............................................................................................32
Network structure...........................................................................................33

Human Resources..........................................................34
Human Resource Policies and Programs....................................................34
HR Planning...................................................................................................34
How to attract qualified Human resources....................................................34
How to train and Develop qualified Human Resources................................34
How to maintain qualified Human Resources...............................................34

Important issues for Implementation............................36

Financial Statements of the New Entity.......................37

Projected Income Statement..........................................................................37
Projected Balance Sheet................................................................................38

Financial Impact on main Company Statements..........41

Situation Analysis

Multinationals

Large multinational corporations can have a powerful influence in international relations,

given their large economic influence in politicians' representative districts, as well as
their extensive financial resources available for public relations and political lobbying.

Multinationals have played an important role in globalization. Prospective country

locations for MNC production establishments, and sometimes regions within countries,
must compete with each other to have MNCs locate their facilities (and subsequent tax
revenue, employment, and economic activity) within a region. To compete, countries and
regional political districts offer incentives to MNCs such as tax breaks, pledges of
governmental assistance or improved infrastructure, or lax environmental and labor
standards. This process of becoming more attractive to foreign investment can be
characterized as a race to the bottom, a push towards greater freedom for corporate
bodies, or both.

The mobility of capital brought by multinational corporations can create "a race to the
bottom". This refers to efforts by governments to change their laws and regulations to
become more corporate friendly in order to attract multinational investment. As they
become more responsive to the interests of multinational corporations, there is the risk
that governments can become less responsive to local constituents. Examples of this are
laws that bar unionization or permit lax environmental standards. Those laws are often
chosen because governments also find the corporate-friendly rules comfortable. China,
for example, bars unionization in most cases, but it also bars almost every other civil
society organization above the very local level that is not government controlled.

Multinationals face diverse risk; exchange rate fluctuations, unfavorable foreign

contracts & agreements, social/political disturbances, import/export restrictions,
tariffs, trade barriers.

Globalization
Globalization refers to increasing global connectivity, integration and interdependence in
the economic, social, technological, cultural, political, and ecological spheres.
Globalization is an umbrella term and is perhaps best understood as a unitary process
inclusive of many sub-processes (such as enhanced economic interdependence, increased
cultural influence, rapid advances of information technology, and novel governance and
geopolitical challenges) that are increasingly binding people and the biosphere more
tightly into one global system.
- A global strategy seeks to meet the needs of customers worldwide with the
highest value & lowest cost
- Locating production in countries with lowest labor costs or abundant
resources
- Locating research where skilled scientists & engineers are found
- Locating marketing activities close to markets to be served
- Including designing, producing, & marketing products with global needs in
minds instead of considering individual countries needs.
- Challenges: combat inflation, stabilize the economy, enable private sector to
invest, attract private foreign capital, balanced budget, less debt , removing
constraints

Egypt's business environment at a glance

GDP growth 6.2%
Inflation 12%
Policy towards private enterprise and competition
2007-08: The government steps up the privatization of smaller, non-strategic industrial
companies as well as the sale of its stakes in joint ventures with foreign banks. Foreigners
are able to buy shares in Egyptian companies.

Policy towards foreign investment

2007-08: Significant progress is made in overhauling commercial legislation. Bureaucracy
remains obstructive.
2009-11: Foreign participation in the economy is encouraged. Efforts to reduce bureaucratic
barriers begin to yield results.
Foreign trade and exchange controls
2007-08: Import tariffs continue to be lowered and steps are taken to address non-tariff
barriers.
2009-11: Non-tariff barriers continue to ease. More efficient monetary policy tools allow the
authorities to employ greater
flexibility in the management of the currency. Egypt and the US are likely to forge a free-
trade agreement.
Taxes
2007-08: Sales tax is streamlined and broadened. Steps are taken to move towards a value-
added tax system. Progress is
made in overhauling inefficient tax administration.
2009-11: Efforts continue to improve tax administration and prevent tax fraud and evasion.
Financing
2007-08: New equity and debt offerings on the bourse pick up. Banking sector mergers and
acquisitions advance rapidly.
2009-11: Deeper foreign interest in the stock exchange is stimulated by sales of stakes in
major utility companies as well as
by robust economic growth. Greater participation in the stock exchange of private pension
funds and insurance companies.
The labour market
2007-08: Plentiful and cheap labour, much of it untrained and low-skilled, but restrictions
remain on hiring and firing.
2009-11: A more competitive and flexible labour market gradually evolves.
Infrastructure
2007-08: A wide-ranging programme to upgrade infrastructure is implemented, with ports,
airports and railways to benefit.
2009-11: The government returns to the use of build-operate-transfer schemes for major
infrastructure projects.

Key Economic Variables

Unemployment trends
Worker productivity levels
Value of the dollar in world markets
Stock market trends
Foreign economic conditions

Import/Export factors
Demand shifts for goods/services
Income differences by region/customer
Price fluctuations
Exportation of labor and capital

Monetary policies
Fiscal policies
Tax rates

External Environmental factors: (extract from the case)

External environmental factors include a very wide range of variables under the main
categories of Societal and task environment including economical, technological,
political-legal, socio-cultural, competitors, buyers, suppliers, substitutes, new entrants
and other stakeholders' variables. As the company is working in different countries with
different set of external factors, (i.e. the same external factors might affect the
organization differently in different countries) and we will assume the factors that mostly
affect the overall organization and its subsidiaries.

Societal environment:
It is comprised of all the background conditions in the external environment of
an organization.
1. Economic: general state of the economy in terms of inflation, recession,
unemployment, interest rate, tax rate workers productivity, price
fluctuations
Economic challenges:
- dealing with the budget’s deficit
- Foreign economic assistance is decreasing. Remittances from Egyptians
working abroad is decreasing year after another
- Reinforcing confidence in the banking sector where loan defaulters will be
invited to settle their disputes.

2. Social: general state of prevailing social values such as trends in

education, demographic patterns, life style, age race, gender, no. Of
marriages, divorces, leisure time, social responsibility, religion, taste
Social challenges:
- Increasing population 77 m. accompanied with the absence of human
behavior impose burden on the development process. People should be
armed with advanced technology, health, physical, moral & psychological
care.
- Education & scientific research, elimination of illiteracy , developing cultural
& educational programs in order to develop people’s capability of innovation,
creativity & invention. & capitalizing on the youth & modernization.
- People centered & staff awareness is the key to everyone’s participation in
business activities undertaken.
3. Political: general state of the prevailing philosophy or objectives of the
political party as well as government regulations, tax laws, tariff, new
laws issued, terrorist activities, patent, international relations with other
countries
Political challenge:
- Challenges to the regime, strengthened position of Islamic brotherhood
- Strengthened opposition to US policies
- Continuous terrorist attacks on Sinai has affected tourism 7 Egypt’s image
ww.
4. Technological: general state of the development of technology in the
environment. The internet has created new opportunities & threats,
changed the speed of distribution, changed entry barriers, economies of
scale, redefined the relationship between suppliers, customers &
competitors,
Technological challenges:
Meeting international standards to respond to fierce competiton
Developing innovative models to access target market
People do not have access to computer to handle daily activities
Computers aren’t affordable by a wide range of people
Data security is still an issue
5. Competitive :identifying rival firms & determining their strengths,
weaknesses, opportunities, threats, objectives & strategies. Most of the
information is gathered through the internet.

Opportunities and threats:

1- Exchange rate: stability of the exchange rate in Egypt as expected for the coming 2
years in addition to the devaluation of the Dollar against the Euro would give the
company a very good chance to boost its sales level especially with the eye on
export..
2- Tax and customs Laws: the modified tax law in Egypt (as the group is an Egyptian
Group) will be reflected on the net income of the company and accordingly on its
overall results.
3- Availability and price of Labor: the figure in the organization indicates the
availability and low price labor.
4- Political situation and Terrorist attacks: the political situation and terrorist attacks in
Egypt and allover the world and the image linked to the Arab community and its
projection on doing business with such community.
5- Economic growth: apart of the slow overall economic growth worldwide and
especially in Egypt, the pharmaceutical market has a relatively high percentage of
growth.
6- Increased Governmental regulation: Egypt for any new business as indicated from
the statistics.
7- Free trade agreements: The availability of a free trade agreement.
8- Governmental Price Fixation; discourages many businesses and reduces profits
drastically.
9- Import and export regulation:
10- Special tariffs: change in the tariffs for cars in the last few month affected the
industry in many different aspects
11- Level of disposable income: increased after measured decrease in fixed taxes
12- Trust in the government :
13- Educational systems :
14- Fair competition :?
15- Number and size of competitors:
16- Level of new entrants product differentiation
17- Ease of access to the distribution channels
18- Suppliers :
19- Price competition with dumped imports especially from china.
20- Unstable economic conditions (recession)
21- Trend for stabilization of exchange rate by utilizing the foreign currency strategic
reserve in the central bank to increase/decrease supply of dollars.

External Factors Weight Rating Weighted Comments

Score
Opportunities
Exchange Rate .2 3 1
New Tax Law .15 3 .75
Availability and price of Labor .05 4 .2
Economic Growth .05 3 .15
Free trade agreements .05 3 .15
Developing market (internet)
Mergers, JV, or strategic alliance
Moving into new attractive market segments
New international market
Loosening of regulations
Removal of international trade agreements
Market led by a weak competitor
Threats
Political situation and Terrorist attacks .2 2 .4
New Governmental Regulation .1 3 .3
Governmental Price Fixation .2 3 .6
New competitor in the home market
Price war
Competitor has new, innovative products
Increased trade barriers
Taxation introduced to your product
Total Score 1 3.55
Task Environment (Porter’s 5 forces)

Four forces -- bargaining power of customers, the bargaining power of suppliers, the
threat of new entrants, and the threat of substitute products -- combined with other
variables to influence a fifth force, the level of competition in an industry. Each of these
forces has several determinants:

A graphical representation of Porters Five Forces

 The bargaining power of customers
o buyer concentration to firm concentration ratio
o bargaining leverage
o buyer volume
o buyer switching costs relative to firm switching costs
o buyer information availability
o ability to backward integrate
o availability of existing substitute products
o buyer price sensitivity
o price of total purchase
 The bargaining power of suppliers
o supplier switching costs relative to firm switching costs
o degree of differentiation of inputs
o presence of substitute inputs
 o supplier concentration to firm concentration ratio
o threat of forward integration by suppliers relative to the threat of backward
integration by firms
o cost of inputs relative to selling price of the product

 The threat of new entrants

o the existence of barriers to entry
o economies of product differences
o brand equity
o switching costs
o capital requirements
o access to distribution
o absolute cost advantages
o learning curve advantages
o expected retaliation
o government policies
 The threat of substitute products
o buyer propensity to substitute
o relative price performance of substitutes
o buyer switching costs
o perceived level of product differentiation
 The intensity of competitive rivalry
o number of competitors
o rate of industry growth
o intermittent industry overcapacity
o exit barriers
o diversity of competitors
o informational complexity and asymmetry
o brand equity
o fixed cost allocation per value added
o level of advertising expense

TWOS Matrix
Vision Mission and objective of the new entity
COMPANY Vision:
The organization vision is the dream to create or achieve in the future .Accordingly, the
vision statement must be revised to be broad enough and cover all company's
stakeholders.
Company vision is

COMPANY Mission:
The mission is the purpose of existence of any organization that sets it apart from other
firms. The organization mission statement identifies the domain in which the organization
intends to operate including the customers it intends to serve, the products and services it
will provide and the location it will operate. The mission statement should be well
communicated to all stakeholders. The firm strategy should comply with the mission
statement.
Company mission statement :

COMPANY objectives:
The organization objectives directs activities toward key and specific results, the coming
objectives are extracted from the current situation of the mother company describes and
quantifies the organization operating objectives in the following fields :( extract from
the case)

1. Cost reduction; highlighting the cost awareness of the organization with good
improvement in figures.
2. Innovation; as one of the competitive advantage in the pharmaceutical business
3. Co-petition; as an objective to increase enthusiasm between different parts of the
organization
4. Export; show with 20% of production as a strategic choice to secure hard
currency.

As the objectives should be SMART

But the following objectives must be more elaborated to clearly describe the operating
objectives of the company

1. Efficiency
2. Growth
3. Reputation
4. Contributions to the employees
5. Market leadership
6. Profitability
7. Utilization of resources
Corporate Strategy
In most (large) corporations there are several levels of strategy. Corporate strategy is the
highest in the sense that it is the broadest, applying to all parts of the firm. It gives
direction to corporate values, corporate culture, corporate goals, and corporate missions.
Under this broad corporate strategy there are often functional or business unit strategies.

Grand Strategy
- Growth
Growth Strategy

It is the most appropriate strategy designed to achieve higher sales, assets, profits or
combination of all. Continuing to grow is increased sales, improve the per unit cost and a
better experience curve with an increased profit and market share.
(If the company is intending to share the market, the company must peruse growth
strategy)

Either growth is internally through expanding of operations both globally and

domestically or it can grow externally through mergers, acquisitions and strategic
alliance.
The company is already applying a vertical growth through vertical integration with
some of its distributors outside and suppliers. It must increase both backward and forward
integration to include or to add additional suppliers for more material that is input to
COMPANY X' products and to reduce the power of the suppliers over its business, also
to include more distribution channels either owned, or agents to ensure the distribution of
COMPANY X's product all over the world and to achieve its objective of increasing its
exports to 50% by the year 2010 but without affecting the local market..

Horizontal growth is also an applied strategy in expanding COMPANY X's products

in range and in other geographical locations and/or increasing the range of products in the
same location. The first step of acquisition of AMC is a very good example and start for
horizontal integration where COMPANY X would enriches its range of products with a
unique and additional product and applying its cost leadership strategy to the new product
will result in a very good market position, also there are many other options for growth
strategy.

- Stability
(Stability strategy: if the company is operating in reasonably stable environment,
stability strategy will be very appropriate for successful operation)
- Retrenchment
(Retrenchment strategy: when the company is in a weak competitive position, some or
all of its products results in a poor performance, sales are down and profits are becoming
losses. Therefore using retrenchment strategy to eliminate the weakness that are dragging
the company down)

(The strategy adopted by the mother company will be illustrated here)

Growth Stability Retrenchment
Adding new businesses Maintain/ increase MKT share Cut into pieces (cut
/drop businesses)
Market still booming (not saturated)
New product Same product
New market Same market
High R&D Flat R&D
High Investment Flat investment
High competition Stable environment
M&A, Integration, market penetration Bankruptcy, sell out,
Strategic Alliances, divest, liquidation
Joint ventures

Integration
Forward (distribution)
Horizontal (Competitors)
Backward (suppliers)
Buy  Manufacture  sell

Intensive Strategies
Market penetration --- more considered to be stability strategy
Market development --- Borderless markets
Product Development --- Short PLC

Diversification Strategies (new prod, new MKT) Do not put all eggs in one basket:
Concentric Diversification --- (expanding in the same line of business)
Conglomerate Diversification --- (holding company)
Horizontal Diversification --- new unrelated to same customers
Seek a strategic fit = 1+1> 2 synergy (‫) مع بعض لهم معنى‬

Defensive Strategies
Retrenchment --- Cost and asset reduction to reverse declining profits (work out= loosing
fat)
Divestiture ---- use Jack Welsh Matrix (GE)
Liquidation ---- Selling company assets in parts
 Boston Consulting Group Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
+20
Industry Sales Growth

Stars Question Marks

II I
Rate

Medium
0

Cash Cows Dogs

III IV
Low
-20
Question Marks
 Low relative market share – compete in high-growth industry
 Cash needs are high
 Case generation is low
 Decision to strengthen (intensive strategies) or divest
Stars
 High relative market share and high growth rate
 Best long-run opportunities for growth & profitability
 Substantial investment to maintain or strengthen dominant position
 Integration strategies, intensive strategies, joint ventures
Cash Cows
 High relative market share, competes in low-growth industry
 Generate cash in excess of their needs
 Milked for other purposes
 Maintain strong position as long as possible
 Product development, concentric diversification
 If weakens—retrenchment or divestiture
Dogs
 Low relative market share & compete in slow or no market growth
 Weak internal & external position
 Liquidation, divestiture, retrenchment
SPACE Matrix

Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Technological changes
Return on investment Rate of inflation
Leverage Demand variability
Liquidity Price range of competing products
Working capital Barriers to entry
Cash flow Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business

Internal Strategic Position External Strategic Position

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization
SPACE matrix graph
FS
Conservative +6 Aggressive
+5
+4
+3
+2
+1
CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2
-3
-1.5,-1
-4
Defensive -5 Competitive
-6
ES

Grand Strategy Matrix

 Tool for formulating alternative strategies
 Based on two dimensions
 Competitive position
 Market growth
RAPID MARKET GROWTH
Quadrant II Quadrant I
Market development Market development
Market penetration Market penetration
Product development Product development
Horizontal integration Forward integration
Divestiture Backward integration
Liquidation Horizontal integration
Concentric diversification

WEAK
COMPETITIVE
Quadrant III Quadrant IV STRONG
POSITION
COMPETITIVE
Retrenchment Concentric diversification
POSITION
Concentric diversification Horizontal diversification
Horizontal diversification Conglomerate diversification
Conglomerate diversification Joint ventures
Liquidation

SLOW MARKET GROWTH

Quadrant I
 Excellent strategic position
 Concentration on current markets/products
 Take risks aggressively when necessary
Quadrant II
 Evaluate present approach
 How to improve competitiveness
 Rapid market growth requires intensive strategy
Quadrant III
 Compete in slow-growth industries
 Weak competitive position
 Drastic changes quickly
 Cost & asset reduction (retrenchment)
Quadrant IV
 Strong competitive position
 Slow-growth industry
 Diversification to more promising growth areas
Competitive Business Strategy
Cost Leadership Strategy

This strategy emphasizes efficiency. By producing high volumes of standardized

products, the firm hopes to take advantage of economies of scale and experience curve
effects. The product is often a basic no-frills product that is produced at a relatively low
cost and made available to a very large customer base. Maintaining this strategy requires
a continuous search for cost reductions in all aspects of the business. The associated
distribution strategy is to obtain the most extensive distribution possible. Promotional
strategy often involves trying to make a virtue out of low cost product features.

To be successful, this strategy usually requires a considerable market share advantage or

preferential access to raw materials, components, labor, or some other important input.
Without one or more of these advantages, the strategy can easily be mimicked by
competitors. Successful implementation also benefits from:

 process engineering skills

 products designed for ease of manufacture
 sustained access to inexpensive capital
 close supervision of labor
 tight cost control
 Incentives based on quantitative targets.

Differentiation Strategy

Differentiation involves creating a product that is perceived as unique. The unique

features or benefits should provide superior value for the customer if this strategy is to be
successful. Because customers see the product as unrivaled and unequaled, the price
elasticity of demand tends to be reduced and customers tend to be more brand loyal. This
can provide considerable insulation from competition. However there are usually
additional costs associated with the differentiating product features and this could require
a premium pricing strategy.

To maintain this strategy the firm should have:

 strong research and development skills

 strong product engineering skills
 strong creativity skills
 good cooperation with distribution channels
 strong marketing skills
 incentives based on subjective measures
 be able to communicate the importance of the differentiating product
characteristics
 stress continuous improvement and innovation
  attract highly skilled, creative people

Focus Strategy

In this strategy the firm concentrates on a select few target markets. It is also called a
niche strategy. It is hoped that by focusing your marketing efforts on one or two narrow
market segments and tailoring your marketing mix to these specialized markets, you can
better meet the needs of that target market. The firm typically looks to gain a competitive
advantage through effectiveness rather than efficiency. It is most suitable for relatively
small firms but can be used by any company. As a focus strategy it may be used to select
targets that are less vulnerable to substitutes or where a competition is weakest to earn
above-average return on investments.

Type of strategies Ways to achieve the strategy Benefits Possible problems

Size and economies of scale The ability to: Vulnerability to even lower
Globalization cost operators
Cost Leadership
outperform rivals
Relocating to low-cost parts of Possible price wars
the world
erect barriers to entry
The difficulty of sustaining it
Modification/simplification of in the long term
resist the five forces
designs

Greater labor effectiveness

Greater operating effectiveness

Strategic alliances

New source of supply

A more detailed Limited opportunities for
understanding of particular sector growth
Focus Concentration upon on or a small
segments
number of a strong and specialist
reputation The possibility of outgrowing
The creation of barriers to the market
entry
The decline of the sector
A reputation for
specialization
A reputation for
specialization which
The ability to concentrate ultimately inhibits growth and
efforts development into other
sectors
The creation of strong brand A distancing from others in The difficulties of sustaining
identities the market the bases for differentiation
Differentiation

The consistent pursuit of pursuit The creation of a major Possibly higher costs
of those factors which customers competitive advantage
perceive to be important
The difficulty of achieving
Flexibility true and meaningful
High performance in one or more differentiation
of a spectrum of activities
Functional Strategy
Functional strategies include marketing strategies, new product development strategies,
human resource strategies, financial strategies, legal strategies, and information
technology management strategies. The emphasis is on short and medium term plans and
is limited to the domain of each department’s functional responsibility. Each functional
department attempts to do its part in meeting overall corporate objectives, and hence to
some extent their strategies are derived from broader corporate strategies.

Many companies feel that a functional organizational structure is not an efficient way to
organize activities so they have reengineered according to processes or strategic business
units (called SBUs). A strategic business unit is a semi-autonomous unit within an
organization. It is usually responsible for its own budgeting, new product decisions,
hiring decisions, and price setting. An SBU is treated as an internal profit centre by
corporate headquarters. Each SBU is responsible for developing its business strategies,
strategies that must be in tune with broader corporate strategies.

Marketing Strategy

Marketing Decisions requiring policies

 Exclusive dealerships – multiple channels of distribution
 Heavy, light, or no TV advertising
 Price leader or price follower
 Advertise online or not
 Offer complete or limited warrantee

Centrally important to Implementation

Market segmentation
Subdividing of a market into distinct subsets of customers according to needs and

buying habits. Directly affect marketing mix variables:

Product
Place
Promotion
Price
Basis of Segmentation
Geographic
 Region
 County size
 City size
 Density
 Climate

Demographic
 Age
  Family Size
 Family Life Cycle
 Income/Occupation
 Education
 Religion
 Race/Nationality

Psychographic
 Social Class
 Lifestyle
 Personality

Behavioral
 Use occasion
 Benefits sought
 User status
 Usage rate
 Loyalty status
 Readiness stage
 Attitude toward product

Targeting
- evaluate attractiveness of each segment
- select the target segment(s)

Product positioning
-- Schematic representations that reflect how products/services compared to competitors’ on
dimensions most important to success in the industry
Product positioning guidelines
 Look for vacant niche
 Avoid sub optimization
 Don’s serve 2 segments w/ same strategy
 Don’t position in the middle of the map

Choosing a Specific Positioning

• Best quality
• Best performance
• Most reliable
• Most durable
• Safest
• Fastest
• Best value for the money
• Least expensive
• Most prestigious
• Best designed or styled
• Easiest to use
• Most convenient
Product Positioning Map

High
Convenience Rental Car Market
•
Firm 1
Firm 2
•
High Low
Customer Customer
Loyalty Loyalty

•
Firm 3

Low
Convenience
Choosing a Value Positioning
• More for More.
Example : Mont Blanc, Gucci apparel, Haagen-Dazs
• More for the Same.
Example: Lexus automobile
• The Same for Less.
Example: Arrow shirts, Goodyear tires, Panasonic TV
• Less for Much Less.
Example: VCRs offering fewer features
• More for Less
Example: Toys ‘R’ Us, Wal-Mart store
Marketing Mix – Component Factors
Product Place Promotion Price

Distribution
Quality Advertising Level
channels
Distribution Discounts &
Features Personal selling
coverage allowances

Style Outlet location Sales promotion Payment terms

Brand name Sales territories Publicity

Inventory
Packaging
levels/locations
Transportation
Product line
carriers

Warranty

Service level

Entry strategy
Why we go international?
Market saturation
Competition is high in domestic market
Emerging markets (higher profits)
Globalization trends
to achieve economies of scales

How to enter the new market

- FDI (higher control, risk of capital)
- Contractual agreement (license, franchise)
- Direct export

Entry strategy
- Ethnocentric (same system all over the globe)
- Polycentric/ Multidomestic (Nestle)
- Geocentric/Global (50% ethnocentric, 50%Multidomestic)

Competitor Analysis
What are your main competitors (Direct, indirect, substitute)
Strategies of main competitors (Cost leadership, Diff)

Military Strategy
PRINCIPLES OF OFFENSIVE MARKETING WARFAREOffensive
 1. THE MAIN CONSIDERATION IS THE STRENGTH OF THE LEADER’SPOSITION
2. FIND WEAKNESS IN THE LEADER’S STRENGTH AND ATTACK AT THAT POINT.
3. LAUNCH THE ATTACK ON AS NARROW A FRONT AS POSSIBLE.

Ansoff Matrix
(Market development or diversification)

The Ansoff Product-Market Growth Matrix is a marketing tool created by Igor Ansoff.
The matrix allows marketers to consider ways to grow the business via existing and/or
new products, in existing and/or new markets – there are four possible product/market
combinations. This matrix helps companies decide what course of action should be taken
given current performance. The matrix consists of four strategies:

 Market penetration (existing markets, existing products): Market penetration

occurs when a company enters/penetrates a market with current products. The
best way to achieve this is by gaining competitors' customers (part of their market
share). Other ways include attracting non-users of your product or convincing
current clients to use more of your product/service, with advertising or other
promotions.
 Product development (existing markets, new products): A firm with a market for
its current products might embark on a strategy of developing other products
catering to the same market. For example, McDonalds is always within the fast-
food industry, but frequently markets new burgers. Frequently, when a firm
creates new products, it can gain new customers for these products. Hence, new
product development can be a crucial business development strategy for firms to
stay competitive.
 Market development (new markets, existing products): An established product in
the marketplace can be tweaked or targeted to a different customer segment, as a
strategy to earn more revenue for the firm. For example, Lucozade was first
marketed for sick children and then rebranded to target athletes. This is a good
example developing a new market for an existing product.
 Diversification (new markets, new products): Virgin Cola, Virgin Megastores,
Virgin Airlines, Virgin Telecommunications are examples of new products
created by the Virgin Group of UK, to leverage the Virgin brand. This resulted in
the company entering new markets where it had no presence before.
Financial Strategy
Operational Strategy
The “lowest” level of strategy is operational strategy. It is very narrow in focus and
deals with day-to-day operational activities such as scheduling criteria. It must operate
within a budget but is not at liberty to adjust or create that budget. Operational level
strategies are informed by functional level strategies which, in turn, are informed by
corporate level strategies. Business strategy, which refers to the aggregated operational
strategies of single business firm or that of an SBU in a diversified corporation, refers to
the way in which a firm competes in its chosen arenas.

Production processes typically constitute more than 70% of firm’s total assets
Production/Operations Decisions
 Plant size
 Inventory/Inventory control
 Quality control
 Cost control
 Technological innovation
 Location
 Supply chain
 Logistics
 Distribution network

1. Process: process decisions concern the design of the physical production system.
Specific decisions include choice of technology, facility layout, process flow
analysis, facility location, line balancing, process control & transportation
analysis.
2. Capacity: Capacity decisions concern determination of optimal output level. It
includes forecasting, facilities planning, scheduling & capacity planning.
3. Inventory: managing raw materials, work in process & finished goods. What to
order? When to order? how much to order?
4. Workforce: managing skilled, unskilled, clerical & managerial employees. It
includes job design, work measurement, job enrichment, work standards &
motivation techniques.
5. Quality: aims at providing high quality to goods; quality control, sampling,
testing, quality assurance & cost control
Questions:
1. Are supplies of raw materials, parts, assemblies reasonable & reliable?
2. Are facilities, equipment, machinery & offices in good condition?
3. Are inventory policies & procedures effective?
4. Are quality control policies effective?
5. Are facilities, resources & markets strategically located?
Research and Development R&D
3 Major R&D approaches according to marketing strategy adopted:
1. 1st firm to market new technological products
2. Innovative imitator of successful products
3. Low-cost producer of similar but less expensive products

Management Information System MIS

Information is the foundation of decision-making and problem solving on all levels
throughout the organization from top management to middle management to first level
management even workers who needs the information to accomplish their tasks.
Thus and for the corporation to be successful, they should develop rigorous methods for
gathering and analyzing outside/inside information.
So the primary task of the manger of the information system is to design and manage the
flow of information in the organization in ways that improve productivity and decision
making. Information must be collected, stored and synthesized in such a manner that it
will answer important operating and strategic questions
One of the most important factors differentiating successful from unsuccessful firms
Role of MIS:
 Information collection, retrieval, & storage
 Keeping managers informed
 Coordination of activities among divisions
 Allow firm to reduce costs

Focus on Quality
As our culture do not by nature focus on quality, our products and services face low
quality grade against others produced in Europe, US and Far East. In order to grab more
market share and win more customers, we will focus on achieving high level of Quality.
This should be done through involving quality in our objectives, strategic plans as well as
functional plans by having the right quality assurance and control measures.

Quality Assurance
 Emphasis on finding and correcting defects before reaching market
Strategic Approach
 Proactive, focusing on preventing mistakes from occurring
 Greater emphasis on customer satisfaction

Guidelines for management of Quality

1. We have to find out what the customer wants
2. Design a product or service that meets or exceeds customer wants
3. Design processes that facilitates doing the job right the first time
4. Keep track of results
5. Extend these concepts to our suppliers
Organization Structure
The organization is the process of arranging people and other resources to work together
to accomplish a goal. The new entity will need to have proper organization structure to
achieve the aimed objective and to be able to implement corporate strategy and functional
strategies.

Simple structure:
Owner-manager makes decisions.
Little specialization of tasks.
Few rules, little formalization.

Advantages: Provides high flexibility

Rapid product introduction
Few coordination problems

Functional structure:
The company is lead through a team of managers who have functional specializations.

Advantages
• Centralized control of operations
• Promotes in-depth functional expertise
• Enhances operating efficiency where tasks are routine

Disadvantages
• Functional coordination problems
• Inter-functional rivalry
• Overspecialization and narrow viewpoints
• Hinders development of cross-functional experience
• Slower to respond in turbulent environments
 President

Accounting Legal affairs

HR Finance Marketing R&D Production

Divisional structure:
It occurs especially when the organization is managing diverse product line or when the
organization is expanding to cover wider geographical areas

Advantages:
 Decentralized decision making
 Each business is organized around products
 Puts profit/loss accountability on manager
 Facilitates rapid response to environmental changes
 Allows efficient management of a large number of units
Disadvantages
 May lead to costly duplication of functions
 Inter-divisional rivalry
 Corporate managers may lose in-depth understanding
 President

Product Product
division A Marketing division B

Finance Finance

Manufacturing Manufacturing
HR HR
Marketing

Matrix Structure

The matrix structure (some times called the matrix organization) it combines the
functional and divisional structure. It is designed to gain the advantage and minimize the
disadvantages of the functional and divisional structures.

The matrix is formed by using permanent cross functional teams to integrate functional
expertise in support of a clear divisional focus on project, product or program.

The matrix structure in the multinational organizations offers a flexibility to deal with the
regional differences as well as the multi products, programs or regional needs.

The matrix structure is the common solution for the organizations that pursues the growth
strategies in a dynamic and complex environment

 Functional & product form are combined simultaneously at the same level.
 Employee have 2 superior, functional superior & horizontal product manager

When to use?
• Scarce resources
• Ideas need to be cross fertilized across projects
• External environment is very complex and changeable
3 Distinct phase exist in the development of matrix structure
1 -Temporary cross functional task forces:
Project manager is in charge as the key horizontal link
2 -Product or brand management:
The functional is still the primary organizational structure, product manager act as
integrator of semi permanent product or brand
3-Mature matrix:
A true dual authority structure, functional & product structure are permanent

General Manager (Assistant)

Project Manufacturing Engineering Sales Marketing

Manager Manager Manager Manager Manager

Project A xxxx xxxx xxxx xxxx

Project B xxxx xxxx xxxx xxxx

Project C xxxx xxxx xxxx xxxx

Network structure
• many activities are outsource
• series of independent firms or business units that are linked together by
computers in an IS
• Used when the environment is unstable

Nike, Reebok, Benetton use the network structure on there operation functions by
subcontracting manufacturing to other companies in low cost location around the world .

Advantages:

• Rapid response time

• Firm’s emphasize their own core competencies
• Very flexible
• Reduces capital intensity
Human Resources
Human Resource Strategic Responsibilities
 Assessing staffing needs/costs (HR planning)
 Attract
 Develop
 Maintain (Developing performance incentives)

The human resource Strategy addresses the issue of whether to recruit a low skill, low
paid, high turnover employees or higher a high skill, high paid, low turnover employees.
The organization policy to go international must be a highly paid high skill, low turn over
employees to improve creativity of the employees and the turnover must be kept at its
minimum levels.

Human Resource Policies and Programs

HR Planning
- Develop effective staffing plans supporting the organizational strategies by allowing
to fill job openings proactively (in terms of number and the quality of the workforce for
the short and long term) VIP in case of international operations.( if the company is
multinational)

How to attract qualified Human resources

- Preparation and selection: Review of the employees' job description, job
specification and job performance standard to match the objectives of the new entity.
- Recruitment: designing a good recruitment process (Selection, interviews) with a
high level of orientation to ensure the compatibility of the new recruited employees with
the mother company culture to achieve organizational objectives.
- Testing: Will ensure the qualification of the candidates and their fit in the
organization culture.

How to train and Develop qualified Human Resources

- Career Path and development: the preparation of the career path for the employees
will help the stability and minimize the turnover of the employees.
- Training and development: on-the- job” training, Off-the-Job training and Provide
career planning assistance for employees.

How to maintain qualified Human Resources

- Incentive system will ensure the motivation of the employees to better performance
(linking incentive to production)
- Compensation Policies and protection: What employees get in exchange for their
contribution to the organization”,  maintain, retain productive workforce, achieve the
org. objectives
- Managing workforce diversity( because organization is going internationally)
- Enhance employee participation: in implementing our strategy, all employees from
different organizational levels must make a meaningful contribution in decision-
making .this will increase employee's involvement and enhance their working life
balance.
- Enhance employee organizational commitment: by increasing job involvement,
which results in lower levels of absenteeism and turnover.
- Implementing employee recognition programs: starting with personal attention and
ending with appreciation for a job well done.
- Succession Planning: the preparation of the company succession plan will enable the
organization to stand any future challenges.
Important issues for Implementation
As the formulated strategies and previously illustrated framework is approved,
the following issue should be taken care during implementation:

1. Management commitment: creating committed management to the

process of continuous improvement, a dedication to empowering people to
change, and to periodically raise the goals for improvement. Adoption and
communication of TQM: using tools like mission statement and slogans.
2. Employee empowerment: giving workers the responsibility for
improvements and the authority to make changes to accomplish them.
3. Reward System: is the missing link that motivates managers and
employees to "walk the talk" and use TQM to the fullest and it's divided into
two groups, monetary and non-monetary rewards.
4. Integrating training: includes different aspects of TQM elements, team
skills and problem-solving techniques.
5. Process improvement: process of reducing waste and cycle times in all
areas through cross-departmental process analysis.
6. Quality at source: the philosophy of making each worker responsible
for the quality of his/her work.
Financial Statements of the New Entity
Essential for implementation
 Acquiring needed capital (Capital structure: Debt / Equity)
 Developing projected financial statements
(Allow an organization to examine the expected results of various actions and
approaches)
1. Prepare income statement before balance sheet (forecast sales)
2. Use percentage of sales method to project CoGS & expenses
3. Calculate projected net income
4. Subtract dividends to be paid from Net Income and add remaining to
Retained Earnings
5. Project balance sheet times beginning with retained earnings
6. List comments (remarks) on projected statements

Projected Income Statement

Company Name
Prior Year Projected Year
  2004 2005 Remarks

Projected Income Statement      

Sales 100 150.00 50% increase
Cost of Goods Sold 70 105.00 70% of sales
Gross Margin 30 45.00  
Selling Expense 10 15.00 10% of sales
Administrative Expense 5 7.50 5% of sales
EBIT 15 22.50  
Interest 3 3.00  
EBT 12 19.50  
Taxes 6 9.75 50% rate
Net Income 6 9.75  
Dividends 2 5.00  
Retained Earnings 4 4.75  

Calculation of new Company Income statement Figures

To calculate next year EPS, we start by analyzing the income statement of the
last year and use the figures to estimate the next year data as follows:

Sales revenue 200

Less
COGS & other
-140
operating expenses
Operating Income
(EBITDA) income 60
before interest,
 depreciation, tax,
amortization
Less
D, A -20
EBIT 40
Less
I -10
EBT 30
Less
T -6
Net Earning 24

1. Estimating the growth in sales can be done by the available capacity and the
growth rate of the both the country and industry.

2. Using the last year margin and adjusting it to reflect the effect of inflation
and company competitive strategy.

a. Differentiation Strategy : The product is differentiated by its brand

and quality; in this case the operating profit will be very high and
will not be affected by the increase in cost but the sales turnover
and growth rate will be very low.
b. Low Cost Strategy: In this case, the profit margin will be very
low and if there is increase in COGS they may not affect the selling
price so the profit margin goes down but will be much compensated
with the huge/mass sales volume.

3. Estimating the Depreciation: we use last year depreciation and adjust it with
the effect of new CAPEX

4. Estimating the Interest: affected by loans and interest rates and can easily be
estimated.

Projected Balance Sheet

(you may refer to source on excel for calculation)
Enter your Company Name here

Beginning Projected
as of mm/dd/yyyy as of mm/dd/yyyy
Assets

Current Assets
Cash in bank $ - $ -
Accounts receivable - -
Inventory - -
Prepaid expenses - -
Other current assets - -
Total Current Assets $ - $ -
Fixed Assets
Machinery & equipment $ - $ -
Furniture & fixtures - -
Leasehold improvements - -
Land & buildings - -
Other fixed assets - -
(LESS accumulated
depreciation on all fixed
assets) - -
Total Fixed Assets (net
of depreciation) $ - $ -

Other Assets
Intangibles $ - $ -
Deposits - -
Goodwill - -
Other - -
Total Other Assets $ - $ -

TOTAL Assets $ - $ -

Liabilities and Equity

Current Liabilities
Accounts payable $ - $ -
Interest payable - -
Taxes payable - -
Notes, short-term (due
within 12 months) - -
Current part, long-term
debt - -
Other current liabilities - -
Total Current Liabilities $ - $ -

Long-term Debt
Bank loans payable $ - $ -
Notes payable to
stockholders - -
LESS: Short-term portion - -
Other long term debt - -
Total Long-term Debt $ - $ -

Total Liabilities $ - $ -

Owners' Equity
Invested capital $ - $ -
Retained earnings -
beginning - -
Retained earnings -
current - -
 Total Owners' Equity $ - $ -

Total Liabilities &

Equity $ - $ -

 Preparing financial budgets

-- Details how funds will be obtained and spent for a specified period of time.
Types of Budgets
 Cash budgets
 Operating budgets
 Sales budgets
 Profit budgets
 Factory Budgets
 Expense Budgets
 Divisional budgets
 Variable budgets
 Flexible budgets
 Fixed budgets

 Evaluating worth of a business

Integrative, intensive, & diversification strategies often implemented through
acquisitions of other firms
Evaluating Worth of a Business:
3 Basic Approaches
1. What a firm owns
2. What a firm earns
3. What a firm will bring in the market

Decisions based on Finance/Accounting

 Raise capital – short-term, long-term, preferred, or common stock
 Lease or by fixed assets
 Determine appropriate dividend payout ratio
 LIFO, FIFO, or market-value accounting approach
 Extend time of AR
 Establish % discount on accounts for terms
 Determine the amount of cash kept on hand
Financial Impact on main Company Statements
Impact on profitability
Impact on assets
Impact on liabilities