New Trends In Business

Table of Contents

1) Explain the concepts of Liberalisation, privatisation and Globalisation.

Answer : Indian economy had experienced major policy changes in early 1990’s. The new economic reform, popularly known as Liberalization, Privatisation and Globalization i.e. LPG model aimed at making the Indian economy as fastest growing economy and globally competitive.

A) CONCEPT OF LIBERALIZATION :
i) Globalization and privatization have become the buzzwords in the current economic scenario. The concepts liberalization, globalization and privatization are actually closely related to one another. This LPG phenomenon was first initiated in the Indian Economy in 1990 when the Indian Economy experienced a severe crisis. There was decline in the country’s export earnings, national income and industrial output. The government had to seek aid from IMF to resolve it’s debt problem.

ii) Liberalization means elimination of state control over economic activities. It implies greater autonomy to the business enterprises in decision-making and removal of government interference. It was believed that the market forces of demand and supply would automatically operate to bring about greater efficiency and the economy would recover.

iii) With the NIP’ 1991 the Indian Government aimed at integrating the country’s economy with the world economy, improving the efficiency and productivity of the public sector. For attaining this objective, existing government regulations and restrictions on industry were removed.

B) CONCEPT OF PRIVATIZATION
i) Privatization is closely associated with the phenomena of globalization and liberalization. Privatization is the transfer of control of ownership of economic resources from the public sector to the private sector. It means a decline in the role of the public sector as there is a shift in the property rights from the state to private ownership.

ii) The public sector had been experiencing various problems , since planning, such as low efficiency and profitability, mounting losses, excessive political interference, lack of autonomy, labour problems and delays in completion of projects. Hence to remedy this situation with Introduction of NIP’1991 privatization was also initiated into the Indian economy. Another term for privatization is Disinvestment.
The main aspects of privatization in India are as follows:

iii) Autonomy to Public Sector : Greater autonomy was granted to nine PSUs referred to as ‘navaratnas’ ( ONGC, HPCL, BPCL, VSNL, BHEL) to take their own decisions.

iv) Dereservation of Public Sector : The number of industries reserved for the public sector were reduced in a phased manner from 17 to 8 and then to only 3 including Railways, Atomic energy, Specified minerals. This has opened more areas of investment for the private sector and increased competition for the public sector forcing greater accountability and efficiency.

C) CONCEPT OF GLOBALIZATION
i) Globalization essentially means integration of the national economy with the world economy. It implies a free flow of information, ideas, technology, goods and services, capital and even people across different countries and societies. It increases connectivity between different markets in the form of trade, investments and cultural exchanges.

ii) The concept of globalization has been explained by the IMF (International Monetary Fund) as ‘the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows and also through the more rapid and widespread diffusion of technology.’

iii) The phenomenon of globalization caught momentum in India in 1990s with reforms in all the sectors of the economy. The main elements of globalization were:

iv) The amount of foreign capital in a country is a good indicator of globalization and growth. The FDI policy of the GOI encouraged the inflow of fresh foreign capital by allowing 100 % foreign equity in certain projects under the automatic route. NRIs and OCBs (Overseas Corporate Bodies)may invest up to 100 % capital with reparability in high priority industries. MNCs and TNCs were encouraged to establish themselves in Indian markets and were given a level playing field to compete with Indian enterprises.

2) Discuss the impact of Liberalisation.

Answer : Liberalization means reduction of Government controls on the private sector. In 1991, the Government of India took several decisions about industrial development which indicated tendency towards more and more privatisation.. Commonly, liberalisation is used in the context of a government relaxing its previously imposed restrictions on economic or social policies. The impact of liberalization is explained as follows :

A) Positive impact :
1) Increase in investment :
Liberalization has greatly increased investment in private sector. The massive size of the investment plans of the companies becomes evident when they are compared with the total investment in the industrial sector.

2) Increase in Economic growth :
Indian economy during the last decade has witnessed a growth of around 8%. Even though in last couple of years the growth had showed down to around 5% to 6%, it is still relatively high as compared to pre liberalized area where Indian economy was growing at around 2% to 3%.

3) Increase in competition :
Liberalization have brought in an environment of healthy competition in the market place with more number of players, both national and international. The competition in turn has generated wider choice of products, competitive prices and better quality of goods and services. Thus, liberalization has benefited the Indian consumer in a big way.

4) Impact on Indian Business :
Business activities in India are very much affected due to liberalization. Indian markets are now opened up to foreign companies. Imports are freely allowed. As a result, foreign goods are now easily available to Indian consumers. The demand for foreign goods, certainly affects the market for domestic goods. Our industries can now keep hold on Indian markets only by improving the quality and making the goods competitive in terms of quality price etc.

B) Negative Impact :
On the negative side however there are some serious problems arising out of our New Industrial policy i.e. liberalization. These are as follows :
1) Demand for foreign product :
Our markets have been flooded with cheap foreign goods. This have also adversely affected our domestic industries in a big way. People prefer foreign brands and labels, and ignore domestic products, resulting in closure of small medium local manufacturers.

2) Industrial Location :
The Government has given freedom to locate industries anywhere in the country as per the choice of the business firms. This would affect the development of backward areas, as industrialists may not be inclined to set up their units in backward areas due to lack of infrastructure facilities.

3) Unreliable investments :
Foreign Direct Investments are the first ones to withdraw their money if they have even some apprehension about government policies. This has been experienced in India recently when nearly one lakh crores have been withdrawn by foreign investors after Vodafone controversy and down grading of Indian economy by global rating agency.

3) What is privatisation? Explain its impact.

Answer : Privatisation refers to a process that reduces the involvement of the government or public sector in the economic activities of a nation. It involves disinvestment of public sector partially or fully by selling its equity to private parties. The impact of privatisation is explained as follows.

A) Positive Impact :
1) Improved infrastructure :
Private Sector focuses on providing better work environment. For this, huge investment is made in improving infrastructure facilities provided to the employees of the organisation. Better infrastructure in turn increases the overall efficiency of the organisation.

2) Increase in efficiency :
Most government industries and services are inefficient and are running in losses. Due to privatization, their efficiency is likely to improve as private sector focuses more on increasing productivity, efficiency and lowering or minimises wastages.

3) Less political interference :
Public sector enterprises are owned and managed by government with growth of private enterprises, government participation in industry is reducing by the day. This has also reduced the political interference in the day to day administration of companies to a great extent.

4) Increase in foreign Investment :
Many private companies seek funds through foreign direct investment (FDI) route. It increases foreign investment in the country. A country like India which has a shortage of foreign exchange benefits immensely due to such investment. An increase in foreign investment leads to an improvement in the foreign exchange reserves of the country.

B) Negative Impact
1) Problem of Dereservation :
The Government has dereserved the public sector. This has allowed the entry of private sector in those areas which were earlier reserved for public sector. The entry of private sector has resulted in over expansion of capacities, which in turn has resulted in recession, especially, from 1996 to 2003.

2) Lack of social Responsibility :
Business is a socio-economic activity. However, in their eagerness to earn maximum profits, private businessmen’s; invariably ignore their social responsibilities towards government, employees, shareholders, society etc. This creates discontent among various stakeholders.

3) Exploitation of Employees :
It has been observed that private businessmen’s are not hesitant to violate various laws especially pertaining to workers. They may not even pay the minimum wage as prescribed by law. Furthermore, the working conditions are not conducive. This adversely affects not only the performance but also the health of employees.

4) High prices :
Private businessmen’s are in a position to Spend huge amount on research and development. If they succeed in developing unique product, they are likely to recover the cost from the consumers by charging high prices for the product which they produced.

4) Discuss the impact of Globalisation.

Answer : Globalisation is a wider term and treats world as one economy. Globalisation leads to integration of economies of different countries in a new global economic order. Globalisation of business is the process of linking a country’s economy with the world economy. The impact of Globalisation are as following :

A) Positive Impact
1) Integration of countries :
Globalisation leads to integration of countries of the world for business purpose. Trade is made free and there is free movement of goods and services among all countries. The isolation of countries from world trade is removed and this is beneficial to all participating countries.

2) Rapid economic growth :
Globalization provides opportunities to participating countries to grow and expand production and marketing activities. Concerned countrig promotes exports and earns substantial foreign exchange. This is again invested in the economy in order to provide higher standard of living to people within the country.

3) Transfer of capital and Technology :
Globalisation facilitates easy transfer of capital from one country to the other due to free convertibility. This is lead to flow of funds to poor and developing countries. Along with capital, technology is also move from developed to developing countries. Such transfer of technology leads to modernization of industries.

4) Liberalisation of foreign Investment :
Government has liberalised foreign investment in Indian companies. At present, foreign investment is allowed even upto 100% in select industries. This has not only generated more foreign capital but also has resulted in upgradation of technology in Indian companies.

B) Negative Impact
1) Problem for Domestic companies :
Domestic companied is come in difficulties due to globalisation. They have to face competition from the foreign companies which are superior with regard to quality and cost. The business of domestic companies come in difficulties due to competition from foreign companies. Even small scale and agro industries may come in danger due to liberal policies with regard to globalisation.

2) Problem of Foreign Investment :
The New Industrial Policy 1991 liboralised foreign investment in India. At present FDI is allowed in several Sectors. However, the MNCs are not very much interested in infrastructural development projects involving long gestation period. Also FDI results in outflow of foreign exchange due to payment of dividents and royalties.

3) Problem to the national economy :
Globalisation lead to privatisation, disinvestment in the case of public sector, free entry of foreign goods / companies and limited participation of government in industry and commerce. All such changes may prove harmful to the national economy of developing and poor countries.

5) Explain the forms of strategic Alternatives.

Answer : Organisation need to adopt certain strategy William F. Glueck in his book “strategic management” has identified the strategic alternatives into four broad groups.

1) Stability strategy :
Stability strategy refers to maintaining status quo of existing business operations. It implies continuing the current activities of the firm without any significant change. It aims at slow growth rate. A firm is said to be following a stability strategy. If it is satisfied with the same consumer groups and maintaining the same market share, satisfied with incremental improvements of functional performance and the management does not want to take any risk that might be associated with expansion or growth.

2) Growth strategy :
‘Growth strategy’ refers to a strategic plan formulated and implemented for expanding a firm’s business. Growth strategy is the much-talked and publiced strategy in the present Indian environment. Growth means an increase in the size or scale of operations of a firm usually accompanied by increase in its resources and output. Business growth is a natural process of adaptation and development that occurs under favourable conditions. In life of any organisation, growth is necessary at some point of time. Growth strategies can be divided into two broad categories i.e. Internal growth and external growth.

a) Internal growth :
It is growth within the organisation with the help of its internal resources. It is planned and slow increase in the size and resources of the firm. Internal growth is slow and involves comparatively little change in the existing organisation structure. Internal growth strategies include.
i) Intensification / expansion
ii) Diversification
iii) Modernization

b) External Growth :
External growth is fast and allows immediate utilisation of acquired assets. External growth strategies include:
i) Merger and amalgamations
ii) Acquisitions and takeovers
iii) Foreign Collaboration and Joint ventures.

3) Combination Strategy :
Combination strategy refers to the combination of stability, expansion and retrenchment strategy applied either simultaneously or sequentially. In every combination, two or more business units come together and adopt uniform policies for achieving common objectives. Combinations are useful for eliminating risks and uncertainties of business. A combination is a “revolution against risks.” Combination strategies involves.
1) Horizental combinations
2) Vertical combinations
3) Allied combinations
4) Service combinations
5) Mixed combinations.

4) Retrenchment Strategy :
Retrenchment strategy, though less frequently used has been pursued by various companies successfully. In retrenchment stretegy, unattractive and unwanted areas of business are sequenced gradually. It is a planned exercise to get rid of unprofitable parts of business which helps the organisation to focus on most profitable and promising areas of business.

6) Discuss the various strategies of corporate restructuring.

Answer : Restructuring refers to rebuilding or reorganising a business firm. It’s a strategy that may be found useful in all the different phases of the firm’s life cycle initial period, growth, maturity and decline. It may also be found useful in postponing the death of the firm i.e. the dissolution or liquidation of the company. The following are the various strategies of corporate restructuring.

1) Merger :
A merger refers to a combination of two or more companies into one company. It may involve absorption or consolidation. In absorption, one company acquires another company, and in a consolidation, two or more companies join to form a new company.
Mergers may be classified as follows-
a) A horizontal merger
b) A vertical merger
c) A conglomerate.

2) Amalgamation :
Amalgamation is a restructuring process in which two or more companies are liquidated and new company is formed to acquire business. In simpler terms, it means that a new company is formed that buys the business of minimum two companies. Amalgamations are considered to be a safe route for sick units who want to save their existence. Many other companies facing possible bankruptcy also opt for amalgamation.

3) Acquisitins / Takeovers :
Acquisitions refers to a situation where one firm acquires the assets and liabilities of another firm. The shareholders of the dissolved firm are paid either cash or given shares in acquiring company. Takeover is a form of acquisition which requires to acquiring of controlling interest of a company with or without the consent of the owners.

4) Joint ventures :
Joint venture is a form of business combination. Here, two or more companies form a temparary partnership for a special purpose. Here, two companies arrive at an agreement on certain issues of mutual interest. New company is not created but suitable working arrangements are agreed upon. Such agreements are beneficial to combining units. It is a fast and economic route for gaining increase competitiveness to combining units.

5) Rehabilitation schemes :
A sick firm can be revived to improve its financial position by adopting revival schemes some of the important revival schemes are settlement with creditors, divestment, strict control over costs, streamlining of operations, provision of additional capital and so on.

6) Privatisation :
Privatisation refers to a process that reduces the involvement of the government or public sector in the economic activities of a nation. It involves disinvestment of public sector partially or fully by selling its equity to private parties.

7) Organisational restructuring :
Organisational restructuring has become a common practice amongst firms in order to match the growing competition in market. It denotes changing the organization structure of the company for the betterment of business. Some of the forms of organisational restructuring are regrouping of business, business process re engineering, downsizing and out sourcing.

7) What are the essentials of a successful turnaround strategy.

Answer : Turnaround strategy can be referred as converting a loss making unit into a profitable one. According to dictionary marketing (by D.H. collin) “Turnaround means making the company profitable again.” Turnaround is possible only when the company restructure its business operations. Turnaround strategy is a broader strategy and it can include divestment strategy-where a firm decides to divest or get out of certain business and sells off units or divisions.

Essentials of a successful Turnaround strategy :
A business can’t be turned around without proper planning and the support of the employees, shareholders etc. Following are the essentials of a successful turnaround strategy.

1) Effective leadership :
To make turnaround successful, there is a need to have good leadership at all levels, especially at the top level management. The CEO needs to be committed and dedicated to the organisation. He needs to be a dynamic person with creative skills to handle the turnaround situation. If need to be, the Board of Directors may change the CEO, and appoint a new leader to handle the situation.

2) Change of management :
The present management should accept the responsibility of the present state of affairs of the company. A new CEO with experience and maturity should be appointed for executing the turnaround strategy effectively. A change in management may bring in new and better ideas which would help the company to come out of red.

3) Relevant to the enterprise :
Turnaround strategy prepared should be directly related to the problems faced by the enterprise. A good turnaround strategy should be able to deal with the difficulties directly and effectively. For this, the reasons responsible for the sickness of the enterprise should be studied in depth so as to find out suitable remedial measures.

4) Availability of Resouces :
There must be availability of required resources to make turnaround effective. The turnaround strategy would require proper amount of cash to meet working capital needs and certain fixed capital needs. The business unit may also require skilled manpower to handle newly introduced technical Jobs.

5) Proper planning and execution :
A good turnaround strategy should contain comprehensive remedial plan and arrangements for its execution. The strategy prepared should have solutions to the basic problems before the enterprise. In addition, necessary funds should be given to those concerned with the execution of the strategy. This facilitates execution of the strategy within a time frame.

6) Good management :
Turnaround would be successful if it is handled by determined and motivating managers. The top managers must be objective oriented. Self confident, positive in outlook, innovative and creative in thinking and highly active with a good foresight to foresee whether their strategies would be positive in future or not.

8) Discuss the steps in a turnaround strategy.

Answer : 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 serveral factors both internal and external to the firm. Some of these factors may include high cost of materials, lower price utilization for the goods and services, increased competition, recession, managerial inefficiency, etc.
Steps in turnaround strategy : To manage turnaround strategy and to make it successful, the following are the steps that may be followed by business firms.

1) Setting up of a turnaround committee :
The business firm may set up a turnaround committee or a team to deal with the turnaround strategy. The committee may involve top management personnel, consultant and may include employees’ representative. At time, business firms appoint a new CEO to deal with turnaround strategy. The CEO may take the help of some top management personnel to manage the turnaround strategy.

2) Identify problematic areas :
The problematic areas should be analysed. It could be obsolete technology used by the company, under utilization of production capacity, or continuous decline in sale of some product etc. Only when the problems are identified properly, then organisation can work for proper solutions.

3) Detailed Investigation of problem :
The turnaround team needs to make a detailed investigation of the various problems. The turnaround team may undertake the activities i.e. discuss with workers to know the problems, conduct consumer research, conduct dealers’ survey etc.

4) Enlist critical areas :
The critical areas which have been identified should be investigated further and list covering those should be prepared. On the basis of their intensity the most important problem should be given top priority and remaining ones should be enlisted in descending order.

5) Prepare restructuring plan :
A comprehensive restructuring plan should be prepared. While doing so, the strengths and weaknesses of the organisation should be taken into account.

6) Implement the plan :
Thereafter, the plan must be implemented. For example if the company wants to restructure human resource, it must first identify surplus employees. If possible they must be retained. If not, they should be retrenched. For this the company must make available necessary fund’s in the form of gratuity, pension, provident fund etc. to be paid to them.

7) Review :
The turnaround strategy needs to be monitored at different phases. Monitoring of implementation is a must to ensure early revival. It required, the company may adopt additional measures to overcome the turnaround strategy.

Chapter-1–2–3–4–5–6–7–8–9

New Trends In Business | FYBCOM Commerce Chapter 3 | Mumbai University