Business and Entrepreneurship

Reference material

Module-1

Concept of business

A business is defined as an organization or enterprising entity engaged in commercial,

industrial, or professional activities. Some businesses run as small operations in a single
industry while others are large operations that spread across many industries around the world.
There can be different types of businesses depending on various factors. Some are for-profit,
while some are non-profit. Similarly, their ownership also makes them different from each
other. For instance, there are sole proprietorships, partnerships, corporations, and more.

Characteristics of contemporary business

Describe the characteristics of contemporary business.

Contemporary means "belonging to the same period of time". It’s a business which has a vast
competitive market that keeps changing at very fast pace and the owner of such business must
be eligible enough to understand the requirements and developments which need to be done in
business in order to grab the fast response of business.

Characteristics of Contemporary Business

1. Use of Technology: The contemporary business makes extensive use of technology.

Innovative software can complete many tasks, from creating schedules to tracking
employee performance, allowing management teams to streamline employee
workflows etc. The use of technology may increase productivity and efficiency of the
business.
2. Corporate Social Responsibility: Corporate social responsibility involves the review
of all business stakeholders prior to making decisions. Many companies traditionally
operated in a manner that rewarded invested stakeholders. Under corporate social
responsibility, stakeholders not invested in the company also play roles in a company’s
operations. The contemporary business does not enter agreements or begin operations
that can reduce the livelihood of these individuals.
3. Strategic Alliance: Strategic alliances occur when two or more companies come
together in order to accomplish goals or produce specific products. Different types of
strategic alliances are available to a contemporary business. These include strategy,
partner, contract, and operational alliances. Each option allows the companies to
enhance their individual operations by pooling resources together. In most cases,
corporations look to make strategic alliances with other businesses that offer more
technology or resources than they have on their own.
4. Virtual Offices: Virtual offices are another common aspect of the contemporary
business. Through the use of technology, a business no longer has to have a physical
location where all employees work in one place. Business can use computers and other
 technology that allows employees to meet in virtual rooms to complete tasks and
activities.
In some cases, business can have many regional or international locations that make
use of virtual offices. This also works well with strategic alliances or using individuals
with specific attributes from different areas to complete operations.
5. Outsourcing: The Contemporary business may resort to outsourcing non-core business
activities. Outsourcing can be defined as contracting of operations and responsibilities
of specific business functions to a third-party service provider. Outsourcing is popularly
associated with ITES also known as Business Process Outsourcing (BPO). Knowledge
Process Outsourcing (KPO) & Legal Process Outsourcing (LPO) are some of the sub-
segments of BPO.
For instance, Coca Cola had outsourced large segment of its supply chain management.
The advantages of outsourcing can be:
 Specialized performance
 Cost effectiveness
 Skilled manpower
6. E-Commerce: The contemporary business may also have presence at various E-
Commerce platforms. E-commerce is Comprehensive system of trading that uses
networks of computers for buying and selling of goods, information & services.
For instance, ONDC, set up as a non-profit company (like the National Payments
Corporation of India), is a network that lets sellers voluntarily display their products
and services across all participating apps and platforms.
7. M-Commerce: M-Commerce or mobile commerce refers to buying and selling
products through wireless handheld devices such as mobile phones and personal digital
assistants (PDAs). Mobile Commerce is often called as "a retail outlet in your
customer’s pocket”. M-commerce opened the door for new application and services.
Critical news which people need while traveling is made available like traffic news,
weather news, stock market reports. For example: Book my show, Paytm.
8. Data Analytics: Data analytics is the science of analysing raw data to make conclusions
about that information. Data analytics help a business optimize its performance,
perform more efficiently, maximize profit, or make more strategically-guided
decisions.
Data analytics techniques can reveal trends and metrics that would otherwise be lost in
the mass of information. This information can then be used to optimize processes to
increase the overall efficiency of a business or system.
For example, manufacturing companies often record the runtime, downtime, and work
queue for various machines and then analyse the data to better plan the workloads so
the machines operate closer to peak capacity. Gaming companies use data analytics to
set reward schedules for players that keep the majority of players active in the game.
Content companies use many of the same data analytics to keep customers clicking,
watching, or re-organizing content to get another view or another click.
9. Artificial Intelligence: Artificial intelligence in business simply involves the use of
intelligent computer software with human-like capabilities to boost revenue, improve
customer experience, increase productivity and efficiency, and drive business growth
and transformation.
For instance, with the advent of chat-bots, customers can now interact with companies
in real-time to resolve complaints, place orders, get information and do almost anything
 they would require from having a conversation with a human customer-care
representative.
10. Personalised and Targeted Marketing: The key to growing business revenue requires
knowing the wants of a consumer and knowing what to market to each consumer. In
the world of increasing digital engagement, customers have extremely limited time with
too many companies trying to market their products to them. This accounts for the rising
need to market only what attracts each customer and knowing who to market each of a
company’s product too.
With data obtained from the online activities of customers, companies can now predict
and target who to market a particular product to in order to increase the chances of sales
and effectiveness of marketing activities at the same time, reducing the overall
marketing cost.

Significance of Business:

1. Economic Development: Business is important for economic development of the

nation. Business makes an extensive use of money, materials, methods and machines
and help to create employment. Commerce is the concept of exchange goods and
services at national and international levels. It helps to earn foreign currency by export
business too. Therefore, business helps in economic development
2. Utilizing Natural Resources: Business facilitates optimum utilization of natural
resources. Every country has diverse natural resources. Business must be directed
towards proper and efficient utilization of resources. Business utilizes the resources like
water, minerals, ores and so to achieve its own goals. But resources must be utilized
without exploitation.
3. Creation of Utility: Utility is want satisfying power of commodities. Business helps to
creates place and time utility. For instance, apple is transported from Kashmir to
Mumbai will fetch a higher price. It also helps to satisfy the needs of human beings.
Business also helps in maximizing financial utility.
4. Employment Generation: Business helps to provide employment to people. It
provides direct and indirect employment. Direct employment in concerned sector and
indirect employment in allied sector.
For instance, it provides various types of managerial or technical job. Many types of
business houses like hotels, industries, and transport companies are established which
helps to solve the unemployment problem.
5. Payment of Taxes: Business is the source of revenue generation. It pays taxes,
royalties, fees, custom duties, and other things which help to generate government
revenue.
For instance, the GST revenues for the month of September 2022 are 26% higher than
the GST revenues in the same month last year. It is about Rs. 1.47 lakh crore.
6. Earning Foreign Currency: Business also contribute significantly in earning foreign
currency. Business can earn foreign currency through exporting the goods and services.
For instance, TCS, Infosys, Wipro accounts nearly 43% of total forex revenue in field
of export of IT services.
7. Development of Country: Business contribute in the development of the country.
Development of industries helps to utilize natural resources, create time and place
 utility, provide employment opportunities, help in revenue generation and earning
foreign currency. All these in turn help in the development of the economy of the
country and the economic development is the major factor that can develop the nation
to a wider sense.
8. Provide Investment Opportunities: Establishment of new industries and commercial
fields are the major source of investment. Further the profit owned by the investors after
the successful operation of business helps to ensure larger amount of saving which can
be invested in the newer future for expansion of current business or establishment of
newer business. Thus, business helps in providing investment opportunities.
For instance, India has the potential to become a significant supplier to the global
semiconductor manufacturing supply chain across the semiconductor equipment
ecosystem, materials and services. There is a potential opportunity for India to serve up
to $85–100 billion of the $550-600 billion annual global opportunity by 2030.
9. International Relations: Business is the medium for development of national and
international relationship. It helps to maintain harmonious relation among the various
countries. There can be mutual understanding and better diplomatic relationship among
the countries. Import and export is the major base for international relationship.
For instance, Russia’s access to its traditional markets of exports and imports are hugely
limited following its Ukraine invasion and the subsequent sanctions, Moscow is looking
to develop new trade and investment relations with partners in Asia, including India,
China and Southeast Asian countries, said Russian aluminium tycoon Oleg Deripaska.
10. Self-sufficiency: It helps in achieving countries and individuals’ self-sufficiency. It
also helps in improving the living standard of people by reducing the dependency.
For instance, RBI, in its circular dated 11/07/2022, has permitted international trade
settlement in Indian Rupee and also permitted to invest “surplus balance” in
Government securities by trading partner nations. This is a good beginning for
converting the Rupee as “global and reserve currency”. But, there is long way to
succeed in a similar manner as, Euro, British Pound etc.

Standard Business Models and Disruptive Business Models.

Standard Business Models and Disruptive Business Models represent two contrasting
approaches to conducting business and generating revenue. Here's an overview of each:
1. Standard Business Models: Standard business models are traditional approaches to
conducting business that have been proven successful over time. These models
typically involve well-established practices and often focus on efficiency, stability,
and incremental innovation. Key characteristics of standard business models include:
 Following established industry norms and practices.
 Serving existing customer needs without significant deviation.
 Incremental improvements to products, services, or processes.
 Relatively stable revenue streams and predictable market dynamics.
 Competing primarily on factors such as price, quality, and customer service
within existing market segments. Examples of standard business models
include brick-and-mortar retail stores, traditional manufacturing companies,
and service-oriented businesses like banks and insurance companies.
 2. Disruptive Business Models: Disruptive business models, on the other hand,
challenge existing norms and often introduce innovative approaches that
fundamentally change the way industries operate. Disruptive models typically target
underserved or overlooked market segments and leverage technology or other
innovations to provide solutions in ways that are faster, more convenient, or more
cost-effective than existing alternatives. Key characteristics of disruptive business
models include:
 Challenging existing industry paradigms and disrupting traditional value
chains.
 Identifying and targeting new or underserved market segments.
 Leveraging technology or other innovations to create unique value
propositions.
 Often starting with a smaller market share but rapidly gaining traction and
market dominance.
 Potentially reshaping entire industries and creating new markets. Examples of
disruptive business models include companies like Uber (which disrupted the
taxi industry with its ride-sharing platform), Airbnb (which disrupted the
hospitality industry with its peer-to-peer lodging marketplace), and Netflix
(which disrupted the traditional video rental and television industries with its
streaming service).
In summary, while standard business models focus on maintaining stability and incremental
growth within existing industry frameworks, disruptive business models seek to revolutionize
industries by introducing innovative approaches that challenge the status quo and create new
value propositions for consumers.

Standard business models

Standard business models are proven, established models, while disruptive business models
are new ideas or technologies that challenge existing models and enter new markets:
Standard Business Model

 What it is:
A traditional business framework that follows established industry practices and
proven methods to generate profit by delivering value to customers. These models
align with market norms and rely on predictable revenue streams.

 Examples of Standard Business Models:

o Manufacturer Model: Produces goods and sells them directly or through

distributors (e.g., Ford, Toyota).

o Retail Model: Purchases goods in bulk from manufacturers to sell at a markup

to customers (e.g., Walmart, Amazon).
 o Subscription Model: Provides services or products on a recurring basis (e.g.,
Netflix, Spotify).

o Franchise Model: A business licenses its brand and business operations to

individual owners (e.g., McDonald's).

o Freemium Model: Offers basic services for free, charging for premium
features (e.g., Zoom).

 Advantages of Standard Models:

o Proven, stable, and low-risk frameworks.

o Predictable revenue and well-known strategies.

o Easy for investors and stakeholders to understand.

 Limitations of Standard Models:

o Limited room for innovation or differentiation.

o Vulnerable to competition from more agile or innovative companies.

o Often requires significant capital to scale.

Disruptive business models

These models introduce new ideas or technologies to an existing market, often addressing
unmet demands. They can focus on either low-end or high-end demands, such as more
price-sensitive or premium customers.
Some examples of disruptive business models include:

 Freemium model
A successful model that offers basic services for free, with premium services available for a
fee.
 Subscription model
A model that ties customers in for a fixed period, with customers paying to access the
product or service.
 On-demand model
A model that allows businesses to provide products and services to customers on an as-
needed basis, without a long-term contract or purchase.
 Marketplace model
A model that connects buyers and sellers on a common platform. eBay was the first
company to use this model in 1995.
 Experience model
A model that focuses on providing consumers with a unique experience that they are
willing to pay for.

Disruptive Business Model

 What it is:
A new and innovative model that challenges or transforms traditional industries by
offering solutions with significant cost, technology, or accessibility advantages. It
usually appeals to new or underserved customers.

 Examples of Disruptive Business Models:

o Sharing Economy Model: Facilitates peer-to-peer exchanges (e.g., Airbnb,

Uber).

o Direct-to-Consumer (DTC) Model: Bypasses intermediaries and sells

directly to customers (e.g., Dollar Shave Club).

o Marketplace Model: Connects buyers and sellers on a single platform (e.g.,

eBay, Amazon Marketplace).

o On-Demand Services: Provides products/services instantly or with minimal

wait (e.g., Uber Eats).

o Pay-Per-Use Model: Charges customers only when they use a product or

service (e.g., cloud services like AWS).

 Advantages of Disruptive Models:

o Can create new markets or transform existing ones.

o Often lower-cost, innovative, and customer-centric.

o Creates a competitive edge over traditional businesses.

 Challenges:

o Requires continuous innovation and adaptation.

o Risk of regulatory challenges or resistance from incumbents.

o Customer adoption can be slow in some markets.

VISION
Aspirations, expressed as strategic intent, should lead to tangible results otherwise they would
just be castles in the air. Those results are the realisation of the vision of an organisation or an
individual. It is ultimately what the firm or a person would like to become. For instance,
some of you, say in 10 years or may be even earlier. would like to become general managers
managing an SBU in a large, diversified multinational corporation. Or, some others among
you would like to believe that you can be an entrepreneur owning your own company in 10 to
15 years dealing with IT services and employing cutting-edge technology to serve a global
clientele. A firm thinks like that too. Vision, therefore, articulates the position that a firm
would like to attain in distant future. Seen from this perspective, the vision encapsulates the
basic strategic intent.

The Nature of Vision

Vision is dreamt of more than it is articulated. This is the reason why it is difficult to say
what vision an organi sation has unless it is stated explicitly. Sometimes it is not even evident
to the entrepreneur who usually thinks of the vision. By nature, it could be hazy and vague
just like the dream that one experienced the previous night and is not able to recall perfectly
in broad daylight. Yet it is a powerful motivator to action. Often, it is from the actions that
vision could be derived. Jamshetji Tata dreamt of a self-reliant India in steel making.
Narayana Murthy possibly wanted to demonstrate that running a business is legally and
ethically possible in India through entrepreneurship. Eiji Toyoda relentlessly focused on
product and production. Henry Ford wished to democra- tise the automobile when he
visualised that an affordable vehicle must be available for the masses. Walt Disney probably
wanted to make people happy. All these visionaries had a vision that might have been only
clear as they took actions to materialise their dreams. Exhibit 2.2 tells us what a vision should
be and what it should not be.

Defining Vision
Vision has been defined in several different ways. Kotter (1990) defines it as a 'description of
some- thing (an organization, a corporate culture, a business, a technology, an activity) in the
future. El-Namaki (1992) considers it as a 'mental perception of the kind of environment an
individual, or an organi- zation, aspires to create within a broad time horizon and the
underlying conditions for the actualization of this perception." Miller and Dess (1996) view it
simply as the 'category of intentions that are broad, all-inclusive, and forward thinking'. The
common strand of thought evident in these definitions, and several others available in
strategic management literature, relates to vision being future aspirations that lead to an
inspiration to be the best in one's field of activity.

The Benefits of having a Vision

Parikh and Neubauer (1993) point out the several benefits accruing to an organisation having
a vision. According to them
 Good visions are inspiring and exhilarating
 Visions represent a discontinuity, a step function, and a jump ahead so that the
company knows what it is to be.
 Good visions helpi in the creation of a common identity and a shared sense of purpose
 Good visions are competitive, original, and cal unique. They make sense in the
marketplace as they are practical.
 Good vision fosters risk taking and experimentation.
 Good vision fosters long-term thinking.
 Good visions represent integrity they are truly genuine and can be used to the benefit
of people. Next we learn about envisioning the process of creating a vision.

The Process of Envisioning

The process of envisioning is a difficult one as we see from what Collins and Porras (1996)
have to say about it. According to them, a well-conceived vision consists of two major
components: core ideology and envisioned future. The core ideology defines the enduring
character of an organisation that remains unchangeable as it passes through the vicissitudes of
vectors such as technology, competition, or management fads. The core ideology rests on the
core values (the essential and enduring tenets of an organisation) and core purposes (an
organisation's reason for being). The envisioned future too consists of two components: a 10
to 30 years audacious goal and vivid description of what it will be like to achieve that goal.
The process of envisioning is shown in Exhibit 2.3. Many organisations mention terms such
as corporate philosophy, corporate values, and the like that are used to convey what they
stand for and what principles guide them in strategic and day-to-day decision- making. These
terms are all part of an effort to state what the organisation's vision is.

Characteristics of a Mission Statement

Organisations legitimise themselves by performing some function that is valued by the
society. A mission statement defines the basic reason for the existence of the organisation.
Such a statement reflects the corporate philosophy, identity, character, and image of an
organisation. It may be defined explicitly or could be deduced from the management's
actions, decisions, or the chief executive's press statements. When explicitly defined it
provides enlightenment to the insiders and outsiders of what the organisation stands for. In
order to be effective, a mission statement should possess the following seven characteristics.
1. It should be Feasible A mission should always aim high but it should not be an
impossible statement. It should be realistic and achievable its followers must find it to be
credible. But feasibility depends on the resources available to work towards a mission. In the
1960s, the US National Aeronautics and Space Admin- istration (NASA) had a mission-to
land on the moon. It was a feasible mission that was ultimately realised.
2. It should be Precise A mission statement should not be so narrow as to restrict the
organisation's activi- ties nor should it be too broad to make itself meaningless.
"Manufacturing bicycles' is a narrow mission since it severely limits the organisation's
activities while 'mobility business' is too broad a term as it does not define the reasonable
contour within which an organisation could operate. Observe how Hero Cycles defines its
mission: "It's our mission to strive for synergy between technology, systems and human
resources, to produce products and services that meet the quality, performance, and price
aspirations of our customers. While doing so, we maintain the highest standards of ethics and
societal responsibilities."
3. It should be clear A mission should be clear enough to lead to action. It should not just be
a high-sound- ing set of platitudes meant for publicity purposes. Many organisations do adopt
such statements (sometimes referred to as the corporate positioning statement) but probably
they do so for emphasising their identity and character. For example, India Today saw itself
as 'the complete news magazine' and now visualises its mission as 'making sense of India.
"The Administrative Staff College of India considers itself as "the college for practis- ing
managers. Better still is the Hindustan Unilever Limited's (HUL's) mission to add vitality to
life' leading to various strategic actions of being the largest consumer goods company in
India.
4. It should be Motivating A mission statement should be motivating for members of the
organisations and of the society, and they should feel it worthwhile working for such an
organisation or being its customers A bank which lays great emphasis on customer service is
likely to motivate its employees to serve its custonm ers well and to attract clients. Customer
service, therefore, is an important purpose for a banking institution Yes Bank's strategic
vision, 2015, includes the mission of 'to establish a high quality, customer centric, servic
driven, private Indian bank catering to the future businesses of India".
5. It should be Distinctive A mission statement which is indiscriminate is likely to have little
impact. If two-wheeler manufacturers defined their mission in a similar fashion, there would
not be much of a differen among them. But if one defines it as providing two-wheelers that
would provide value for money, for year creates an important distinction in the public mind.
Bajaj Auto adopted its popular mission of providing "vall for money, for years' going over to
'inspiring confidence' and now being 'distinctly ahead".
6. It should Indicate Major Components of Strategy A mission statement, along with the
organi sational purpose should indicate the major components of the strategy to be adopted.
The mission of HCL Infosystems is: "We enable business transformation and enrichment of
lives by delivering sustainable world class technology products, solutions, and services in our
chosen markets thereby creating superior shareholder value. It provides a clear indication of
the emphasis in the strategies of the company on technology, products, solutions, services,
and shareholder value while being sustainable.
7. It should Indicate how Objectives are to be Accomplished Besides indicating the broad
strategies to be adopted a mission statement should also provide clues regarding the manner
in which the objectives are to be accomplished. Oxfam India, in the voluntary sector, seeks to
achieve its mission through the empower- ment of the poor and marginalised to demand their
rights, engagement of the non-poor to become active and supportive citizens, advocating for
an effective and accountable state, and making markets work for poor and marginalised
people.
In day-to-day decision-making, managers are not concerned about survival and, therefore, do
not actively think about their organisation's mission for society. Thus, a mission statement
becomes an ideology that is oc- casionally used for legitimisation. But for strategic decision-
making, it is important to consider the mission ing each phase of the strategic management
process.
A helpful approach to defining as well as refining a mission statement is to define the
business itself.

Mission, Vision, and Values

Mission and vision both relate to an organization’s purpose and are typically communicated
in some written form. Mission and vision are statements from the organization that answer
questions about who we are, what do we value, and where we’re going. A study by the
consulting firm Bain and Company reports that 90% of the 500 firms surveyed issue some
form of mission and vision statements (Bart & Baetz, 1998). Moreover, firms with clearly
communicated, widely understood, and collectively shared mission and vision have been
shown to perform better than those without them, with the caveat that they related to
effectiveness only when strategy and goals and objectives were aligned with them as well
(Bart, et. al., 2001).

A mission statement communicates the organization’s reason for being, and how it aims to
serve its key stakeholders. Customers, employees, and investors are the stakeholders most
often emphasized, but other stakeholders like government or communities (i.e., in the form of
social or environmental impact) can also be discussed. Mission statements are often longer
than vision statements. Sometimes mission statements also include a summation of the firm’s
values. Values are the beliefs of an individual or group, and in this case the organization, in
which they are emotionally invested. The Starbucks mission statement describes six guiding
principles that, as you can see, also communicate the organization’s values:

1. Provide a great work environment and treat each other with respect and dignity.
 2. Embrace diversity as an essential component in the way we do business.

3. Apply the highest standards of excellence to the purchasing, roasting and fresh
delivery of our coffee.

4. Develop enthusiastically satisfied customers all of the time.

5. Contribute positively to our communities and our environment.

6. Recognize that profitability is essential to our future success (Starbucks, 2008).

Similarly, Toyota declares its global corporate principles to be:

1. Honor the language and spirit of the law of every nation and undertake open and fair
corporate activities to be a good corporate citizen of the world.

2. Respect the culture and customs of every nation and contribute to economic and
social development through corporate activities in the communities.

3. Dedicate ourselves to providing clean and safe products and to enhancing the quality
of life everywhere through all our activities.

4. Create and develop advanced technologies and provide outstanding products and
services that fulfill the needs of customers worldwide.

5. Foster a corporate culture that enhances individual creativity and teamwork value,
while honoring mutual trust and respect between labor and management.

6. Pursue growth in harmony with the global community through innovative

management.

7. Work with business partners in research and creation to achieve stable, long-term
growth and mutual benefits, while keeping ourselves open to new
partnerships (Toyota, 2008).

A vision statement, in contrast, is a future-oriented declaration of the organization’s purpose

and aspirations. In many ways, you can say that the mission statement lays out the
organization’s “purpose for being,” and the vision statement then says, “based on that
purpose, this is what we want to become.” The strategy should flow directly from the vision,
since the strategy is intended to achieve the vision and thus satisfy the organization’s mission.
Typically, vision statements are relatively brief, as in the case of Starbuck’s vision statement,
which reads: “Establish Starbucks as the premier purveyor of the finest coffee in the world
while maintaining our uncompromising principles as we grow (Starbucks, 2008).” Or ad firm
Ogilvy & Mather, which states their vision as “an agency defined by its devotion to brands
(Ogilvy, 2008).” Sometimes the vision statement is also captured in a short tag line, such as
Toyota’s “moving forward” statement that appears in most communications to customers,
suppliers, and employees (Toyota, 2008). Similarly, Wal-Mart’s tag-line version of its vision
statement is “Save money. Live better (Walmart, 2008).”
Any casual tour of business or organization Web sites will expose you to the range of forms
that mission and vision statements can take. To reiterate, mission statements are longer than
vision statements, often because they convey the organizations core values. Mission
statements answer the questions of “Who are we?” and “What does our organization value?”
Vision statements typically take the form of relatively brief, future-oriented statements—
vision statements answer the question “Where is this organization going?” Increasingly,
organizations also add a values statement which either reaffirms or states outright the
organization’s values that might not be evident in the mission or vision statements.

Roles Played by Mission and Vision

Mission and vision statements play three critical roles: (1) communicate the purpose of the
organization to stakeholders, (2) inform strategy development, and (3) develop the
measurable goals and objectives by which to gauge the success of the organization’s strategy.
These interdependent, cascading roles, and the relationships among them, are summarized in
the figure.

Figure 4.5 Key Roles of Mission and Vision

First, mission and vision provide a vehicle for communicating an organization’s purpose and
values to all key stakeholders. Stakeholders are those key parties who have some influence
over the organization or stake in its future. You will learn more about stakeholders and
stakeholder analysis later in this chapter; however, for now, suffice it to say that some key
stakeholders are employees, customers, investors, suppliers, and institutions such as
governments. Typically, these statements would be widely circulated and discussed often so
that their meaning is widely understood, shared, and internalized. The better employees
understand an organization’s purpose, through its mission and vision, the better able they will
be to understand the strategy and its implementation.
Second, mission and vision create a target for strategy development. That is, one criterion of
a good strategy is how well it helps the firm achieve its mission and vision. To better
understand the relationship among mission, vision, and strategy, it is sometimes helpful to
visualize them collectively as a funnel. At the broadest part of the funnel, you find the inputs
into the mission statement. Toward the narrower part of the funnel, you find the vision
statement, which has distilled down the mission in a way that it can guide the development of
the strategy. In the narrowest part of the funnel you find the strategy —it is clear and explicit
about what the firm will do, and not do, to achieve the vision. Vision statements also provide
a bridge between the mission and the strategy. In that sense the best vision statements create a
tension and restlessness with regard to the status quo—that is, they should foster a spirit of
continuous innovation and improvement. For instance, in the case of Toyota, its “moving
forward” vision urges managers to find newer and more environmentally friendly ways of
delighting the purchaser of their cars. London Business School professors Gary Hamel and C.
K. Prahalad describe this tense relationship between vision and strategy as stretch and
ambition. Indeed, in a study of such able competitors as CNN, British Airways, and Sony,
they found that these firms displaced competitors with stronger reputations and deeper
pockets through their ambition to stretch their organizations in more innovative ways (Hamel
& Prahalad, 1993).

Third, mission and vision provide a high-level guide, and the strategy provides a specific
guide, to the goals and objectives showing success or failure of the strategy and satisfaction
of the larger set of objectives stated in the mission. In the cases of both Starbucks and Toyota,
you would expect to see profitability goals, in addition to metrics on customer and employee
satisfaction, and social and environmental responsibility.

Vision

 What it is:
A vision statement describes the long-term aspirations and goals of a company. It
serves as a guide for future direction and defines the impact the organization aims to
have on the world.

 Characteristics of a Good Vision Statement:

o Future-oriented and inspiring.

o Clear and concise.

o Reflects the company's core values and aspirations.

 Examples:

o Tesla: "To create the most compelling car company of the 21st century by
driving the world’s transition to electric vehicles."
 o Google: "To organize the world’s information and make it universally
accessible and useful."

 Importance:

o Motivates employees and stakeholders.

o Provides long-term direction and focus.

o Helps align business strategies with long-term goals.

Mission

 What it is:
A mission statement defines the purpose of the organization—what it does, who it
serves, and how it creates value. It focuses on the present and describes the
company’s fundamental reason for existence.

 Characteristics of a Good Mission Statement:

o Specific, focused, and actionable.

o Describes what the company does and how it delivers value.

o Reflects the needs of customers, employees, and other stakeholders.

 Examples:

o Nike: "To bring inspiration and innovation to every athlete in the world."

o Microsoft: "To empower every person and every organization on the planet to
achieve more."

 Importance:

o Clarifies the company's core purpose and direction.

o Guides decision-making and strategy development.

o Helps customers and employees understand the business's value proposition.

Difference Between Vision and Mission

Aspect Vision Mission

Future-oriented: Where the Present-oriented: What the company does

Focus
company wants to be. and why it exists.
Aspect Vision Mission

Describes day-to-day operations and

Purpose Sets long-term goals and direction.
purpose.

Timeframe Long-term Short to medium-term

"Organize the world's information." "Make information universally

Example
(Google) accessible." (Google)

Role of business objectives in strategic planning

Objectives represent the purpose for which an organization has been started. Objectives guide
and govern the actions and behaviour of organization. A business objective is a result that a
company aims to achieve. It also includes the strategies that company will use to achieve those
objectives. A business objective usually includes a time frame and lists the resources available.

Setting broad goals will provide a vision for company, while setting concrete objectives will
help identify the actions needed to get there.
1. Provide Directions: A small business needs a purpose, a reason for existence that its
workers understand. The business objectives provide directions to the company. This
is more important in case of start up because its objectives will determine its overall
direction.
For instance, business objective of reaching million-dollar enterprise in five years gives
direction to entrepreneur of start-up. It also encourages small businesses for higher
productivity, greening the office, bettering the work environment, optimizing the
bottom line, employee development and marketing. This will ensure their survival and
growth.
2. Planning: The well-defined business objective helps in planning process. It will enable
organization in identifying strengths and weaknesses. Accordingly, management will
form the strategies for improvement of strength and correction of weaknesses. It also
helps in identifying opportunities and threats. So, the management will prepare plan
keeping in mind available opportunities and potential threats.
3. Decision Making: The business objectives assist in decision making. It will help
management in taking decision for long term as well as short term. The long-term
decision making becomes easier due to well defined objectives. The decision-making
leads to action which eventually leads to attainment of organization’s objectives.
4. Motivation: The business objective helps the organization in motivating workforce.
Employees need a reason to perform their specific tasks, not just a global sense of the
company's direction.
For instance, during turnaround where management is trying to convert loss making
unit into profitable, clear business objectives will boost the morale of the workforce.
The overall morale of the public sector bank employees is low due to many reasons
 affecting banking industry. The management can motivate them with the help of
business objectives. It will enhance their performance.

5. Evaluation: The management set the benchmark as per the pre-determined business
objectives. The activities of the organization will be evaluated as per the decided
benchmark. If there is any deviation then the management will take corrective steps.
The business objectives allow employees to monitor their own progress all the year
round and correct their efforts as necessary. If employees know what they need to
accomplish, they can look at their results as they go and identify barriers to achieving
those goals. Thus, it is important for the business to frame business objectives.
6. Quicker Growth: The growth of the organization can be faster with the help of the
business objectives. The objective gives clear idea about what to do, when to do, how
to do etc. The business objective encourages a business owner to predict what level of
sales will be achieved in the next month, which is called forecasting. It will reduce the
repetition and duplication of work and thereby ensuring quicker and faster growth for
the organization.
7. Increased Efficiency: The efficiency is a relationship between return and cost. The
firm said to be efficient when it generates more return at less cost. The business
objective increases efficiency of the firm. It facilitates optimum utilization of resources
which reduces wastages in the organization.
8. Facing Competition: The business objectives help organization in facing competition
in the market. It will enable organization to be proactive. The organization can
anticipate market trends and accordingly prepare plans and strategies for countering
competition.
9. Innovation: The business objective facilitates organization in introducing innovation.
It enables organization to come up with new idea, new project and new technology. For
instance, Apple Inc. is leading in innovation in mobile due to their well-defined
business objectives.
10. Corporate Image: The business objectives enhance corporate image of the firm. The
organization encourages participation of various stake holders in setting of objectives.
The clear business objectives increase confidence in the minds of customers, creditors
and shareholders.
11. Team Work: When an employee knows what needs to accomplished and what is
expected, it is easier for that employee to work without constant supervision. Also,
by helping employees understand how their individual work contributes to the overall
objectives of the organization, organization enable them to make their own decisions
about how to spend their work time so that their work is consistent with the priorities
of the organization.
The consequences are, employees know what they must do, how well they must do it,
and why they are doing it. It will create a team that is knowledgeable and therefore
empowered, to do the right things with much less supervision and oversight. The
teams can make decisions relevant to their work without having to consult the
manager on every little question.

Hierarchy of Objectives:
The links between the aim, objectives, strategies and tactics can be made clearer by studying
the hierarchy of objectives. It shows visually the balance and dependencies between the
different stages in the setting of the aim and objectives. A hierarchy of objectives always starts
with the corporate aim.

Corporate Objectives:

Corporate objectives are targets that the whole business is trying to achieve. They are often
related to what the owners of the business want to focus on (e.g., survival, growth, profits).

Example 1: The famous motorcycle company Harley-Davidson. The typical corporate aim can
be to achieve profitable growth by continuing to play a leading role in the industry to become
and remain the market leader in the motorcycle industry. Then, in order to achieve that aim,
the business objective could include achieving a market share of 60% and annual sales revenue
of USD$20 million.

Example 2: A school’s objective could be to achieve a 99% pass rate within 5 years or to
encourage the use of differentiation and scaffolding to improve the quality of daily teaching
and learning.

Example 3: A soft drinks producer can have the business aim of maximizing the value of the
business for shareholders. In order to achieve this aim, the company set up corporate objectives
such as to increase earnings per share, and to increase the dividends by 5% each year in the
next 3 years.

Example 4: A car producer may have the business aim of profitable growth in the next decade.
In order to achieve its aim, it set up two business objectives including selling at least 3 million
passenger cars each year by 2030 and leading the way in the middle-class segment in terms of
sales volume.

Departmental Objectives:

Then, based on corporate objectives, departmental objectives are decided upon. Departmental
objectives are set up for specific functions in the business, e.g., objectives for the marketing
department or the finance department to achieve. They need to be consistent with all corporate
objectives.
Example 1 (continuation): In order to become the market leader in the motorcycle industry by
achieving a market share of 60% and annual sales revenue of USD$20 million, the marketing
department of Harley-Davidson will have departmental objectives to achieve an increase of
sales of existing products by 20%, launch two new products into the market in 2021 and gain
at least 10% market share.

Individual Objectives:

And finally, after departmental objectives are ready, individual objectives will be established
for each employee, linked to performance appraisal of individual workers, e.g., sales target for
a member of the sales team in the marketing department. Individual objectives must align with
departmental and corporate objectives.

Example 1 (continuation): Individual targets for employees in the marketing department

of Harley-Davidson will include creating a new advertising campaign to promote the launch of
two new products in 2021 and decreasing the price of existing products with high price
elasticity of demand by 10% to boost sales.

Steps in Setting Business Objectives:

1. Analysis of Internal Environment: The management must analyze internal business
environment before setting business objectives. The internal business environment
includes working condition, management philosophy, state of technology etc. The
analysis of internal environment reveals strengths and weaknesses of an organization.
The management must improve their strength and introduce some measures to correct
weakness before setting objectives.
2. Analysis of External Environment: The management must undertake analysis of
external business environment while setting business objectives. The external business
environment consists of customers, competitors, suppliers, government policies etc.
The external business environment analysis reveals potential opportunities and threats.
The business must set such objectives that exploit available business opportunities and
minimizing the impact of expected threats.
3. Setting of Goals: After the analysis of business environment, the management must set
the goals for the organization. The goals should be specific, measurable, attainable,
realistic and time bound. The organization goals facilitate in setting of objectives.
4. Participation of Stakeholders: The management must ensure the participation of
concern stakeholders in the process of setting of objectives. For instance, while setting
objectives for marketing department, the manager must involve personnel of marketing
department. The participation of stakeholders while setting objectives enhanced their
morale and sense of belongings towards the organization.
5. Past History: The management must evaluate past history before setting objectives. It
will give idea about mistakes and blunders committed by the organization. The
management must set objectives keeping in mind past history of the organization.
 6. Setting of Objectives: After the thorough analysis of the past history and feedback
from the concern stakeholders, the management can set objectives. The set objectives
can be overall objectives for the organization or also specific objectives for key
functional area like production, finance, marketing etc. The objectives should be in line
with overall goal of the organization.
7. Evaluation of Objectives: The management must undertake evaluation of set
objectives. The evaluation can be done on the basis of cost-benefit analysis. The cost
in terms of production cost, promotion cost etc. and benefits in terms of market share,
increase in profits etc.
8. Selection of Objectives: After the cost-benefit analysis of the objectives, the
management must undertake selection of the objectives. The management must select
those objectives that gives maximum benefit and minimum cost to the organization.
9. Attainment of Objectives: The management should make a plans and strategies in
consultation with stakeholders for the successful attainment of selected objectives. The
management must ensure the implementation of those plans so that selected objectives
can be achieved.
10. Review: The management must undertake periodical review of selected objectives. The
management should change business objectives keeping in mind changing scenario.

Economic objective

1. Economic Objectives: Economic objectives the business refers to the objectives of

earning profit and also includes other objectives that help in earning of profits like
creation of customers, increase in market share, introducing innovation, optimum use
of resources etc.
a. Earning of Profit: The basic economic of objective of an organization is to
earn profit. The organization cannot survive without profit. Profit ensures
organization’s survival and growth. The organization can expand its business
by reinvesting part of the profit into business.
b. Creation of Customers: The creation of customers is one of the economic
objectives of the business. The customers can be generated through their
effective promotion strategies. The business can also create new customers or
retain existing customers by providing quality goods and services.
c. Introducing Innovation: The business should introduce innovation in the
market. Innovation includes new product, new technology, new market etc. The
introduction of innovation brings competitive advantage to the business.
d. Optimum Utilization of Resources: The business uses various types of
resources. The business should adopt the policy of optimum utilization of
resources. It will reduce the wastages of the resources thereby reducing cost.
The reduction of the cost, increases profits.
Social objective

1. Social Objectives: Social objectives are refers to those objectives of the business,
which are desired to be achieved for the benefit of the society. The business is a part of
the society. The activities of the business depend upon the society. The business cannot
survive without society. The business uses scarce resources of the society; in return
society expects certain welfare measures from the business. Social objectives of
business include production and supply of quality goods and services, adoption of fair-
trade practices and contribution to the general welfare of society and provision of
welfare amenities etc.
a. Quality Products: The prime most social objective of the business is to produce
and supply quality products to the society. It is not desirable on the part of
business to produce adulterated, inferior quality products which is harmful to
the society in general. The objective of producing quality product increases the
brand image.
b. Fair Trade Practices: The business should always adopt fair trade practice in
their day to day working. The business should not indulge in back marketing,
hoarding, creating artificial demand etc. These activities spoil the image of the
company and these actions are also liable for penalty and imprisonment under
the law. Therefore, the objective of business should be to adopt fair trade
practices for the welfare of the consumers as well as the society.
c. Welfare Measures: The business unit must contribute towards general welfare
measures and upliftment of the society. In order to generate employment and
for increasing standard of living, production unit can be setup in backward area.
The vocational training centers can be established for providing skill-based
training to unemployed youth. The welfare measures help in creating positive
image of the organization in the minds of various stakeholders.
2. Social objectives of business may be grouped into three broad categories,
namely,
3. 1. Objectives which protect consumer interests;
4. 2. Objectives which protect the interests of workers; and
5. 3. Objectives which protect the interests of the society

Economic objectives Social objectives

1. Economic objectives are primarily 1. Social objectives are concerned with the
concerned with the economic health of the needs and welfare of the society.
enterprise.

2. Economic objectives serve the economic Social objectives serve the interests of the
motive of the stock-holders. society.

3. Economic objectives are mostly -Social objectives are social oriented.

enterprise oriented or enterprise centered.
The perspective of social objectives is
mostly long term.
 4. Economic objectives are important both
in the short and long term.

5. Achievement of economic objectives is Social objectives justify the survival and

necessary for the survival and growth of the growth of the enterprise.
enterprise.

6. Achievement of economic objectives is Social objectives justify economic

necessary for effective discharge of social objectives.
objectives.

7. There is general agreement as to what

constitute economic objectives There are differences of opinion as to what
constitute social objectives.
8. Economic objectives are tangible.
Soveral of the social objectives are not
9. Economic objectives by themselves may tangible.
benefit society. Some of the social objectives reinforce the
achievement of economic objectives.
10. Economic objectives are cardinal.
Social objectives are ordinal.
11. Economic objectives are basic
objectives. Economic objectives provide the base for
pursuing social objectives.
12. Economic objectives are clear and Social objectives may have ambiguity.
definite.

Reconciliation

Reconciliation between Social and Economic Objectives

Reconciliation means re-establishment or to resolve conflict through mechanisms such as
negotiation, mediation, adjudication, and arbitration. Business objectives are something, which
a business organization wants to achieve or accomplish over a specified period of time. These
may be to earn profit for its growth and development, to provide quality goods to its customers,
to protect the environment etc. Social responsibility is essential for long-term prosperity of
companies and brings forth the human side of business. As business is considered as a socio-
economic activity there is a need to reconcile economic and social objectives of business.
1. Employment and Innovation: Business creates employment opportunities in various
sectors like banking, insurance, communication etc. On the other hand, innovation leads
to introduction of new technology resulting into-increase in production of goods and
services. This introduction of new technology may decrease employment opportunities.
On the contrary technology can improve productivity, quality and even safety. Training
and development programmes should be introduced to upgrade the skill of employees.
 Combination of computers and telecommunications has made it possible to provide
many services at long range.
2. Profit and Reasonable Price: Profit is the main objective of every business. The firm
can increase profit by charging higher price for commodities. But the company can
formulate strategies such as introducing innovation, increasing productivity,
minimizing wastage through optimum utilisation of resources etc. Such strategies can
help the firm to reduce prices on commodity thereby increasing demand and earning
profit and bringing harmony between economic and social objectives.
3. Creation of Wealth and Customer Satisfaction: Business requires wealth for
survival, growth and expansion. Wealth is generated by earning more profit. To earn
profit the firm can exploit consumers. But on the contrary the business should divert
their wealth for achieving social objectives and providing quality products and
reasonable price leading to customer satisfaction, thereby harmonizing economic and
social objectives.
4. Profit and Quality: The profit and quality of the product go hand in hand. In order to
earn more profit, the business should not sacrifice quality of product. It is moral
obligation of business to provide quality products to its customers. The quality product
ensures survival of business and it also help in facing competition.
5. Profit and Social Welfare: The business is part of society not apart from society. The
success and survival of business depends upon general wellbeing of the society. The
business enterprise should undertake some measure for the welfare of the society. The
society appreciates those business houses who regularly undertake social welfare
measures.
6. Profit and Employees: The employees are the most important part of the business. The
business should not have narrow approach of earning only profit but also share and
spend part of the profit on the measures of employee welfare. The employee will be
motivated by providing monetary and non monetary incentives. The motivated
employees work with application and dedication.
7. Profit and Shareholders: The shareholders are the owners of the business. They had
provided equity capital business in anticipation of dividends. The business should
regularly declare dividends out of profits and manage the business so that overall value
of the investment made by shareholders also grows over a period of time.
8. Profit and Government: The business should participate and contribute in the
development activities of government. For instance, the business houses in India had
contributed significantly in PM Relief Fund to help government in fighting pandemic
of COVID-19. Some business houses also supported by manufacturing and distributing
PPE kit, gloves, sanitizers, ventilators etc. free of cost.

Module-2

Business Environment
Business environment means all of the internal and external factors that affect how the
company functions including employees, customers, management, supply and demand and
business regulations.

Characteristics of Business Environment

1. Dynamic in nature: Business environment is dynamic and perpetually evolving. It changes

frequently due to various external forces i.e. economic, political, social, international,
technological and demographic. Such dynamism in the environment brings continuous
change in its character.

Business enterprises have no alternative but to operate under such dynamic environment. The
only remedy is to adjust business as per environmental changes.

For example, there was a time when the film industry made revenue selling music CDs.
Today, the industry makes more revenue from ringtones and caller tunes.

2. Complex in nature: A business environment has a plethora of factors, events, conditions,

and influences arising from a variety of sources. Therefore, it is very difficult to understand
all the factors affecting a given environment at any time. Although one can understand it in
parts, it is impossible to grasp it in totality. Environment develops by chance and not by
choice.

For example, when mobile phones were released, the firms manufacturing music systems
could not envisage phones taking over their business. Neither did book publishers imagine
that print books will face a declining demand. In addition, the environment factors vary from
country to country. The business environment in India and in USA may not be identical.
3. Multi-Faceted: Environmental changes are frequent but their shape and character depends
on the knowledge & experience of the observer. A particular change in the environment may
be viewed differently by different businessmen. This change is welcomed as an opportunity
by some organizations while some others take it as a threat for their survival.

For example, Plasma TVs and LCD’s gave way to LEDs. Some manufacturers saw it as an
opportunity and started producing LEDs instead of LCDs or Plasmas. Now, LEDs are giving
way to 3D TVs. Depending on the perception of the firm, it might see it as an opportunity to
create new products or as a threat to its current sales.

4. Long Term Impact: Environment has long lasting impact on functioning of business
organizations. Their growth and profitability depend upon the environment under which they
have to operate. Environment influences business enterprises. Such influences may be
positive or negative and may affect the profitability, efficiency and development of business.

For example, an organization like the Aditya Birla Group tapped into the changes in its
environment and moved from textile to cement to retail to financial services and to telecom
as well.

5. Detailed Study: Every business organization has to study changes constantly taking place
in the environment forces. This facilitates easy adjustments of business as per environmental
changes. Such adjustment is necessary for its survival and growth. Environmental factors are,
by and large, external as well as uncontrollable.

In view of these constraints’ businessmen have to study the environment minutely and face it
boldly. The success of business depends on its ability to adjust itself with the local, national
and international environment.

6. Planning: Business environment and business planning are closely related concepts. In
fact, planning is necessary in order to derive maximum benefit from favorable environment.
Similarly, planning is useful for dealing with the problems created by unfavorable
environment.

7. Adaptability: Business has to learn to adjust with ever changing business environment.
One of the basic laws of nature is that adaptability is the price of survival. In the prehistoric
ages, the dinosaur and the mastodon, two of the strongest and largest animals that ever lived,
perished, while the insignificant cockroach survived. The reason was that those mighty
animals could not adjust themselves to changes brought about by the passage of centuries,
while the cockroach could. Businessmen have to adjust with the prevailing environment. This
adaptability is the price or the key survival in the business world.

8. Interrelated: All the forces and factors of business environment are inter-related to each
other. The changes in one factor affect other environmental factors. For instance, the world
economy was severely affected by the spread of Corona virus which was originated from
China.
9. Uncertainty: Business Environment is uncertain in nature. It is very difficult to predict the
changes of business environment. The change takes place very fast in business environment.
For instance, IT and Fashion industry witnessed frequent changes in terms of customers taste
and preferences, competitions etc.

10. Relative: Business Environment is relative concept. The impact of Business environment
may differ from company to company or country to country. For example, when consumer
organization published the report of finding pesticides in cold drinks, resulted in decrease in
sale of cold drinks, on the other hand it increased the sale of juice and other drinks.

What Is a SWOT Analysis?

A SWOT Analysis is one of the most commonly used tools to assess the internal and external
environments of a company and is part of a company’s strategic planning process. In
addition, a SWOT analysis can be done for a product, place, industry, or person. A SWOT
analysis helps with both strategic planning and decision-making, as it introduces
opportunities to the company as a forward-looking bridge to generating strategic alternatives.
SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. SWOT
Analysis – Internal and External Factors A SWOT analysis is divided into two main
categories: internal factors and external factors. Internal: Internal factors are the strengths and
weaknesses of the company. Strengths are the characteristics that give the business its
competitive advantage, while weaknesses are characteristics that a company needs to
overcome in order to improve its performance.

Examples of internal factors include: • Company culture • Company image • Operational

efficiency • Operational capacity • Brand awareness • Market share • Financial resources •
Key staff • Organizational structure External: External factors are the opportunities and
threats to the company. Opportunities are elements that the company sees in the external
environment that it could pursue in the future to generate value. Threats are elements in the
external environment that could prevent the company from achieving its goal or its mission or
creating value. Changes in the external environment may be due to: 2 • Societal changes •
Customers • Competitors • Economic environment • Government regulations • Suppliers •
Partners • Market trends

How to conduct a SWOT analysis?

To get the most complete, objective results, a SWOT analysis is best conducted by a group of
people with different perspectives and stakes in the company. Management, sales, customer
service, and even customers can all contribute valid insight. Moreover, the SWOT analysis
process is an opportunity to bring the team together and encourage their participation in and
adherence to the company’s resulting strategy. A SWOT analysis is typically conducted using
a four-square SWOT analysis template, but we could also just make lists for each category.
Use the method that makes it easiest for we to organize and understand the results. Once we
are finished with the brainstorming, we need to create a final, prioritized version of our
SWOT analysis, listing the factors in each category in order of highest priority at the top to
lowest priority at the bottom.
Questions to ask during a SWOT analysis: Strengths (internal, positive factors) Strengths
describe the positive attributes, tangible and intangible, internal to our organization. They are
within our control. • What do we do well?

• What internal resources do we have? Think about the following: (Positive attributes of
people, such as knowledge, background, education, credentials, network, reputation, or
skills.)

• Tangible assets of the company, such as capital, credit, existing customers or distribution
channels, patents, or technology.

• What advantages do we have over our competition?

• Do we have strong research and development capabilities? Manufacturing facilities?

• What other positive aspects, internal to our business, add value or offer we a competitive
advantage?

Weaknesses (internal, negative factors) 3 Weaknesses are aspects of our business that detract
from the value we offer or place at a competitive disadvantage. We need to enhance these
areas in order to compete with our best competitor.

• What factors that are within our control detract from our ability to obtain or maintain a
competitive edge?

• What areas need improvement to accomplish our objectives or compete with our strongest
competitor?

• What does our business lack (for example, expertise or access to skills or technology)?

• Does our business have limited resources?

• Is our business in a poor location?

Opportunities (external, positive factors):

Opportunities are external attractive factors that represent reasons our business is likely to
prosper. • What opportunities exist in our market or the environment that we can benefit
from?

• Is the perception of our business positive?

• Has there been recent market growth or have there been other changes in the market the
create an opportunity?

• Is the opportunity ongoing, or is there just a window for it? In other words, how critical is
our timing?
Threats (external, negative factors): Threats include external factors beyond our control that
could place our strategy, or the business itself, at risk. We have no control over these, but we
may benefit by having contingency plans to address them if they should occur.

• Who are our existing or potential competitors?

• What factors beyond our control could place our business at risk?

• Are there challenges created by an unfavorable trend or development that may lead to
deteriorating revenues or profits?

• What situations might threaten our marketing efforts?

• Has there been a significant change in supplier prices or the availability of raw materials?

• What about shifts in consumer behavior, the economy, or government regulations that could
reduce our sales?

• Has a new product or technology been introduced that makes our products, equipment, or
services obsolete?

LET’S TAKE AN EXAMPLE TO UNDERSTAND IT BETTER…….

McDonald's (NYSE: MCD) has been outperforming the market this year and recently set a
new all-time high.

A SWOT analysis -- a look at strengths, weaknesses, opportunities, and 4 threats -- can help
assess whether the fast-food giant can keep the growth on a high-calorie diet.

Strengths:

• McDonald's has successfully rolled out new items like coffees, smoothies, etc. expanding
the range of menu choices.

• With a strong product offering, the company has grown income throughout the recession,
notching strong increases in same-store sales.

• Operations are spread around the world, meaning the company is not exposed to just one
currency or economy.

• Even trading near its highs, McDonald's serves up sizzling dividend yields that top the 10-
year Treasury. The yield comes with a side order of annual dividend hikes dating back to
1976. The annual dividend payment has gone from 55 cents per share in 2005 to $2.20 this
year.

Weaknesses: It will be harder and harder to find prime locations to build a set of golden
arches. The U.S. is saturated with its restaurants, so growth will have to occur internationally,
posing potential cultural challenges. While the annual dividend hikes are likely to continue,
the dividend growth rate has been slowing and will probably continue to slow or level off.
Opportunities:

• There are opportunities for new restaurants outside the United States, and McDonald's has
been taking advantage of them. China is a great opportunity for the company, as is much of
Asia.

• Menu innovations are limited only by imagination.

• Low interest rates provide cheap capital for growth. In addition to dollar-denominated debt,
McDonald's recently became the first foreign company to issue yuandenominated bonds in
Hong Kong.

Threats:

• Governments are considering regulations targeting fast food.

• McDonald's faces competition from strong peers such as recent 11 O'Clock Stock pick
Yum! Brands and Burger King.

• New product rollouts often have to go head-to-head with established players like Starbucks
coffee or Jamba smoothies.

• Commodity price increases could increase costs while a weak economy limits the ability to
pass the price hikes through to consumers.
Components of Business Environment

Business Environment is classified into internal business environment and external business
environment. External business environment is further classified into micro and macro
business environment.

Internal Business Environment

Internal Business Environment of the firm refers to all the factors that are within the
organization which affect the functioning of organization internally. These factors are
generally regarded as controllable i.e. organization can alter or modify such factors. The
components of internal business environment are as follows:
1 Value System: The value system of an organization means the ethical beliefs that guide the
organization in achieving its mission and objectives. It is a widely acknowledged fact that the
extent to which the value system is shared by all in the organization is an important factor
contributing to its success

2 Mission and Objectives: The business domain of the company, direction of development,
business philosophy, business policy etc. are guided by the mission and objectives of the
company. The objective of all firms is assumed to be maximization of profit. Mission is
defined as the overall purpose or reason for its existence which guides and influences its
business decision and economic activities.

3 Organization Structure: The organizational structure, the composition of the board of

directors, the professionalism of management etc. are important factors influencing business
decisions. An efficient working of a business organization requires that the organization
structure should be conducive for quick decision-making.

4 Corporate Culture: Corporate culture is an important factor for determining the internal
environment of any company. In a closed and threatening type of corporate culture the
business decisions are taken by top level managers while the middle level and lower-level
managers have no say in business decision making. This leads to lack of trust and confidence
among subordinate officials of the company and secrecy pervades throughout the
organization. This results in a sense of alienation among the lower-level managers and
workers of the company. In an open and participating culture, business decisions are taken by
the lower-level managers and top management has a high degree of confidence in the
subordinates.

5 Quality of Human Resources: Quality of human resources of a firm is an important factor

of internal environment of a firm. The characteristics of the human resources like skill,
quality, capabilities, attitude and commitment of its employees etc. could contribute to the
strength and weaknesses of an organization. Some organizations find it difficult to carry out
restructuring or modernization plans because of resistance by its employees

6 Labour Unions: Labour unions collectively bargains with the managers for better wages
and better working conditions of the different categories of workers. For the smooth working
of a business firm good relation between management and labour unions is required.

7 Physical Resources: Physical resources such as plant and equipment and technological
capabilities of a firm determine its competitive strength which is an important factor for
determining its efficiency and unit cost of production. Research and development capabilities
of a company determine its ability to introduce innovations which enhances productivity of
workers.

External Business Environment

External business environment of the firm refers to all those factors that influence the
working of the firm externally. External environment factors are uncontrollable in nature. It
further classified into micro external environment and macro external environment.

Micro External Environment

Micro environment includes those players whose decisions and actions have a direct impact
on the company. Production and selling of commodities are the two important aspects of
modern business. The various constituents of micro environment are as under:

1. Suppliers: An important factor in the external micro environment of a firm is the supplier
of its inputs such as raw materials and components. It is imperative for the organization to
maintain coordinal relationship with suppliers for the smooth functioning of production
department.

2. Customers: The people who buy and use a firm’s products and services are an important
part of external micro environment. Since sales of a product or service is critical for a firm’s
survival and growth, it is necessary to keep the customers satisfied.

3. Marketing intermediaries: In the firm’s external micro environment, marketing

intermediaries play an essential role of selling and distributing its products to the final
customers. Marketing intermediaries is an important link between a business firm and its
ultimate customers.

4. Competitors: The different firms in an industry compete with each other for sale of their
products. This competition may be on the basis of pricing of their products and also non-
price competition through competitive advertising such as sponsoring some events to
promote the sale of different varieties and models of their products.

5. Public: Finally, public are an important force in external micro environment. Public,
according to Philip Kotler, “is any group that has an actual or potential interest in or impact
on the company’s ability to achieve its objective.” Environmentalists, media groups,
women’s associations, consumer protection groups, local groups, citizens association are
some important examples of public which have an important bearing on the business
decisions of the firm.

Macro External Environment

Apart from micro environment, business firms face large external environmental forces. An
important fact about external macro environmental forces is that they are uncontrollable by
the management. Because of the uncontrollable nature of macro forces a firm has to adjust or
adapt it to these external forces. These factors are:

1. Economic Environment: Economic environment includes all those forces which have an
economic impact on business. Accordingly, total economic environment consists of
agriculture, industrial production, infrastructure, and planning, basic economic philosophy,
stages of economic development, trade cycles, national income, per capita income, savings,
money supply, price level and population.

2. Political-legal Environment: The political- legal environment includes the activities of

three political institutions, namely, legislature, executive and judiciary which usually play a
useful role in shaping, directing, developing and controlling business activities. In order to
attain a meaningful business growth, a stable and dynamic political-legal environment is very
important.

3. Technological Environment: Technology implies systematic application of scientific or

other organized knowledge to practical tasks or activities. Business makes it possible for
technology to reach the people in proper format. As technology is changing fast, businessmen
should keep a close look on those technological changes for its adaptation in their business
activities.

4. Global or International Environment: The Global environment plays an important role in

shaping business activity. With the liberalization and globalization of the economy, business
environment of an economy has become totally different wherein it has to bear all shocks and
benefits arising out of global environment.

5. Socio-cultural Environment: The social and cultural environment also influences the
business environment indirectly. These includes people’s attitude to work and wealth, ethical
issues, role of family, marriage, religion and education and also social responsiveness of
business.

6. Demographic Environment: The demographic environment includes the size and growth of
population, life expectancy of the people, rural-urban distribution of population, the
technological skills and educational levels of labour force. All these demographic features
have an important bearing on the functioning of business firms.

7. Natural Environment: The Natural environment influences business in diverse ways. The
natural environment is the ultimate source of many inputs such as raw materials and energy,
which firms use in their productive activity. In fact, the availability of natural resources in the
region or country is the basic factor in determining business activity in it. The natural
environment which includes geographical and ecological factors such as minerals and oil
reserves, water and forest resources, weather and climatic conditions and port facilities are all
highly significant for various business activities.

8. Ecological Environment: Due to the efforts of environmentalists and international

organizations such as the World Bank, the people have now become conscious of the adverse
effects of depletion of exhaustible natural resources and pollution of environment by business
activity. Accordingly, laws have been passed for conservation of natural resources and
prevention of environment pollution. These laws have imposed additional responsibilities and
costs for business firms.
Micro External Environment

Micro environment includes those players whose decisions and actions have a direct impact
on the company. Production and selling of commodities are the two important aspects of
modern business. The various constituents of micro environment are as under:

1. Suppliers: An important factor in the external micro environment of a firm is the supplier
of its inputs such as raw materials and components. It is imperative for the organization to
maintain coordinal relationship with suppliers for the smooth functioning of production
department.

2. Customers: The people who buy and use a firm’s products and services are an important
part of external micro environment. Since sales of a product or service is critical for a firm’s
survival and growth, it is necessary to keep the customers satisfied.

3. Marketing intermediaries: In the firm’s external micro environment, marketing

intermediaries play an essential role of selling and distributing its products to the final
customers. Marketing intermediaries is an important link between a business firm and its
ultimate customers.

4. Competitors: The different firms in an industry compete with each other for sale of their
products. This competition may be on the basis of pricing of their products and also non-
price competition through competitive advertising such as sponsoring some events to
promote the sale of different varieties and models of their products.

5. Public: Finally, public are an important force in external micro environment. Public,
according to Philip Kotler, “is any group that has an actual or potential interest in or impact
on the company’s ability to achieve its objective.” Environmentalists, media groups,
women’s associations, consumer protection groups, local groups, citizens association are
some important examples of public which have an important bearing on the business
decisions of the firm.

Macro

1. Economic Environment: Economic environment includes all those forces which have an
economic impact on business. Accordingly, total economic environment consists of
agriculture, industrial production, infrastructure, and planning, basic economic philosophy,
stages of economic development, trade cycles, national income, per capita income, savings,
money supply, price level and population.

2. Political-legal Environment: The political- legal environment includes the activities of

three political institutions, namely, legislature, executive and judiciary which usually play a
useful role in shaping, directing, developing and controlling business activities. In order to
attain a meaningful business growth, a stable and dynamic political-legal environment is very
important.

3. Technological Environment: Technology implies systematic application of scientific or

other organized knowledge to practical tasks or activities. Business makes it possible for
technology to reach the people in proper format. As technology is changing fast, businessmen
should keep a close look on those technological changes for its adaptation in their business
activities.

4. Global or International Environment: The Global environment plays an important role in

shaping business activity. With the liberalization and globalization of the economy, business
environment of an economy has become totally different wherein it has to bear all shocks and
benefits arising out of global environment.

5. Socio-cultural Environment: The social and cultural environment also influences the
business environment indirectly. These includes people’s attitude to work and wealth, ethical
issues, role of family, marriage, religion and education and also social responsiveness of
business.

6. Demographic Environment: The demographic environment includes the size and growth of
population, life expectancy of the people, rural-urban distribution of population, the
technological skills and educational levels of labour force. All these demographic features
have an important bearing on the functioning of business firms.

7. Natural Environment: The Natural environment influences business in diverse ways. The
natural environment is the ultimate source of many inputs such as raw materials and energy,
which firms use in their productive activity. In fact, the availability of natural resources in the
region or country is the basic factor in determining business activity in it. The natural
environment which includes geographical and ecological factors such as minerals and oil
reserves, water and forest resources, weather and climatic conditions and port facilities are all
highly significant for various business activities.

8. Ecological Environment: Due to the efforts of environmentalists and international

organizations such as the World Bank, the people have now become conscious of the adverse
effects of depletion of exhaustible natural resources and pollution of environment by business
activity. Accordingly, laws have been passed for conservation of natural resources and
prevention of environment pollution. These laws have imposed additional responsibilities and
costs for business firms.

Module-3

STRATEGY
Strategy (derived from the Greek word Strategos) refers to the art and science of directing
military forces. In general term as, strategy is a well thought of and systematic plan of
action wherein the plans are unified, comprehensive and integrated that is used to defend
oneself and more often, to defeat rivals. Strategies are formulated in anticipation of some
possible moves/actions of the rivals.

BUSINESS STRATEGY
Business strategy refers to a well thought of and systematic plan of action designed to
achieve a long-term or overall aim. Businesses ought to be prepared for the dynamic and
hostile external forces while pursuing their mission and objectives. The very injection of the
idea of strategy into business organisations is intended to reduce uncertainty caused by
changes in the environment or the external environment forces and attempts to relate the
goals of the organisation to the means of achieving them. In short, business strategies
contribute in ensuring the survival and success of an enterprise. In any organisation
strategies are formulated by the top or middle level management in due consideration of the
possible position, defensive and offensive moves and the relative strengths and weaknesses
of the rival companies. A strategy is said to be an effective one when it capitalises on
opportunities through the use of its strengths and neutralises all threats by minimising the
impact of the weaknesses to achieve pre-determined objectives.

SIGNIFICANCE OF STRATEGY
1. Aligned with the strategic intent – vision, mission & objectives. Strategies are
formulated in order to ensure that the purpose of the organisation as encompassed in its
strategic intent would be attained.
2. Considers the variables in the business environment – Strategies are formulated after
considering the various elements in the internal & external environment. Therefore they have
a practical orientation to tackle the realistic situation.
3. Adaptability to changing environmental factors – as the business environment changes,
the strategies are also updated in order to face the environmental challenges.
4. Proactive instead of reactive- Strategies are the means for a business to prepare and
tackle the challenges in the business environment, Thereby strategies make a business
proactive.
5. Provides competitive advantage – the right strategies formulated at the right time, will
empower the business to face the challenges in the environment and also the take the
offensive.
6. Expansion of business- Businesses which are doing good resort to expansion strategies
to cash in on their brand value. This strategy helps the business to build up its presence in the
market.
7. Economies of scale – a business following the right strategy, does well and increases
its scope through different strategies. This helps it to enjoy economies of scale.
8. Focus on strengths and weaknesses- a good strategy is made after factoring in the
internal strengths and weaknesses of the business. The strategist encashes on the strengths
and tries to overcome or avoid the weaknesses to become competitive.
9. Achieving goals and objectives – strategies are directed towards the goals and
objectives of the organisation. Successful implementation of the strategies enables the
business to achieve its goals and objectives.
10. Means to grab the opportunities and evade threats – strategies are the answer to the
opportunities in front of the business. The right strategies make use of the opportunities and
are the means by which the threats to the business are tackled.
11. Efficiency of business – strategies are directed towards making the business efficient
and productive in resource allocation, utilization and outcome generation.
12. Sustainability of business- strategies enable a business to withstand the challenges and
gain competitive advantage. They make the business efficient and productive. Such a
business will be able to sustain in the long run.
LEVELS OF STRATEGY
Strategies are formulated at three levels of organisation. The three levels are: corporate
level, business level and functional level. The three levels of strategy are important in a
conglomerate – a multi-storey and multi-division company. When a company has a single
unit, only two levels - corporate level and functional level are important.

Corporate
Level
Strategic
Business Unit
Level
Functional Level

1. Corporate Level Strategy

Corporate Level Strategies are the highest level, long-term strategy encompassing the entire
organisation and providing direction to the company. Focusing on Corporate Level
Strategies, we can recall the observation of Peter Drucker . The ultimate objective of
strategic planning “is to identify the new and different businesses, technologies, and
markets which the company should try to create in the long range. But the work starts with
the question what is our present business? Indeed, it starts with the questions which of our
present businesses should we abandon? Which should we play down? Which should we
push and supply new resources to?” This summarises the essence of corporate level
strategies. It thus gives emphasis to some fundamental questions such as what is the
purpose of the enterprise, what business/businesses it wants to be in and how to expand/get
into such with business/businesses (for example, by establishing greenfield enterprises or by
M&As). Corporate strategy is formulated by the top-level corporate management (board of
directors, CEO, and chiefs of functional areas). Corporate Level Strategies are of the
following types : 1) Stability Strategies 2) Expansion Strategies 3) Retrenchment Strategies.
 2. Strategic Business Unit (SBU) Level Strategy
Business-level strategy is the second level of the strategy pyramid. A business unit is a
part/segment performing a common set of activities. In simple words, it is a separate unit of
the corporate organisation involved in a single line of business. Sitting within the context of
the corporate strategy, the business strategy is a way of achieving the aims of a particular
business unit within the company. One thing to remember is that implementing this
approach level is only effective for companies with several business units. An organization
with multiple business units can sell products as well as services or sell multiple
products/services in different industries. A large Bank is a prime example of an
organization selling multiple services in different industries, with business units in
corporate banking, wealth management, risk management, and capital raising, to name a
few. Each of these business units would have distinct goals, and a distinct business strategy
to achieve these goals.

3. Functional Level Strategy

This is the stage at the organizational end of the company. At the functional level, managers
of different functional areas (such as marketing, finance, production, human resources and
more.) participate during the formulation and implementation. Functional level strategy was
encouraged by Peter Drucker in his theory of Management by Objectives (MBO).
Functional level strategies are impacted by business level strategies which in turn are
influenced by corporate level strategies. Functional level managers must address the issues
like efficiency and effectiveness of marketing, production, customer service, thereby help in
effective implementation of corporate level strategies and help in achieving firm’s goals or
objectives.

CORPORATE LEVEL STRATEGIES

Corporate-level strategy implies the topmost degree of strategic decision making, which
covers those business plans which are concerned with the company’s objective,
procurement and optimal allocation of resources and coordination of business strategies of
different units and divisions for satisfactory performance. It is concerned with overall
achievement of corporate objectives. It reflects the combination and pattern of business
moves, actions and hidden goals, in the strategic interest of the concern, considering various
business divisions, product lines, customer groups, technologies and so forth. Such
Strategies are needed at every scale of operation of business. It helps business exercise the
choice of direction that the organization adopts. It consists of the Top Management’s ‘Game
plan’ for administering and directing the concern. Corporate Strategies is at the top of the
Planning Pyramid.

Corporate level strategies are basically about decisions relating to

• Allocation of resources amongst different businesses of a firm,

• Transferring resources from one set of business to others, and
• Managing and nurturing a portfolio of businesses

These decisions are taken so that the overall corporate objectives are achieved. These
strategies help to exercise the choice of direction that an organisation adopts. Whether it be
a small business firm involved in a single business or a large, complex and diversified
conglomerate with several businesses, Corporate strategies in both cases would be about the
basic direction of the firm as a whole. For a small firm having a single business, it could
mean adoption of courses of action that yield better profitability for the firm. For a large,
multi-business firm, corporate strategy would be about managing its various businesses for
maximizing their contribution to the overall corporate objectives and transferring resources
from one set of businesses to others.

Linking with the concept of business definition by Derek Abell, larger, multibusiness firms
serve a diverse base of customer groups, customer functions and make use of a range of
different technologies, making them more complex. Therefore they need a set of strategic
alternatives to consider from, to decide upon whether to continue or change the lines of
business, to improve efficiency and effectiveness in achieving the corporate objectives of
their chosen business sectors.

Following are the possible Strategic alternatives at the Corporate level (Glueck), namely,

• STABILITY
• EXPANSION
 RETRENCHMENT
•

I) STABILITY STRATEGIES
Stability Strategy is a corporate strategy where a company concentrates on maintaining its
current market position. A company that adopts such an approach focuses on its existing
product and market. It aims at Incremental Improvement of Performance by marginally
changing one or more business on the lines of customer functions, customer needs or
technology.

Stability can be pursued at the corporate level through the following alternatives:

• No change
• Profit
• Pause/ Proceed with caution

Reasons for adopting Stability Strategy:

• It is less risky, involves less changes
• When the environment is relatively stable
• Expansion may be perceived as threatening
• Consolidation is sought through stabilising after a period of rapid expansion

II) EXPANSION / GROWTH / INTENSIFICATION STRATEGIES

The Corporate strategy of Expansion is followed when an organisation aims at high growth
by substantially broadening the scope of one or more of its businesses in terms of its
customer groups (who), customer functions (what) and alternative technologies (how) –
either singly (by itself) or jointly (with other firms involved)- in order to improve its overall
performance.

Following examples indicate how companies use the strategic alternative of expansion in
terms of their customer groups, customer functions or alternative technologies:

1. A baby diaper manufacturing company expands its customer groups by making adult
diapers (expansion to different Customer groups)
2. A stockbroking company offers personalized financial services to small investors apart
from its normal dealings in shares and debentures with a view to having more business and
diversified risks. (expansion to different Customer functions)
3. A bank upgraded its data management system by recording the information on
computers and reduced huge paperwork to improve the efficiency of the bank. (expansion to
different alternative technologies)

Expansion can be pursued at the Corporate level through the following alternatives:

• Concentration
• Integration
• Diversification
• Internationalisation
• Cooperation
• Digitalisation

Reasons for adopting Expansion strategy:

• Environmental changes necessitate increase in pace of activities by the firm.
• It indicates growth orientation of the firm.
• Will give more controls over the market in comparison to competitors • To make use
of the benefits accruing from scale of operations and experience.

III) RETRENCHMENT STRATEGIES

This corporate strategy is followed when an organisation aims at contraction of its activities
through a substantial reduction or elimination of scope of one or more of its businesses in
terms of their respective customer groups, customer functions or alternative technologies-
either singly or jointly- in order to improve its overall performance. The firm withdraws
from a customer group, customer function or use of an alternative technology in one or
more of its businesses, either totally or partially.
Following examples indicate how companies use the strategic alternative of retrenchment to
get rid of unprofitable customer groups, customer functions or alternative technologies:

1. A pharmaceutical company withdraws from retail selling to concentrate on institutional

selling to reduce the size of its sales force and increase market efficiency. (retrenchment in
terms of customer groups)
2. A corporate hospital decides to focus only on speciality treatment and realise higher
revenues by reducing its commitment to general cases which are less profitable.
(retrenchment in terms of customer functions)
3. A coaching centre discards face-to-face classes and adopts online classes to serve larger
clientele, reduce expenses and use existing facilities & personnel more efficiently.

Retrenchment can be pursued at Corporate level through the following alternatives:

• Turnaround
• Divestment
• Liquidation

Reasons for adopting Retrenchment strategy:

• Organisation becomes unviable & management no longer wishes to be remain in
business partly or wholly
• Environment faced is threatening
• Stability can be ensured by reallocation of resources from unprofitable to profitable
businesses

CORPORATE LEVEL STRATEGIES – DETAILED EXPLANATION

(I) STABILITY STRATEGIES

Stability Strategy is a corporate strategy where a company concentrates on maintaining its
current market position. Stability strategy results from attempt by an organization at
incremental improvement of functional performance. A company that adopts such an
approach focuses on its existing product and market. A few examples of this strategy are
offering the same products to the same clients, not introducing new products, maintaining
market share etc. Usually it is followed by small and medium sized organisations and it is a
useful strategy in the short-run.
A company following this strategy does not need any additional resources and works using
the existing expertise of the workforce. But, this strategy is useful
only if there is a simple and stable environment.

I. (A) NO-CHANGE STRATEGY

As the term indicates, this stability strategy is a conscious decision to do nothing new, i.e.,
to continue with the present business definition. This could be characterised as an absence
of strategy though in reality, it is not so. Taking no decision sometimes, is a decision too.
When faced with a predictable and certain external environment and stable organisational
environment, an organisation decides to continue with its present strategy. This is so
because the organisation does not find it worthwhile to alter the present situation by
changing its strategy. There are no significant opportunities or threats operating in the
external and industry environments. There are no major new strengths and weaknesses
within the organisation. There are no new competitors and no obvious threat of substitute
products. Taking into account the external and internal environmental situation, the
organisation decides not to do anything new. There is but a distinction between an inactive
organisation that does not wish to change its strategy owing to inertia, and an organisation
that consciously decides to continue with its present strategy. In the former case, it would be
dangerous and even reckless, for the organisation to be complacent. In the latter case, it
would be prudent for the organisation to continue with its present strategies. Several small
and mediumsized organisations operating in a familiar market-more often a niche market
follow ‘No change’ strategy.

I. (B) PROFIT STRATEGY

Sometimes things change in such a way that the firm has to adopt changes in its working.
There may be unfavourable external factors such as increase in competition, recession in the
industry, government attitude, industry down turn etc. Under these situations it becomes
difficult to sustain profitability. Assuming that the changed situation will be a temporary
phase and old situation will again return, the firm tries to sustain its profitability by various
measures such as controlling expenses, reducing investments, raising prices, cut costs,
increase productivity etc. These measures will help the firm in sustaining current
profitability in the short run. Such a strategy, whereby a firm tries to lie low and maintain
its profitability by various means is called a Profit strategy. Such a strategy can work only if
the problem is indeed temporary, in the long run this strategy may deteriorate the
organisation’s strategic position.

Eg: A firm which sells off assets in a commercial locality & moves out to the suburbs,
Providing services to others needing outsourcing facilities etc. In the short run, Profit
strategy may be resorted to, but they will have to adjust their policies in the longer run to
the changing environment, otherwise they will find it difficult to stay in the market.

I. (C) PAUSE/PROCEED-WITH-CAUTION STRATEGY

Pause/proceed-with-caution strategy is employed by organisations that wish to test the
ground before moving ahead with a full-fledged corporate strategy or organisations that
have had a blistering pace of expansion and wish to rest a while before moving ahead. This
is essential in several cases where an intervening phase of consolidation is necessary before
an organisation could embark on further expansion strategies. The purpose is to let the
strategic changes seep down the organisational levels, to let structural changes take place
and to let the systems adapt to the new strategies. In this manner, pause/proceed-with-
caution strategy is a temporary strategy just like the profit strategy.

For e.g,, Hindustan lever, well known for soaps & detergents, also produced substantial
quantities of shoes and shoe uppers for the export markets. The domestic shoe market was
dominated by players such as Bata, Liberty and global giants like Adidas, Nike , Reebok
etc. In order to gauge the market reaction, Hindustan level sold a few thousand pairs of
shoes in Indian cities. Based on the results, it decided to focus only on the export markets,
as it was doing earlier. This is an example of adopting Pause/ Proceed-with-caution
strategy.

(II) EXPANSION STRATEGIES

The Corporate level strategy of Expansion is followed by growth-oriented firms. Growth
and expansion can be achieved by various means such as developing new markets, new
products, venturing into businesses activities which are related or unrelated with one’s
existing line of business, exploring related business activities within the same industry,
looking out into international markets, either singly (by itself) or jointly ( through
cooperation with other firms) It involves re-evaluating a company’s business so as to extend
the capacity and scope of business and considerably increasing the overall investment in the
business.
The reasons for the expansion could be survival, higher profits, increased prestige,
economies of scale, larger market share, social benefits, etc.
II. (A) CONCENTRATION / INTENSIFICATION/ SPECIALISATION
STRATEGIES
Concentration is a first level type of Expansion strategy. It involves converging resources in
one or more of a firm’s businesses in terms of their respective customer needs, customer
functions or alternative technologies. This is an expansion strategy wherein excellent firms
tend to rely on what they know they are best at doing. Concentration involves growth of a
business in terms of customer base, international coverage, profits etc., but most often in
terms of revenues. There are different ways of growing a business.

Ansoff’s Product-Market matrix provides us with three types of Concentration strategies

• Market Penetration (existing Product in existing market)
• Market Development (existing product in a new market)
• Product Development (new product in an existing market)
A. (i) MARKET PENETRATION STRATEGY
It involves going deeper into the market i.e. penetrating deeper, by focussing on increasing
sales of Existing Products in the Existing Market itself. Market penetration can be
achieved by means such as decreasing prices to attract new customers, increasing
promotion and distribution efforts, selling products to previous non-users. This strategy
aims to increase usage of product by existing customer, increase the market share of present
products, drive out competitors out of a mature market and secure dominance.
Examples:
• McDonalds the largest fast-food restaurant chain in the world uses aggressive
marketing to expand its revenue from existing consumer base. It promotes its products
through mainly advertisements and billboards to age specific crowds like children and
millennials.
• Budget airlines penetrated the Indian aviation market with low pricing, resulting in a
very high growth rate for the aviation industry for several years
• Marketing a holiday resort as a wedding destination or destination for corporate
events

A. (ii) MARKET DEVELOPMENT STRATEGY

This involves selling the Existing Products to New Markets. New markets may be
geographical (new regions) or demographic (different set of customers).
Examples:
• IKEA, the world’s largest furniture retailer founded in Sweden entered India in 2018.
India is the 37th country where IKEA has expanded. This is a classic example of
Market Development where a company is entering into a new geographical segment.
• Asian Paints India’s leading and Asia’s third largest paint company, has expanded its
dealer network to cater to semi-urban and rural areas (new demography) and expand
its reach far and wide.
• The indigenous Coir Industry is now shifting its focus from conventional customers
to discerning customers looking for eco-friendly alternatives (new demography)
A. (iii) PRODUCT DEVELOPMENT STRATEGY
This involves selling New Products to the Same Market. The move typically involves
extensive research and development and expansion of the company’s product range. The
product development strategy is employed when firms have a strong understanding of their
current market and are able to provide innovative solutions to meet the needs of the existing
market.
Examples:
• Marketing India as a Ayurveda-based medical treatment destination is a product
development strategy adopted by the Tourism industry.
• Coca Cola brought out its first flavour drink Coca Cola Cherry in 1985, an extension
of the original recipe which was a big hit. Later it introduced a large variety of flavours
 like Blackberry, Lime, Vanilla etc which currently dominate the world beverage
market. Coca cola’s strategy provided a wide range to its consumers with different
taste preferences in the beverages market.

II. (B) INTEGRATION STRATEGIES

Integration is a strategy of expansion through integration of business activities along the
value chain of a business.
Value chain: It is a set of interlinked activities performed by an organisation, right from the
procurement of raw materials to the marketing of finished products to ultimate consumers.

Integration means combining activities related to the present activity of firm. A company
may move up/ down the value chain to concentrate more

comprehensively on the customer groups and needs it is already serving. Hence, a company
adopting integration as a strategy for expansion commits itself to adjacent (i.e. close, or
related) businesses.

TYPES OF INTEGRATION STRATEGIES

B. (i) HORIZONTAL INTEGRATION

Horizontal integration is the combination of business activities at the same level in the
value chain. It involves the acquisition of one or more competitors. For example, a shoe
manufacturer adopts horizontal integration strategy and takes over its rival shoe
manufacturer. It becomes a bigger shoe manufacturer, and remains at the same position as
before in the value chain.
Horizontal integration exists both in terms of marketing and operations functions. When a
company wishes to sell in various geographical market segments, it can have a number of
subsidiaries selling the same product, making it horizontally integrated in terms of
marketing.

When a company has several factories producing the same products and selling them
through and integrated marketing network, it is horizontally integrated in terms of
production. For example, if one luggage company acquires a rival luggage company to form
a bigger luggage company, it is horizontally integrated in terms of production/operations.

Features
1. Movement beyond the boundaries of the firm, into the industry domain- For adopting
Integration strategy, a firm / organization moves beyond its boundaries into the
domain of the industry it is operating in. It may integrate with other firms in the same
industry. The other firm is at the same level in the value chain, operating within the
same industry.
2. Business Definition remains the same- Under horizontal integration, the company’s
business definition does not change. It remains in the same industry, serving the same
markets and customers through its existing products, by the means of the same
technologies.
3. Horizontal Integration of firms may be achieved through the route of any of the
Cooperation Strategies such as Mergers, Acquisitions, Joint ventures or Strategic
Alliances
Examples
1. Consolidations in the Indian Banking Industry o Ganesh Bank takeover by Federal
Bank o Nedungadi Bank takeover by Global Trust Bank o Sangli Bank takeover by
ICICI Bank o United Western Bank takeover by IDBI
2. Tata group established Tata Financial Services, Tata Capital and Tata Investment
Corporation in the same line of business.
3. Disney acquired Pixar (2006)
4. Facebook acquired Instagram (2012)
5. AstraZeneca acquired ZS Pharma (2015)
6. Mariott acquired Starwood Hotels & Resorts worldwide (Hospitality Industry) (2016)

B. (ii) VERTICAL INTEGRATION

Vertical integration is the combination of business activities at subsequent levels in the
value chain. It is any new activity undertaken by a business, with the purpose of either
supplying inputs (such as raw materials) or serving a customer with outputs (such as
marketing of firm’s product). A firm may vertically integrate into activities related to its
business, either by itself OR by Cooperation Strategies such as mergers and
acquisitions, joint ventures, or strategic alliances.
Basic activities at different levels along the value chain are:
• Raw material supply
• Component supply
• Production

• Distribution
• After sales
Example: Activities at different levels along the value chain in the Textile Industry

TYPES OF VERTICAL INTEGRATION:

 • Backward Integration
Backward integration is when a company expands backward in its respective value chain
into activities preceding the activity it is currently involved in . For eg: a manufacturer of
finished goods getting into the activity of raw material or component manufacturing or
supply. If the company is operating at the spinning stage in the Textile Industry, then
backward integration would be expansion into agriculture/ sericulture, producing cotton and
silk or ginning.
A manufacturing company can either indulge in backward integration by itself venturing
into / establishing a component making unit, or it can enter into that activity by the route of
Mergers, Acquisition, Joint venture or strategic alliance with a firm which is already into
component making. Examples of Backward Integration

1. Apple
a. By itself: Opened Lab in Taiwan for developing LCD & OLED screen
technologies (2015)
b. Through Mergers and Acquisitions: It acquired AuthenTec- Touch ID
fingerprint sensor maker of iPhones (2012)
2. Amazon expanded from an online retailer of books to become a publisher with its
Kindle platform. Amazon also owns warehouses and parts of its distribution channel.

3. IKEA purchased forests in Romania to supply its own timber i.e raw material. (2015)
4. Indian Railways established their own production units like Chittaranjan Locomotive
Works, Diesel Locomotive Works, Integral Coach Factory, Rail Wheel Factory and
Rail Coach Factory
5. ITC resorted to backward integration for its cigarettes business by establishing a
packaging and printing business.
6. Brook Bond Ltd. (which was merged with Hindustan Lever) resorted to backward
integration by acquiring tea plantations.

• Forward Integration
Forward integration is when a company expands into activities which succeed the activity it
is currently involved in, in its respective value chain. For eg: A manufacturer of finished
goods getting into controlling the direct distribution or supply of its products. In textile
industry, a clothing manufacturer who opens his own retail locations to sell product is an
example of forward integration. Forward integration helps companies cut out the
middleman.
For integrating in the forward direction along the value chain activities, a firm may set up
its own unit in the new level of activity, or make use of the route of Cooperation strategies
such as Mergers, Acquisition, Joint ventures or strategic alliances with other firms who are
already in that activity.

Examples of Forward Integration

1. Apple designs and manufactures its products, then sells them through its exclusive
company owned stores “Apple Stores”
 2. Indian Railways established Catering and Tourism Corporation
3. Tea plantations like AVT, Mahavir Plantations, Harrisons Malayalam, etc. started
consumer packing and marketing of tea.
4. Textile firms like Bombay Dyeing, Maftalal and J&K
(Raymonds) resorted to forward integration by entering the readymade garments
business

5. Netflix originally distributed films and television shows created by other content
creators, then expanded into creating original content.
Summarising how backward and forward integration along the value chain works:

Example: Backward and Forward integration along the value chain in the Petroleum
Industry
II. (C) DIVERSIFICATION STRATEGIES
Concept
• Diversification involves a substantial change in business definition - singly or jointly-
in terms of customer functions, customer groups or alternative technologies of one or
more of a firm’s businesses.
• Diversification takes place when new products are made for new markets.
This strategy can also be found in the Ansoff Matrix where both ‘new products’ and
‘new ‘markets converge’.

TYPES OF DIVERSIFICATION

There are two types of diversification:

• Concentric diversification (which is also called as related diversification)
• Conglomerate diversification (which is also called as unrelated diversification)
C. (i) CONCENTRIC OR RELATED DIVERSIFICATION
Meaning: When an organization takes up any activity in such a manner that it is related to
the existing business definition of a firm’s businesses, either in terms of customer groups,
customer functions and/or alternative technologies, it is called concentric diversification.
Example: Indian Farmers Fertiliser Cooperative (IFFCO) operates in different businesses
based on their relatedness to its sole beneficiary-the Indian farmer. The primary business of
IFFCO is the production and distribution of fertilizers. However, its related diversification
strategies have taken it into other businesses such as general insurance, to offer insurance
risk cover to farmers and agricultural commodity trading to enable farmers to gain access to
quality testing and warehousing facilities. The businesses are related in terms of Customer
groupfarmers.

Concentric diversification can be further divided into three types:

• Marketing related concentric diversification: As the name suggests, under this type of
concentric diversification the existing and new businesses share some commonalities
as regards marketing. For example, a company in the sewing machine business
diversifies into kitchenware and household appliances, which are sold through a chain
of retail stores to family consumers. The market relatedness here is in terms of the
common distribution channel for sewing machines, kitchenware and household
appliances, as they are targeted at the same Customer group. One should note that
here the customer function and technology of the new and existing product is
diversified.
• Technology related concentric diversification: Under this, a new type of product or
service is provided with the help of related technology. For example, a leasing firm
offering hire-purchase services to institutional customers also starts consumer
financing for the purchase of durables to individual customers. The technology
relatedness is in terms of the procedure of the financing service to institutional and
individual customers. Customer group and customer functions are diversified here.
 • Marketing and technology-related concentric diversification: Here the existing and
the new businesses are related in terms of both marketing (customer group) and
technology. For example, a synthetic water tank manufacturer starts making other
synthetic items such as pre-fabricated doors and windows for residential and
commercial establishments sold through its hardware suppliers’ network. Here, the
technology used (plastic processing and engineering) in the two businesses are related
and the distribution channels for both are related too as they are targeted on the same
customer group- residential and commercial establishments. The dimension of
customer function is diversified here.

C. (ii) CONGLOMERATE OR UNRELATED DIVERSIFICATION

Meaning: When an organization adopts a strategy, which requires taking up those activities
which are unrelated to the existing business definition of any of its businesses, either in
terms of their respective customer groups, customer functions or alternative technologies, it
is conglomerate diversification.
Offering a new product manufactured through an unfamiliar technology for a new set of
customers involves considerable risk. Hence there has to be a sound rationale for taking the
risk of unrelated diversification.
The rationale for conglomerate diversification: Businesses need surplus cash to diversify.
Hence, conglomerate diversification can only be justified when the surplus cash reinvested
into new ventures can generate more value for the shareholders, otherwise, it is prudent to
return it to them.
Example of conglomerate diversification:

• Aditya Birla Group: It is present in a variety of unrelated businesses such as

aluminium, cement, chemicals, mining, retail, textiles etc.

• ITC Group: It is present in businesses such as FMCG, hotels, processed food etc.

II. (D) COOPERATION / COOPERATIVE STRATEGIES

Starting with the strategy literature, it is seen that the primary existence of the
Companies to operate within the society is for competing with each other.

Most of the strategy experts, especially Michael Porter believed that Companies are
competing with each other to have a limited market share in the society. It is assumed
that on the win of one company there is loss of one or more company competing against
each other.

On the contrary, many other experts believed that the companies can compete with each
other and at the same time cooperate with one another. It is said that there can be
existence of cooperation too along with the competition. Competing with each other
while having a mutual cooperation will make a chance of market expansion. This
strategy can benefit both the companies irrespective of one who wins or lose.

Cooperation can be pursued in various ways which includes the following:

1. Mergers and acquisitions

2. Joint venture
3. Strategic alliances

D. (i) MERGERS AND ACQUISITIONS

MERGERS
A merger refers to an agreement in which two companies join together to form one
company. In other words, a merger is the combination of two companies into a single
legal entity. A merger happens when two firms, often about same size, agree to go
forward as a new single company rather than remain separately owned and operated by
pooling all their resources together, to create a sustainable competitive advantage. For
example, both Daimler-Benz and Chrysler ceased to exist when two firms merged and a
new company Daimler-Chrysler was created. Companies seek mergers to gain access to
a larger market and customer base, reduce competition, and achieve economies of scale.

There are different forms of merger which are distinct from each other as follows:

1) Absorption:
When two or more entities are combined, into an existing company, it is known as
merger through absorption. In this type of merger, only one entity continues to survive
after the merger, while the rest of all cease to exist as they lose their identity. E.g. Tata
Chemicals Limited (TCL) absorbed Tata Fertilizers Limited (TFL).

2) Amalgamation/Consolidation:
Amalgamation occurs, when two or more companies decide to unite to carry on their
business together. In other words, it is a merger of one or more companies with another
in such a way that all assets and liabilities of the amalgamating companies (merging
with each other) become assets and liabilities of the amalgamated company (the
resulting company). Usually after amalgamation, the amalgamated company has a new
name and a separate legal existence which has assets and liabilities of the previous
companies. The previous organisations dissolve their identity to create a new
organisation.

ACQUISITIONS
An acquisition is defined as a corporate transaction where one company purchases a
portion or all of another company’s shares or assets. Acquisitions are typically made in
order to take control of, and build on, the target company’s strengths and capture
synergies.

The acquiring company buys the shares or the assets of the target company, which gives
the acquiring company the power to make decisions concerning the acquired assets
without needing the approval of shareholders from the target company. In an
acquisition, both companies continue to exist as separate legal entities. One of the
companies becomes the parent company of the other.

Takeover or acquisition is a popular strategic alternative adopted by Indian companies.

For more than three decades after Independence, the normal route of growth was
through licensing and setting up new projects. The postliberalisation period has seen an
increasing use of takeover strategies (or simply takeovers) as the means of rapid growth.

TYPES OF TAKEOVERS / ACQUISITIONS:

• Friendly Takeover: A "friendly takeover" is an acquisition which is approved by the
management. Before a bidder makes an offer for another company, it usually first informs
the company's board of directors. In an ideal world, if the board feels that accepting the
offer serves the shareholders better than rejecting it, it recommends the offer be accepted
by the shareholders.
• Hostile Takeover: A "hostile takeover" allows a suitor to take over a target company
whose management is unwilling to agree to a merger or takeover. A takeover is
considered "hostile" if the target company's board rejects the offer, but the bidder
continues to pursue it, or the bidder makes the offer directly after having announced its
firm intention to make an offer.

TYPES OF MERGER
• Horizontal Merger: A horizontal merger occurs between companies operating in the
same industry, or at the same level in the value chain. The merger is typically part of
consolidation between two or more competitors offering the same products or services.
Such mergers are common in industries with fewer firms, and the goal is to create a larger
business with greater market share and economies of scale since competition among
fewer companies tends to be higher. For instance, company manufacturing footwear
combines with another footwear manufacturing company. It results in horizontal
integration of the activities of the merging firms’.
• Vertical Merger: When two companies in subsequent levels in the value chain merge,
the union is referred to as a vertical merger. A vertical merger occurs when two companies
operating at different levels within the same industry's supply chain combine their
operations. Such mergers are done to increase synergies achieved through cost reduction,
which results from merging with one or more supply companies. It results in vertical
integration of the merging firms’ activities. For instance, a footwear company combines
 with a chain of shoe retail store, or a footwear company merging with a leather tannery.
It results in Vertical integration of activities of a company along its value chain.

• Conglomerate Merger: This is a merger between two or more companies engaged in

unrelated business activities. The firms may operate in different industries or in different
geographical regions. Companies with no overlapping factors will only merge if it makes
sense from shareholder’s wealth perspective, that is, if the companies can create synergy,
which includes enhancing value, performance, and cost savings. For instance, footwear
company combines with pharmaceutical company. It results in conglomerate
diversification of the firms’ business.
• Concentric Merger: A concentric merger involves combining of two or more
companies that operate in the same market or sector with overlapping factors, such as
technology, marketing, production processes, and research and development (R&D). The
merging companies are related in one or more of the dimensions of business (Derek
Abel’s 3-dimensional model). When the companies merge, they are able to gain access
to a larger group of consumers and, thus, a larger market share. For eg., a footwear
company merges with another company making socks or another specialty footwear
company. They are related in terms of their customer groups, A lease financing firm
merging with a Consumer financing firm, both are related in terms of procedure of
financing (alt technology), A plastic tank manufacturer merging with a manufacturer of
plastic fabricated doors & windows are related in terms of customer groups (builders /
construction businesses) as well as alternative technology (plastic moulding processing).
Concentric merger results in Concentric diversification of business.

D. (ii) JOINT VENTURE STRATEGY:

A joint venture is a business agreement between two companies who make the active
decision to work together, with a collective aim of achieving a specific set of goals and
increase their respective bottom lines.

Through this arrangement, the companies effectively complement one another’s strengths,
while compensating for one another’s weaknesses. Both companies share in the returns of
the joint venture, while equally absorbing the potential risks involved. Joint ventures are
different from Strategic alliances, as in a Joint Venture a new entity is created for the
purpose. Joint ventures are also different from mergers and acquisitions as they do not
necessarily have to be permanent partnerships. Furthermore, in a JV, both companies
maintain their independence and retain their identities as individual companies, thus
allowing each one to pursue business models outside the partnership mandate.

MAIN REASONS OF FORMING A JOINT VENTURE:

There are five main reasons why companies form Joint ventures:

• Leverage Resources
A joint venture can take advantage of the combined resources of both companies to
achieve the goal of the venture. One company might have a well established
 manufacturing process, while the other company might have superior distribution
channels.
• Cost Savings
By using economies of scale both companies in the JV can leverage their production
at a lower per-unit cost than they would separately. This is particularly appropriate
with technology advances that are costly to implement. Other cost savings as a
result of a JV can include sharing advertising or labor costs.
• Combined Expertise
Two companies or parties forming a joint venture might each have unique
backgrounds, skill sets, and expertise. When combined through a JV, each company
can benefit from the other's expertise and talent within their company.
• Access to new markets:
When two companies enter into a joint venture, they combine their customer
contacts and thus get an access to new markets.
• A strategic move against the competition
When two companies enter into a joint venture, it enables them to better compete
against other industry leaders through the combination of markets, technology, and
innovation. Their collaborated resources, professional expertise and strengths
provides an edge over others and hence increased competitiveness.

• use joint venture partner's customer database to market each other’s product
• offer partner's services and products to existing customers
• join forces in purchasing, research and development
• Another benefit of a joint venture is its flexibility. For example, a joint venture
can have a limited lifespan and only cover part of the actual business, thus limiting
the commitment for both parties and the business' exposure.

FEW PROMINENT JOINT VENTURES:

• Tata Starbucks private ltd

• Sony Ericsson
• Indian oil skytanking ltd
• Mahindra-Renault ltd
• NBC Universal Television Group (Comcast) and Disney ABC Television Group
(The Walt Disney Company).
• Taxi giant UBER and heavy vehicle manufacturer Volvo
• Bharti-Walmart retail joint venture
• Lee cooper and pantaloon retail( india)

D. (iii) STRATEGIC ALLIANCE

A strategic alliance is defined in terms of three necessary and sufficient characteristics:
 • Two or more firms unite to pursue a set of agreed upon goals, but remain independent
subsequent to the formation of the alliance;
• The partner firms share the benefits of the alliance and control over the performance
of assigned tasks- perhaps the most distinctive characteristic of alliances and the one
that makes them so difficult to manage; and
• The partner firms contribute on a continuing basis, in one or more key strategic areas,
for example technology, product and so forth.
Lando Zeppai, Managing Partner of Booz, Allen and Hamilton, defines strategic alliance as
a cooperative arrangement between two or more companies where:
• A common strategy is developed in unison and a win-win attitude is adopted by all
parties.
• The relationship is reciprocal, with each partner prepared to share specific strengths
with each other, thus lending power to the enterprise.
• A pooling of resources, investment and risk occurs for mutual (rather than individual)
gain.
In brief, strategic alliances are ‘cooperation between two or more independent firms
involving shared control and continuing contributions by all partners for mutual benefits.’

WHAT MAKES AN ALLIANCE ‘STRATEGIC’?

Strategic alliances, by definition, cannot be tactical. In order to be strategic, an alliance
must satisfy one of these criteria:

For an alliance to be strategic, it must satisfy one of these criteria:

• It must be critical to the success of a core business goal or objective.
• It must be critical to the development or maintenance of a core competency or other
source of competitive advantage.
• It must enable blocking a competitive threat.
• It must create or maintain strategic choices for the firm.
• It must mitigate a significant risk to the business.

REASONS FOR STRATEGIC ALLIANCES

The primary reason why firms enter into strategic alliances is to enhance their
organizational capabilities and thereby gain competitive or strategic advantage. For this to
happen, they continually strive to gain access to new markets and new supply sources. They
also wish to become more profitable by using the latest technology and making optimum
utilization of resources. When the firms find that it is not feasible to either create resources
internally or to acquire them, they rely on strategic alliances to create a network of
beneficial relationships.

Following are the several reasons why strategic alliances are used:

1. Entering new markets: A company that has a successful product or service may
wish to look for a new market. Doing so on one’s own capabilities may seem to be
difficult. This is especially true in case a company wishes to explore foreign markets.
Here, it is better to enter into a partnership with a local firm which understands the
markets better and is more culturally attuned to them. This is one of the reasons why
multinational corporations have entered into strategic alliances with Indian firms.
2. Reducing manufacturing costs: Strategic alliances are used to pool resources to gain
economies of scale or make better utilization of resources in order to reduce
manufacturing costs. This is especially true of procompetitive alliances where a long
term relationship is generally interindustry, vertical value-chain relationships as
between manufacturers and their suppliers or distributers. General Motors and
Hitachi’s working together to develop an electronic car is representative of
procompetitive alliances.
3. Developing and diffusing technology: Strategic alliances may be used to develop
technological capability by leveraging the technical expertise of two or more firms -
an act which may be difficult to perform if these firms act independently.

JOINT VENTURE vs. STRATEGIC ALLIANCE

Basis Joint Venture Strategic Alliance

Definition Joint venture is defined as the A strategic alliance is an
association of two or more agreement between two or
business entities coming more entities who are working
together to form a separate legal jointly with one another to
entity to carry out continued enhance the businesses of
business operations. each other.

Objective To mitigate the risk To maximize the returns.

Agreement/Contract There exist a contract or The existence of a contract is
agreement before forming a not necessary. So, there may
joint venture. or may not be a contract.
 Separate Entity Legal Yes, there exists a separate No, there does not exist any
legal entity having its own separate entity.
separate identity.
Independent There are no independent Here the independent entities
Organization entities existing once a joint continue to operate and do
venture is formed. Forming a not lose their existence.
joint venture will not affect
their autonomy.

Management A bilateral form of Delegated management

management is there as the exists
association is a form of the
joint venture.

EXAMPLES OF STRATEGIC ALIANCES

1. DELL AND MICROSOFT:

To meet a broader variety of consumer needs and help drive digital changes, Dell
Technologies and Microsoft Corp. entered into a strategic alliance in April 2019. Dell
Technologies would offer a fully native, funded, and certified VMware cloud infrastructure
on Microsoft Azure through this partnership. Microsoft focusses on enabling clients through
collaborations to take advantage of the Microsoft cloud in their digital transformation
process, leveraging the technology they already have. Through the new Dell Technologies
Unified Workspace offerings, customers can further accelerate their Windows 10 digital
transformation journey by leveraging the integration of Microsoft Windows. Such
advantages allow clients to better leverage the potential of technologies such as artificial
intelligence and the Internet of Things.

2. BHARTI AIRTEL AND CISCO:

Bharti Airtel (“Airtel”), India’s leading telecommunications services provider, and Cisco
announced an alliance in April 2019, to offer advanced networking and connectivity
solutions to enterprise and SMB customers in India. This partnership leverages Airtel’s
deep customer relationships and network to offer highly secure and cutting-edge
digitization technology from Cisco in India.
As part of the partnership, Airtel is to offer Managed Software-Defined Wide Area Network
(SD-WAN) services in collaboration with Cisco. Built on the Cisco-Viptela platform,
Airtel’s Managed SD-WAN service would provide realtime analytics and in-built security.

This approach would also include a centralised policy and a management controller that
will provide a clear view of data flows through their networks to customers and allow them
to optimise data traffic to meet their business needs. For all their conferencing and
collaboration needs, Airtel will also offer the CiscoWebex service as a one-stop destination.
Airtel customers will be able to communicate through different audio and video formats and
devices with the Webex platform, enabling them to connect seamlessly with remote offices,
clients, customers, and employees.

3. BAJAJ AND TRIUMPH:

Triumph Motorcycles and Bajaj Auto officially begun their long-term, non-equity alliance
in January 2020. The collaboration would see the two companies cooperate in developing,
engineering, and producing a range of mid-capacity motorcycles with their respective
strengths in large and small capacity motorcycles. Triumph would play a key role in
providing design inputs. Bajaj will contribute its expertise at manufacturing low-cost
motorcycles.
The strategic partnership will benefit both parties with Bajaj becoming one of Triumph's
key distribution partners in crucial new markets for the Triumph brand around the globe.
Bajaj is already India's largest exporter of motorcycles and Triumph may be looking to
make India its export hub with this company. Triumph will help introduce the Indian two-
wheeler maker Bajaj to markets where it has a strong network . The brands will look to sell
their products as valuedriven, low-cost products, even though the positioning will be
premium for Triumph in the new markets. The product is expected to be launched by 2022.
. (A) TURNAROUND STRATEGY

MEANING:
Turnaround Strategy is a retrenchment strategy followed by an organization to

REVERSE a NEGATIVE TREND OR DECLINE in a firm’s business. Turnaround

strategies derive their name from the action involved, i.e., reversing a negative trend and
turning around the organisation to profitability. It’s a technique of bringing failing
companies back to life:

• -Loss-making to Profit making

• -Declining sales to increasing sales
• -Instability to stability • -Weakness to strength

Example: Dell is the best example of a turnaround strategy. In 2006. Dell announced the
cost-cutting measures and to do so; it started selling its products directly, but unfortunately,
it suffered huge losses. Then in 2007, Dell withdrew its direct selling strategy and started
selling its computers through the retail outlets and today it is the second largest computer
retailer in the world.

Retrenchment may be done either internally or externally. For internal retrenchment to take
place, emphasis is laid on improving internal efficiency. This usually takes the form of an
operating turnaround strategy. In contrast, a strategic turnaround is a more serious form of
external retrenchment and leads to divestment or liquidation.
FEATURES OF TURNAROUND STRATEGY:
1. Involves restructuring
Turnaround involves restructuring the sick company. Restructuring means rearranging the
resources of the company for improving its profitability and performance. The restructuring
can be a:

• -Financial restructuring,
• -Technical restructuring,
• -Marketing restructuring,
• -Personnel restructuring, etc.
2. Applicable to a loss-making unit- Turnaround is a strategy of converting a lossmaking or
an uneconomic unit into a profitable one. Therefore it is applicable to a loss-making unit.
It is done (applied or implemented) by making systematic efforts. It is a solution to solve
the problem of industrial sickness.
3.Optimum utilisation of resources- Generally, a sick company doesn't make an optimum
utilisation of its all available resources such as human resources, financial resources,
physical resources, and so on. The turnaround strategy helps to utilise the resources
optimally by helping to restructure and reorganize all available resources of the company. It
tries to channelize resources only for profitable venture and not for non-profitable ones.

4. It aims to have profitable performance- Objective of Turnaround is to reverse the

negative performance of an enterprise. Here a loss-making enterprise is to be converted into
a profit-making one. It is like rebirth of an enterprise.
5. Co-operation of employees is essential: Turn around process covers many aspects of
management. Naturally, support, participation and cooperation of all employees is necessary
for the successful execution of turnaround strategy.
6. Long term strategy: Turnaround is a long term strategy. It needs many years for
completion. It is not possible to convert loss making company into a profit making company
within one or two years. It may require even 10 years to complete the turnaround process.
INDICATORS OF A TURNAROUND / CONDITIONS
FOR TURNAROUND

When should a company think of Turnaround Strategy? When one or many of the below
mentioned conditions are visible in a company, it should think of a Turnaround:

• -Continuous losses
• -Poor management
• -Wrong corporate strategies
• -Persistent negative cash flows
• -Overmanning, high employee turnover and low morale
• -Declining market share
• -deterioration in physical facilities
• -Uncompetitive products and services
An organisation facing more than one of the above problems is referred to as the sick co.
Also, the need for a turnaround strategy arises because of the changes in the external
environment viz, change in the government policies, saturated demand for the product, a
threat from the substitute products, changes in the tastes and preferences of customers, etc.
BUSINESS LEVEL STRATEGY
Business level strategy is concerned with the strategic planning and execution of initiatives
for business units. Business strategy is considered the ‘middle’ level in the overall strategy
hierarchy.

Business strategies are the course of action adopted by an organisation for each of its
business separately to serve identified customer groups and provide value to the customer
by satisfaction of their needs. In the process, the organisation uses its competencies to gain,
sustain and enhance its strategic or competitive advantage.

A business level strategy definition can be summarized as a detailed outline which

incorporates a company’s policies, goals, and actions with the focus being on how to deliver
value to customers, while maintaining an edge over competitors. Thinking in terms of
strategy levels is a useful way of dividing up strategy in a meaningful way, allowing to
distinguish between the various parties and responsibilities involved in both the formulation
and execution of the strategy.

In short, business level strategy describes opportunities to provide value to customers and
gain competitive advantage in individual business areas. This is in contrast to corporate
level strategies which might look at multiple markets and broader concepts that apply to the
entire organization. As a result, organizations with only one distinct business unit will often
combine business strategy with corporate strategy as a single strategy level.
BUSINESS LEVEL STRATEGY- EXAMPLE
 TYPES OF BUSINESS LEVEL STRATEGIES

I. COST LEADERSHIP STRATEGY

Offering a product at a lower price than competitors is the most straightforward way in
which businesses compete for customers. Business units can reduce costs by a number of
means - building better facilities, investing in tooling or reducing the cost of overheads,
minimizing costs of R&D, POS and so forth.

II. DIFFERENTIATION STRATEGY

Rather than focusing on lowering costs and passing those reduced costs onto customers,
differentiation strategies emphasize the development and marketing of products in a manner
which provides greater value to customers. In the laptop market, Apple has invested heavily
in R&D, customer service and marketing, successfully carving a niche which allows Apple
to charge substantially more than other manufacturers without compromising market share.

III. FOCUS STRATEGY

This business level strategy is concerned with identifying a narrow target in terms of
markets and customers. An organisation seeking to adopt this strategy has to locate a niche
in the market wherein it can operate. Focus can be achieved through cost leadership, or
differentiation or by an integration of both approaches.

Module-4

Structure & Content of a Business Plan

A business plan is a formal document that outlines a business's goals, strategies, and action
plans. It serves as a roadmap for the business and helps in securing investments, partnerships,
and growth opportunities. The structure and content of a typical business plan include the
following key sections:
1. Executive Summary
o Purpose: Provides a snapshot of the business plan.
o Content:
 Business concept and objectives
 Mission statement
 Overview of the product/service
 Target market and competitive advantage
 Financial highlights
 Current business position and future goals
2. Business Description
o Purpose: Introduces the business and its context.
o Content:
 Business name, location, and ownership structure
 Nature of business and industry background
 Company history (if applicable)
 Products or services offered
 Long-term vision and strategic goals
3. Market Analysis
o Purpose: Demonstrates understanding of the market and industry trends.
o Content:
 Target market identification and segmentation
 Market size, growth potential, and market trends
 Customer needs and behavior analysis
 Competitive analysis (direct and indirect competitors)
 SWOT analysis (Strengths, Weaknesses, Opportunities, Threats)
4. Organization and Management
o Purpose: Outlines the organizational structure and leadership team.
o Content:
 Organizational structure chart
 Management team profiles (education, experience, and roles)
 Board of directors (if applicable)
 Human resource planning
5. Products or Services
o Purpose: Details the products or services offered by the business.
o Content:
 Product/service descriptions
 Unique selling proposition (USP)
 Lifecycle of the product/service
 Research and development (R&D) activities
 Plans for future product/service development
6. Marketing and Sales Strategy
o Purpose: Explains how the business plans to attract and retain customers.
o Content:
 Marketing strategy (pricing, distribution, promotion)
 Sales tactics and channels
 Advertising and promotional plans
 Customer relationship management (CRM)
 Sales forecasts
7. Operational Plan
o Purpose: Describes the operational processes and infrastructure.
 oContent:
 Production or service delivery processes
 Facility requirements and location strategy
 Equipment and technology needs
 Supply chain management
 Quality control measures
8. Financial Plan
o Purpose: Provides financial projections and funding requirements.
o Content:
 Startup costs and funding requirements
 Projected income statement, balance sheet, and cash flow statement
 Break-even analysis
 Financial assumptions
 Use of funds (for investors)
 Financial ratios and analysis
9. Appendix
o Purpose: Includes supporting documents and additional information.
o Content:
 Resumes of the management team
 Product photos, technical specifications, and diagrams
 Contracts, legal documents, and licenses
 Market research data and surveys
 Reference letters or testimonials

Presenting a Business Plan

Presenting a business plan effectively is crucial for engaging stakeholders and convincing
them of the business's potential. The presentation should be concise, clear, and focused on the
key aspects of the plan.

1. Preparation Before Presentation

o Understand the audience (investors, partners, management).
o Highlight the key aspects that resonate with the audience's interests.
o Prepare visual aids such as PowerPoint slides, charts, and graphs.
o Rehearse to ensure a smooth and professional delivery.
2. Key Elements to Include in the Presentation
o Introduction: Begin with a strong introduction that grabs attention. Introduce
the business, team, and the purpose of the presentation.
o Problem Statement: Clearly articulate the problem your business aims to
solve.
o Business Concept: Describe your solution (product/service) and its value
proposition.
o Market Opportunity: Show the market size, growth potential, and customer
segments.
o Competitive Advantage: Highlight what sets your business apart from
competitors.
o Business Model: Explain how the business will generate revenue.
o Marketing and Sales Strategy: Outline how the product/service will reach
the target customers.
 o Financial Projections: Present key financial metrics, including sales,
profitability, and return on investment.
o Current Status & Milestones: Show what the business has achieved so far
and future goals.
o Investment & Use of Funds: If seeking funding, clearly state how much is
needed and how it will be used.
3. Delivery Techniques
o Keep it simple and avoid jargon.
o Use visuals to reinforce key points.
o Maintain eye contact and engage with the audience.
o Be prepared to answer questions and handle objections confidently.
o Time management: Stick to the allotted time.
4. Finalizing the Presentation
o End with a compelling closing statement.
o Summarize the key points and reiterate the value of the business.
o Include a clear call to action, such as scheduling a follow-up meeting or
making an investment.

A well-structured business plan and an engaging presentation can significantly enhance the
chances of success in securing investment, partnerships, and stakeholder support.

Challenges faced by entrepreneurs: initial stage

• Selecting a service or product

• Financing
• Lack of planning
• Developing a sales strategy
• Effective marketing within a limited budget
• Establishing starting funds
• Maintaining a budget
• Sustaining revenue
• Staffing the organization
• Managing employees
• Threat of competition
• Support from business community

Developing Simple Business Plan

 Steps in business plan

1. Define your vision: It should be clear that what one wants to achieve with its business.
Writing down the vision helps in identifying the mission of the organization. This
would help in aligning all the activities of the business with the intended vision and
mission. This should be the first step in developing the business plan.
2. Setting goals and objectives of the business: clearly define short term goals which one
wishes to achieve in a period of 12 months, midterm goals which they wish to achieve
within a period of 2-3 years and long term goals. Consider all the aspects such as the
revenue which one wishes to generate, number of outlets one wants, number of
customers you need in your database, the target population, age-groups as well as the
amount of profits one wants to generate.
3. Define unique selling proposition: it indicates what is different about the business,
which differentiates it from the competitors in the market. USP will make the business
more attractive to the potential customers. It indicates that ‘how your product/service
different from others in the market?’ it can be anything such giving customized or
personalized services, better sales warranty and support. It means highlighting the
extras that your customers would gain by buying the product/service. It makes the
business stand out from others and that is why it is important to include in the
business plan.
4. Identify sources of funds required to run/start the business.
5. Know your market: it may happen that one has a brilliant idea, but some else has already
started with business on that idea. This is a very common occurrence and should not stop
anyone. Several businesses can provide same products/services, but still survive as the
market place is huge and can sustain more and more businesses. For this, one needs to
have clear idea about its market through research. For instance, one should know how
many competitors are there in the market? what are the services/products do they offer?
What are the current & future trends of the industry? This would help in knowing
business facts such as estimated gross turnover, profit margins, etc., which are important
to be incorporated in business plan for the success of the business.
6. Know your customer: customers are the most important part of any business. In this era,
customers have thousands of options for every product. So, if one wants to be successful,
one should know what your ideal customer wants. Identification of target population is
important and market research would help in understanding the motivation behind
customer’s actions/buying behavior. One can focus on the areas which would grab
customers’ attention. Simply one can put them in their shoes and then think what would
make them chose your products/services each time. Ideas need to be written and
implemented.
7. Research the demand for your business: One needs to find out the demand before
investing in a new business. The basic rule says that demand should be more than supply,
if its’s not there, the business would die out in a short time. Along with primary research,
secondary research can also be conducted to know exact preference and taste of your
potential customers.
8. Set marketing goals: After research, business mission & vision has been framed. The next
step is to set the marketing goals. This includes how the product would look like, what
would be the cost, how will distribution take place and the ways in which promotion will
take place. It is important to set up measurable marketing goals such a number of product
 one intends to sell, product development strategy, price margins, delivery methods and
promotion plan.
9. Define marketing strategy: marketing goals have already been made, next step is to define
marketing strategy. For instance: how many products one need to produce and sell and at
what profit margin so as the get desired revenue? What will be the delivery system and
coverage area? What would be the strategies to promote your business? While designing
marketing strategy, one needs to be very specific. This help one in understanding that
where one is right now and where one needs to reach.
10. Take Action: without action all else is a waste. This is the most important part of the
business plan.

Entrepreneurship: Concept and importance of entrepreneurship, Factors Contributing to

Growth of Entrepreneurship, Entrepreneur, Manager and Intrapreneur- Comparative analysis,
Incentives to Entrepreneurs in India, Social entrepreneurship, Women Entrepreneurs:
Opportunities and Challenges.

Who is an Entrepreneur?
An entrepreneur is an individual who creates a new business, bearing most of the risks
and enjoying most of the rewards. The entrepreneur is commonly seen as an innovator, a
source of new ideas, goods, services, and business/or procedures. Entrepreneurs play a
key role in any economy, using the skills and initiative necessary to anticipate needs and
bring good new ideas to market. Entrepreneurs who prove to be successful in taking on
the risks of a start-up are rewarded with profits, fame, and continued growth
opportunities. Those who fail, suffer losses and become less prevalent in the markets.

How Entrepreneurs Work?

Entrepreneurship is one of the resources economists categorize as integral to production,
the other three being land/natural resources, labor and capital. An entrepreneur combines
the first three of these to manufacture goods or provide services. They typically create a
business plan, hire labor, acquire resources and financing, and provide leadership and
management for the business. Entrepreneurs commonly face many obstacles when building
their companies. The three that many of them cite as the most challenging are as follows:
• Overcoming bureaucracy
• Hiring talent
• Obtaining financing

The Entrepreneur and Financing

Given the riskiness of a new venture, the acquisition of capital funding is particularly
challenging, and many entrepreneurs deal with it via bootstrapping: financing a business
using methods such as using their own money, providing sweat equity to reduce labor costs,
minimizing inventory, and factoring receivables. While some entrepreneurs are lone
players struggling to get small businesses off the ground on a shoestring, others take on
partners armed with greater access to capital and other resources. In these situations, new
 firms may acquire financing from venture capitalists, angel investors, hedge funds,
crowdsourcing, or through more traditional sources such as bank loans.

Entrepreneurs Impact the Economy

In economist-speak, an entrepreneur acts as a coordinating agent in a capitalist economy.
This coordination takes the form of resources being diverted toward new potential profit
opportunities. The entrepreneur moves various resources, both tangible and intangible. In
a market full of uncertainty, it is the entrepreneur who can actually help clear up
uncertainty, as he makes judgments or assumes the risk. To the extent that capitalism is a
dynamic profit-and-loss system, entrepreneurs drive efficient discovery and consistently
reveal knowledge. Established firms face increased competition and challenges from
entrepreneurs, which often spurs them toward research and development efforts as well. In
technical economic terms, the entrepreneur disrupts course toward steady-state
equilibrium.

Entrepreneurs Help Economies:

Nurturing entrepreneurship can have a positive impact on an economy and a society in
several ways. For starters, entrepreneurs create new business. They invent goods and
services, resulting in employment, and often create a ripple effect, resulting in more and
more development. For example, after a few information technology companies began in
India in the 1990s, businesses in associated industries, like call center operations and
hardware providers, began to develop too, offering support services and products.
Entrepreneurs add to the gross national income. Existing businesses may remain confined
to their markets and eventually hit an income ceiling. But new products or technologies
create new markets and new wealth. Increased employment and higher earnings contribute
to a nation’s tax base, enabling greater government spending on public projects.
Entrepreneurs create social change.

They break tradition with unique inventions that reduce dependence on existing methods
and systems, sometimes rendering them obsolete. Smartphones and their apps, for example,
have revolutionized work and play across the globe. Entrepreneurs invest in community
projects and help charities and other non-profit organizations, supporting causes beyond
their own. Bill Gates, for example, has used his considerable wealth for education and
public health initiatives.

Importance of Entrepreneurship:

Entrepreneurs are seen as national assets to be motivated, cultivated, and remunerated to

the greatest degree possible. Entrepreneurs develop innovative ideas that provide
civilization with a large number of products and services which change the way we work
and live. The importance of entrepreneurship can be understood by what it does for society.
 The benefits they offer are by creating job opportunities, improving standards of living,
and contributing to the overall growth of the economy (GDP).

Today, communities across the country are struggling. Workers are worried about their
jobs, and the youth is unsure of their future with little prospects of growth. There are no
clear solutions but entrepreneurs do come as innovators taking the economy and the society
to a state of prosperity and progress.

Importance of Entrepreneurship

Keeping the above in mind, let us take a look at the seven key importance of
entrepreneurship:

1. Entrepreneurs are Innovators

With the rapid growth in technology, many occupations don’t exist anymore. For instance,
remember the elevator attendant or the movie film projectionist?

Entrepreneurs keep a close eye on these changes and take measures to fill the gaps. They
understand the negative impact of technological innovations and the loss of certain
occupations but they also sense newer opportunities that can be derived from this age of
technology.

Consequently, they innovate and create new products.

These new products or services need more employees in the various fields of marketing,
HR, finance, operations, etc. Innovators observe consumer problems and find ways to
address the same. Their innovation is what creates employment.

2. Entrepreneurs create jobs

The importance of entrepreneurship can be understood by the number of jobs that are
created once entrepreneurs launch new businesses. These establishments become the
source of job creation. Entrepreneurs start a business in completely new domains and
sectors. Take, for instance, Byju’s – The Learning App. It provides educational content to
school students in the form of videos and online tutoring.

As of 2019, the organization has around 8,000 employees and none of these existed until
the idea of an online mobile application for providing tutoring and educational classes was
started.

Think about the development of the internet. It has made tremendous progress but it also
came with its own set of troubles like cyber attacks, where criminals are trying to steal
confidential information and rob users. In response to the consumers’ needs, a software
company developed security applications that can defend and protect against attacks on
websites.
 To begin with, the idea was new and distinct but with time, competitors have emerged into
the business creating an entirely new industry of cybersecurity. This has resulted in more
new jobs for trained software developers.

Entrepreneurs significantly contribute to economic growth. The employees at their firms

are seeds planted for growth. These employees earn and spend their income on other
businesses, thereby increasing job opportunities in other businesses. This, in turn, enhances
the overall quality of life for employees and the people with them.

3 . Entrepreneurs improve the standard of living

The journey of entrepreneurship is dynamic. As they see a problem in the lives of the
consumers, they use their creative thinking to identify a solution.

They start a new organization and create employment. When new employees are hired,
they are remunerated, and this income is spent in the local economy. This generates an
incremental wealth for the population and results in raising the standard of living for all
involved.

When a company launches a better product or service, competitors need to match or

withdraw themselves from the industry. Increasing competition forces everyone to improve
their efficiency and become better at their jobs. They don’t have a choice but to be more
productive and live a higher standard of living.

4. Entrepreneurs are Philanthropists e of the most highlighted importance of

entrepreneurship is the nature to give back to the community. As entrepreneurs earn for
themselves and their employees, they get involved in donations and charities. Infosys is a
classic example of philanthropy. Infosys Foundation supports the underprivileged sections
of society in education, destitute care, healthcare, culture, and rural development.
Entrepreneurs donate generously to veterans’ groups, homeless shelters, health
organizations, and libraries. As a result, the entire economy develops and flourishes. This
would not have been possible if entrepreneurs did not start new businesses and did not offer
jobs to employees.

5. Entrepreneurs introduce changes in the community

Entrepreneurship benefits the local community and society. The new company hires
employees who earn an income to spend at local stores. This generates more business for
the store owners. When one business grows, it contributes to the progress of another.

Some business organizations require highly skilled individuals. This creates a demand for
schools, intern programs, and workshops that can provide skill training. The community
responds to the demand by creating training institutes and everyone in the community
advances. The company hires the kind of individuals it requires and the community gets
highly educated and trained individuals.
 Entrepreneurs make arrangements for organizing food drives, building houses, funding
cleanups, and giving to local charities. Some may also contribute to the upliftment of
infrastructure in society. This significantly helps in the growth and development of the
community.

6. Entrepreneurship leads to economic growth

Entrepreneurship is a process that starts with new businesses making money for
civilization. New industries add economic wealth as entrepreneurs invest funds to create
new products and services. Venture capitalists and angel investors also provide more
capital increasing the number of funds that are put into the growth and success of the
organization.

Businesses earn profit and pay taxes; employees pay income tax. The government utilizes
this additional income to stimulate the economy and generate better facilities. It leads to an
overall increase in the country’s gross domestic product (GDP).

7 . Entrepreneurs support other entrepreneurs

Some entrepreneurs move on to also become mentors and consultants. This is because they
have a passion for their business and like to guide aspiring innovators on their path to
success.

Seasoned entrepreneurs can share the common mistakes, the obstacles, the usual
challenges, and the methods to overcome the same. This allows a newbie to save on time,
which would have otherwise been spent on making mistakes out of business immaturity. It
also helps in saving money and other crucial resources. Entrepreneurs can advise on ways
to arrange funds – like obtaining loans for entrepreneurship. They establish local groups
and communities that can interact with each other, brainstorm ideas, discuss the hurdles of
starting a business, hire employees, etc.

Conclusion:

Entrepreneurs do a lot apart from just identifying and introducing innovative solutions to
consumer problems. With their work, the society is benefited in several ways such as
creating employment, increasing spending capacity, purchasing supplies from local
vendors, raising the standard of living, volunteering for charities and donations, and
contributing to the prosperity of other organizations. The importance of entrepreneurship
is vast since they create engines that spearhead the economic growth of a country like India.

FACTORS CONTRIBUTING TO THE GROWTH OF ENTREPRENEURSHIP

• What is Entrepreneurship?
 Entrepreneurship is the ability and readiness to develop, organize and run a business
enterprise, along with any of its uncertainties in order to make a profit. The most prominent
example of entrepreneurship is the starting of new businesses.

In economics, entrepreneurship connected with land, labour, natural resources and capital
can generate a profit. The entrepreneurial vision is defined by discovery and risk-taking
and is an indispensable part of a nation’s capacity to succeed in an ever-changing and more
competitive global marketplace.

• Factors Contributing to the Growth of Entrepreneurship

The post-independence period in India witnessed the growth of entrepreneurship
development. The factors can be broadly divided into two groups:

a. Economic Factors
b. Non-Economic Factors

A. Economic Factors

1. Bank Credit: The banks of providing credit facilities to entrepreneurs. Small

entrepreneurs come under the priority sector. As per RBI directives, banks must
provide funds to the priority Sector (40% of total lending) at low interest rates. The
increase in bank credit to entrepreneurs is due to:
i.Increase and bank deposits.

ii.Decrease in CRR and SLR since 1991.

iii.RBI guidelines on lending to the priority sector.

 2. Competition: The competition in Indian market has been at a greater pace, especially
after 1991. The Government of India has liberalised the Indian economy. FDI has
increased across several industries. In 1991, FDI was increased to 51% in certain high
priority industries. At present, FDI is allowed even up to 100% certain sectors such
as pharma, exports, tourism, etc. The government has also started the process of
dereservation of public sector, which has generated competition between the public
sector and private sector. The dereservation of items from the SSI list has further
increased competition between the large sector and the small sector.
To face competition, there is a need for entrepreneurs to come up with:

i. Innovative or new products.

ii.Innovative techniques or methods.

iii.Innovative schemes to promote products, etc.

3. Increase in Demand: The demand in Indian market (urban as well as rural) has
increased especially in the post reform period. The increase in demand is mainly on account
increased in purchasing power of the people (due to employment).
With the increase in purchasing power, people demand new and better type of
goods and services. This has given scope to the development of innovative products
and services.

4. Economic Infrastructure: In India, the economic infrastructure facilities have

improved, especially in the post reform period. But power sector is still lagging even in
urban areas. The infrastructure facilities that improved considerably include the transport
and the telecom sectors. With the growth of infrastructure facilities, entrepreneurs are at a
better advantage in setting up new units, especially in small towns and cities.
5. Funding by Venture Capitalists: A number of venture capital funds have come up in
India to provide funds to new enterprises. Venture capital providers invest in firms that
have the potential to develop into successful ventures.
The venture capitalists provide three types of funding:

i.Equity capital

ii.Loans

iii.Mezzanine funding (partly equity and partly debt)

In 1988 ICICI Ventures was set up and soon followed by Gujarat Venture Finance
Limited (GVSL). Due to timely infusion of funds by Venture Capitalists,
entrepreneurship gained momentum in India.

6. Government Incentives: The Central and State Governments provide number of

incentives to entrepreneurs, which have given a boost to entrepreneurship development in
India. The incentives include:
i.Incentives for Research & Development.
 ii.Tax holiday for setting up units in backward areas.

iii.Cash subsidy.

iv. Loans at low interest rates.

B. Non-Economic Factors
1. Professionalism in Business: The concept of professionalism in business has entered
in the Indian corporate world. Indian firms, large or small, have realized the importance
of professionalism in business activities. Professionalism implies systematic operation
of business activities - right from the conception stage. The professional firms place
emphasis on market research, research & development, quality control, use of
appropriate technology, training to employees, and so on. The professional attitude is
largely responsible for the entrepreneurship development in India.
2. Personal Factors: The personal factors are also responsible for entrepreneurship
development in India. The younger generation has developed a greater need for
independence. The young entrepreneurs want to do things in their own way as they do
not like to work for someone else. Also, the need for achievement drives young persons
to set up new enterprises.
The willingness to assume risks has also increased, especially in the case of talented
and educated youth of today. Therefore, the three factors - need for independence, need
 for achievement, and willingness to assume risks - have contributed to the development
of entrepreneurship in India.

3. Quality Consciousness of Customers: Over the years, customer expectations have

increased. They expect quality of goods at lower prices. Also, Indian customers have
shown growing preference for new and better type of goods. Young entrepreneurs are
coming up with innovative products to satisfy customer requirements. Therefore,
entrepreneurship in India has got a boost.
4. Reduction in Bureaucratic Formalities: In the post-reform period, there has been a
reduction of bureaucratic formalities. Reduction in bureaucratic formalities has
motivated young entrepreneurs to venture in business field.
For instance, the Government has abolished licensing for most of the industries.
Therefore, the businessmen can concentrate on productive activities like market
research, R & D, training to employees, etc. They need not waste their time, effort, and
money, on procuring licenses.

5. Social Support for New Ventures: There has been increasing social support for new
ventures from family members, relatives and friends. Setting up a good business
venture is supported by family members and others. The support is both emotional and
economical. For instance, in urban areas, the concept of double income families is on
the increase. One member may work for a fixed income or salary and the other member
may operate a business venture. Even if the venture does not perform well, the family
may not be badly affected on financial grounds because of the fixed income earned by
one member of the family.
6. Socio-Cultural Factors: The socio-cultural factors have undergone a change in India.
The Indian society has become socially and culturally more advanced, more so if the
post reform period.
The society gives importance to entrepreneurs, and therefore, entrepreneurs enjoy a
special status in the society. As a result of growing importance for entrepreneurs, young
talents with innovative ideas are entering into the field of entrepreneurship.

7. Training Facilities: Nowadays, entrepreneurs are sharpening their knowledge and

skills due to the training support provided by various training institutes.
Entrepreneurship Development Programmes (EDPs) are designed by various institutes
such as:
i.Small Industries Development Organisation (SIDO)

ii.Entrepreneurship Development Institute of India (EDII)

iii.National Small Industries Corporation (NSIC) iv.National Institute for

Entrepreneurship and Small Business Development (NIESBUD) v.District
Industrial Centres (DICs).
C. Government Policies
1.Make in India Policy: Make in India is a new national policy designed to transform
India into a global manufacturing hub. It contains a raft of proposals designed to urge
companies – local and foreign – to invest in India and make the country a manufacturing
power house. The focus of make in India policy is on creating jobs and skill enhancement
in 25 sectors. It includes major new initiatives designed to facilitate investment, foster
innovation, project intellectual property, and build best – in – class manufacturing
infrastructure.

Since more and more brand will come and start with manufacturing and services in India.
This will not only boost employment but also create a competition between our new brand
and foreign brand. This competition will ensure that our home brand will improve their
market against foreign brand. Not just this youth will come up to take benefit of this
situation. And the one with best business adaption will succeed.

2. Startup India Scheme: Startup India is an initiative of the Government of India. The
campaign was first announced by Indian Prime Minister, Narendra Modi during his speech
in 15 August 2015 address from the Red Fort, in New Delhi. Startup India is a flagship
initiative of the Government of India, intended to catalyze startup culture and build a strong
and inclusive ecosystem for innovation and entrepreneurship in India. Since the launch of
the initiative on 16th January, 2016, Startup India has rolled out several programs with the
objective of supporting entrepreneurs, and transforming India into a country of job creators
instead of job seekers. The broad scope of Startup India’s programs is outlined in the Action
Plan below, and is managed by a dedicated Startup India Team, which reports to the
Department for Industrial Policy and Promotion (DPIIT).
3. ASPIRE: The government has made continuous efforts to improve the social and
economic aspects life in rural areas of India. Since 56% of the Indian population lives in
the rural areas, the government is promoting entrepreneurship and innovation in this sector.
The ASPIRE scheme aims at increasing employment, reducing poverty, and improving
innovation in rural India. However, the main idea is to promote the agro-business Industry.
The Ministry of Medium and Small Enterprises has tried to get economic development at
the grassroots level. The total budget plan is of Rs. 62.5 crores for the years 2014-2016.
4. MUDRA Bank: Micro Units Development Refinance Agency (MUDRA) Bank has
been created to enhance credit facility and boost the growth of small business in rural areas.
The government has introduced this scheme to support small business in India. In 2015,
the government allocated 10,000 crores to promote startup culture in the country. The
MUDRA banks provides startup loans for Rs. 10 lakhs to small enterprises, business which
are non-corporate, and non-farm small/micro enterprises. It comes under Pradhan Mantri
Mudra Yojana (PMMY) which was launched on 8 April 2015. The loans have been
categorized into Tarun, Kishore, and Shishu. The assets are created through the bank’s
finance and there is no collateral security.
 5. Atal Innovation Mission: In the budget of 2015, the government established the Atal
Innovation Mission (AIM) with the name coming from the Former Prime Minister of India,
Atal Bihari Vajpayee. The Atal Innovation Mission was established to provide a
promotional platform which will involve academicians and draw upon national and
international experiences to foster a culture of innovation, research, and development. The
government allocated AIM about Rs. 150 crores in the year 2015.
6. eBiz Portal: This is the first electronic government-to-business(G2B) portal. The main
purpose of the portal is to transform and develop a conducive business environment in the
country. The eBiz portal was developed by Infosys in a public-private partnership model.
It is a communication center for investors and the business communities in India. The portal
has launched 29 services in 5 states of India, viz., Andhra Pradesh, Delhi, Haryana,
Maharashtra, and Tamil Nadu. The government will add more services to the scheme in
the future.
7. And many other such policies which contributes to the growth of entrepreneurship
are:
i. Dairy Processing and Infrastructure Development Fund (DIDF)
ii. Ministry Of Skill Development and Entrepreneurship
iii. Support for International Patent Protection in Electronics & Information Technology
(SIP-EIT)
iv. Multiplier Grants Scheme (MGS)
v. Credit Guarantee Scheme for Startups (CGSS)
vi. Software Technology Park (STP) Scheme
vii. The Venture Capital Assistance Scheme (VCA)
viii. Loan For Rooftop Solar Pv Power Projects
ix. NewGen Innovation and Entrepreneurship Development Centre (NewGen IEDC)
x. Single Point Registration Scheme
 xi. Modified Special Incentive Package Scheme (M-SIPS)
Women Entrepreneurship

Women entrepreneurship has emerged as a matter of concern in the recent years. It lays stress
on utilizing women’s leadership skills, decisiveness, and innovative ideas for economic and
social development. Over the past years, there has been a rise in recognition and acceptance
of women in leadership positions in the corporate sector. Leading conglomerates are
appointing female CEOs; today, there are more women running Fortune 500 businesses than
at any time in the past. As per data, there are more than 9 million firms in the USA which are
owned by women, employing around 8 million people, and generating around $1.5 trillion in
sales.
However, in spite of all these developments, there are only a few companies where we can see
women in top positions. Moreover, recent data suggest that there is huge gender pay gap in
organizations, and female entrepreneurs are citing imaginary male co-founders for credibility
and recognition. These examples suggest that gender inequality is still a big problem in
businesses.
Women are accepting entrepreneurship and are successfully leading businesses, facing and
overcoming various challenges. They are properly utilizing various opportunities and prospects
for accomplishing their own and their organization’s goals and objectives.
Opportunities and Advantages for Women in Entrepreneurship

1.Diverse and Innovative Workforce

Diversity – in gender, culture, age, and race – promotes innovation and creativity. Top
companies across the world aim to prioritize and benefit from a diverse and innovative
workforce. Men and women from different backgrounds bring in varied experiences with them,
which shape their approach to business. Challenging and collaborating with each other helps
them in performing creatively and taking the company forward.

2.Strength in Soft Skills and Emotional Intelligence is an Advantage for Women

Technical skills and knowledge are essential for success. But soft skills and emotional
intelligence are equally important. Emotional intelligence in leadership means self-awareness,
empathy, and the ability to listen. Although these characteristics are difficult to measure, they
can make a major difference. Women can utilize their experiences and soft skill aptitude with
emotional intelligence for properly leading their companies.

3.Ability to Create a Woman-friendly Corporate Environment

The corporate culture of many companies can work against women. But when a woman leads
her own company, she has the ability to establish an environment suitable for other women
working in the company. Being an entrepreneur, a woman can live a more authentic life and
can create a corporate culture more suitable to her own values.
Challenges for Women in Entrepreneurship
1.Socio-cultural challenge
In India, women have to perform the multiple responsibilities towards family and society
irrespective of her career as working woman or an entrepreneur. These complicated
responsibilities become the impediment in the progress of women and handicap them in the
world of work.

2.Marketing challenge

Women is lacking in sales and marketing skills that proves to be a graveyard of many small-
scale women entrepreneurs. It has been found that the small-scale entrepreneurs, owing to their
high achievement of market orientation, generally set higher goals in terms of marketing of
their products/ services but later on find them difficult to achieve because of stiff competition,
incurring huge advertisement cost and many other extraneous factors.

3.Challenge in Occupational Mobility

The challenge of shifting their product line from one line to another is the area where women
entrepreneurs are very weak to establish as a winner and thereby occupational Mobility proves
to be the weakness for women entrepreneurs.

4.Challenge in Government Assistance

The women entrepreneurs were infuriated by the indifferent attitude of government officials
of all the small industry related departments like taxation, labour, power, etc. i.e., when the
authorities come to know that the unit is being run by a woman, they discourage allotting sales
tax number and giving electricity connection. Above all they have ignorance about various
procedures, laws, and complicated bureaucratic set-up while dealing with entrepreneurial
support organizations.
5.Production challenge

The women entrepreneur has lack of management potential and therefore she is not able to
control the overall activities production in a manufacturing enterprise. The improper
coordination or unintended delay in execution of any activity is going to cause production
problems in the industry leads to closure of venture.

6.HR related challenges

The success of any business is based upon the efficient management of people in an
organization. Most of the women entrepreneurs are lacking in management and are also unable
to change the negative attitude of labour force. Moreover, the women entrepreneurs admitted
the lack of experience and self-confidence on their part to deal with personnel working in their
organizations.
7.Administrative and Regulatory Challenges

The issues related to administrative and regulatory has been often found among the women
entrepreneurs. Micro enterprises of all types can experience problems in meeting
administrative and regulatory requirements, because of the disproportionate effect of
compliance costs on small companies compared with large firms. As a consequence, it is not
surprising that almost half the support organizations specializing in support for female
entrepreneurs identified a problem for their clients in this respect. At the same time, with a few
exceptions, administrative and regulatory barriers more significant for female owned
businesses than for male owned firms of a similar size.
8.Challenge of Management Skills or Training

Women entrepreneurs lacked management skills to a greater extent than small businesses in
general, perhaps because of their lower propensity to have had previous business experience
Although difficulties in accessing business advice or support appears to be a minor rather than
major problem for women entrepreneurs, a significant minority of specialist organizations felt
than women are particularly disadvantaged in this respect. Difficulties with language caused
problems for their clients or members, with five feeling that women faced specific difficulties
in this respect.

9.Male dominancy challenge

India is known for its male dominance in the field of entrepreneurship. A woman is dominated
by men in her family as well as in business. Often, she has to obtain permission from men for
almost everything. They are not treated as equals. Her freedom is restricted. She always has to
consult and get approval of men.

10.Low risk bearing ability

Indian women found her dependent right from the childhood. Before marriage parents take
decisions for her and after marriage her husband takes over. She is protected throughout and
thus possesses low risk bearing ability.

11.Limited mobility

Due to primary household responsibilities towards her family, her time gets divided between
the two worlds. She has restricted timings for work due to which, she is not in a position to
travel frequently and be away for longer periods. Thus, her mobility is restricted. This also has
an implication on business.

12.Lack of confidence

In India women always remains dependent on family for every decision and thereby becomes
unable bring self-confidence. Due to this reason, even at home, family members do not have
much faith in women possessing the abilities of decision-making. Apart from the above
hurdles, various policies and efforts h
13.Gender Discrimination at Workplace
Most of the industries are male dominated. It is more of a challenge when a woman comes in
as a leader, and gives men directions. While most corporates believe in gender equality, and
agree that the best person, irrespective of gender, should get the job, there have been many
instances where a woman having a gender-neutral name gets the job. This proves that
unconscious organizational gender bias does exist. Women, right from a young age are
instructed not to be ‘bossy’, whereas, men are encouraged to be assertive and aggressive.
14.Difficulty in Acquiring Funds

Those start-ups who look for investors to help them start their business know how difficult the
pitching process can be. It can be even more difficult in case of women-owned firms. Many
investors are sceptic about investing on women-led companies because they may think that
women can’t be successful as entrepreneurs. They may feel that women entrepreneurs won’t
be able to lead their company towards success, as a result of which they may incur losses. This
may lead the investors to hesitate in financially supporting women entrepreneurs.
15.Building a Viable Support Network

Another major hurdle and challenge for women entrepreneurs is the lack of efficient advisors
and mentors. As per data, around 48% of female founders say that a lack of able advisors and
mentors limits their professional growth. The majority of the high-level business world is still
male dominated and it is very difficult for women entrepreneurs to create their own path and
facilitate the introductions and connections into some of the top-notch business networks.

Examples of women entrepreneurs: -

RUPA RANI

Confederation of women Entrepreneurs, as the name suggests is an

NGO/social organization engaged within the social and economic upliftment of women
through entrepreneurship. COWE slogan "Gearing women power" stands for the democratic
structure of COWE and stands for "Of the women, for the women, and by the women”. She
has organized many workshops for women in Pulakeshinagar, Sumangali Seva Ashram,
Hebbal, and surrounding areas of RT Nagar. She has also helmed workshops in IT sectors for
companies like GE, Wipro, ANZ Bank, Accenture, etc. She has also participated in
international events and trade fairs in countries like Singapore, Malaysia, Sri Lanka, Poland,
Bangkok, and Egypt. COWE has also opened chapters in Andhra Pradesh, Delhi, Jharkhand,
Tamil Nadu, Uttar Pradesh, Uttarakhand, and West Bengal and is hoping to open more chapters
across India. And now the Karnataka chapter is taking a delegation of girls’ entrepreneurs to
Hong Kong to explore international trends and markets during the style Week. The idea is to
seem for ideas to sustain businesses in India and to seem for innovative products.

Life before: Meanwhile, through organizations like AWAKE and COWE, she travelled with
a lot of delegations and took part in conferences. At COWE's Karnataka chapter, institutions
train women in image consultancy, fashion technology, decorating candles, apparel designing,
chocolate making, and more. Many women from the IT sectors are quitting their jobs and
taking over entrepreneurship because they don’t want to slog for somebody else.
The struggles faced...In her quest to empower women, she has realized that she may try her
best to show the way forward but only a few women try to take the knowledge about the
schemes forward. Now, she is taking these women entrepreneurs to Hong Kong during a
delegation to point out them the planet of opportunities that exist out there. “I attempt to show
them that this is often a golden opportunity for them to seek out new business avenues. Skills
are required in the field of entrepreneurship one should have passion, knowledge about what
they are doing, and the ability to invest”, she says. COWE conduct counselling sessions for
ladies to understand their interests and make them ready for the longer term.

Vandana Luthra

Often women need to face tons of restrictions before and after marriage due to judgmental
societies. But we cannot blame every society because there are tons of societies who have
changed their own old thinking and started respecting women. Here is a woman entrepreneur’s
journey from a young mother to an entrepreneur. Her name is Vandana Luthra who isn't just
an excellent mother or a wife but also a far better entrepreneur. Vandana Luthra is an Indian
inspirational entrepreneur who is the founder of VLCC Health care Ltd. The company sells
beauty products and is a wellness conglomerate. The company is dispensing in the Middle
East, Africa, Asia, and Europe. In 2014 she became chairperson of the Beauty and wellness
sector skills council that is not a profitable organization, the B&WSSC gets financial support
from NSDC which comes under the Ministry of Skill Development and Entrepreneurship.

Early life: Vandana Luthra was born in New Delhi in 1959. Her father was an engineer, and
her mother was an ayurvedic doctor who was running a charitable initiative - Amar Jyoti. This
motivated her to impact people's lives, and hence, after completing her graduation from the
Polytechnic for ladies in New Delhi she visited Europe to realize expertise in beauty, food and
nutrition and skin care.

Challenges faced: VLCC is a renowned brand

with international presence in over 11 countries
having Indian roots and a female founder
Vandana Luthra. She started this within the
times when women were not allowed to travel
out of the house, including something of a
professional capacity, that too, a start-up which
was an idea which was a decade ahead of its

time. Vandana Luthra started this in 1989, a time when people didn’t even care about fitness
or food including nutrition or appearances. Despite the support offered by her husband
Vandana wanted to try to to make it on her own and took a little loan from a bank, thanks to
the unique concept she succeeded in getting people flocking to his company after facing some
initial hiccups. In male-dominated times, she faced a lot of criticism and other people who tried
to bring her down, but it had been her strength to face by her belief within the idea that was
unique, unusual to mention the smallest amount and was never introduced in India before.
Inspiration to form other people’s lives better came to Vandana from her parents, she was an
eyewitness in her childhood of her folks inviting neighbourhood kids to observe TV when they
bought their first one, and it was a rarity to have at that time. Furthermore, her mother ran a
trust named Amar Jyoti which was amongst the primary ones within the field of education and
educated kids from nursery to class VIIth, those with disabilities were also empowered.

Benefits of Business Loans for Women

Business loans help women entrepreneurs streamline business operations, production
processes, eliminate cash-flow disruptions and expand to new markets. It also empowers Indian
women to challenge social norms and become economically independent. And with economic
independence comes social value and financial growth.

Financial growth also tends to attract investors and partnerships for a business enterprise,
thereby enabling a future full of exciting opportunities. This infuses confidence to interact with
fellow business owners and work with big clients.

With the right kind of financial help women can:

• Put their plans into action by grabbing opportunities that come their way
• Be their own boss by retaining control of their enterprise and keeping the valuable
assets protected
 • Reduce cash-flow risks by bringing order to the working capital fund
• Build credibility and goodwill for business

Key attributes required to be an entrepreneur:

1. Creativity and Innovation

 Entrepreneurs need to think outside the box and generate new ideas to solve problems
or meet market needs.

 Innovation allows them to differentiate their products/services and build competitive

advantages.

2. Risk-Taking Ability

 Entrepreneurship involves uncertainty and risks, such as financial losses or market

failure.

 A successful entrepreneur must be comfortable with taking calculated risks and

managing uncertainties.

3. Vision and Goal Orientation

 Entrepreneurs should have a clear vision of what they want to achieve and set
measurable goals.

 This vision helps them stay focused and guide their business in the right direction.

4. Leadership and Decision-Making Skills

 Entrepreneurs need strong leadership to inspire and manage teams effectively.

 They should be capable of making timely and sound decisions, often under pressure.

5. Adaptability and Resilience

 The business environment is dynamic, requiring entrepreneurs to adapt quickly to

changing market conditions.

 Resilience helps them bounce back from failures and setbacks.

6. Self-Motivation and Initiative

 Entrepreneurs must be self-driven and proactive in taking initiatives without waiting

for others to push them.

 Passion for their work often keeps them motivated during challenging times.

7. Financial Literacy
  Basic knowledge of finance is crucial for managing cash flow, budgeting, and raising
capital.

 Entrepreneurs must understand profitability and how to allocate resources efficiently.

8. Networking and Relationship Building

 Building professional relationships with investors, customers, and partners is essential

for growth.

 Strong networking skills open doors to opportunities, resources, and collaborations.

9. Customer-Centric Approach

 Entrepreneurs need to understand customer needs, preferences, and pain points.

 A customer-focused approach ensures that the product or service adds value, leading
to long-term success.

10. Time Management and Organizational Skills

 Entrepreneurs juggle multiple roles and tasks; effective time management is critical to
meet deadlines.

 They should also be organized in planning, delegating, and prioritizing tasks

efficiently.

Impact of entrepreneurial firms on the economy and society:

Impact on the Economy

1. Job Creation and Employment Generation

 Entrepreneurial firms, especially startups and SMEs (small and medium enterprises),
are major contributors to employment.

 New businesses open opportunities for skilled and unskilled workers, reducing
unemployment rates.

2. Innovation and Technological Advancements

 Entrepreneurs introduce new products, services, and business models, often

leveraging disruptive technologies.

 This innovation drives productivity, improves efficiency, and enhances the overall
competitiveness of the economy.

3. Boost to Economic Growth and GDP

  Entrepreneurial ventures contribute to national income by generating revenue and
paying taxes.

 They stimulate economic growth by increasing consumption, investment, and exports.

4. Development of New Markets and Industries

 Entrepreneurs identify unmet needs and develop new markets, creating industries that
previously didn’t exist.

 Sectors like fintech, e-commerce, and renewable energy have emerged due to
entrepreneurial initiatives.

5. Attracting Foreign Investment

 Innovative entrepreneurial firms often attract venture capital and foreign direct
investment (FDI).

 Startups participating in global markets bring international capital and expertise,

fostering economic globalization.

6. Regional and Rural Development

 Entrepreneurs often set up ventures in rural or underdeveloped areas, promoting

regional growth.

 They help decentralize economic activities, reducing urban-rural income disparities.

Impact on Society

1. Improved Standard of Living

 Entrepreneurs create products and services that enhance quality of life (e.g.,
healthtech, education platforms).

 Increased employment opportunities allow more individuals to achieve financial

independence.

2. Addressing Social Issues through Social Entrepreneurship

 Some entrepreneurs establish social enterprises that focus on societal challenges, such
as poverty, education, and environmental sustainability.

 They create sustainable solutions for problems that governments or large corporations
may overlook.

3. Empowerment and Inclusivity

  Entrepreneurial firms promote gender equality and youth empowerment by offering
employment and leadership opportunities to marginalized groups.

 Programs encouraging women and minority entrepreneurship foster inclusive

economic growth.

4. Promotion of Sustainable Development

 Entrepreneurs often prioritize sustainability, contributing to green technologies and

eco-friendly business practices.

 Many firms are actively working on solutions for climate change, renewable energy,
and waste reduction.

5. Encouragement of Creativity and Risk-Taking Culture

 Entrepreneurial ventures promote a culture of innovation, encouraging individuals to

think creatively and take risks.

 This mindset can inspire future generations to become problem-solvers and change-
makers.

6. Philanthropy and Corporate Social Responsibility (CSR)

 Successful entrepreneurs often engage in philanthropy, supporting social causes

through donations or CSR activities.

 Entrepreneurial firms contribute to local communities by funding education,

healthcare, and infrastructure.

Reasons why an entrepreneur might need funding:

1. Startup Costs

 Initial Setup Expenses: Entrepreneurs need capital to cover legal registration,

permits, office space, technology, and equipment.

 Product Development: Designing, developing prototypes, or building minimum

viable products (MVPs) can be costly.

 Market Research: Entrepreneurs need funds to conduct feasibility studies, customer

surveys, or pilot projects to validate their ideas.

2. Working Capital Needs

 Daily Operations: Funds are required to manage day-to-day activities, such as paying
salaries, rent, and utility bills.
  Inventory Management: For businesses dealing with physical products, maintaining
adequate stock levels requires significant working capital.

 Cash Flow Management: Temporary cash shortages due to delays in receivables or

seasonal fluctuations may require funding to maintain operations.

3. Marketing and Promotion

 Product Launch Campaigns: Entrepreneurs need capital to promote their products

or services and attract customers.

 Brand Building: Developing brand recognition through advertisements, social media

marketing, and public relations efforts requires investment.

 Customer Acquisition: Many startups offer introductory discounts or free trials to

attract early customers, which involves upfront expenses.

4. Scaling and Expansion

 Geographic Expansion: Opening new locations or entering new markets requires

investment in infrastructure, distribution channels, and marketing.

 Scaling Operations: Increasing production capacity, hiring more employees, or

upgrading technology demands significant capital.

 International Markets: Expanding to foreign markets involves additional costs such

as compliance with regulations, logistics, and market entry strategies.

5. Technology and Infrastructure Investment

 Adoption of New Technologies: Entrepreneurs may need to invest in the latest

technologies, software, or equipment to improve efficiency.

 Building IT Infrastructure: Developing or enhancing websites, apps, or e-commerce

platforms requires funding for development and maintenance.

6. Research and Development (R&D)

 Innovation and Product Improvement: Entrepreneurs often require funds for

continuous product development and innovation to remain competitive.

 Testing and Quality Assurance: R&D ensures that products or services meet market
standards and customer expectations.

7. Talent Acquisition and Employee Retention

 Hiring Skilled Employees: Attracting talented professionals often involves

competitive salaries and perks.
  Employee Benefits: Providing benefits, such as health insurance and retirement
plans, requires financial resources.

 Training and Development: Entrepreneurs invest in training programs to enhance

employee skills and productivity.

8. Meeting Regulatory and Legal Requirements

 Compliance Costs: Entrepreneurs may need to comply with local, national, or

international regulations, which can be expensive.

 Legal Assistance: Legal support for contracts, intellectual property (IP) protection, or
dispute resolution also requires funding.

9. Debt Repayment and Financial Management

 Repaying Loans: Entrepreneurs may need funds to manage their debt obligations and
maintain a healthy credit score.

 Managing Risks: Adequate funding helps entrepreneurs create a financial buffer for
unforeseen events or emergencies.

10. Exit Strategy and Investor Returns

 Initial Public Offerings (IPO): Preparing for an IPO or other exit strategies involves
significant costs.

 Investor Buybacks or Payouts: Entrepreneurs might need funding to offer returns to

early investors or partners.

Sources available to entrepreneurs for personal financing:

1. Personal Savings

 Savings from Employment or Investments: Many entrepreneurs use their savings as

initial capital for business startup costs.

 Retirement Funds: In some cases, entrepreneurs withdraw from retirement savings

(such as 401(k) accounts) to finance their ventures.

2. Family and Friends

 Informal Loans or Gifts: Close family members or friends may provide financial
support with flexible repayment terms.

 Equity Investment: Some may offer funds in exchange for a share in the business.

3. Credit Cards
  Personal Credit Cards: Entrepreneurs can use their credit limits to cover short-term
business expenses.

 Business Credit Cards: Some entrepreneurs apply for credit cards linked to their
business accounts.

4. Home Equity Loans or Lines of Credit (HELOC)

 Entrepreneurs can borrow against the value of their home through a home equity loan
or line of credit.

 The house acts as collateral, and the loan amount depends on the equity available.

5. Sale of Personal Assets

 Entrepreneurs can raise funds by selling valuable assets, such as real estate, vehicles,
jewelry, or shares in other businesses.

6. P2P (Peer-to-Peer) Lending Platforms

 Entrepreneurs can access loans from individuals through online platforms, which
connect borrowers and lenders directly.

 These loans are often unsecured but come with interest.

7. Income from Side Hustles or Freelancing

 Entrepreneurs may take on temporary jobs, freelance gigs, or consulting work to

generate income for their venture.

8. Loans Against Insurance Policies

 Entrepreneurs can borrow against the cash value of a life insurance policy if they have
whole or universal life insurance.

9. Angel Investment from Personal Networks

 Some entrepreneurs raise funds from high-net-worth individuals in their network who
act as angel investors.

 Angels provide personal capital in exchange for equity or convertible debt.

 Entrepreneurs may have to give up some control.

Equity financing involves raising capital by selling ownership shares in the business. Unlike
debt financing, there is no repayment obligation, but investors receive a stake in the company
and share its profits or losses.

Below are the various sources of equity financing:

1. Angel Investors

 Who they are: High-net-worth individuals who invest personal funds in startups in
exchange for equity or convertible debt.

 When to use: Ideal for early-stage startups that require seed funding.

 Benefits:

o Access to industry expertise and networks.

o Flexible terms compared to venture capitalists.

Example: An entrepreneur receives $100,000 from an angel investor to build a product

prototype.

2. Venture Capital (VC)

 Who they are: Professional investment firms that provide capital to startups and
high-growth companies in exchange for equity.

 When to use: Suitable for businesses with high growth potential and scalability.

 Benefits:

o Access to large funding amounts.

o Strategic support and mentorship from experienced investors.

Example: A tech startup raises $5 million from a VC firm to scale operations.

3. Private Equity (PE)

 Who they are: Investment firms that acquire stakes in mature businesses needing
restructuring, expansion, or turnaround strategies.

 When to use: Suitable for established companies looking for growth capital or
strategic reorganization.

 Benefits:

o Expertise in business restructuring and growth strategies.

o Access to significant capital.

Example: A family-owned business sells a portion of its equity to a PE firm to expand its
market reach.

4. Initial Public Offering (IPO)

 What it is: The process of offering shares of a company to the public on a stock
exchange for the first time.
  When to use: Suitable for established companies that want to raise large capital while
gaining public visibility.

 Benefits:

o Access to significant capital.

o Enhances company reputation and market value.

Example: A growing technology company goes public, raising $100 million through an IPO.

5. Crowdfunding Platforms

 What it is: Raising small amounts of capital from a large number of individuals via
online platforms (like Kickstarter, Indiegogo, or SeedInvest).

 When to use: Suitable for startups and creative projects with consumer appeal.

 Types of Crowdfunding:

o Equity crowdfunding: Investors receive shares in the company.

o Reward-based crowdfunding: Backers receive perks but no equity.

Example: A fashion startup raises $50,000 through equity crowdfunding by offering shares
to individual investors.

Major sources of debt financing for businesses, along with their characteristics:

1. Bank Loans

 What it is: A traditional form of financing where banks lend money to businesses
with an obligation to repay the principal along with interest.

 Types of Loans:

o Term Loans: Repaid over a fixed period with regular installments.

o Working Capital Loans: Short-term loans for day-to-day operations.

Advantages:

 Predictable repayment schedule.

 Lower interest rates compared to other debt options.

Disadvantages:

 Requires collateral and a good credit score.

  Lengthy approval process.

2. Trade Credit

 What it is: An arrangement where suppliers allow businesses to purchase goods and
services on credit, with payment deferred to a later date (e.g., 30 or 60 days).

 How it works: No interest is charged if payment is made within the agreed time, but
penalties may apply for late payment.

Advantages:

 Improves cash flow and liquidity.

 No immediate cash outflow required.

Disadvantages:

 Late payments may lead to penalties or strained relationships with suppliers.

 Limited to short-term financing.

3. Bonds and Debentures

 What it is: A company raises funds by issuing bonds or debentures to investors,

promising to repay the amount with interest at a future date.

 When to use: Suitable for businesses with large capital requirements.

 Types:

o Secured Bonds: Backed by specific assets.

o Unsecured Debentures: Not backed by assets, higher risk for investors.

Advantages:

 Access to large sums of money.

 Interest payments are tax-deductible.

Disadvantages:

 Fixed interest payments regardless of business performance.

 May affect creditworthiness if not managed well.

Types of business plans :

1. Startup Business Plan

  What it is: A detailed plan focused on launching a new business, covering the
business idea, target market, financial projections, and funding needs.

 When to use: Suitable for startups seeking investment or loans to begin operations.

 Example: A tech entrepreneur creates a business plan to launch a food delivery app,
including details about the target market, app features, and revenue model.

2. Operational Business Plan

 What it is: A detailed document that focuses on internal operations, processes, and
goals for running the business efficiently.

 When to use: Used by existing businesses to guide day-to-day operations or improve

internal processes.

 Example: A retail clothing store develops an operational plan outlining inventory

management, staffing schedules, and daily sales targets.

3. Strategic Business Plan

 What it is: A long-term plan that outlines the business's vision, mission, strategic
goals, and the actions required to achieve them over several years.

 When to use: Ideal for businesses aiming to grow, diversify, or enter new markets.

 Example: A renewable energy company drafts a 5-year strategic plan to expand

operations to international markets, reduce costs, and adopt new technologies.

4. Feasibility Plan

 What it is: A plan that assesses whether a business idea or project is viable by
analyzing factors such as market demand, financial requirements, and risks.

 When to use: Used before launching a new venture to determine if it’s worth
pursuing.

 Example: A company preparing to introduce a new line of organic skincare products

creates a feasibility plan to analyze market trends, costs, and competition.

5. Growth or Expansion Plan

 What it is: A plan that focuses on scaling the business by expanding into new
markets, adding new products, or increasing capacity.

 When to use: Useful for businesses looking to grow or attract additional investment
for expansion.