SOLVED ASSIGNMENT 1 CODE 463 SPRING 2016
Spring 2016 Course: Fundamental of Business Level: BA/ B.Com Code: 463 is now available for you. This solved assignment is for spring 2016 for bachelor level students, especially for B.com students of Allama Iqbal Open University Islamabad.
Q I: Every business starts with an idea usually developed by its founder. This founder of a business needs certain skills and insights for running a successful business. Can you explain certain personal and professional skills that a person must possess for starting a business in Pakistan? (20)
ANSWER: Skill Required for Starting a Business Starting a business is an important step in an entrepreneur’s life. Before opening that first business, you need to hone a few skills that are essential to getting your business off the ground. Some business skills can he taught in a classroom, but in the end all of your applicable business procedures will be perfected with real-world experience
Being able to effectively managing your finances is a critical. You will need to be able to forecast your cash flow and sales, as well as, monitor your profit and loss. You will also need to declare your income to the Australian Tax Office. Having sound financial management skills will help you to run your business profitably and protect your financial investment.
Marketing, sales and customer service:-
It is important to be able to promote your products or services effectively. Providing good customer service and having a marketing strategy in place will help you to generate sales.
Communication and negotiation:-
You will need to communicate and negotiate with your suppliers, potential investors, customers and employees. Having effective written and verbal communication skills will help you to build good working relationships. Every communication should reflect the image you are trying to project.
If you employ people leadership will be a key skill. You must be able to motivate your staff in order to get the best out of them and improve productivity. Allocate time to mentor and coach your employees.
Project management and planning:-
Starting a business means you will have to manage a range of projects, such as setting up a website, arranging the fit-out of your premises and developing a range of policies and procedures. Knowing how to effectively manage your resources, including time, money and staff will help you to achieve your goals.
Delegation and time management:-
Failure to delegate is a trap many business owners fall in to usually because they are reluctant to let go of control. Managing your time effectively may mean delegating responsibility to someone else in the business or outsourcing. Identifying who you can delegate tasks to allows you to concentrate on those tasks that generate revenue.
However much you plan, you will encounter problems in your business. This means you need to he able to make good decisions, sometimes under pressure.
Building good relationships through networking will help you to grow your business and give you the support you’ll need.
From .our early childhood, we followed leaders from our parents to inspirational figures that provided a structure in our life and a sense of belonging. The best run businesses are not only marketing led but have strong leaders at the helm who know what’s required to attain set goals. They will motivate their team to perform well to meet the overall company objectives. These leaders will not procrastinate in their decision making and will lead the company forward in the right direction. Some people are born leaders and know exactly what’s required to run a successful business but most of us are not. Therefore, training programmes have been developed to improve leadership skills to lead strategy, lead teams of people, lead change management programmes and adjust and manage the company politics that organizational change may disrupt.
Strategic Business Planning Skills:-
Every business follows a plan even if it’s not written down in a document. But developing and implementing strategic change is a skill all business owners need. Undertaking a strategic audit and writing a business plan is the first step in this discipline. Thinking strategically in your outlook is a rare skill amongst business owners and managers as most people are focused on the daily operations and dealing with customer issues to be able to sit back and think about the future. And before they know it another year has passed and little real progress has been made. Applying strategy in your business will help you step clear longer term goals that will meet longer-term objectives (rather than just survival or a I% increase in profits).
Perhaps at the heart of every successful business is a real marketing person who actually understands that customers pay the bills and grow the business. Completely and utterly running your business for your customers’ needs is where successful businesses come from. Anyone can run a business during boom times, but it’s those businesses that thrive during a recession are the ones that clearly understand what their customers want and provide products and services exactly matching those needs. Marketing is a key skill to have and buy delivering what people want to buy is an obvious requirement for running a business but not many people truly understand how to market a business correctly. Marketing led organizations always buck the trend and tend to produce more revenues and profits than their competitors. There are many excellent introduction to marketing books that arc worth a read or training courses run by the Institute of Marketing.
Sales and Customer Relationships:-
Selling is almost an art form, and everyone has probably sold something in their lives already. Whether you have an interview for a job (where you have to sell yourself), or you’ve sold a house in the past, you may already have the basic skills required. The skills required in sales are really to understand the selling process; from initial contact to completing the sale. It’s worth having a look at successful websites to see how the selling process works. Many sites fail because they simply don’t “ask for the order”. Good sales people rarely leave a meeting without an order or at least a commitment to continue negotiations. Just dropping a few leaflets off at a prospect client without any follow-up activity will not get you that sale. The sales process has six basic steps as follows:
• Prospecting for new leads.
• Initial contact with the prospect.
• Presentation of sales materials.
• Objection handling.
• Closing the sale.
• Follow up/ after sales service. As mentioned above, the objection handling and closing the sale are probably the most important areas to perfect. These are the most difficult areas to overcome for those people without a sales background.
Communicating effectively with others is a skill that successful business owners possess whether it be with their staff, directors or customers. Most people write on a daily basis even if it’s a short email, but the written word can often he misinterpreted because there is reduce emphasis on phrases that the spoken word has. Using the right words in the right context is key but perhaps writing is the last resort because speaking directly to people has a better positive response.
You can find great examples of written communications in advertising messages and magazine headlines. If this is new to you, it’s best to employ a good copywriter rather than try and do this in-house. Many people believe they are great copywriters, but this is rarely the case. Using the right words can boost response rates by 2 or 3 times and copy skills are critical for an improved call to action response.
Whether you’re in a meeting or meet someone at a networking event, how you present yourself dictates how the other person acts upon what you’re saying. You’ll need to not only be confident but show you have knowledge of your subject matter. Not everyone needs real public speaking skills, but remember that if you need to present to a wider audience they want to learn from you. It’s unlikely you’ll get banter from those listening to you or heckled and if you know your subject matter why should you?
There are plenty of courses to develop your communication skills but just immersing yourself with other people on a daily basis will improve your confidence.
People Management and HR:-
If you have or are thinking of hiring staff, you’ll need to be able to set them goals, motivate them to perform to your standards and also follow all the associated employment laws and regulations.
People management is part of the leadership skills set and staff need to be aware of where the company is heading, their role within the company and their personal key objectives.
Finance and Accounting Skills:-
Perhaps the biggest headache in running a business is being able to manage your cash flow. Cash is the lifeblood of any business and profitable businesses fail and go bust if they run out of cash and can’t pay their suppliers or their employees. Supplies soon dry up and they have nothing to sell and the employees leave and find alternative employment.
You should also be aware of some of the details in your business such as the selling price of each product, the cost of each product and, therefore, the margin. If you believe cash is running dry, then you should speak with your bank or accountant in an attempt to get some help before it’s too late.
Taking time away from the business to plan ahead – even if it’s only a couple of weeks -is critical so you don’t get any nasty surprises along the way.
You should also be aware of some of the details in your business such as the selling price of each product, the cost of each product and therefore the margin. If you believe cash is running dry then you should speak with your bank or accountant in an attempt to get some help before it’s too late.
Getting some basic grounding in accounting skills is another essential for running a successful business.
Though there are many business skills that a successful entrepreneur should have, the following five skills are the ones that you absolutely need to make your business successful:-
1. Sales:- This one is a no-brainer–of course you are going to need sales skills in order to run your business! After all, marketing can drive customers in to your business, but sales are going to be what keeps them coming back and keeps putting money into your pocket. It is no wonder why most entrepreneurs actually come from a sales background!
2. Planning:- Taking one bad step can make or break your business, especially when it is still in the early stages of development. Entrepreneurs that are successful with their ventures make a plan and stick to it, thinking out every risk, benefit, and cost of an option available to them. They also make their plans realistic and factor in things such as time and budget in order to make their plans a reality.
3. Communication:- Communication is an underlying skill for many others in business (sales included). Communication is how you will be able to cultivate loyal employees, charm customers into coming back time and time again, and court investors and other sources for increasing revenue for your business. This skill can also come in handy when dealing with vendors or any other necessary business services that may apply to your venture–being friendly in business-to-business relationships is a sure-lire way to be treated a little bit better, therefore making at least one aspect of your job a little bit easier.
4. Customer Focus Successful entrepreneurs keep a narrow focus–on the customer that is paying their bills. They do not forget that everything that they do is for the customer, since the customer is the one that is allowing them to do anything in the first place. A good business owner will always have time for a customer, whether they have a complaint or praise. Having good customer focus will mean that you sec every customer as an opportunity to do better and grow, versus an annoyance or a difficulty.
5. Curiosity The best business skill has always been a healthy curiosity. This will lead you to look into what your competitors are doing, and it will also allow you to utilize new technologies to the best of your ability to streamline your business and even reach out to new customers. When the only limit you have is what you can imagine and apply, just about anything is possible.
Q 2:- The most preferable way of doing business in this globalized world is to form a company. In this regard, what are the different types of companies? Also discuss the advantages of forming a company as compared to establish a partnership firm. (20)
ANSWER: TYPES OF COMPANIES
Three types of companies may be established under the law relating to companies:-
(a) Company Limited by shares: In which the liability of its members is limited to the extent of the amount of their shared. It majority of companies in Pakistan belongs to this class. These types of companies are generally referred to as limited companies.
(b) Company Limited by guarantee: Company limited by guarantee is one in which each member gives a guarantee to contribute a specified sum to the company in the event of its being wound up. Companies in this class are usually associations not for profit making, such as clubs, chambers of commerce etc.
(c) Unlimited company: Unlimited company is one in which the liability of a shareholder is unlimited as in an ordinary partnership. If the partners of a firm do not want partnership and the partners of a firm do not want to establish a company limited by shares and the member of its partners are going to increase to the maximum limit of 10 or 20, they can form an unlimited company. It is just like partnership, the only difference being, that it is established as a company.
Advantages of Forming a Company:-
Whilst many businesses prefer to trade as a sole trader or a partnership, nearly all significant businesses operate as an incorporated company. The main advantages of incorporation via a limited company are summarized below:
Easy to Start:- It’s very easy to start a limited company and it can also be done online. You can start a limited company in just a few hours. What’s more, the cost of incorporating is an allowable expense against corporation tax.
Separate Legal Identity:- A limited company has a legal existence separate from management and its members (the shareholders)
Members’ liability is limited (“limited liability”):- The protection given by limited liability is perhaps the most important advantage of incorporation. The members’ only liability is for the amount unpaid on their shares. Since most private companies issue shares as “fully paid”, if things go wrong, a members’ only loss is the value of the shares and any loans made to the company. Personal assets are not put at risk. The protection of limited liability does not, however, apply to fraud. Company directors have a legal duty not to incur liabilities in their companies which they have reason to believe the company may not be able to pay. If creditors lose money through director fraud, the directors’ personal liability is without limit.
Potential credibility and prestige:- The formation of a private limited company can suggest that the business has permanence and is committed to effective and responsible management. It gives both suppliers and customers a sense of confidence and many companies, particularly larger businesses, will not deal with an entity that’s not a limited company. Incorporating a business can therefore open up new business opportunities that wouldn’t otherwise be available.
Protection of Company Name:- The choice of company names is restricted and, providing a chosen name complies with the rules, no-one else can use it. The only protection for sole traders and partnerships is trademark legislation.
Continuity:- Once .formed, a company has everlasting life. Directors, management and employees act as agent of the company. If they leave, retire, die – the company remains in existence. A company can only be terminated by winding up, liquidation or other order of the courts or Registrar of Companies.
New Shareholders and Investors can be easily introduced:- The issue, transfer or sale of shares is a relatively straightforward process – although existing shareholders arc protected via their “preemption” rights and by company legislation that seeks to protect the interests of minority investors. The process of lending to a company is also easier than with other business forms. The lending bank may be able to secure its loan against certain assets of the business (a “floating charge”) or against the business as a whole (“fixed charge”.
Better Pension Schemes:- Approved company pension schemes usually provide better benefits than those paid under contracts to self-employed sole trading businesses.
Taxation:- Sole traders and partnerships pay income tax. Companies pay Corporation tax on their taxable profits. There is a wider range of allowances and tax-deductible costs that can be offset against a company’s profits. In addition, the current level of Corporation Tax is lower than income tax rates.
Exit from the business:- Registering a business as a limited company can aid the possibility of selling it in the future, which can be difficult to achieve with other business structures. The original owner may be able to achieve a completely clean break and receive some financial benefit to help fund their future lifestyle or the start of another business! Entrepreneurs’ relief against capital gains tax may also be available on the sale of the business.
Personal Preference:- Lastly, the decision on whether or not to incorporate a company can simply come down to personal preference. If you are familiar and comfortable with running a company then incorporating a new company will seem entirely natural and probably is a preferred course of action.
Disadvantages of Partnership:-
Disagreements one of the most obvious disadvantages of partnership is the danger of disagreements between the partners. Obviously people are likely to have different ideas on how the business should be run, who should be doing what and what the best interests of the business are. This can lead to disagreements and disputes which might not only harm the business, but also the relationship of those involved. This is why it is always advisable to draft a deed of partnership during the formation period to ensure that everyone is aware of what procedures will be in place in case of disagreement and what will happen if the partnership is dissolved.
Agreement:- Because the partnership is jointly run, it is necessary that all the partners agree with things that are being done. This • means that in some circumstances there are less freedoms with regards to the management of the business. Especially compared to some traders. However, there is still more flexibility than with limited companies where the directors must bow to the will of the members (shareholders).
Liability: Ordinary Partnerships are subject to unlimited liability, which means that each of the partners shares the liability and financial risks of the business. Which can be off putting for some people. This can be countered by the formation of a limited liability partnership, which benefits from the advantages of limited liability granted to limited companies, while still taking advantage of the flexibility of the partnership model. fr Taxation: One of the major disadvantages of partnership, taxation laws mean that partners must pay tax in the same way as sole traders, each submitting a self-assessment tax return each year. They are also required to register as self-employed with UM Revenue & Customs. The current laws mean that if the partnership (and the partners) bring in more than a certain level, then they are subject to greater levels of personal taxation than they would be in a limited company. This means that in most cases setting up a limited company would be more beneficial as the taxation laws are more favourable. -fr. Risk: There is a risk of disagreements and friction among partners and management fr Transferability: Absent an agreement to the contrary, the default rule in partnerships is that one person’s stake cannot be transferred to another without prior consent lions all of the remaining partners. This inflexibility is especially undesirable when the parties have existing disagreements. Instability: On similar lines, by default, a partnership is dissolved as soon as one of the members dies, retires, resigns, files for bankruptcy, or otherwise quits. This can mean a sudden and unexpected end to a profitable business. A corporation, on the other hand, requires many more steps to be undertaken in order to end its existence, which makes its existence much more predictable. Unclear Authority: Another drawback of informal partnerships is the potential vagueness of each person’s responsibilities, both to those in the partnership, and to those outside of the arrangement. A traditional partnership is an equal stake with equal authority distributed between the members. There is no hierarchy of authority. To third parties, this means that all partners act on behalf of the partnership, can enter into contracts, and by the same token, bind the partnership into unwanted agreements. Un-continuity: There is no continuity of existence. Partnership is dissolved if one of the partners die or resigns or becomes bankrupt.
Q 3: A business cannot flourish without paying adequate attention to the political and economic factors in a country. What guidance you will provide to a business for establishing business in Pakistan with regard to the local economic and political factors. (20)
ANSWER: The Components of Environmental Analysis There are many strategic analysis tools that a firm can use, but some are more common. The most used detailed analysis of the environment is the PESTLE analysis. This is a bird’s eye view of the business conduct. Managers and strategy builders use this analysis to find where their market currently. It also helps foresee where the organization will be in the future. PESTLE analysis consists of various factors that affect the business environment. Each letter in the acronym signifies a set of factors. These factors can affect every industry directly or indirectly. The letters in PESTLE, also called PESTEL, denote the following things:-
• Political factors
• Economic factors
• Social factors
• Technological factors
• Legal factors
• Environmental factor
The Political Environment
The political environment is a key component of the business environment that dictates greatly on the success of your home business. What happens in the politics of your country as well as that of other countries influences a lot your home business. Usually, the term political environment is used to refer to the nature of the political situation in the country where you are doing business or where you intend to do business. How aware are you of the political aspects that affect your home business? The businesses have to pay attention to those political aspects that have an effect on your business, it’s therefore important for you to understand the political environment in which you are operating because it can present political risks to your business. For instance, your business is subject to political risks if a war erupts in any country where you do business. Likewise, changes in government policies may either affect you positively or negatively. The prevailing political environment in any country directly affects the economic environment or performance.
Businesses need to keep aware of the political climate in which these operate. Political changes affect greatly small business owners and it’s quite important for them to know whether the changes in the politics and government policies are supportive or unfavorable to their businesses. This awareness enables to run business from an informed point of view so that businesses are not subjected to political risks. There are many external environmental factors that can affect your business. It is common for managers to assess each of these factors closely. The aim is always to take better decisions for the firm’s progress. Some common factors are political, economic, social and technological (known as PEST analysis). Companies also study environmental, legal, ethical and demographical factors. The political factors affecting business are often given a lot of importance. Several aspects of government policy can affect business. All firms must follow the law. Managers must find how upcoming legislations can affect their activities. The political environment can impact business organizations in many ways. It could add a risk factor and lead to a major loss. You should understand that the political factors have the power to change results. It can also affect government policies at local to federal level. Companies should be ready to deal with the local and international outcomes of politics. Changes in the government policy make up the political factors. The change can be economic, legal or social. It could also be a mix of these factors. Increase or decrease in tax could be an example of a political clement. Your government might increase taxes for some companies and lower it for others. The decision will have a direct effect on your businesses. So, you must always stay up-to-date with such political factors. Government interventions like shifts in interest rate can have an effect on the demand patterns of company.
What aspects of the political environment should be considered while doing a business?
1. Stability of Government:- It’s important to know how stable the national government is and how stable it’s likely to be in future depending on prevailing political circumstances. Political instability makes it very difficult to do business. An abrupt change in a political regime may make businessmen lose their property and hard earned money. If you are operating business in such a country, the risk of losing business is high.
2. International Relations:- flow does your government relate with other governments? Does your home government maintain good relations with other foreign governments? For instance, for people who run online home businesses, there are countries where it’s pretty difficult for one to set up an online payment system just because services provided by, say, PayPal or Click bank are not available in those countries. This makes it difficult to sell your products or services online. A good political environment makes it possible to establish good relations with other foreign governments, which in turn creates directly or indirectly an attractive environment for new investors.
3. Government Bureaucracy:- The political environment in which you do business may be slow to facilitate opening or conducting businesses in the country. Long processes may be required for investors or entrepreneurs, whereby they are subjected to fill in so many forms that actually discourage some of the potential entrepreneurs.
It is essential to always follow closely the political environment in which you operate so that you can know what to do to guard yourself against any eventualities that may result from any changes in the politics of the countries where you do business. Political changes can also create great opportunities for you as a business person and such chances can come your way if you keep yourself knowledgeable about the political climate in which you do business.
4. Governmental Environment:- Government actions affect the operations of a company or business. These actions may be on local, regional, national or international level. Business owners and managers pay close attention to the political environment to gauge how government actions will affect their company. In the present business environment governments have the power to change and make laws, having a major role and influence on the business environment. There are three levels of government: federal, state and local. The federal government has power over such areas as; company law, income tax, trade etc. State government has power over pollution, price controls, state courts etc. and local government has power over rates, building approvals and zoning. Through zoning the local government can decide where businesses are located, or how many similar businesses should be built in a particular area. The power of the government can have direct or indirect influences on the business environment, encouraging or forcing businesses to comply. The federal government has the greatest effect over the macroeconomic business environment through the making of policies. The government has a number of economic objectives. They aim to have consistent economic growth, low rates of inflation, a sound international trading situation and low unemployment. To meet these objectives the government must place policies such as fiscal, monetary, trade and income policies. Fiscal policy is the deliberate action of the government to change its levels of income and expenditure, through the annual budget. By budgeting for a deficit or surplus, the government will contract or expand the economy. e.g. If the government needed to cut unemployment they would budget for a deficit so more money is injected and less money is taken from the economy by less taxes and higher expenditure raising employment. Monetary policy can also raise the level of economic activity. It controls the availability of money by influencing the level of interest rates. Lowering interest rates encourages people to spend and borrow while higher interest rates encourage people to save and not borrow.
Economic factors involve all the determinants of the economy and its state. These are factors that can conclude the direction in which the economy might move. So, businesses analyze this factor based on the environment. It helps to set up strategies in line with changes. Access to Credit One factor to consider is access to finance or credit. While enough owners’ equity is an important source of capital, credit is often a more viable source of funds for expansion and further investment. Different studies and surveys show that access to credit is one of the biggest problems faced by small and medium businesses. Because many startup businesses do not have substantial fixed assets, they cannot afford to take out loans due to lack of collateral. To assure access to credit, businesses should maintain sound finance and invest in assets that can be collateralized. Low interest rates, low cost and ease of obtaining credit, and availability of credit institutions are some of the favorable conditions for startups in terms of access to finance.
Access to Resources:-
Fledgling businesses should also take into account availability of resources. The term “resources” covers a wide range of materials necessary for a business’s operation. Fuel, raw materials and technology are all examples of resources. Ideally, these inputs should be easily obtainable at an affordable price. Business owners should anticipate and prepare for potential supply disruptions before entering a particular region. Businesses operating in Florida, for example, should take into account the frequency of hurricanes and how that may impact supply chains. Companies doing business in Russia should consider the potential impact of sanctions or political instability. Resource availability can fluctuate depending on environmental, political and economic circumstances.
Demand for Product and Services:-
Demand for products and services naturally plays a role in business owners’ calculations. Demand is largely determined by the needs and preferences of consumers in specific markets. For example, an entrepreneur doing business in a university town should consider what appeals to students. Students love affordable housing, public transportation and alcohol. A business that addresses these needs stands a good chance of succeeding. On the other hand, a fancy French restaurant or luxury hotel may struggle in a student community. Demand is also affected by broader phenomena. These phenomena include evolving consumer preferences, inflation, changes in household income and changes in interest rates, among other factors. The sudden onset of inflation, for example, may constrain purchasing power. Changes in consumer preference may reduce demand for particular products and services while increasing demand for others. Entrepreneurs should always keep an eye out for changes in demand that could affect the bottom line.
Economic Conditions Abroad:-
Entrepreneurs must also consider economic conditions abroad, regardless of whether or not they have business interests abroad. Those who export their products should watch out for sudden downturns in demand in target destinations. This may occur during wars, economic crises or the emergence of more appealing alternative products. Those who import resources and inputs should keep an eye out for developments that could obstruct their supply chain. In addition to the aforementioned factors, natural disasters, fluctuations in shipping costs, or changes in international trade regulations could trigger such developments.
Even those who cater solely to domestic consumers may be affected by economic factors abroad. Fluctuations in oil prices, for example, tend to significantly impact a wide range of industries. The rise and fall of fuel prices impacts the cost of transportation which in turn influences various supply chain-associated expenses. The factors discussed in this article affect both startups and well-established businesses. Young businesses, however are particularly vulnerable to circumstances beyond their control. Many budding businesses can fail even if their executives are business savvy and market high quality products. It is essential that entrepreneurs recognize the importance of both internal and external business catalysts and develop strategy accordingly.
Some determinants you can assess to know how economic factors are affecting your business below:
• The inflation rate
• The interest rate
• Disposable income of buyers
• Credit accessibility
• Unemployment rates
• The monetary or fiscal policies
• The foreign exchange rate
The social environment of a business can be integral to its success or failure. Employees are often influenced by the context in which they work and this can have implications for productivity. Some effects of the social environment arc easier to measure than others. Employers who take the necessary strides to create a positive and harmonious social environment in the workplace can set themselves up for future success.
One way in which the social environment affects the workplace is in the way that it either inspires or discourages employee cooperation. In businesses with a positive social environment where employees get along and arc generally positive in their relationship to one another, cooperation and teamwork are more likely to exist than in a negative social environment. Negative social environments will generally foster dissent and strife among workers and destroy the ability or willingness of employees to work together.
The social environment of the workplace can also have an effect on an employee’s job satisfaction. In businesses where employees experience a positive social environment, they are more likely to have a greater sense of job satisfaction and enjoyment. In a job environment where negativity is the norm and employees are constantly in conflict with one another, workers are more likely to dread work and not have a positive assessment of their employer.
Customers:- The social environment of a business can also have an impact on the type and number of customers it attracts. In a business environment where employees are generally positive, upbeat and cooperative, customers are more likely to appreciate the atmosphere they experience when interacting with employees. Customers who experience a negative social environment may he more likely to avoid a business altogether, especially if the business has a competitor that is conveniently located near the customer. Customers choose which business to patronize based on various factors, and the social environment can be the deciding factor for some.
Leadership:- A positive and nurturing social environment for workers is one that can engender positive change within the workplace. It can also lead to the creation of leaders within the business itself. Businesses that constantly emphasize positive reinforcement, self-improvement and education of employees are likely to cultivate leaders from within the organization. Some may go on to pursue positions of leadership within the company or industry, while others may simply assume a lesser leadership role within their current occupation.
Technological factors:- Technology is advancing continuously. The advancement is greatly influencing businesses. Performing environmental analysis on these factors will help you stay up to date with the changes. Technology alters every minute. This is why companies must stay connected all the time. Firms should integrate when needed. Technological factors will help you know how the consumers react to various trends. Firms can use these factors for their benefit:
• New discoveries
• Rate of technological obsolescence
• Rate of technological advances
• Innovative technological platforms
Legal factors:- Legislative changes take place from time to time. Many of these changes affect the business environment. If a regulatory body sets up a regulation for industries, for example, that law would impact industries and business in that economy. So, businesses should also analyze the legal developments in respective environments. I have mentioned some legal factors you need to be aware of:
• Product regulations
• Employment regulations
• Competitive regulations
• Patent infringements
• Health and safety regulations
Environmental factors:- The location influences business trades. Changes in climatic changes can affect the trade. The consumer reactions to particular offering can also be an issue. This most often affects agri-businesses. Some environmental factors you can study are:
• Geographical location
• The climate and weather
• Waste disposal laws
• Energy consumption regulation
• People’s attitude towards the environment.
There are many external factors other than the ones mentioned above. None of these factors are independent. They rely on each other.
If you are wondering how you can conduct environmental analysis, here are 5 simple steps you could follow:
1. Understand all the environmental factors before moving to the next step.
2. Collect all the relevant information.
3. Identify the opportunities for your organization.
4. Recognize the threats your company laces.
5. The final step is to take action.
It is true that industry factors have an impact on the company performance. Environmental analysis is essential to determine what role certain factors play in your business. PEST or PESTLE analysis allows businesses to take a look at the external factors. Many organizations use these tools to project the growth of their company effectively.
The analyses provide a good look at factors like revenue, profitability, and corporate success. If you want to take the right decisions for your firm, employ environmental analysis. The analysis you should conduct depends on the nature of your company.
Q 4: Suppose your manager gives you target of increasing sales revenues by 10″/0 in this year. To achieve this target, the customers in market need to be persuaded for buying the products of the business. What different types of marketing strategies you can adopt to convince your customers. Elaborate in detail. (20)
ANSWER: Marketing Strategies An organization’s strategy combines all of its marketing goals into one comprehensive plan. A good marketing strategy should he drawn from market research and locus on the product mix in order to achieve the maximum profit and sustain the business. Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should he centered around the key concept that customer Strategy formulation is the process of determining appropriate courses of action for achieving organizational objectives and thereby accomplishing organizational purpose. Strategic formulation is a combination of three main processes which are as follows:-
❖ Performing a situation analysis, sell-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental.
Concurrent with this assessment, objectives are set. These objectives should be parallel to a time-line; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society) overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.
These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.
Requirements and Tools:- The strategy you formulate should reflect environmental analysis, lead to fulfillment of your organizational vision, and result in reaching organizational objectives. Special tools you can use to assist you in formulating strategies include critical question analysis, SWOT analysis, business portfolio analysis, Porter’s model for industry analysis, and resource-based model. These five strategy development tools are related but distinct. You should use the tool or combination of tools that is most appropriate for your organization and business environment.
Formulating Effective Marketing Strategies
Talent and skill is important in the world of business. So is knowledge.
These are the things that power the entrepreneur. However, you have to realize that these are not enough in order to achieve success. These things are important, but without direction, these are practically useless. You need a plan in order to succeed in business. You need effective marketing strategies in order to put these factors into good use. You need effective marketing strategies in order to give these factors the direction they need to help you achieve success. Formulating effective marketing strategies will help you conserve your resources and make efficient use of them. So what are the elements of effective marketing strategies?
1) Clear goal:- You need to know exactly what you want to achieve. In planning a clear goal, you will also be planning a clear way to achieve it. In order to get from point A to point B you need to have a clear idea where point B is. You need to concentrate your resources on achieving your goals the easiest way possible. By setting goals, you will be paving the way towards achieving that goal.
2) Resources:- As said before, you need to make efficient use of whatever resources you have. This means making sure that those resources are used to their maximum potential. You need to make sure that nothing gets wasted in the achievement of your goal. Every dollar spent and every effort made must have a purpose. Every resource spent must bring you one step closer to your desired goal. You must always keep in mind that resources are limited. You need to try and use those resources in the best way possible. Your resources are your strengths. You should use your strengths in order to break down all barriers in front of you. Once you gain sight of your goal, you should make sure that your strength is directed towards that goal.
3) Negatives: Anticipating threats and taking account of weaknesses is a natural part of effective marketing strategies. When you take your positives into account, you should also think about the negatives. You need to make sure that you have an accurate sight of your situation. Overconfidence and pride is the most oft downfall of entrepreneurs. You need to think of the various events that could upset your journey to success. Considering the negatives will help you strengthen yourself and will help you adapt your strategy accordingly.
4) Methods: You need to know how to get from point A to point B. You need to sec what methods you can use to carry you to the throne of success. You need to make sure that every method at your disposal is used. Remember, however, that might is not always right. Make sure that your means do not have to be justified by the ends. Intent is the best judge of what is ethical and what is not. Do not sight of yourself when you are eyeing your goal. An important part of effective marketing strategies is never forgetting your integrity. These are just some of the elements of effective marketing strategic You need to realize, however, that the most important part lies within you. What, for you, makes an effective marketing strategy? It is this individuality that acts as the key to formulating a strategy.
The Basic Functions of Marketing Manager
The main focus of a marketing managers or officers is on the practical application plus management of an organization’s marketing operations. In small companies, the marketing manager is in control of the organization’s entire marketing activities, and thus handles formulating, directing and coordinating activities so as to sway customers to prefer the organization’s products over those of the competitors.
Marketing managers or officers are focused mainly on the practical application and management of an organization’s marketing operations. For marketing managers to be efficient and effective in performing their functions, they should have excellent communication and analytical skills. In small organizations, the marketing manager is in charge of the organization’s entire marketing activities and therefore handles formulating, directing and coordinating marketing activities so as to influence customers to choose the organization’s products over those of competitors.
Conducting Market Research:- Marketing managers carry out market research to gain a clear understanding of what an organization’s customers really want. Marketing research enables these managers to identify new market opportunities, helping the organization create a market niche for its products or services. Market research also involves studying the organization’s competitors so as to develop superior products and employ efficient marketing techniques. Companies conduct market research using questionnaires, face-to-lbce interviews or analyzing the buying habits of consumers.
Developing the Marketing Strategy:- Marketing managers are responsible for developing marketing strategics for their organizations. These strategics outline clearly how an organization will promote its products and services to its target market with an aim of increasing its sales volumes and maintaining a competitive edge over its competitors.
Customer Relationship Management:- The marketing manager performs the function of championing customer relationship management in the organization. The marketing manager collects this information from the organization’s customer database to help create a customer satisfaction survey. Marketing managers then share this information with other employees to ensure they offer excellent customer service to their clients in order to build lasting relationships.
Employee Management:- Marketing managers are in charge of the marketing department and therefore are responsible for employees within their department. They assign duties and set targets for departmental stall. It is also the function of marketing managers to perform periodic performance evaluations of the staff working for them.
Identifying New Business Opportunities:- Marketing managers analyze market trends with an aim of identifying unexploited or new markets for the organization’s products and services. Through studying the purchasing patterns of consumers, they can identify the peak and off-peak demand periods for their products. By employing sales forecasting, they can estimate future performance of the organization’s products. Also through market analysis and forecasting, they can develop strategies to ensure the organization remains competitive.
Q 5: The Government of Baluchistan has recently announced certain incentives for establishing business in its backward areas to provide employment to its population. As a businessman, what factors you will consider for establishing a factory in a backyard area in Baluchistan? (20)
ANSWER: Consideration for establishing a factory in a backward area in Baluchistan:-
Baluchistan is an investment-starved province. It needs foreign and domestic investment to develop its economic sectors. The private parties hesitate to invest due to lack of development infrastructure and law and order problem in the province. There are greater investment opportunities in all sectors of provincial economy. The provincial government should improve security situation and create an environment through announcement of attractive incentives for seeking foreign investment particularly in horticulture, livestock, fisheries and mining. An Investment Promotion Cell (IPC) may be established to bring the foreign capital for efficiently tapping the potential areas of these key sectors in the province.
One important factor for success or failure of a business is its location or premises. In these days of intense competition, the difference between a favorable and an unfavorable competitive position may well depend upon the factor of proper location. Competition frequently appears through the factor of prices, which in turn arc based on costs. A good location may contribute heavily toward a favorable cost position, whereas a poor location may have just the opposite effect. The relative permanence of any location and the difficulties attendant upon any attempt to move make it imperative that every possible step he taken to ensure the selection of the best available place.
Selection of Province or Area for Business:-
This is a very important question and requires a careful decision. No firm or company can now establish a business or an industry where it likes. The company is required to set up the factory or business according to the policy and sanction of the Government. One important factor to be considered is whether the proposed industry or business should be situated in a tax-holiday area i.e. those localities where tax is exempted for a specified period (at present five years). This should be considered along with other factors mentioned below.
A number of industrial sites known as “Trading Estate” have been established in Pakistan. These estates have been laid out primarily for the establishment of factories and are provided with excellent services. In many cases, location at these sites is encouraged by the Government / Local Authorities through reduced rates of taxation or tax holidays. The businessmen choose ideal site for its factory only after a full and comprehensive survey of all the above mentioned factors and keeping in view the exact requirements of the industry in question.
We are aware that these days there are riots and disturbances which in many cases have resulted in burning or looting of business premises or even factories and transport in Karachi and other pans of Sindh. The businessmen must consider beforehand whether to set up their business or factories in areas where such disturbances are frequent. Such areas must be avoided while selecting the location.
Selection of Business or Factory Location
While making a decision about the place where the factory or business is to be set up, following points should be carefully considered:-
1) Availability of Space:- After determining the size of the proposed factory building it would be better to choose a locality where there is a space for present Factory as well as for future expansion.
2) Raw Materials Raw material is the vital factor and it plays a significant role in the selection of site. The question of raw materials is important especially where the raw materials are either bulky or heavy and where transport facilities are not available. In case of bank we will see the customers, business, locality and the gentry.
3) Power Resources:- Where the manufacturing processes require enormous supply of power, it is better if the factory or business is located very near to the sources of power, viz electricity, gas etc. As the banking is being carried out on-line, hence these factors are very essential to consider.
4) Labour:- In every manufacturing industry is essentially necessary to a great extent, and factory should be located where supply of labour is abundant (especially of required skill). In case of bank we need commerce graduate having experience of banking.
5) Capital:- Capital is necessary in every industry. So the site of factory if selected near the town and cities would be more advantageous. Big cities and towns provide sources of raising the required capital. More capital is required for banking.
6) Marketing:- While selecting site of a factory, marketing facilities of the finished goods should be carefully considered, here We need to view other offices, factories and businesses.
7) vii) Transport Cheap and Efficient movement of transport for bringing raw material and disposal of finished goods are important in locating the site of factory. Hence access to rail, road a: air transport must he considered.
8) Local Bye-laws:- Particularly regarding Octroi, Export Tax, Drains and Noise, safety and security etc.
9) Climate:- Some industries are seriously affected by climate. Climate features should also be kept in view.
10) Local Amenities:- i.e., availability of housing, shops, banks, hospitals, post offices and other services. xi) Foreign Investment If the business or industry is to be set up in a foreign country, following points should in addition he kept in view:-
a) Political situation in country
b) Incentives afforded by foreign country
c) Remittances facilities available
d) Chances of nationalization or take-over