MB0036-Spring 2011

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Sikkim Manipal University 4th Semester Spring 2011

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Alaji Mamadou Cire BAH 540910685 MB0036 SET 2

Name : Alaji Mamadou Cire BAH

Roll No. : 540910685

Subject :

Strategic Management and Business Policy

Subject Code : MB0036

Program : MBA Semester 4

University : Sikkim Manipal

University

Learning Centre : KnowledgeWorkz

Limited (02544)

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MBA –SEMESTER 4

STRATEGIC MANAGEMENT AND BUSINESS POILICY–MB0036

SET - 2

1. Explain the importance of licensing and assigning IP rights.

Answer: One basic choice is whether you should actively exploit your IP rights

yourself, or to keep your IP rights and license them to others to use, or sell or

assign the rights to another person. You can, in principle, make different

choices in different countries for exploiting IP rights for the same underlying

invention. If you are based in Malaysia, you could in theory decide to exploit

your patent yourself in the East Asian region, grant a licence a Canadian

company to use the invention in North America, and sell or assign the rights in

Europe to a Danish company – whether or not this is the best approach in

practice is a different matter, of course.

A licence is a grant of permission made by the patent owner to another toexercise any specified rights as agreed. Licensing is a good way for an owner to

benefit from their work as they retain ownership of the patented invention while

granting permission to others to use it and gaining benefits, such as financial

royalties, from that use. However, it normally requires the owner of the

invention to invest time and resources in monitoring the licensed use, and in

maintaining and enforcing the underlying IP right.

The patent right normally includes the right to exclude others from making,using, selling or importing the patented product, and similar rights concerning

patented processes. The license can therefore cover the use of the patented

invention in many different ways.

For instance, licences can be exclusive or non-exclusive. If a patent owner

grants a non-exclusive licence to Company A to make and sell their patented

invention in Malaysia, the patent owner would still be able to also grant

Company B another non-exclusive for the same rights and the same time period

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Licences are often limited to specific rights, territories and time periods. For

example, a patent owner could exclusively licence only their importation rightto a company for the territory of Indonesia for 12 months. If an inventor owns

patents on the same invention in five different countries, they could assign (or

sell) these patents to five different owners in each of those countries. Portions of

a patent right can also be assigned – so that in order to finance your invention,

you might choose to sell a half-share to a commercial partner.

If you assign your rights, you normally lose any possibility of further licensing

or commercially exploiting your intellectual property rights. Therefore, theamount you charge for an assignment is usually considerably higher than the

royalty fee you would charge for a patent licence. When assigning the rights,

you might seek to negotiate a licence from the new owner to ensure that you can

continue to use your invention. For instance, you might negotiate an

arrangement that gives you licence to use the patented invention in the event

that you come up with an improvement on your original invention and this falls

within the scope of the assigned patent. Equally, the new owner of the assigned

patent might want to get access to your subsequent improvements on theinvention.

2. Assess the need for Corporate Social Responsibility with supporting

instances.

Answer: CSR is a concept whereby companies integrate social and

environmental concerns in their business operations and in their interaction with

their stakeholders on a voluntary basis.

The main function of an enterprise is to create value through producing goods

and services that society demands, thereby generating profit for its owners and

shareholders as well as welfare for society, particularly through an ongoing

process of job creation. However, new social and market pressures are gradually

leading to a change in the values and in the horizon of business activity.

There is today a growing perception among enterprises that sustainable business

success and shareholder value cannot be achieved solely through maximising

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short-term profits, but instead through market-oriented, yet responsible

behaviour. Companies are aware that they can contribute to sustainabledevelopment by managing their operations in such a way as to enhance

economic growth and increase competitiveness whilst ensuring environmental

protection and promoting social responsibility, including consumer interests.

In this context, an increasing number of firms have embraced a culture of CSR.

Despite the wide spectrum of approaches to CSR, there is large consensus on its

main features:

• CSR is behaviour by businesses over and above legal requirements,

voluntarily adopted because businesses deem it to be in their long-term

interest;

• CSR is intrinsically linked to the concept of sustainable development:

businesses need to integrate the economic, social and environmental

impact in their operations;

• CSR is not an optional "add-on" to business core activities – but about the

way in which businesses are managed.

Socially responsible initiatives by entrepreneurs have a long tradition in Europe.

What distinguishes today’s understanding of CSR from the initiatives of the

past is the attempt to manage it strategically and to develop instruments for this.

It means a business approach, which puts stakeholder’s expectations and the

principle of continuous improvement and innovation at the heart of business

strategies. What constitutes CSR depends on the particular situation of

individual enterprises and on the specific context in which they operate, be it in

Europe or elsewhere. In view of the EU enlargement, it is however important to

enhance common understanding both in Member States and candidate countries.

The Growing Recognition of CSR

CSR has found recognition among enterprises, policy-makers and other

stakeholders, as an important element of new and emerging forms of

governance, which can help them to respond to the following fundamental

changes:

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• Globalisation has created new opportunities for enterprises, but it also has

increased their organisational complexity and the increasing extension of

business activities abroad has led to new responsibilities on a global

scale, particularly in developing countries.

• Considerations of image and reputation play an increasingly important

role in the business competitive environment, as consumers and NGO’s

ask for more information about the conditions in which products and

services are generated and the sustainability impact thereof, and tend to

reward, with their behaviour, socially and environmentally responsible

firms.

• Partly as a consequence of this, financial stakeholders ask for the

disclosure of information going beyond traditional financial reporting so

as to allow them to better identify the success and risk factors inherent in

a company and its responsiveness to public opinion.

• As knowledge and innovation become increasingly important for

competitiveness, enterprises have a higher interest in retaining highly

skilled and competent personnel.

The Global Dimension of CSR

Global governance, and the interrelation between trade, investment and

sustainable development are key issues in the CSR debate. Indeed, awareness of

CSR issues and concerns will contribute to promote more sustainable

investments, more effective development co-operation and technology transfers.

Both processes of trade and financial markets liberalisation should be matchedby appropriate progress towards an effective system of global governance

including its social and environmental dimensions. Globalisation has also

increasingly exposed enterprises to trans-boundary economic criminality,

requiring an international response.

By abiding by internationally accepted standards, multinational enterprises can

contribute to ensure that international trade markets function in a more

sustainable way and it is therefore important that the promotion of CSR at

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3. What are the obstacles faced by small business units? Explain with

examples.

Answer: Small business is more than a fashion or a buzzword. In the USA, only

small businesses create new jobs. The big dinosaur firms (the "blue-chips")

create negative employment – they fire people. This trend has a glitzy name:

downsizing.

In Israel many small businesses became world class exporters and big

companies in world terms. The same goes, to a lesser extent, in Britain and inGermany.

Small businesses often face a variety of problems related to their size. A

frequent cause of bankruptcy is undercapitalization. This is often a result of

poor planning rather than economic conditions- it is common rule of thumb that

the entrepreneur should have access to a sum of money at least equal to the

projected revenue for the first year of business in addition to his anticipated

expenses.

For example, if the prospective owner thinks that he will generate $100,000 in

revenues in the first year with $150,000 in start-up expenses, then he should

have no less than $250,000 available. Failure to provide this level of funding for

the company could leave the owner liable for all of the company's debt should

he end up in bankruptcy court, under the theory of undercapitalization.

In addition to ensuring that the business has enough capital, the small business

owner must also be mindful of gross margin (sales minus variable costs). Tobreak even, the business must be able to reach a level of sales where the gross

margin exceeds fixed costs. When they first start out, many small business

owners underprice their products to a point where even at their maximum

capacity, it would be impossible to break even. Cost controls or price increases

often resolve this problem.

In the United States, some of the largest concerns of small business owners are

insurance costs (such as liability and health), rising energy costs and taxes. In

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Decision Support Systems cost as little as 20,000 USD (all included: software,

hardware, and training). They are one of the best investments that a firm canmake.

5. Mr. Kevin is a CFO of a multinational company. What would be his

role and responsibilities in the company?

Answer: As CFO Mr. Kevin would be in charge of:

1. The Finance Director

2. The Financing Department

3. The Accounting Department which answers to him and regularly reports

to him.

Despite the above said, the CFO can report directly to the Board of Directors

through the person of the Chairman of the Board of Directors or by direct

summons from the Board of Directors.

His main Functions are:

1) To regulate, supervise and implement a timely, full and accurate set of

accounting books of the firm reflecting all its activities in a manner

commensurate with the relevant legislation and regulation in the territories of

operation of the firm and subject to internal guidelines set from time to time

by the Board of Directors of the firm.

This is somewhat difficult in developing countries. The books do not reflect

reality because they are "tax driven" (i.e., intended to cheat the tax authorities

out of tax revenues). Two sets of books are maintained: the real one which

incorporates all the income – and another one which is presented to the tax

authorities. This gives the CFO an inordinate power. He is in a position to

blackmail the management and the shareholders of the firm. He becomes the

information junction of the firm, the only one who has access to the whole

picture. If he is dishonest, he can easily enrich himself. But he cannot be honest:

he has to constantly lie and he does so as a life long habit.

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He (or she) develops a cognitive dissonance: I am honest with my superiors – I

only lie to the state.

(2) To implement continuous financial audit and control systems to monitor

the performance of the firm, its flow of funds, the adherence to the budget,

the expenditures, the income, the cost of sales and other budgetary items.

In developing countries, this is often confused with central planning. Financial

control does not mean the waste of precious management resources on verifying

petty expenses. Nor does it mean a budget which goes to such details as howmany tea bags will be consumed by whom and where. Managers in developing

countries still feel that they are being supervised and followed, that they have

quotas to complete, that they have to act as though they are busy (even if they

are, in reality, most of the time, idle). So, they engage in the old time central

planning and they do it through the budget. This is wrong.

A budget in a firm is no different than the budget of the state. It has exactly the

same functions. It is a statement of policy, a beacon showing the way to a more

profitable future. It sets the strategic (and not the tactical) goals of the firm: new

products to develop, new markets to penetrate, new management techniques to

implement, possible collaborations, identification of the competition, of the

relative competitive advantages. Above all, a budget must allocate the scarce

resources of the firm in order to obtain a maximum impact (=efficiently). All

this, unfortunately, is missing from budgets of firms in developing countries.

No less important are the control and audit mechanisms which go with the

budget. Audit can be external but must be complemented internally. It is the jobof the CFO to provide the management with a real time tool which informs

them what is happening in the firm and where are the problematic, potential

problem areas of activity and performance.

Additional functions of the CFO include:

(3) To timely, regularly and duly prepare and present to the Board of

Directors financial statements and reports as required by all pertinent laws

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and regulations in the territories of the operations of the firm and as deemed

necessary and demanded from time to time by the Board of Directors of the

Firm.

The warning signs and barbed wire which separate the various organs of the

Western firm (management from Board of Directors and both from the

shareholders) – have yet to reach developing countries. As I said: the Board in

these countries is full with the cronies of the management. In many companies,

the General Manager uses the Board as a way to secure the loyalty of his

cronies, friends and family members by paying them hefty fees for theirparticipation (and presumed contribution) in the meetings of the Board. The

poor CFO is loyal to the management – not to the firm. The firm is nothing but

a vehicle for self enrichment and does not exist in the Western sense, as a

separate functional entity which demands the undivided loyalty of its officers. A

weak CFO is rendered a pawn in these get-rich-quick schemes – a stronger one

becomes a partner. In both cases, he is forced to collaborate, from time to time,

with stratagems which conflict with his conscience.

It is important to emphasize that not all the businesses in developing countries

are like that. In some places the situation is much better and closer to the West.

But geopolitical insecurity (what will be the future of developing countries in

general and my country in particular), political insecurity (will my party remain

in power), corporate insecurity (will my company continue to exist in this

horrible economic situation) and personal insecurity (will I continue to be the

General Manager) combine to breed short-sightedness, speculative streaks, a

drive to get rich while the going is good (and thus rob the company) – and up tocriminal tendencies.

(4) To comply with all reporting, accounting and audit requirements imposed

by the capital markets or regulatory bodies of capital markets in which the

securities of the firm are traded or are about to be traded or otherwise listed.

The absence of a functioning capital market in many developing countries and

the inability of developing countries firms to access foreign capital markets –

make the life of the CFO harder and easier at the same time. Harder – because

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there is nothing like a stock exchange listing to impose discipline, transparency

and long-term, management-independent strategic thinking on a firm. Disciplineand transparency require an enormous amount of investment by the financial

structures of the firm: quarterly reports, audited annual financial statements,

disclosure of important business developments, interaction with regulators (a

tedious affair) – all fall within the remit of the CFO. Why, therefore, should he

welcome it?

Because discipline and transparency make the life of a CFO easier in the long

run. Just think how much easier it is to maintain one set of books instead of twoor to avoid conflicts with tax authorities on the one hand and your management

on the other.

(5) To prepare and present for the approval of the Board of Directors an

annual budget, other budgets, financial plans, business plans, feasibility

studies, investment memoranda and all other financial and business

documents as may be required from time to time by the Board of Directors of

the firm.

The primal sin in developing countries was so called “privatization”. The laws

were flawed. To mix the functions of management, workers and ownership is

detrimental to a firm, yet this is exactly the path that was chosen in numerous

developing countries. Management takeovers and employee takeovers forced

the new, impoverished, owners to rob the firm in order to pay for their shares.

Thus, they were unable to infuse the firm with new capital, new expertise, or

new management. Privatized companies are dying slowly.

One of the problems thus wrought was the total confusion regarding the organic

structure of the firm. Boards were composed of friends and cronies of the

management because the managers also owned the firm – but they could be

easily fired by their own workers, who were also owners and so on. These

incestuous relationships introduced an incredible amount of insecurity into

management ranks (see previous point).

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(6) To alert the Board of Directors and to warn it regarding any irregularity,

lack of compliance, lack of adherence, lacunas and problems whether actual

or potential concerning the financial systems, the financial operations, the

financing plans, the accounting, the audits, the budgets and any other matter

of a financial nature or which could or does have a financial implication.

The CFO is absolutely aligned and identified with the management. The Board

is meaningless. The concept of ownership is meaningless because everyone

owns everything and there are no identifiable owners (except in a few

companies). Absurdly, Communism (the common ownership of means of production) has returned in full vengeance, though in disguise, precisely

because of the ostensibly most capitalist act of all, privatization.

(7) To collaborate and co-ordinate the activities of outside suppliers of

financial services hired or contracted by the firm, including accountants,

auditors, financial consultants, underwriters and brokers, the banking system

and other financial venues.

Many firms in developing countries (again, not all) are interested in collusion –

not in consultancy. Having hired a consultant or the accountant – they believe

that they own him. They are bitterly disappointed and enraged when they

discover that an accountant has to comply with the rules of his trade or that a

financial consultant protects his reputation by refusing to collaborate with

shenanigans of the management.

(8) To maintain a working relationship and to develop additional

relationships with banks, financial institutions and capital markets with the

aim of securing the funds necessary for the operations of the firm, the

attainment of its development plans and its investments.

One of the main functions of the CFO is to establish a personal relationship with

the firm’s bankers. The financial institutions which pass for banks in developing

countries lend money on the basis of personal acquaintance more than on the

basis of analysis or rational decision making. This "old boy network" substitutes

for the orderly collection of data and credit rating of borrowers. This also allows

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It may find three options:

• To penetrate into existing markets

• To develop new markets

• To develop new products

At times, it may be possible to gain more market share with the current products

in their current markets through a market penetration strategy. For instance,

SONY introduced TV sets with Trinitron picture tubes into the market in 1996

priced at a premium of Rs.10, 000 and above over the market through a nichemarket capture strategy. They gradually lowered the prices to market levels.

However, it also simultaneously launched higher-end products (high-technology

products) to maintain its global image as a technology leader. By lowering the

prices of TVs with Trinitron picture tubes, the company could successfully

penetrate into the markets to add new customers to its customer base.

Market Development Strategy is to explore the possibility to find or develop

new markets for its current products (from the northern region to the eastern

region etc.). Most multinational companies have been entering Indian markets

with this strategy, to develop markets globally. However, care should be taken

to ensure that these new markets are not low density or saturated markets, which

could lead to price pressures.

Product Development Strategy involves consideration of new products of

potential interest to its current markets (e.g. Gramophone Records to Musical

Productions to CDs)– as part of a Diversification strategy.

Study the following example to understand what Product Development Strategy

is.

MICROSOFT’s New Strategy

It is called PC-plus. It has three elements:

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• Providing computer power to the most commonly used devices such as

cell phone, personal computer, toaster oven, dishwasher, refrigerator,

washing machines and so on.

• Developing software to allow these devices to communicate.

• Investing heavily to help build wireless and high-speed internet access

throughout the world to link it all together.

Microsoft envisions a home where everyday appliances and electronics are

smart. According to Bill Gates, “In the near future, PC-based networks will help

us control many of our domestic matters with devices that cost no more than $100 each”

It is also said at Microsoft that VCRs can be programmed via e-mail, laundry

washers can be designed to send an instant message to the home computer when

the load is done and refrigerators can be made to send an e-mail when there’s no

more milk. Microsoft plans to give these appliances “brains” and provide them

the means to talk to each other through their Windows CE Operating System.

Integrative Growth:

It refers to the process of identifying opportunities to develop or acquire

businesses that are related to the company’s current businesses. More often, the

business processes have to be integrated for linear growth in the profits. The

corporate plan may be designed to undertake backward, forward or horizontal

integration within the industry.

If a company operating in music systems takes over the manufacturing businessof its plastic material supplier, it would be able to gain more control over the

market or generate more profit. ( Backward Integration)

Alternatively, if this company acquires some of its most profitably operating

intermediaries such as wholesalers or retailers, it is forward integration. If the

company legally takes over or acquires the business of any of its leading

competitors, it is called horizontal integration (however, if this competitor is

weak, it might be counter-productive due to dilution of brand image).

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Diversification Growth:

It refers to the process of identifying opportunities to develop or acquire

businesses that are not related to the company’s current businesses. This makes

sense when such opportunities outside the present businesses are identified with

attractive returns and that industry has business strengths to be successful. In

most cases, this is planned with new products that have technological or

marketing synergies with existing businesses to cater to a different group of

customers (Concentric Diversification).

A printing press might shift over to offset printing with computerized content

generation to appeal to higher-end customers and also add new application areas

(Horizontal Diversification) – or even sell stationery.

Alternatively, the company might choose new businesses that have nothing to

do with the current technology, products or markets (Conglomerate

Diversification).

The classic examples for this would be engineering and textile firms setting upsoftware development centers or Call Centers with new service clients.

Situation Analysis Sales Improvement Strategies:

• A supplier of computer stationery invests in a computer stationery

manufacturing unit.

• A vendor supplying engine boxes to Maruti decides to supply the same

with modifications to Hyundai.• A company dealing in computer floppies plans to set up a Software

Technology Park.

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MB0036-Spring 2011