Managing a Business/Ms-91

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Question
I have Ms-91 question. So, pls help.
Discuss the managerial role of Board of Directors (BoDs).  What in your opinion should be the managerial role of BoDs in the present context?  Explain giving examples.

2.   There are different approaches to global entry.  What in your opinion is the best approach and why?  Explain.

3.   What are the benefits of Knowledge Management? Discuss.

4.   `Managers should hold and develop a deeper knowledge of the nature of ethical principles and concepts and an understanding of how these apply to ethical problems encountered in business’.  Explain.

5.   Suppose you are working in a bank.  What kind of social audit process should the bank perform and why?

6.   Suppose you are working in a creative/innovative organization.  Identify the characteristics of this organization.  Also find out how it has used its creativity as one of its strategies?

sincerely.

Answer


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1.   Discuss the managerial role of Board of Directors (BoDs).  What in your opinion should be the managerial role of BoDs in the present context?  Explain giving examples.

1.   Board of directors.

A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend policies, options policies and executive compensation. Every public company must have a board of directors.
In general, the board makes decisions on shareholders' behalf. Most importantly, the board of directors should be a fair representation of both management and shareholders' interests; too many insiders serving as directors will mean that the board will tend to make decisions more beneficial to management. On the other hand, possessing too many independent directors may mean management will be left out of the decision-making process and may cause good managers to leave in frustration

A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet.
In an organization with voting members, e.g., a professional society, the board acts on behalf of, and is subordinate to, the organization's full assembly, which usually chooses the members of the board. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, e.g., a university, the board is the supreme governing body of the institution; its members are sometimes chosen by the board itself.
Typical duties of boards of directors include:
•   governing the organization by establishing broad policies and objectives;
•   selecting, appointing, supporting and reviewing the performance of the chief executive;
•   ensuring the availability of adequate financial resources;
•   approving annual budgets;
•   accounting to the stakeholders for the organization's performance.
•   setting their own salaries and compensation
The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types.
Typically the board chooses one of its members to be the chairman, who holds whatever title is specified in the bylaws.
The directors of an organization are the persons who are members of its board. Several specific terms categorize directors by the presence or absence of their other relationships to the organization.
An inside director is a director who is also an employee, officer, major shareholder, or someone similarly connected to the organization. Inside directors represent the interests of the entity's stakeholders, and often have special knowledge of its inner workings, its financial or market position, and so on.
Typical inside directors are:
•   A Chief Executive Officer (CEO) who may also be Chairman of the Board
•   Other executives of the organization, such as its Chief Financial Officer (CFO) or Executive Vice President
•   Large shareholders (who may or may not also be employees or officers)
•   Representatives of other stakeholders such as labor unions, major lenders, or members of the community in which the organization is located
An inside director who is employed as a manager or executive of the organization is sometimes referred to as an executive director (not to be confused with the title executive director sometimes used for the CEO position). Executive directors often have a specified area of responsibility in the organization, such as finance, marketing, human resources, or production.
An outside director is a member of the board who is not otherwise employed by or engaged with the organization, and does not represent any of its stakeholders. A typical example is a director who is president of a firm in a different industry.
Outside directors bring outside experience and perspective to the board. They keep a watchful eye on the inside directors and on the way the organization is run. Outside directors are often useful in handling disputes between inside directors, or between shareholders and the board. They are thought to be advantageous because they can be objective and present little risk of conflict of interest. On the other hand, they might lack familiarity with the specific issues connected to the organization's governance.
Recapping the terminology:
•   director - any member of the board of directors
•   inside director - a director who, in addition to serving on the board, has a meaningful connection to the organization
•   outside director - a director who, other than serving on the board, has no meaningful connections to the organization
•   executive director - an inside director who is also an executive with the organization. The term is also used, in a completely different sense, to refer to a CEO
•   non-executive director - a director who is not an executive with the organization
Individual directors often serve on more than one board. This practice results in an interlocking directorate, where a relatively small number of individuals have significant influence over a large number of important entities. This situation can have important corporate, social, economic, and legal consequences, and has been the subject of significant research

BOARD  MEMBERS  CHARACTERISTICS

1. Diversity of the Board as a whole: it represents a variety of skills, experience, interests and professional and social backgrounds.
2. Structure: it is organized in such a way that individuals and committees assume a proper, active role in its functions.
3. Member Involvement: its members have  as a top priority of their volunteer commitment, demonstrate a high degree of interest in their role and responsibilities, and are genuinely concerned about the school's problems and prospects.
4. Knowledge: its members are well informed about the Outward Bound® School's operation and the social forces that are affecting service delivery.
5. Rapport: its members have mutual respect for each other regardless of differences of opinion and maintain a productive working relationship with each other.
6. Sensitivity: it is representative of, and sensitive to, different constituencies and viewpoints.
7. Sense of Priorities: its members are concerned with important and long-range issues not trivial matters.
8. Direction: its president is respected and is skilled in making certain that various points of view are expressed and satisfactory decisions are reached.
9. Strength: it is strong enough to achieve effective policy decisions.
10. Financial Support: it contains a reasonable number of members who obtain financial support for the school.
11. Board/Executive Director Relationship: it has a productive working relationship between the Executive Director and Board Members.
12. Accomplishment: it has a genuine sense of progress and achievement and members gain satisfaction from their services
13.Diversity
Your board needs to have diversity. A great board has several members that all have different backgrounds and ways of thinking. This creates checks and balances for your board that will help with making decisions.
14.Wealth
An important component for a great board is that it has some wealthy people on it. Rich people hang out with other rich people, and this can come in pretty handy when you need to raise a lot of money for your cause, especially at the beginning.
15.Passion
A great board is not just wealthy, but they have a lot of passion and belief in what your nonprofit does. They need to believe in your cause as much as you do. They must know that what they are doing is making a positive difference in the community and world.
16.Networking
This goes back to what I said about how rich people hang out with other rich people. You need to make sure that your board members are great networkers. They need to be able to go to make good contacts, build rapport with people, and make friends. This seems easy, but not very many people have this ability.
17."Can-Do Attitude"
And most important of all, they need to have a "Can Do" attitude. They need to be positive, optimistic, and enthusiastic about your nonprofit. They must be able to look at problems and challenges and be able to find a way to overcome them.
Conclusion
These  characteristics all seem pretty simple, but to find a board of directors where every member has all of these is very rare. An important point about finding people who have these characteristics is that you first have to be a person that has them. You aren't going to be able to recruit these people for your board, if you first don't practice them yourself.
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role of board of directors.

ROLE  of boards of directors include:
•   governing the organization by establishing broad policies and objectives;
•   selecting, appointing, supporting and reviewing the performance of the chief executive;
•   ensuring the availability of adequate financial resources;
•   approving annual budgets;
•   accounting to the stakeholders for the organization's performance.
•   setting their own salaries and compensation
The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types.
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The Role of the Board of Directors

The role of the board of directors in enterprise-wide risk oversight has become increasingly
challenging as expectations for board engagement are at all time highs.

Risk is a pervasive part of
everyday business and organizational strategy. But, the complexity of business transactions, technology
advances, globalization, speed of product cycles, and the overall pace of change have increased the volume
and complexities of risks facing organizations over the last decade. With the benefit of hindsight, the global
financial crisis and swooning economy of 2008 and the aftermath thereof have shown us that boards have a
difficult task in overseeing the management of increasingly complex and interconnected risks that have the potential to devastate organizations overnight. At the same time, boards and other market participants are
receiving increased scrutiny regarding their role in the crisis. Boards are being asked – and many are asking
themselves – could they have done a better job in overseeing the management of their organization’s risk
exposures, and could improved board oversight have prevented or minimized the impact of the financial
crisis on their organization?
Clearly, one result of the financial crisis is an increased focus on the effectiveness of board risk oversight
practices. The New York Stock Exchange’s corporate governance rules already require audit committees of
listed corporations to discuss risk assessment and risk management policies. Credit rating agencies, such as
Standard and Poor’s, are now assessing enterprise risk management processes as part of their corporate
credit ratings analysis. Signals from some regulatory bodies now suggest that there may be new regulatory
requirements or new interpretations of
existing requirements placed on boards
regarding their risk oversight
responsibilities. More importantly, while
business leaders know organizations must
regularly take risks to enhance stakeholder
value, effective organizations recognize
strategic advantages in managing risks.

Treasury Department s are
considering regulatory reforms that would
require compensation committees of public
financial institutions to review and disclose
strategies for aligning compensation with
sound risk-management. While the focus
has been on financial institutions, the link
between compensation structures and risk-
taking has implications for all
organizations. Governements  indicated potential new
regulations may be emerging for greater
disclosures about risk oversight practices of
public companies. the SEC
issued its first set of proposed rules that would expand proxy disclosures about the impact of compensation
policies on risk taking and the role of the board in the company’s risk management practices. Legislation has
also been introduced in Congress that would mandate the creation of board risk committees.
"…….I want to make sure that shareholders fully
understand how compensation structures and
practices drive an executive's risk-taking.
The Commission will be considering whether greater
disclosure is needed about how a company — and
the company's board in particular — manages
risks, both generally and in the context of setting
compensation. I do not anticipate that we will seek to
mandate any particular form of oversight; not only is
this really beyond the Commission's traditional
disclosure role, but it would suggest that there is a
one-size-fits-all approach to risk management.
Instead, I have asked our staff to develop a proposal
for Commission consideration that looks to providing
investors, and the market, with better insight into
how each company and each board addresses these
vital tasks."
The challenge facing Boards is how to effectively oversee the organization’s enterprise-wide risk
management in a way that balances managing risks while adding value to the organization.

Although some organizations have employed sophisticated risk management processes, others have managed risks
informally or on an ad hoc basis. In the aftermath of the financial crisis, executives and their boards realize
that ad hoc risk management is no longer tolerable and that current processes may be inadequate in today’s
rapidly evolving business world. Boards, along with other parties, are under increased focus due to the
widely-held perception that organizations encountered risks during the crisis for which they were not
adequately prepared.
Increasingly, boards and management teams are embracing the concept of enterprise risk management
(ERM) to better connect their risk oversight with the creation and protection of stakeholder value. ERM is
a process that provides a robust and holistic top-down view of key risks facing an organization.

enterprise risk management (ERM)
In today’s environment, the adoption of ERM may be the most effective and attractive way to meet ever
increasing demands for effective board risk oversight. If positioned correctly within the organization to
support the achievement of organizational objectives, including strategic objectives, effective ERM can be a
value-added process that improves long-term organizational performance. Proponents of ERM stress that
the goal of effective ERM is not solely to lower risk, but to more effectively manage risks on an enterprise-
wide, holistic basis so that stakeholder value is preserved and grows over time. Said differently, ERM can
assist management and the board in making better, more risk-informed, strategic decisions.
An entity’s board of directors plays a critical role in overseeing an enterprise-wide approach to risk
management. Because management is accountable to the board of directors, the board’s focus on effective
risk oversight is critical to setting the tone and culture towards effective risk management through strategy
setting, formulating high level objectives, and approving broad-based resource allocations.

Enterprise Risk Management – Integrated Framework highlights four areas that contribute to board
oversight with regard to enterprise risk management:
• Understand the entity’s risk philosophy and concur with the entity’s risk appetite. Risk appetite is
the amount of risk, on a broad level, an organization is willing to accept in pursuit of stakeholder value.
Because boards represent the views and desires of the organization’s key stakeholders, management
should have an active discussion with the board to establish a mutual understanding of the organization’s
overall appetite for risks.
• Know the extent to which management has established effective enterprise risk management of
the organization. Boards should inquire of management about existing risk management processes and
challenge management to demonstrate the effectiveness of those processes in identifying, assessing, and
managing the organization’s most significant enterprise-wide risk exposures.

Enterprise risk management is a process, effected by the entity’s board of directors,
management, and other personnel, applied in strategy setting and across the enterprise,
designed to identify potential events that may affect the entity, and manage risk to be within the
risk appetite, to provide reasonable assurance regarding the achievement of objectives
\
• Review the entity’s portfolio of risk and consider it against
the entity’s risk appetite. Effective board oversight of risks is
contingent on the ability of the board to understand and assess an organization’s strategies with risk exposures. Board agenda time and information packets that integrate strategy and operational initiatives with enterprise-wide risk exposures strengthen the ability of boards to ensure risk exposures are
consistent with overall appetite for risk.
• Be apprised of the most significant risks and whether
management is responding appropriately.
Risks are
constantly evolving and the need for robust information is of high demand. Regular updating by
management to boards of key risk indicators is critical to effective board oversight of key risk exposures
for preservation and enhancement of stakeholder value.
Boards of directors often use board committees in carrying out certain of their risk oversight duties. The use
and focus of committees vary from one entity to another, although common committees are the audit
committee, nominating/governance committees, compensation committees, with each focusing attention on
elements of enterprise risk management. While risk oversight, like strategy, is a full board responsibility,
some companies may choose to start the process by asking the relevant committees to address risk oversight
in their areas while focusing on strategic risk issues in the full board discussion.
While ERM is not a panacea for all the turmoil experienced in the markets in recent years, robust
engagement by the board in enterprise risk oversight strengthens an organization’s resilience to
significant risk exposures. ERM can help provide a path of greater awareness of the risks the
organization faces and their inter-related nature, more proactive management of those risks, and more
transparent decision making around risk/reward trade-offs, which can contribute toward greater likelihood
of the achievement of objectives.
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Below are four governance models. The board of directors must decide which model is best for them.
1) Manager Focus – With this model, the manager dominates the board. We can all think of situations where we have had one dominant individual in a group. In this case the board functions are an advisory board and reacts to the views of the manager. It is essentially a “rubber stamp” for the CEO. This model often emerges when you have a charismatic CEO who is very dominant and proactive in running the organization. In most cases this is not a good model for a value-added business.
2) Proactive Board – This model is of a proactive board that speaks as one voice. It speaks as one voice for the board and often has a proactive manager that also speaks with one combined voice for the organization. This is a good model because the manager and the board are on the same page and speak with a single voice. This model is proactive in taking advantage of emerging opportunities and is especially valuable for entrepreneurial businesses.
3) Geographic Representation – This model focuses on the members/investors whom the board member represents. With this model, the board member feels that he/she has been elected to the board to represent individuals in a geographic location or special interest group. To better understand this model, think of an individual running for a political office and then representing the interests of the individuals located in that geography. This is often found in large boards, typically of 24 to 50 individuals. With a large group like this there is a temptation for the directors to represent the interests of the members/investors in their geographic area or special interest group rather than the best interests of the company. This is not a model that works well for most value-added businesses.
4) Community Representation – In this situation the board member is representing the community rather than the organization. An example of this is a school board where an individual is elected to represent certain interests within the community.
These four models are ways in which the board and its organization function. Often you have directors who have previously been on boards where they have been chosen to represent a certain group or have been a rubber stamp for the manager. So it is natural for a director to think that this is how all boards function. But it is a good practice for boards to actively investigate and discuss the models presented above and choose the right one for their situation. This is usually a model where the directors are all active and present a single voice of what is best for the organization. What is best for the organization will usually also be good for the various members/investors and the stakeholders in the community.
•   review with management the company’s risk appetite and risk tolerance, the ways in which risk is measured on an aggregate, company-wide basis, the setting of aggregate and individual risk limits (quantitative and qualitative, as appropriate), the policies and procedures in place to hedge against or mitigate risks, and the actions to be taken if risk limits are exceeded;
•   review with management the categories of risk the company faces, including any risk concentrations and risk interrelationships, as well as the likelihood of occurrence, the potential impact of those risks and mitigating measures;
•   review with management the assumptions and analysis underpinning the determination of the company’s principal risks and whether adequate procedures are in place to ensure that new or materially changed risks are properly and promptly identified, understood and accounted for in the actions of the company;
•   review with committees and management the board’s expectations as to each group’s respective responsibilities for risk oversight and management of specific risks to ensure a shared understanding as to accountabilities and roles;
•   review the company’s executive compensation structure to ensure it is appropriate in light of the company’s articulated risk appetite and to ensure it is creating proper incentives in light of the risks the company faces;
•   review the risk policies and procedures adopted by management, including procedures for reporting matters to the board and appropriate committees and providing updates, in order to assess whether they are appropriate and comprehensive;
•   review management’s implementation of its risk policies and procedures, to assess whether they are being followed and are effective;
•   review with management the quality, type and format of risk-related information provided to directors;
•   review the steps taken by management to ensure adequate independence of the risk management function and the processes for resolution and escalation of differences that might arise between risk management and business functions;
•   review with management the design of the company’s risk management functions, as well as the qualifications and backgrounds of senior risk officers and the personnel policies applicable to risk management, to assess whether they are appropriate given the company’s size and scope of operations;
•   review with management the means by which the company’s risk management strategy is communicated to all appropriate groups within the company so that it is properly integrated into the company’s enterprise-wide business strategy;
•   review internal systems of formal and informal communication across divisions and control functions to encourage the prompt and coherent flow of risk-related information within and across business units and, as needed, the prompt escalation of information to management (and to the board or board committees as appropriate); and
•   review reports from management, independent auditors, internal auditors, legal counsel, regulators, stock analysts, and outside experts as considered appropriate regarding risks the company faces and the company’s risk management function.
In addition to considering the foregoing measures, the board may also want to focus on identifying external pressures that can push a company to take excessive risks and consider how best to address those pressures. In particular, companies have come under increasing pressure in recent years from hedge funds and activist shareholders to produce short-term results, often at the expense of longer-term goals. These demands may include steps that would increase the company’s risk profile, for example through increased leverage to repurchase shares or pay out special dividends, or spinoffs that leave the resulting companies with smaller capitalizations. While such actions may make sense for a specific company under a specific set of circumstances, the board should focus on the risk impact and be ready to resist pressures to take steps that the board determines are not in the company’s or shareholders’ best interest.
 

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2.   There are different approaches to global entry.  What in your opinion is the best approach and why?  Explain.
Basic issues
An organisation wishing to "go international" faces three major issues:
i) Marketing - which countries, which segments, how to manage and implement marketing effort, how to enter - with intermediaries or directly, with what information?
ii) Sourcing - whether to obtain products, make or buy?
iii) Investment and control - joint venture, global partner, acquisition?
Decisions in the marketing area focus on the value chain . The strategy or entry alternatives must ensure that the necessary value chain activities are performed and integrated.

In making international marketing decisions on the marketing mix more attention to detail is required than in domestic marketing.  lists the detail required1.
Examples of elements included in the export marketing mix
1. Product support
- Product sourcing
- Match existing products to markets - air, sea, rail, road, freight
- New products
- Product management
- Product testing
- Manufacturing specifications
- Labelling
- Packaging
- Production control
- Market information
2. Price support
- Establishment of prices
- Discounts
- Distribution and maintenance of pricelists
- Competitive information
- Training of agents/customers
3. Promotion/selling support
- Advertising
- Promotion
- literature
- Direct mail
- Exhibitions, trade shows
- Printing
- Selling (direct)
- Sales force
- Agents commissions
- Sale or returns
4. Inventory support
- Inventory management
- Warehousing
- Distribution
- Parts supply
- Credit authorization
5. Distribution support
- Funds provision
- Raising of capital
- Order processing
- Export preparation and documentation
- Freight forwarding
- Insurance
- Arbitration
6. Service support
- Market information/intelligence
- Quotes processing
- Technical aid assistance
- After sales
- Guarantees
- Warranties/claims
- Merchandising
- Sales reports, catalogues literature
- Customer care
- Budgets
- Data processing systems
- Insurance
- Tax services
- Legal services
- Translation
7. Financial support
- Billing, collecting invoices
- Hire, rentals
- Planning, scheduling budget data
- Auditing
Details on the sourcing element have already been covered in the chapter on competitive analysis and strategy. Concerning investment and control, the question really is how far the company wishes to control its own fate. The degree of risk involved, attitudes and the ability to achieve objectives in the target markets are important facets in the decision on whether to license, joint venture or get involved in direct investment.
identified five strategies used by firms for entry into new foreign markets:
i) Technical innovation strategy - perceived and demonstrable superior products
ii) Product adaptation strategy - modifications to existing products
iii) Availability and security strategy - overcome transport risks by countering perceived risks
iv) Low price strategy - penetration price and,
v) Total adaptation and conformity strategy - foreign producer gives a straight copy.
In marketing products from less developed countries to developed countries point iii) poses major problems. Buyers in the interested foreign country are usually very careful as they perceive transport, currency, quality and quantity problems. This is true, say, in the export of cotton and other commodities.
Because, in most agricultural commodities, production and marketing are interlinked, the infrastructure, information and other resources required for building market entry can be enormous. Sometimes this is way beyond the scope of private organisations, so Government may get involved. It may get involved not just to support a specific commodity, but also to help the "public good". Whilst the building of a new road may assist the speedy and expeditious transport of vegetables, for example, and thus aid in their marketing, the road can be put to other uses, in the drive for public good utilities. Moreover, entry strategies are often marked by "lumpy investments". Huge investments may have to be undertaken, with the investor paying a high risk price, long before the full utilisation of the investment comes. Good examples of this include the building of port facilities or food processing or freezing facilities. Moreover, the equipment may not be able to be used for other processes, so the asset specific equipment, locked into a specific use, may make the owner very vulnerable to the bargaining power of raw material suppliers and product buyers who process alternative production or trading options. Zimfreeze, Zimbabwe is experiencing such problems. It built a large freezing plant for vegetables but found itself without a contract. It has been forced, at the moment, to accept sub optional volume product materials just in order to keep the plant ticking over.
In building a market entry strategy, time is a crucial factor. The building of an intelligence system and creating an image through promotion takes time, effort and money. Brand names do not appear overnight. Large investments in promotion campaigns are needed. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. Costs include search and bargaining costs. Physical distance, language barriers, logistics costs and risk limit the direct monitoring of trade partners. Enforcement of contracts may be costly and weak legal integration between countries makes things difficult. Also, these factors are important when considering a market entry strategy. In fact these factors may be so costly and risky that Governments, rather than private individuals, often get involved in commodity systems. This can be seen in the case of the Citrus Marketing Board of Israel. With a monopoly export marketing board, the entire system can behave like a single firm, regulating the mix and quality of products going to different markets and negotiating with transporters and buyers. Whilst these Boards can experience economies of scale and absorb many of the risks listed above, they can shield producers from information about, and from. buyers. They can also become the "fiefdoms" of vested interests and become political in nature. They then result in giving reduced production incentives and cease to be demand or market orientated, which is detrimental to producers.
Normal ways of expanding the markets are by expansion of product line, geographical development or both. It is important to note that the more the product line and/or the geographic area is expanded the greater will be the managerial complexity. New market opportunities may be made available by expansion but the risks may outweigh the advantages, in fact it may be better to concentrate on a few geographic areas and do things well. This is typical of the horticultural industry of Kenya and Zimbabwe. Traditionally these have concentrated on European markets where the markets are well known. Ways to concentrate include concentrating on geographic areas, reducing operational variety (more standard products) or making the organisational form more appropriate. In the latter the attempt is made to "globalise" the offering and the organisation to match it. This is true of organisations like Coca Cola and MacDonald's. Global strategies include "country centred" strategies (highly decentralised and limited international coordination), "local market approaches" (the marketing mix developed with the specific local (foreign) market in mind) or the "lead market approach" (develop a market which will be a best predictor of other markets). Global approaches give economies of scale and the sharing of costs and risks between markets.
Entry strategies
There are a variety of ways in which organisations can enter foreign markets. The three main ways are by direct or indirect export or production in a foreign country .
Exporting
Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another. Whilst no direct manufacturing is required in an overseas country, significant investments in marketing are required. The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country; however, this does not negate the need for a detailed marketing strategy.
The advantages of exporting are:
• manufacturing is home based thus, it is less risky than overseas based
• gives an opportunity to "learn" overseas markets before investing in bricks and mortar
• reduces the potential risks of operating overseas.
The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack of control has to be weighed against the advantages. For example, in the exporting of African horticultural products, the agents and Dutch flower auctions are in a position to dictate to producers.
A distinction has to be drawn between passive and aggressive exporting. A passive exporter awaits orders or comes across them by chance; an aggressive exporter develops marketing strategies which provide a broad and clear picture of what the firm intends to do in the foreign market.  significant differences with regard to the severity of exporting problems in motivating pressures between seekers and non-seekers of export opportunities. They distinguished between firms whose marketing efforts were characterized by no activity, minor activity and aggressive activity.
Those firms who are aggressive have clearly defined plans and strategy, including product, price, promotion, distribution and research elements. Passiveness versus aggressiveness depends on the motivation to export. In countries like Tanzania and Zambia, which have embarked on structural adjustment programmes, organisations are being encouraged to export, motivated by foreign exchange earnings potential, saturated domestic markets, growth and expansion objectives, and the need to repay debts incurred by the borrowings to finance the programmes. The type of export response is dependent on how the pressures are perceived by the decision maker. Piercy (1982)3 highlights the fact that the degree of involvement in foreign operations depends on "endogenous versus exogenous" motivating factors, that is, whether the motivations were as a result of active or aggressive behaviour based on the firm's internal situation (endogenous) or as a result of reactive environmental changes (exogenous).
If the firm achieves initial success at exporting quickly all to the good, but the risks of failure in the early stages are high. The "learning effect" in exporting is usually very quick. The key is to learn how to minimise risks associated with the initial stages of market entry and commitment - this process of incremental involvement is called "creeping commitment" .
Exporting methods include direct or indirect export. In direct exporting the organisation may use an agent, distributor, or overseas subsidiary, or act via a Government agency. In effect, the Grain Marketing Board in Zimbabwe, being commercialised but still having Government control, is a Government agency. The Government, via the Board, are the only permitted maize exporters. Bodies like the Horticultural Crops Development Authority (HCDA) in Kenya may be merely a promotional body, dealing with advertising, information flows and so on, or it may be active in exporting itself, particularly giving approval (like HCDA does) to all export documents. In direct exporting the major problem is that of market information. The exporter's task is to choose a market, find a representative or agent, set up the physical distribution and documentation, promote and price the product. Control, or the lack of it, is a major problem which often results in decisions on pricing, certification and promotion being in the hands of others. Certainly, the phytosanitary requirements in Europe for horticultural produce sourced in Africa are getting very demanding. Similarly, exporters are price takers as produce is sourced also from the Caribbean and Eastern countries. In the months June to September, Europe is "on season" because it can grow its own produce, so prices are low. As such, producers are better supplying to local food processors. In the European winter prices are much better, but product competition remains.
According to Collett4 (1991)) exporting requires a partnership between exporter, importer, government and transport. Without these four coordinating activities the risk of failure is increased. Contracts between buyer and seller are a must. Forwarders and agents can play a vital role in the logistics procedures such as booking air space and arranging documentation. A typical coordinated marketing channel for the export of Kenyan horticultural produce is given in figure 7.4.
In this case the exporters can also be growers and in the low season both these and other exporters may send produce to food processors which is also exported.
The export marketing channel for Kenyan horticultural products.

Exporting can be very lucrative, especially 'if it is of high value added produce. For example in 1992/93 Zimbabwe exported 5 338,38 tonnes of flowers, 4 678,18 tonnes of horticultural produce and 12 000 tonnes of citrus at a total value of about US$ 22 016,56 million. In some cases a mixture of direct and indirect exporting may be achieved with mixed results. For example, the Grain Marketing Board of Zimbabwe may export grain directly to Zambia, or may sell it to a relief agency like the United Nations, for feeding the Mozambican refugees in Malawi. Payment arrangements may be different for the two transactions.
Nali products of Malawi gives an interesting example of a "passive to active" exporting mode.
Nali Producers - Malawi
Nali group, has, since the early 1970s, been engaged in the growing and exporting of spices. Spices are also used in the production of a variety of sauces for both the local and export market. Its major success has been the growing and exporting of Birdseye chilies. In the early days knowledge of the market was scanty and thus the company was obtaining ridiculously low prices. Towards the end of 1978 Nali chilies were in great demand, yet still the company, in its passive mode, did not fully appreciate the competitive implications of the business until a number of firms, including Lonrho and Press Farming, started to grow and export.
Again, due to the lack of information, a product of its passivity, the firm did not realise that Uganda, with their superior product, and Papua New Guinea were major exporters, However, the full potential of these countries was hampered by internal difficulties. Nali was able to grow into a successful commercial enterprise. However, with the end of the internal problems, Uganda in particular, began an aggressive exporting policy, using their overseas legations as commercial propagandists. Nali had to respond with a more formal and active marketing operation. However it is being now hampered by a number of important "exogenous" factors.
The entry of a number of new Malawian growers, with inferior products, has damaged the Malawian chili reputation, so has the lack of a clear Government policy and the lack of financing for traders, growers and exporters.
The latter only serves to emphasise the point made by Collett, not only do organisations need to be aggressive, they also need to enlist the support of Government and importers.

It is interesting to note that Korey5 1986 warned that direct modes of market entry may be less and less available in the future. Growing trading blocks like the EU or EFTA means that the establishment of subsidiaries may be one of the only ways forward in future. Indirect methods of exporting include the use of trading companies (very much used for commodities like cotton, soya, cocoa), export management companies, piggybacking and countertrade.
Indirect methods offer a number of advantages including:
• Contracts - in the operating market or worldwide
• Commission sates give high motivation (not necessarily loyalty)
• Manufacturer/exporter needs little expertise
• Credit acceptance takes burden from manufacturer.
Piggybacking
Piggybacking is an interesting development. The method means that organisations with little exporting skill may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying. Normally these would be geographically adjacent or able to be served, say, on an air route. The fertilizer manufacturers of Zimbabwe, for example, could piggyback with the South Africans who both import potassium from outside their respective countries.
Countertrade
By far the largest indirect method of exporting is countertrade. Competitive intensity means more and more investment in marketing. In this situation the organisation may expand operations by operating in markets where competition is less intense but currency based exchange is not possible. Also, countries may wish to trade in spite of the degree of competition, but currency again is a problem. Countertrade can also be used to stimulate home industries or where raw materials are in short supply. It can, also, give a basis for reciprocal trade.
Estimates vary, but countertrade accounts for about 20-30% of world trade, involving some 90 nations and between US $100-150 billion in value. The UN defines countertrade as "commercial transactions in which provisions are made, in one of a series of related contracts, for payment by deliveries of goods and/or services in addition to, or in place of, financial settlement".
Countertrade is the modem form of barter, except contracts are not legal and it is not covered by GATT. It can be used to circumvent import quotas.
Countertrade can take many forms. Basically two separate contracts are involved, one for the delivery of and payment for the goods supplied and the other for the purchase of and payment for the goods imported. The performance of one contract is not contingent on the other although the seller is in effect accepting products and services from the importing country in partial or total settlement for his exports. There is a broad agreement that countertrade can take various forms of exchange like barter, counter purchase, switch trading and compensation (buyback). For example, in 1986 Albania began offering items like spring water, tomato juice and chrome ore in exchange for a contract to build a US $60 million fertilizer and methanol complex. Information on potential exchange can be obtained from embassies, trade missions or the EU trading desks.
Barter is the direct exchange of one good for another, although valuation of respective commodities is difficult, so a currency is used to underpin the item's value.
Barter trade can take a number of formats. Simple barter is the least complex and oldest form of bilateral, non-monetarised trade. Often it is called "straight", "classical" or "pure" barter. Barter is a direct exchange of goods and services between two parties. Shadow prices are approximated for products flowing in either direction. Generally no middlemen are involved. Usually contracts for no more than one year are concluded, however, if for longer life spans, provisions are included to handle exchange ratio fluctuations when world prices change.
Closed end barter deals are modifications of straight barter in that a buyer is found for goods taken in barter before the contract is signed by the two trading parties. No money is involved and risks related to product quality are significantly reduced.
Clearing account barter, also termed clearing agreements, clearing arrangements, bilateral clearing accounts or simply bilateral clearing, is where the principle is for the trades to balance without either party having to acquire hard currency. In this form of barter, each party agrees in a single contract to purchase a specified and usually equal value of goods and services. The duration of these transactions is commonly one year, although occasionally they may extend over a longer time period. The contract's value is expressed in non-convertible, clearing account units (also termed clearing dollars) that effectively represent a line of credit in the central bank of the country with no money involved.
Clearing account units are universally accepted for the accounting of trade between countries and parties whose commercial relationships are based on bilateral agreements. The contract sets forth the goods to be exchanged, the rates of exchange, and the length of time for completing the transaction. Limited export or import surpluses may be accumulated by either party for short periods. Generally, after one year's time, imbalances are settled by one of the following approaches: credit against the following year, acceptance of unwanted goods, payment of a previously specified penalty or payment of the difference in hard currency.
Trading specialists have also initiated the practice of buying clearing dollars at a discount for the purpose of using them to purchase saleable products. In turn, the trader may forfeit a portion of the discount to sell these products for hard currency on the international market. Compared with simple barter, clearing accounts offer greater flexibility in the length of time for drawdown on the lines of credit and the types of products exchanged.
Counter purchase, or buyback, is where the customer agrees to buy goods on condition that the seller buys some of the customer's own products in return (compensatory products). Alternatively, if exchange is being organised at national government level then the seller agrees to purchase compensatory goods from an unrelated organisation up to a pre-specified value (offset deal). The difference between the two is that contractual obligations related to counter purchase can extend over a longer period of time and the contract requires each party to the deal to settle most or all of their account with currency or trade credits to an agreed currency value.
Where the seller has no need for the item bought he may sell the produce on, usually at a discounted price, to a third party. This is called a switch deal. In the past a number of tractors have been brought into Zimbabwe from East European countries by switch deals.
Compensation (buy-backs) is where the supplier agrees to take the output of the facility over a specified period of time or to a specified volume as payment. For example, an overseas company may agree to build a plant in Zambia, and output over an agreed period of time or agreed volume of produce is exported to the builder until the period has elapsed. The plant then becomes the property of Zambia.
One problem is the marketability of products received in countertrade. This problem can be reduced by the use of specialised trading companies which, for a fee ranging between 1 and 5% of the value of the transaction, will provide trade related services like transportation, marketing, financing, credit extension, etc. These are ever growing in size.
Countertrade has disadvantages:
• Not covered by GATT so "dumping" may occur
• Quality is not of international standard so costly to the customer and trader
• Variety is tow so marketing of wkat is limited
• Difficult to set prices and service quality
• Inconsistency of delivery and specification,
• Difficult to revert to currency trading - so quality may decline further and therefore product is harder to market.
• Ensure the benefits outweigh the disadvantages
• Try to minimise the ratio of compensation goods to cash - if possible inspect the goods for specifications
• Include all transactions and other costs involved in countertrade in the nominal value specified for the goods being sold
• Avoid the possibility of error of exploitation by first gaining a thorough understanding of the customer's buying systems, regulations and politics,
• Ensure that any compensation goods received as payment are not subject to import controls.
Despite these problems countertrade is likely "to grow as a major indirect entry method, especially in developing countries.
Foreign production
Besides exporting, other market entry strategies include licensing, joint ventures, contract manufacture, ownership and participation in export processing zones or free trade zones.
Licensing: Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor".
It is quite similar to the "franchise" operation. Coca Cola is an excellent example of licensing. In Zimbabwe, United Bottlers have the licence to make Coke.
Licensing involves little expense and involvement. The only cost is signing the agreement and policing its implementation.
Licensing gives the following advantages:
• Good way to start in foreign operations and open the door to low risk manufacturing relationships
• Linkage of parent and receiving partner interests means both get most out of marketing effort
• Capital not tied up in foreign operation and
• Options to buy into partner exist or provision to take royalties in stock.
The disadvantages are:
• Limited form of participation - to length of agreement, specific product, process or trademark
• Potential returns from marketing and manufacturing may be lost
• Partner develops know-how and so licence is short
• Licensees become competitors - overcome by having cross technology transfer deals and
• Requires considerable fact finding, planning, investigation and interpretation.
Those who decide to license ought to keep the options open for extending market participation. This can be done through joint ventures with the licensee.
Joint ventures
Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation".
Joint ventures are a more extensive form of participation than either exporting or licensing. In Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food processing.
Joint ventures give the following advantages:
• Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process
• Joint financial strength
• May be only means of entry and
• May be the source of supply for a third country.
They also have disadvantages:
• Partners do not have full control of management
• May be impossible to recover capital if need be
• Disagreement on third party markets to serve and
• Partners may have different views on expected benefits.
If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome.
Ownership: The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. However, as mentioned earlier, repatriation of earnings and capital has to be carefully monitored. The more unstable the environment the less likely is the ownership pathway an option.
These forms of participation: exporting, licensing, joint ventures or ownership, are on a continuum rather than discrete and can take many formats. Anderson and Coughlan8 (1987) summarise the entry mode as a choice between company owned or controlled methods - "integrated" channels - or "independent" channels. Integrated channels offer the advantages of planning and control of resources, flow of information, and faster market penetration, and are a visible sign of commitment. The disadvantages are that they incur many costs (especially marketing), the risks are high, some may be more effective than others (due to culture) and in some cases their credibility amongst locals may be lower than that of controlled independents. Independent channels offer lower performance costs, risks, less capital, high local knowledge and credibility. Disadvantages include less market information flow, greater coordinating and control difficulties and motivational difficulties. In addition they may not be willing to spend money on market development and selection of good intermediaries may be difficult as good ones are usually taken up anyway.
Once in a market, companies have to decide on a strategy for expansion. One may be to concentrate on a few segments in a few countries - typical are cashewnuts from Tanzania and horticultural exports from Zimbabwe and Kenya - or concentrate on one country and diversify into segments. Other activities include country and market segment concentration - typical of Coca Cola or Gerber baby foods, and finally country and segment diversification. Another way of looking at it is by identifying three basic business strategies: stage one - international, stage two - multinational (strategies correspond to ethnocentric and polycentric orientations respectively) and stage three - global strategy (corresponds with geocentric orientation). The basic philosophy behind stage one is extension of programmes and products, behind stage two is decentralisation as far as possible to local operators and behind stage three is an integration which seeks to synthesize inputs from world and regional headquarters and the country organisation. Whilst most developing countries are hardly in stage one, they have within them organisations which are in stage three. This has often led to a "rebellion" against the operations of multinationals, often unfounded.
Export processing zones (EPZ)
Whilst not strictly speaking an entry-strategy, EPZs serve as an "entry" into a market. They are primarily an investment incentive for would be investors but can also provide employment for the host country and the transfer of skills as well as provide a base for the flow of goods in and out of the country. One of the best examples is the Mauritian EPZ12, founded in the 1970s.
CASE 7.2 The Mauritian Export Processing Zone
Since its inception over 400 firms have established themselves in sectors as diverse as textiles, food, watches. And plastics. In job employment the results have been startling, as at 1987, 78,000 were employed in the EPZ. Export earnings have tripled from 1981 to 1986 and the added value has been significant- The roots of success can be seen on the supply, demand and institutional sides. On the supply side the most critical factor has been the generous financial and other incentives, on the demand side, access to the EU, France, India and Hong Kong was very tempting to investors. On the institutional side positive schemes were put in place, including finance from the Development Bank and the cutting of red tape. In setting up the export processing zone the Mauritian government displayed a number of characteristics which in hindsight, were crucial to its success.
• The government intelligently sought a development strategy in an apolitical manner
• It stuck to its strategy in the long run rather than reverse course at the first sign of trouble
• It encouraged market incentives rather than undermined them
• It showed a good deal of adaptability, meeting each challenge with creative solutions rather than maintaining the status quo
• It adjusted the general export promotion programme to suit its own particular needs and characteristics.
• It consciously guarded against the creation of an unwieldy bureaucratic structure.
Organisations are faced with a number of strategy alternatives when deciding to enter foreign markets. Each one has to be carefully weighed in order to make the most appropriate choice. Every approach requires careful attention to marketing, risk, matters of control and management. A systematic assessment of the different entry methods can be achieved through the use of a matrix .
Matrix for comparing alternative methods of market entry
Entry mode
Evaluation criteria   Indirect export   Direct export   Marketing subsidiary   Counter trade   Licensing   Joint venture   Wholly owned operation   EPZ
a) Company goals          
b) Size of company          
c) Resources          
d) Product          
e) Remittance          
f) Competition          
g) Middlemen characteristics          
h) Environmental characteristics          
i) Number of markets          
j) Market          
k) Market feedback          
l) International market learning          
m) Control          
n) Marketing costs          
o) Profits          
p) Investment          
q) Administration personnel          
r) Foreign problems          
s) Flexibility          
t) Risk          
Details of channel management will appear in a later chapter.
As has been pointed out time and again in this text, the international marketing of agricultural products is a "close coupled" affair between production and marketing and end user. Certain characteristics can be identified in market entry strategies which are different from the marketing of say cars or television sets. These refer specifically to the institutional arrangements linking producers and processors/exporters and those between exporters and foreign buyers/agents.
Institutional links between producers and processors/exporters
One of the most important factors is contract coordination. Whilst many of the details vary, most contracts contain the supply of credit/production inputs, specifications regarding quantity, quality and timing of producer deliveries and a formula or price mechanism. Such arrangements have improved the flow of money, information and technologies, and very importantly, shared the risk between producers and exporters.
Most arrangements include some form of vertical integration between producers and downstream activities. Often processors enter into contracted outgrower arrangements or supply raw inputs. This institutional arrangement has now, incidentally, spilled over into the domestic market where firms are wishing to target higher quality, higher priced segments.
Producer trade associations, boards or cooperatives have played a significant part in the entry strategies of many exporting countries. They act as a contact point between suppliers and buyers, obtain vital market information, liaise with Governments over quotas etc. and provide information, or even get involved in quality standards. Some are very active, witness the Horticultural Crops Development Authority (HCDA) of Kenya and the Citrus Marketing Board (CMD) of Israel, the latter being a Government agency which specifically got involved in supply quotas. An example of the institutional arrangements13 involved is given in table 7.3.
Institutional arrangements linking producers with processors/exporters
Commodity   Market
co-ordination   Contract
co-ordination   Ownership
interaction   Association
co-ordination   Government
co-ordination   Marketing risk reduction
Kenya vegetables   X   X   X         X
Zimbabwe horticulture   X         X   X   X
Israel fresh fruits          
Thailand tuna      XX      X   X   X
Argentina beef      X      X      X
XX = Dominant linkage
Institutional links between exporters and foreign buyers/agents
Linkages between exporters and foreign buyers are often dominated by open market trade or spot market sales or sales on consignment. The physical distances involved are also very significant.
Most contracts are of a seasonal, annual or other nature. Some products are handled by multinationals, others by formal integration by processors, building up import/distribution firms. In the case of Kenyan fresh vegetables familial ties are very important between exporters and importers. These linkages have been very important in maintaining market excess, penetrating expanding markets and in obtaining market and product change information, thus reducing considerably the risks of doing business. In some cases, Government gets involved in negotiating deals with foreign countries, either through trade agreements or other mechanisms. Zimbabwe's imports of Namibian mackerel were the result of such a Government negotiated deal. Table 7.413 gives examples of linkages between exporters and foreign buyers/agents.
Linkages between exporters and foreign buyers/agents.
Commodity   Market
co-ordination   Contract
co-ordination   Ownership interaction   Association
co-ordination   Government
co-ordination   Marketing risk reduction
Kenya vegetables   X   X   X         X
Zimbabwe horticulture      X      X   X   X
Israel fresh fruits   X   X          X
Thailand tuna   X   XX   XX   X      X
Argentina beef   XX   X   XX   X   X   X
XX = Dominant linkage
Once again, it can not be over-emphasized that the smooth flow between producers, marketers and end users is essential. However it must also be noted that unless strong relationships or contracts are built up and product qualities maintained, the smooth flow can be interrupted should a more competitive supplier enter the market. This also can occur by Government decree, or by the erection of non-tariff barriers to trade. By improving strict hygiene standards a marketing chain can be broken, however strong the link, by say, Government. This, however, should not occur, if the link involves the close monitoring and action by the various players in the system, who are aware, through market intelligence, of any possible changes.
======================
I  PREFER   JOINT  VENTURE.
Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation".
Joint ventures are a more extensive form of participation than either exporting or licensing. In Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food processing.
Joint ventures give the following advantages:
• Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process
• Joint financial strength
• May be only means of entry and
• May be the source of supply for a third country.
They also have disadvantages:
• Partners do not have full control of management
• May be impossible to recover capital if need be
• Disagreement on third party markets to serve and
• Partners may have different views on expected benefits.
If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome.






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