Indusrty Analysis Final Document

CHAROTAR UNIVERSITY OF SCIENCE AND TECHNOLOGY (CHARUSAT)
FACULTY OF MANAGEMENT STUDIES (FMS)

INDUKAKA IPCOWALA INSTITUTE OF MANAGEMENT (I2IM)
(BM305) PROJECT -1
INDUSTRY ANALYSIS FORMAT
Sr.
No.:
1.
2.
3.
4.
5.
6.
Particular
Introduction
1.1 Evolution and Growth of Industry in World
1.2 Evolution and Growth of Industry in India
1.3 Evolution and Growth of Firm
Industry Scenario
2.1 Global Scenario
2.2 Indian Scenario
Market Players and Market Share
Major Products in the Industry
Demand Determinants (Global and Indian)
5.1 Price
5.2 Income
5.3 Penetration level
5.4 Availability of Product/Service/Finance
5.5 Promotion Schemes
5.6 Recent Trends
Industry Analysis1
6.1 PESTEL Analysis
6.1.1.1 Political/Legal factors
6.1.1.2 Economic factors
6.1.1.3 Sociocultural factors
6.1.1.4 Technological factors
6.1.1.5 Environmental factors
6.2 Poters Five Forces Analysis
6.2.1.1 Rivalry Among Competitor
6.2.1.2 Threats From New Entries
6.2.1.3 Threats From Substitute Product
6.2.1.4 Bargaining Power of Suppliers
6.2.1.5 Bargaining Power of Buyers
Remarks
Annexure I- Sample 1, 2 & 3
Refer
Annexure II Template 1
Annexure I Sample 1, 2 & 3
Annexure III & IV for
Reference Material
Refer
Reference Material
Note:
All models used in Industry Analysis should include Diagrammatic representations with Foot or End notes.
Summary of all Models used in industry analysis should be represented at the end of Industry Analysis with
the help of scale.
1|Page
Sr.
No.:
Particular
6.3 SWOT/C Analysis
6.3.1.1 SW (Internal)
6.3.1.2 OT/C (External)
6.4 BCG Matrix

6.4.1.1 Stars
6.4.1.2 Question Marks
6.4.1.3 Cash Cows
6.4.1.4 Dogs
6.5 Value Chain Analysis
8.
6.6 McKinsey 7s Model

6.6.1.1 Strategy
6.6.1.2 Structure
6.6.1.3 Systems
6.6.1.4 Shared Values
6.6.1.5 Skills
6.6.1.6 Style
6.6.1.7 Staff
Key Issues and Trends
7.1.1.1 Industry Prospects
7.1.1.2 Challenges faced by Industry
Future Outlook
9.
Industry Attractiveness
7.
2|Page
Remarks
Refer
Reference Material
Refer
Reference Material
Refer
Reference Material
Refer
Reference Material
Annexure III & IV for Reference

Material
Material
Material
Annexure -1
A
BRIEF REPORT
ON
ENGINEERING SECTOR IN INDIA
January 2015
For more information, contact: sateesh.kulkarni@cci.in
A brief report on Engineering Sector in India
1. OVERVIEW
1.1
Background
Indian engineering industry has witnessed an unprecedented growth in the past few years as a result
of increased investment in infrastructure development and industrial production. Today, India has a
diversified industrial machinery/capital base competent of catering to complex requirements and
demands for an entire range of industrial machinery. The engineering industry plays a significant role
in the development of other industrial sectors in the economy. This sector is very closely linked with
the manufacturing and infrastructure sectors of the economy. The quality and cost of engineering
products depends on the quality of the parent machine tools and their automation levels. The
development of machine tool industry is, therefore, of great importance for a competitive and selfreliant industrial structure.
The Indian engineering sector is of strategic importance to the economy owing to its intense
integration with other industry segments. Development in sectors such as infrastructure, power,
mining, oil and gas, refinery, steel, automotives, and consumer durables are driving demand in the
engineering sector. Major foreign players are also confident and have big expectations from the
Indian engineering segment as it enjoys a comparative advantage in terms of manufacturing costs,
market knowledge, technology and creativity. The total exports of Indian engineering sector stood at
US$ 56.7 billion during Fiscal Year 2013 and are anticipated to grow to US$ 125 billion by Fiscal
Year 2014. Exports from the engineering segment have registered a compound annual growth rate
(CAGR) of 12.6% over the period Fiscal Year 2008-13 wherein transport equipment is the leading
contributor to engineering exports.
Engineering
Heavy
Engineering
Heavy
Electrical
Private & Confidential
Heavy
Engineering
and Machine
Tools
Light
Engineering
Automotive
Low
Technology
Products
High
Technology
Products
Page 2 of 13
2. GROWTH OF INDIAN ENGINEERING SECTOR

Growth in the domestic engineering industry has been fuelled by growth in key end-user industries
and many new projects undertaken in various core industries such as railways, power, and
infrastructure. Capacity creation in sectors such as infrastructure, oil and gas, power, mining,
automobiles, auto components, steel, refinery, and consumer durables has driven growth in this
sector. For example, the domestic sales of automobiles have grown at a CAGR of around 18% over
the past four years thereby increasing the demand for engineering goods.
Apart from demand from user industries, the availability of technical education infrastructure that
provides an increased number of technically trained human resources each year has been another
key factor aiding the engineering industry in India. Further, India is being preferred by global
manufacturing companies as an outsourcing destination due to its lower labor cost and better
designing capabilities.
Growth sector is driven by key user industries
Industrial
Majors
(Refining
Automotive
textile)
Government
(Public
Investment)
Indian
Engineering
Sector
Power Utilities
(Generation,
transmission,
& Distribution
Retail
Consumer
(Pumps &
Motors)
Page 3 of 13
2.1
Heavy Engineering
The engineering industry in India manufactures a variety of products, with heavy engineering goods
accounting for majority of the production. Most of the leading players in the heavy engineering
goods segment manufacture high value heavy engineering goods using high end technology. The
requirement of huge capital investments acts as an entry barrier. Consequently, the small and
unorganized firms have small market presence. The unorganized sector specializes in manufacturing
low-technology products while a few small scale units are involved only in assembly of imported
components. This segment caters to the replacement market for few products such as low quality
small bearings.
2.2
Light Engineering
On the other hand, manufacturers of light engineering goods use medium to low-end technology.
The entry barrier is low, owing to relatively lower requirement of capital and technology. This
segment is characterized by dominance of small and unorganized players, which manufacture low
value-added products. However, a few medium and large scale firms produce high value-added
products. This segment is also characterized by small capacities and high level of competition.
Classification of Heavy & Light engineering sub-segments
Heavy engineering sector
Textile machinery
Cement machinery
Sugar machinery
Rubber machinery
Material handling equipment
Oil field equipment
Metallurgical
Mining machinery
Dairy machinery
Machine tool
Light engineering sector

Rolling bearing
Medical and surgical instruments
Process control instruments
Industrial fasteners
Ferrous castings
Steel forgings
Seamless steel pipes and tubes
Electrical resistance welded (ERW) steel pipes
and tubes
Submerged-arc welded (SAW) pipes
Bicycle
Source: Ministry of Heavy Industries & Department of Industrial Policy & Promotion
Page 4 of 13
Advantage in Engineering Sector
Growing demand
Capacity creation in sectors such as
infrastructure, power, mining, oil & gas,
refinery, steel, automotives, and consumer
durables driving demand in the engineering
sector
Rising demand for electrical and
construction equipment
Attractive opportunities
Nuclear capacity expansion to provide
significant business opportunities to the
electrical machinery industry
Rapid increase in infrastructure investment
and industrial production to fuel further
growth
Engineering
Sector
Higher investments
Comparative advantage vis--vis peers in
terms of manufacturing costs, market
knowledge, technology and creativity
Highly organized sector and dominated by
large players employing over four million
skilled and semi-skilled labour
Policy support
De-licensed engineering sector; 100 per
cent FDI permitted
Cumulative FDI totaled USD 19.9 billion
over April 2000-April 2013 due to policy
support
Page 5 of 13
2.3
Major markets
The engineering sector is one of the major contributors to the country's total merchandise
shipments. The US and Europe together account for over 60% of India's total engineering exports.
Engineering exports mainly include transport equipment, capital goods, other machinery/equipment
and light engineering products like castings, forgings and fasteners. The Ministry of Commerce and
Industries has set a target of shipping US$ 125 billion worth of engineering goods by the end of
2013-14. Indian engineering companies are scouting for newer markets (like Latin America, Africa
etc.) for exports along with strengthening their base in the US and Europe. Engineering goods
represent India's third-biggest export sector which rose 2% in August 2013. Engineering exports are
projected to cumulatively expand by 22% in September-December 2013 to US$ 21.5 billion against
US$ 17.1 billion last fiscal.
Transport equipment is the leading contributor to engineering exports. The segment accounted for
32.5 per cent of the total engineering exports during FY13* (*Latest updated data).
Export Segment (FY 13*)

Transportequipment
14.1%
32.5%
9%
Machineryand
Instrument
Manufacturesofmetals
17.7%
26.8%
Primaryandsemi
furnishedironandsteel
Others
Page 6 of 13
2.4
Growth opportunities in Engineering Sector
Defence
Civil nuclear sector
Auto components
Power transmission
and distribution
(T&D)
Material handling
equipment
Machine tools
Budget for the defence sector is expected to grow 8 per cent until
2014; of this, 54 per cent would be earmarked for procuring
manufactured items which is likely to translate into a market
opportunity of USD91 billion over 20102014
Government initiatives, such as allowing private sector
participation, have been reinforced by opening up the sector to 26
per cent FDI, and its offset policy is expected to enhance private
sector (including SME) participation
Indias nuclear capacity is expected to be strengthened by 3.8 GW

by 2012; an additional 12,000 MW has been planned under the
12th Five-Year Plan (201217)
It represents a total business opportunity worth USD312 million
for the manufacturing industry, which is likely to garner 61 per
cent
Global auto majors are rapidly ramping up the value of

components they source from India, steered by the countrys
advanced engineering skills, established production lines, a
thriving domestic automobile industry and competitive costs
Industry sales are expected to increase to USD40 billion by 2016,
with about USD20 billion generated from exports
T&D expenditure is set to increase as a result of growth in power

generation and privatisation of distribution
By the end of 2012, the transmission network was expected to be
about 60,000 circuit km, with a potential demand for 630,000
transformers
The material handling equipment sector is expected to gain from

robust demand from steel, power, mineral and other
infrastructure industries
Market demand for material handling equipment is estimated at
USD30 billion over 200714
Demand for machine tools from the capital goods sector

(especially automobile and textile industries) is projected to
remain high
Considering the industry's demand for higher productivity,
superior precision and accuracy, as well as low-cost manufacturing
solutions, computer numerically controlled (CNC) machine tools
are set to be in greater demand
Page 7 of 13
2.5
Export Growth in Engineering Sector

Engineering exports include transport equipment, capital goods, other machinery/equipment and
light engineering products such as castings, forgings and fasteners.
Page 8 of 13
3. MARKET PLAYERS
Top players in the engineering sector are
Name of the
company
Parent Company
Output
Product &
Services
Plants
Public sector
enterprise. Indias
largest engineering
and manufacturing
enterprise
Revenues (FY 13)

$9.3 billion
Caters to power
generation and
transmission,
transportation
(especially
railways),telecom,
renewable energy
& industry at
large.
14 manufacturing
divisions, four
power sector
centers, over 100
project sites, eight
service centers
and 18 regional
offices.
ABB Ltd
Private Company
Revenues (FY 13)

$1.4 billion
Transformers,
Facilities are
Switch
Gears, located at
Control Gears
Bangalore,
Faridabad, Halol,
Haridwar
Siemens Ltd
Flagship of the
Revenues (FY 13)
Siemens Group in $2.6 billion
India. Siemens AG,
the parent
company holds
54.63 percent in
Siemens Ltd
Power generation
and
Distribution
equipment,
industrial projects
and equipment,
transportation
systems,
communication
and healthcare
products
Has plants at
Aurangabad,
Nashik, Goa,
Thane and
North 24
Parganas (West
Bengal)
Crompton
Greaves
Part of the
Avantha Group
Largest private
sector enterprise
in the business of
electrical
engineering
Facilities are
located at
Bhind, Mumbai,
Nashik, Hosur,
Goa
BHEL
Revenues (FY 13)

$2.1 billion
Page 9 of 13
Larsen &
Toubro Ltd
(L&T)
Part of the L&T

group, Indias
largest engineering,
and construction
conglomerate.
Revenues (FY 13)

$28.3 billion
Four segments
namely
Engineering and
Construction
(E&C), Cement,
Electrical and
electronics and
Diversified
business. It also
has 19
subsidiaries
Facilities are
Coimbatore in
Tamil Nadu,
Kurnool, and
District in
Andhra Pradesh
and Hassan in
Karnataka.
Page 10 of 13
4. SWOT ANALYSIS
Engineering Sector SWOT Analysis
Strengths
Engineering is the largest sector in India.

Demand driven industry
It is a vast sector that ranges from mini
projects to large collaborations
Excellent advancement in technologies
Availability of abundant human
resources
Geographically situated at ideal locations
Opportunity
Weakness
Large product development cycle

Unprofessional working style
Inadequate level of training of
employees
Lack of professionalism at top
management
Unorganized vendor base
Growing channel of exports in the

neighboring countries.
A huge potential for direct exports in
the neighboring countries
Industries in India is being looked upon
as an outsourcing destination by global
companies
The future for engineering sector is very
promising. Power projects, other
infrastructure development activities,
industrial growth, and favorable policy
regulations will drive growth in
industries.
Threat
Exposure to global markets
Fluctuating raw material prices
Recession leading to
delays/cancellations of projects
Page 11 of 13
5. GOVERNMENT POLICIES
5.1
Government Initiative
Governments focus on infrastructure development is expected to keep demand for the engineering
sector high. Continued growth of manufacturing sector and favorable regulatory policies would
further propel the sectors growth. Engineering Services Outsourcing (ESO) services from India has
the potential to exceed US $40bn by 2020, and with the right support from Government and other
stakeholders, can impact the engineering sector as a whole.
The Government has been instrumental in the growth of the Engineering sector:
5.2
Tariff protection on capital goods has been withdrawn. This has reduced custom duties on a
range of engineering equipments.
Initiatives like Power for all by 2012, capacity addition plans in the 12th Five Year Plan and
infrastructure projects such as Golden Quadrilateral and the North-South and East-West
corridors have fuelled growth in the sector.
Government has granted significant number of SEZs for the engineering sector across the
country.
FDI Policy
The initiatives of the government towards FDI have also served as a catalyst to further raise the
demand for engineering goods and machinery.
FDI inflows: Apr 2000-Aug 2013
Engineering
industry
attracts
around 35% of the total FDI
through an automatic route,
Removal of tariff protection on
capital goods, de-licensing of heavy
electrical industry and allowance of
100%
FDI,
infrastructure
development and reduction of
custom
duties
on
various
equipments are some of the
initiatives by the government,
which have positively impacted the
engineering sector.
Particulars
Rs billion US$ million
Electrical equipment
Miscellaneous mechanical and
engineering
Industrial machinery
Non-conventional energy
Machine tools
Medical and surgical appliances
Agricultural machinery
Earth-moving machinery
Railway related components
Industrial instruments
Scientific instruments
Boilers and steam generating plants
150.13
114.73
3,242.14
2,483.98
122.95
141.28
31.65
35.73
16.60
8.64
17.93
3.10
5.42
3.06
2,519.45
2,801.02
655.68
717.61
337.35
190.05
366.29
67.06
102.78
62.00
Source: Department of Industrial Policy & Promotion
Page 12 of 13
6. FUTURE OUTLOOK
The engineering sector is expected to grow in the future and has a positive outlook owing to
infrastructure development, favourable government policies, and new investments in power projects,
metals, oil & gas, and petrochemicals industries. Further industrial and manufacturing growth will
boost growth in the engineering sector. As the export market offers more opportunities to explore,
Indias contribution in global engineering exports is expected to increase. Emerging trends like
outsourcing of engineering services provide opportunities for growth. Engineering and design
services such as new product designing, product improvement, maintenance and designing
manufacturing systems are getting increasingly outsourced to Asian countries like India. It is
estimated that by 2020 India can be a US$ 40 billion market for engineering outsourcing services. In
addition, Department of Commerce has set a target of US$ 125 billion for engineering exports in
2013-14. Thereafter, for the remaining three years of the 12th Five Year Plan, based on a CAGR of
20% for the major sectors of engineering exports except Industrial Machinery, Electrical Machinery,
and Shipbuilding, the overall export target for engineering exports at the end of the 12th Five Year
Plan has been set at US$ 222 bn. Thus, there are many opportunities for the Indian engineering
sector
Page 13 of 13
Analysis of Toyota
Motor Corporation
By: Thembani Nkomo
This paper will explore the external and internal

environment of Toyota Motor Corporation, and suggest
recommendations to sustain its competitive advantage.
Analysis of Toyota Motor Corporation by Thembani Nkomo
ANALYISIS OF TOYOTA MOTOR CORPORATION
TABLE OF CONTENTS
COMPANY OVERVIEW
EXTERNAL ENVIRONMENT OF THE AUTOMOTIVE INDUSTRY

2.1
Industry Overview and Analysis
2.2
Industry Life Cycle
2.3
Industry Demand Determinants
2.4
Porters Five Forces
2.5
Industry Cost Structure Benchmark
2.6
Industry Competitive Landscape
2.7
Major Competitors
2.8
Key Success Factors in Industry
INTERNAL ENVIRONMENT OF TOYOTA

3.1
Core Competencies
3.2
Distinct Competency
3.3
SWOT Analysis
3.4
BCG Matrix: Internal Analysis of Toyota Portfolio
3.5
VRIO Framework Analysis
3.6
Toyotas Efforts in Emerging Economies
3.7
Case Study: Toyotas Successful Strategy in Indonesia
3.8
Strategic M&A, Partnerships, Joint Ventures, and Alliances
3.9
Analysis of Financial Performance
RECOMMENDATIONS
APPENDICES
REFERENCES
1. TOYOTA CORPORATE OVERVIEW:

Founded in 1937, Toyota Motor Corporation is a Japanese company that engages in the design, manufacture, assembly, and
sale of passenger cars, minivans, commercial vehicles, and related parts and accessories primarily in Japan, North America,
Europe, and Asia. Current brands include Toyota, Lexus, Daihatsu and Hino. Toyota Motor Corporation is the leading auto
manufacturer and the eighth largest company in the world. As of March 31, 2013, Toyota Motor Corporations annual
revenue was $213 billion and it employed 333,498 people. 1
2. EXTERNAL ENVIROMENT OF AUTOMOTIVE INDUSTRY:

2.1. Industry Overview and Analysis
Toyota Motor Corporation competes in the automotive industry. The past five years were tumultuous for automobile
manufacturers. Skyrocketing fuel prices and growing environmental concerns have shifted consumers' preferences away from
fuel-guzzling pickup trucks to smaller, more fuel-efficient cars. Some automakers embraced the change by expanding their
small-car portfolios and diversifying into the production of hybrid electric motor vehicles. Other automakers were more
reluctant to shift their focus from big to small cars, expecting the price of fuel to contract eventually, bringing consumers
back to the big-car fold. When fuel prices did fall during the second half of 2008, it was due to the US financial crisis ripping
through the global economy. This had a domino effect throughout the developed and emerging worlds, with many Western
nations following the United States into recession. Industry revenue fell about 15.4% in 2009. 2 Pent-up demands will aid
industry revenue growth, estimated at 2.1% in 2013, thus bringing overall revenue to an estimated $2.3 trillion. 3 Overall, the
large declines followed by recovery are expected to lend the industry average growth of 2.2% per year during the five years
to 2013. Throughout the past five years, growth in the BRIC countries supported production. Rising income in these
countries led to an increase in the demand for motor vehicles. Also, Western automakers moved production facilities to BRIC
countries to tap into these markets and benefit from low-cost production. Over the next five years, the emerging economies
will continue their growth, and demand for motor vehicles in the Western world will recover. Industry revenue is forecast to
grow an annualized 2.5% to total an estimated $2.6 trillion over the five years to 2018. 4
2.2. Industry Life Cycle
This industry is in the mature stage of its life cycle.
2.3. Industry Demand Determinants
Worldwide automobile demand is tied to vehicle prices, per capita disposable income, fuel prices and product innovation. On
the supply end, vehicle prices stem from material and equipment costs, with higher steel and plastic prices raising
manufacturers' purchasing costs and, ultimately, retail prices. During the past five years, automakers have been plagued with
high steel and plastics prices, which have raised manufacturing costs and product prices. On the demand side, per capita
disposable incomes determine affordability for consumers. As incomes increase, the propensity to purchase motor vehicles
increases as they become more affordable. Incentives are used to generate sales during periods of low economic growth. Over
the past five years, there has been a significant increase in the number of automobile financing companies being established
in the BRICs. This has resulted in the number and range of automobile loans increasing, which has contributed to stronger
industry demand. In the developed world, overall improved quality among most manufacturers has caused buyers to feel freer
to use price to differentiate similar products. Consumers are increasingly better informed about a vehicle's actual cost and less
likely to accept large annual price increases. In an era of low inflation, customers familiar with dealer cost information from
consumer publications and the internet have become more astute when negotiating the purchase of a vehicle. In this way,
consumer awareness and access to information can determine demand. Movements in fuel prices also generally influence the
demand for vehicles by type. During periods of high fuel prices, more fuel-efficient vehicles are in demand. Over the past
five years, the price of fuel has been rising, which has encouraged the adoption of hybrid and other fuel-efficient models. For
example, Japanese carmakers offering more fuel-efficient vehicles took market share from manufacturers of large vehicles
throughout the latter half of the past decade. Last, product innovation can spur demand, especially with regard to more fuelefficient vehicles such as hybrids and electric models. The more fuel-efficient a model is, the more likely a consumer will be
willing to invest up front in a new car for potential savings on fuel costs down the road.
2.4. Porters Five Forces of the Automotive Industry

Threat of New Entry (Weak):
Large amount of capital required
High retaliation possible from existing companies, if new entrants would bring innovative products and ideas to the
industry
Few legal barriers protect existing companies from new entrants
All automotive companies have established brand image and reputation
Products are mainly differentiated by design and engineering quality
New entrant could easily access suppliers and distributors
It is very hard to achieve economies of scale for small companies
Governments often protect their home markets by introducing high import taxes
Supplier power (Weak):
Large number of suppliers
Some suppliers are large but the most of them are pretty small
Companies use another type of material (use one metal instead of another) but only to some extent (plastic instead of
metal)
Materials widely accessible
Suppliers do not pose any threat of forward integration
Buyer power (Strong):
There are many buyers
Most of the buyers are individuals that buy one car, but corporates or governments usually buy large fleets and can
bargain for lower prices
It doesnt cost much for buyers to switch to another brand of vehicle or to start using other type of transportation
Buyers can easily choose alternative car brand
Buyers are price sensitive and their decision is often based on how much does a vehicle cost
Buyers do not threaten backward integration
Threat of Substitutes (Weak):
There are many alternative types of transportation, such as bicycles, motorcycles, trains, buses or planes
Substitutes can rarely offer the same convenience
Alternative types of transportation almost always cost less and sometimes are more environment friendly
Competitive Rivalry (Very Strong):
Moderate number of competitors
If a firm would decide to leave an industry it would incur huge losses, so most of the time it either bankrupts or stays in
automotive industry for the lifetime
Industry is very large but matured
Size of competing firms vary but they usually compete for different consumer segments
Customers are loyal to their brands
There is moderate threat of being acquired by a competitor
2.5. Automotive Industry Cost Structure Benchmark
Purchases (70.7%), wages (6.3%), depreciation (6.0%), rent & utilities (1.7%), other (10.4%), profit (4.9%) 5
2.6. Automotive Industry Competitive Landscape
Market share concentration in the industry is low. The industry is deemed to have a low level of concentration, and the
largest four automakers are estimated to account for about one-third of global revenue.
2.7. Major Companies in the Automotive Industry
Toyota (10.2%), Volkswagen (9.6%), General Motors (6.9%), Ford (5.6%), Others (67.7%) 6
2.8. Key Success Factors in the Automotive Industry:
Flexibility in determining expenditure: Controlling employee-related costs, such as health and pension costs, makes
manufacturers in the developed world more competitive.
Establishment of export markets: Development of export markets helps negate any downturns in domestic markets.
Use of most efficient work practices: Good industrial relations through a motivated workforce assist in minimizing
industrial disputes.
Effective cost controls: A close relationship with suppliers and good distribution channels assist controlling costs.
Access to the latest available and most efficient technology and techniques: The industry is highly competitive, so
enterprises need a technology-enabled competitive edge.
Optimum capacity utilization: Excessively high plant utilization is required for success in any modern automobile and
light-duty motor vehicle manufacturing plant.
3. INTERNAL ENVIROMENT OF TOYOTA:

3.1. Core Competency
The core competence of Toyota Motor Corporation is its ability to produce automobiles of great quality at best prices,
thereby providing a value for money to the customers. This core competence of quality can be attributed to its innovative
production practices. The quality aspect of Toyotas products have revolutionized the automobiles in the past and almost all
the automobile companies had to try and better the quality of their products. It is a cornerstone of the cost leadership strategy
that the company pursues.
3.2. Distinctive Competency
Toyotas distinctive competence is its production system known as the Toyota Production System or TPS. TPS is based on
the Lean Manufacturing concept. This concept also includes innovative practices like Just in Time, Kaizen, and Six Sigma
and so on. Toyota has worked tirelessly over the years to establish this distinctive competence. No other automobile
manufacturer can do it as well as Toyota does. This distinct competence has led to a competitive advantage that has given
Toyota a sustainable brand name and a market leader position. 7
3.3. SWOT Analysis
Strengths:
Strong market position and brand recognition: Toyota has a strong market position in different geographies across the
world. The company's market share for Toyota and Lexus brands, (excluding mini vehicles) in Japan was 45.5% in
FY2012. Similarly, Toyota has a market share of 12.2% in North America, 13.4% market share in Asia (excluding Japan
and China), and 4.3% market share in Europe. In addition, the company holds a 7% share of the Chinese market and a
significant market share in South and Central America, Oceania, Africa and the Middle East regions. Such strong market
position allows the company to gain competitive advantage and also expand into international markets. In addition,
Toyota holds a portfolio of strong brands in the automotive industry. Thus, the company's strong market position gives it
significant competitive advantage and helps it to register higher sales growth in domestic and international markets. 8
Strong focus on R&D: Toyota has a strong focus on R&D to expand its product portfolio and improve the functionality,
quality; safety and environmental compatibility of its products. The company's R&D efforts are directed at developing
new products and processes and improving the capabilities of existing products. The company conducts its R&D
operations at 14 facilities worldwide. Strong focus on R&D has helped the company in incorporating newer features to its
existing range of products and also in bringing out latest technologies in the varied areas. The company's strong focus on
R&D allows it to uphold the technological leadership in most of its product segments. It also enables Toyota to develop
innovative products, leading to strong sales. 9
Extensive production and distribution network: Toyota has an extensive production and distribution network. Toyota
and its affiliates produce automobiles and related parts and components through more than 50 manufacturing companies
in 27 countries and regions besides Japan. During FY2012, the company produced 7,435,781 vehicles, including
3,940,000 vehicles in Japan and 3,495,000 vehicles across all other manufacturing locations. In addition, Toyota has an
extensive distribution network. While the companys geographically well spread production base diversifies business
risks, its extensive distribution network provides a wider reach, thus boosting revenues. 10
Weaknesses:
Product recalls could affect brand image: Toyota has conducted a number of product recalls in the recent past, which
could affect the brand image and overall sales of the company. For instance, in 2011, Toyota recalled 111,000 models of
Toyota and Lexus brands vehicles due to the damage to elements of the substrate and potential shutdown of the hybrid
system. Further in the year, Toyota recalled 181,000 vehicles in Japan in relation to abnormal noise and oil leakage that
may have resulted from slack of bolts in the sub transmission and the rear wheel differential. In addition, the company
was involved in government investigations related to product recalls. For instance, in February 2012, the National
Highway Traffic Safety Administration initiated a preliminary investigation of a potentially faulty power window master
switch in the driver-side doors in model year 2007 Camry and RAV4 vehicles. This could also result in significant
penalties, which could affect the operational margins. 11
Declining sales in key geographic segments: Toyota witnessed a decline in its sales in key geographic segments. In
FY2012, the company witnessed declining sales across North America, Asia, Europe and other geographic reasons,
which together accounted for 60.8% of the total revenues of the company. Thus, a continuous decline in the company's
key geographic segments could put pressure on the profit making segments and the overall revenues of Toyota. 12
Poor allocation of resources as compared to peers: Toyota has low return on equity (ROE) and return on assets (ROA)
compared to its peer companies. The company's competitors such as Honda Motor and Nissan Motor have more ROE
when compared to Toyota. Honda Motor's ROE was 4.8%, while Nissan Motor's ROE was 8% in FY2012. In contrast,
Toyota's ROE was 2.7% in FY2012. Lower ROE and ROA compared to its peers indicates that the company is not using
the shareholders' money efficiently and that it is not generating high returns for its shareholders. Thus, poor allocation of
resources could hurt shareholder's value and confidence in the long term. 13
Opportunities:
Growing global automotive industry: The global automotive industry was severely affected by the economic downturn,
with a decline in revenues being recorded in 2008 and 2009. However, 2011 saw a strong rebound which has continued
into 2012. According to MarketLine, the global automotive manufacturing industry grew by 8.9% in 2012 to reach a
value of $1,563.9 billion. The recovery of global automotive industry thus provides Toyota an opportunity to gain more
customers and increase revenues. 14
Toyota poised to benefit from growing partnership with BMW: Toyota is poised to benefit from the growing
partnership with BMW. In June 2012, BMW and Toyota signed a memorandum of understanding aimed at long-term
strategic collaboration on technological fields. As part of the agreement, the two companies will partner for the joint
development of a fuel cell system, joint development of architecture and components for a future sports vehicle,
collaboration on power-train electrification and joint research and development on lightweight technologies. The growing
partnership between the two companies is expected to boost the technological know-how of the companies and may
result in the development of new products thus increasing revenues in the long run. Also, in the short run, the combined
partnership will result in significant synergies and cost-savings, boosting the operational margins. 15
Strong outlook for the global new car market: The global new cars market has experienced moderate growth during
2008-2012. However, forecasts suggest this will accelerate to strong double digit growth during the 2012-2016 periods.
Thus, the strong outlook for the global new car market coupled with the companys new product launches provides a
growth opportunity for the company. 16
Threats:
Intense competition: The worldwide automotive market is highly competitive. Toyota faces strong competition from
automotive manufacturers in its various markets. The competition among various auto players is likely to intensify in
light of continuing globalization and consolidation in the worldwide automotive industry. The factors impacting
competition include product quality and features, the amount of time required for innovation and development, pricing,
reliability, safety, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle
unit sales and large inventory, which may result in downward pricing pressure, thus impacting the financial condition and
results of operations of the company. 17
Appreciating Japanese Yen a major concern: Toyota is sensitive to the fluctuations in foreign currency exchange rates
and is principally exposed to fluctuations in the value of the Japanese Yen, the US dollar and the Euro. The strengthening
of the Japanese Yen against the US dollar and fluctuations in foreign exchange rates would have a material adverse effect
on Toyota's reported operating results, which in turn would impact the valuation of the company. 18
Natural disasters could impact production structure: Toyota is subject to disruption of production due to natural
disasters such as earthquakes, floods, among others. Toyota primarily operates in Japan which is a highest earthquake
prone region in the world. The country has witnessed many devastating earthquakes in the recent years which seriously
disrupted the economy. In 2011, the country witnessed one of the worst hit earthquakes in its history in the form of 2011
Tohoku earthquake, which led to a temporary production halt at its domestic auto manufacturing facilities. In the same
year, major floods occurred in Thailand which halted its operations and production of about 150,000 Toyota automobiles.
Such natural calamities, if occur frequently, could severely influence the production output of the company due to work
stoppages and in turn impact the overall revenue base and profitability. 19
3.4. BCG Matrix: Internal Analysis of Toyota Portfolio

High Relative Market Share
High market growth
STAR
Lexus- luxury sedans
Prius hybrid
Land Cruiser SUV
Low market growth
CASH COW
Camry , Corolla sedans
Innova , Venza MPV
Daihatsu -small cars
Low Relative Market Share

QUESTION
Scion for youth in USA
Camry / Corolla as hybrids
Bio fuel, Solar powered , hydrogen gas
Diesel engine cars for India, Southeast Asia
Small cars for India / China
More SUVs and MPVs : Fortuner

DOG
Celica , MR2 -for youth
Tundra pick-up
Crown, Cressida, Corona, Quails: Withdrawn
Declining markets in UK, Europe
Petrol cars to be phased out
3.5. VRIO Framework Analysis
Valuable: Yes, because it has been proven to keep production costs low
Rare: Yes, just-in-time production is a popular strategy used by companies in all industries; however, Toyotas
methodology is very rare.
Inimitable: Yes, many companies have tried to recreate the system; however none have been able to do it in as efficient
of a manner.
Organization: Yes, Toyota has been using this system since the 1960s and have been perfecting it along the way.
Competitive Implication: This creates a sustained competitive advantage
3.6. Toyotas Efforts in Emerging Economies

Toyotas emerging market sales have increased significantly in the period 2000 to 2011, from 18.6% to 45%. 20 If this trend
continues, Toyotas sales in emerging markets will shortly surpass its sales in developed markets. Toyota successfully
observed and responded to the needs of the rising of middle class in the emerging markets. Through localization initiatives,
Toyota designs and produces cars in these markets to meet these consumers unique needs.
3.7. Case Study: Toyotas Successful Strategy in Indonesia
Toyota first began selling cars in Indonesia in 1971 and began producing them in 1977. Toyota entered the market via a joint
venture with Astra Motor. 21 From 2008 to 2012, sales have more than doubled from 199,000 units to 409,000 units. 22 In
terms of market share, Indonesia is Toyotas best performing market, with an estimated market share of 40%. 23 Four of the
top ten best-selling cars in Indonesia are Toyotas, with the Toyota Avanza taking the clear lead. The success of Toyota in
Indonesia can be attributed to its Innovative International Multi-Purpose Vehicle strategy launched in 2003. Specifically,
Toyota designed and produced cars in Indonesia to meet the needs of the local market, with the Toyota Avanza priced at
$16,000. Toyota launched its second auto plant in Indonesia in March 2013 at an investment of $340 million, and earlier this
year, Toyota announced that it plans to invest an additional $1.3 billion over the next five years. 24 If Toyota proceeds with
this plan, this will represent a doubling of Toyotas FDI of the last 40 years in the country. Motives for Toyotas FDI
initiatives in Indonesia include:
To capture Indonesia's growing middle class; which is expected to double by 2020.

To maintain its market dominance.
In response to Government incentives for new car buyers, which include tax breaks as low as 0% for low cost
eco-friendly cars, while maintaining interest rates in the low single-digits.
3.8. Toyotas Strategic M&A, Partnerships, Joint Ventures, and Strategic Alliances (2009 2013)
Shown in APPENDICES 2 & 3.
3.9. Analysis of Financial Performance

Overall, Toyota has outperformed the industry over the past five years. Total assets increased 586.8 billion yen from the end
of the previous fiscal year to 3,243.7 billion yen due mainly to an increase in market value of investment securities.
Liabilities amounted to 1,718.8 billion yen, an increase of 259.7 billion yen from the end of the previous fiscal year due
mainly to an increase in deferred tax liabilities. Net assets amounted to 1,524.9 billion yen, an increase of 327.1 billion yen
from the end of the previous fiscal year. Cash flows from operating activities increased by 151.2 billion yen in fiscal 2013,
due mainly to posting income before income taxes of 80.1 billion yen. Net cash provided by operating activities increased by
49.5 billion yen compared with an increase of 101.7 billion yen in fiscal 2012. Cash flows from investing activities resulted
in a decrease in cash of 274.2 billion yen in fiscal 2013, attributable primarily to an increase in payments for purchases of
property, plant and equipment amounting to 112.4 billion yen. Net cash used in investing activities increased by 264.8 billion
yen compared with a decrease of 9.4 billion yen in fiscal 2012. Cash flows from financing activities resulted in an increase in
cash of 7.0 billion yen in fiscal 2013, due mainly to 51.7 billion yen of net increase in short-term loans payable, despite the
redemption of bonds payable of 54.1 billion yen. After adding translation adjustments and cash and cash equivalents at
beginning of period, cash and cash equivalents as of March 31, 2013 stood at 179.3 billion yen, a decrease of 117.5 billion
yen, or 40%, over fiscal 2012. 25 Detailed Financial Ratios are shown in APPENDIX 1.
4. RECOMMENDATIONS:
1) Toyota should continue to undertake concerted efforts to strengthen its management platform and raise corporate value.
2) As immediate tasks, Toyota should promote business and cost structure reforms to realize a solid management platform
so that it can respond quickly to the changing market circumstances. Specifically, Toyota should maintain a streamlined
structure through the reduction of fixed costs and enhance its business in established markets in developed countries.
3) Toyota should accelerate its business expansion into rapidly growing emerging countries by thoroughly and meticulously
monitoring market conditions in respective regions and introducing products suited to the characteristics and needs of
each market. Toyota should also strive to establish production and supply structures to realize optimum product pricing
and delivery, and to enhance the value chain to provide a wide range of customer services in each country and region.
4) Toyota should consider making Lexus a priority in the Chinese market. This will enable it to become competitive with
other car manufacturers in the luxury segment. By increasing production facilities in Asia, this will enable Toyota to have
cheaper delivery channels and become closer to the emerging market customer. Toyota should also cut out layers of
middle management so that engineers get more authority over what specific customer needs are answered in the design
and development of a new car.
5) Toyota should pursue the development of environmentally conscious, energy-saving products while incorporating
functions and services demanded by customers (value chain) and delivering them to the global market. Acting on these
measures, Toyota should aim for growth in three business units, namely, solutions in the areas of materials handling
equipment, logistics and textile machinery; key components in the fields of car air-conditioning compressors and car
electronics; and mobility in the domains of vehicles and engines.
6) To support consolidated management on a global scale, Toyota should enhance the power of the workplace and diversity
in the use of human resources, and strive to nurture global human resources.
7) In addition to placing top priority on safety, Toyota should thoroughly enforce compliance, including observance of laws
and regulations, and actively participate in social contribution activities.
8) Toyota should aim to support industries and social infrastructures around the world by continuously supplying products
and services that anticipate customers needs in order to contribute to engendering a compassionate society.
9) Overall, Toyota has outperformed the industry over the past five years and gained market share. A shift toward smaller,
more fuel-efficient vehicles, which Toyota can manufacture at a relatively low price, will support growth in the United
States.
5. APPENDICES:
APPENDIX 1: Key Financial Ratios of Toyota Motor Corporation
Source: GlobeData
APPENDIX 2: Top Strategic M&A, Partnerships, Joint Ventures, and Strategic Alliances (2009 2013)
Source: MarketLine Financial Deals
APPENDIX 3: Breakdown of Strategic M&A, Partnerships, Joint Ventures, and Strategic Alliances (2009 2013)
Source: MarketLine Financial Deals
APPENDIX 4: Industry Overview

Industry Products and Services Segmentation:
Industry Market Segmentation:
Industry Business Locations:
Source: IBIS World 2013 Global Car Manufacturing Industry Report
APPENDIX 5: Industry Costs

APPENDIX 6: Industry Barriers to Entry

APPENDIX 7: Industry Cost Structure Benchmark:
APPENDIX 8: Map of Toyotas Worldwide Operations
Source: Toyota Motor Corporation 2012 Annual Report

APPENDIX 9: Toyotas History in Emerging Markets

APPENDIX 10: The Rise of Toyotas Sales in Emerging Markets
APPENDIX 11: Toyotas Growth in Indonesia

APPENDIX 12: Toyotas Market Share in Select Countries
Source: J.D. Power Automotive Forecasting
6. REFERENCES:
1
Yahoo Finance, accessed November 9, 2013, http://finance.yahoo.com/q/pr?s=TM+Profile

IBIS World: Global Car & Automotive Manufacturing Report, May 2013
3
4
5
PRWeb, http://www.prweb.com/releases/2013/9/prweb11088066.htm
6
Motor Trends, accessed November 9, 2013
http://www.motortrend.com/features/auto_news/1202markets_share_for_the_top_five_automakers/
7
Toyota Motor Corporation, http://www.toyota-global.com/company/vision_philosophy/toyota_production_system/
8
MarketLine: Toyota Motor Corporation Report, January 2013
9
10
11
12
13
14
15
16
17
18
19
20
Toyota Motor Corporation 2013 Annual Report
21
Toyota Indonesia, accessed November 9, 2013, www.toyota.co.id
22
Forbes, Toyota Eyes Big Growth Ahead in Emerging Markets, accessed November 9, 2013,
http://www.forbes.com/sites/greatspeculations/2013/04/04/toyota-eyes-big-growth-ahead-in-emerging-markets/
23
JD Power Auto Forecasting
24
Livemint, Toyota to Invest $337M in Indonesia Expansion, September 21, 2011,
http://www.livemint.com/Companies/vu8CW8UesUhBPHxQ99LWdL/Toyota-to-invest-337-mn-in-Indonesiaexpansion.html?facet=print
25
Toyota Industries: Financial Summary, FY 2013
2
INDIAN MANUFACTURING: PROFIT

POTENTIAL AND OPPORTUNITIES
ACROSS THE VALUE CHAIN
........................................................................................................................
CONTENTS
1.
SNAPSHOT OF INDIA'S MANUFACTURING SECTOR ......................................................... 5
2.
INDUSTRY ANALYSIS .............................................................................................................. 7
3.
2.1
Automotive and Auto Components....................................................................................... 7
2.2
Engineering goods................................................................................................................. 12
2.3
Oil and Gas ............................................................................................................................. 15
2.4
Chemicals .............................................................................................................................. 20
2.5
Textiles and Apparels............................................................................................................ 23
CONCLUSION
....................................................................................................................... 26
EXECUTIVE SUMMARY
Manufacturing sector accounts for nearly 16 per cent of India's GDP1. The
government's NMCC2 envisages increasing the share of manufacturing to
25 per cent of the GDP by 2025. India's manufacturing sector consists of a
number of industries. The major industries are engineering goods,
automotive, oil and gas, chemicals, and textiles. Together these make up
roughly 50 per cent of the sector. This report analyses the profitability of top
players across the value chain and identifies opportunities for these five
industries.
The value chain of auto sector consists of auto components and automotive
manufacturers. The profitability, as measured by five-year average EBITDA3
margin of major companies in the sector stood at 15.1 per cent. The
automotive segment enjoys higher profitability, with its average five-year
EBITDA margin standing at 19.5 per cent compared with 15.9 per cent for
auto-components sector. The major demand driver of growth in the auto
sector has been the rising per capita income, especially in semi urban and
rural areas.
The value chain of engineering goods sector consists of machine tools and
heavy engineering. The extended value chain would have other
manufacturing industries such as automotive, textiles and chemicals
following the heavy engineering segment. The five-year average EBITDA
margin of major companies in the sector stood at 12.9 per cent. The
machine tool makers enjoy a higher profitability, with their average five-year
EBITDA margin standing at 15.7 per cent compared with 10.6 per cent for
heavy engineering companies. The government's emphasis on
infrastructure development in recent years has been the major driver of
growth for this sector.
The value chain of the oil and gas sector is divided into three components:
upstream, midstream and downstream. Exploration and production are
considered upstream activities, while storage and transportation are
midstream. Downstream comprises refining, processing and marketing of
oil and gas. The five-year average EBITDA margin of major companies in
the overall sector stood at 27.1 per cent. There is a marked contrast in
profitability across the value chain, as the average EBITDA margin of
upstream players stands at 48.2 per cent compared with just 4 per cent for
downstream players.
GDP is Gross Domestic Product

NMCC is National Manufacturing Competitiveness Council
3 EBITDA is Earnings Before Interest, Tax, Depreciation and Ammortisation
1
The value chain of the chemicals sector begins with petrochemicals, which
are converted into basic chemicals. These basic chemicals are used for
polymer production; this is further converted into special chemicals. The
five-year average EBITDA margin of major companies in the sector stood at
20.9 per cent. The average profitability of the low value-add chemical
producers was found to be 43.2 per cent, while that of integrated players
varied from 15 per cent to 23 per cent.
The value chain of the textiles sector begins with fibre production, which is
spun into yarn. The yarn is knit into fabrics, which are further used to
manufacture garments. However, most of the large firms in the sector are
integrated players operating on the entire value chain. The five-year
average EBITDA margin of major companies in the sector stood at 16.4 per
cent. Exports have been the major driver of growth in the sector.
.........
1. SNAPSHOT OF INDIAS MANUFACTURING SECTOR

Manufacturing holds a key position in the Indian economy, accounting for nearly
16 per cent of real GDP in FY12 and employing about 12.0 per cent of Indias
labour force. Growth in the sector has been matching the strong pace in overall
GDP growth over the past few years. For example, while real GDP expanded at a
CAGR of 8.4 per cent over FY05-FY12, growth in the manufacturing sector was
marginally higher at around 8.5 per cent over the same period. Consequently, its
share in the economy has marginally increased during this time to 15.4 per cent
from 15.3 per cent.
Exhibit 1
Size of the manufacturing sector in India
9000
16.4
8000
16.2
7000
16.0
6000
15.8
5000
15.6
4000
15.4
3000
2000
15.2
1000
15.0
14.8
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Manufacturing sector (size in INR billion, constant prices)
Share in real GDP (%)
Source: RBI, Aranca Research
Exhibit 2
Growth in real GDP and manufacturing in India (%)
15
13
11
9
7
5
3
FY06
FY07
GDP
FY08
FY09
FY10
Manufacturing
FY11
FY12
Services
Source: RBI, Aranca Research
Rapid growth in the manufacturing sector has been accompanied by the higher
productivity and profitability of Indian manufacturing companies.
Indian Manufacturing: Profit Potential and Opportunities Across The Value Chain
.........
A study4 by the Reserve Bank of India (RBI) found that these companies
productivity was 24 per cent higher in 2005 compared to that in 2000. It also
derived that Indian companies achieved higher profit growth during the period.
Despite expected dips in profits during the 2009 downturn, manufacturing
industries have been resilient and are back on the recovery path towards precrisis levels or even higher. An example of the latter is the automotive industry,
which has been reporting strong growth in business activity owing to high
domestic and export demand.
The rising competitiveness of Indias manufacturing companies is reflected in the
countrys ranking as second in the world in terms of competitiveness as per the
2010 Global Manufacturing Competitiveness Index5 (GMCI) prepared by the US
Council on Competitiveness and Deloitte. This index factors in market dynamics
and policy issues that influence the sector. India is ahead of major developed and
emerging economies such as the US, South Korea, Brazil and Japan. Going
forward, the nations competitiveness would increase further with its index score
set to improve to 9.01 (out of 10) in the next five years from the 2010 figure of 8.15.
Exhibit 3
2010 Global Manufacturing Competitiveness Index
Current Rank
Country
Index
Score
Rank in
2015
China
10.00
India
8.15
Republic of
Korea
6.79
United States of
America
5.84
Brazil
5.41
Japan
5.11
Mexico
4.84
Germany
4.80
Singapore
4.69
11
10
Poland
4.49
New add*
Thailand
10
Source: Deloitte and US Council on Competitiveness
*New addition among the top-10 countries. Currently Thailand is
ranked 12th with an Index Score of 4.17
All these developments have significantly boosted Indias manufacturing prowess.

After China, the country is currently the largest producer of textiles, chemical
4
Profitability of Indian Corporate Sector: Productivity, Price or Growth?, Reserve Bank of

India Occasional Papers, Vol. 28, No. 3
5
based on the views of more than 400 senior manufacturing executives worldwide
.........
products, pharmaceuticals, basic metals, general machinery and equipment, and
electrical machinery, as per the United Nations Industrial Development
Organisation (UNIDO). The sectors importance to the domestic and global
economy is set to rise even further in FY12 as a combination of supply-side
advantages, policy initiatives, and private sector efforts set India on the path to
become a global manufacturing hub.
2. INDUSTRY ANALYSIS
Indias manufacturing sector consists of a number of industries. The major
industries are engineering goods, automotive, oil and gas, chemicals, and textiles.
Together these make up roughly 50 per cent of the manufacturing sectors
weight in the IIP6. Some of the industries have pure play companies present only
in one segment of the value chain, while others are characterised by presence of
integrated players across the chain in order to achieve synergies associated with
either backward or forward integration as the case maybe in a particular industry.
The major industries listed above have been analysed in the research note.
Porters Five Forces Model7 is used to determine the attractiveness of the
industries concerned. In the analysis below, we use a colour code to indicate
attractiveness in our diagrammatic representations; green indicates a favourable
scenario, yellow is neutral and red denotes an unfavourable scenario. For
instance, if the threat of new entrants is green, it means that there is low threat
from new entrants to the industry, hence enhancing the attractiveness quotient of
that segment. Profitability of the top companies across the value chain is analysed
for each of the sectors by considering their five-year average EBITDA margin
values, and opportunities are identified for each of the sectors.
2.1
Automotive and Auto Components
The Indian automobile industry is the seventh-largest in the world. It forms an

important part of the countrys manufacturing sector, accounting for nearly 22
per cent of the total manufacturing GDP. The automobile industry generated a
gross turnover of USD58.68 billion in FY11; volumes more than trebled over the
last decade (FY00-10). The auto components industry has been a high-growth
industry in the last decade, generating USD39.9 billion in revenues during FY119.
The auto sectors IIP10 (as indicated under motor vehicles, trailers & semi-trailers)
expanded at a rate of 15.1 per cent during FY0612*(Includes April Feb 2012) to
reach 256.3 from the base year FY05. This classifies the auto sector into the highgrowth category (1020 per cent).
6
The current IIP (with base year as 2004-05)

The forces of Porters model are threat of new entrants, threat of substitutes, competitive rivalry,
bargaining power of suppliers and bargaining power of customers. Attractiveness in this context
refers to the overall industry profitability, so an "attractive" industry is one in which the combination
of these five forces acts to drive overall profitability levels.
8
Society of Indian Automobile Manufacturers (SIAM)
9
Automotive Component Manufacturers Association of India (ACMA)
10
IIP is the Index of Industrial Production
7
.........
Exhibit 4
Growth in motor vehicles, trailers & semi-trailers (IIP)
35
30
25
20
15
10
5
0
-5
FY06
FY07
FY08
FY09
FY10
FY11
FY12*
-10
-15
Motor vehicles, trailers & semi-trailers
Source: Central Statistical Organisation, Aranca Research; Note: *FY12 includes
April Feb 2012
Sector Composition: Organised sector dominates in Automotives; Auto

Components is highly unorganised
The automotive industry consists of well-established companies such as Maruti
Suzuki, Tata Motors, Mahindra and Bajaj Auto, while the auto components
industry is largely unorganised (accounts for over 90 per cent of the total
companies). However, the smaller organised segment accounts for over 77 per
cent of the overall production.
Major growth drivers
11
Demand fundamentals: The rising per capita income over the last decade
has been a major driver for this industry, especially with rural incomes
also increasing at a decent pace in the same time frame. Demand for
commercial vehicles also received a boost in the last few years due to
roadway development in urban and rural areas, which leads to greater
market access. Easier access to credit has been another major facilitator
of the industrys growth as private banks got into the business of auto
financing and tapped into the huge and growing market.
Favourable policy: Favourable policy measures from the government have

aided the sectors growth. These measures permit the automatic
approval of foreign equity in the sector and encouraged R&D by offering
rebates on auto companies R&D expenditure. The Indian government
also set up NATRiP11s at a cost of USD390 million to adapt and implement
global performance standards. This initiative offers support to small car
manufacturers as a reduction of excise duty on them was announced.
NATRiP is National Automotive Testing and R&D Infrastructure Project
.........
Attractiveness of the industry
High
Medium
Wellestablished
supplier base
Large players
can have
controlling
power over
the suppliers
Bargaining power of customers
Two-three
large
companies in
each segment
Entry of
foreign
players has
increased
competition
Bargaining power of suppliers
Fairly mild
threat of
substitutes in
form of mass
transit and
bicycles
Competitive rivalry
High startup
capital
required
Highly
technology
intensive
Threat of substitutes
Threat of new entrants
Exhibit 5
Porters five forces of the Indian auto sector
Customers
have a wide
variety to
choose from
Large
customer-toproducer
ratio favours
automakers
Low
Source: Aranca Research
Value chain of automotive industry

The industrys value chain is consists of the auto components segment and
automaker segment. The segment can be further divided into many subsegments such as engine and parts, transmission and steering parts, suspension
and braking parts, and others. The automotive segment comprises two-wheelers,
three-wheelers, passenger vehicles and commercial vehicles.
.........
Exhibit 6
Value chain of the auto sector
Auto
components
Automotive
Engine & engine

parts
Transmission &
steering parts
Two-wheelers
Three-wheelers
Suspension &
braking parts
Equipment
Passenger vehicles
Commercial
vehicles
Electrical parts
Others
Profitability across the value chain

The industry enjoys high levels of profitability as seen from the figures of major
companies across the automotive and auto component segments given below.
The scatter graph shows the average of the top companies EBITDA margins of
the last five years. The average profitability of the considered set of major
automotive companies12 was 19.7 per cent compared to 15.9 per cent of the auto
component companies13, suggesting that an automotive manufacturer enjoys a
higher profit margin than an auto component manufacturer.
Exhibit 7
Five-year average of the EBITDA margins of top Indian automotive and auto
component companies
30.0
25.0
Rane Holdings Ltd

Mahindra Motors
Bajaj Auto Ltd
20.0
15.0
10.0
5.0
Maruti Suzuki India Ltd

Gabriel India Ltd
Sona Koyo Steering
Systems Ltd
Omax Autos Ltd
Tata Motors
Lumax Autos Ltd
0.0
Source: Thomson Reuters, Aranca Research

12
13
Maruti Suzuki, Tata Motors, Mahindra Motors, Bajaj Auto

Lumax Autos, Gabriel India Ltd., Rane Holdings Ltd., Omax Autos Ltd., Sona Koyo Steering
Systems Ltd.
10
.........
Opportunities in the sector
The Indian automotive sector is at a very attractive stage of growth with

the country emerging as a global R&D and small-car manufacturing hub.
Indian auto component manufacturers on the other hand are moving up

the value chain and delivering complex products as per the needs of
global clients; however, their focus still remains the growing domestic
industry.
Maruti Suzuki continuing strongly on its journey of success

Case Study
Maruti Suzuki India Limited, headquartered at New Delhi, is a partial subsidiary of Suzuki
Motor Corporation of Japan. It is India's largest passenger car company, accounting for
over 45% of the domestic car market.
Exhibit 8
Continuing on the journey of success
Expansion plans
to produce 1.7
million cars by
2013
Continuing market
leadership
55% market
share in the
Indian car market
Product portfolio
expansion
Product portfolio
comprising 16
passenger vehicle
models
Increased productivity
Enhanced R&D
capability
1994
Production of
Capacity expansion
2012
Roll out of 10
In the process of
establishing Suzukis
largest R&D facility
outside Japan
millionth car
1 millionth
car
Roll out of peoples car

(Maruti 800)
1983
1994
1997
2001
2004
2006
2007
2008
2009
2010
2011
Source: Maruti Suzuki, Aranca Research
11
.........
The company offers a range of cars across segments from the entry level to hatchbacks,
sedans as well as the 'C' segment and SUV14 categories. The government had an
ownership stake in it until 2007, when it sold its complete share to Indian financial
institutions, thereby totally privatising it.
Maruti Suzuki is widely credited for bringing along an automobile revolution in the country
and has been the Indian car markets leader for close to three decades.
The company is launching new products across different segments to expand its customer
base. These products include a low-cost low-emission Eeco model for the rural masses
and small businesses, and a venture into the luxury sedan segment for the first time with
Kizashi. Maruti Suzuki is also re-launching Swift, its best seller, with a design and features
to make it appealing to a wider audience.
2.2
Engineering goods
Engineering goods is the largest segment of the overall Indian industrial sector.
India is planning to spend over a trillion dollars during the next few years in
infrastructure building. The machinery and capital goods industry is set to
capitalise on this strong growth with most companies in the sector already
reporting massive orders worth more than double or treble their annual revenues.
Indias engineering industry also exports light engineering equipment worth
several billion dollars, mostly to developing countries. The IIP of the engineering
goods15 expanded at a CAGR of 20.4 per cent during FY0512 (FY12 data covers
April Feb) to reach 367 from the base year FY05. This classifies it into the
excellent growth category (>20 per cent).
Exhibit 9
Growth in Indian engineering goods excluding automotives (from IIP)
100%
80%
60%
40%
20%
0%
-20%
FY06
FY07
FY08
FY09
FY10
FY11
FY12*
Source: Central Statistical Organisation, Aranca Research; Note: The proxy used to
indicate the growth in the IIP of engineering goods include the following IIP heads:
Machinery and equipment n.e.c, Office, accounting & computing machinery, Electrical
machinery & apparatus n.e.c., Radio, TV and communication equipment & apparatus;
FY12* includes April - Feb2012 data
14
SUV Sports utility vehicle

IIP of Machinery and equipment n.e.c, Office, accounting & computing machinery, Electrical
machinery & apparatus n.e.c., Radio, TV and communication equipment & apparatus together
are used as a proxy for engineering goods
15
12
.........
Emphasis on infrastructure: Capacity additions for power generation and
an increase in infrastructure spending in the country have been the
industrys major drivers.
Favourable policy: Favourable policy measures from the government have
aided the sectors expansion. The Indian government de-licensed the
industry and allowed 100 per cent FDI in the sector. The government
granted a significant number of SEZs for the engineering sector across
the country.
High
Medium
Abundant
supply of raw
materials
Wellestablished
supplier base
Large number
of domestic
and global
companies
Highly
fragmented
High level of
competition
among
organised
players
No threat of
substitutes
Competitive rivalry
Requires
significant
investment
and longterm outlook
MNCs
looking to
expand/relocate would
find India
attractive
Exhibit 10
Porters five forces of the engineering goods sector in India
Demanding
customers
who are
significant
players
themselves
High growth
in demand
across
segments
Low
Value chain of the engineering goods industry

The industrys value chain begins at machine tool manufacturers, who supply
products to heavy engineering divisions and then make products that are used
across other manufacturing industries such as automotive, textiles, chemicals,
basic metals and food products. Many of the industries mentioned would also
directly use basic machine tools, which are at the beginning of the value chain.
13
.........
Exhibit 11
Value chain of engineering
Machine tools
Other
manufacturing
industries
Engineering
Heavy
engineering
Light
engineering
Automotive
Textiles
Chemicals
Basic metals
Oil and gas
Food products

The industry enjoys high levels of profitability as seen from the figures of major
companies across the machine tools and heavy engineering segments. The
scatter graph shows the average of the top companies EBITDA margins of the
last five years. It is interesting to note that machine tool manufacturers16 (15.7 per
cent) enjoy a higher profitability (five-year average EBITDA margin) when
compared to heavy engineering companies17 (10.6 per cent). In fact, the largest
company in the machine tools market, Kennametal India, has an average EBITDA
margin of 20.7 per cent.
16
17
Kennametal India, Kabra Extrusiontechnik, Austin Energy Co., Sterling Tools Ltd.
L&T, Punj Lloyd, Crompton Greaves, ABB
14
.........
Exhibit 12
Five-year average EBITDA margin of top Indian companies in
engineering goods
25.0
Kennametal India
20.0
Austin Energy Co
15.0
10.0
5.0
Gammon India
L&T
Crompton Greaves
Kabra
Sterling
Extrusiontechnik Tools Ltd
ABB
Punj LLyod
0.0
Source: Bloomberg, Aranca Research
2.3
Growth in power generation, privatisation of distribution, and government

initiatives to create a national distribution grid are set to contribute to the
rise in transmission and distribution expenditure in the near future.
With the projected demand of the capital goods sector being high
(especially the automobile and textile industry), there is going to be
significant demand for machine tools.
Considering the increasing demand for higher productivity, superior
precision and accuracy as well as low-cost manufacturing solutions,
computer numerically controlled (CNC) machine tools are set to be in
greater demand.
Oil and Gas
India is the fifth-largest energy consumer in the world. The Indian oil and gas
industry acts as a significant catalyst in fuelling the countrys economic growth.
Crude oil is the larger of the two segments and accounts for over 80 per cent of
the industrys revenues; natural gas accounts for the remainder. The nation has
large coal, crude oil and natural gas reserves. Crude oil reserves remained stable
at 757.4MMT in 2011, while natural gas reserves increased to 1,241 BCM in 2011
from 1,148.6 BCM in 2010, according to the Ministry of Petroleum. The Indian oil
and gas industry ranks second after Australia in BMIs18 composite business
environment (BE) league table; the country is followed by China and Vietnam. The
nation is ahead of Vietnam in BMIs upstream BE ratings, and shares first place
with China in downstream BE ratings. The oil and gas market was valued19 at
USD54.9 billion in 2009 and is expected to reach USD69.1 billion by 2010, marking
18
19
BMI is Business Monitor International

India Oil and Gas report by Datamonitor
15
.........
a 25.9 per cent growth. The sectors IIP20 expanded at a rate of 3.2 per cent during
FY0512 (FY12 data is for April Feb) to reach 124.7 from the base year FY05. This
classifies the oil and gas sector into the moderate growth category (010 per cent).
Exhibit 13
Growth in coke, refined petroleum products and nuclear fuel in India (IIP)
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
FY06
FY07
FY08
FY09
FY10
FY11
FY12*
Source: Central Statistical Organisation, Aranca Research (*FY12 includes

Apr-Feb 2012)
Industrial usage boosting demand: Several industries are increasing the

usage of natural gas in operations; this has boosted natural gas demand
in India. Some of the main industries that use natural gas are pulp and
paper, metals, chemicals, glass, plastic and food processing. Since 2005,
FDI worth USD3,338.75 million was invested (till February 2012) in the
Indian petroleum and natural gas sectors. Investments worth USD563
billion were envisioned across the oil and gas value chain under the
countrys Eleventh Five Year Plan (200712).
Favourable government policy: Favourable policy measures from the
government have aided the sectors growth. The government allows 100
per cent FDI in the production segment, while it allows 49 per cent for the
refining segment. The New Exploration Licensing Policy (NELP) was
conceived to attract the interest of domestic private sector companies and
some foreign companies with eight rounds of bidding; Reliance Industries
and Cairn have been particularly active in this arena.
20
IIP of Coke, refined petroleum products & nuclear fuel is used as proxy for the oil and gas
industry as refined petroleum products form the major component of the classification
16
.........
High
Medium
Oil industry
has small
sub-suppliers
from various
industries, so
bargaining
power of
suppliers is
low
Limited
number of
companies
owing to the
nature of the
industry
Foreign and
private players
beginning to
enter the
scene
Threat of
substitutes is
very small for
now
Renewable
energy may
pose a threat
over the years
Competitive rivalry
Requires high
capital
investment
Economies of
scale is vital
Access to
distribution
channels
critical
Exhibit 14
Porters five forces of the Indian oil and gas sector
Traded at
global prices,
so customers
have no
bargaining
power
Low
Value chain of the oil and gas sector

The industrys value chain is divided into three components: upstream,
midstream and downstream. Exploration and production are considered
upstream activities, while storage and transportation is midstream. Downstream
comprises refining, processing and marketing of oil and gas. The Indian oil and
gas market is characterised by the presence of large, diversified companies with
highly vertically integrated operations throughout the value chain. Most
companies are state-owned, while private companies are marking their presence
with the government following the de-regulation path.
Exhibit 15
Value chain of the oil and gas sector
Upstream
Exploration and Production
Midstream
Storage and Transportation
Downstream
Refining, Processing and Marketing
17
.........
The industry enjoys mixed levels of profitability as seen from the figures below.
The scatter graph shows the average of the top companies EBITDA margins of
the last five years. While the pure play downstream companies21 have low average
EBITDA margins, the companies involved in downstream and midstream activities
have good profitability levels while the upstream companies22 have the highest
profitability in the industry commanding EBITDA margins in excess of 50 per cent
in some cases.
Exhibit 16
Five-year average of EBITDA margin of top Indian oil and gas companies
70
Selan Exploration
60
Cairn India**
50
Oil India Ltd*
40
ONGC
30
GAIL
20
10
Reliance Industries
HPCL
BPCL
Indian Oil Corporation
0
Source: Bloomberg, Aranca Research (* FY10 figure for Oil India Ltd; ** average of
FY09 and FY10 for Cairn India)
21
22
Of the countrys total sedimentary area, 78 per cent is yet to be explored;

this translates into an exciting opportunity for companies engaged in
upstream activities (exploration and production).
In light of mounting LNG production, huge opportunities have been
created for LNG terminal operation, engineering, procurement and
construction services.
HPCL, BPCL
ONGC, Cairn India, Selan Exploration, Oil India Ltd.
18
.........
ONGC Leading from the front
Case Study
ONGC is an Indian state-owned oil and gas company headquartered at Dehradun,
Uttaranchal. The company accounted for approximately 72 per cent of Indias crude oil
output and 48 per cent of natural gas production in FY11. It is Asia's largest and most active
company involved in oil exploration and production with more than 11,000 kilometres of
pipelines in the nation. ONGC is one of Indias highest profit making corporations. The
company underwent partial privatisation in 1994 with the government holding back 80 per
cent ownership; this subsequently fell to 74.2 per cent as of August 2011.
ONGC posted revenues of USD14.5 billion in FY11, growing at a rate of 12.2 per cent over
FY10 and posted its highest annual profit of USD3.9 billion in the same year, which is 25.8
per cent over the FY11 figure of USD3.1 billion.
Exhibit 17
ONGCs revenue growth (USD billion)
15.0
14.5
14.5
14.0
13.6
13.5
12.5
12.9
12.8
13.0
12.3
12.0
11.5
11.0
FY07
FY08
FY09
FY10
FY11
Source: ONGC, BMI, Aranca Research
Exhibit 18
ONGCs profit growth (USD billion)
4.5
4.0
3.5
3.9
3.4
3.6
3.3
3.1
3.0
2.5
2.0
1.5
1.0
0.5
0.0
FY07
FY08
FY09
FY10
FY11
Source: ONGC, BMI, Aranca Research
19
.........
The companys international operations are carried out through its wholly owned
subsidiary ONGC Videsh Ltd. (OVL), which has projects in Vietnam, Myanmar, Sudan,
Russia (Sakhalin-I project), Iran, Iraq, Syria and Libya. According to company officials,
ONGC has three major strategic aims over the coming years: improving its recovery factor,
intensifying exploration activities and increasing involvement in foreign projects via OVL.
Chemicals
2.4
The chemical industry is one of the oldest industries in India. It contributes

significantly to the countrys industrial and economic growth and is the backbone
of Indian industrial and agricultural development. This industry also provides
building blocks for downstream industries. The sector accounts for around 3 per
cent23 of Indias GDP and contributes roughly 14 per cent to the nations industrial
activity. As per UNIDO, the Indian chemical industry was the sixth-largest in world
and the third-largest in Asia during 2008.
Exhibit 19
Growth in chemicals (IIP)
10
9.3
8
7.2
6
5
4
2
1.7
1.01
-0.5
0
FY06
FY07
FY08
FY09
FY10
FY11
FY12*
-2
-2.9
-4
Source: Central Statistical Organisation, Aranca Research (*FY12Apr-Feb 2012 growth rate)
23
Favourable demographics and high economic activity drive growth: Since

FY09, the total production in the Indian chemical industry has increased at
an annual pace of 10 per cent. Favourable demographics and strong
economic growth have been the main drivers of activity in the sector.
Apart from this, external demand has also contributed strongly to the
industrys expansion.
Favourable government policy: The government announced a number of
measures to improve the competitiveness of the Indian chemical industry.
It has abolished industrial licensing for chemical sub-sectors, except a
small list of hazardous chemicals. An FDI of up to 100 per cent has been
Annual Report 2010-11, Ministry of Chemicals & Fertilizers, Government of India
20
.........
approved under the automatic route in the chemical sector. Apart from
this, the government is continuously reducing the list of reserved
chemical items for production in the small scale sector. This facilitates
greater investment in technology upgrades and modernisation. The
government has also initiated policies for setting up of integrated
Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR).
All these initiatives are likely to attract major domestic and foreign
investment into the regions, enabling infrastructure that would provide a
conducive and competitive environment to set up manufacturing units.
High
Medium
Abundant
supply of raw
materials
Logistics and
supply chain
costs are high
Moderately
competitive
industry
Presence of
companies
that cater to
diversified
product base
Increasing
imports
Competitive rivalry
Fragmented
industry
Supportive
policies
Growing
domestic
market, need
for fresh
capacity
Exhibit 20
Porters five forces of the Indian chemicals sector
User
industries
driving
demand
Demand
linked to
industrial
growth
Low
Value chain of the chemicals industry

The main chemicals produced in India are alkali chemicals, inorganic and organic
chemicals, pesticides, and dyes. The value chain of the industry begins with
petrochemicals, which are converted into basic chemicals. These basic chemicals
are used for polymer production; this is further converted into special chemicals.
21
.........
Exhibit 21
Value chain of chemicals
Petrochemicals
Basic Chemicals
Polymers
Specialities
The industry comprises small and large scale units and provides valuable
chemicals for various end-use products such as textiles, paper, paints and
varnishes, and leather, which are required in almost all walks of life. The major
chemicals produced in India include alkali chemicals, inorganic and organic
chemicals, pesticides, dyes, and stuff. Major companies in the countrys chemical
sector are Coromandel International Ltd, TATA Chemicals, Pidilite Industries Ltd,
United Phosphorous Ltd, Gujarat Fluorochemicals Ltd, Rashtriya Chemicals and
Fertilizers Ltd, Chambal Fertilisers and Chemicals Ltd, and National Fertilizers
Ltd.
Profitability across the industry
The industry enjoys high profitability as visible from the figures below. The scatter
graph below shows the average of the top companies EBITDA margins of the last
five years. The five-year average EBITDA margin of major companies in the sector
stood at 20.9 per cent. The average profitability of the low value-add chemical
producers was found to be 43.2 per cent, while that of integrated players varied
from 15 per cent to 23 per cent.
22
.........
Exhibit 22
Five-year average of the EBITDA margin of top chemical companies
50.0
Gujarat Fluorochemicals Ltd
45.0
40.0
35.0
30.0
25.0
Coromandel
International Ltd
Pidilite Industries Ltd

Rashtriya
Chemicals & Fertilizers
20.0
15.0
10.0
TATA Chemicals
United Phosphorous Ltd
National
Fertilizers Ltd
Chambal
Fertilizers & Chemicals Ltd
5.0
0.0
Source: Bloomberg, Aranca Research
2.5
Being largely an intermediate product, strong economic growth is an

important factor to sustain chemical demand.
The per capita consumption of most finished products under this sector is
far below the world average, suggesting a high potential growth for the
industry in the future.
Textiles and Apparels
The textile and apparel industry is one of the leading segments of the Indian
economy. The sector accounts for roughly 4 per cent of the countrys GDP, 14 per
cent of the industrial output and around 17 per cent of total exports. The textile
and apparel sector also provides direct employment to more than 35 million
people; this makes it the second-largest employer in the country after agriculture.
During the period from FY06 to FY11, the industry has grown at an average annual
rate of around 6 per cent.
Exhibit 23
Growth in textiles and apparel (IIP)
30
20
10
0
-10
FY06
FY07
FY08
FY09
FY10
FY11
FY12*
-20
Textile
Apparel
Source: Central Statistical Organisation, Aranca Research
23
.........
Exports drive growth: Exports has been the textile industrys prime driver
in the recent years. Indias textile exports have grown at a CAGR of around
7.3 per cent over FY06-11, aided by the removal of quotas under the Multi
Fibre Agreement (MFA) in December 2004. The Government of India has
a vision to substantially increase the countrys share in the global textile
trade. To realise this vision, the government has taken various steps to
strengthen the textile sector.
Favourable government policy: In recent years, the government has been
taking serious steps to significantly raise Indias share in worldwide textile
exports. It has restructured the Technology Upgradation Funds Scheme
(TUFS) to improve the technology used in textile production. The
government also introduced the scheme for integrated textile parks to
encourage the launch of world-class infrastructure facilities for the textile
sector. Apart from this, it has provided fiscal incentives to encourage
textile exports under various provisions of the Foreign Trade Policy 2009
14.
High
Medium
Abundant
supply of raw
materials
Wellestablished
supplier base
Dominated by
the
unorganised
sector
Highly
fragmented
Entry of multinational
companies
No significant
threat
Competitive rivalry
Fragmented
industry
Supportive
policies
Growing
domestic and
export
opportunities
Exhibit 24
Porters five forces of the textile sector in India
Growing
domestic and
exports
demand
Wide range of
products
Low
Value chain of the textile and apparel industry

The Indian textile industry has a mix of the hand-spun and hand-woven sector and
the capital intensive, sophisticated mill sector. This makes the industry capable to
provide a wide variety of products to meet different market needs.
24
.........
The nations textile and apparel industry can be broadly divided into two segments:
a) yarn and fibre (including natural as well as man-made fibre and yarn), and b)
processed fabrics (including woollen textiles, silk textiles, jute textiles, cotton
textiles and technical textiles), readymade garments (RMGs) and apparel. The
industry comprises mostly small scale, non-integrated spinning, weaving,
finishing, and apparel-making enterprises. The figure below depicts the industrys
overall value chain.
As depicted in the figure below, the industrys value chain begins with fibre
production, which is spun into yarn. The yarn is knit into fabrics, which are further
used to manufacture garments.
Exhibit 25
Value chain of the textile and apparel industry
Fibre
Production
Weaving &
Knitting
Spinning
Raw Fibre
Yarn
Dyeing &
Finishing
Fabric
Garment
Confection
Garments
Dyeing &
Finishing
Product
25
.........
Profitability of major companies across the value chain
Indias textile and apparel industry comprises mostly small scale, non-integrated
spinning, weaving, finishing, and apparel-making enterprises. The nations top
companies in the textile industry are Welspun Industries, Vardhman Group, Alok
Industries Ltd, Raymonds Ltd, Arvind Mills, Bombay Dyeing and Manufacturing
Company Ltd; these are present across the value chain.
The industry enjoys a decent profitability as visible from the figures below. The
scatter graph below indicates the average of the top companies EBITDA margins
in the last five years. As shown in the graph, the EBITDA margins of the
companies are quite high and range between 10 per cent and 27 per cent. Alok
Industries Ltd enjoys the highest EBITDA margin of 27 per cent.
Exhibit 26
Five-year average of the EBITDA margin of top textile and apparel companies
30.0
Alok Industries Ltd
25.0
Vardhman
Group
20.0
15.0
Welspun India Ltd
Arvind Mills Ltd
Bombay Dyeing
10.0
Raymond Ltd
5.0
0.0
Source: Thomson Reuters, Aranca Research
The Indian textile industry is set for strong growth, buoyed by positive
domestic consumption and export demand.
The technical textile market is an emerging area for investment with good
growth potential as the market is expected to treble over 201020.
3. CONCLUSION
The Indian manufacturing sector has been witnessing high profit margins. More
than 80 per cent of top players across the industries analysed in this report earn
profit margins of 15 per cent or higher, which is high as per global standards. It
has been possible due to a combination of the inherent competitive advantages of
Indian manufacturing, and the transformation witnessed in their operations in the
past decade.
26
.........
Among the inherent advantages of Indian manufacturing sector, the most
prominent is availability of a vast pool of skilled manpower. India adds over 6,000
PhDs, 500,000 postgraduates, and 2,100,000 other graduates to its workforce
annually. The workforce costs 50-70 per cent less than candidates with similar
profiles in the US and Europe. Manpower advantage has proved to be one of the
key pillars for the nations industrial development.
On the other hand, Indian manufacturers are increasingly adopting
transformational methods to achieve operational excellence. Lean manufacturing
has helped optimise their operations, while following TQM24 has led to a sharper
focus on quality and a reduction in non-value add activities. Automating systems
on the shop floor and decentralising their energy requirements have also helped
them achieve high levels of efficiency.
There are significant opportunities for upstream players in the oil and gas sector
which enjoys a high EBITDA margin of 48 per cent. The sector also has huge
untapped potential, as more than 78 per cent of the countrys sedimentary area is
yet to be explored. Automakers have an average EBITDA margin of 19.7 per cent,
and are at an attractive stage of growth, with the country emerging as a global
R&D centre and small-car manufacturing hub. The manufacturing sectors
growth is set to continue, and perhaps accelerate, as the government aims to
increase the share of manufacturing to 25 per cent of the GDP by 2025. The profit
potential across the value chains of the manufacturing industries is, therefore,
expected to be robust in the coming years.
24
TQM is Total Quality Management
27
.........
DISCLAIMER
India Brand Equity Foundation (IBEF) engaged Aranca to prepare this report and
the same has been prepared by Aranca in consultation with IBEF.
All rights reserved. All copyright in this report and related works is solely and
exclusively owned by IBEF. The same may not be reproduced, wholly or in part in
any material form (including photocopying or storing it in any medium by
electronic means and whether or not transiently or incidentally to some other use
of this presentation), modified or in any manner communicated to any third party
except with the written approval of IBEF.
This report is for information purposes only. While due care has been taken
during the compilation of this report to ensure that the information is accurate to
the best of Aranca and IBEFs knowledge and belief, the content is not to be
construed in any manner whatsoever as a substitute for professional advice.
Aranca and IBEF neither recommend nor endorse any specific products or
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liability or responsibility for the outcome of decisions taken as a result of any
reliance placed on this presentation.
Neither Aranca nor IBEF shall be liable for any direct or indirect damages that
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placed or guidance taken from any portion of this report.
28
Annexure -2
ANNEXURE-II
TEMPLATE 1: FACTORS TO BE CONSIDERED IN PESTEL ANALYSIS
Political / Legal Factors:

Monopolies legislation
Environmental protection laws
Taxation policy
Employment laws
Government policy
Legislation
Political Stability
International trade regulations and
restrictions
Contract enforcement law
Consumer protection
Government organization / attitude
Competition regulation
Safety regulations
Impact:
Social Factors:
Demographics, Population growth rates, Age
distribution
Distribution of income
Consumerism
Levels of education
Labor / social mobility
Lifestyle changes
Work/career and leisure attitude
Entrepreneurial spirit
Fashion, hypes
Health consciousness & welfare, feelings on
safety
Impact:
Economic Factors:
GDP
Inflation
Employment
Disposable income
Business cycles
Energy availability and cost
Economic growth
Interest rates & monetary policies
Government spending
Unemployment policy
Taxation
Exchange rates
Stage of the business cycle
Consumer confidence
Others
Impact:
Technological Factors:
New discoveries and innovations
Speed of technology transfer
Information technology
Government research spending
Industry focus on technological effort
New inventions and development
Rate of technology transfer
Life cycle and speed of technological
obsolescence
Energy use and costs
(Changes in) Information Technology
(Changes in) Internet
(Changes in) Mobile Technology
Others
Impact:
Environmental Factors:
Environmental Regulation and Protection
Waste Disposal and Management
Energy Consumption
Impact:
PESTEL ANALYSIS REPRESENTATION OIL & GAS INDUSTRY

PEST analysis includes Political/Legal Factor, Economic Factor, Socio-Cultural Factor &
Technological Factor. Every Industry has to consider these factors because these factors can
create opportunity or threat at regular period of time. Let us see each and every factor which will
help us in analysing the situation of Gas Industry.
POLITICAL-LEGAL FACTOR
Government intervention in the industry.
Gas regulatory act decides the selling price of the gas
Right now Adani Energy Ltd. Is having No-Objection Certificate (NOC) from the
Government which means no other Gas companies can enter in Ahmedabad and Baroda.
It is having an exclusive market in Ahmedabad and Baroda.
POLITICAL STABILITY:
Political stability is one of the major factors for measuring the industrys growth for the future.
Indias last two governments had completed their five years term. We can say that Indias
political environment is moderate stable. But any ruling party in center is always support the
natural gas industry. They had made policies in support of and for help the industry to grow.
Policy on Gas Pricing
Prior to 1987, gas prices were fixed by ONGC/OIL. The price is being fixed by Government
w.e.f. 30.1.1987. The price of APM gas of ONGC and OIL was last revised effective 1.7.2005.
The salient features of the revised pricing order effective 1.7.2005 are as follows:
1. ONGC and OIL produced about 55 MMSCMD APM gas from nominated fields. The
determination of producer price for this gas will be referred to the Tariff Commission. Till the
Commission submits its recommendation and a decision is taken thereon, the consumer price
of APM gas will be increased from Rs.2, 850/MCM to a fixed price of Rs. 3,200/MCM on ad
hoc basis.
2. It has been decided that all available APM gas would be supplied to only the power and
fertilizer sector consumers against their existing allocations along with the specific end
users committed under Court orders and small scale consumers having allocations up to
0.05 MMSCMD at the revised price of Rs.3,200/MCM. This price is linked to a calorific
value of 10,000 Kcal/cubic meter. However, the gas price for transport sector (CNG),
Agra-Ferozabad small industries and other small scale consumers having allocations up to
0.05 MMSCMD would be progressively increased over the next 3 to 5 years to reflect the
market price.
3. The gas supplies through GAIL network to non-APM consumers will be at the price at
which GAIL buys from JV producers at landfall point, subject to a ceiling of ex-Dahej
RLNG price of $US 3.86/mm for the current year i.e. 2005-06. For the North-East region,
Rs.3, 200/MCM will be considered as the market price during 2005-06.
4. The price of gas for the North-Eastern region will be pegged at 60% of the revised price
for general consumers. Thus, the consumer price for the North- East region will increase
from the existing price of Rs.1, 700 to Rs.1, 920/MCM.
5. Subject to the determination of producer price, based on the recommendations of the Tariff
Commission, any additional gas as well as future production of gas from new fields to be
developed in future by ONGC/OIL will be sold at market-related price in the context of
NELP provisions.
IMPACT:
As per pricing policy of govt., we can see that government has fixed quota according to
end user customer. And more emphasis on Power, Fertilizer and Small scale industries.
So companies have to sale according it. This can be increased in 2 to 4 years.
Then price is generally decided as per market and future sources available.
Overall we can say that pricing policy is moderately supportive.
REGULATORY FRAMEWORK FOR THE GAS INDUSTRY:

1. The Ministry of Petroleum & Natural Gas (MOP&NG) has been regulating the allocation
and pricing of gas produced by ONGC and OIL by issuing administrative orders from
time to time. The gas produced by the JVs and by NELP operators is governed by the
respective production sharing contracts (PSC) between the Government and the
producers. The setting up of a Petroleum & Natural Gas Regulatory Board is under the
consideration of the Government and the bill is being drafted.
2. Under the existing policy, 100% Foreign Direct Investment (FDI) is allowed through the
FIPB route for both LNG projects and natural gas pipeline projects. Import of LNG and
natural gas is on OGL. If an entity requires the acquisition of Right of User (ROU) in
land, it approaches MOP&NG for the acquisition under the Petroleum & Mineral
Pipelines (Acquisition of Right of User in Land) Act, 1962 (P&MP Act, 1962). The draft
natural gas pipeline policy covering transmission pipelines and local or city gas
distribution networks is under formulation, with proposed provision in line with those
under the draft regulatory board bill.
3. Standards of pipeline construction: As per Explosive Rule 1976 (clause no.22) pipe lines
shall be laid below the ground level except when laying them above the ground level as
desirable for topographical, economical or other special reasons
IMPACT:
For exploration and distribution govt. has all control with it. Companies have to take
license for exploration and for distribution they are on contract basis.
So, regulatory frame work is moderately supportive.
Policy on Foreign Direct Investment:
On January 24, 2006, GOI, with a view to facilitating the easier inflow of FDI into India, has
decided that instead of having to seek FIPB approval, FDI up to 100% would now be allowed
under the automatic route for:
1. Laying of natural gas/LNG pipelines
2. Market study and formulation and investment/financing in the petroleum sector.
The Union Cabinet has also raised the FDI caps/ceiling to 100 per cent under the automatic
route in case of investment in creation of infrastructure related to marketing in petroleum
sector.
ECONOMIC FACTORS
Real GDP
YEARS
Real
GDP
2001-02
2002-03
2003-04
2004-05
2005-06
5.80
3.80
8.50
7.50
8.40
2006-07
9.20
India is a second largest growing economy. There is increase in growth rate year by
year.Real gross domestic product (GDP) growth for 2006-07 was placed at 9.2 per cent
in the advance estimates of the Central Statistical Organization (CSO) released in
February 2007, over and above 9.0 per cent in 2005-06. These estimates have vindicated
the overall optimism building around the performance of the Indian economy which was
also reflected in successive upward revisions in growth projections by various agencies
during the course of 2006-07, including in the Reserve Banks quarterly reviews.
Source: RBI Annual Report, 2006-07
Industrial activity expanded strongly, with real GDP originating in industry estimated to
have risen by 10.2 per cent in 2006-07 as compared with 8.0 per cent in the previous
year.
The overall confidence level appears to have been positive on the back of higher
macroeconomic activity, enhanced foreign direct investment (FDI) flows, new orders,
high capacity utilization and falling crude prices, although a seasonal decline in activity
levels and shortages of some raw materials were expected to put pressure on prices.
Natural gas industry is comes under infrastructure. Indian consumption of natural gas has
risen faster than any other fuel in recent years.
From only 0.6 trillion cubic feet (Tcf) per year in 1995, natural gas use was nearly 0.8
Tcf in 1999 and is projected to reach 1.3 Tcf in 2005 and 1.8 Tcf in 2010. Increased use
of natural gas in power generation is to account for most of the increase, as the Indian
government is encouraging the construction of gas-fired electric power plants in coastal
areas where they can be easily supplied with liquefied natural gas (LNG) by sea.
India is investing heavily in the infrastructure required to support increased use of
natural gas. Gas Authority of India Limited (GAIL), a government-owned entity,
is to undertake a doubling of capacity on its main North-South pipeline. GAIL plans a
new distribution network in West Bengal. Shell has signed a memorandum of
understanding with the state government of Uttar Pradesh in northern India for the
development of a gas distribution infrastructure. India's Foreign Investment Promotion
Board (FIPB) has approved 12 prospective LNG import terminal projects.
Inflation Rate:
As per Consumer Price Index:
Years
2001-02
2002-23
2003-04
2004-05
2005-06
2006-07
(%) Inflation rate

4.3%
4%
3.9%
3.8%
4.4%
6.??
Inflation can be defined as a trend of rising prices caused by demand exceeding

supply. The economic effect of minor inflationary effects can be positive and can be
taken as a sign that the economy is in an expansionary phase.
However, when a significant part of what may be considered as permanent
component of oil price increase is yet to be passed on, there is a need to consider
alternative fuel. Natural gas is a good substitute of petroleum. This inflation rate
forces to switch over to natural gas.
PERSONAL INCOME TAX:

Tax rates remain unchanged.
Investment for 5 year or more in FDRs with scheduled banks eligible for Sec
80C deduction
Cap on pension funds premium for deduction u/s 80CCC increased from Rs.10,
000 to Rs. 100,000. Aggregate cap on 80C and 80CC continue at Rs. 100,000.
1/6 scheme of filing the tax returns abolished
Source: RBI Annual Report, 2006-07
IMPACT:
MAT is increased but under MAT regime tax can be carried forward for seven years.
FBT is also decreased and their criteria are also being liberal.
Tax holidays limit is extended for power generation and Industrial park.
Govt. also allows tax deduction in FDR investments.
So, overall impact is favorable.
SOCIO-CULTURAL ENVIRONMENT
Public Health:
Emissions in gm/100 km
Fuel
CO2
UHC
CO
Nox Sox PM
Petrol
22000
85
634
78 8.3
1.1
Diesel
21000
21
106 108
21 12.5
LPG
18200
18
168
37 0.4
0.3
CNG
16275
5.6
22.2 25.9 0.2
0.3
Natural Gas has lowest release of HCs, NOx, SOx, Cox, etc.
Now, a days pollution is a severe problem. And fuels are main reasons of pollution.
As a best alternative of petroleum natural gas is less harmful to environment.
Govt. also promotes usage of natural gas.
TECHNOLOGY
Accelerating pace of change
Technology supports natural gas industry. Petrol and diesel engines can be converting
in to gas engine.
Our desire to use gas as a substitute of petrol or diesel is supported by technology.
Development of technologies on end user side to drive the demand for natural gas
Gas Based Air Conditioning.
Direct use of gas in home appliances
Distributed Power Generation
Tri-Generation projects Power + Heating + Cooling
Domestic Technician
Domestic technician can also fit gas kit in petrol engine vehicle.
Source: CRISIL Infrastructure
ANNEXURE-II
TEMPLATE 2: PORTERS FIVE FORCE MODEL
DRIVING INDUSTRY COMPETITION MODEL
THREAT
FROM
SUBSTITUTE
(High)
BARGAINING
POWER
OF
SUPPLIERS
( High)
RIVALRY
AMONG
COMPETIN
G
SELLERS
(Moderate to
Low)
THREAT FROM
NEW ENTRANTS
(Moderate to LOW)
BARGAINING
POWER
OF BUYERS
(Moderate to low)
RIVALRY AMONG PRESENT COMPETING SELLERS

Factors
High
Moderate
Low
No. of competitors
Industry growth
Product differentiation
Exit Barriers
THREAT OF NEW ENTRANTS

Factors
High
Moderate
Low
Legal Barriers
Investment cost
Access to Distribution
BARGAINING POWER OF SUPPLIERS
Factors
High
Moderate
Low
Number of suppliers
Supplier Concentration
Prices of substitutes
BARGAINING POWER OF BUYERS
Factors
Switching cost
High
Low
No of Customer
Awareness of product
Moderate
Buyers profitability
Importance of product
THREAT OF SUBSTITUTE
Factors
High
Switching cost
Product differentiation
Substitute Available
Buyers profitability
Moderate
Low
SAMPLE POTER ANALYSIS REPRESENTATION
ANNEXURE-II
TEMPLATE 3: SWOT/C ANALYSIS
SAMPLE SWOT ANALYSIS REPRESENTATION
ANNEXURE-II
TEMPLATE 4: BCG ANALYSIS
SAMPLE BCG ANALYSIS REPRESENTATION
BCG Matrix on Nestle
Question Marks these strategic business units (SBUs) have a low market share of a high
growth market. Magi 2-minute Noodles currently require lots of investment in order to
capitalize on the growing culinary segment, which may not offer the highest return on
investment in Nestles brand portfolio.
Stars SBUs with a high share of a high growth market. Nestles wide range of mineral water
has benefited from the combination of healthier lifestyle trends and emerging markets. These
products require large amounts of investments in order to differentiate the bottled water brands
from competitors in mature markets and grow brand awareness in emerging markets.
Dogs SBUs in this category have a low market share in a low growth market. Sales of Jenny
Craig and Lean Cuisine, weight loss management brands, have failed to expand outside of the
USA these two brands are tipped to be divested in the future. Sports performance and nutrition
brand, PowerBar, is confirmed to be divested. This is most likely because of poor sales in a
saturated market. SBUs in this classification may generate enough profit to be self-sufficient, be
are considered to never be major sources of revenue.
Cash Cows perhaps the most important SBU, Cash Cows have a high share of a low growth
market. They require very little investment to generate revenue, which allows funds generated
from such SBUs to be reinvested into Stars or Question Marks.
ANNEXURE-II
TEMPLATE 5: VALUE CHAIN ANALYSIS
SAMPLE VALUE CHAIN ANALYSIS
ANNEXURE-II
TEMPLATE 6: MCKEINSEYS 7S ANALYSIS
McKinsey 7S of IHCL
The strategic fit of the organization and its readiness for the future was tested using the
McKinsey 7S framework. The current and past strategies propose a great fit with the other six
elements explaining the reasons for IHCLs balanced growth.
Strategy: IHCL expanded its horizon by broadening its international market reach and entering
into management contracts in Mexico and British Virgin Islands for development of high end
Luxury Resorts. IHCL also acquired New York based luxury hotel The Pierre in 2005 as part
of its international expansion plan.
Structure: The major stakeholders in IHCL are promoters (Tata Sons Ltd.) and financial
institutions/banks. Accordingly, the major driving force in decision making is Mr. Ratan Tata,
chairman of IHCLs board of directors.
Staff: The recruitment process at IHCL is completely undertaken by the HR department. HR
initiatives during the last year were focused on further enhancing the engagement within the
workforce, sustaining workforce cost & productivity and enabling a responsive system to the
business challenges through optimized use of technology platforms.
Shared Values: Business excellence has been embedded in Tata through processes and
methodologies that enable Tata companies to continually improve operations and achieve the
world-class marquee.
Style: IHCL believes Corporate Governance is a continuous journey to provide a congenial
environment to harmonise the goals of maximizing the stakeholders' value and maintaining a
customer-centric focus. The internal audit process, through its unique Taj Positive Assurance
Model, which is an objective methodology of providing a positive assurance based on the audits
of operating units and corporate functions, is a convergence of Process Framework, Risk and
Control Matrix and a Scoring Matrix.
Skill: HLVL has excellent branding, positioning, communication and hospitality skills. Their relaunch Surprise Campaign is appreciated by Guests. Taj Forever Campaign has been adjudged
the best marketing programme in the world and awarded many PATA awards.
System: The Company established the Taj Public Service Welfare Trust (The Trust) in response
to the terror attack on the city of Mumbai in 2008. Also, IHCL continues to voluntarily
participate in the globally recognised Carbon Disclosure Project to demonstrate its commitment
towards performance in climate change mitigation.
Proceedings of the 4th International Conference On Global Research In Business & Economics,
28-30 December, 2008, The Chaleena Hotel, Bangkok, Thailand
Using the McKinsey 7-S Model for the strategy formulation and
implementation : Case study in Ceramic Industry in Thailand
Adsavakulchai S.*, Sopajitwattana P.** and Kanchanasuntorn K. ***
Abstract
The McKinsey 7-S Model is a widely chosen strategy to a variety of activities that views
culture as a function of seven variables: strategy, structure, systems, style, staff, skills and
shared values. Almost the ceramic industries in Thailand especially in souvenir products are
SME. The main objective of this study is to develop as a way of thinking more broadly about
the problems of organizing effectively in the SME ceramic industries. As a result, using the
McKinsey 7-S model are: these SME ceramic industries do not have the strategy for
systematic action and structure; do not have the organization structure and maintains a
harmony between the authority-responsibility relationships. In addition, these comprises
several systems including forecasting, tracking, communication, accounting and financing,
quality assurance, Enterprise Resource Planning and CRM. The leadership approach of the
control management styles involved with the way the organization operates and collectively
works to achieve its companys goods and services. Some have special skills to sustain the
distinctive capabilities of an organization. Almost the staff is laborintensive in the enterprise
and some concerns the values that are shared by the concept of wisdom.
Keywords: The McKinsey 7-S Model, SME ceramic industries, souvenir products
1. Introduction
Originally developed as a way of thinking more broadly about the problems of organizing
effectively, the 7-S framework provides a tool for judging the "do ability" of strategies. The
McKinsey 7-S Model is viewing the interrelationship of strategy formulation and
implementation. It helps to focus managers` attention on the importance of linking the chosen
strategy to a variety of activities that can affect the implementation of that strategy
(Waterman, R.,et al,1980). The framework suggests that it is not enough to think about
strategy implementation as a matter only of strategy and structure, as has been the traditional
view. The conventional wisdom used to be that if you first get the strategy right, the right
organization follows. And when most people in Western cultures think about organization,
they think structure. To find in practice, however, that these notions are too limiting. To think
comprehensively about a new strategy and the problems with carrying it out, a manager must
think of his company as a unique culture and must think about the ability of the company to
get anything really fundamental (i.e., not tactical) accomplished as a matter of moving the
whole culture (Pascale, R.T. and Athos, A.G., 1980). The McKinsey 7-S Framework should
be thought of as a set of seven compasses as following strategy, structure, system, style, staff,
skills and share: values as showed in figure 1.
*School of Engineering, University of the Thai Chamber of Commerce
126/1 Vibphavadee Rangsit Rd., Dindang, Bangkok, Thailand 10400
e-mail: suwannee@utcc.ac.th
**School of Business Administration, University of the Thai Chamber of Commerce
***School of Engineering, University of the Thai Chamber of Commerce
UTCC Engineering Research Papers 2008
105
Previously, technology sources for the ceramic industry in Thailand can be divided
into three types; i.e. local experience, imported turnkey machines and multinational
companies. Technology transfer from experience is widespread in small- to medium-sized
factories. However, because of limitations in funding and personnel, technology from
experience has yielded only modest improvement. Secondly, very popular among medium- to
large-sized industry is technology transfer by turnkey imported machines. Although very
convenient to start production, in the long run turnkey machines inevitably lead to high-level
technology dependence and costly import of machine know-how (S. Wada, T. Hattori and K.
Yokohama, 2001).
Generally, Thai technical staff could proceed, maintain and adjust production plans
without assistance from technology owners (Statistics from www.customs.go.th). Some
industry could replace original parts with local ones (Seawong P., et al, 2000). However, most
of the industries struggles maintain product quality to specifications, not to mention quality
improvement. Finally, some 'advanced' technology could be transferred to Thailand via
geographical movement of multinational companies. This know-how is hardly ingrained
locally because it moves with the factories from one country to another (Peters, T. and
Waterman, R.,1982)
Figure 1: The McKinsey 7-S Framework

The overall technological capability of Thai ceramic industry has been improved at an
unsatisfactorily slow rate. The size of the conventional ceramic household sector has stayed
rather constant but its competitiveness has seriously decreased. Thus, the main objective of
this study is to develop as a way of thinking more broadly about the problems of organizing
effectively in the SME ceramic industries.
2. Material and methodology

In this study, to do the experimental design; using criteria selection to do the
representative of ceramic industries i.e. geography divided into 5 parts (northern,
northeastern, central part, west and south), questionnaires is the tool to define the parameters
of running a business, field observation and in-depth interview. The steps of this study as
following:
106
1. To interview the managers about the strategy management policy.

2. To concern with the organization structure.
3. To find out the existingall the systems in supply chain i.e. procurement, order
processing, production, warehouse management, transportation, etc.
4. To study the leaderships of ceramics industries managers.
5. To survey all the staffs skill especially in production process.
6. To interview the academic background for all staff.
7. To develop the concept of wisdom in ceramics industries
3. Results and discussion

In this study, there are 34 industries (10%) as a representative of ceramic industries in
Thailand. As a result from questionnaire, the 7 factors are to organize a company in a
holistic
and effective way. Together these factors determine the way in which a
corporation operates as following:
1. Strategy: A strategic business unit is a significant organization segment that is
analyzed to develop organizational strategy. In ceramic industries (souvenir products)
are SME. Then almost companies do not the strategic policy. Due to all owners
operate with experiences with no direction as shown in Figure 2.
From Fig. 2, almost the ceramic industries in Thailand demonstrated in Fig. 2.1. Thus,
to do the strategy implementation each department Fig. 2.2-2.3 till the whole
organization that leads to high potential and competitiveness Fig. 2.4.
Figure 2: Strategic Implementation

2. Structure: Organizational Culture: the dominant values and beliefs, and norms, which
develop over time and become relatively enduring features of organizational life.
There are 2 types of organization structure as following:
2.1
Flat structure: a flat organisation especially in the ceramic industries in
Thailand will have relatively few layers or just one layer of management. This means
107
that the Chain of Command from top to bottom is short. Due to the small number of
management layers, flat organisations as shown in Fig. 3.
Manager
Procurement
Warehouse
management
Accounting
Production
Figure 3: Flat organization structure

2.2
Hierarchical structure: are ranked at various levels within the organisation,
each level is one above the other. At each stage in the chain, one person has a number
of workers directly under them, within their span of controlas shown in Fig. 4.
Most ceramic industries in Thailand are flat structured.
Manager
Research &
development
Sales department
Purchasing
Production
IT department
Accounting
Human Resource
Logistics
Figure 4: Hierarchical organization structure

3. Systems: there are 7 systems development in the ceramic industries as following table:
Table 1 : 7 systems development in the ceramic industries in Thailand
System
Forecastingsystem
Development Guideline
Customer database development
Benefits
Tracking system
Internal
communication
Accounting and
Financial
108
Using RFID for tracking the

origin of the products.
Real time communication
Systematic meeting scheduling
Accounting Information System
Target costing
Decreased stock
Customer satisfaction
To find out the problem for
better solving
Fast problem solving
Reduced cost
Reduced cost
Value-added
System
Operation
performance
Development Guideline
Develop operation planning
Benefits
Enterprise Resource
Planning(ERP)
Develop each module of ERP
CRM
Questionnaire
Reduced production process

Reduced loss
Reduced energy
Planning efficiency
Control resources efficiency
Marketing response
Customer satisfaction
4. Style: Management Style: more a matter of what managers do than what they say;
How do a companys managers spend their time? What are they focusing attention on?
Symbolism the creation and maintenance (or sometimes deconstruction) of meaning
is a fundamental responsibility of managers. Leadership theory has moved to
behavioral approaches, to contingency and situational models. Leadership at the
executive level is different from leadership at mid-management, which is different
than first line leadership. There are four categories and there are times when each
approach is appropriate and times when it would not be as following:
4.1 Structural Leaders focus on structure, strategy, environment; focus on
implementation, experimentation, adaptation
4.2 Human Resource Leaders believe in people and communicate that belief; they are
visible and accessible; they empower, increase participation, support, share
information, and move decision making down into the organization
4.3 Political leaders clarify what they want and what they can get; they assess the
distribution of power and interests; they build linkages to other stakeholders; use
persuasion first, then negotiation and coercion only if necessary
4.4 Symbolic leaders view organizations as a stage or theater to play certain roles and
give impressions; these leaders use symbols to capture attention; they try to frame
experience by providing plausible interpretations of experiences; finally they
discover and communicate a vision
Most of the producers are small- to medium- sized industries (SMIs), the managers are
Structural Leaders.
5. Staff :The people/human resource management processes used to develop
managers, socialization processes, ways of shaping basic values of management cadre,
ways of introducing young recruits to the company, ways of helping to manage the
careers of employees as shown in table 2:
109
Table 2: The ways of helping to manage the careers of employees

5.1 Recruitment
Ways
5.2 Develop the incentive system and

working environment
5.3 Establish special technical training
center by government
5.4 Develop knowledge management
5.5 Create the attitude
Guideline
Not focus only local staff but also to do the
collaboration with academic sector for the
students to gain more experience during
summer with the real sector in ceramic
industry.
Awards system
Staff development
Improve working environment
Initiative working happiness
Encourage industries to do staff
development
To develop the knowledge-based system for

transfer knowledge and experience from
generation to generation
Encourageworker to train and develop
evaluation system
6. Skills: The distinctive competences what the company does best, ways of expanding
or shifting competences. Thai workers are notable in their manual skill, possessing
high potential for product and technology development
7. Share Values: Guiding concepts, fundamental ideas around which a business is built
must be simple, usually stated at abstract level, have great meaning inside the
organization even though outsiders may not see or understand them as shown in Fig.
5.
Figure 5: Ceramic industry is the local wisdom

From Fig. 5: one of the ceramic factories announces that all workers are not labor but they are
local wisdom from generation to generation.
110
4. Conclusion and recommendation

The 7-S Model is a valuable tool to initiate change processes and to give them direction. A
helpful application is to determine the current state of each element and to compare this with
the ideal state. Based in this it is possible to develop action plans to achieve the intended state.
Effective organizations achieve a fit between these seven elements. This criterion is the origin
of the other name of the model: In change processes, many organizations focus their efforts
on the hard Ss, Strategy, Structure and Systems. They care less for the soft Ss, Skills, Staff,
Style and Shared Values. The most successful companies work hard at these soft Ss. The soft
factors can make or break a successful change process, since new structures and strategies are
difficult to build upon inappropriate cultures and values. These problems often come up in the
dissatisfying results of spectacular mega-mergers. The lack of success and synergies in such
mergers is often based in a clash of completely different cultures, values, and styles, which
make it difficult to establish effective common systems and structures. Formal and informal
procedures support the strategy and structure. (Systems are more powerful than they are given
credit). If one element changes then this affects all the others. For example, a change in HRsystems like internal career plans and management training will have an impact on
organizational culture (management style) and thus will affect structures, processes, and
finally characteristic competences of the organization.
When they are not, the company is not really organized even if its structure looks
right. If a 7-S analysis suggests that strategy implementation will be difficult, managers either
can search for other strategic options, or go ahead but concentrate special attention on the
problems of execution suggested by the framework.
Reference
1. Seawong P., Leudtaharn J. and Sujirote K. (2000): Technical Survey of Structural
Ceramics Collaboration, Internal report, National Metal & Materials Technology
Center, Thailand
2. Pascale, R.T. and Athos, A.G. (1980): The art of Japanese Management, Penguin
Business.
3. Peters T., Waterman, R. (1982): In Search of Excellence, New York, London: Harper
& Row.
4. Wada S., T. Hattori and Yokohama K., (2001): Sintering of Si3N4 Ceramics in Air
Atmosphere Furnace, J. Cer. Soc. Japan, 109 [11] 281-83.
5. Statistics from www.customs.go.th
6. Waterman, R. Jr., Peters, T. and Phillips, J.R. (1980): Structure Is Not Organization in
Business Horizons, 23,3 14-26
111
Annexure -3
Chapter No. 3 Decisions and Strategic Models

3.0 Decisions:
External and Internal business environment have effects on business operations and various
strategic decisions taken by organizations. If organizations are not aware about the change in
business environment or if they fail to predict the change, it may create crisis for the
organization. Decisions and decision-making process has important role in crisis management
approach.
Decision making is important role for long term success of the Business. Lessons of Newell
highlight the importance of strategic decisions and corporate strategy.i Lessons are
Corporate strategy should be guided by vision
Corporate strategy is system of interdependent parts
Corporate strategy must be consistent with opportunities outside the company
Benefits of corporate membership must be greater than cost.
Strategic planning is an important aspect of crisis management. Peter F Drucker defined strategic
planning as The continuous process of making present entrepreneurial decisions systematically
and with the greatest knowledge of their futurity; organizing systematically the efforts needed to
carry out these decisions; and measuring the results of these decisions against expectations
through organized systematic feedback.ii
Rudy A Champa also discussed critical decision-making process dealing first with strategy and
then innovation necessary for business growth. He spoke of the Development of strategic
blueprint for the future look of the business, which can be used as decision making filler to help
focus resources and determine choices for future products and markets.iii
What is a decision?
According to Ducker A decision is a judgment and choice between alternatives. It is rarely a

choice between what is right or wrong, at best it is a choice between almost right and probably
wrong- but more often choice between two courses of actions neither of which is probably more
nearly right than the otheriv
Decision-making is a dynamic process, a complex search of information, alternatives and
choices. There are two approaches to modeling human decision-making; The Outcome Oriented
Approach and the Process Oriented Approachv.
The Outcome Oriented Approach, based on the view that if one can correctly predict the
outcome of the decision process, then one obviously understand the decision process. The
decision outcome and its correct prediction are at the centre of this approach. Normative
decision analysis and multiattribute utility theories etc are examples of this orientation,
which asks questions like what and when rather than how.
The Process Oriented Approach, based on the view that if one understands the decision
process, one can correctly predict the outcome. Essentially descriptive, this approach has
prescriptive and normative features as well. Knowing how decisions are made, can teach
how they should be made.
The decision making process consists of pre-decision, decision and post-decision stage. These
stages are interdependent. The post-decision phase often coincides with the pre-decision
preparation for the next decision. Each decision stage is itself composed of series of partial
decisions, characterized by their own pre and post decision stages.
In crisis Management, Predecision Stage normally consists gathering information about the crisis
and understanding the impact of crisis. First, there is a sense of conflict and underlying source of
conflict is the nonavailability of suitable alternatives and particularly the infeasibility of the ideal
alternative to manage crisis. Experiencing conflict, decision maker starts searching for new
alternatives preferably, for those approximating the ideal. The evaluation of alternatives become
more systematic as the decision maker realizes that a choice among alternatives already
generated, rather than a discovery of new alternatives will dominate the process towards the
conflict resolution. Decision stage is exploring the partial decisions and deriving the final
concluding long-term strategic decision. Decision stage includes a series of short-term decisions
2
channelized to long-term solutions. Post decision stage is a combination of pre and post decision,
where evaluation of decisions implemented is done and a preparatory groundwork is done for
future decisions. All phases are overlapping and interlinked. It is cyclic and continuous process
to arrive at better decisions. There are different approached for decisions and methods to take a
decision. Following figure shows a simple decision making process.
Figure 3.1 Decision Making Process:vi
In a crisis management approach and decision making one needs to understand situation and
should make efforts to find out answers for following questions.
1. What is crisis and what is relevant to business?
3
2. What will be a state of business?

3. What should be a state of business?
The decision makers should try to unfold the answers by collecting information and processing
it. These answers will generate a new approach and appropriate quality decisions.
3.1 Peter Druckers View on Decision: Good decision makers know that the decision to be
made about the right problem, therefore they know how to define the problemvii Good decision
Makers also know that a decision is a commitment to action, it must get people to act and be
implementedviii
Elements of Decision Making: In the Effective Executive Drucker described the following
elements of decision-making.
1. Determining if decision is necessary and classifying the problem / situation as generic or
unique.
2. Defining the problem
3. Satisfying the boundary conditions and specifications for the decisions
4. Deciding what is right
5. Converting the decision into action
6. Feedback: Is the decision being implemented and is the problem being resolved?
Essential steps in any decision making process areix
1. Deciding objectives of the decision
2. Create a context for success
3. Frame the issue properly
4. Generate alternatives
5. Evaluate alternatives
6. Choose the best alternatives
Organization has a vital role in decision-making. Organization consists of various subsystems

and one has to understand interlinking of organization subsystem. Interdependence of
subsystems create a dilemma for a decision maker. As a decision maker one has to consider the
4
impact of decision on effective utilization and performance of these systems. Organizational

subsystems provide a structure and a link between various business environments and help
decision process to select appropriate decision. Following figure gives a generic view of
organization subsystems.
Figure 3.2 Organization Subsystemsx
Experts in management and management gurus have developed a set of strategic decision
models, which help the decision makers to understand the situation and it create a path of for
better decisions. Application of these models helps the decision maker to take knowledged
decisions. Selection and application of model depends upon the situation to be managed and the
expected impact of the decision. It is well known fact that a crisis cannot be managed by using a
single decision making model but it will help to gather the information for in-depth analysis
before arriving at a decision. The outcome can change with use of different models. Some
models are useful for crisis management related to external business environment. Other models
are exclusively for crisis related with internal business environment.
Strategic Models for external environment crisis management are:

GE-Mckinsey Matrix
BCG Matrix
Porters five force model
5
Porters Generic Strategic Model

PESTL
Ansoff Matrix
Strategic Models for internal environment crisis management are:

SWOT
Value Chain Analysis
Balanced Scorecard
Mckinsey 7S Model
3.2 Strategic Models:

3.2.1 GE-Mckinsey Matrix (9 Cell Model)
GE Matrix is a derivation of BCG Matrix. It was developed by Mckinsey & Co. for
General Electric Company.
BCG Matrix is not flexible where as GE 9 cell model consider all the factors related to
market attractiveness.
A large corporation may have many SBUs, which are distinctive and individual. Overall
strategy decision about development of Market and further investment decisions is based
on GE 9 cell Model.
GE Matrix refers to Market attractiveness Vs Business position in terms of strength and
weakness and further this is divided into three categories Low, Medium and High,
forming 9 cells.
Each of the nine cells is indicative of decisions regarding market and investment.
This model is used to manage crisis related with external business environment especially
for crisis related with the market for products and services offered by company. In
automobile industry and subsequently for auto component manufacturing companies,
these market force play a dominating role and can create a severe crisis. Growth of
market is a function of industry attractiveness, i.e. possibility of generating higher
revenues.
Industry attractiveness depends upon the response of customer for specific products.
Determinants of industry attractiveness are, Market Growth rate, Market size, Demand
Variability, Industry Profitability, Industry Rivalry, Global Opportunities, Macro
environment factors [PEST]
Figure 3.3 BCG 9 Cell Model Business Position (Strength and Weakness)
Decisions required to manage crisis related to market can be derived by application of this
matrix. Nine cells give various combinations of business strength and market attractiveness.
These combinations also suggest probable strategic actions to overcome the crisis. Company can
change a product portfolio by selecting appropriate strategy related to a specific cell of model.
To overcome the crisis, company should focus on its strengths such as Market share, Productive
Capacity, Profit Margin relative to competitor etc and develop a solution to avert the crisis.
3.2.2 BCG MATRIX

Boston Consulting Group (BCG) Matrix is a tool to evaluate a companys position in
terms of its Product portfolio.
7
BCG Growth Matrix considers two variables namely

o Market Growth Rate
o Relative Market Share
This technique is particularly useful for multidivisional or multiproduct companies.
This divisions or products comprise the organisation called business portfolio.
The Matrix was popularised by the use of symbols mainly representing animals, such as
dogs, question marks, star and cash cow.
This matrix is useful to develop a business portfolio strategy when company is facing a
crisis because of economic business environment and when resultant economic forces are
creating pressures on business performance.
Figure 3.4 The Boston Consulting groups Growth Share Matrix
Market Growth Rate
18%
STAR
16%
QUESTION
MARK
14%
12%
GDP LINE
10%
8%
CASH
COW
6%
4%
DOGS
2%
0%
10 X
5X
2X
1X
0.5 X
0.2 X
0.1 X
Relative Market Share
Economic environment of business will create different impact on various business portfolios of
a company. This impact may be favourable or a disaster for various businesses. This impact
depends upon the current status of business unit in a specific environment.
In BCG matrix the product or business portfolio is broadly classified in four categories, Stars
high Performers with higher cash flow, Cash cows higher cash flows with lower market
growth, Question Mark, indecision state and can be a Star or Dog in future, Dogs a non
performing unit.
BCG matrix helps to understand the impact of crisis related to economic environment and create
a base to design a strategy for a business. Company can take decision for investment or
withdrawal from business unit. Economic crisis can convert stars to cash cows or question
marks. Economic environment analysis will help to identify opportunities for business unit and
with turn around strategy, dogs and question marks can be converted to cash cow and Star
performer.
3.2.3 Porters Five Forces Model
Figure 3.5 Porters Five Forces Model
Threat Of
New
Entrants
Bargaining
Power of
Suppliers
Threat of
Substitute
Focused
Company
Rivalry
Among
Existing
Competitors
Bargaining
Power of
Customers
Porters five forces model is used to identify the potential sources of crisis from external
business environment but the span is limited within the industry sector. This model is very useful
automobile industry and auto component manufacturing companies. These companies operate in
same business environment and they create a crisis for one another. The crisis related to this
business environment is related with strength and weaknesses of individual players in the same
industry sector.
In automobile component manufacturing companies, Porters five forces can be identified easily
and a company can create action plan to manage the crisis resulting from development in these
forces.
Source of potential crisis can be:

Threat of new entrant: In automobile component manufacturing industry, there is not any
entry barrier for a new competitor. Technology required and skills required are available and
anyone who has a requisite capital can start an industry. FDI also create opportunities for players
to enter the market.
Bargaining power of Supplier: In automobile industry, the companies who produce a niche
product, will always have a bargaining power. Companies like SKF, Bosch, MRF Tyres, Asian
Paints, Tata Steel supply special products to various automobile companies. These firms dictate
their terms to these companies. The bargaining power can create a direct threat of material prices
and volume consumptions and inventory management.
Bargaining power of Customer: All automobile companies have dedicated suppliers as

automobile component manufacturers and OEM suppliers. These mass scale production
companies use their bargain power and generate maximum benefits from component
manufacturers. The dedicated suppliers fully depend upon these customers and there is always a
threat from customer arising out of change in business policies or business models.
Threat of substitute products or Services: In automobile component manufacturing

companies, the entry barriers are minimum and a new competitor can enter into market with
better technologies and low cost products. This creates a threat of survival for the company.
Entry of global players in India has created a threat for various automobile component
manufacturers.
Rivalry among existing competitors: Large scale Automobile manufacturers have multiple
dedicated suppliers and they create artificial rivalry among these suppliers. They always create a
threat for all competitors by frequent changes in delivery schedules and volume of consumption.
10
The rubber manufacturers like TVS, MRF, Dunlop, Ceat is a best example of rivalry for supply
of tires and tubes to these mass scale automobile manufacturers.
Application of Porters Five forces Model: This model helps us to identify the potential
sources of crisis from external environment and helps management to take strategic decisions to
have a proactive approach for crisis management. This analysis provides a strong support for
strategic decisions to reduce the impact of this business environment.
3.2.4 Porters Generic Strategy model

Michael Porter suggests that firms ultimate strength is into three factors.
a) Cost advantage
b) Differentiation
c) Focus.
They are called generic strategies because these are applied at the business unit level and are not
dependent on industry or firm.
Figure 3.6 Porters generic strategy model:
Competitive advantage
11
Cost leadership: A company can mange the crisis resulting from price war in a market by
creating a cost leadership advantage to offer better products to customers. Cost leadership can be
achieved by taking strategic decision in various areas such as
a) Economics of scale
b) Proprietary technology
c) Cheaper raw material
d) Lower cost of processing
e) Lower product delivery cost
Organizations that achieve cost leadership can benefit either by increased market share or by
maintaining average price. In both the cases, the firm achieves higher profits.
I.
Differentiation: The strategy of differentiation involves offering a different product, a

different delivery system or using a different marketing approach. It is upto management
of the company to decide which factors it wants to emphasize in order to gain
competitive advantage. Companies that apply differentiation strategy in the market share
by offering unique services to customer. Company projects itself as a different company
in terms of products, services, policies, technology etc. to retain market share and
increase market penetration.
II.
Focus: The third strategy, focus strategy involves achieving cost leadership or
differentiation within niche market. Firm chooses a narrow segment within industry and
tailors its offerings. Focus strategy has its two variants
a) It cost focus a firm achieve a cost advantage in its targeted segment.
12
b) Differentiation focus a firm achieves differentiation in target segment.

Overall porters generic strategy devices following strategies:
Differentiation strategy- unique competency
Cost leadership strategy- low cost competency
Segmentation strategy- focus on narrow section
Porters Five Forces Model and generic strategies can be used in combination for better decisions
and to develop better crisis management approach. The Matrix is formulated by combining
Porters five force and generic strategy. Generic strategies each can provide action plan to defend
against competitive forces
Figure 3.7 Porters Generic Strategies
3.2.5 PESTL Analysis:

External business Analysis- Political, Economic, Social, Technical and Legal
13
Economic conditions affect both capital availability and cost of capital. In-turn it affects
profitability, growth and sustenance of the organization. External environment is always
unpredictable. Economic conditions influence timing and success of a particular strategy. When
economy is growing, the demand may exist for a product, and services, which would not be
when there is stage of depressed economy. Economic conditions are influenced by Government
policies and political situation in the country. PESTL analysis is a logical approach to understand
the impact of External Business environment on a business and provides insight to adapt with the
situation.
Socio cultural environment influence the demand and tests, which vary with the fashion,
disposable income and general changes. Technology is widely recognized by various literatures
on strategic management as a part of organization and it is used for creation of competitive
advantage. PESTL analysis incorporates perspectives of Macro Environment Analysis, which
provide a framework and a logical structure for proactive decision-making.
P- Political Factors:
Structure of federal Government
Stability of government
Policy decision making process
Speed of decisions
Political interference
Monetary and fiscal policies
E- Economical Factors
Government approach for economic development
Growth of industry sectors
Purchasing power of buyers
Surplus available for consumption
Consumption patters
Homogeneity and heterogeneous market
Potential growth of market
14
Global factors
S-Social Factors
Culture of society
Education standard and literacy level
Population growth rate
Demography
Social security measures
Focus on development
Life style
Ethical and religious factors
T-Technological Factors
Research and development activity
Automation
Systems
Technology incentives
Rate of technological change
Technology advancement
Innovation potential
Technology access, licence and patent procedures
L Legal Factors
Company laws
Labour laws
Payment and wages act
Financial reporting and statutory compliance
Judiciary systems
Financial regulators and regulatory systems
Banking structure
15
3.2.6 Ansoff Matrix:

Ignor Ansoff presented a matrix that focused on firms present and potential products and
markets. This matrix was first published in Harvard Business School in 1957 and has given
simple solution about growth of business for organization. It is also called Product / Market
Expansion Grid. The matrix shows four ways the business can grow and also helps executives to
ascertain the risk associated with each option.
Figure 3.8: Ansoff Matrix
Market risk is involved in all strategies whether company introducing a new product or going for
market expansion of existing product portfolio. Diversification is high-risk business proposition
where as to stay in existing market is of lower risk. Aim is always to have a lower risk for
business but it is very difficult to expect same level of market potential for life of the product.
Radical changes in product development and subsequent market will be always there. The firm
has to understand the impact of these changes and prepare strategic approach to face the
situation.
Ansoff presents four different market growth strategies
I.
Market Penetration: Firm can achieve growth in the current market with existing product
portfolio through penetration. This strategy is having least potential risk. This strategy is
used to expand customer base by using various product promotion tools.
16
II.
Market Development: Introduction of existing product portfolio in new market. This

strategy has higher risk. This is market expansion strategy and has a focus on creating
different market segment, new geographical markets and different consumer groups.
III.
Product development: New product portfolio for existing market. This strategy has
moderate risk. Efforts are made to enhance existing product portfolio by upgrading the
products, adding more quality features, better services etc.
IV.
Diversification: New business with new product portfolio with new market. This strategy
has very high risk. This strategy is used to reduce overall risk for business in down turn
or slow down of economy. Efforts are made to ensure one of the product line is always a
revenue machine for organization
1.2.7 SWOT Analysis:

SWOT , (Strengths, Weaknesses, Opportunities and Threats ) is a most commonly used
matrix as a decision making process. SWOT is a study to identify the linkages between
internal capabilities and external forces creating pressures on business performance. SWOT
is a powerful tool perform self audit about the business policies, business strategies and
related resources creation.
In automobile component manufacturing companies, SWOT can be very effective to create a
growth potential for the business. Majority of these companies work as suppliers for large
scale automobile companies. Automobile component manufacturers are well acquainted with
expectations of their customers. These companies can develop there strengths to grab the
opportunities offered by their customers.
SWOT is a double sword and any biased analysis about own weaknesses or strengths can
create a crisis for the company. It should as sincere as third party audit for perfect outcome
from the analysis. It should be a part of management audit system for better results.
A figure shows a conceptual frame work for effective use of SWOT. This frame work
provide a base for better understanding of business environment, analysis of potential threats
which may lead to crisis and at the same time search for opportunities which are offered by
environment.
17
Figure 3.9 Conceptual Framework of SWOT
Firm can build four strategies before strategic planning.

S-O Strategy
o To study the opportunities that can be filled with companys competitive
and core competence and resources that can be utilised.
o To Add or Improve resource capabilities with respect to additional
opportunities.
W-O Strategy
o To improve weakness to pursue opportunities.
o Overall review of weaknesses for Improvement (review with competitors
18
S-T Strategy
o Identify the ways the firm can counter the External threats with the help of
strengths resources and competitive advantages.
o Action plan for the anticipated external threats that cannot be counter
(diversifications, Innovation, Acquisitions etc.)
W-T Strategy
o Establish defence action plan to prevent weaknesses from external
anticipated threat
o To review such weakness to be able to counter the External threat.
SWOT is a method of categorization and has its own weakness. It only list the categories rather
think about what is important to achieve objectives. The entire list is without clear prioritizing in
relation with objective.
3.2.8 Value Chain:
Michael Porters value chain concept: Value chain consists of chain activities in a specific
industry in order to deliver valuable product and service to the customer. Michael Porter first
derived the concept of value chain for business management in his bestseller book Competitive
advantage creating and sustaining superior.
Figure 3.10 Michel Porters Value Chain
19
Value chain is a decision making model used to improve the performance of individual value
adding elements in a manufacturing company. Every activity in manufacturing has a scope for
improvement and deliver a better value for customer. Internal processes are the potential sources
of crisis and company needs to avoid this self inflicted crisis.
Value chain elements in a typical automobile component manufacturing company can be
1) Inbound logistics-Purchasing, sourcing
2) Operation- (Manufacturing and allied activities)
3) Out bound activities- (Distribution and logistics)
4) Marketing, sales- Communication & persuading customers
5) Service - After sales
6) Infra structure Management, planning, finance A/c etc
7) HRM Staff
8) Technology - New technology
9) Procurement Other than Raw material
Automobile component manufacturing companies work on low margins and over expenditures
on any value chain element can create a direct impact on bottom-line of the company. Value
Chain analysis is very effective management control tool for these companies. Value chain is a
strategic cost management tool to derive cost advantage for the company. It adds value in
decision making becauseValue chain consists of designing, producing, marketing, delivering and supporting a
product and services.
Value chain is the linkage of set of activities and functions a firm performs with the
supply chain.
Value chain includes profit margin as a mark up over cost of operations.
Value chain is relevant to the activities & processes of companys cost structure.
20
Most often, various elements in supply chain are elements of value system.
3.2.9 Mckinsey 7S ' Model
7S model was developed at Mckinsey & Co Consulting Firm in 1980. This model describes how
efficiently one can organize a company. This model is based on the theory that, for an
organization to perform well and achieve its objectives, all seven elements must be aligned
mutually. 7S model can be used to analyze the current situation and prepare for future goals, and
then identify the gaps and inconsistencies between them. It is then action of adjusting and tuning
the individual elements to ensure organization works efficiently.
Definition: A model of organization effectiveness that postulates that there are seven internal
factors, that needs to be aligned and reinforced in order to be successful.
Figure 3.11 7S Model
7S model specifies seven factors that are classified into hard and soft elements. Hard elements
are easily identified and influenced by management while soft elements are more intangible and
are influenced by corporate culture.
21
Hard elements are Strategy, Structure, and System

Soft elements are Shared Values, Style, Skill and Staff
In crisis management related to internal business environment, 7S model can be used effectively
to create a balance between various internal subsystems. This model is methodological approach
to design strong internal balanced and supportive systems.
Getting the balance right in this model means getting culture right. In addition to central value
alignment, each of the seven elements has definite role in the designing correct organization.
1. Strategy- A corporate plan to create competitive advantage.
2. Structure Line of reporting, task allocation coordination and supervisory levels.
3. System The supporting system and processes of organization like information system,
financial reporting, payment systems, resource allocation etc.
4. Shared Values These are core values of the company and form underpinning culture
and how the business behaves in wider context of the community.
5. Style The style of leadership adopted by the organization.
6. Staff The number and types of employees with the organization.
7. Skills - Skills and competency available with the company.
The decision process by application of 7S Model
Understand current state where company stands now
Understand future state, where company want to go
Create 7S model review on the current state by examining all elements and understand
current values of each element
Create 7S model on future state, and expected values of each elements.
Compare the future frame with the current state. Identify the gaps and create action plan
to bridge the gaps.
3.2.10 Balance Scorecard:xi
22
Balanced Scorecard is internal value creation model and works on principle of interlinking and
interdependence of various functional perceptive. Balanced scorecards are becoming a vital tool
for the management control. Balanced scorecard is a format for describing activities of an
organization for each of four perspectives. It is developed in 1992 & since then the concept has
been widely accepted as a new approach for developing management control systems and
performance management.
Every company has four major areas of focus; Customer, Financial Results, Internal processes
and learning and development attitude of the organization. These are the basic foundations of
any business. These four areas are major source of internal crisis. Overemphasis or negligence on
establishing performance standards for these focus areas can create imbalance in system and may
lead to severe crisis.
Balanced Scorecard is a strategic decision model and useful for communicating strategic
intentions, discussions on activities that are evolved by strategic aims and monitoring and
rewarding such activities. Balanced Scorecards are used as customized communication tools
within management control system.
Various strategic decisions such as customer focus strategy, functional strategies for finance and
operations, new product and process development can be derived by formation of Balanced
Scorecard.
Decision process followed by creating balanced scored cardPrepare a scorecard indicating four perspectives and design quantitative performance parameters
for each perspective.
Finance perspective - Critical success factor of finance function such as profitability, cost
of manufacturing, budgets, cost f capital and sources of funds are considered.
Customer Customer satisfaction Indices and the general idea that was important to
monitor value as perceived by customer.
23
Internal Processes It is necessary to improve processes as a critical business success

promoted through TQM (Total Quality Management) & BPR (Business Process
Reengineering).
Development and learning perspective As a means to provide satisfaction for internal
and external parties stake holders with improved products and services.
Figure 3.12 Balanced Scorecard Concept
Balanced Scorecard is a flexible model where organization can create their own templates for
management control and performance enhancement. Most important aspect of creating a
template is to establish a link between various perspectives. This interlinking of perspectives
helps to understand interdependent role of various functions and helps to minimize the conflicts.
People will come together for a common goal to balance each others performance and achieve
common goal set by the organization.
To enhance the performance decision making approach can be fine tunes by scientific utilization
of scorecards. As shown the sample template, company can perform internal environment
assessment and establish performance standards.
The decision process that can be followed to improve performance isCreate a strategic aim and focus for every perspective.
24
Identify critical success factors for each perspective.

Develop performance measurement metrics and set goals and target.
Create action plan to achieve goals and targets.
Monitor performance regularly through internal audits and establish control mechanism.
Balanced score card template shown in figure is one of approaches to use balanced scorecard
effectively.
Procedure to use template:
Analyze the strategic goals for each balanced scorecard perspective
For each strategic goal establish performance indicator
Balance the strategic goals with the perspectives
Balance the performance indicators
Decide the action for performance indicators and strategic goals.
Figure 3.13 Balanced Scorecard Template for manufacturing Industry.
25
Harvard Business Review on Corporate strategy, Harvard Business School Press, 1999, pp 12-13
ii
Drucker Peter F. , Management: Task, Responsibilities, Practices, New York Harper and Row publishers Inc
1973,125
iii
Champa Rudy A., Strategic Thinking and Boardroom debate, Mission Veijo, CA Critical Thinking Press 2001, 11
iv
Drucker Peter F., The Effective Executive, New York: Harper And Row, 1967, page143
Zeleny Milan , Multiple Criteria Decision Making, McGraw Hill Book Company, page 85
vi
Zeleny Milan , Multiple Criteria Decision Making, McGraw Hill Book Company, page 93
vii
Drucker Peter F , The Elements of Decision Making Corpedia 8104, Online programm 2001
viii
Drucker Peter F , The Effective Executive, New York: Harper And Row, 1967, pp 136-137
26
ix
Harvard Business Essentials on decision making, Harvard Business Shool Press, 2010, page 5
Swaim Robert W., Strategic Drucker, Growth Strategies and marketing Insight, from the works of Peter Drucker,
Wiley, page 253
xi
Nils Goean Olve and Skostrant Anna, Balanced Scorecard, Wiley India Pvt Ltd. Edition I, pp 1-5, 41, 59, 97-99
27
Annexure -4
Chapter 4
Chapter 4
A Business Planning Guide for Social Enterprises
Strategic Frameworks
trategic
Frameworks
78
Copyright 2000 Sutia Kim Alter. This work is licensed under the Creative Commons Attribution-Share Alike 3.0 License (http://creativecommons.org/licenses/by-sa/3.0/)
Chapter 4
The reason a lot of people do not recognize opportunity is because it usually goes around wearing overalls looking like hard work.
Thomas Edison
Inventor
A Business Planning Reference Guide for Social Enterprises
verview: Strategic frameworks help you analyze your social enterprise relative to your operating environment, industry, and competition. The information
gathered in this section will enable you to ascertain its comparative advantages and
subsequently craft your business strategies.
The first strategic framework presented in this chapter is called a SWOT analysis, SWOT being an acronym for strengths, weaknesses, opportunities, and threats. It
is an analytical tool that helps managers build strategies that emphasize the strengths
of a social enterprise and the opportunities available in the operating environment
and diminish the weaknesses of the enterprise and the risks of potential threats. The
second, an industry analysis, examines factors and trends in the industry that may
impede the viability of a social enterprise. The final framework is a competitive
analysis, which evaluates the intentions, actions, products or services, and market
position of competitors.
Strategic frameworks analyze both the firm and the environment. These analyses
should be conducted as part of market research prior to selecting an industry or
deciding on a social enterprise and as part of ongoing strategic planning once you
have launched your enterprise. There may be some overlap among the frameworks
depending on the characteristics of your chosen industry, environment, or
enterprise.
79
EXHIBIT 4A: STRATEGIC FRAMEWORKS PRESENTED
IN
MANUAL
The Firm
Chapter
Frequency
The Environment
Chapter Frequency
Strengths &
Weaknesses
Annually
Opportunities & Threats 4
Annually
Cost Structure
5,6,7,8
Continually
Five Forces (Porter)
Customers
Continually
Industry
Annually
Competitors
Annually
Once thoroughly
during
market
research
(prior to
program);
as needed
thereafter
Analyze the Social Enterprise
BUSINESS ASSESSMENT: STRENGTHS
AND
WEAKNESSES
Rationale:
In this section you will analyze the strengths and weaknesses of your social enterprise as they relate to the ability to carry out enterprise objectives. Understanding
your enterprise is an invaluable exercise that also has strategic implications for how
you will build and operate your business. For example, if you discover that your
product is recognized for its high quality but your operating efficiencies are low, you
might either focus on a strategy for improving your production and delivery methods
to lower your costs or employ a marketing strategy to strengthen your brand and sell
high-quality products at a premium price.
Definition of Strengths and Weaknesses
A Weakness Can Also Be a Strength
and Vice Versa
The TARTINA plant and administrative offices are located

in Colline, a rural community on a steep incline about two
hours from TARTINAs primary market in Port-au-Prince.
This location is a weakness in terms of the distance
employees must travel to distribute or service their products and the poor roads and communications. On the
other hand, Colline is home to the microentrepreneurs
who produce TARTINA products, and the land, plant, and
office facilities were provided free by Save the Childrens
implementing partner, ADE. Operating and production
costs are also cheaper in Colline than in Port-au-Prince.
Therefore, the advantages of TARTINAs location to some
extent offset the cost and inconvenience resulting from
poor infrastructure and the distance from the primary
market.
Strengths are internal conditionsskills, aptitudes, and aspectsthat enable your social enterprise to effectively deliver products or services
based on your customers needs. Strengths enable
your social enterprise to distinguish itself from its
competitors as well as block their attempts to imitate your products or services. Examples of
strengths include skilled staff, a good reputation,
and ample resources.
Weaknesses are internal conditions that can lead
to poor performance. Examples of weaknesses are
obsolete technology or equipment, poor quality
control, and weak managerial skills.
You must weigh strengths against weaknesses to determine their relative benefit or detriment.
80
Managing the Double Bottom Line:
GUIDE
TO
ANALYZING STRENGTHS
AND
WEAKNESSES
Social enterprise strengths and weaknesses are evaluated according to two different perspectives: (1) customer perceptions of products/services, brand, and reputation and (2) stakeholders and managements view of internal operations.
Customer Perceptions
4Product/service features. Do the features of your product or service meet your

clients stated needs? Features are both tangible and intangible attributes of your
product or service that yield a benefit (see chapter 5, Marketing). They encompass
customer tastes, like creamy or crunchy for peanut butter, and preferences,
like short terms, easy application procedure, or small working capital loans
for financial services.
Product featuresthe
characteristics that describe
a good or service. Marketers use product features to
attract customers. They
must be careful, however,
when developing the marketing campaign to create a
fit between the product's
features and the stated
needs of the customer.
(meet customers stated needs)? Be sure to consider value-added aspects of the

product such as proximity, availability, and purchase terms and factor them into
the perceived value of your products.
4Quality. What is the quality of your product or service relative to similar products
4Reputation/name recognition. What kind of reputation does your product or

service have? How well known is your brand or enterprise? When people hear
the name of your brand (or enterprise), do they recognize it? Do they identify the
name with your product or service?
4Social image. What image does your social enterprise have with customers? Is
your enterprise seen as making a contribution to the community by, for example,
employing local labor, selling products produced by the poor, or sourcing raw
materials from local producers and suppliers? How is your social enterprise
viewed with regard to its attention to the environment, fair trade, and just management practices?
Stakeholders and Managements View of Internal Operations
4Mission statement. Does your social enterprise have a clear mission statement
that articulates its central purpose, spells out its chief objectives and the main
strategy it will pursue, and embodies the spirit and values of the enterprise? Do
all key stakeholders in the enterprise agree with the mission statement?
4Resources. Does your social enterprise have adequate resources to dependably

meet your clients and customers needs and expectations? Does your social
enterprise have ample working capital to weather the ebbs and flows of your
business cycle? Is financing sufficient to cover capital investment purchases and
asset maintenance and to pay operating costs and overhead, such as salaries, rent,
or services on the market? Is your product or service perceived as having exceptional quality, or does it have another advantage, such as a low price, that attracts
customers?
Perceived valuethe customers' perception of a

product's or service's worth
to them; it is a function of
the product's or service's
benefits to customers.
Chapter 4
4Value. Does your product or service provide good value to the client for the price
81
utilities, and raw material supplies? Are resources available for research and
development, contract expertise, and staff training? If your enterprise does not at
present have adequate resources, can it readily mobilize them?
4Strategic alliances. Does your social enterprise have strong partnerships with the
implementing partner, suppliers, buyers, and other producers? Do synergies exist
between partners and your enterprise? Do you have formal partnership agreements that spell out the terms and expectations of the alliance?
4Infrastructure and capacity. Do your accommodations and infrastructure facilitate your operations? Is there adequate office space, systems (administrative and
information systems, policies, etc.), and equipment (computer, fax, telephone,
etc.) to support your staff? Do you have the necessary physical space to support
your services, like a conference or training room? If you have a manufacturing
enterprise, what is the capacity of your plant or production facilities? What kind
of equipment and machinery do you have? Are the transportation needs of your
enterprise being met with your existing vehicles?
Complementary productsproducts that can or must be used together, such as cameras and film. Neither
product can be substituted for the
other, and the sale of one increases
the sale of the other.
Economies of scalelowering
costs through the production of higher volume. Economies of scale occur
by spreading fixed costscosts that
remain constant despite increases or
decreases in sales over a greater
number of products. Fixed costs typically include rent, equipment, administration, and salaries. Therefore, if
the rent on your factory is the same
regardless of how much you produce,
by making and selling more you
spread the costs of your rent.
4Product/service mix. Does your social enterprise carry complementary

products/services in its product line? Is there market overlap between your products or services, i.e., do your products target the same customer? If customers are
familiar with one of your products or services, will they be inclined to try another
product? Are there synergies within your product linefor example, can you use
the same resources or raw materials in your different products or services?
4Operating efficiencies/economies of scale. Do production and delivery methods keep costs low and reduce time? What is the ability of your social enterprise
to reduce per-unit costs of its products or services? Are you able to produce your
goods or provide your services in volume? Are your operations running at full
capacity, or could your social enterprise manufacture more products or offer additional services without adding overhead?
4Location. Is the location of your social enterprise close or far from your target
market? If your enterprise is far away, are there comparative advantages that offset
the distance, for instance, lower operating costs or proximity to suppliers or
clients? Is physical access between your enterprise and the market barred at any
time during the year because of inclement weather or other problems?
4Client relationships. Do social enterprise management, leadership, and staff

have strong relationships with clients? Do they value client input regarding the
product/service or business process improvements? Do your clients feel that your
social enterprise responds to their business or economic needs?
4Human resources. Do you have competent staff and management with the necessary skills, background, and experience to efficiently operate and manage your
social enterprise? Are any functional skill areas, for example, financial or production management, lacking in your enterprise?
4Leadership. Is there full endorsement of the mission and objectives at the levels
of (1) the social enterprises stakeholders and senior management; (2) staff of the
parent organization; and (3) senior management and the board of the implementing partner? Do all the key leaders champion the venture and support the accomplishment of the social enterprises mission? Or is there dissent or tension among
82
certain leaders regarding introduction of a business culture or interventions into

development practices? Have leaders expressed other reasons as to why they are
not wholly on board with the social enterprise? Is there a strong leadership capable of leading the enterprise in times of controversy?
4Structure. To what extent does the enterprise run autonomously? How much
crossover exists between the social enterprise and other implementing partner or
parent organization programs in staff, premises, systems, resources, etc.? Is the
social enterprise structured as a program or a business?Is the income generated by
the enterprises activities being directly applied to its expenses? Are ownership
and legal issues well defined? Is there a plan for enterprise formalization? Or is
there a clear exit strategy for intervening organizations (parent organizations, partners, etc.)?
Analyzing the Social Enterprise
Chapter 4
PO business advisor, marketing and operations managers, business manager,

partner, program manager, clients, sales and production staff
Fill out the Business Assessment Worksheet found in The Workbook or create
your own.
It is important to recognize that some strengths can also be weaknesses and vice
versa.
83
Use the preceding questions as a guide to help you determine whether your
social enterprise is strong or weak in the given areas.
Feel free to add any categories that pertain to your enterprise, or omit those not
relevant, to portray an accurate profile of the business.
Indicate strengths under the heading S in the second column, and weaknesses
in the third column marked W.
Write descriptive comments specific to each category. Detailed observations in
your business analysis will help you develop successful strategies for your social
enterprise.
Strengths and weaknesses should be evaluated based on stakeholders and managements perception of the internal operations of the social enterprise as well as
on the perceptions of current and potential customers about your enterprise.
Refer to the TARTINA example (exhibit 4B).
EXHIBIT 4B: BUSINESS ASSESSMENT: TARTINA

I. Customer Perceptions
Comments
Product/service features
Snew products, grapefruit jam stable;

Wpeanut butter oil separates
Value
TARTINA is positioned as the economical

choice
Quality
Products are inconsistent; poor quality control
Reputation/
name recognition
TARTINA brand largely unknown
Social image
Socially conscious, though this is a low

priority among Haitians
II. Internal Operations
Comments
Mission statement
Resources
Infrastructure/capacity
Operating efficiencies/
economies of scale
Difficulty balancing social and commercial objectives

Grant funding for start-up; operations; free technical
assistance
Shave production center; Wcommunications

difficult (radios only); production capacity limited by
size of facility
Poor distribution system

Variable-cost business, so difficult to achieve
economies of scale
Strategic alliances
Location
Sclose to target clients; Wfar from target

market
Structure
Sstructured as a business, not a program;

Wownership unclear; disengagement from parent/partner organization difficult
Client relationships
Positive impact/relationship with clients
Product/service mix
Peanut butter and jelly are complementary products
Human resources
Leadership
SC, looking for business linkage opportunities
Wlack key marketing manager; lack technical

expertise in-house
Charismatic leadership
KEY
S = Strengths
W = Weaknesses
84
Analyze the Operating Environment:

Opportunities and Threats
Definition of Opportunities and Threats
Threats are current or future conditions that might harm a social enterprise. A
drought or a season of heavy rain could pose a threat to products in an agricultural
subsector. A change in health and safety regulations that required protective packaging or seals on food products or pharmaceuticals might threaten production methods, packaging technology, and invariably cost.
Opportunities are current or future conditions in an environment that a social

enterprise might be able to turn to its advantage. An example of an opportunity is
an increase in consumer awareness of cause-related businesses that might offer a
marketing opportunity. Or a change in laws in the U.S. or another country that
reduced import tariffs from developing countries might be an opportunity for a
social enterprise to expand its market and export its product. The corollary, an
increase in import duties, could present an opportunity for domestic production of
similar or substitute products by driving up import prices or fueling preferences for
local products.
Operating environment
external forces outside a
business and beyond its
control that constitute the
landscape in which it must
function. Also called the
strategic environment.
Chapter 4
Rationale:
Opportunities and threats are external forces outside the social enterprise and
beyond its control. These factors comprise the operating environment and can
enhance your program by providing new opportunities or threaten its success;
sometimes they do both. Determining potential opportunities helps direct planning
to both prioritize and maximize new opportunities that are compatible with the mission and objectives of your social enterprise and that leverage your strengths and the
strengths of your partners. Identifying potential threats can help you avoid pitfalls,
minimizing the negative impact of external factors. You will use the information
gleaned in the following exercise to formulate your business strategy and operational
plan in the body of your business plan.
85
GUIDE
TO
ANALYZING OPPORTUNITIES
AND
THREATS
4Legal and regulatory policies. Do government policies in your subsector prohibit or restrict your operations in any way? Are there existing laws, or new ones on
the horizon, that govern production processes for, or handling or disposing of, certain materials you use in your business; employment taxes; or duties on imports?
Less often in developing countries than in the United States and Europe, there are
health and safety regulations that may require changes to your product or facilities
that are outside your financial reach, such as wheelchair access or hazardouswaste disposal requirements.
4Economic environment. Is inflation a major factor in the economy, and is it predictable or does it fluctuate? During inflationary periods does demand go down
for your product or service? Are economic conditions improving or declining?
What bearing does the economy have on your enterprise? For example, if wages
decrease, will customers buy more or less of your product? Will they decide to
make the product themselves, or even forgo it, instead of purchasing it? Are there
trade barriers or embargoes that hinder or benefit your enterprise?
4Political instability or insecurity. Could the political environment in the country

jeopardize business operations in any way? Does political insecurity affect customers spending habits? Does a possibility of violence or theft threaten distribution, sales, or operations or limit raw materials acquisition or other necessary production inputs?
4Transportation and communications. What are the conditions of the roads and
public transportation? Are there plans to resurface old roads or build new ones or
to open or close a rail line? Are communications reliable and adequate to meet
your business needs? Do you have a variety of communications optionsare new
communications technologies, such as cellular phones, available and affordable?
4Physical climate. What is the topography of the social enterprises location? Is

access difficult as a result of natural barriers such as rivers and mountains? Are
there certain times of the year when access is restricted because of snow or
floods? Is access to the market a problem during such conditions? If your social
enterprise operates in an agricultural sector or uses agricultural inputs, how does
the weather affect your business?
4Market. Is there demand for your products or services? Are the features of your
products or services shaped by the stated needs of your customers? Are your target customers willing to pay for these products or services? What is the size of
your target market? What is the growth trend in your target market? What is any
growth based onadding new products or services, differentiating the features, or
marketing, i.e., getting the word out about your products or services to potential
customers?
4Technology. Are there technological innovations that could render your equipment or processes obsolete and cause your social enterprise to lose its competitive edge? Are technologies available that could help improve the quality of your
product/service or decrease your production costs? Is technology available that
would improve your communications or augment your access to information
(Internet access, cell phones, e-mail, fax)? Are the technological inputs you
needknowledge or innovationsavailable to you?
86
4Raw materials. Are sufficient raw material supplies available? Can you purchase
raw materials from several suppliers or only a few? Is your source of raw materials
local or international? Do many other producers buy the same raw materials? Are
your suppliers reliable? Are there substitute raw materials for your product? What
factors could change to impact your raw material supply or acquisition?
4Demographics. Is there a high incidence of illiteracy among your staff or the target population you work with? Does illiteracy impede the ability of your social
enterprise to perform? What about languagedoes a diversity of languages in target communities or markets and the resulting need for translation or interpretation
hamper your business? Are there gender issues that constrain or heighten mens or
womens participation in the social enterprise?
Analyzing the Operating Environment

Fill out the Operating Environment Analysis Worksheet found in The
Workbook or create your own.
Remember that opportunities can also be threats and vice versa.

When considering opportunities and threats, it is important to look beyond the
present and ask, How will this impact the social enterprise in the future?
After completing the Operating Environment Analysis synthesize the information
by answering the following questions:
Which are real opportunities, as opposed to distractions (poor strategic
choices)?
How can you take advantage of these opportunities? When?
What measures can you take to mitigate pending threats?
What are the implications of these threats for the operations of your
enterprise?
Refer to the TARTINA example in exhibit 4C.
The list of opportunities and threats is intended only as a guide; add or omit
items as needed for your social enterprise.
Chapter 4
Same as previous exercise
87
EXHIBIT 4C: OPPORTUNITIES (O) AND THREATS

(T) FOR TARTINA ENTERPRISE
88
High-quality standardized products demanded: The best way to achieve

a high volume of sales in a cost-effective manner is to serve urban markets,
the closest of which is Port-au-Prince. This places TARTINA products in the
competitive, formal market with its high standards for product quality and
consistency. The demand for product standardization and quality control
cannot be met through a home-based production model.
Growing demand for processed food products: This is particularly true in

urban areas such as Port-au-Prince, where population and income levels
continue to rise. Also, more women in the professional work force translates
to less time available at home for home-based production of peanut butter
and jam products.
O/T
Low barriers to entry: It is relatively simple for new companies to start up

their own small-scale food-processing operations. There is a minimal degree
of bureaucratic red tape, little capital investment is required, the recipes are
simple, and labor is available. Consequently, there is lots of competition in
the production of peanut butter and jam.
Infrastructure and security: Distribution to urban markets from rural areas

remains a constraint given the poor roads and lack of security, especially
after nightfall.
O/T
Microentrepreneurs knowledge of food transformation: They do have

some traditional knowledge of peanut butter and jam production, although
this alone is not sufficient to satisfy the high standards of the urban markets.
The traditional home-based production provides a good foundation for
training in standardization of transformed products.
O/T
Locally available raw materials: Locally grown citrus fruits are plentiful.
Peanut shortages will be a constraint on higher production levels in the near
future.
Lack of published industry information: What little industry information

exists is either outdated or extremely difficult to access.
Increased consciousness of social responsibility: Although still a low priority for consumers, awareness of local products and businesses that support
the poor is gaining attention from retailers.
SWOT Analysis
Rationale:
The SWOT analysis helps managers identify social enterprise comparative advantages and build strategies that emphasize these and maximize opportunities while
minimizing its weaknesses and the risks of potential threats.
Enterprise business manager, accountants and finance professionals, PO
Business Advisor
L Use the SWOT Analysis from The Workbook or create your own.
L Fill in the Strengths and Weaknesses sections from information gathered in the
Business Assessment exercise. Also fill in Opportunities and Threats from the
Operating Environment exercise.
L Focus on the left-hand side of the matrix to develop strategies that maximize
both strengths and opportunities.
L Focus on the right-hand side of the matrix to develop recommendations that mitigate weaknesses and threats.
L Strategies in both these sections will be evaluated for cost, fit with other strategies
and feasibility in each section of the business plan to which they pertain. For
example, the SWOT Analysis of TARTINA (exhibit 4D) identifies several marketing strategies to exploit opportunities and employ its strengths. Human resource
and product development strategies contribute to reducing TARTINAs weaknesses and the threats it faces.
The SWOT Analysis is included in the Business Plan.
L List only the Strengths, Weaknesses, Opportunities and Threats that have a significant impact on your social enterprise.
Chapter 4
Once you have identified the strengths and weaknesses of your social enterprise,
and determined the opportunities and threats it faces, you will organize this information in a matrix. Doing so gives you a visual picture from which to develop corresponding strategies evidenced in the body of your business plan.
89
EXHIBIT 4D: SWOT ANALYSIS
FOR
TARTINA
STRENGTHS
Products perceived as the economical choice
WEAKNESSES
Oil separates from peanut butter
Strong image as socially responsible
Quality is inconsistent
Significant resources through grants
Brand largely unknown
Complementary product mix
Lack key management and technical expertise
Good client relationships
Difficult to achieve economies of scale
OPPORTUNITIES
Growing demand for processed foods
THREATS
Locally available raw materials
Infrastructure and security is poor in Haiti
Most similar products are imported
Lack of published industry information
High-quality standard products demanded
Rising consciousness of social responsibility

at retailer level
Strategies for maximizing strengths and opportunities: Leverage TARTINAs social
contribution to secure contracts with socially conscious retailers who are familiar with
TARTINA products and get other retailers to try carrying products on this premise.
Plow resources into marketing efforts to get consumers to switch to TARTINA brand
and increase its brand recognition across markets. TARTINA will position itself as the
economic choice and compete on price against other brands. Secure contracts with
producers guaranteeing their market and increasing raw materials supply.
Strategies for mitigating weaknesses and threats: Hire needed staff in production
and marketing from private industry. Invest in product development to improve product quality and meet market demand. Examine possibilities to increase economies of
scale by investing in equipment or electrifying production center and adding evening
shifts. Contract technical assistance from specialists to alleviate technical knowledge
gaps; specifically to deal with problem of oil separating. Hire guard to improve security situation.
90
Industry Attractiveness
BARRIERS TO
ENTRY
BARGAINING
POWER OF
SUPPLIERS
INDUSTRY
RIVALRY
BARGAINING
POWER OF
BUYERS
THREAT OF
SUBSTITUTES
For more information refer to Porter, Michael E. 1980. Competitive Strategy: Techniques for
Analyzing Industries and Competitors. New York: Free Press.
Strategic implication
how certain information
impacts or influences a
strategy or plan to meet
specific goals or objectives.
EXHIBIT 4E: FIVE FORCES MODEL
Industrya group of firms

offering the same products
and services, or ones that
are close substitutes of one
another, and the supply and
distribution systems supporting such companies.
Chapter 4
Rationale:
Attractiveness of an industry is a critical piece of the market research puzzle when
planning your social enterprise. An industry is attractive if it offers above-average
potential for healthy long-term profitability and sustainable comparative advantage.
Determining industry attractiveness requires analyzing trends in the business environment and the likely behavior of competitors.
Structural characteristics of the industry define the business environment in
which social enterprises and companies compete and to which each competitor
must adapt. The most influential and widely used structural analysis method is
Michael Porters five forces model.1 According to Porter, a Harvard Business
School professor, five forces shape industry structure: barriers to entry, buyer power,
supplier power, the threat of substitutes, and industry rivalry. These forces set limits
on prices, costs, and investment requirementsthe basic factors determining the
profitability and hence the viability of your social enterprise. Thus, if you understand
the forces that constrain these basic factors, you can determine whether the business
environment will be hospitable or hostile to your social enterprise. Also important is
to understand the strategic implications of these forces for the design of your
enterprise.
91
Demand Is Not the Only Measure of Viability:

An Example From Haiti
CASE STUDY FOR PORTERS

FIVE-FORCES MODEL2
In 1993, Save the Children

began a social enterprise program in the Philippines in the
remnant subsector of the garment industry. In this subsector,
poor women use fabric scrap
(retaso) from garment factories
as the raw material for weaving
or sewing floor mats, childrens
clothes, cleaning rags, hair ribbons, and other products. The
primary objectives of SCs initiative were to reach large numbers
of these poor retaso workers and
increase their incomes, build
coalitions (linkages with the government, the private sector, and
other nonprofits), exert influence
on the policy environment, and
create a self-sustaining enterprise.3
Save the Children used subsector analysis to examine 14
different subsectors in which
poor Filipino women work, then
chose the fabric remnant subsector in part because it employs
approximately 50,000 women in
metropolitan Manila with annual
earnings below the poverty line.
SC also noted that this subsector
was growing; demand for retaso
The lesson learned: Do not use demand as the sole indicator of sector viability.
products had been increasing by
approximately 7 percent per
year. Additionally, opportunities
existed to secure contracts for retaso products with large corporations in the
SubsectorA subsector is delineatPhilippines fastest-growing industries. Finally, SC believed it could mitigate unfavored by a particular final product and
able government policies toward the retaso workers by integrating an advocacy
includes all firms engaged in raw
material supply, production, and distri- component into the program.
bution of that product. In some cases,
Subsector analysis has largely served well to identify characteristics compatible
however, the defining characteristic is
with SC program objectives. The method falls short, however, in distinguishing favora key raw material, with the subsector
able industry factors for long-term viability. Thus, although subsector analysis may be
A study of potential subsectors in Haiti established that a strong demand
for peanut butter existed and that a large concentration of women microentrepreneurs was engaged in making peanut butter for local sale. This
demand analysis also indicated interest by several larger retailers and
wholesalers in the capital city of Port-au-Prince in carrying locally made
peanut butter, thus potentially providing poor women entrepreneurs with
new economic opportunities. Sounds like a great subsector, right?
Wrong. The information not established in the demand study was market conditions for peanut butter. First, natural peanut butter separates (oil
from ground nut paste) after a period of time. This was not a problem for
local consumers, who bought the fresh peanut butter and consumed it
right away. There was a longer lag time, however, from production to consumer when selling through commercial distribution channels. Consumer
preference in Haiti is for peanut butter that does not separate. The result
was that commercially distributed products were returned, or left unsold,
causing revenues to decline. In addition, consumers thought that the
microentrepreneurs were adding oil to the peanut butter, and the microentrepreneurs thereby earned a reputation for cheating their customers.
Second, raw materials for peanut butter are seasonal. The successful
firms competing in this subsector purchased grain silos to store peanuts so
they could produce year-round. Silos and advanced technology to emulsify
and store peanut butter were too costly for poor entrepreneurs. And without year-round production and storage capabilities, entrepreneurs could
not secure contracts with commercial retail and wholesale outlets, which
rely on product availability to attract and retain customers.
An assessment of the market conditionsi.e., the strategic environmentwould have made apparent the major constraints on the viability of
this subsector. Had they made such an assessment, program designers
would probably have selected a different subsector to concentrate on in
Haiti, or designed their enterprise model to circumvent or mitigate these
constraints.
describing the alternative transformations and distribution systems emanating from it. (Haggblade, Gamser,
1991)
92
The examples from the retaso industry were prepared retrospectively, and to accommodate the
exercises in this manual, so some inaccuracies may exist. The intention is to illustrate the fiveforces model and to assist practitioners with its application, not to provide a case study of SC's program in the Philippines.
3
Business Development Services for SMEs: Preliminary Guidelines for Donor Funded Interventions,
October 1997.
THREAT
OF
NEW ENTRANTS: BARRIERS
TO
ENTRY
Subsector AnalysisSubsector
Analysis offers a framework for rapidly evaluating Micro and Small
Enterprise (MSE) dynamics and the
prospects for cost-effective intervention. It does not prejudge the nature
of intervention. Subsector analysis
can lead to projects involving technology development, input supply, marketing, management assistance, or
credit. (Haggblade, Gamser, 1991)
Market conditionsfactors
in the marketplacetaste and
preferences, income, prices of
related or similar goods, number of buyers, scarcity of similar items in demand, and
future expectations of market
pricethat cause consumers
to re-evaluate the amount they
are willing to pay for a product.
Market Barriers Might Include
4High investment costs for start-up. It is often prohibitive for small players who
lack adequate cash for investment to enter the market.
4Time to establish the enterprise. The ability to defer returns on investments if
Barrier to entryany factor,

tangible or intangible, that prevents or deters a social enterprise from entering a market
or industry.
set-up time is long requires substantial financial resources.
4Substantial expertise required. It can be difficult to enter a given market if one

does not have the specific product or process expertise that is required.
Cash flowthe actual

movement of cash; used to
measure cash inflow minus
cash outflow.
Rationale:
The threat of new entrants in the market depends largely on what barriers to entry
exist in the industry. Conducting an analysis of these barriers is one criterion that can
help you determine the potential attractiveness of the industry. Discovering whether
these obstacles are insurmountable or navigable will assist your decision about
whether to enter the industry.
Additionally, recognizing which Barriers to Entry as a Force in
Social Enterprise Design
barriers may hinder you from
entering the market will help you
If your target clients are self-employed poor people they
later in defining the marketing,
are typically engaged in activities in industries where barriproduct/service development, and
ers to entry are low. Lack of capital for start-up costs, low
operational strategies of your social technology, and lack of expertise are the predominant reaenterprise. Understanding market
sons they enter industries where the barriers are low. As a
barriers also gives you important
result, markets in which microentrepreneurs operate tend
information in planning your budg- to be saturated and highly competitive. In crafting your
et and managing your cash flow,
social enterprise in such a business environment, considindicating, for example, whether
er value-added components that will enhance products
additional cash reserves are needed and marketing techniques to help poor entrepreneurs
to fund high start-up costs or long
access new markets where purchasing power is higher
lag times are anticipated before
and competition is lower.
you will reaize revenue from your
business.
Chapter 4
an important tool for some social enterprise programs, it is not a sufficient determinant of viability independent of a larger market study. For example, SC designers of
programs in both Haiti and the Philippines used subsector demand as one of the
chief indicators of viability in isolation from the larger market context, including
market conditions and other industry forces (see example on the previous page for
Haiti). To date, the social enterprise program in the Philippines has been unable to
generate enough income to cover operations. One reason is that certain forces in
the retaso industry constitute a hostile environment for a social enterprise. The fiveforces model to determine industry attractiveness, i.e., the potential for social enterprise viability, should have been completed in addition to a subsector analysis.
In this section we use Save the Childrens social enterprise program in the
Philippines to illustrate Porters model as an analytic framework for social enterprise
programming. The Haiti example in the box below underscores the importance of
augmenting subsector analysis with additional methods of environment analysis for
social enterprise ventures.
93
4Lack of suppliers or distributors. A deficit in one or both of these areas hinders

the ability to operate a business competitively.
4Market saturation. The existence of many competitors reduces the ability of new
businesses to penetrate the market.
Market SaturationSupplying a
market with as much of a product
or service as it can absorb. At the
point of market saturation, there is
no room for new players to enter
without competing directly with
other suppliers for customers.
4Changing technology. The introduction of new technology can render equipment obsolete and prevent an enterprise from competing effectively or entering a
new market.
4Restrictive regulations. Tough laws or regulations can have cost implications or

bureaucratic ones, for example, if government permits required to operate the
business are difficult to obtain.
4Lack of high-quality personnel. The inability to recruit and retain high-quality

staff can be a deterrent to entering an industry.
4Customer resistance. Customers who have long-standing relationships with an

existing company or strong brand loyalty can be difficult to win over by a new
market entrant.
4Existing patents and trademarks. These are not usually a constraint in developing countries, but an industry that is patent or trademark driven restricts new businesses from entering.
Enterprise managers, operations, marketing/sales staff, PO advisor, external
consultant (if desired) for all parts of five forces exercise
Determining Barriers to Entry
Analyze the barriers to entry in the industry in which your social enterprise operates or in industries you are exploring for a new intervention.
Fill out the Barriers to Entry Worksheet, including the attractiveness-rating
columns, found in The Workbook or create your own. An example for retaso is in
exhibit 4F.
Determine how this information translates into overall attractiveness for the
industry. You may use a rating system or weighted averages to quantify your
results. (Instructions for calculating weighted averages are given in appendix A.)
Note the strategic implications of barriers to entry for your social enterprise.
94
EXHIBIT 4F: EXAMPLE

Measure of
Barriers to Entry
OF
BARRIERS
Rating
TO
ENTRY
Highly
Unattractive
FOR
RETASO INDUSTRY
Unattractive
Neutral
Attractive
High investment costs
Low
The time to establish

your enterprise
Medium
Substantial expertise
required
Low
Lack of suppliers or
distributors
High
Market saturation
High
Changing technology
Low
Restrictive regulations
High
Lack of high-quality
personnel
Low
Customer resistance
Low
Existing patents and

trademarks
None
Chapter 4
Strategic implications: Despite other factors contributing to attractiveness, the lack of suppliers
and restrictive government policies present potentially formidable barriers to entry for a formalized social enterprise in this industry where the market is highly saturated by informal players. To
ease supply and legal constraints, the social enterprise could include an advocacy component to
encourage Filipino lawmakers to lift restrictions and tax disincentives on garment industry disposal of fabric remnants. In this situation, the enterprise should not try to compete head-on with
informal players but, rather, bypass them by targeting a different market (if one exists).
Buyer powerthe ability

of customers to pressure a
firm to reduce its prices for
products or services.
BUYER POWER
Rationale:
If buyers have considerable power over the selling price of the products or services
your social enterprise offers, this can seriously restrict profitability, thus reducing
overall industry attractiveness. If you choose to enter an industry in which buyer
power exists, you must be conscious of your cost structurewhat is the lowest price
you can charge for your product or service and still earn a profit?and consider
strategies you can employ to reduce the effects of buyer power on the viability of
your social enterprise.
Buyer Power Is Usually High When
4There are few customers. For example, the industry may rely mainly on government contracts or sell to only one or two large customers.
4Buyers are well informed about competitors products or services and these
are readily available. This is typical in industries where there are many producers and little product differentiation to bind customers.
4The costs of switching from one product to another are low. Consumers of
Switching CostsThe
financial cost to change
from one product to
another. Switching costs
are typically high for
technology products. For
example, switching costs
from an IBM-compatible
computer to an Apple
computer are high
because costs extend
beyond the price of the
the computer to the systems that support it. The
cost for changing peanut
butter brands, on the
other hand, is limited to
the price of the product;
hence, switching costs
are low. (See following
page.)
Attractiveness rating
95
Backward integrationa strategy in

which a company takes over control
of the supply of its raw materials or
parts, or the suppliers themselves.
See also vertical integration.
TARTINA peanut butter, for example, need only select another brand on the supermarket shelf.
4Firms in the industry can pursue a strategy of backward integration and manufacture the product or offer the service themselves. For example when a wholesaler
begins to manufacture its products, rather than buy them from the producer.
Implications of Buyer Power

for Social Enterprise Design:
An Example From Retaso
In the case of the retaso industry, middlemen represented

an ominous buyer power force against self-employed
retaso workers. Although private companies purchased
retaso products, the women entrepreneurs who made
them were unable to access this market because they
lacked contacts and marketing savvy and could not meet
the quantity demands or the preferred terms of companies
(which often bought on credit). Therefore, the primary
market for self-employed retaso workers was middlemen,
who bought their products at low prices and then sold
them to companies at a substantial markup. If women
refused to yield to the extortionist practices of middlemen,
they ended up being cut off from the market and replaced
with another retaso worker who accepted the middlemens prices.
Designers of the social enterprise program in the
Philippines sought to override middlemens buyer power
through by targeting women retaso workers and providing
them with services to increase their competitive ability.
The enterprise (at that time called an association) organized hundreds of retaso workers, enabling them to meet
the quantity requirements of private companies. Enterprise
management staff handled marketing efforts to secure
corporate contracts and offered credit sales to large customers.
Market penetrationusing
marketing tactics, such as
lower prices or special offers,
to get new customers to try a
product or service. Market
penetration is a strategy companies may use to enter a
market in which they do not
yet have a presence; it can be
an important element in building brand awareness and loyalty. A penetrated market consists of customers who have
already purchased a product.
Knowing the penetrated market
allows marketing managers to
gauge their position against
competitors.
96
4The seller competes on a cost basis. A business

that establishes itself as a low-price competitor is
prone to consumer pressure to remain low cost at
all costs. Therefore, if a new competitor enters the
market using a low-price market penetration strategy, the low-price seller must lower its prices to maintain its position.
4The seller is not profitable. An unprofitable
business is vulnerable to reactive strategies like
any sale is better than no sale at all to
diminish losses and is thus highly susceptible
to buyer price pressure.
Strategic Options for Operating in a Buyer
Power Industry
Bundling, or grouping several products together, is
one mechanism for reducing buyer power. For example, an enterprise selling spare auto parts might
include a service or installment agreement in the sale
of the parts. Or an enterprise might team up with
another company to offer product groupings rather
than develop an additional competence itself.
Bundling makes it difficult for a customer to determine the cost of each component in the package
when comparing prices across companies. Bundling
has a psychological advantage, too: Even when customers pay more, they have the sense that they are
getting more for their money.
Differentiation is another strategy. Social enterprises can reduce buyer power by

strongly differentiating their products from the competitions, by adding unique
product benefits that respond to customers wants and needs. Augmenting customer
service is an important means of differentiating products and services. Examples of
customer service include providing favorable financing terms, servicing products,
and giving refunds on returns (chapter 5, Marketing, for more information).
Determining Buyer Power
L Follow the same directions as for barriers to entry. Fill out the Buyer Power
Worksheet in The Workbook or create your own. An example for retaso is in
exhibit 4G. You can use a rating system or weighted averages to quantify your
results for industry attractiveness (appendix A).
L Note the strategic implications of buyer power for your social enterprise.
EXHIBIT 4G: EXAMPLE

Measures of
Buyer Power
OF
BUYER POWER
Rating
Highly
Unattractive
Some
Availablity of competitors
like product or services
Many
Switching costs
Low
Threat of backward
integration
Low
Price competitor
Many
Unprofitable
business
RETASO INDUSTRY
Unattractive
Neutral
Attractive
N/A
* Number of CustomersBe careful not to confuse number of customers with demand.

There may be high demand for a product or service yet few customers to whom you would be
selling. This might be the case if you were selling intermediary products or wholesaling.
SUPPLIER POWER
Rationale:
Supplier power is the flip side of buyer power. Powerful suppliers in an industry
can substantially reduce the profitability of an enterprise by raising prices or restricting the quantity of their goods. For many social enterprises, constraints on raw
material supply have been a recurring theme, largely because of powerful suppliers
who dominate the market. Social enterprises are susceptible to supplier control
because they often produce in low volume and lack formal market connections.
Supplier Power Exists When
4The industry is controlled by a small number of companies. By the economic theory of supply and demand, buyers have few options and little leverage
to purchase from other suppliers.
4Suppliers are able to pursue a strategy of forward integration. If a supplier

can easily develop capacity to manufacture a product or offer a service, this substantially increases its power.
4A supplier does not face a threat of substitute products. Until substitutes

exist, the purchaser is bound to use the particular raw material or product.
4Suppliers products are differentiated or carry high switching costs. It may

Supplier powerthe ability

of a supplier to control or
influence buyers.
Forward integrationa
strategy of downstream
expansion into new areas of a
company's value chain,
such as distribution, wholesaling, retailing, etc. It is a
form of vertical integration.
Value chaina network of
facilities that procure raw
materials, transform them into
intermediate products and then
finished goods, and transport
them through the distribution
system. It spans procurement,
manufacturing, and distribution. A value chain is sometimes referred to as a supply
chain.
Strategic implications: Emphasizing marketing strategy is important to succeed in an industry

with relatively high buyer power. The social enterprise can focus on securing commercial contracts directly from large companies in growth industries, thus circumventing powerful middlemen. This is a more cost-effective approach than selling to individuals, who exercise more buyer
power than companies. The enterprise can also leverage its social position to market its products,
differentiating them as socially responsible or community development oriented. Large companies have relatively low sensitivity to marginal price differences between retaso and substitute
products. Additionally, they may consider buying from a social enterprise as a means to improve
their image or strengthen their relations within a community.
Differentiationan emphasis
a company puts on the specific
benefits of its products or services, thus creating value for the
customer and setting the company apart from competitors. A
company might emphasize
service, innovation, donation of
a percentage of the sale price
to a social cause, etc., as part
of a differentiation strategy.
Chapter 4
Number of customers*
IN
97
be difficult to find substitutes or other suppliers for specialized products. And buying new processing technology or equipment to incorporate a different suppliers
product may not be an option because of high switching costs.
4The purchaser is not a valued customer to the supplier. If the purchaser does
not buy a significant amount or percentage of a suppliers goods, the supplier has
greater power in the relationship.
Determining Supplier Power
L Follow the same directions as for buyer power. Fill out the Supplier Power
exhibit 4H.
L You can use a rating system or weighted averages to quantify your results for
industry attractiveness (appendix A).
L Note the strategic implications of supplier power for your social enterprise.
EXHIBIT 4H: EXAMPLE

Supplier Power:
An Example for
Retaso
Raw materials in the retaso industryfabric remnantsare byproducts of

the garment industry. In
metropolitan Manila
approximately 700 garment makers import textiles and manufacture
clothing for export. By
Filipino law, fabric remnants are considered
waste and must be
burned. If remnants are
sold, companies are subject to taxation.
Nevertheless, a retaso
industry thrives informally
in the sector. Raw materials for the retaso industry
are acquired by a few
traders who have connections in garment factories. The extralegal
nature of the retaso
industry represents an
extreme case of supplier
power.
98
Measures of
Supplier Power
OF
SUPPLIER POWER
Rating
Highly
Unattractive
IN
RETASO INDUSTRY
Unattractive
Neutral
Attractive
Number of suppliers
Few
Availablity of substitutes
Low
Switching costs
N/A
Threat of forward
integration
Low
Differentiated products
Low
Customer value
Low
Strategic implications: A social enterprise could serve to augment customer value by consolidating purchasing raw materials for individual retaso customers. The enterprise would buy retaso
in bulk quantity, thereby considerably increasing customer value to retaso workers. Moreover, the
enterprise would constitute a united voice for retaso workers, raising their bargaining power with
suppliers. Additional market research could be conducted on substitutes for retaso such as bulk
used clothing imported from abroad. An effort to legalize raw materials sales through advocacy is
another way to decrease supplier power.
SUBSTITUTES
Rationale:
Substitutes take the place or function of another product or service, such as margarine for butter or a bus for a taxi. In industries where the threat of substitutes is
high, sustained profitability is often difficult to achieve. Availability of substitutes
increases customer buying power and gives them more purchasing options.
Companies producing substitute products and services heighten the competitive
environment in which an enterprise operates. Some products are more vulnerable
to the threat of substitutes than others, such as poorly differentiated products or
those in market segments where extreme price sensitivity exists (this is usually the
case when selling to poor people). For example, in Haiti, if the price of peanut
butter increases, people may use jam or butter as a substitute. Scanning an industry
for availability of substitutes is another component of assessing industry attractiveness for your proposed social enterprise.
Substitutes Pose a Threat to Industry Attractiveness When
4Many similar or substitute products or services exist. Businesses with poorly

differentiated products and services are at greater risk of losing customers if lowercost substitutes exist. In the retaso cleaning rag business, substitutes can be purchased in many stores. Additionally, potential customers may use old clothes or
linens as cleaning rags, for which they pay nothing.
4User switching costs are low. Switching costs are low if buying a substitute
product, rather than the actual product, bears no price or other burden.
priced substitute exists. Customer purchasing decisions constantly weigh value

against price. This is especially true in price-sensitive markets, where customers
will readily buy a low-cost substitute if they perceive it as a good value that satisfies their needs.
Chapter 4
4The perceived value of the product does not justify its price when a lower-
Follow the same directions as for supplier power. Fill out the Substitutes
exhibit 4I.
You can use a rating system or weighted averages to quantify your results for
Note the strategic implications of substitutes for your social enterprise.
EXHIBIT 4I: EXAMPLE

Measures of
Substitutes
OF
THREAT
OF
SUBSTITUTES
Rating
Highly
Unattractive
Availability of close
substitutions
Many
Perceived value
Low
Users switching costs
Low
IN
Unattractive
RETASO INDUSTRY
Neutral
Attractive
Strategic implications: The marketing campaign to diminish buyer power through differentiation can also serve to increase product value and subsequently reduce the threat of substitutes.
In the long term the retaso social enterprise could pursue a strategy of diversifying with new
products, since there are many substitutes for cleaning rags and door mats.
Determining Availability of Substitutes
99
INDUSTRY RIVALRY
Niche Marketa small segment of

the market. Marketing strategies may
specialize in serving a niche market
that is of little interest to competitors.
Appraising the intensity of competition helps social enterprise designers or managers

determine the potential attractiveness of the chosen industry. Unless you have substantial financial resources, it is usually very difficult to launch a successful social
enterprise in industries where competition is already intense. Running head-to-head
with competition is not a recommended strategy. Your enterprise will have a greater
chance of survival in a competitive situation if you identify an underserved niche
market to begin in and then grow beyond that. On the other hand, establishing
your enterprise in an industry with few competitors gives you time to position it and
develop comparative advantages before new players enter the market. Developing
technical competence, differentiated products and services, and customer loyalty by
selling to a well-defined target market are some of the strategies you can use to position your enterprise against new competitors.
In the following exercise you will assess attractiveness by conducting a brief
examination of competitive intensity in the industries you are either currently working in or exploring for your social enterprise. While doing so, bear in mind that
additional factors of low barriers to entry, the threat of forward integration by suppliers or backward integration by buyers, and readily available substitutes may further
aggravate competition in the near term.
Rivalry Is Intense When
4There are many competitors.

4Industry growth is slow. In industries where growth is sluggish, companies are
fighting for the same pool of customers.
4Product features are poorly differentiated. Companies that sell commodities,

such as coffee or sugar, often suffer from intense competition because the products features do not lend themselves to being distinguished from one another.
4Excess capacity exists. This occurs when companies have a surplus of resources
(human resources, plant facilities, physical space, equipment, etc.) that enables
them to offer more services or manufacture more products at little or no additional cost.
4The diversity of competitors is high. Different types of companies are selling

the same goods and services.
Determining Industry Rivalry
Follow the same directions as for substitutes. Fill out the Industry Rivalry
Worksheet in The Workbook of create your own. An example for retaso is in
exhibit 4J.
You can use a rating system or weighted averages to quantify your results for
Note the strategic implications of industry rivalry for your social enterprise.
100
EXHIBIT 4J: EXAMPLE

Measures of
Rivalry
OF
RIVALRY
IN
RETASO INDUSTRY
Rating
Highly
Unattractive
Number of competitors
Many
Industry growth
High
Product features
Low
Excess capacity
High
Diversity among
competitors
Low
Unattractive
Neutral
Attractive
OF INDUSTRY
ATTRACTIVENESS
Rationale:
To ascertain if an industry is attractivewhether it offers above-average potential for
healthy long-term profitability and sustainable comparative advantageyou will synthesize the results of your analysis of each of the five forces to form your conclusions. In addition to the attractiveness ratings, you must consider the feasibility of
possible strategies you detailed to reduce or undermine the constraints of these
forces. In almost every industry one or more of the forces will impose constraints on
the viability of an enterprise so the task at hand is to weigh attractiveness (or unattractiveness) against potential strategic options that will enable you to create a solid,
viable social enterprise in the industry.
Unfortunately, there is no neat, easy formula for doing this. Your conclusions will
rest on your ability to think strategically and realistically about how you will position
and maneuver your enterprise among the five forces. As a measure of the feasibility of your strategies, reflect on potential financial and human resource needs and
the time needed to establish an enterprise in the industry. If you determine that the
industry is too unattractive or risky, move on.
Determining Overall Attrractiveness of Your Industry
L Place the attractiveness ratings for each of the forces in the Five-Forces Model
in The Workbook or create your own. An example for retaso is provided in exhibit 4K.
L Synthesize the conclusions; this may give you enough information to decide
whether this is the right industry for your social enterprise.
L If your enterprise is currently operating in this industry, do the strategies you
articulated for each component in the Porter model fit logically together, or will
you need to develop new strategies to operate successfully in this industry?
An overview of industry attractiveness is included in the Business Plan.
SYNTHESIS
Chapter 4
Strategic implications: Intense competition in the retaso industry by well-entrenched small

and medium enterprises and informal sector players (traders) means that the enterprise will have
to either find ways to cooperate or collaborate with competitors or fill a vacant niche. Because
retaso traders are extremely well established and connected, a strategy of head-on competition
by a new entrant, the social enterprise, is probably not wise. Providing linkages between traders
and retaso workers, buying supplies from traders, and farming out distribution or another function are possible strategies. Another option is to fill an untapped niche through a product diversification strategy targeting new or underserved markets.
101
EXHIBIT 4K: EXAMPLE
OF
FIVE FORCES
FOR THE
BARRIERS
ENTRY
RETASO INDUSTRY
TO
UNATTRACTIVE
SUPPLIER
POWER
BUYER
POWER
INDUSTRY RIVALRY
UNATTRACTIVE
UNATTRACTIVE
UNATTRACTIVE
THREAT OF
SUBSTITUTES
UNATTRACTIVE
EXHIBIT 4L: SYNTHESIS WORKSHEET: EXAMPLE FROM RETASO

Measures of
the Five Forces
RAting
Barriers to entry
Many
Supplier power
High
Buyer power
High
Threat of substitutions
High
Industry rivalry
High
Highly
Unattractive
Unattractive
Neutral
Attractive
Strategic implications: High barriers to entry and extreme buyer and supplier power, particularly concerning the extralegal nature of selling fabric remnants, make the initial enterprise design of
the retaso program untenable. Because a centralized association proved too costly, squeezing
already narrow profit margins, suggested adjustments included changing from a centralized association to a decentralized structure linking traders to established retaso workers. This would mitigate the need to compete with the current power structure. Additionally, the program could
cease to aspire to be a viable enterprise and concentrate on macro-level policy intervention
focused on creating a more enabling legal environment for poor self-employed women who
work in the retaso industry.
102
Industry Analysis
In addition to the five-forces model, there are a few other aspects of an industry that
merit attention. Understanding a social enterprises vulnerabilities to industry factors
will help you anticipate and plan for difficult times and prosperous times.
Use the following questions as a guide to determine the impact of seasonality

on your enterprise.
How do changing seasons impact the economic health of your enterprise?
Holidays:
Which ones?
Time of year?
In what way?
Seasons (winter, summer, rainy, dry, etc.):
Which ones?
In what way?
Seasonal factors are included in the Business Plan
Sensitivity to Economic Cycles
Economic upswings and downturns impact industries differently. Some industries are
dependent on a strong economy, such as tourism, restaurants, those selling luxury
products, and construction. Others thrive in times of recession, like discount stores,
low-cost substitutes, and businesses that promote cost-saving products. Finally, others are relatively immune to economic cyclesfor instance, personal care products,
basic health inputs, staple foods, and public transportation continue to be purchased
despite economic hardship. It is important to understand how vulnerable your social
enterprise may be to changes in the economy. For example, if your social enterprise
provides financial services to clients, a large part of your market depends on your
customers ability to repay their loans, and an economic downturn could slow jeopardize their business activities and erode your revenues.
Business manager, production/operations manager, marketing manager, sales

and production staff, PO business advisor, clients, external market researcher,
or industry expert (if desired) for all Industry Sections
Seasonalitychanges in
business, employment, or
buying patterns that occur
predictably at given times of
the year.
Chapter 4
Seasonal Factors
Many industries have seasonal highs and lows that affect revenue inflows or outlays
of cash. Agricultural businesses are required to finance operations for several
months before realizing any income from sales. Seasonal businesses are associated
with holidays, weather changes, harvest times, etc. Business for sweater producers
most likely slows in summer and increases in winter, whereas for ice-cream sales the
reverse is true. Seasons often dictate customers spending habits and preferences,
even when they have plenty of money. Weddings and holidays come during certain
times of the year and with them requisite purchases related to the occasion.
When preparing your financial statements, particularly cash-flow projections, it is
imperative that you understand and account for seasonal factors that impact enterprise income and expenses. You might be selling your products in December but
have to buy raw materials for production in May.
103
How do these economic variables influence your industry?

Low business expansion?
High rate of migration/immigration/

refugees?
War or civil strife?

Growing unemployment/
under-employment?
Underdeveloped banking sector?
High interest rates?
Disproportionally high informal sector growth?
Low tax base?
High inflation?
Decrease in real wages/household

income?
Weak local currency?
Economic variables are included in the Business Plan.

Sensitivity to Government Regulation
The regulatory and policy environment can affect your social enterprises ability to
conduct business profitably. Some of the effects of the regulatory environment on
your enterprise may have come out during the Porter or threats section of the
SWOT analysis. Take a second look at the possible effects of government regulation
on your selected industry, particularly if you are considering launching your social
enterprise in the gray areas of regulation.
Many advocacy programs focus on changing the policy environment to level
the playing field for social enterprises. Running a business whose success is
dependent on policy reform is a dangerous proposition. Based on SCs lessons from
the retaso industry, undertaking advocacy and business programs simultaneously is a
tall order.
How does government regulation affect your industry?
Environmental policy?
Performance standards?
Taxation?
Registration?
Health and safety standards?
Licensing/certification?
Regulation/deregulation?
International trade?
Government regulations are
Technology: To Do or Not to Do?
Technological industries can offer excellent opportunities to social

enterprise programs, but beware that they tend to boom or
bust. Management must be quick to respond to changes to capitalize on opportunities they present. Equipment is often expensive;
cash must be on hand, or financing readily available, to purchase
start-up and replacement technology. Research and development
costs in technology businesses can also be substantial.
For example, if your social enterprise is a telephone and fax
bureau targeting small businesses, changes in the telecommunications industry such as the introduction of e-mail and Internet access
offer new business possibilities. The social enterprise management,
however, must be forward thinking enough to exploit the opportunity, as well as have the resources available to do so.
included in the Business Plan.
Technological Change
Technology-driven enterprisesthose
that depend heavily on technology in
their processes or that sell technology
productstend to be highly vulnerable
to change. Sales can fall off dramatically
if competitors introduce technology
innovations that result in a better product, faster production time, or lower
costs. If technology changes rapidly in
your industry, then you will need to be
prepared to respond, in terms of both
R&D and investment in new or replacement equipment. Also consider how technological innovations might provide new
business opportunities for your social enterprise. Assessing technology changes in
your industry over the past five years is a good indication of future trends.
104

Indicate the degree of technological change that has occurred in your industry
over the past five years. An example is given for TARTINA in exhibit 4M,
Sensitivity to Technological Change.
A blank copy of the Sensitivity to Technological Change Worksheet can be
found in The Workbook.
State to what degree does your industry relies on technology.
Notations on technological change are included in the Business Plan.
Business Areas
TO
TECHNOLOGICAL CHANGE
Changes in Past Five Years
(High, Moderate, Low, None)
(High, Moderate, Low, None)
Low
Low
Manufacturing/production
Low
Low
Moderate
High
Marketing/communications
Low
Moderate
Information retrieval
Low
Moderate
Delivery time/method
Low
High
Administration
Financial Characteristics
Understanding the financial characteristics of your industry helps shape pricing decisions and cash-flow projections.
PO business advisor, business manager, finance and accounting staff, marketing manager
What are the Financial Characteristics of Your Industry?
L Do customers typically buy products or services in this industry on credit? If so,
what are standard credit terms: more than 30 days, less than 30 days, or what?
L Average percentage of returned sales?
L Do buyers pay in advance? This is standard for conference registration and training.
L What is the usual retail markup on products?
L Distribution markup?
L What is the general price breakdown of the product or service (mostly cost of
labor, materials, technical expertise, distribution/delivery, advertising, etc.)?
L Are there other distinct financial patterns in this industry that may influence the
pricing of your product or service or how you will manage your cash flow?
Description of financial characteristics is included in the Business Plan.
Dependence on Technology
Chapter 4
EXHIBIT 4M: TARTINAS SENSITIVITY
105
Competitive Analysis
Rationale:
Competition is an integral element of your operating environment, so it deserves
special attention. Our experience has shown that social entrepreneurs often do not
conduct a thorough competitive analysis before embarking on a social enterprise
program. Underestimating the magnitude of your competition or failing to properly
assess its impact on your social enterprise can be its undoing. Although your social
enterprise may have superior products or services compared to those of your competition, this element alone is not sufficient to ensure its success. Other market factors, such as the competitions reputation or the
Competition: Threat or Opportunity?
extent of its market penetration, are also important
to consider. A thorough understanding of competiCompetitors can either pose a threat or invite opportunity.
tors operations, products and services, and market
An institution or private company that offers similar prodsegment is an essential aspect of your market
ucts or services in your area can either steal your cusstudy.
tomers or bar you from entering the market, therefore
The competitive analysis framework has several
jeopardizing your social enterprises financial viability.
This is particularly true if the competitor offers products or components: (1) evaluating your competitors
strengths and weaknesses; (2) estimating approxiservices at lower prices or is better equipped to meet the
mately how much of the market your competitors
stated needs of the customer. As well, a competitor can
offer an opportunity for collaboration, especially if its prod- control; and (3) identifying any new competitors
that might enter the market.
uct/service or market segments are slightly different from
your own. In the case of TARTINA, a competitor producing
EVALUATING COMPETITORS
similar processed foods, such as compote, might provide
an opportunity to jointly purchase common materials used STRENGTHS AND WEAKNESSES
in manufacturing in bulk, such as jars or sugar, thus lower- Competitors strengths are comparative advantages
that your social enterprise, too, could potentially
ing per-unit costs. When analyzing your competitors it is
important to identify potential synergies that exist between provide. The combination of the completed competitive analysis and business assessment will
your enterprise and competitors as well as any potential
enable you to develop a strategy that maximizes
for head-on conflict.
the strengths of your social enterprise and positions
it effectively against competitors.
If you identify weaknesses in your competition, try to find out why it is having
problems so you can avoid the same mistakes it has made. If your target market is
not important to your competition and your idea is a good one, then you will most
likely have an open field to run inat least for a while. If the competition is keen
for your target market, however, be prepared to compete vigorously to protect and
gain market share.
PO business advisor, business manager, marketing manager, marketing and
sales staff, external market researcher (if desired) for all Competitor Sections
Analyzing Competitors
Fill out the Competitor Assessment Worksheet you completed in the beginning
of this chapter for each major competitor, found in The Workbook or create your
own. An example is given for TARTINAs competitor Pidy in exhibit 4N.
Begin by identifying your competition by product line or service as well as by
internal operations; then assess its strengths and weaknesses much in the same
way you analyzed your social enterprise.
Your competitors strengths and weakness present both opportunities and threats
(Continued on page 108.)
106
EXHIBIT 4N: COMPETITOR ASSESSMENT: PIDY

S
Comments
SGood color (light shade favored by consumers), smooth texture and palatable taste. W
Oil subject to separation if on shelf too long.
Value
Pidy is good value, one of the less expensive main

brands on market.
Quality
Fair quality, excellent consistency.
Reputation/
name recognition
Well-known and well-respected brand.
Social image
Not perceived as socially conscious.

Comments
II. Internal Operations

S
Unambiguous and focused mission.
Resources
Fairly large family company, they appear to have

ample resources.
Infrastructure/capacity
Excellently equipped, modern facility.
Operating efficiencies/
economies of scale
Strong distribution system; use high-technology

processing equipment.
Strategic alliances
SC, looking for business linkage opportunities
Location
Corporate headquarters in PAP and manufacturing

facilities in three rural locations, all less than three
hours from PAP.
Structure
Client relationships
Positive impact/relationship with clients.
Product/service mix
Solid line of peanut butter flavors.
Human resources
Leadership
SStructured as a business; WFamily-owned,

which presents conflict of interest/tension issues.
SIn-house technical expertise. WFamily members in key management positions.
Owner just died.
KEY
S = Strengths
W = Weaknesses
Mission statement
Chapter 4
I. Customer Perceptions
107
for your enterprise. Reflect on the strategic implications for your enterprise as
you complete the exercise.
Be sure to include key competitors for each of your products or services; do not
limit your assessment to organizations that are similarly structured, such as nonprofits or community development organizations. Competitors are determined
solely by the products and services they providewhether they are manufactured or delivered by individuals, private companies, or nonprofits.
TARTINA Enterprise Direct and Indirect Competition

Processed food products in Haiti are sold in both artisan and formal markets.
Local brands of peanut butter, jams, and jellies have a significant presence in
both markets. Imports are not considered direct competition for the local TARTINA brand as the consumers of imports and local brands are different. This segmentation of markets between local and imported brands is partially a result of
the significant price difference between them. The imported labels cost 40 percent more than the local labels. Thus, the competition for the TARTINA products
is local producers for each of the products in the product line. A competitive
analysis of the largest players in the local peanut butter and jam markets revealed
the following characteristics:
4 Well-recognized companies
4 Many years experience in food transformation

4 Most are private companies or family operations (no other enterprise
programs!)
4 Diversity of promotional activities

4 One company has experience in the export market
Perhaps the most important finding of the analysis of the competition was the
realization of how little TARTINA Enterprise staff knows about the competition. To
address this issue, ways of collecting information on the competition were identified. The plan during the next year is to incorporate gathering competitive intelligence into the responsibilities of sales agents.
Analyze Indirect Competitors
Identify indirect or secondary competitors that may have an impact on the success of your social enterprise. Indirect competitors can be organizations, companies, or individuals who offer similar or substitute products or services or who
serve a different market segment that may infringe on your target customer.
An Indirect Competitor Worksheet is available in The Workbook; an example
for TARTINA is given in exhibit 4P.
Competitor information is included in the Business Plan.
108
EXHIBIT 4P: TARTINA'S INDIRECT COMPETITORS

Indirect
competitor
Impact on your
business
Future direct
competitor? (high/low)
#1 Creol
Produces and sells

chocolate nut spread.
Creol is a substitute for
peanut butter and is preferred by kids. Threatens
sales, requires stepping
up marketing to deter
customer switching.
High. Nut-based produc- Marketing targets Mom

tion makes diversification and focuses on nutrition.
into peanut butter easy.
TARTINA is investigating
adding chocolate spread
to its product line.
#2 Lacky
Breakfast cereal producer. Cereal is replacing

bread and PB/jam as a
staple breakfast food in
some middle income
families; impacts sales
volume and target market.
Low. Completely different

product, production and
marketing costs very
high to enter PB market.
#3 Jif
US made peanut butter.

TARTINA loses higher
income customer market
to Jif and other
importers. Puts pressure
on TARTINA for higher
quality products, more
professional "import"
look in marketing.
Low. Different target mar- Continue to target middle

ket. Wealthy Haitians pre- and lower income cusfer imports.
tomers; "good value"
market position. Improve
product quality and consistency. Consider
"import imitator" packaging.
Counterstrategy
Chapter 4
Market nutritional benefits

of TARTINA products
over cereal and other
breakfast food choices.
Emphasize versatility
benefit of PB and Jam as
snack food/lunch.
109
Calculating Market Share
Market share is reached by dividing the sales of a

company, either in volume (total units) or their dollar value, by the total for all competitors in the
industry.
Example: About 15.1 million new cars and light
trucks were sold in the United States in 1997.
General Motors Corporation, which sold approximately 4.7 million of those, garnered a 31 percent
market share4,700,000/15,100,000 = 0.31 or 31
percent. (Kerwin and Vlasic)
Guesstimation Approach to
Deriving Market Share
In a meeting or workshop setting, have sales and

marketing people estimate the percentage of their
competitors market share for each product. Ask
them which competitors are selling the most and
at what percentage of the market volume. Unit
sales volume is easier to work with than dollar
value when using this approach. Carving a circle
up into a pie provides a good visual representation
for this exercise. Arriving at a group consensus is
a justifiable means of educated estimation or
guesstimation and will serve as a quick comparison of competitors. In this case, TARTINA is a relatively small player with Mamba peanut butter,
lumped in the 20 percent others category.
Market sharethe ratio of
one company's sales to total
sales by all competitors in a
given market.
Market Share
In this section, the competitive analysis framework helps

you determine the market share of your competition
what percentage of the target market it is selling torelative to that of the social enterprise.
Assembling accurate information on market share may
pose a challenge. In many developing countries, firms and
governments do not make sales statistics public. Moreover,
privately held and nonprofit social enterprises are not
required to publish their sales statistics in any country.
Therefore, if you cannot get concrete numbers on overall
industry revenue and companies sales volume or revenue,
you will have to use a guesstimation technique.
(Instructions for actual market share calculations and
guesstimation are given in box.) Although the latter is a
less than scientific method, it is more likely you will derive
market share for your social enterprise with this method
than by compiling sales data. Even a rough estimate is a
helpful indicator of your competitive standing because it
allows you to directly compare your social enterprise and
competitors in the same industry. Other important aspects
of this exercise are to distinguish any trends among your
competitorse.g., have they been selling more or less over
time?and to note the most important characteristics of
market leaders in your industry. These characteristics may
be comparative advantages your social enterprise can emulate.
Business manager, marketing manager, sales staff, PO business advisor, external market researcher (if desired)
Determining Market Share for Products
Estimate market share for your enterprise and competitors by following the
example for TARTINA in exhibit 4Q and 4R.
Use methods for deriving market share given in shaded box.
Market share must be calculated for each product.
110
Market share information is included in the Business Plan.
EXHIBIT 4Q: MARKET SHARE TRENDS FOR PRODUCERS OF PEANUT

BUTTER
Competitor
Most important characteristics

of market leaders
#1 Pidy
45%
Local, family-owned company;

consistent quality, strong
brand/image; good value option;
several flavors; no frills; possibly
losing market share to import
imitators
#2 Rebo
25%
Import imitator via fancy packaging; premium price, yet cheaper

than imports; colorful label also
reaches children; supplier to
hotels; not the best-tasting peanut
butter, but marketing is slick
#3 Dorey
10%
High quality, good taste, smooth

consistency, and attractive color;
a favorite among connoisseurs of
domestic peanut butter; packaging is humble at best; has the
look of Grandmas kitchen in
market that favors fancy imports
#4 Others
20%
New players gaining market share
Using the traditional calculation for market share, this figure would be percentage of total revenues or percentage of total units sold.
Market share
trend:
or
Chapter 4
Percent
of market4
111
(Zoul, Tacha,
TARTINA, imports)
via various strategies
Dorey
10%
TARTINA
jam production
112
EXHIBIT 4R: MARKET SHARE
FOR
MAMBA
FUTURE COMPETITORS
Rationale:
New competitors can enter the market at any time; this is especially true if you have
identified a lucrative or underserved market with few barriers to entry. In this section of your competitive analysis you will look into your crystal ball and make some
predictions of what your competition will look like in the future. Analyzing future
competition gives you a better idea of the long-term viability of your social
enterprise.
PO business advisor, business manager, marketing manager, marketing and
sales staff, external market researcher (if desired)
Forecast your potential new competitors by first reviewing the analysis of your
indirect competitors and the likelihood that they will enter the market.
Second, look at the product lines of other companies and organizations and consider whether expansion into your market is a logical strategy for these competitors.
Finally, refer to the barriers to entry section of the five-forces model you completed in this chapter. Think about which potential competitors might expand
their businesses into your market. This last step will help you determine if expansion is actually a plausible or probable strategy for them.
Use the Competitor Forecast Worksheet found in The Workbook or create your
own. An example for TARTINA is given in exhibit 4S.
EXHIBIT 4S: TARTINA FUTURE COMPETITORS

POTENTIAL FUTURE COMPETITORS
PRODUCT/SERVICE
Creol
Zitzon
Chocolate-nut spread
Spicy soy snack food
CURRENT COMPETITORS
LIKELY TO EXPAND
PRODUCT/SERVICE
Rebo
Dorey
Peanut butter (all flavors) 10 jams

PB (sweet & spicy), Chadeque
CURRENT COMPETITORS
POTENTIALLY LEAVING MARKET
PRODUCT/SERVICE
Zoul
Adventist
Spicy and sweet peanut butter

Peanut buttter/Chadeque jam
Next, based on product/service and current business criteria, contemplate which

competitors might leave the market.
Chapter 4
Projecting the Future
113
COMPETITIVE STRATEGY
The competitive strategy is based on a synthesis of all the information you have
gathered in your competitive analysis. After you have completed all the analysis
worksheets, respond to the following questions; this should give you adequate information from which to develop your competitive strategy.
Formulating Your Competitive Strategy
How do your competitors strengths and weaknesses compare with yours?
What have you learned from their operations?
How do their products/services differ from yours?
What are the comparative advantages of your social enterprise? Of your competitors?
Can your social enterprise emulate these comparative advantages?
What do predictions about the future tell you about emerging competitors?
Is there any possibility for collaboration with any of your competitors? If so,
how?
Horizontal integrationa growth
strategy in which a company buys,
acquires, or takes over a competitor
that performs a similar value-added
activity.
What strategy will your social enterprise pursue with respect to the competition? Will you compete with it head-on? Identify a niche or market where
it does not operate? Pursue a strategy of horizontal integration and cannibalize your competitor? Etc.?
Competitive strategy is included in the Business Plan.
114
How Do You Gather Competitive Intelligence?
In most Western countries it is relatively easy to get information on publicly held companies.
Most information is in the public domain, such as annual reports, sales reports, and company profiles from commerce departments or brokerage houses. In developing countries and
in informal-sector enterprises, competitor intelligenceinformation on competitors, their
products, and how they do businessis not easy to come by. In Haiti TARTINA Enterprise
competes directly with several private-sector companies, but printed information is scare
because there is no stock exchange, nor are companies legally bound to publish their statistics. Be prepared to engage in a little espionage to gather competitor intelligence. Heres
how:
is available.
4Ask those who have contact with your customers, like the sales force; they are the eyes and
ears of your social enterprise. They interface directly with customers and often have contact
with competitors salespeople.
Chapter 4
4Check with government agencies such as commerce or trade to see if any printed information
4Survey competitors customers; find out what their perceptions and preferences are about the
products/services and the company they are purchasing from.
you might be surprised that you can gain access simply by asking. A competitor may not see
your enterprise as a threat and give you information (and maybe some free advice, too).
4Contact low-level employees working for competitors, like support staff, guards, or chauffeurs.
They are usually happy to be asked to share their opinions and observations and often do so
readily. Chauffeurs and secretaries, especially, may be privy to conversations with important
decision-makers.
4Competitors former employees are a good source of information; the more disgruntled they
were at the time they left, the better for you.
4Ask your staff members whether any of them have worked for the competition. You might be
surprised at how often this is the case and how often they are overlooked as internal
resources.
4Ask people in your industry what they know about your competitors. For instance, your raw
material suppliers might also sell to your competitors. Maybe they have seen a competitors site
and facilities during a previous delivery.
4Network with friends and family members; if you ask enough people you are bound to find
someone who knows something. For example, in a hotel restaurant, a Save the Children
employee met a personal friend of the Pidy family, owners and operators of one of TARTINAs
major competitors. The conversation yielded a lot of information on the familys business philosophy and strategy. One tidbit disclosed was that the companys matriarch and president
had died the prior weekwas this an opportunity or a threat?
A note on ethics: Gather competitive intelligence in an ethical manner. Dont misrepresent

who you are or your intentions. For example, dont call a competitor posing as a job applicant, market researcher, or supplier. Companies are good about protecting domains that are
proprietary, but you will be surprised at how much information is forthcoming when you
merely ask. Besides, the bulk of the information you will need for your competitive analysis is
not industry trade secrets.
4Talk directly to the competitors senior management or owners. As a small social enterprise
115

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CHAROTAR UNIVERSITY OF SCIENCE AND TECHNOLOGY (CHARUSAT)

FACULTY OF MANAGEMENT STUDIES (FMS)

Annexure I- Sample 1, 2 & 3

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