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Kamis, 14 Mei 2009

strategy - competitor analysis

Competitor Analysis is an important part of the strategic planning process. This revision note outlines the main role of, and steps in, competitor analysis

Why bother to analyse competitors?

Some businesses think it is best to get on with their own plans and ignore the competition. Others become obsessed with tracking the actions of competitors (often using underhand or illegal methods). Many businesses are happy simply to track the competition, copying their moves and reacting to changes.

Competitor analysis has several important roles in strategic planning:

• To help management understand their competitive advantages/disadvantages relative to competitors

• To generate understanding of competitors’ past, present (and most importantly) future strategies

• To provide an informed basis to develop strategies to achieve competitive advantage in the future

• To help forecast the returns that may be made from future investments (e.g. how will competitors respond to a new product or pricing strategy?

Questions to ask

What questions should be asked when undertaking competitor analysis? The following is a useful list to bear in mind:

• Who are our competitors? (see the section on identifying competitors further below)

• What threats do they pose?

• What is the profile of our competitors?

• What are the objectives of our competitors?

• What strategies are our competitors pursuing and how successful are these strategies?

• What are the strengths and weaknesses of our competitors?

• How are our competitors likely to respond to any changes to the way we do business?

Sources of information for competitor analysis

Davidson (1997) describes how the sources of competitor information can be neatly grouped into three categories:

Recorded data: this is easily available in published form either internally or externally. Good examples include competitor annual reports and product brochures;

Observable data: this has to be actively sought and often assembled from several sources. A good example is competitor pricing;

Opportunistic data: to get hold of this kind of data requires a lot of planning and organisation. Much of it is “anecdotal”, coming from discussions with suppliers, customers and, perhaps, previous management of competitors.

The table below lists possible sources of competitor data using Davidson’s categorisation:

Recorded Data Observable Data Opportunistic Data
Annual report & accounts Pricing / price lists Meetings with suppliers
Press releases Advertising campaigns Trade shows
Newspaper articles Promotions Sales force meetings
Analysts reports Tenders Seminars / conferences
Regulatory reports Patent applications Recruiting ex-employees
Government reports Discussion with shared distributors
Presentations / speeches Social contacts with competitors

In his excellent book [Even More Offensive Marketing], Davidson likens the process of gathering competitive data to a jigsaw puzzle. Each individual piece of data does not have much value. The important skill is to collect as many of the pieces as possible and to assemble them into an overall picture of the competitor. This enables you to identify any missing pieces and to take the necessary steps to collect them.

What businesses need to know about their competitors

The tables below lists the kinds of competitor information that would help businesses complete some good quality competitor analysis.

You can probably think of many more pieces of information about a competitor that would be useful. However, an important challenge in competitor analysis is working out how to obtain competitor information that is reliable, up-to-date and available legally(!).

What businesses probably already know their competitors
Overall sales and profits
Sales and profits by market
Sales by main brand
Cost structure
Market shares (revenues and volumes)
Organisation structure
Distribution system
Identity / profile of senior management
Advertising strategy and spending
Customer / consumer profile & attitudes
Customer retention levels
What businesses would really like to know about competitors
Sales and profits by product
Relative costs
Customer satisfaction and service levels
Customer retention levels
Distribution costs
New product strategies
Size and quality of customer databases
Advertising effectiveness
Future investment strategy
Contractual terms with key suppliers
Terms of strategic partnerships

http://tutor2u.net/business/strategy/competitor_analysis.htm

strategy - competitive advantage

Competitive Advantage - Definition

A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.

Competitive Strategies

Following on from his work analysing the competitive forces in an industry, Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The four strategies relate to the extent to which the scope of a businesses' activities are narrow versus broad and the extent to which a business seeks to differentiate its products.

The four strategies are summarised in the figure below:

The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry.

Strategy - Differentiation

This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.

Examples of Differentiation Strategy: Mercedes cars; Bang & Olufsen

Strategy - Cost Leadership

With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimising costs. If the achieved selling price can at least equal (or near)the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share.

Examples of Cost Leadership: Nissan; Tesco; Dell Computers

Strategy - Differentiation Focus

In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor products are not meeting those needs and wants.

Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier)

Strategy - Cost Focus

Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's".

Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products.

http://tutor2u.net/business/strategy/competitive_advantage.htm

change management - introduction

What is change management?

Change management is an aspect of management focusing on ensuring that the firm responds to the environment in which it operates

Four key features of change management:

  • Change is the result of dissatisfaction with the present strategies
  • It is essential to develop a vision for a better alternative
  • It is necessary to develop strategies to implement change
  • There will be resistance to the proposals at some stage

Change often arises from:

  • The development of new products
  • The entry of new competition
  • Changes in consumer tastes & preferences
  • Changes in the cultural, political, economic, legal and social framework
  • Changes in technology leading to technological obsolescence or new product opportunities

Change affects all aspect of people management. HRM is directly affected be change in:

  • Organisational structure
  • Personnel of teams
  • Process
  • Location
  • Work load
  • Work role
  • Work practices
  • Supervision
  • Work teams

There are many forces for change in business:

  • Internal forces
  • Desire to increase profitability
  • Reorganisation to increase efficiency
  • Conflict between departments
  • To change organisational culture
  • External forces
  • Customer demand
  • Competition
  • Cost of inputs
  • Legislation
  • Tax changes
  • New technology
  • Political
  • Ethics
  • Technological obsolescence
http://tutor2u.net/business/strategy/change-management-introduction.html

strategy - benchmarking

Definition

Benchmarking is the process of identifying "best practice" in relation to both products (including) and the processes by which those products are created and delivered. The search for "best practice" can taker place both inside a particular industry, and also in other industries (for example - are there lessons to be learned from other industries?).

The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to "best practice" and to identify areas and means of performance improvement.

The Benchmarking Process

Benchmarking involves looking outward (outside a particular business, organisation, industry, region or country) to examine how others achieve their performance levels and to understand the processes they use. In this way benchmarking helps explain the processes behind excellent performance. When the lessons learnt from a benchmarking exercise are applied appropriately, they facilitate improved performance in critical functions within an organisation or in key areas of the business environment.

Application of benchmarking involves four key steps:

(1) Understand in detail existing business processes

(2) Analyse the business processes of others

(3) Compare own business performance with that of others analysed

(4) Implement the steps necessary to close the performance gap

Benchmarking should not be considered a one-off exercise. To be effective, it must become an ongoing, integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice.

Types of Benchmarking

There are a number of different types of benchmarking, as summarised below:

Type
Description
Most Appropriate for the Following Purposes
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed. It involves considering high level aspects such as core competencies, developing new products and services and improving capabilities for dealing with changes in the external environment. Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
- Re-aligning business strategies that have become inappropriate
Performance or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services. Benchmarking partners are drawn from the same sector. This type of analysis is often undertaken through trade associations or third parties to protect confidentiality.
_ Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations. Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services. Process benchmarking invariably involves producing process maps to facilitate comparison and analysis. This type of benchmarking often results in short term benefits.
- Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements.
- Improving activities or services for which counterparts do not exist.

Internal Benchmarking

involves benchmarking businesses or operations from within the same organisation (e.g. business units in different countries). The main advantages of internal benchmarking are that access to sensitive data and information is easier; standardised data is often readily available; and, usually less time and resources are needed. There may be fewer barriers to implementation as practices may be relatively easy to transfer across the same organisation. However, real innovation may be lacking and best in class performance is more likely to be found through external benchmarking.
- Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly, throughout the organisation
External Benchmarking
involves analysing outside organisations that are known to be best in class. External benchmarking provides opportunities of learning from those who are at the "leading edge". This type of benchmarking can take up significant time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations.
- Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world, perhaps because there are too few benchmarking partners within the same country to produce valid results. Globalisation and advances in information technology are increasing opportunities for international projects. However, these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
- Where the aim is to achieve world class status or simply because there are insufficient"national" businesses against which to benchmark.

http://tutor2u.net/business/strategy/benchmarking.htm

introduction to the balanced scorecard

The background
  • No single measures can give a broad picture of the organisation’s health.
  • So instead of a single measure why not a use a composite scorecard involving a number of different measures.
  • Kaplan and Norton devised a framework based on four perspectives – financial, customer, internal and learning and growth.
  • The organisation should select critical measures for each of these perspectives.

Origins of the balanced scorecard

R.S. Kaplan and D.P. Norton -”The Balanced Scorecard- measures that drive performance”. Harvard Business Review, January 1992

  • -”The Balanced Scorecard”, Harvard University Press, 1996.
  • “Kaplan and Norton suggested that organisations should focus their efforts on a limited number of specific, critical performance measures which reflect stakeholders key success factors” (Strategic Management, J. Thompson with F. Martin)

What is the balanced scorecard?

  • A system of corporate appraisal which looks at financial and non-financial elements from a variety of perspectives.
  • An approach to the provision of information to management to assist strategic policy formation and achievement.
  • It provides the user with a set of information which addresses all relevant areas of performance in an objective and unbiased fashion.
  • A set of measures that gives top managers a fast but comprehensive view of the business.

The balanced scorecard…

  • Allows managers to look at the business from four important perspectives.
  • Provides a balanced picture of overall performance highlighting activities that need to be improved.
  • Combines both qualitative and quantitative measures.
  • Relates assessment of performance to the choice of strategy.
  • Includes measures of efficiency and effectiveness.
  • Assists business in clarifying their vision and strategies and provides a means to translate these into action.

In what way is the scorecard a balance?

The scorecard produces a balance between:

  • Four key business perspectives: financial, customer, internal processes and innovation.
  • How the organisation sees itself and how others see it.
  • The short run and the long run
  • The situation at a moment in time and change over time

Main benefits of using the balanced scorecard

  • Helps companies focus on what has to be done in order to create a breakthrough performance
  • Acts as an integrating device for a variety of corporate programmes
  • Makes strategy operational by translating it into performance measures and targets
  • Helps break down corporate level measures so that local managers and employees can see what they need to do well if they want to improve organisational effectiveness
  • Provides a comprehensive view that overturns the traditional idea of the organisation as a collection of isolated, independent functions and departments
http://tutor2u.net/business/strategy/balanced-scorecard-introduction.html

ansoff's product / market matrix

Introduction

The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy.

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.


The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy. These are described below:

Market penetration

Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets.

Market penetration seeks to achieve four main objectives:

• Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling

• Secure dominance of growth markets

• Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors

• Increase usage by existing customers – for example by introducing loyalty schemes
A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.

Market development

Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.

There are many possible ways of approaching this strategy, including:

• New geographical markets; for example exporting the product to a new country

• New product dimensions or packaging: for example

• New distribution channels

• Different pricing policies to attract different customers or create new market segments

Product development

Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.

Diversification

Diversification is the name given to the growth strategy where a business markets new products in new markets.

This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.

For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

http://tutor2u.net/business/strategy/ansoff_matrix.htm

product portfolio strategy - introduction to the boston consulting box

Introduction

The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.

The company must:

(1) Analyse its current business portfolio and decide which businesses should receive more or less investment, and

(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.

Methods of Portfolio Planning

The two best-known portfolio planning methods are from the Boston Consulting Group (the subject of this revision note) and by General Electric/Shell. In each method, the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organised.

The Boston Consulting Group Box ("BCG Box")

Using the BCG Box (an example is illustrated above) a company classifies all its SBU's according to two dimensions:

On the horizontal axis: relative market share - this serves as a measure of SBU strength in the market

On the vertical axis: market growth rate - this provides a measure of market attractiveness

By dividing the matrix into four areas, four types of SBU can be distinguished:

Stars - Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows.

Cash Cows - Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars.

Question marks - Question marks are businesses or products with low market share but which operate in higher growth markets. This suggests that they have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors. Management have to think hard about "question marks" - which ones should they invest in? Which ones should they allow to fail or shrink?

Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in.

Using the BCG Box to determine strategy

Once a company has classified its SBU's, it must decide what to do with them. In the diagram above, the company has one large cash cow (the size of the circle is proportional to the SBU's sales), a large dog and two, smaller stars and question marks.

Conventional strategic thinking suggests there are four possible strategies for each SBU:

(1) Build Share: here the company can invest to increase market share (for example turning a "question mark" into a star)

(2) Hold: here the company invests just enough to keep the SBU in its present position

(3) Harvest: here the company reduces the amount of investment in order to maximise the short-term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows.

(4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use the resources elsewhere (e.g. investing in the more promising "question marks")

http://tutor2u.net/business/strategy/bcg_box.htm

balanced scorecard - four perspectives

The four perspectives are:
  • Financial perspective - how does the firm look to shareholders?
  • Customer perspective - how do customers see the firm?
  • Internal perspective - how well does it manage its operational processes?
  • Innovation and learning perspective – can the firm continue to improve and create value? This perspective also examines how an organisation learns and grows.

For each of four perspectives it is necessary to identify indicators to measure the performance of the organisations.

More on the financial perspective
This is concerned with the shareholders view of performance.
Shareholders are concerned with many aspects of financial performance: Amongst the measures of success are:

  • Market share
  • Revenue growth
  • Profit ratio
  • Return on investment
  • Economic value added
  • Return on capital employed
  • Operating cost management
  • Operating ratios and loss ratios
  • Corporate goals
  • Survival
  • Profitability
  • Growth
  • Process cost savings
  • Increased return on assets
  • Profit growth
  • Measures
  • Cash flow
  • Net profitability ratio
  • Sales revenue
  • Growth in sales revenue
  • Cost reduction
  • ROCE
  • Share price
  • Return on shareholder funds

More on the customer perspective
How do customers perceive the firm?
This focuses on the analysis of different types of customers, their degree of satisfaction and the processes used to deliver products and services to customers.
Particular areas of focus would include:

  • Customer service
  • New products
  • New markets
  • Customer retention
  • Customer satisfaction
  • What does the organisation need to do to remain that customer’s valued supplier?

Potential goals for the customer perspective could include:

  • Customer satisfaction
  • New customer acquisition
  • Customer retention
  • Customer loyalty
  • Fast response
  • Responsiveness
  • Efficiency
  • Reliability
  • Image

The following metrics could be used to measure success in relation to the customer perspective:

  • Customer satisfaction index
  • Repeat purchases
  • Market share
  • On time deliveries
  • Number of complaints
  • Average time to process orders
  • Returned orders
  • Response time
  • Reliability
  • New customer acquisitions
  • Perceived value for money

More on the internal perspective
This seeks to identify:

  • How well the business is performing.
  • Whether the products and services offered meet customer expectations.
  • The critical processes for satisfying both customers and shareholders.
  • Activities in which the firm excels?
  • And in what must it excel in the future?
  • The internal processes that the company must be improved if it is to achieve its objectives.

This perspective is concerned with assessing the quality of people and processes.

Potential goals for the internal perspective include:

  • Improve core competencies
  • Improvements in technology
  • Streamline processes
  • Manufacturing excellence
  • Quality performance
  • Inventory management
  • Quality
  • Motivated workforce

The following metrics could be used to measure success in relation to the internal perspective:

  • Efficiency improvements
  • Reduction in unit costs
  • Reduced waste
  • Improvements in morale
  • Increase in capacity utilisation
  • Increased productivity
  • % defective output
  • Amount of recycled waste
  • Amount of reworking

More on the innovation and learning perspective
This perspective is concerned with issues such as:

  • Can we continue to improve and create value?
  • In which areas must the organisation improve?
  • How can the company continue to improve and create value in the future?
  • What should it be doing to make this happen?

Potential goals for the innovation and learning perspective include:

  • New product development
  • Continuous improvement
  • Technological leadership
  • HR development
  • Product diversification

The following metrics could be used to measure success in relation to the innovation and learning perspective:

  • Number of new products
  • % sales from new products
  • Amount of training
  • Number of strategic skills learned.
  • Value of new product in sales
  • R&D as % of sales
  • Number of employee suggestions.
  • Extent of employee empowerment
http://tutor2u.net/business/strategy/balanced-scorecard-perspectives.html

change management - force field analysis & Lewin's change model

Lewin’s Force Field Analysis

  • There are forces driving change and forces restraining it
  • Where there is equilibrium between the two sets of forces there will be no change
  • In order for change to occur the driving force must exceed the restraining force

The analysis can be used to:

  • Investigate the balance of power involved in an issue
  • Identify the key stakeholders on the issue
  • Identify opponents and allies
  • Identify how to influence the target groups

Lewin’s change model

This model defines three stages in the process of change:
(1) Unfreezing
(2) Change
(3) Refreezing

It assists organisation change by:

  • Allowing the process to be understood
  • Providing milestones for evaluating progress towards the change

Unfreezing
This is the shake up phase perhaps triggered by declining sales or profits. The result is an acceptance that the existing structures and ways are not working
To get people ready for change it is necessary to develop an awareness of the:

  • Necessity of change
  • Nature of change needed
  • Methods planned to achieve the change
  • Needs of those affected
  • Ways that progress will be planned and monitored

Changing
This is the process of devising and implementing the change:

  • Define the problem
  • Identify solutions
  • Devise appropriate strategy to implement change
  • Implement solutions

Refreezing
This is the process of maintaining the momentum of change:

  • Locking in the changes
  • Stabilising the situation
  • Building relationships
  • Consolidating the system
  • Evaluation and support
  • Preventing any going back to the old ways

Refreezing is complete when the new patterns are accepted and followed willingly

http://tutor2u.net/business/strategy/change-management-force-field-analysis.html

change management - implementation

Managing the change

Preparation for change

  • Environmental analysis.
  • Set out the strengths and weaknesses of the organisation

– Current provisions
– Resources
– Roles and responsibilities

  • Identify the change required
  • Determine the major issues
  • Identify and assess the key stakeholders
  • Win the support of key individuals
  • Identify the obstacles
  • Determine the degree of risk and the cost of change
  • Understand why change is resisted
  • Recognize the need for change, identify current position, devise a suitable method

Building the vision

  • Develop a clear vision
  • Make it people clear about what a change involves and how they are involved in it
  • What is involved
  • What is the proposed change
  • Why should we do it
  • What the major effects will be
  • How we can manage the change

Plan the change
• Devise appropriate strategies to introduce change
• Design the change
• Identify the significant steps in the change process
• Discuss the need for change and the full details of what is involved
• Allow people to participate in planning change
• Communicate the plan to all concerned
• Produce a policy statement
• Devise a sensible time scale
• Produce action plans for monitoring the change
• Allow people to participate in planning change
• Get all parties involved in and committed to the change
• Inspire confidence by forestalling problems and communicating regularly
• Devise a sensible time scale for implementation of change
• Anticipate the problems of implementation
• Understand why change is resisted

Implementing the change
• Check on and record progress
• Make sure that change is permanent
• Evaluate the change
• Improve on any weak areas
• Overcome resistance
• Involve all personnel affected
• Keep everyone informed
• Devise an appropriate reward system
• Be willing to compromise on detail
• Ensure that strategies are adaptable
• Select people to champion change
• Provide support and training
• Monitor and review

Two types of change
(1) Step change

  • Dramatic or radical change in one fell swoop
  • Radical alternation in the organisation
  • Gets it over with quickly
  • May require some coercion

(2) Incremental change

  • Ongoing piecemeal change which takes place as part of an organisation’s evolution and development
  • Tends to more inclusive

Step v incremental change


Techniques to help implement change
Teams building across units
Internal communication
Negotiation
Action planning
Change agents or champions of change
And a certain amount of compulsion manipulation and coercion


Change agents
Managers should be able to act as change agents:

  • To identify need for change
  • Be open to goods ideas for change
  • To able to successfully implement change

Advantages of using a change agent:

  • Forces trough change
  • Becomes the personification of the process
  • Responsibility for change is delegated thus freeing up senior managers to focus on future strategy

Helping people to accept change

  • Consider how they will be affected
  • Involve them in the change
  • Consult and inform frequently
  • Be firm but flexible
  • Make controversial change as gradually as possible
  • Monitor the change
  • Develop a change philosophy

Six ways of overcoming resistance to change

  • (1) Education and communication - if people understand the needs for change and what is involved they are more likely to co-operate.
  • (2) Participation and involvement - to encourage people to feel ownership of the change.
  • (3) Facilitation and support - listening to the real concerns of people affected.
  • (4) Negotiation and agreement - agreement and compromise if necessary.
  • (5) Manipulation - e.g. “buying off” leaders of resistance.
  • (6) Explicit and implicit coercion - threats where necessary but this is a high risk strategy.

(source: Kotter and Schlesinger In HBR 1979)

Monitor and review

  • Adapt as necessary
  • Recording and monitor the changes
  • Measure progress against targets
  • Have the desired results been achieved?
  • Has the process been successful?
  • How do those affected feel about the new situation?
  • What might have been done differently?
  • How can those not responding well to the change be helped?
  • Sustain the change.- prevent any back sliding

Kotter’s change phases model

  • Establish a sense of urgency
  • Create a coalition
  • Develop a clear vision
  • Share the vision
  • Empower people to clear obstacles
  • Secure short term wins
  • Consolidate and keep moving
  • Anchor the change

Change management failures

What not to do
Ways to increase resistance to change:

Managers can increase resistance by:

  • Failing to specific about a change
  • Failing to explain why change is needed
  • Not consulting
  • Keeping people in the dark
  • Creating excess work pressure
  • Expecting immediate results
  • Not dealing with fears and anxieties
  • Ignoring resistance

Reasons why change can fail

  • Employees do not understand the purpose or even the need for change
  • Lack of planning and preparation
  • Poor communication
  • Employees lack the necessary skills and/ or there is insufficient training and development offered
  • Lack of necessary resources
  • Inadequate/inappropriate rewards

Eight common reasons for failure of change management:

  • Allowing too much complexity
  • Failing to build a substantial coalition
  • Failing to understand the need for a clear vision
  • Failure to clearly communicate that vision
  • Permitting roadblocks against that vision
  • Not planning for short term results and not realising them
  • Declaring victory too soon
  • Failure to anchor changes in corporate culture

(John Kotter)


http://tutor2u.net/business/strategy/change-management-implementation.html

strategy - core competencies

Introduction

Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies required to undertake them. So the goal is for management to focus attention on competencies that really affect competitive advantage.

The Work of Hamel and Prahalad

The main ideas about Core Competencies where developed by C K Prahalad and G Hamel through a series of articles in the Harvard Business Review followed by a best-selling book - Competing for the Future. Their central idea is that over time companies may develop key areas of expertise which are distinctive to that company and critical to the company's long term growth.

'In the 1990s managers will be judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible - indeed, they'll have to rethink the concept of the corporation it self.' C K Prahalad and G Hamel 1990

These areas of expertise may be in any area but are most likely to develop in the critical, central areas of the company where the most value is added to its products.

For example, for a manufacturer of electronic equipment, key areas of expertise could be in the design of the electronic components and circuits. For a ceramics manufacturer, they could be the routines and processes at the heart of the production process. For a software company the key skills may be in the overall simplicity and utility of the program for users or alternatively in the high quality of software code writing they have achieved.

Core Competencies are not seen as being fixed. Core Competencies should change in response to changes in the company's environment. They are flexible and evolve over time. As a business evolves and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change.

Identifying Core Competencies

Prahalad and Hamel suggest three factors to help identify core competencies in any business:

What does the Core Competence Achieve?
Comments / Examples
Provides potential access to a wide variety of markets

The key core competencies here are those that enable the creation of new products and services.

Example: Why has Saga established such a strong leadership in supplying financial services (e.g. insurance) and holidays to the older generation?

Core Competencies that enable Saga to enter apparently different markets:

- Clear distinctive brand proposition that focuses solely on a closely-defined customer group

- Leading direct marketing skills - database management; direct-mailing campaigns; call centre sales conversion

- Skills in customer relationship management

Makes a significant contribution to the perceived customer benefits of the end product

Core competencies are the skills that enable a business to deliver a fundamental customer benefit - in other words: what is it that causes customers to choose one product over another? To identify core competencies in a particular market, ask questions such as "why is the customer willing to pay more or less for one product or service than another?" "What is a customer actually paying for?

Example: Why have Tesco been so successful in capturing leadership of the market for online grocery shopping?

Core competencies that mean customers value the Tesco.com experience so highly:

- Designing and implementing supply systems that effectively link existing shops with the Tesco.com web site

- Ability to design and deliver a "customer interface" that personalises online shopping and makes it more efficient

- Reliable and efficient delivery infrastructure (product picking, distribution, customer satisfaction handling)

Difficult for competitors to imitate

A core competence should be "competitively unique": In many industries, most skills can be considered a prerequisite for participation and do not provide any significant competitor differentiation. To qualify as "core", a competence should be something that other competitors wish they had within their own business.

Example:Why does Dell have such a strong position in the personal computer market?

Core competencies that are difficult for the competition to imitate:

- Online customer "bespoking" of each computer built

- Minimisation of working capital in the production process

- High manufacturing and distribution quality - reliable products at competitive prices

A competence which is central to the business's operations but which is not exceptional in some way should not be considered as a core competence, as it will not differentiate the business from any other similar businesses. For example, a process which uses common computer components and is staffed by people with only basic training cannot be regarded as a core competence. Such a process is highly unlikely to generate a differentiated advantage over rival businesses. However it is possible to develop such a process into a core competence with suitable investment in equipment and training.

It follows from the concept of Core Competencies that resources that are standardised or easily available will not enable a business to achieve a competitive advantage over rivals.


http://tutor2u.net/business/strategy/core_competencies.htm


HOW TO START AND OPERATE YOUR OWN PROFITABLE IMPORT/EXPORT BUSINESS AT HOME

What is a good way to build up a successful business from nothing and have fun doing it? The import/export business may be your answer. Not only does it require little financial investment to start, but it offers the prestige of working with clients from all over the world.

You don't need previous experience in the field, but you should have a good head for organizing. Fulfilling a successful import/export business requires constant attention to little details.

Do you know some local manufacturers looking for ways to increase their market for the goods they make? Or are you planning a trip abroad and want to make some contacts for setting up a business?

If you have an ability to sell, and an air of diplomacy, the import/export business might be right for you. All you need is the desire and determination to make it work.

As you progress in the business, many factors become obvious and easy to handle. For example, you'll need to find a person to handle shipments, called a freight forwarder. And you'll need to create solid contacts and strong relationships with reliable suppliers. But after a short time, you can be well on your way to making a sizeable income - with a very low overhead.

Do you like the idea of running your own business? How would you like a tax deductible trip to foreign places a couple of times a year? The advantages of an import/export business are great.

The biggest advantage is the money you'll make. Once you get the business underway, the commission for setting up sales is very profitable. And after you establish and maintain a number of exclusive accounts, you'll find the time you spend is highly rewarded with money.

Take a look into the import/export business. Consider the risks, and consider the advantages. Talk to people in the business. Is it for you?

HOW IT WORKS

THE BASICS

MAKING CONTACTS

ANALYZE THE MARKET

WHERE TO FIND HELP

MAKING CONNECTIONS

GETTING THE GOODS

MAKING AN AGREEMENT

THE SALE

TERMS OF SHIPPING

THE FREIGHT FORWARDER

mckinsey growth pyramid

THE LETTER OF CREDIT

DELIVERING THE GOODS

IMPORTING

PROMOTION

EXPANDING THE BUSINESS

MAKING IT WORK

http://www.foreign-trade.com/articles.htm

corporate social responsibility - introduction

Definitions of social responsibility

Corporate social responsibility (CSR) is:

  • An obligation, beyond that required by the law and economics, for a firm to pursue long term goals that are good for society
  • The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as that of the local community and society at large
  • About how a company manages its business process to produce an overall positive impact on society

Corporate social responsibility means:

  • Conducting business in an ethical way and in the interests of the wider community
  • Responding positively to emerging societal priorities and expectations
  • A willingness to act ahead of regulatory confrontation
  • Balancing shareholder interests against the interests of the wider community
  • Being a good citizen in the community

Is CSR the same as business ethics?

  • There is clearly an overlap between CSR and business ethics
  • Both concepts concern values, objectives and decision based on something than the pursuit of profits
  • And socially responsible firms must act ethically

The difference is that ethics concern individual actions which can be assessed as right or wrong by reference to moral principles.

CSR is about the organisation’s obligations to all stakeholders – and not just shareholders.

There are four dimensions of corporate responsibility

  • Economic - responsibility to earn profit for owners
  • Legal - responsibility to comply with the law (society’s codification of right and wrong)
  • Ethical - not acting just for profit but doing what is right, just and fair
  • Voluntary and philanthropic - promoting human welfare and goodwill
  • Being a good corporate citizen contributing to the community and the quality of life

The debate on social responsibility
Not all business organisations behave in a socially responsible manner

And there are people who would argue that it is not the job of business organisations to be concerned about social issues and problems

There are two schools of thought on this issue:

  • In the free market view, the job of business is to create wealth with the interests of the shareholders as the guiding principle
  • The corporate social responsibility view is that business organisation should be concerned with social issues

Free market view - a summary

  • The role of business is to create wealth by providing goods and services
  • “There is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profit so long as it stays will the rules of the game, which is to say, engages in open and free competition, without deception or fraud.” [Milton Friedman, American economist]
  • Giving money away is like a self imposed tax
  • Managers who have been put in charge of a business have no right to give away the money of the owners
  • Managers are employed to generate wealth for the shareholders - not give it away
  • Free markets and capitalism have been at the centre of economic and social development
  • Improvements in health and longevity have been made possible by economies driven by the free market
  • To attract quality workers it is necessary to offer better pay and conditions and this leads to a rise in standards of living and wealth creation
  • Free markets contribute to the effective management of scarce resources
  • It is true that at times the market fails and therefore some regulation is necessary to redress the balance
  • But the correcting of market failures is a matter for government - not business
  • Regulation should be kept to a minimum since regulation stifles initiative and creates barrier to market entry

The free market case against corporate social responsibility

  • The only social responsibility of business is to create shareholder wealth
  • The efficient use of resources will be reduced if businesses are restricted in how they can produce
  • The pursuit of social goals dilutes businesses’ primary purpose
  • Corporate management cannot decide what is in the social interest
  • Costs will be passed on to consumers
  • It reduces economic efficiency and profit
  • Directors have a legal obligation to manage the company in the interest of shareholders – and not for other stakeholders
  • CSR behaviour imposes additional costs which reduce competitiveness
  • CSR places unwelcome responsibilities on businesses rather than on government or individuals

The corporate responsibility view

  • Businesses do not have an unquestioned right to operate in society
  • Those managing business should recognise that they depend on society
  • Business relies on inputs from society and on socially created institutions
  • There is a social contract between business and society involving mutual obligations that society and business recognise that they have to each other

Stakeholder theory
The basic premise is that business organisations have responsibility to various groups in society (the internal and external stakeholders) and not just the owners/ shareholders

The responsibility includes a responsibility for the natural environment

Decisions should be taken in the wider interest and not just the narrow shareholder interest

Arguments for socially-responsible behaviour

  • It is the ethical thing to do
  • It improves the firm’ public image
  • It is necessary in order to avoid excessive regulation
  • Socially responsible actions can be profitable
  • Improved social environment will be beneficial to the firm
  • It will be attractive to some investors
  • It can increase employee motivation
  • It helps to corrects social problems caused by business

Enlightened self interest
This is the practice of acting in a way that is costly and/or inconvenient at present but which is believed to be in one’s best long term interests

There is a long history of philanthropy based on enlightened self interests e.g. Robert Owen’s New Lanark Mills, Titus Salt’s Saltaire as well the work of the Quaker chocolate makers such as Cadbury at Bournville and Rowntree in York.

Enlightened self interest is summed up in this quotation from Anita Roddick (founder of the Body Shop):“Being good is good for business”

CSR behaviour can benefit the firm in several ways

  • It aids the attraction and retention of staff
  • It attracts green and ethical investment
  • It attracts ethically conscious customers
  • It can lead to a reduction in costs through re-cycling
  • It differentiates the firm from its competitor and can be a source of competitive advantage
  • It can lead to increased profitability in the long run
http://tutor2u.net/business/strategy/corporate-social-responsibility-introduction.html

crisis management - dealing with risk

Risk management

The identification and acceptance or offsetting of the risks threatening the profitability, or even the existence, of an organisation

Contingency planning

A plan for back up procedures, emergency response and post disaster recovery

Crisis management

The process of responding to an event that might threaten the operations, staff, customers, reputation or the legal and financial status of an organisation. The aim is to minimise the damage

Risk
Risk is:

  • The possibility of incurring misfortune or loss
  • A threat that an event, action or failure to act will adversely affect an organisation’s ability to achieve its business objectives and execute its strategies effectively
  • The chance of something happening that will have an impact on objectives

How risk differs from uncertainty

  • Risk is defined as the chance or probability of danger, loss, injury or other adverse consequence
  • Uncertainty is “not knowing (or not known), unreliable, changeable or erratic”. The result could be adverse

The difference is that:

  • In the case of risk, a measure of probability can be attached to the various outcomes
  • In the case of uncertainty, the probabilities of an event happening are too vague to quantify

Options for dealing with risk

  • Ignore it - adopt a wait and see approach
  • Avoid or reduce risk - reduce probability of risk
  • Reduce or limit the consequences
  • Share or deflect the risk e.g. by insurance
  • Make contingency plans - prepare for it
  • Adapt in order to maintain performance
  • Treat it as an opportunity- if it affects competitors, then flexibility leads to competitive advantage
  • Move to another environment

[adapted from D. Waters, Operations Strategy]

Risk management

Risk management involves:

  • The identification of where and how things can and might go wrong
  • Appreciating the extent of any downside if things go wrong
  • Devising plans to cope with the threats
  • Putting in place strategies to deal with the risks either before or after their occurrence

Key elements of risk management

  • An on-going process for identifying, evaluating and managing significant risk
  • Annual process for reviewing the effectiveness of the system of internal control
  • A process to deal with the internal control aspects of an significant problems
  • An embedded system in all the activities of the organisation and forms part of its culture
  • A system for responding quickly to evolving risks
  • Procedures for reporting any significant control failings to appropriate levels of management

Probability-impact matrix

Risk-performance trade off


Minimising the risk



http://tutor2u.net/business/strategy/crisis-management-risk-management.html

MAKING IT WORK

The import/export business is a high profit enterprise. Because of the low overhead, most of the money you make on commission is yours. But building a truly profitable business requires dedication and a good knowledge of the business.

You need numerous contacts who know you, respect you, and can recommend your work. You need to have good agents both here and abroad to help you follow through on the delivery of the goods. You need a good working relationship with your own bank and possibly the others that letters of credit come into as branch transfers from foreign offices.

Don't be hasty for orders. Investigate the manufacturers and distributors to be sure the products and sales methods are reputable. Check out the particulars of shipping and manufacturing from the foreign country. Each culture works in a specific manner. Get to know how to work with those people.

The import/export business is not for everyone. But it is a personal operation that you can run yourself - you don't have to answer to anybody. The rewards of negotiating in a foreign country are excitement, a touch of the exotic, and the great profit potentials. When you make the proper contacts and follow through completely with reputable manufacturers, reliable shipping companies, and responsible distributors, you have it made.

If you are ready to put in the time, sell yourself. Start making inquiries and contacts. Try it on for size. Does it feel good? Then MAKE IT SUCCEED.

If you need specialized LEGAL advice or assistance on this subject, the services of a professional person is recommended.

EXPANDING THE BUSINESS

The profit of the import/export business is in the quantity of the goods traded. The higher the cost of the merchandise, the higher the profit from your percentage. Since you need to go through all the steps for each transaction, having more sales on a continual basis simply adds to profit.

Send constant mailings to your original list of contacts and follow-up leads. You might develop a sales approach. As you develop more clients, you can convince the bigger companies of your reputation.

Contact as many manufacturers and distributors as you can on both sides of the ocean. And solidify these contacts. You may be able to work out an arrangement with someone to work in a certain country for a commission. Or, you might want to take a business trip there to personally meet with the various companies.

Get in-depth information on the products now selling. Why are certain products successful? Maybe you can get into the same market with a more competitive product. Investigate ways to sell more. Do the products need to be better made? Do they sell better at a reduced price? Know what sells and where to get it.

PROMOTION

After you have completed a few sales transactions to establish yourself, you'll need to promote your import/ export business to get more clients. The first transactions give you the experience to learn the ropes of the business, and to establish contacts and agents both here and abroad.

Join organizations of commerce and foreign trade associations to develop more contacts and extend your territory. Talk to everybody you contact about importing and exporting, learning from their mistakes and successes.

Advertise in the print media for distributors and for goods. Manufacturers don't know how to make the contacts for foreign distribution. Show them your credentials and pick them up on exclusive contracts. With a little experience, you can market almost anything anywhere.

IMPORTING

Take a look at the household items and equipment you have in your home. Made in West Germany; made in Japan; made in Korea. You may have clothing from India, shoes from Brazil, a leather wallet from Italy. Your car may be an import; your stereo equipment may be manufactured elsewhere. There are hundreds and hundreds of items manufactured all over the world, now being used by the American consumer.

The market is huge. And there are many American firms looking for foreign-made merchandise to distribute. Some items are less expensive; some are better made; some are imported because they are made in a country now fashionable with the designers.

What can you tap into? Maybe you have contacts in the United States, distributors looking for certain goods. And you've already made contacts in the foreign countries that produce these goods. Follow through and get yourself an exclusive distribution agreement with those manufacturers.

Importing requires the same diligence and follow-up as exporting does. You'll need a signed contract with the manufacturer to be the sole agent distributing to North America - or the world, depending.

You'll also need to obtain firm price quotes from the manufacturer in the quantities your distributor requests. These quotes should be converted into the appropriate dollar figures representing the currency exchange.

Investigate the reputation of the manufacturer and the reliability of the goods. If you import something like electronic components, check into the other distribution market the manufacturer has to assure the quality of merchandise.

Your commission will come through from the foreign manufacturer. Have your bank investigate the solvency of that company and the reputation of living up to agreements. Since it's on foreign territory you'd have more trouble in any legal suits, even in light of the many international laws.

Prepare the price quotation. It is easiest if you request terms of delivery to the port of that country. Your freight forwarder can help you move the merchandise from that port, overseas, and through domestic customs.

Follow through with all the details of shipment. Be sure to include any insurance, dock fees, storage rates, and shipping overland. Overlook nothing so your price quotation to the American distributor is accurate.

Itemize the quotation and give it to the American distributor. Upon receipt of an authorized order, double check prices and follow through on delivery.

The letter of credit will go from the American distributor to the bank of the manufacturer. All terms and agreements regarding prices, freight and insurance will be defined. The manufacturer's representative will confirm receipt of the letter of credit, which will release the goods for shipment.

Have your freight forwarder follow up on the shipment of goods. They may have to be freighted from the factory to the docks. Arrangements for shipping need to be carried out. Customs duties and unloading need to be followed through from the American port. Then, the goods may need to be freighted overland to the final destination.

As soon as the goods have arrived at the proper assigned destination, papers have to be documented and presented to the bank that holds the letter of credit. Then, all carriers and agents need to be paid, and you collect your commission.

DELIVERING THE GOODS

There are many combinations of people and methods that you can use to deliver the goods that were ordered. When you produced a price quotation for the goods, you had to go through all the steps the merchandise will follow. Now, before you proceed, check again.

Do you have a confirmed order signed by the authorized representatives of the distributing company? Has your banker approved the letter of credit from the company?

Compare the amount of the letter of credit to the amount quoted for the goods. Be sure they match exactly. Or, if the distributor chose a certain quantity of several offers, check the prices again and confirm the quantity.

Confirm the quotation and sale with the manufacturer, and do the same with the freight forwarder and any marine insurance agents you are working with. Then follow through.

In order to assure the quality of merchandise, some manufacturers prefer to handle freight to the loading docks, which makes it easier for you. If you handle overland shipping, follow through to be sure the merchandise is picked up and arrives safely at its destination.

Be informed of the date the goods are loaded onto the ship. The factory should have them freighted in time to avoid costly dock storage charges.

Since all conditions of the sale must be met to comply with the terms of the letter of credit, you need all the signed documents. Have your freight forwarder or other contacts get authorized bills of lading for the merchandise each step of the way - from destination to destination.

Once you have all the signed documents, present them to your banker. If all the terms are met, the funds will be released. Since your commission is part of the quoted price of the merchandise, you'll usually collect your fees from the manufacturer.

When it is totally complete, you collect your money - and make a sizeable profit for simply making connections. Consider the commissions when you have dozens of orders coming and going.

THE LETTER OF CREDIT

A letter of credit eliminates financial risks for you, the manufacturer, and the distributor. When your distributor confirms the order, a letter of credit is drawn from that company's bank to a branch in the United States or to your bank.

This letter of credit confirms that funds are available from the distributor to cover the same costs you quoted. An irrevocable letter of credit assures you the order will not be cancelled at any time. When that letter of credit is likewise confirmed by your bank to deliver the goods, the distributor is assured of delivery. Once the letter of credit is confirmed by the bank, the currency exchange is also confirmed, so you don't have to worry about the fluctuation in currency.

Basically, the bank holds the money until all shipping documents are presented. The letter of credit states the terms and conditions to make it legal and negotiable into money, usually holding for proof of shipment of the goods. Your freight forwarder helps you attain all those documents. When you hand them to the banker, the letter of credit is turned into liquid assets for you to then pay the manufacturer and all other invoices from the transaction.

Never work on promises. Not only do you take a gigantic risk, but you create bad risks for everyone you are involved with. A letter of credit is the only sure way to transfer these payments.

mckinsey growth pyramid

Introduction

This model is similar in some respects to the well-established Ansoff Model. However, it looks at growth strategy from a slightly different perspective.

The McKinsey model argues that businesses should develop their growth strategies based on:

• Operational skills
• Privileged assets
• Growth skills
• Special relationships

Growth can be achieved by looking at business opportunities along several dimensions, summarised in the diagram below:


• Operational skills are the “core competences” that a business has which can provide the foundation for a growth strategy. For example, the business may have strong competencies in customer service; distribution, technology.

• Privileged assets are those assets held by the business that are hard to replicate by competitors. For example, in a direct marketing-based business these assets might include a particularly large customer database, or a well-established brand.

• Growth skills are the skills that businesses need if they are to successfully “manage” a growth strategy. These include the skills of new product development, or negotiating and integrating acquisitions.

• Special relationships are those that can open up new options. For example, the business may have specially string relationships with trade bodies in the industry that can make the process of growing in export markets easier than for the competition.

The model outlines seven ways of achieving growth, which are summarised below:

Existing products to existing customers

The lowest-risk option; try to increase sales to the existing customer base; this is about increasing the frequency of purchase and maintaining customer loyalty

Existing products to new customers

Taking the existing customer base, the objective is to find entirely new products that these customers might buy, or start to provide products that existing customers currently buy from competitors

New products and services

A combination of Ansoff’s market development & diversification strategy – taking a risk by developing and marketing new products. Some of these can be sold to existing customers – who may trust the business (and its brands) to deliver; entirely new customers may need more persuasion

New delivery approaches

This option focuses on the use of distribution channels as a possible source of growth. Are there ways in which existing products and services can be sold via new or emerging channels which might boost sales?

New geographies

With this method, businesses are encouraged to consider new geographic areas into which to sell their products. Geographical expansion is one of the most powerful options for growth – but also one of the most difficult.

New industry structure

This option considers the possibility of acquiring troubled competitors or consolidating the industry through a general acquisition programme

New competitive arenas

This option requires a business to think about opportunities to integrate vertically or consider whether the skills of the business could be used in other industries.

http://tutor2u.net/business/strategy/mckinsey_pyramid.htm

THE FREIGHT FORWARDER

A freight forwarder is a person who takes care of the important steps of shipping the merchandise. This person quotes shipping rates, provides routing information, and books cargo space.

Freight forwarders prepare documentation, contract shipping insurance, route cargo with the lowest customs charges, and arrange storage. They are valuable to you as an import/export agent, and they are important in handling the steps from factory to final destination.

They can be found by looking in the yellow pages or by personal referrals. Find someone who can do a good job for you. You'll need someone who you can work with, since this may become a long-term business relationship

You'll need the help of a freight forwarder when you make up the total price quotation to the distributor. Not only do you include the manufacturer's price and your commission - usually added together, but you need to include dock and cartage fees, the forwarder's fees, ocean freight costs, marine insurance, duty charges, and any consular invoice fees, packing charges, or other hidden costs.

Be especially careful when you prepare this quotation. It certainly isn't professional to come back to the distributor with a higher quote including fees you forgot. You might go over the price quotation with your freight forwarder to be sure nothing is overlooked.

Usually the quotation is itemized into three main categories of cost of goods, which includes your commission; freight charges from destination to destination; and insurance fees.

Give a date the quotation is valid to, which should be the same as the date given on your quotes. You may also include information about the products, including any new sales literature.

A formal letter that accompanies the price quotation should push for the sale. You can inform the distributor of the shipping date as soon as the order is received and confirmed by a letter of credit. Send the letter and price quotation by registered mail to be certain of its delivery.

TERMS OF SHIPPING

You will become more familiar with the terms of shipping used in quoting prices and delivering goods as you gain experience. Your responsibilities vary with the terms of the agreements and orders. Check with your freight forwarder to be clear about your responsibilities.

A bill of lading is a receipt for goods shipped. It is signed by the agent of a ship or common carrier and assures the buyer that the goods were unloaded in the same condition as they were accepted. These are the documents you'll need to produce for your banker to release the letter of credit.

FOB means free on board. The seller delivers the goods to a certain destination with no additional charges. The seller insures and takes the responsibility until that point. The buyer takes the responsibility and pays the charges after that. For example, FOB New York means the seller's price quotation includes full responsibility and shipping to New York.

FAS means free alongside. The seller delivers the goods to the ship that will carry the merchandise. The buyer pays to load onto the ship and takes responsibility from there. FAS New York, for example, means that the seller will deliver and store the goods until they are ready for loading onto the ship.

C & F means cost and freight. The seller pays the freight charges. The buyer insures the merchandise and takes full responsibility after the destination.

CIF means cost, insurance and freight. The seller is responsible for the value and condition of the goods, and pays both insurance and freight charges to a certain point. The buyer is responsible from there.

THE SALE

You've made your contacts with foreign distributors who will buy the merchandise. You have a signed contract with an American manufacturer that will deliver the goods. Perhaps one of the distributors now asks for a firm quotation on the price of a certain amount of goods.

You go to the manufacturer and get a price quotation on the quantity of goods. It should be valid for a certain stated period. The manufacturer may agree to deliver the goods to the ship, handling the freight to that point, or you may need to make arrangements from the factory.

You add on the commission you want to the price of the goods. Then you add on all the extra costs of getting the merchandise from the factory to the warehouse of the distributor.

If you've made an agreement with a foreign import/ export company, their representatives may take over the shipping, paying you the price of the goods and your commission. That's the easiest, but your commission will have to be reasonably lower.

If your sale is to a company that will distribute the goods wholesale or retail from its premises, you have to arrange all the transportation.

MAKING AN AGREEMENT

Once you have agreed to represent the manufacturer as the export agent, you need to have a written and signed contract to bind this agreement. Your attorney should be the one to draw up this contract - later you can just use the same one, substituting names of other manufacturers.

Basically, the contract is between the manufacturer and you as the export representative. You are granted exclusive rights to distribute goods to all countries except those they already distribute in.

The manufacturer will pay you the specific commission quoted to the distributors on top of the price of goods. The company will also provide catalogs and samples for your use in distribution.

You, the export representative, in turn will promise to do everything possible to make contacts and distribute the manufacturer's goods in foreign territories.

The terms of the contract should then be stated: how many years the contract will be signed for, the terms of cancellation by either party voluntarily or because of no sales action over a certain period of time.

GETTING THE GOODS

There are hundreds of American manufacturers with limited distribution looking for an overseas market. Exporting their goods is the place to start your business.

You have many selling qualities for convincing the manufacturers to engage you as the sole export agent. You have foreign contacts and know the demand for specific goods. You will handle the sale, the paperwork, the money, all shipping, customs, and foreign distribution.

The manufacturers in return provide quotations, and you put your fees on top of that - you cost them nothing.

The manufacturers have everything to gain - an increase in sales, a broader market, and more profit. And you have everything to gain - establishing your business, an a commission on the cost of the goods. That is the basis of a firm business connection and a mutually profitable arrangement.

Contact local manufacturers first and then move into larger territories. You can make these contacts by phone, in person, or by personal introduction from contacts you may already have. Or, you can advertise in business publications and newspapers.

Before you do get into a legal agreement, be sure to check the reputation of the company. How long has it been in business? Where are the products distributed domestically? What is the solvency and reliability of the company and its goods? When you make your sale, you'll want to be able to deliver.


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