STRATEGIC MANAGEMENT – MCU 4201 ASSGN NO- 601

1. Describe the internal and external environments of the business including the industry
environment highlighting the strengths, weaknesses, opportunities and threats. (20 marks)

Business Environment is the combination of external and internal factors and forces which affect
the company's ability to establish a relationship and serve its customers.

Internal Environment Business Decisions External Environment

Internal Environment:
Survival of a business depends upon its strengths and adaptability to the environment. The
internal strengths represent its internal environment. It consists of financial, physical, human and
technological resources. Financial resources represent financial strength of the company. Funds
are allocated over activities that maximize output at minimum cost, that is, optimum allocation of
financial resources.

Physical resources represent physical assets such as plant, machinery, building etc. that convert
inputs into outputs. Human resources represent the manpower with specialized knowledge that
performs the business activities.

The operative and managerial decisions are taken by the human resources. Technological
resources represent the technical know-how used to manufacture goods and services. Internal
environment consists of controllable factors that can be modified according to needs of the
external environment.

External Environment:
The external environment consists of legal, political, socio-cultural, demographic factors etc.
These are uncontrollable factors and firms adapt to this environment. They adjust internal
environment with the external environment to take advantage of the environmental opportunities
and strive against environmental threats. Business decisions are affected by both internal and
external environment.

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The external environment consists of the micro environment and macro environment

1. Micro Environment:
“The micro environment consists of factors in the company’s immediate environment”. These
factors affect the performance of a company and its ability to serve the customers. Micro
environment consists of customers, suppliers, competitors, and public and market intermediaries.

A brief discussion of the firm’s micro environment is as follows:

i. Customers: Customers constitute important segment of the micro environment. Business
exists to serve its customers. Unless there are customers, business has no meaning. A
company can have different types of customers like, households, producers, retailers,
Government and foreign buyers.
ii. Suppliers: They supply inputs (money, raw material, fuel, power and other factors of
production) and help in smooth conduct of the business. Firms should remain aware of
the policies of suppliers as increase in prices of inputs will affect their sales and profits.
Shortage of supplies also affects the production schedules. Firms should have more than
one supplier so that change in policies of one supplier does not affect their production
schedules.
iii. Competitors: Competitors form important part of the micro environment. Firms compete
to capture big share of the market. They constantly watch competitors’ policies and adjust
their policies to gain customer confidence.
iv. Public: “A public is any group that has an actual or potential interest in or impact on an
organization’s ability to achieve its interest
v. Market intermediaries: They are the links that help to promote, sell and distribute the
products to final consumers. They are the physical distribution firms (transport firm),
service agencies (media firms), financial intermediaries (banks, insurance companies) etc.
that help in producing, marketing and insuring the goods against loss of theft, fire etc.
Firms maintain good relations with them to carry their activities smoothly. All these
factors are largely controllable by the firms but they operate in the larger macro
environment beyond their control.

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2. Macro Environment:
The macro environment consists of the economic and non- economic variables that provide
opportunities and threats to firms. This is largely uncontrollable and, therefore, firms adjust their
operations to these environmental factors.

i. Economic Environment: The economic environment consists of economic forces

that affect business activities. Industrial production, agriculture, infrastructure, national
income, per capita income, money supply, price level, monetary and fiscal policies,
population, business cycles, economic policies, infrastructural facilities, financial
facilities etc. constitute the economic environment.
Scarce economic resources are allocated over various business activities. Decisions
regarding allocation of resources which respect to what to produce, how to produce and
for whom to produce; nature of technology and the techniques of production, timing of
production etc. differ in different economies. This constitutes economic environment of
the economy.
ii. Political legal environment: It is the legislative, executive and judicial environment of
the country that shapes and controls business activities. The legislature describes the laws
and courses of action to be followed by firms, the executive implements the decisions
taken by the legislature (Parliament) and the judiciary ensures that legislature and
executive function in the interest of the society. A stable political environment is
conducive to business growth.
A business operates in the environment of Government regulations. Various laws are
made to regulate the functions of business enterprises. They relate to standards of
product, packaging of products, protection of environmental and ecological balance, ban
on advertisement of certain products (liquor), advertisement of certain products with
statutory warning (cigarette) etc.
iii. Socio-cultural environment: It represents the values, culture, beliefs, norms and
ethics of the society in which business enterprises operate. People are important to
organizations both as human resource and customers. Their buying habits, buying
capacities, tastes, preferences and education affect business enterprises.

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Firms change their production and marketing plans according to consumer demand. The
social environment consists of the social values; concern for social problems like
protection of environment against pollution, providing employment opportunities, health
care for the aged and old etc.; consumerism, that is, indulging in fair trade practices to
satisfy human wants.
iv. Technical environment: Technology refers to application of scientific and organised
knowledge to organizational tasks. It includes inventions and innovations regarding
techniques of production. Technology is changing at a fast pace and technical
environment is dramatically affecting the business environment either because of easy
import policies or because of technology up gradation as a result of research and
development within the country.
The technological advances have introduced products like robots, telecommunication
facilities, medicines, equipment’s etc. Business firms adapt to the fast changing technical
environment. Though technological changes can produce harmful effects also for the
enterprises, firms try to reduce these effects and use technological changes in the best
interest of firms and society. Not adopting technological changes is not possible;
technical threats have to be converted into opportunities and gainfully employed in
business operations.
v. Demographic environment: It consists of population in its varied forms, such as gender,
age, income, growth rate, language, religion, etc. Increasing population increases the
demand for business products and also provides labour at low rate. A largely populated
country can adopt labour-intensive technology to keep the labour force employed.
The age composition helps to produce goods to meet the needs of that group. Production
is also affected by gender composition. More females will promote the enterprises to
produce goods used by females. Labour mobility (from rural to urban areas and vice
versa), their educational level, nationality, religion, etc. also affect policies of the
organizations.
vi. Natural environment: The natural environment consists of the renewable and non-
renewable resources used in the production processes. The renewable resources are air,
water and solar energy which can be replenished and non-renewable resources are oil,
coal, wood etc. which cannot be replenished.

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Though air, water and solar energy can be replenished, firms are harming these resources
by dumping industrial wastes in water and polluting the air and affecting the ozone layer.
Increasing industrialization is affecting the natural environment by disposing off
chemical wastes in land, air and water. It also affects the food supply which can be
harmful on consumption. The environment damage to water, earth and air caused by
industrial activity of mankind is harmful for future generations.
vii. International environment: It represents the global environment characterized by the
“borderless world”. The Indian economy entered the global world in 1991 through its
liberalization policies. There have been significant economic and political changes and
increasing role for the private sector to play since then.

SWOT Analysis

SWOT analysis is most commonly used by business entities, but it is also used by nonprofit
organizations and, to a lesser degree, individuals for personal assessment. Additionally, it can be
used to assess initiatives, products or projects. The SWOT analysis has been adopted by
organizations of all types as an aid to making decisions.

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Importance of SWOT Analysis

A SWOT analysis is often used at the start of or as part of a strategic planning exercise. The
framework is considered a powerful support for decision-making because it enables an entity to
uncover opportunities for success that were previously unarticulated or to highlight threats before
they become overly burdensome. For example, this exercise can identify a market niche in which
a business has a competitive advantage or help individuals plot career success by pinpointing a
path that maximizes their strengths while alerting them to threats that can thwart achievement.

Elements of a SWOT analysis

As its name states, a SWOT analysis examines four elements:

 Strengths: Internal attributes and resources that support a successful outcome.

 Weaknesses: Internal attributes and resources that work against a successful outcome.

 Opportunities: External factors that the entity can capitalize on or use to its advantage.

 Threats: External factors that could jeopardize the entity's success.

Accordingly the strengths, weaknesses, opportunities & threats are as follows.

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S – Strengths

i. Company has 1,600 hardware stores and 300 other outlets in Sri Lanka.
ii. Capability of manufacturing hot water and diesel storage tanks with the same moulds
using the same technology with different pigmentations in four sizes of tanks.
iii. By using minimum cost, capable of designing and building their own machines.
iv. New machines can also be utilized to produce products other than water tanks by using
different moulds and accepting a short conversion time.
v. There are factually thousands of products that can be produced with technology related to
that currently used by Wayamba Polymers.
vi. Innovative manufacturing employees of the company.
vii. Clever research & development team who guide for success.
viii. The company has a privately held company with 30 individual investors.
ix. The company has qualified Chairman which is one of the human capitals.
x. Decision of switching to an exclusive distributor J.V. marketing (Pvt) Ltd.
xi. Second largest competitor having 30% market share.
xii. Availability of space for export markets for the product.

W – Weaknesses

i. Not using the product strategy of product diversification.

ii. Few tanks are return due to the improper installation.
iii. The machines not utilized to produce products other than water tanks.
iv. At the beginning of 2001 Wayamba can’t fulfill market demand.

O – Opportunities

i. The equipment, chemicals & liquid petroleum gas are all available on the world market
ii. Because of above mentioned ability to enter to foreign market.
iii. The number of families units was expected to increase by seventy five percent
iv. A sustainable annual growth rate for water tanks in the Sri Lankan market

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T – Threats

i. Trying to engage with many hardware outlets as possible as a method of distribution.

ii. One new market entrant, which might constraining and reduce WYKE’s current market
share and sales.
iii. Domestic market has too small interest for other types of tanks.
iv. Forty six percent of Sri Lankan residences did not have indoor running water
v. Three other significant competitors in the Sri Lankan market for water tanks

A SWOT matrix is often used to organize items identified under each of these four elements. A
SWOT matrix is usually a square divided into four quadrants, with each quadrant representing
one of the specific elements. Decision-makers identify and list specific strengths in the first
quadrant, weaknesses in the next, then opportunities and, lastly, threats.

SWOT analysis can help the decision-making process by creating a visual representation of the
various factors that are most likely to impact whether the business, project, initiative or
individual can successfully achieve an objective.

Although that snapshot is important for understanding the multiple dynamics that impact
success, a SWOT analysis does have its limits. The analysis may not include all relevant factors
for all four elements, thereby giving a skewed perspective. Moreover, because it only captures
factors at a particular point in time and doesn't allow for how those factors could change over
time, the insight it offers could have a limited shelf life.

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2. Assume that a person is willing to make an investment in Wayamba Polymers with a

view to expand the business in this water tank manufacturing business. Advice the
investor based on the environmental scan. Give justifications. What other information
you wish to seek to propose a better decision. (60 marks)

In considering the factors influencing investment decision following facts can be stated. Capital
investment decisions are not governed by one or two factors, because the investment problem is
not simply one of replacing old equipment by a new one, but is concerned with replacing an
existing process in a system with another process which makes the entire system more effective.
1. Management Outlook
If the management is progressive and has an aggressively marketing and growth outlook, it will
encourage innovation and favor capital proposals which ensure better productivity on quality or
both. In some industries where the product being manufactured is a simple standardized one,
innovation is difficult and management would be extremely cost conscious.
2. Competitor’s Strategy
Competitors’ strategy regarding capital investment exerts significant influence on the investment
decision of a company. If competitors continue to install more equipment and succeed in turning
out better products, the existence of the company not following suit would be seriously
threatened. This reaction to a rival’s policy regarding capital investment often forces decision on
a company.
3. Opportunities created by technological change
Technological changes create new equipment which may represent a major change in process, so
that there emerges the need for re-evaluation of existing capital equipment in a company. Some
changes may justify new investments. Sometimes the old equipment which has to be replaced by
new equipment as a result of technical innovation may be downgraded to some other
applications.

A proper evaluation of this aspect is necessary, but is often not given due consideration. In this
connection, we may note that the cost of new equipment is a major factor in investment
decisions. However the management should think in terms of incremental cost, not the full
accounting cost of the new equipment because cost of new equipment is partly offset by the

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salvage value of the replaced equipment. In such analysis an index called the disposal ratio
becomes relevant.
4. Market forecast
Both short and long run market forecasts are influential factors in capital investment decisions.
In order to participate in long-run forecast for market potential critical decisions on capital
investment have to be taken.
5. Fiscal Incentives
Tax concessions either on new investment incomes or investment allowance allowed on new
investment decisions, the method for allowing depreciation deduction allowance also influence
new investment decisions.
6. Cash flow Budget
The analysis of cash-flow budget which shows the flow of funds into and out of the company
may affect capital investment decision in two ways.
First, the analysis may indicate that a company may acquire necessary cash to purchase the
equipment not immediately but after say, one year, or it may show that the purchase of capital
assets now may generate the demand for major capital additions after two years and such
expenditure might clash with anticipated other expenditures which cannot be postponed.

Secondly, the cash flow budget shows the timing of cash flows for alternative investments and
thus helps management in selecting the desired investment project.
7. Non economic factors
New equipment may make the workshop a pleasant place and permit more socializing on the job.
The effect would be reduced absenteeism and increased productivity. It may be difficult to
evaluate the benefits in monetary terms and as such we call this as non-economic factor.

Let us take one more example. Suppose the installation of a new machine ensures greater safety
in operation. It is difficult to measure the resulting monetary saving through avoidance of an
unknown number of injuries. Even then, these factors give tangible results and do
influence investment decisions.

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Accordingly the investor should undergo with a thinking of following self questioning according
to my measures.
What type of technology is available in the environment and what type of technology is needed
by the firm, if the technology available is not suitable for the firm’s operations, does it need to
import the technology or upgrade the indigenous technology? At what rate are changes taking
place in technology and how fast are they likely to result in technological obsolescence?, What is
the firm’s financial strength in keeping itself updated regarding technological changes?, How
strongly do consumers believe in brand loyalty?, what are suitable measures taken to protect the
environment, Can new products be added to the product line?, Is the market size large enough to
provide desired rate of returns?, Is the environment conducive in terms of availability of
manpower, infrastructure, raw material, finance, building, plant and machinery etc. ?

With the strict quality control systems that are employed along with the highest quality raw
material used in the production, the investors can improve the company profit through the
achievement of consumer expectations. Because of that the ultimate objective of the organization
is to produce a final product with minimum defects & manufactured with devotion and utmost
commitment given to each and every step of its production which is a high quality control
measure.

As a measure of strength & facts of social & demographic environment it is widely regarded as
the best quality water tank, WYKE boasts a loyal customer base and a large share of the market
for water storage tanks in Sri Lanka. Therefore as an investor as mentioned above it is strong
decision to invest Wayamba Polymers.

According to the strategic objectives decided by the chairman of the WYKE, a successful future
can be imagined.

 The first is diversifying the product range using existing technology. At one extreme
WYKE could undertake the manufacture of larger items such as stackable carts,
freestanding portable toilets, or street corner garbage containers. At the other extreme are
literally thousands of smaller goods as exemplified by the Rubbermaid catalogue.
Because of that WYKE can penetrate in to several markets in the same fields not only

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producing water tanks. Such products can be liquid storage jars, traffic cones, utility
trolleys, garbage bins, boats & marine products, life buoy rings, compost bins etc.

 Second is to explore possible export markets for the products. Export markets permit
WYKE to be paid in dollars, and to diversify its revenue sources across different
economies and multiple distributors. One possibility is markets such as the United Arab
Emirates, Oman, Kuwait, and Saudi Arabia, which have wealthy populations and
westernized tastes, and which are geographically proximate, at least on an Asia Pacific
scale. Accordingly WYKE is entering in to international market. Another possibility is
the major markets of the European Union, whose own manufacturing costs are
sufficiently high that Sri Lankan goods could be price competitive.
Therefore the chairman has identified the best options of penetrating in to different
business destinations by expanding the business. When considering about the Grand
Strategy Matrix WYKE can achieve a rapid market growth but essentially they need to
improve product quality and features and promotions.

 Third is exploring the potential for producing and exporting roto moulding machines. If
Wayamba really can produce these at half the cost of imported European machines, there
should be a ready market throughout the Persian Gulf and South Asia. Wayamba would
prefer to export machines, because any machine sold in country might be used to
compete in the Sri Lankan market.
Therefore the continuous improvement of research & development staff should be
entertained as the innovation will be one of the parts of success of attainment of
organizational vision & mission.

 Next is Focusing on strategic alliances with foreign companies, particularly in Western

Europe. Alliances could be of one several kinds. One might be a long term contract for
one or more Wayamba products, such that the company could invest in production
capacity and shipping facilities to fill the orders. A second would be licensed technology
and product ideas that would let Wayamba leverage their low-cost production facilities.
As mentioned above global marketing tools need to be equipped in investing this
company.

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 A final alternative would be that of status quo, to find ways for Wayamba to maximize
profit from existing operations. Such a solution would probably focus on improving
current distribution and financing arrangements. A strong distribution line & promotional
campaign should be done to inform the consumers & prospective consumers.

Therefore by considering the above mentioned factors I advise the investor to diversify the
business in order to fruitful the capital money that he invests to earn in long term in a successful
manner. And also do not concern only about the water tank industry, go for the rubber products
which can be produced with moulds.

The organization should invest on research & development in manufacturing new machines
which can minimize the additional costs that can be cause in purchasing them from foreign
countries.

Therefore by considering the environmental factors & SWOT analysis it is favorable decision to
invest in Wayamba Polymers (pvt) Ltd (WYKE) in order to enhance the Sri Lankan production
capacity to the world.

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3. Advice the top management on the possible concentric and horizontal diversification
strategies the company can pursue. Give justifications. (20 marks)
The Diversification Strategies as follows.

1. Concentric diversification - Concentric diversification involves adding similar products or

services to the existing business.
2. Horizontal diversification - Horizontal diversification involves providing new and unrelated
products or services to existing consumers.
3. Conglomerate diversification.

1. Concentric diversification
Concentric diversification allows businesses to achieve large goals with smaller working parts
and less of a financial cost. Adding new, but related, products or services is widely called
concentric diversification. The corporation's lines of business still possess some common thread
that serves to relate them in some manner. The point of commonality may be similar technology,
customer usage, distribution, managerial skills, or product similarity. A business owner that
employs a concentric diversification strategy seeks to broaden his distribution network without
going too far afield in what he offers his target audience.
Concentric diversification occurs when the diversification is in some way related to, but clearly
differentiated from, the organization's current business. The basic difference between a
concentric diversification and a concentration strategy is that a concentric diversification strategy
involves expansion into a related, but distinct, area whereas concentration involves expansion of
the current business.
A concentric diversification strategy can have several advantages. The most obvious is that it
allows the organization to build on its expertise in a related area. A related diversification
strategy involves diversifying into businesses that possess some kind of strategic fit. Strategic fit
exists when different businesses have sufficiently related activity cost chains that there are
important opportunities for activity sharing in one business or another. A diversified firm that
exploits these activity cost chain interrelationships and captures the benefits of strategic fit
achieves a consolidated performance greater the sum of what the businesses can earn pursuing
independent strategies.

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Horizontal Diversification.

Horizontal integration occurs when a firm enters a new business (either related or unrelated) at
the same stage of production as its current operations.

Horizontal diversification involves the extension of a production of products or service above

and beyond the industry, in which the company operates. Companies introduce into the
production new products which are based on knowhow, experience and technical economic
capabilities of the company. These products are usually based on related technologies, meet
different needs of buyers or similar needs in other ways. Such strategy also allows using
existing brand and distribution system in new area of activity. The company adds new products
or services that are often technologically or commercially unrelated to current products but that
may appeal to current customers. This strategy tends to increase the firm's dependence on certain
market segments.

The company adds new products or services that are often technologically or commercially
unrelated to current products but that may appeal to current customers. This strategy tends to
increase the firm's dependence on certain market segments.

Horizontal diversification is desirable if the present customers are loyal to the current products
and if the new products have a good quality and are well promoted and priced. Moreover, the
new products are marketed to the same economic environment as the existing products, which
may lead to rigidity or instability.

The company can adopt concentric strategy for product development by achieving economies of
scale where the existing technology to other products. Such as, liquid storage jars, traffic cones,
utility trolleys, garbage bins, boats & marine products, life buoy rings, compost bins where the
innovations of technology is at high stage in WYKE. Further they have opportunity to utilize the
existing technology to produce other products other than water tanks by using different moulds.

When considering about the horizontal diversification strategy, usually the organizations tend to
use this when, if the present customers are loyal to the current products and if the new products
have a good quality and are well promoted and priced. Moreover, the new products are marketed
to the same economic environment as the existing products, which may lead to rigidity or

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instability. WYKE can use existing channel of distribution and also seek new methods of
distribution with all production line.

Therefore it is wise for the top management to go for possible concentric and horizontal
diversification strategies for the organizational success in ten years which is a long term
objective. This is the best time for this strategy with having strong research & development
engineering team which is full of innovations.

References -

https://www.google.lk/imgres?imgurl=https://upload.wikimedia.org/wikipedia/commons/thu
mb/0/0b/SWOT_en.svg/1200px
 SWOT_en.svg.png&imgrefurl=https://en.wikipedia.org/wiki/SWOT_analysis&h=1350&
w=1200&tbnid=f6gK8elts_wuyM:&q=swot&tbnh=186&tbnw=165&usg=AI4_-
kRU7RGKRpcVddhZBP8acmTbLdX6CA&vet=12ahUKEwiizeW68PveAhWZT30KHU
8LA7MQ_B0wF3oECAQQBg..i&docid=jSZAdLbzHf1nXM&itg=1&sa=X&ved=2ahU
KEwiizeW68PveAhWZT30KHU8LA7MQ_B0wF3oECAQQBg
 OUSL day school book
 WYKE

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