Business Analysis - Mind Map

Business Analysis
1. Data

o o

Collection Analysis

Trends

Growth rates Nominal Average

Mean Median Mode

Variance

Standard Deviation Range

Time Series Analysis Scatter Graphs

Correlation

Presentation

Graphs Charts Tables Index numbers

o o o
Use Limitations

Laspeyres Paasche

2. Forecasting Qualitative

Focus groups User groups Panel surveys Delphi method In-house judgements

Quantitative

Surveys Sales data Impact on sales

Strengths and limitations

Business Forecasting
Costs and benefits o
Costs

o
Benefits

Cannot predict the future with any certainty The past not a guide to the future Qualitative - how reliable? (Peer pressure) Change in business objectives can make forecasts redundant External factors cannot be predicted with any certainty

Can inform decision-making Quality of data vital Enables businesses to plan for resource allocation

 Methods o
Quantitative

Where statistical data is available Moving Averages

Trends Cyclical variations Random variations Seasonal variations

Extrapolation

Qualitative

Assesses opinion Delphi Technique Consumer Panels Focus Groups User Groups In - house judgements

Business Growth - Mind Map

 Financing Growth o
Internal Sources

Private funds Profits

External Sources

o o

Loans Venture Capital Leasing EU/Government Grants

Cash Flow Overtrading

National to International Floating External Growth o

Takeovers

o
Mergers

Horizontal Vertical

Horizontal Vertical

Buy-Outs

Internal Growth o o o
Innovation Competitive Advantage Marketing

Managing Growth o o o o
Management Structure Ownership/Control Diseconomies of Scale Changing roles

Business Location - Mind Map

o o o o o o

Working environment Ease of access for staff/suppliers Quality of the infrastructure - bandwidth, roads, rail links, etc. Nearness to ports for import/export Quality of labour supplies Health and safety considerations

o o o o o

Opportunities for expansion - planning? Ease with which Planning consent can be achieved Legislation - employment and tax laws especially Possible external economies of scale The competition

International Location o o o o o o
Ease of access to international markets Possible language/cultural issues Political stability of the location Economic stability of the location Perceptions about the amount of 'red tape' associated with the country Existence of trade barriers and non tariff barriers

Quantitative Factors o
Cost

Fixed Costs

Site costs Availability of grants/subsidies Cost of loans associated with set up Cost of utilities - gas, water, electricity Cost of hiring fixed salaried staff Cost/availability of technology

Variable Costs

Nearness to market Cost of raw materials Cost of sourcing supplies Transportation costs

Bulk increasing Bulk reducing

Nearness to a supply of skilled/unskilled labour

Business Objectives
1. Profit 2. Global power 3. Brand Recognition 4. Reputation and Image 5. Share Price 6. Satisficing 7. Ethical Issues 8. Efficiency 9. Personal Satisfaction 10. 11. 12. 13. 14. 15. 16. 17. 18. Make a Fortune! Environment Long Term Survival Market Share Social Issues Turnover Customer Satisfaction Brand loyalty Market Power

Functional Areas - Mind Map

Human Resources
>> Finance and Accounts >> Administration and IT >> Customer Service

o o o o o o

Recruitment and Retention Motivation/Productivity Professional Development Health and Safety/Conditions of work Trade Unions Training

 Sales and Marketing

>> Administration and IT >> Production (Operations)

o o o o

Market Research Promotion Sales strategies Pricing strategies

o o

Competitive pricing Penetration Pricing Skimming Absorption Pricing Contribution Pricing Cost plus Target pricing Psychological Pricing

Sales team Product

New product development Product improvement Targeting market

Research and Development (R&D)

>> Administration and IT >> Production (Operations)

o o o o o o

New Product development Product improvement Product testing Efficiency gains Competitive Advantage Value Added

Finance and Accounts

>> Human Resources >> Production (Operations) >> Administration and IT

o o o

Cash Flow Monitoring Income/Revenue Monitoring Expenditure

o o

Preparing accounts Raising Finance

Production (Operations)
>> Finance and Accounts >> Administration and IT >> Research and Development (R&D) >> Sales and Marketing

Planning

o o o o o o

Human resources Physical resources Capital needs

Projecting Monitoring costs Method Outputs Sourcing resources Efficiency

Administration and IT
>> Finance and Accounts >> Research and Development (R&D) >> Human Resources >> Sales and Marketing >> Production (Operations) >> Customer Service

o o o o

Estates management Reception Security Clerical work

o o

Recording and reporting Record keeping Facilitating communication

IT applications across the business - communication Quality Control Overview

Customer Service
>> Administration and IT >> Human Resources

Distribution

o o o o

After-Sales Enquiries Advice Complaints

Business Organisation - Mind Map

Functional Areas

o o o o o o o

R&D Admin & IT Finance HR Operations Marketing & Sales Customer Service

Authority o o o
Delegation >> See also: Responsibility Span of Control Hierarchy

o o

Line Management Responsibility

Empowerment Chain of Command

Leadership o o o o o o o o
Autocratic Persuasive Democratic/Consultative Laissez Faire Idealist Innovative Visionary Collaborative

Organisation Charts o o o o o o o Type

Centralised De-centralised De-layered/Flat Pyramid Matrix/Interdependent Independent Informal/flexible

o o o o

Global National Regional Local

Business Strategy - Mind Map

View larger version of the mind map.

Corporate Culture o o o o o
Beliefs/ideals Mission Statements Vision Leadership Team work

o o o o

Logos Image Flexibility/adaptability Change management

Types of Strategy o o o
Competitive Advantage Cost Advantage Market Dominance

o o o o o o o o

Internal growth Acquisitions

New Product Development Contraction/Diversification Price Leadership Global Reengineering Downsizing Delayering Restructuring

Evaluation o o o o o o o o o Analysis o o o
Core Competencies Core Business Required Inputs Share Price Sales Profit Productivity Volumes Earnings Benchmarking Environmental/social audits ROCE

Land Labour

 o
SWOT

Capital

o
PEST

Strengths Weaknesses Opportunities Threats

Political Economic Social Technological

Five-Forces

Strength of Barriers to Entry Extent of rivalry between firms Supplier power Buyer power Threat from substitutes

Strategic Planning o o o o o o
Vision (See also: Analysis, Evaluation, Development) Goals Aims/Objectives Analysis Development Evaluation (See also: Vision)

Strategic Intents Futures Thinking

Investment Appraisal - Mind Map

Cash Flows o o o o
Income Streams Yields from Investment Time Value of Money Profitability versus risk

Payback Period o o o o
Simple to use Useful for short term decision making Useful if the returns are accurate Income streams not time related

Accounting Rate of Return

o o o

Shows profitability Allows comparison between projects Income streams not time related

Internal Rate of Return (IRR) o o o

Where NPV = Zero Time value related Enables comparison to made of projects of differing value

Profitability Index o o
NPV/Initial Capital Cost Allows comparison of different projects

Net Present Value (NPV) o o o

Takes account of changing value of money over time Enables comparisons at different interest rates to be considered Useful for comparing similar projects with same cost

Introduction to Business Studies - Mind Map

Introduction to Business Studies

1. Marketing

Market Analysis

Size Segments

Marketing Strategy

Objectives Niche v Mass marketing Portfolio analysis

Market Research

Primary Secondary

Marketing Mix

o o o o o o o o o o o o o o o o o o o o

The 7 Ps Elasticity of Demand

2. Objectives and Strategy Legal Structures Starting Businesses Business Objectives Stakeholders SWOT analysis

3. Human Resources Management Structure and Organisation Organisational Design Management by Objectives (MBO) Motivation Leadership and Management styles Workforce planning Recruitment and training

4. Production/Operations Management Productive Efficiency Economies and Diseconomies of Scale Capacity utilisation Stock and Quality control Production methods

5. Accounting and Finance Profit Break Even Company Accounts

Profit and Loss Account

 o o o

Balance Sheet

Budgeting Cost and Profit Centres

6. External Influences Market Structures

Oligopoly Monopoly Perfect Competition Imperfect competition

The Macro-Economy

o o o

Business Cycles Government Objectives Government Policies

The Legal Environment Social Responsibility Business Ethics

Take a look at the information below. What do you think is the problem that needs to be addressed? You could work in small groups to discuss the problem. In Sweden advertising is considered unacceptable and is banned for children under 12 with the approval of the majority of the population.

Greece has a ban on advertisements for children's toys between 7am and 10pm and a total ban on advertisements for war toys.

In France advertisements are seen as part of preparing children for future life in a consumer society.

Out of the 15 'old' EU countries, only 4 (France, Ireland, the Netherlands and the UK) do not consider advertising aimed at children as harmful, and Spain alone considers a ban on advertisements.

In March 2004, more than 100 of the UK's leading health and consumer groups urged ministers to ban junk food ads. They believe the ads are behind rising rates of obesity.

In the UK, restrictions exist on ads that 'might result in harm to children physically, mentally or morally' and on ads using methods that 'take advantage of the natural innocence and sense of loyalty of children'. Nor may advertisements 'urge children to purchase or to ask their parents or others to make enquiries or purchases'.

What proportion of the television adverts of these companies are broadcast during children's TV? Haribo - 56% Bel - 48% Kellogg's - 44% Britvic - 41% McDonalds - 33% Nestle - 30% Directors' Pay: A Fair Deal? - Should a Business Increase its Director's Pay by 50%? What do you think? Should this business increase the pay of its director by 50%? Study the following four arguments and decide which is the best. Argument 1 It would be unfair to pay the directors 50% more because the workers are getting only a small pay increase and they work just as hard. When the business does well it is just as much due to the workers as the directors. Workers have a right to high pay increases any time that a director gets a high pay increase.

Argument 2 The shareholders might want to pay the directors an extra 50% because profits have risen and they want the directors to stay with the company and not be tempted to go to a better paid job in another company. But the workers might be unhappy because they are not getting such a big rise.

Argument 3 Stopping directors getting big pay rises might mean they leave the company which could be bad for business. But if they do get a big pay rise all the other workers might protest if they get much less. If all the workers got paid partly through shares they could have a share of the profits too.

Argument 4 Paying all workers partly through shares might make them feel better when directors benefit from share ownership. So this could be a way of keeping directors and workers happy at the same time. But directors will benefit more because they get more pay which they can vote for themselves and it is bad for the country if directors get paid huge amounts when the business is not doing well.

Ratio Analysis - Mind Map

Liquidity o o
How solvent is the business? Acid Test

Quick ratio Current assets - stock : liabilities 1:1 seen as ideal

Current Ratio

Assets to Liabilities Too high - too much stock Too low - risk of not being able to pay your way

Investment/Shareholders

o o o o o Gearing o o o

Earnings per share Dividend Yield What is the extent of the risk? What is the likely return? Generally - higher the better

Financial position Loans/Capital High gearing - Loans > Capital

Profitability o o o o
Profit in relation to sales/assets Profit Margins Return on Capital Higher the better (in general)

Financial o
Asset Turnover

Using assets to generate profit

Stock Turnover

Increased efficiency? Poor customer satisfaction?

Debtor Days

Shorter the better

Finance and Accounts 2 - Mind Map

 Assets o
Fixed Assets

o Purpose o

Freehold Leasehold Goodwill

Current Assets

Stakeholder Information

Shareholders Government Customers Employees Suppliers Investors Management Trade Unions

Limitations

Ratio Analysis o
Profitability Ratios

Gross Profit Margin

Net Profit Margin Retained Profit Margin Profit Mark Up ROCE

Liquidity Ratios

Working Capital Current Ratio Acid Test ratio

Investment Ratios

Liabilities o o o o o o
Loans

Gearing Ratio Earnings per Share Dividend per Share Dividend Yield Dividend Cover Price/Earnings Ratio

Shareholders funds Creditors Tax Liabilities Interest Owing Current Liabilities

Finance and Accounts 1 - Mind Map

Purpose of Accounts o o o o
Provide Information Monitor Activities Transparency Reduce chance of fraud

Break Even o
TC = TR

Profit and Loss Account - Flow o o o o o

Gross Profit Net (operating profit) Profit after Tax Dividend Retained Profit

Balance Sheet - Snapshot o

Source of Funds

Liabilities

Loans Shares

Use of Funds

Key Terms o
Costs

Fixed Assets Current Assets

Fixed (Indirect/Overheads) Variable (Direct) Semi-fixed

Revenue

Profit/Loss

Price Quantity

Interpreting Company Accounts - Mind Map

Window Dressing

o o o o o o o o o o

Presenting the accounts in the best light Timing of purchases/payments Definitions utilised Cash injections - where from? Exploiting accounting procedures Classification of 'extraordinary items' Adjust methods of calculating depreciation Varying residual values NOT illegal Not intended to deliberately deceive - fraud

Depreciation o o o o o o o
Changing value of fixed assets Wearing out Obsolescence Degree and quality of maintenance Fixed assets become redundant Sale or 'scrap' value Methods

Historical Value - initial purchase price Value at the end of the life of the asset - the residual value (RV) Life span of the asset Straight Line

Historic cost - RV/Useful life

Declining Balance

Depreciating assets at a constant rate each year

The Profit of Creativity

A case study of one mans entrepreneurial success thanks to an NGO in India that encourages rural creativity. Thousands of rural innovations exist in rural India, and if nurtured and enabled as micro-enterprises, they can contribute in a significant way to the reduction of poverty. How can entrepreneurs worldwide recognize these innovations and market them so that they best serve communities in need? Read Anna Sahebs story, and how expert advice and guidance turned his product idea into a reality.

Anna Saheb The Innovator The Chandraprabhu Raingun is an innovation of Shri Anna Saheb Udgave, a 70-year old sugarcane farmer in Chandraprabhu, India. Anna Saheb was originally a betel vine farmer. He faced a severe water problem, to which he responded in typically innovative fashion, by successfully developing his own drip irrigation system. Later, poor prices for betel leaf forced him to switch over to farming tobacco, which got him thinking about a sprinkler irrigation system. His ideas about using a sprinkler system were reinforced when this resourceful farmer switched crops again, this time to sugarcane. By studying commonly available sprinkler systems, he developed his own design to suit the irrigation requirements of sugarcane.

While it was developed with sugarcane in mind, the Raingun can also be used with excellent results to a number of other crops such as groundnut, tapioca, onion, and potato. The Feattures of Sahebs Chandraprabhu Raingun Sahebs Raingun has to be appreciated in light of current irrigation practices. An overwhelming majority of Sahebs fellow farmers still practice unplanned flood irrigation. Seepage and evaporation makes this an inefficient irrigation method. What is more, as a result of government subsidized power supplies to farmers, the common practice is to keep the pumpsets running for hours on end. This leads to an even greater waste of precious water resources, precipitating the national water crisis, which is so acute in India that the very sustainability of agriculture is being threatened, even as demand for water increases. Amending irrigation practices is the only way out, if agriculture is to be sustained profitably. Sahebs Chandraprabhu Raingun is a powerful mega sprinkler that throws a large amount of water (up to 500 litres per minute) a radius of 90 feet, like artificial rain. It offers a number of benefits to the farmer: -Reduces water consumption by 50 per cent as compared to flood irrigation, which in turn results on -Irrigation time down 50 per cent -Power consumption down, and -Labor requirements down as raingun irrigation is less labor intensive than flood irrigation -Increases crop yield by 10 per cent -Fertilizers can also be applied with the raingun irrigation system, reducing consumption of fertilizers -Washes away pests like aphids, white flies etc. -Supports the highly recommended practice of trash mulching in sugarcane, which is a process of converting trash into nutrients for the crop. Two Early Adopters of the Raingun in Bellad Baigewadi, Chikodi, Belgaum Mr. Vardhaman, Cane Farmer Mr. Vardhaman read about raingun technology in the new products section of a magazine, but he found the cost of the system too high. He kept searching for other rainguns, leading him to the Chandraprabhu Raingun, and a visit to Anna Sahebs farm, to see for himself the system design and performance. He installed the system with Anna Sahebs assistance and initially used the Chandraprabhu Raingun only for its water saving benefits. This strategy alone returned 80 per cent of his investment in one year. It was only with time that he realized its other benefits - now, he says even people with lots of water are considering the Chandrapbhu Raingun, because it applies only the required amount of water, and thus prevents damage to soil resulting from application of excessive water. Ajit Khemlapure, Cane Farmer Mr. Khemlapure has 18 acres of land, only fourteen acres of which could be cultivated with flood irrigation, but

with the raingun system, all 18 acres could be irrigated. Further, for this acreage he now needs only one laborer, whereas earlier he would have needed two. What is more, after three years of use, he feels that the Raingun keeps the soil in good condition. His yield has increased from 40 to 50 tons per acre. The one problem he still experiences is strong winds affecting spray. However, the Chandraprabhu Raingun has an edge - a different raingun in the same field has proved completely unsuitable for irrigation.

What would you do? How do you translate a small-scale solution into a marketable product? The following is how RIN, a non-profit organization in India that encourages and supports rural innovation-based enterprises, handled the Raingun challenge. Rural Innovations Network (RIN) saw that the Chandraprabhu Raingun had a lot of potential. It could not only play a key role in the irrigation sector because of the water savings it offered, but also it could make a crucial difference to the cane economy. We pursued several methods in order to commercialize the Raingun, finally deciding that to best serve Saheb and the innovation in terms of both monetary and social returns, we needed to locate an entrepreneur to produce and market the Raingun. We found a suitable entrepreneur for this endeavor in Servals Automation Ltd. An agreement was formed where Saheb would supply the technology, and Servals would manufacture and market the product. But that was not all. With the technology transfer complete, we still needed investment for the Raingun, thus we initiated discussions with Aavishkaar India Micro-Venture Capital Fund (AIMVCF). After intense examination of the market potential of the Raingun, AIMVCF invested in the product. While business discussions were still taking place, RIN test-marketed the Raingun in Tamilnadu. We have received encouraging signals from the market about the potential benefits for farmers in India. A statewide launch is planned in line with the concept of "technology outwards", which innovators innovate out of a local need, and in many cases the same need exists in other rural villages. Not surprisingly, since development, the Chandraprabhu Raingun has received a lot of recognition. In 2002, the Chandraprabhu Raingun was selected for the 3rd prize by the National Innovation Foundation of the Government of India. The Raingun has also made an impact in the marketplace, with a total of 700 rainguns sold over the last five to six years.

How Indian firms can globalise Multinational companies are breathing down your neck. Indian companies will need to learn how to be competitive to succeed. Get ready to globalise. Begin now. . .

In today's open economy with foreign companies coming to India, local companies have to not only defend their turf but also enter markets outside India. Currently most Indian companies operate at the bottom of the global value chain by selling components or unbranded products; their challenge is to develop business capabilities that equip them to compete at the top of the value chain. Focus on global strategies that will help companies participate in international markets. But how does a company decide whether it is ready for global expansion? N Dawar and T Frost of Harvard Business School have developed a framework that can help companies make this decision. According to this matrix (Figure 1) companies should first consider whether the pressure to globalise is high or low. Whether their industry is a local industry or can it go global? Then they should consider the competitive assets of the company. Are the assets customised to the local market or can they be transferred abroad? This framework throws up four positions that emerging market companies can adopt in the open economy.

1. Defender: Companies should adopt this position when they have low pressure to globalise and their competitive assets are customised to the local market. This is a defensive strategy that focuses on leveraging local assets in market segments where multinationals are weak. For example, when Western cosmetic giants entered the Chinese market, Shanghai Jahwa, the local cosmetic company did not compete with them head on by targeting their global product ranges. Instead they responded by developing products that would suit the local complexion and appeal to local people. Similarly Grupo Industrial Bimbo, a Mexican food company responded to global competition by defending their distribution system, which could reach the remote rural areas of the country. In India Videocon developed semi-automatic washing machines that were targeted at the value conscious Indian consumer and has successfully countered MNC competition by focusing on this segment. 2. Extender: Companies that possess competitive assets, that can be transferred abroad, can adopt this position when the pressure to globalise is low. They focus on expanding into markets similar to those of the home base, using competencies developed at home. Televisa, a Mexican media

company globalised by making their Spanish language products available to the Spanish speaking population across the world. Another good example would be the case of Jollibee foods, a Philip-pines fast food chain that faced off McDonald's by developing spicier products better suited to the Filipino palate. They then followed the Filipino population across the world to globalise. 3. Dodger: Companies that have a high pressure to globalise, or are vulnerable to global competition, and do not have a transferable competitive advantage, have no other option but to dodge competition. These companies focus on a locally oriented link in the value chain, enter a joint venture, or sell out to a multinational. For example, Kwality, a dominant player in the Indian ice-cream market sold its brands and manufacturing assets to Unilever, making Kwality-Walls the market leader in the Indian ice-cream market. Similarly, when the Iron Curtain came down, Vist , a Russian PC manufacturer did not compete with American or Japanese companies, but shifted focus to PC distribution. This was an artful move because distribution in Russia was ridden with corruption and foreign companies faced difficulties in distributing products. As a result of this today they form an important link and support the Japanese and American MNCs in their business. 4. Contender: Companies that have competitive advantages that can be leveraged abroad and also have a high pressure to globalise can compete aggressively in global markets. They focus on upgrading capabilities and re-sources to match multinationals globally, often by keeping to niche markets. For example, Sundram Fasteners competes in global markets for niche auto components like radiator caps. A measure of its global competitiveness is the fact that it won the General Motors', 'Supplier of the Year' award for five consecutive years. Similarly, Bharat Forge, the second largest forging company in the world, competes by being a global supplier of specialised engine and chassis components for trucks and passenger cars. One out of every two trucks in the US uses front axles made at Bharat Forge. Defining competitive advantage

Once a company has decided which position to adopt in the global scenario the next step is to identify its inherent competitive advantage. To globalise success-fully it is critical to have a strong basis of competitive advantage that can be leveraged internationally. For newly internationalising firms an initial competitive advantage is the single greatest determinant of international success. While there are many different bases of competitive advantage, companies may find it useful to consider six categories: customer market, products and services, business system or value changing, assets and resource, scale and scope, and partners.

Figure 02 depicts these categories around a hexagon, illustrating the idea that a company can start from any corner of the hexagon but needs eventually to add strength at every point. Customer market advantage A captive or a loyal customer market can be a source of advantage. For example, Microsoft, during its first ten years, did not have a superior product. Apple not only offered better products; it also had loyal customers who loved the brand. But what contributed to Microsoft's success was its captive customer base that stayed with it because of the standards lock-in or through inertia because of convenience and costs of switching products. So once a company has this captive customer market it can further leverage this advantage by: 1. Following domestic customers: Coca Cola globalised during the Second World War, when they supplied Coke to American soldiers all over the world and that in turn exposed the product to the world. A fine Indian example would be Marico Industries. They focussed on international markets where there were a large number Indians with product preferences similar to the domestic market and used that as a base to expand. Today, Marico's international business is among the top three Indian consumer goods companies and its products sell in more than fifteen countries in the Middle East and the Asian sub-continent.

2. Using customers as reference: Many companies use their customers as a reference to infiltrate international markets. For example, Asian Paints is one of the top ten decorative coatings companies in the world with a strong presence in the Indian sub-continent, Southeast Asia, Far East, Middle East, South Pacific, Caribbean and Africa. The company has grown its international business by targeting developing and emerging markets that are similar to the Indian market. They target international markets that are typically characterised by low per capita consumption and distribution models similar to the Indian market. 3. Using standards as springboards: Companies, which are located in the developed countries, use standards to internationalise. They manufacture products that meet the highest standards in the world and use these to attract customers. Many German companies use this method to enter international markets. This is much harder for Indian companies to pull, except perhaps in the IT sector. The pyramid of international competitive advantage One way of thinking in relation to customer market advantage is to analyze where you are in the pyramid of international competitive advantage (Figure 02). In the case of global expansion, having an advantage need only be relative to each specific region entered. Hence, a firm with weak competitive advantages at home may still have a competitive advantage in foreign markets. This would be particularly the case for firms moving from more developed economies to less developed ones. This effect is illustrated in Figure 03. In the pyramid, firms selling 'down' to less developed economies find it relatively easy to have a competitive advantage in the entered market. Firms selling 'sideways' to economies of similar development need to work a bit to create an advantage, perhaps through local adaptation. Lastly, firms selling' up' to more developed economies have to work really hard to establish competitive advantage, perhaps through lower prices or by focusing on a market niche. The easiest way for emerging market companies is to sell down. But a lot of companies in these markets are selling up to gain experience and knowledge. Bajaj Auto not only sells products

sideways to gather volumes, but also sell up to Europe and the United States to gain knowledge and improve their competitive capabilities back home. Product or service advantage The most common basis of competitive advantage is having a superior product or a service. Such superiority can range from minor items into very major ones. Toyota's innovation of a coffee cup holder in its automobile model represents perhaps one of the smallest yet most successful product based advantages. This feature helped Toyota gain many sales in the US. At the other extreme, product superiority can be so great as to constitute a new category that in turn yields the additional basis of advantage of market dominance. Product superiority can also be built over a period of time. Toyota started from an initial position of product inferiority, but continuously improved its products until they achieved superiority in many of their offerings. Another important factor that has to be taken into consideration is the underlying reality of an apparent product- based source of competitive advantage. Often, this advantage springs from the other bases in the hexagon (more on this later). Secondly, companies also can internationalise when they have the ability to provide a service where there is a distinct gap. For instance, some Chinese const-ruction companies are going to Africa because Western companies do not go there. Thirdly, companies can adapt products for local markets. Thermax India, for instance had developed a radically different design for its boilers, which reduced their size by a third. However, this design had to be significantly adapted to the different technical standards and needs of customers in international markets. As a result of this adaptation today, Thermax is the sixth largest producer of small boilers in the world and its systems are used in over forty countries. Fourthly, companies can offer products and services based on global standards. The Indian IT and pharmaceutical sectors are using this route to access international markets. India has as many as 66 SEI CMM Level 5 companies (44% of the global total), the highest level in process maturity of software delivery.

In the pharmaceutical industry, India has the most number of US FDA approved manufacturing plants outside of the US. Business system or value chain advantage The value adding chain, also known as the business system, comprises all the activities that a business conducts. A typical sequence begins with research and development, runs through production, and finishes with selling, marketing, distribution and after sales service. The value chain can provide advantage to a company if the company is superior in one or more elements of the value chain. Companies can leverage their business system advantage by either exporting from their domestic business system or through relocation of specific activities. Tata Motors is doing both to leverage its competitive advantage. It exports commercial vehicles to over fifteen countries from India using its domestic business system. On the other hand the company is also planning to set up a bus body assembly unit in Africa to gain regional advantage. Assets and resources Tangible assets ranging from factories to patents, and intangible assets such as brand names and reputation, provide another powerful basis for competitive advantage. One of the most interesting aspects of asset-based competitive advantage is that these assets have often been generated in much earlier periods. One of Coca-Cola's primary bases of competitive advantage is the fact that it has the best known brand name in the world. Another key advantage is its physical distribution system comprising many company owned bottling plants trucks, warehouses, and other distribution facilities, as well as its network of franchised bottlers. A company can either leverage or transfer its existing domestic assets and resources or it can add or substitute local assets and resources. Indian information technology and business process outsourcing companies are leveraging India's high quality technical education infrastructure (675,000 technical graduates every year) to drive growth in international markets.

The combination of the Indian aptitude and value for technical education and mathematics, combined with the fact that India has the second largest English speaking population in the world has created this valuable domestic asset. In contrast, Bajaj Auto, the largest producer of scooters and three wheelers in the world leverages its low cost domestic production assets to export around the world. Companies also have to consider the direction in which they move in 'the pyramid of international competitive advantage.' The general rule is that when a company is moving down the pyramid it should emphasise the country of origin, because the new market perceives it as superior. When a company is selling up the pyramid it should hide the country of origin and acquire another local name and brand and sell that there, because the products from the home company are considered as inferior. Nowadays, emerging market companies go overseas and buy an established brand name in developed countries. Tata Tea leverages Indian tea plantation assets in conjunction with the Tetley's marketing network to access markets for branded tea around the world. Economies of scale and scope Companies also gain advantage from economies of scale or of scope. Economies of scale come from the reduction in unit cost with increased production volume, while economies of scope come from sharing costs across multiple products or lines of business. Market share usually drives these economies. Hertz is a fine example of leveraging economies of scale. Hertz's success in the automobile rental market arises partly from its faster, more efficient express service. But why can Hertz offer a service superior to that of its competitors? There are no secrets in the car rental business. Nor was it because Avis and National did not have the desire to imitate Hertz. But they did not succeed because Hertz 's competitive advantage was its scale. By virtue of being larger than its competitors, Hertz had more buses circling airports, larger facilities, better computer systems, more cars and more staff. It is these scale-based advantages that yielded an advantage.

So Hertz is not number one because it offers superior service. It is able to offer superior service because it is number one. As far as economies of scope go, companies should consider whether they can serve new markets with current product scope. They should also analyze whether adding to product scope helps or hurts economies of scope Wipro and Infosys have both added to product scope by offering BPO services (Progeon and Wipro-Spectramind) in addition to their existing product suite. This has added to economies of scope in international markets, given the significant opportunities to leverage resources and people across both the IT and BPO services segment. Partner advantage Having the right partners is also another plus. Microsoft's initial basis of competitive advantage was its partnership with IBM. Emerging market companies can follow their partners, have partners follow them or find new, local partners to go global. Tata Motors is leveraging local partners to sell its passenger cars. It has entered into an agreement with the UK's long established MG Rover to sell its passenger car across the UK and Europe. They will collaborate across a range of areas including branding and distribution. On the other hand Ranbaxy Laboratories and Wockhardt, competitors in the domestic Indian market, have established a strategic business alliance for the US market. The alliance covers product development, supply and sales and marketing

While it is important to be superior in one of the above advantages, real power comes from putting together multiple bases of advantage. Truly successful companies are those that manage to build on their initial base of advantage, and increase it, while continually adding other bases of advantage. Toyota Motors for example, started with just one source of competitive advantage; their business model based on low labor cost. They gradually built on the other advantages such as product quality, and economies of scale. Today their cars command a15% premium over American brands. In the 1990s, a factory in California manufactured two cars, with marginal differences from the same production line. One was labeled Toyota while the other was labeled General Motors. The car labeled Toyota fetched a 15% premium over the other car.

Conclusion Companies from India and other emerging economies face many challenges when they go global. But there are many strategies that they can use to offset their disadvantages and to leverage inherent advantages of coming from poorer countries. Indian companies now have no excuse for staying at home.