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HUMAN RESOURCE MANAGEMENT (HRM)

Human Resource Management (HRM) is the term used to describe formal systems devised for
the management of people within an organization. These human resources responsibilities are
generally divided into three major areas of management: staffing, employee compensation, and
defining/designing work. Essentially, the purpose of HRM is to maximize the productivity of an
organization by optimizing the effectiveness of its employees. This mandate is unlikely to
change in any fundamental way, despite the ever-increasing pace of change in the business
world. As Edward L. Gubman observed in the Journal of Business Strategy, "the basic mission
of human resources will always be to acquire, develop, and retain talent; align the workforce
with the business; and be an excellent contributor to the business. Those three challenges will
never change."
Until fairly recently, an organization's human resources department was often consigned to lower
rungs of the corporate hierarchy, despite the fact that its mandate is to replenish and nourish the
company's work force, which is often cited—legitimately—as an organization's greatest
resource. But in recent years recognition of the importance of human resources management to a
company's overall health has grown dramatically. This recognition of the importance of HRM
extends to small businesses, for while they do not generally have the same volume of human
resources requirements as do larger organizations, they too face personnel management issues
that can have a decisive impact on business health. As Irving Burstiner commented in The Small
Business Handbook, "Hiring the right people—and training them well—can often mean the
difference between scratching out the barest of livelihoods and steady business growth….
Personnel problems do not discriminate between small and big business. You find them in all
businesses, regardless of size."
PRINCIPLES OF HUMAN RESOURCE MANAGEMENT
Business consultants note that modern human resource management is guided by several
overriding principles. Perhaps the paramount principle is a simple recognition that human
resources are the most important assets of an organization; a business cannot be successful
without effectively managing this resource. Another important principle, articulated by Michael
Armstrong in his book A Handbook of Human Resource Management, is that business success
"is most likely to be achieved if the personnel policies and procedures of the enterprise are
closely linked with, and make a major contribution to, the achievement of corporate objectives
and strategic plans." A third guiding principle, similar in scope, holds that it is HR's
responsibility to find, secure, guide, and develop employees whose talents and desires are
compatible with the operating needs and future goals of the company. Other HRM factors that
shape corporate culture—whether by encouraging integration and cooperation across the
company, instituting quantitative performance measurements, or taking some other action—are
also commonly cited as key components in business success. HRM, summarized Armstrong, "is
a strategic approach to the acquisition, motivation, development and management of the
organization's human resources. It is devoted to shaping an appropriate corporate culture, and
introducing programs which reflect and support the core values of the enterprise and ensure its
success."
POSITION AND STRUCTURE OF HUMAN RESOURCE MANAGEMENT
Human resource management department responsibilities can be broadly classified by individual,
organizational, and career areas. Individual management entails helping employees identify their
strengths and weaknesses; correct their shortcomings; and make their best contribution to the
enterprise. These duties are carried out through a variety of activities such as performance
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reviews, training, and testing. Organizational development, meanwhile, focuses on fostering a

successful system that maximizes human (and other) resources as part of larger business
strategies. This important duty also includes the creation and maintenance of a change program,
which allows the organization to respond to evolving outside and internal influences. The third
responsibility, career development, entails matching individuals with the most suitable jobs and
career paths within the organization.
Human resource management functions are ideally positioned near the theoretic center of the
organization, with access to all areas of the business. Since the HRM department or manager is
charged with managing the productivity and development of workers at all levels, human
resource personnel should have access to—and the support of—key decision makers. In addition,
the HRM department should be situated in such a way that it is able to effectively communicate
with all areas of the company.
HRM structures vary widely from business to business, shaped by the type, size, and governing
philosophies of the organization that they serve. But most organizations organize HRM functions
around the clusters of people to be helped—they conduct recruiting, administrative, and other
duties in a central location. Different employee development groups for each department are
necessary to train and develop employees in specialized areas, such as sales, engineering,
marketing, or executive education. In contrast, some HRM departments are completely
independent and are organized purely by function. The same training department, for example,
serves all divisions of the organization.
In recent years, however, observers have cited a decided trend toward fundamental reassessments
of human resources structures and positions. "A cascade of changing business conditions,
changing organizational structures, and changing leadership has been forcing human resource
departments to alter their perspectives on their role and function almost over-night," wrote John
Johnston in Business Quarterly. "Previously, companies structured themselves on a centralized
and compartmentalized basis—head office, marketing, manufacturing, shipping, etc. They now
seek to decentralize and to integrate their operations, developing cross-functional teams….
Today, senior management expects HR to move beyond its traditional, compartmentalized
'bunker' approach to a more integrated, decentralized support function." Given this change in
expectations, Johnston noted that "an increasingly common trend in human resources is to
decentralize the HR function and make it accountable to specific line management. This
increases the likelihood that HR is viewed and included as an integral part of the business
process, similar to its marketing, finance, and operations counterparts. However, HR will retain a
centralized functional relationship in areas where specialized expertise is truly required," such as
compensation and recruitment responsibilities.

HUMAN RESOURCE MANAGEMENT—KEY RESPONSIBILITIES

Human resource management is concerned with the development of both individuals and the
organization in which they operate. HRM, then, is engaged not only in securing and developing
the talents of individual workers, but also in implementing programs that enhance
communication and cooperation between those individual workers in order to nurture
organizational development.
The primary responsibilities associated with human resource management include: job analysis
and staffing, organization and utilization of work force, measurement and appraisal of work
force performance, implementation of reward systems for employees, professional development
of workers, and maintenance of work force.
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Job analysis consists of determining—often with the help of other company areas—the nature
and responsibilities of various employment positions. This can encompass determination of the
skills and experiences necessary to adequately perform in a position, identification of job and
industry trends, and anticipation of future employment levels and skill requirements. "Job
analysis is the cornerstone of HRM practice because it provides valid information about jobs that
is used to hire and promote people, establish wages, determine training needs, and make other
important HRM decisions," stated Thomas S. Bateman and Carl P. Zeithaml in Management:
Function and Strategy. Staffing, meanwhile, is the actual process of managing the flow of
personnel into, within (through transfers and promotions), and out of an organization. Once the
recruiting part of the staffing process has been completed, selection is accomplished through job
postings, interviews, reference checks, testing, and other tools.
Organization, utilization, and maintenance of a company's work force is another key function of
HRM. This involves designing an organizational framework that makes maximum use of an
enterprise's human resources and establishing systems of communication that help the
organization operate in a unified manner. Other responsibilities in this area include safety and
health and worker-management relations. Human resource maintenance activities related to
safety and health usually entail compliance with federal laws that protect employees from
hazards in the workplace. These regulations are handed down from several federal agencies,
including the Occupational Safety and Health Administration (OSHA) and the Environmental
Protection Agency (EPA), and various state agencies, which implement laws in the realms of
worker's compensation, employee protection, and other areas. Maintenance tasks related to
worker-management relations primarily entail: working with labor unions; handling grievances
related to misconduct, such as theft or sexual harassment; and devising communication systems
to foster cooperation and a shared sense of mission among employees.
Performance appraisal is the practice of assessing employee job performance and providing
feedback to those employees about both positive and negative aspects of their performance.
Performance measurements are very important both for the organization and the individual, for
they are the primary data used in determining salary increases, promotions, and, in the case of
workers who perform unsatisfactorily, dismissal.
Reward systems are typically managed by HR areas as well. This aspect of human resource
management is very important, for it is the mechanism by which organizations provide their
workers with rewards for past achievements and incentives for high performance in the future. It
is also the mechanism by which organizations address problems within their work force, through
institution of disciplinary measures. Aligning the work force with company goals, stated
Gubman, "requires offering workers an employment relationship that motivates them to take
ownership of the business plan."
Employee development and training is another vital responsibility of HR personnel. HR is
responsible for researching an organization's training needs, and for initiating and evaluating
employee development programs designed to address those needs. These training programs can
range from orientation programs, which are designed to acclimate new hires to the company, to
ambitious education programs intended to familiarize workers with a new software system.
"After getting the right talent into the organization," wrote Gubman, "the second traditional
challenge to human resources is to align the workforce with the business—to constantly build the
capacity of the workforce to execute the business plan." This is done through performance
appraisals, training, and other activities. In the realm of performance appraisal, HRM
professionals must devise uniform appraisal standards, develop review techniques, train
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managers to administer the appraisals, and then evaluate and follow up on the effectiveness of
performance reviews. They must also tie the appraisal process into compensation and incentive
strategies, and work to ensure that federal regulations are observed.
Responsibilities associated with training and development activities, meanwhile, include the
determination, design, execution, and analysis of educational programs. The HRM professional
should be aware of the fundamentals of learning and motivation, and must carefully design and
monitor training and development programs that benefit the overall organization as well as the
individual. The importance of this aspect of a business's operation can hardly be over-stated. As
Roberts, Seldon, and Roberts indicated in Human Resources Management, "the quality of
employees and their development through training and education are major factors in
determining long-term profitability of a small business…. Research hasshown specific benefits
that a small business receives from training and developing its workers, including: increased
productivity; reduced employee turnover; increased efficiency resulting in financial gains; [and]
decreased need for supervision."
Meaningful contributions to business processes are increasingly recognized as within the
purview of active human resource management practices. Of course, human resource managers
have always contributed to overall business processes in certain respects—by disseminating
guidelines for and monitoring employee behavior, for instance, or ensuring that the organization
is obeying worker-related regulatory guidelines—but increasing numbers of businesses are
incorporating human resource managers into other business processes as well. In the past, human
resource managers were cast in a support role in which their thoughts on cost/benefit
justifications and other operational aspects of the business were rarely solicited. But as Johnston
noted, the changing character of business structures and the marketplace are making it
increasingly necessary for business owners and executives to pay greater attention to the human
resource aspects of operation: "Tasks that were once neatly slotted into well-defined and narrow
job descriptions have given way to broad job descriptions or role definitions. In some cases,
completely new work relationships have developed; telecommuting, permanent part-time roles
and outsourcing major non-strategic functions are becoming more frequent." All of these
changes, which human resource managers are heavily involved in, are important factors in
shaping business performance.
THE CHANGING FIELD OF HUMAN RESOURCE MANAGEMENT
In recent years, several business trends have had a significant impact on the broad field of HRM.
Chief among them were new technologies. These new technologies, particularly in the areas of
electronic communication and information dissemination and retrieval, have dramatically altered
the business landscape. Satellite communications, computers and networking systems, fax
machines, and other devices have all facilitated change in the ways in which businesses interact
with each other and their workers. Telecommuting, for instance, has become a very popular
option for many workers, and HRM professionals have had to develop new guidelines for this
emerging subset of employees.
Changes in organizational structure have also influenced the changing face of human resource
management. Continued erosion in manufacturing industries in the United States and other
nations, coupled with the rise in service industries in those countries, have changed the
workplace, as has the decline in union representation in many industries (these two trends, in
fact, are commonly viewed as interrelated). In addition, organizational philosophies have
undergone change. Many companies have scrapped or adjusted their traditional, hierarchical
organizations structures in favor of flatter management structures. HRM experts note that this
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shift in responsibility brought with it a need to reassess job descriptions, appraisal systems, and
other elements of personnel management.
A third change factor has been accelerating market globalization. This phenomenon has served to
increase competition for both customers and jobs. The latter development enabled some
businesses to demand higher performances from their employees while holding the line on
compensation. Other factors that have changed the nature of HRM in recent years include new
management and operational theories like Total Quality Management (TQM); rapidly changing
demographics; and changes in health insurance and federal and state employment legislation.
SMALL BUSINESS AND HUMAN RESOURCE MANAGEMENT
A small business's human resource management needs are not of the same size or complexity of
those of a large firm. Nonetheless, even a business that carries only two or three employees faces
important personnel management issues. Indeed, the stakes are very high in the world of small
business when it comes to employee recruitment and management. No business wants an
employee who is lazy or incompetent or dishonest. But a small business with a work force of half
a dozen people will be hurt far more badly by such an employee than will a company with a
work force that numbers in the hundreds (or thousands). Nonetheless, "most small business
employers have no formal training in how to make hiring decisions," noted Jill A. Rossiter in
Human Resources: Mastering Your Small Business. "Most have no real sense of the time it takes
nor the costs involved. All they know is that they need help in the form of a 'good' sales manager,
a 'good' secretary, a 'good' welder, or whatever. And they know they need some-one they can
work with, who's willing to put in the time to learn the business and do the job. It sounds simple,
but it isn't."
Before hiring a new employee, the small business owner should weigh several considerations.
The first step the small business owner should take when pondering an expansion of employee
payroll is to honestly assess the status of the organization itself. Are current employees being
utilized appropriately? Are current production methods effective? Can the needs of the business
be met through an arrangement with an outside contractor or some other means? Are you, as the
owner, spending your time appropriately? As Rossiter noted, "any personnel change should be
considered an opportunity for rethinking your organizational structure."
Small businesses also need to match the talents of prospective employees with the company's
needs. Efforts to manage this can be accomplished in a much more effective fashion if the small
business owner devotes energy to defining the job and actively taking part in the recruitment
process. But the human resource management task does not end with the creation of a detailed
job description and the selection of a suitable employee. Indeed, the hiring process marks the
beginning of HRM for the small business owner.
Small business consultants strongly urge even the most modest of business enterprises to
implement and document policies regarding human resource issues. "Few small enterprises can
afford even a fledgling personnel department during the first few years of business operation,"
acknowledged Burstiner. "Nevertheless, a large mass of personnel forms and data generally
accumulates rather rapidly from the very beginning. To hold problems to a minimum, specific
personnel policies should be established as early as possible. These become useful guides in all
areas: recruitment and selection, compensation plan and employee benefits, training, promotions
and terminations, and the like." Depending on the nature of the business enterprise (and the
owner's own comfort zone), the owner can even involve his employees in this endeavor. In any
case, a carefully considered employee handbook or personnel manual can be an invaluable tool
in ensuring that the small business owner and his or her employees are on the same page.
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Moreover, a written record can lend a small business some protection in the event that its
management or operating procedures are questioned in the legal arena.
Some small business owners also need to consider training and other development needs in
managing their enterprise's employees. The need for such educational supplements can range
dramatically. A bakery owner, for instance, may not need to devote much of his resources to
employee training, but a firm that provides electrical wiring services to commercial clients may
need to implement a system of continuing education for its workers in order to remain viable.
Finally, the small business owner needs to establish and maintain a productive working
atmosphere for his or her work force. Employees are far more likely to be productive assets to
your company if they feel that they are treated fairly. The small business owner who clearly
communicates personal expectations and company goals, provides adequate compensation,
offers meaningful opportunities for career advancement, anticipates work force training and
developmental needs, and provides meaningful feedback to his or her employees is far more
likely to be successful than the owner who is neglectful in any of these areas.
HRP
Human resource policies are the formal rules and guidelines that businesses put in place to hire,
train, assess, and reward the members of their work force. These policies, when organized and
disseminated in an easily used form—such as an employee manual or large postings—can go far
toward eliminating any misunderstandings between employees and employers about their rights
and obligations in the business environment. "Sound human resource policy is a necessity in the
growth of any business or company," wrote Ardella Ramey and Carl R.J. Sniffen in A Company
Policy and Personnel Workbook. "Recognition of this necessity may occur when management
realizes that an increasing amount of time is being devoted to human resource issues: time that
could be devoted to production, marketing, and planning for growth. Effective, consistent, and
fair human resource decisions are often made more time consuming by a lack of written,
standardized policies and procedures. Moreover, when issues concerning employee rights and
company policies come before federal and state courts, the decisions generally regard company
policies, whether written or verbal, as being a part of an employment contract between the
employee and the company. Without clearly written policies, the company is at a disadvantage."
It is particularly important for small business establishments to implement and maintain fairly
applied human resource policies in their everyday operations. Small businesses—and especially
business startups—can not afford to fritter away valuable time and resources on drawn-out
policy disputes or potentially expensive lawsuits. The business owner who takes the time to
establish sound, comprehensive human resource management policies will be far better equipped
to succeed over the long run than will the business owner who deals with each policy decision as
it erupts; the latter ad hoc style is much more likely to produce inconsistent, uninformed, and
legally questionable decisions that will cripple—or even kill—an otherwise prosperous business.
For as many small business consultants state, human resource policies that are inconsistently
applied or based on faulty or incomplete data will almost inevitably result in declines in worker
morale, deterioration in employee loyalty, and increased vulnerability to legal penalties. To help
ensure that personnel management policies are fairly applied, business owners and consultants
alike recommend that small business enterprises produce and maintain a written record of its HR
policies and of instances in which those policies came into play.
SUBJECTS COVERED BY COMPANY HR POLICIES
Small business owners should make sure that they address the following basic human resource
issues when putting together their personnel policies:
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• Equal Employment Opportunity policies

• Employee classifications
• Workdays, paydays, and pay advances
• Overtime compensation
• Meal periods and break periods
• Payroll deductions
• Vacation policies
• Holidays
• Sick days and personal leave (for bereavement, jury duty, voting, etc.)
• Performance evaluations and salary increases
• Performance improvement
• Termination policies
In addition, a broad spectrum of other issues can be addressed via human resource policies,
depending on the nature of the business in question. Examples of such issues include promotion
policies; medical/dental benefits provided to employees; use of company equipment/resources
(access to Internet, personal use of fax machines and telephones, etc.); continuity of policies;
sexual harassment; substance abuse and/or drug testing; smoking; flextime and telecommuting
policies; pension, profit-sharing, and retirement plans; reimbursement of employee expenses (for
traveling expenses and other expenses associated with conducting company business); child or
elder care; educational assistance; grievance procedures; employee privacy; dress codes; parking;
mail and shipping; and sponsorship of recreational activities.
ADVANTAGES OF FORMAL HUMAN RESOURCE POLICIES
Small business owners who have prepared and updated good personnel management policies
have cited several important ways in which they contribute to the success of business enterprises.
Many observers have pointed out that even the best policies will falter if the business owners or
managers who are charged with administering those policies are careless or incompetent in doing
so. But for those businesses that are able to administer their HR policies in an intelligent and
consistent manner, benefits can accrue in several areas:
Curbing litigation. Members of the legal and business communities agree that organizations can
do a lot to cut off legal threats from disgruntled current or ex-employees simply by creating—
and applying—a fair and comprehensive set of personnel policies.
Communication with employees. A good, written human resource policy manual can be an
enormously effective tool in disseminating employer expectations regarding worker performance
and behavior.
Communication with managers and supervisors. Formal policies can be helpful to managers and
other supervisory personnel faced with hiring, promotion, and reward decisions concerning
people who work under them.
Time Savings. Prudent and comprehensive human resource management policies can save
companies significant amounts of management time that can then be spent on other business
activities, such as new product development, competitive analysis, marketing campaigns, etc.
MAKING CHANGES TO EXISTING HR POLICIES
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Companies typically have to make revisions to established HR policies on a regular basis, as the
company grows and as the regulatory and business environments in which it operates evolve.
When confronted with the challenge of updating HR policies, however, it is important for small
businesses to proceed cautiously. For example, if an employee asks the owner of a small
business if he might telecommute from his home one day a week, the owner may view the
request as a reasonable, relatively innocuous one. But even minor variations in personnel policy
can have repercussions that extend far beyond the initially visible parameters of the request. If
the employee is granted permission to work from home one day a week, will other employees
ask for the same benefit?
Does the employee expect the business to foot the bill for any aspect of the telecommuting
endeavor (purchase of computer, modem, etc.?) Do customers or vendors rely on the employee
(or employees) to be in the office five days a week? Do other employees need that worker to be
in the office to answer questions? Is the nature of the employee's workload such that he can take
meaningful work home? Can you implement the telecommuting variation on a probationary
basis?
Small business owners need to recognize that changes in HR policy have the potential to impact,
in one way or another, every person in the company, including the owner. Proposed changes
should be examined carefully and in consultation with others within the business who may
recognize potential pitfalls that other managers, or the business owner himself, might not detect.
Once a change in policy is made, it should be disseminated widely and effectively so that all
employees are made aware of it.

HRD

Human Resource Development (HRD) is the framework for helping employees develop their personal
and organizational skills, knowledge, and abilities. Human Resource Development includes such
opportunities as employee training, employee career development, performance management and
development, coaching, mentoring, succession planning, key employee identification, tuition
assistance, and organization development.

The focus of all aspects of Human Resource Development is on developing the most superior
workforce so that the organization and individual employees can accomplish their work goals in service
to customers.

Human Resource Development can be formal such as in classroom training, a college course, or an
organizational planned change effort. Or, Human Resource Development can be informal as in
employee coaching by a manager. Healthy organizations believe in Human Resource Development and
cover all of these bases.
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HRIS 3

The Human Resource Information System (HRIS) is a software or online solution for the data entry,
data tracking, and data information needs of the Human Resources, payroll, management, and
accounting functions within a business. Normally packaged as a data base, hundreds of companies sell
some form of HRIS and every HRIS has different capabilities. Pick your HRIS carefully based on the
capabilities you need in your company.

Typically, the better The Human Resource Information Systems (HRIS) provide overall:

• Management of all employee information.

• Reporting and analysis of employee information.
• Company-related documents such as employee handbooks, emergency evacuation procedures, and
safety guidelines.
• Benefits administration including enrollment, status changes, and personal information updating.
• Complete integration with payroll and other company financial software and accounting systems.
• Applicant and resume management.

The HRIS that most effectively serves companies tracks:

• attendance and PTO use,

• pay raises and history,
• pay grades and positions held,
• performance development plans,
• training received,
• disciplinary action received,
• personal employee information, and occasionally,
• management and key employee succession plans,
• high potential employee identification, and
• applicant tracking, interviewing, and selection.

An effective HRIS provides information on just about anything the company needs to track and
analyze about employees, former employees, and applicants. Your company will need to select a
Human Resources Information System and customize it to meet your needs.

With an appropriate HRIS, Human Resources staff enables employees to do their own benefits updates
and address changes, thus freeing HR staff for more strategic functions. Additionally, data necessary
for employee management, knowledge development, career growth and development, and equal
treatment is facilitated. Finally, managers can access the information they need to legally, ethically,
and effectively support the success of their reporting employees.
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HRIS Procedure Documentation

Below you will find complete HRIS Documentation for the various Staff groups differentiated
by Appointed and Non-Appointed staff. All events pertaining to the respective staff group can
be found under the links below:

PLEASE BE ADVISED: Only under special circumstances such as Status-Only appointments,

T4A NR and some T4A payments will an exception be made for the requirement for a valid
SIN. Such requests will be subject to approval of Central Payroll. To submit one of these
requests for casual staff please submit the Payroll Payment Authorization Form.

APPOINTED STAFF DOCUMENTATION

Academic Processing

USW Processing

Prof. Managerial/Confidential Processing

Bi-weekly Appointed Union Processing

Benefits Administration

NON APPOINTED
STAFF DOCUMENTATION

Casual Employee Processing

CUPE 3902, Unit 3 Processing

CUPE 3902, Unit 1 TA Processing

GENERAL MAINTENACE PROCESSING

Maintain Master Data Processing

Position Maintenance
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Financial management

4 comparative statement:

ComparativeComparative statements are financial statements that cover a different time frame, but are
formatted in a manner that makes comparing line items from one period to those of a different period an easy
process. This quality means that the comparativecomparativecomparative statementstatementstatement is a
financial statement that lends itself well to the process of comparativecomparativecomparative analysis. Many
companies make use of standardized formats in accounting functions that make the generation of a
comparativecomparativecomparative statementstatementstatement quick and easy.

The benefits of a comparative statement are varied for a corporation. Because of the uniform format of the
statement, it is a simple process to compare the gross sales of a given product or all products of the company
with the gross sales generated in a previous month, quarter, or year. Comparing generated revenue from one
period to a different period can add another dimension to analyzing the effectiveness of the sales effort, as the
process makes it possible to identify trends such as a drop in revenue in spite of an increase in units sold.
Along with being an excellent way to broaden the understanding of the success of the sales effort, a
comparative statement can also help address changes in production costs. By comparing line items that
catalog the expense for raw materials in one quarter with another quarter where the number of units produced
is similar can make it possible to spot trends in expense increases, and thus help isolate the origin of those
increases. This type of data can prove helpful to allowing the company to find raw materials from another
source before the increased price for materials cuts into the overall profitability of the company.
A comparative statement can be helpful for just about any organization that has to deal with finances in some
manner. Even non-profit organizations can use the comparative statement method to ascertain trends in annual
fund raising efforts. By making use of the comparative statement for the most recent effort and comparing the
figures with those of the previous year’s event, it is possible to determine where expenses increased or
decreased, and provide some insight in how to plan the following year’s event.

Trend analysis

trend analysis
forecasting technique that relies primarily on historical time series data to predict the future. The analysis
involves searching for a right trend equation that will suitably describe trend of the data series. The trend may
be linear, or it may not. A linear trend can be obtained by using a least-squares method . The line has the
equation y = a + bt where t = 1,2,3 . . ., b = slope of the line, and a = value oft = 0. The coefficients of the
equation, a and b , can be determined using these equations:
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Dictionary of Banking Terms

trend analysis
in credit analysis, detailed examination of a company's financial ratios and cash flow for several accounting
periods to determine changes in a borrower's financial position. Trend analysis is a key part of credit
underwriting, and is a useful and necessary tool in determining whether the borrower's financial strength is
improving or deteriorating. Key ratios examined include debt coverage ratio,turnover ratio (conversion of
inventory and receivables to cash), and the quick assets ratio or quick ratio (current assets divided by current
liabilities).

See also turnover ratios , balance sheet ratios

Dictionary of Business Terms

trend analysis
a study of a company's financial performance over an extended period of time. Trend analysis helps to
understand overall financial performance over a period of time.
Related Terms:
Dictionary of Banking Terms
turnover ratios
financial ratios related to sales or volume, for example, accounts receivable turnover; also known as efficiency
ratios, for example, assets turnover, conversion of receivables into cash. These measure efficiency of
converting assets into cash.
Dictionary of Banking Terms
balance sheet ratios
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1. ratios used in examining the financial condition, and changes in financial position, of any company,
based on data reported in the balance sheet. Certain ratios are particularly applicable to banks. The
most important are the capital ratio (measuring the ratio of equity capital to total assets) and liquidity
ratios (measuring a bank's ability to cover deposit withdrawals and pay out funds to meet the credit
needs of its borrowers). Other useful ratios are the loan-to-deposit ratio (total loans divided by total
deposits) the charge-off ratio (net charge-offs as a percentage of total loans), the loan loss reserve ratio
(loan loss reserves for potential bad loans as a percentage of total loans), and the ratio of
nonperforming asset to total loans. See also Net Interest Margin (NIM); Return On Assets (ROA);
Return On Equity (ROE).
2. accounting ratios used by bank credit officers in evaluating creditworthiness of borrowers. The most
widely used are: the acid-test ratio or quick ratio (short-term assets divided by current liabilities); the
current ratio (current assets divided by current liabilities); and the debt coverage ratio (working capital
divided by long-term debt). Financial ratios can be measured against ratios in prior years, or industry
averages, for quick, easy comparison. Key performance ratios, such as the leverage ratio (long-term
debt as a percentage of shareholder net worth), are frequently used in pricing commercial loans. A loan
might have an interest spread over a base rate, for example, the bank prime rate plus 25 basis points if
financial leverage is kept at, or below, a certain level. See also ratio analysis.
3. The term "trend analysis" refers to the concept of collecting information and attempting to
spot a pattern, or trend, in the information. In some fields of study, the term "trend analysis"
has more formally-defined meanings. [1] [2] [3]
4.
In project management trend analysis is a mathematical technique that uses historical
results to predict future outcome. This is achieved by tracking variances in cost and schedule
performance. In this context, it is a project management quality control tool. [4] [5]
5.
Although trend analysis is often used to predict future events, it could be used to estimate
uncertain events in the past, such as how many ancient kings probably ruled between two
dates, based on data such as the average years which other known kings reigned.
6. [edit]
7. Today, trend analysis often refers to the science of studying changes in social patterns,
including fashion, technology and the consumer behavior.

Common size statement

What Does Common Size Financial Statement Mean?

A company financial statement that displays all items as percentages of a common base figure. This type
of financial statement allows for easy analysis between companies or between time periods of
a company.

Investopedia explains Common Size Financial Statement

The values on the common size statement are expressed as percentages of a statement component such
as revenue. While most firms don't report their statements in common size, it is beneficial to compute if
you want to analyze two or more companies of differing size against each other.

Formatting financial statements in this way reduces the bias that can occur when analyzing companies
 14

of differing sizes. It also allows for the analysis of a company over various time periods, revealing, for
example, what percentage of sales is cost of goods sold and how that value has changed over time.
A statement in which all items are expressed as a percentage of a base figure, useful for purposes of
analyzing trends and changing relationship among financial statement items. For example, all items in
each year's income statement could be presented as a percentage of net sales
A financial statement that has variables expressed in percentages rather than in dollar amounts. For
example, items on an income statement are shown as a percentage of revenue or sales, and balance
sheet entries are displayed as a percentage of total assets. Common-size statements are used primarily
for comparative purposes so that firms of various sizes can be equated. Also called one hundred percent
statement
The commoncommoncommon-sizesizesize statementstatementstatement is a financial document that is often
utilized as a quick and easy reference for the finances of a corporation or business. Unlike balance sheets and
other financial statements, the commoncommoncommon-sizesizesize statementstatementstatement does not
reflect exact figures for each line item. Instead, the structure of the commoncommoncommon sizesizesize
statementstatementstatement uses a commoncommoncommon base figure, and assigns a percentage of that
figure to each line item or category reflected on the document.

A company may choose to utilize financial statements of this type to present a quick snapshot of how much of
the company’s collected or generated revenue is going toward each operational function within the
organization. The use of a common-size statement can make it possible to quickly identify areas that may be
utilizing more of the operating capital than is practical at the time, and allow budgetary changes to be
implemented to correct the situation.
The common size statement can also be a helpful tool in comparing the financial structures and operation
strategies of two different companies. The use of percentages in the common size statements removes the
issue of which company generates more revenue, and brings the focus on how the revenue is utilized within
each of the two businesses. Often, the use of a common-size statement in this manner can help to identify
areas where each company is utilizing resources efficiently, as well as areas where there is room for
improvement.
Common-size statements can be prepared for any review period desired. Companies that choose to make use
of financial statements of this type may choose to utilize this format for quarterly, semi-annual, or annual
reviews. When there is concern about operational costs, the common-size statement may be prepared on a
more frequent basis, such as monthly. Because the common-size statement is very easy to read and does not
necessarily contain information that would be considered proprietary, the format can often be employed as part
of general information that is released to the public.
D All ratios
A ratio is a comparison of two numbers. We generally separate the two numbers in the ratio with
a colon (:). Suppose we want to write the ratio of 8 and 12.
We can write this as 8:12 or as a fraction 8/12, and we say the ratio is eight to twelve.
Ratios tell how one number is related to another number.
A ratio may be written as A:B or A/B or by the phrase "A to B".
A ratio of 1:5 says that the second number is five times as large as the first.
The following steps will allow determination of a number when one number and
the ratio between the numbers is given.
Example: Determine the value of B if A=6 and the ratio of A:B = 2:5
• Determine how many times the number A is divisible by the
corresponding portion of the ratio. (6/2=3)
• Multiply this number by the portion of the ratio representing B
(3*5=15)
• Therefore if the ratio of A:B is 2:5 and A=6 then B=15
 15

The ratio analysis and industry analysis tools below are very useful for individuals to instantly assess a
company or industry by making two basic types of comparisons. First, the analyst can compare a
present ratio with past (or expected) ratios for the organization to determine if there has been an
improvement or deterioration or no change over time. Second, the ratios of one organization may be
compared with similar organizations or with industry averages at the same point in time. This is a type
of "benchmarking" so that one may determine whether the organization is "average" in performance
or doing better or worse than others. For the professional, conducting such in-depth analyses is
critical, allowing an analyst to make an informed business or investment decision.
reasons why ratios and proportions are so important

Markets can only do one of 3 things: go up, down, or sideways. It's

the job of the pattern recognition swing trader to determine whether you have
an uptrend (higher lows) or a downtrend (lower highs).

2. Markets repeat with clocklike regularity, they do the same thing every
day.

3. Ratios and proportions are leading indicators indicating the future of

price movement as opposed to lagging indicators like oscillators, moving
averages and Bollinger bands.

4. Each right triangle has a predictive nature making the risk/reward on each
trade solidly in the traders favor.

Time is an important factor in decision making

Time-Critical Decision Modeling and Analysis

The ability to model and perform decision modeling and analysis is an essential
feature of many real-world applications ranging from emergency medical treatment
in intensive care units to military command and control systems. Existing
formalisms and methods of inference have not been effective in real-time
applications where tradeoffs between decision quality and computational
tractability are essential. In practice, an effective approach to time-critical dynamic
 16

decision modeling should provide explicit support for the modeling of temporal
processes and for dealing with time-critical situations.

One of the most essential elements of being a high-performing manager is the ability to lead
effectively one's own life, then to model those leadership skills for employees in the
organization. This site comprehensively covers theory and practice of most topics in forecasting
and economics. I believe such a comprehensive approach is necessary to fully understand the
subject. A central objective of the site is to unify the various forms of business topics to link
them closely to each other and to the supporting fields of statistics and economics. Nevertheless,
the topics and coverage do reflect choices about what is important to understand for business
decision making.
Almost all managerial decisions are based on forecasts. Every decision becomes operational at
some point in the future, so it should be based on forecasts of future conditions.
Forecasts are needed throughout an organization -- and they should certainly not be produced by
an isolated group of forecasters. Neither is forecasting ever "finished". Forecasts are needed
continually, and as time moves on, the impact of the forecasts on actual performance is
measured; original forecasts are updated; and decisions are modified, and so on.
For example, many inventory systems cater for uncertain demand. The inventory parameters in
these systems require estimates of the demand and forecast error distributions. The two stages of
these systems, forecasting and inventory control, are often examined independently. Most studies
tend to look at demand forecasting as if this were an end in itself, or at stock control models as if
there were no preceding stages of computation. Nevertheless, it is important to understand the
interaction between demand forecasting and inventory control since this influences the
performance of the inventory system. This integrated process is shown in the following figure:

The decision-maker uses forecasting models to assist him or her in decision-making process. The
decision-making often uses the modeling process to investigate the impact of different courses of
action retrospectively; that is, "as if" the decision has already been made under a course of
action. That is why the sequence of steps in the modeling process, in the above figure must be
considered in reverse order. For example, the output (which is the result of the action) must be
considered first.
 17

It is helpful to break the components of decision making into three groups: Uncontrollable,
Controllable, and Resources (that defines the problem situation). As indicated in the above
activity chart, the decision-making process has the following components:
1. Performance measure (or indicator, or objective): Measuring business
performance is the top priority for managers. Management by objective
works if you know the objectives. Unfortunately, most business managers do
not know explicitly what it is. The development of effective performance
measures is seen as increasingly important in almost all organizations.
However, the challenges of achieving this in the public and for non-profit
sectors are arguably considerable. Performance measure provides the
desirable level of outcome, i.e., objective of your decision. Objective is
important in identifying the forecasting activity. The following table provides
a few examples of performance measures for different levels of
management:
Level Performance Measure
Return of Investment, Growth, and
Strategic
Innovations

Tactical Cost, Quantity, and Customer satisfaction

Target setting, and Conformance with

Operational
standard

2. Clearly, if you are seeking to improve a system's performance, an operational view is

really what you are after. Such a view gets at how a forecasting system really works; for
example, by what correlation its past output behaviors have generated. It is essential to
understand how a forecast system currently is working if you want to change how it will
work in the future. Forecasting activity is an iterative process. It starts with effective and
efficient planning and ends in compensation of other forecasts for their performance
3Resources: Resources are the constant elements that do not change during the time horizon
of the forecast. Resources are the factors that define the decision problem. Strategic decisions
usually have longer time horizons than both the Tactical and the Operational decisions.
4Forecasts: Forecasts input come from the decision maker's environment. Uncontrollable
inputs must be forecasted or predicted.
5Decisions: Decisions inputs ate the known collection of all possible courses of action you
might take.
6Interaction: Interactions among the above decision components are the logical,
mathematical functions representing the cause-and-effect relationships among inputs,
resources, forecasts, and the outcome.
Interactions are the most important type of relationship involved in the decision-making process.
When the outcome of a decision depends on the course of action, we change one or more aspects
of the problematic situation with the intention of bringing about a desirable change in some other
aspect of it. We succeed if we have knowledge about the interaction among the components of
the problem.
 18

There may have also sets of constraints which apply to each of these components. Therefore,
they do not need to be treated separately.
7Actions: Action is the ultimate decision and is the best course of strategy to achieve the
desirable goal.
Decision-making involves the selection of a course of action (means) in pursue of the decision
maker's objective (ends). The way that our course of action affects the outcome of a decision
depends on how the forecasts and other inputs are interrelated and how they relate to the
outcome.
Controlling the Decision Problem/Opportunity: Few problems in life, once solved, stay that way.
Changing conditions tend to un-solve problems that were previously solved, and their solutions
create new problems. One must identify and anticipate these new problems.
Remember: If you cannot control it, then measure it in order to forecast or predict it.
Forecasting is a prediction of what will occur in the future, and it is an uncertain process.
Because of the uncertainty, the accuracy of a forecast is as important as the outcome predicted by
the forecast. This site presents a general overview of business forecasting techniques as classified
in the following figure:

Progressive Approach to Modeling: Modeling for decision making involves two distinct parties,
one is the decision-maker and the other is the model-builder known as the analyst. The analyst is
to assist the decision-maker in his/her decision-making process. Therefore, the analyst must be
equipped with more than a set of analytical methods.
Integrating External Risks and Uncertainties: The mechanisms of thought are often distributed
over brain, body and world. At the heart of this view is the fact that where the causal contribution
of certain internal elements and the causal contribution of certain external elements are equal in
governing behavior, there is no good reason to count the internal elements as proper parts of a
cognitive system while denying that status to the external elements.
In improving the decision process, it is critical issue to translating environmental information
into the process and action. Climate can no longer be taken for granted:
• Societies are becoming increasingly interdependent.
• The climate system is changing.
• Losses associated with climatic hazards are rising.
These facts must be purposeful taken into account in adaptation to climate conditions and
management of climate-related risks.
 19

The decision process is a platform for both the modeler and the decision maker to engage with
human-made climate change. This includes ontological, ethical, and historical aspects of climate
change, as well as relevant questions such as:
• Does climate change shed light on the foundational dynamics of reality
structures?
• Does it indicate a looming bankruptcy of traditional conceptions of human-nature
interplays?
• Does it indicate the need for utilizing nonwestern approaches, and if so, how?
• Does the imperative of sustainable development entail a new groundwork for
decision maker?
• How will human-made climate change affect academic modelers -- and how can
they contribute positively to the global science and policy of climate change?
Quantitative Decision Making: Schools of Business and Management are flourishing with more
and more students taking up degree program at all level. In particular there is a growing market
for conversion courses such as MSc in Business or Management and post experience courses
such as MBAs. In general, a strong mathematical background is not a pre-requisite for admission
to these programs. Perceptions of the content frequently focus on well-understood functional
areas such as Marketing, Human Resources, Accounting, Strategy, and Production and
Operations. A Quantitative Decision Making, such as this course is an unfamiliar concept and
often considered as too hard and too mathematical. There is clearly an important role this course
can play in contributing to a well-rounded Business Management degree program specialized,
for example in finance.
Specialists in model building are often tempted to study a problem, and then go off in isolation to
develop an elaborate mathematical model for use by the manager (i.e., the decision-maker).
Unfortunately the manager may not understand this model and may either use it blindly or reject
it entirely. The specialist may believe that the manager is too ignorant and unsophisticated to
appreciate the model, while the manager may believe that the specialist lives in a dream world of
unrealistic assumptions and irrelevant mathematical language.
Such miscommunication can be avoided if the manager works with the specialist to develop
first a simple model that provides a crude but understandable analysis. After the manager has
built up confidence in this model, additional detail and sophistication can be added, perhaps
progressively only a bit at a time. This process requires an investment of time on the part of the
manager and sincere interest on the part of the specialist in solving the manager's real problem,
rather than in creating and trying to explain sophisticated models. This progressive model
building is often referred to as the bootstrapping approach and is the most important factor in
determining successful implementation of a decision model. Moreover the bootstrapping
approach simplifies the otherwise difficult task of model validation and verification processes.
The time series analysis has three goals: forecasting (also called predicting), modeling, and
characterization. What would be the logical order in which to tackle these three goals such that
one task leads to and /or and justifies the other tasks? Clearly, it depends on what the prime
objective is. Sometimes you wish to model in order to get better forecasts. Then the order is
obvious. Sometimes, you just want to understand and explain what is going on. Then modeling is
again the key, though out-of-sample forecasting may be used to test any model. Often modeling
and forecasting proceed in an iterative way and there is no 'logical order' in the broadest sense.
 20

You may model to get forecasts, which enable better control, but iteration is again likely to be
present and there are sometimes special approaches to control problems.

3 Evaluat project of average isk we must know the overall cost of the capital why

Cost of Capital

Cost of Capital is the rate that must be earned in order to satisfy the required rate
of return of the firm's investors. It can also be defined as the rate of return on
investments at which the price of a firm's equity share will remain unchanged.

Each type of capital used by the firm (debt, preference shares and equity) should be
incorporated into the cost of capital, with the relative importance of a particular
source being based on the percentage of the financing provided by each source of
capital. Using of the cost a single source of capital, as the hurdle rate is tempting to
management

, particularly when an investment is financed entirely by debt. However, doing so is a mistake in

logic and can cause problems.

Factors determining the cost of capital

There are several factors that impact the cost of capital of any company. This would
mean that the cost of capital of any two companies would not be equal. Rightly so
as these two companies would not carry the same risk.

a. a. General economic conditions: These include the demand for and

supply of capital within the economy, and the level of expected inflation.
These are reflected in the risk less rate of return and is common to most
of the companies.
b. b. Market conditions: The security may not be readily marketable
when the investor wants to sell; or even if a continuous demand for the
security does exist, the price may vary significantly. This is company
specific.
 21

c. c. A firm's operating and financing decisions: Risk also results from

the
decisions made within the company. This risk is generally divided into two
classes:
1. Business risk is the variability in returns on assets and is
affected by the company's investment decisions.

2. Financial risk is the increased variability in returns to the

common stockholders as a result of using debt and preferred
stock.

d. d. Amount of financing required: The last factor determining the

company's cost of funds is the amount of financing required, where the
cost of capital increases as the financing requirements become larger.
This increase may be attributable to one of the two factors:
1. As increasingly larger public issues are increasingly floated in
the market, additional flotation costs (costs of issuing the
security) and under pricing will affect the percentage cost of the
funds to the firm.

2. As management approaches the market for large amounts of

capital relative to the firm's size, the investors' required rate of
return may rise. Suppliers of capital become hesitant to grant
relatively large amounts of funds without evidence of
management's capability to absorb this capital into the
business.

Generally, as the level of risk rises, a larger risk premium must be earned to satisfy
company's investors. This, when added to the risk-free rate, equals the firm's cost
of capital.

Assumptions of the cost of capital model

A. Constant business risk

We assume that any investment being considered will not significantly change the
firm's business risk. Therefore the overall cost of capital would not change with the
changing nature of investments in different markets.

B. Constant financial risk

Management is assumed to use the same financial mix as it used in the past with
the same combination of debt and equity.
 22

C. Constant dividend policy

1. 1. For ease of computation, it is generally assumed that the firm's
dividends are increasing at a constant annual growth rate. Also, this
growth is assumed to be a function of the firm's earning capabilities and
not merely the result of paying out a larger percentage of the company's
earnings.
2. 2. We also implicitly assume that the dividend payout ratio
(dividend/net income) is constant.

Computing The Weighted Cost Of Capital

A firm's weighted cost of capital is a function of (l) the individual costs of capital, (2)
the capital structure mix, and (3) the level of financing necessary to make the
investment. The individual costs of capital helps in deciding the weigtage that has
to be given to the different modes of financing. The capital structure mix decides
level of the debt that the company would take up. The level of financing helps in
working out the amount that the company could shell out of its own and deciding
whether and how much to finance from outside sources.

1. Determining individual costs of capital

a) Cost of Debt: As we discussed in the last chapter the before-tax cost of debt
is found by trial-and-error by solving for kd in

PV =

where PV = the market price of the debt less flotation

costs,

Interest = the annual interest paid to the investor each year,

Principal = the maturity value of the debt

kd = before-tax cost of the debt (before-tax required

rate

of return on debt)

n = the number of years to maturity.

The after-tax cost of debt equals = kd(1 - T).

b) Cost of preference share (required rate of return on preference share), kps,

equals the dividend yield based upon the net price (market price less flotation
costs) or

kps = =
 23

c) Cost of equity share: There are three measurement techniques to obtain the
required rate of return on equity shares.

i) Dividend growth model

a. Cost of internally generated common equity, ks

ks = +

ks =

b) Cost of new equity share, kns

kns =

where NPo = the market price of the equity share less flotation costs
incurred in issuing new shares.

ii) Capital asset pricing model

As discussed in the last chapter the expected cost of equity share is

dependent on the risk profile of the share versus the market as a whole.

ks = kf + b(km - kf)

where ks = the cost of equity share

kf = the risk-free rate

b = beta, measure of the stock's systematic risk

km = the expected rate of return on the market

iii) Risk-Premium Approach

All these models are very useful for companies that have their shares listed in
the market or about to get them listed. What about the companies that are
privately owned. The best way for these companies to do it is to find the
general risk premium and take the company specific cost of debt (which is
supposed to include the risk premium of the company) and then add the two
to find out the equity cost of the company.

ks = kd + RPs

where ks = cost of equity share

kd = cost of debt

RPs = risk-premium of equity share

 24

2. Determining capital structure mix

The individual costs of capital will be different for each source of capital in the firm's
capital structure. If the company uses debt to the level of fifty percent of its
investment, then the cost of debt should get 50% weightage in the capital
structure.

To use the cost of capital in investment analyses, we must compute a weighted or

overall cost of capital.

3. Level of financing and the weighted average cost of capital

The weighted marginal cost of capital specifies the composite cost for each
additional rupee of financing. The firm should continue to invest up to the point
where the marginal internal rate of return earned on a new investment (IRR) equals
the marginal cost of new capital.

Effect of additional financing on the cost of capital would be threefold.

1. 1. Issuing new equity share will increase the firm's weighted cost of
capital because external equity capital has a higher cost than internally
generated common equity.
2. 2. As we use additional debt and preference shares, their cost may
increase, which will result in an increase in the weighted cost of capital.
3. 3. The increase in the firm's weighted marginal cost of capital curve
will occur at the total rupee financing level when all the cheaper funding
will be consumed by the firm's investments, given the targeted debt-
equity ratio. The increase in the weighted cost of capital will occur when
the total financing from all sources equals:

Procedure for determining the weighted marginal cost of capital curve is given
below for ready reference.

1. 1. Determine financial mix to be used.

2. 2. Calculate the level of total financing at which the cost of equity
capital increases.
3. 3. Calculate the costs of each source of capital.
4. 4. Compute the weighted marginal costs of capital at different levels
of total financing.
5. 5. Construct a graph that compares the internal rates of return of
available investment projects with the weighted marginal costs of capital.

Calculation of Weighted average cost of capital

WACC basic computation is given by the formula given below:

 25

where:

ko = the weighted average cost of capital

ks = the cost of equity capital

kd = the before-tax cost of debt capital

T = the marginal tax rate

E/(D+E) = percentage of financing from equity

D/(D+E) = percentage of financing from debt

(D+E) = Total capital employed by the firm

In the formula above we are assuming that the capital has two components only,
debt and equity. If the preference capital is also there then it is simply added to it
the way other two are denoted.

The cost of capital and cash flows are then utilized to evaluate a project by using an
evaluation method.

International business

Classify the environmental factor on the basis of their extent of intimacy with the
firm.

mainly there are 2 types of factors affecting international business.

1) internal factors 2) external factors
1) internal factors:- internal factors of international business includes political
parties,suppliers,buyers,competitors and consumer of respective country.
 26

2) external factors:- external factors of international business are those where you need to
examine the whole crietari these are political environment,legal environment,socio-cultural
environment,demographic conditions of respective country.
Environmental factors for international business comprise the external relations a firm will face
in going global. These include, most importantly, the economic, political and legal environments,
each of these always entangled with the others

1. The Economic Environment

2. This element comprises the nature of the economic system and institutions of a particular
country or region. It also takes into account the nature of human and natural resources
within the target market. A firm will function very differently in a libertarian environment than
within a highly statist one. Here, the activities and functions of local economic elites are also
very important.
The Political Environment
3. Closely tied to the economic environment is the political one, itself also dealing with the
nature of systems and institutions. Many variables to consider here are the stability of the
political system, the existence of local or international conflict, the role of state enterprises
and the nature of the bureaucracy.
The Legal Environment
4. The existence of bureaucratic systems and cultures is central in making the decision to
invest globally. The nature of corruption, local values and assumptions that are built into
national ideologies are major variables in this field. A great concern is the extent to which
there is a culture of law or a culture of personal patronage, where negotiations are done on
a personal rather than a legal basis. The impact of international lending agencies such as
the International Monetary Fund or the World Bank is also important in creating a legal
culture that a business will have to take seriously.
Social Structure
5. Experts such as Robert Brown and Alan Gutterman hold that social structure comprises the
basic values of a people and transcends the institutions mentioned above. Issues such as
the relation between the individual and the collective, religion, family life and even time
concepts and gender roles are all significant in terms of dealing with a new population.
Being sensitive to these might be the difference between success and failure.
6. A company that chooses to implement an international project is obligated to conduct a thorough
research in order to understand if such project is viable and can be brought to life in a certain
country. Numerous factors have to be taken into consideration and investigated; it has to be done
objectively from the point of view of the host country in which business will be performed. Thus
the home company can ensure the realization of the project in specified terms with regards to
projected profits and spending funds.

While analyzing foreign environment companies have to pay close attention to various factors that
will effect, or help if used efficiently, future success of business in a new economy. First of all it is
necessary to carefully examine the firm’s competitive position and understand if a project is able
to bring profit in the global industry. Adequate financial resources, successful global ventures in
the past, risk levels that a company is able to undertake and growing international demand are
those few questions that need to posed before a firm can make any projections as to doing
business abroad. There are also factors that are directly connected to specific projects and
situations and that influence the outcome of the venture and have to be considered.
 27

7.

In case when a company is ready to start international project in terms of its internal situation, it
has to study issues and challenges that are caused by macro economical and other environmental
factors. Legal and political factors are essential for the implementation of the project abroad and
each country has its own laws and regulations that could be of negative or positive influence which
greatly depends on the nature of business. Economic condition of the host county is a core issue in
deciding where and when project will be carried out and if it is feasible at all. Such environmental
issues as GDP, inflation fluctuations and population growth have to be considered in order to
comprehend conditions in which business will operate. Infrastructure and geography are among
other factors that will affect the project or not allow its execution in case a host county has severe
weather conditions or undeveloped infrastructure; for instance unpaved roads and no electrical
power can easily fail the project in the very beginning and thus knowing such conditions is
necessary. Security of the country in which project will be developed is essential as well, people
make things happen and if they are in a dangerous environment it is priory impossible to do
business. Workers who are knowledgeable about cultural differences in a host country are more
likely to perform successfully as traditions and holidays can play a huge role in certain marketing
campaigns and serve for the good image of the company.
8.

Working in a foreign country requires a great deal of preparation and assessment of all possible
differences that business is about to encounter. As was already said major role is deciding whether
of not the project will be successful is comprehending macro environment of a new country.
Studying its economical condition, security levels and infrastructure system is a core competence
of a company who wants to be more successful that its competitors. In case when all of those
factors are studied and considered advantageous for a new enterprise it is important to bear in
mind that cultural differences can make all efforts void. Thus such countries as the United States
must attentively analyze what changes have to be made in the business plan and what people are
best suit for the its implementation. Often companies hire professionals already experienced in
such ventures with foreign education who speak two or more languages. Those intermediaries who
are familiar with host country’s traditions and have social connections are great helpers in
establishing a good image of the company abroad and in avoiding mistakes in a setting up period.

Selecting and training employees for the international project is very important for the future
success of the company. Culture shock and coping with it are issues that have to be addressed to
potential workers because people who cannot sleep at night of nervous breakdown are unable to
work effectively. Consequently firms need to inform and train employees how to cope with cultural
diversities and benefit from them to better manage in the new environment. Multiplicity of the
factors that have to be thought through by the international project managers can be outstanding
but successful implementation will be rewarded by monetary and personal contentment.

Introduction: Three Factors Affecting International Business

There are 3 factors that are changing the way international business is practiced
and which therefore need to be taken into account in the education of future
international business lawyers. These factors are:
Transnationalization of Economic Activity: The rapid growth in the amount
of cross- border economic activity over the past twenty years is affecting the
balance of power between the state and the market in the regulation of such
activity. The ability of economic actors to escape national regulation by
 28

structuring their operations to take place in jurisdictions that they find congenial
and to avoid those that they find unsatisfactory is undermining the regulatory
role of the state. It is also creating demand for lawyers who can help their
clients exploit these opportunities for private ordering of economic transactions.
Increased Concern about the Environment: The growing recognition that
human activity is adversely affecting our physical environment imposes on all
actors whose actions will affect this environment an obligation to account for all
the costs and benefits that their activity is likely to cause. Since the impacts of
these activities can extend over large areas and over long periods of time, a full
accounting for their effects is also blurring the geographical and temporal
boundaries that have historically circumscribed our concepts of legal
responsibility and liability. This in turn is challenging us to adapt these concepts
to new environmental realities and to the requirements of social and
environmental sustainability and inter-generational equity.
Increased Attention to the Human Rights Obligations of Actors Other
Than States: The growing scale of operations of transnational corporations is
resulting in changing perceptions of the rights and obligations of all economic
actors, including in regard to human rights. To date, this has initially manifested
itself in two ways. First, it has stimulated the development of soft law standards
of conduct for corporations—such as corporate codes of conduct, the UN
Compact, IFC Performance Standards -- and an increased emphasis on corporate
social responsibility. The second is the increased willingness of consumers, non-
state actors, and international bodies to hold corporations accountable for the
social consequences of their actions. These two developments are causing
businesses and their lawyers to become much more sensitive to the human
rights implications of their actions.
The Role of Law and Lawyers
1 Prepared for the International Association of Law School’s conference on “The Law of International Business
Transactions: A Global Perspective”, Hamburg, Germany, April 10-12, 2008.
2 Professor of Law and Director, International Legal Studies Program, American University Washington College of
Law, Washington DC. and Research Associate, Centre for Human Rights, University of Pretoria. Email address:
bradlow@wcl.american.edu
 29

Given the complex ways in which the above factors affect international business
transactions, lawyers can most effectively serve their international business
client’s needs by developing an expanded vision of the value they add to their
clients’ business operations. This means that, in addition to offering their clients
specific technical legal expertise, lawyers need to see themselves as member of
the multi-disciplinary teams that help their client’s negotiate and structure
international business transactions. Given the economic, social and
environmental impact of these transactions, the lawyers should also recognize
that, de facto, they act as agents for social change.
In order to play this expanded legal role, international business lawyers, in
addition to knowledge of their own legal systems, need:
1. A better understanding of the social, environmental and economic context
in which the law operates. This knowledge will enable them to assist their
clients assess and manage the legal risks associated with their proposed
plans of action. It will also ensure that they function effectively as
members of the cross-cultural and multi-disciplinary teams that drive
most international business transactions.

2. Cross-cultural negotiating and drafting skills so that they can help their
clients structure and negotiate international transactions that both meet
the needs of all relevant stakeholders and that creatively exploit the
opportunities that currently exist for the private ordering of cross-border
business relations. This suggests that effective international business
lawyers need an understanding of diverse cultures and the ability to
communicate in different languages.

3. Sufficient knowledge of international and comparative law and

international affairs that they are able to advise clients and other
stakeholders on the municipal and international legal implications of
proposed actions that have cross-border impacts.

4. Sufficient knowledge of legal ethics to understand their own

responsibilities when advising their clients about their transnational
activities. Lawyers need to see that their advice and actions will influence
how their clients and the transactions they help structure and negotiate
impact the process of social change and development in their host
societies and to understand the responsibilities that this imposes on
them. These responsibilities extend beyond their client’s narrow
transaction-specific interests to include a concern about the
environmental and social impacts of these activities.

Challenges for Training Lawyers For This New Role

Legal education is not currently designed to provide lawyers with the broad
perspective and planning and counseling skills described above. Instead it tends
to training lawyers to be “backward looking” dispute resolvers rather than
“forward looking” problem avoiders. Further, it focuses on educating lawyers to
function in a single national legal system. In many countries it also encourages
 30

lawyers to see law as a technical discipline that reacts to rather than shapes
either business transactions or social and economic policy.
In order to produce this new kind of international business lawyer, legal
education needs to produce lawyers who have the ability to help their clients
understand and evaluate the
 31

practical effects of the legal choices they face and to minimize their negative
impacts. This means law students, in addition to the standard domestic law
curriculum, need to learn something about the social, environmental and
economic contexts in which law operates. They also need to develop expertise
in international law, including soft international law, like de facto global
regulatory regimes, and comparative law. Legal education should also provide
students with opportunities to devise legal solutions that mitigate risks and
advance their clients’ business interests.
Law schools can provide this training to their students in a number of different,
and non-mutually exclusive, ways. They can include more non-legal subjects in
the basic legal training; they can offer joint degree or post-graduate degree
options; and they can introduce innovative teaching techniques – such as
simulation and drafting exercises-- in business law courses.
These changes pose challenges to law schools which face personnel and
financial constraints on their capacity to deliver legal education. Most law with
these constraints, operate with relatively large class sizes and limited access to
materials. Both of these constraints undermine the ability of professors to
innovate in their teaching. While these issues are often symptoms of deeper
social problems, there are some steps that can be taken to deal with them. For
example, law schools can engage in revenue generating activities, like
commissioned research for government and other paying entities and CLE
programs, that will increase the resources available for innovations in legal
education. These activities offer the added benefit of improving relations
between the practicing bar and legal academics. This in turn should help
promote legal education that is responsive to the demands of the practicing bar
and ensures that practitioners remain aware of the latest legal scholarship. It
can also stimulate legal academics to do research that is grounded in the
demands of the profession and is related to the needs of society. Another way to
overcome these constraints is for law schools to cooperate with each other in
joint degree programs.3
Conclusion
1. The rapidly changing global environment in which international business
takes place has created a demand for lawyers who are capable of
functioning as problem avoiders rather than dispute solvers; who
understand how to use their skills and knowledge in a multidisciplinary
and cross-cultural team; and who have the sense of professional
responsibility to make sure that their clients enter into socially and
environmentally sustainable transactions. In order to meet this demand,
law schools need to change the ways in which they educate lawyers and
socialized them into the legal profession. The requisite change can be
resource intensive and so may be beyond the capacity of most law
schools in the developing world to implement. However, with creativity
and the cooperation of more fortunate law schools, they can overcome
these limitations.
 32

2 1990s asia

Globalization was the buzzword of the 1990s, and in the twenty first century, there is no
evidence that globalization will diminish. Essentially, globalization refers to growth of trade and
investment, accompanied by the growth in international businesses, and the integration of
economies around the world. According to Punnett (2004) the globalization concept is based on
a number of relatively simple premises:
• Technological developments have increased the ease and speed of international
communication and travel.
• Increased communication and travel have made the world smaller.
• A smaller world means that people are more aware of events outside of their home
country, and are more likely to travel to other countries.
• Increased awareness and travel result in a better understanding of foreign opportunities.
• A better understanding of opportunities leads to increases in international trade and
investment, and the number of businesses operating across national borders.
• These increases mean that the economies around the world are more closely integrated.
Managers must be conscious that markets, supplies, investors, locations, partners, and
competitors can be anywhere in the world. Successful businesses will take advantage of
opportunities wherever they are and will be prepared for downfalls. Successful managers, in this
environment, need to understand the similarities and differences across national boundaries, in
order to utilize the opportunities and deal with the potential downfalls.
The globalization of business is easy to recognize in the spread of many brands and services
throughout the world. For example, Japanese electronics and automobiles are common in Asia,
Europe, and North America, while U.S. automobiles, entertainment, and financial services are
also common in Asia, Europe, and North America. Moreover, companies have become
transnational or multinational-that is, they are based in one country but have operations in others.
For example, Japan-based automaker Honda operates the largest single factory in the United
States, while U.S. based Coca-Cola operates plants in other countries including France and
Belgium—with about 80 percent of that company's profits come from overseas sales.
During the early1990s, there were reasons to feel that globalization was working. The economic
success of Singapore, the rapid economic growth in the Asian Tigers (as the Asian countries that
grew rapidly were called), the industrializing of countries, such as Brazil and Mexico, and a
variety of other positive economic events around the world suggested that the results of
globalization were indeed good for development in poorer countries, as well as in richer ones.
During the 1990s, the United States experienced one of its most sustained periods of growth as
well, and there was much talk of a "new economy", based on globalization, which was immune
to economic shocks and recession.
Unfortunately, this rapid growth was not without consequences. The Seattle meetings of the
World Trade Organization turned into a fiasco, with anti-globalization groups demonstrating
against globalization on all fronts—from animal rights to environmental concerns, poverty
alleviation, and jobs for Americans. The anti-globalization forces have not coalesced into a
coherent whole because they represent such diverse and often contradictory views. The
vehemence of their protests, however, make it clear that globalization is not a panacea for the
 33

world's problems. In addition, the Asian Tigers suffered major economic setbacks in the late
1990s. In 2002, Argentina's economy, which had been one of the stars of the 1990s, crashed,
when the country could no longer maintain its currency at par with the U.S. dollar.
Further problems occurred in the Triad economies. Japan, Europe, and the United States, often
referred to as the Triad, dominated international trade and investment for much of the second
half of the twentieth century. The Japanese economy went into a severe period of recession and
deflation in the late 1990s, and in 2001 both the European and the U.S. economies took a
downward turn as well. In turn, the rest of the world was negatively affected by the economic
situation in the Triad. The terrorist attacks in the United States in September, 2001, exacerbated
this already negative economic situation.
In developing appropriate global strategies, managers need to take the benefits and drawbacks of
globalization into account. A global strategy must be in the context of events around the globe,
as well as those at home.
International strategy is the continuous and comprehensive management technique designed to
help companies operate and compete effectively across national boundaries. While companies'
top managers typically develop global strategies, they rely on all levels of management in order
to implement these strategies successfully. The methods companies use to accomplish the goals
of these strategies take a host of forms. For example, some companies form partnerships with
companies in other countries, others acquire companies in other countries, others still develop
products, services, and marketing campaigns designed to

Factors Domestic Conditions Global Conditions

Culture Homogeneous Heterogeneous

Currency Uniform Different currencies and exchange rates

Economy Stable and uniform May be variable and unpredictable

Government Stable May be unstable

Labor Skilled workers available Skilled workers may be hard to find

Language Generally a single language Different languages and dialects

Marketing Many media, few restrictions May be fewer media and more restrictions

Transport Several competitive modes May be inadequate

appeal to customers in other countries. Some rudimentary aspects of international strategies

mirror domestic strategies in that companies must determine what products or services to sell,
 34

where and how to sell them, where and how they will produce or provide them, and how they
will compete with other companies in the industry in accordance with company goals.
The development of international strategies entails attention to other details that seldom, if ever,
come into play in the domestic market. These other areas of concern stem from cultural,
geographic, and political differences. Consequently, while a company only has to develop a
strategy taking into account known governmental regulations, one language (generally), and one
currency in a domestic market, it must consider and plan for different levels and kinds of
governmental regulation, multiple currencies, and several languages in the global market.
The most recent wave of globalization by U.S. companies began in the 1980s, as companies
began to realize that concentrating on the domestic market alone would lead to stagnant sales and
profits and that emerging markets offered many opportunities for growth. Part of the motivation
for this globalization stemmed from the lost market share in the 1970s to multinational
companies from other countries, especially those from Japan. Initially, these U.S. companies
tried to emulate their Japanese counterparts by implementing Japanese-style management
structures and quality circles. After adapting these practices to meet the needs of U.S. companies
and recapturing market share, these companies began to move into new markets to spur growth,
enable the acquisition of resources (often at a cost advantage), and gain competitive advantage
by achieving greater economies of scale.
The globalization of U.S. companies has not been without concerns and detractors. Exporting
U.S. jobs, exploiting child labor, and contributing to poverty have all been charges laid at the
doors of U.S. companies. These charges have been accompanied by demonstrations and
consumer boycotts.
Nor have U.S. companies been the only ones affected. Companies in the rest of the developed
world have globalized along with U.S. companies, and they have also faced the sometimes
negative consequences.
Interestingly, in the late twentieth and early twenty-first century, there has also been a growth in
international companies from developing and transitional countries, and this trend can be
expected to continue and increase. Exports and investment from the People's Republic of China
are a notable example, but companies from Southeast Asia, India, South Africa, and Latin
America, to name some countries and regions, are making themselves known around the world.
TYPES OF GLOBAL BUSINESS ACTIVITIES
Businesses may choose to globalize or operate in different countries in four distinct ways:
through trade, investment, strategic alliances, and licensing or franchising. Companies may
decide to trade tangible goods such as automobiles and electronics (merchandise exports and
imports). Alternatively, companies may decide to trade intangible products such as financial or
legal services (service exports and imports).
Companies may enter the global market through various kinds of international investments.
Companies may choose to make foreign direct investments, which allow them to control
companies and assets in other countries. In addition, companies may elect to make portfolio
investments, by acquiring the stock of companies in other countries in order to gain control of
these companies.
Another way companies tap into the global market is by forming strategic alliances with
companies in other countries. While strategic alliances come in many forms, some enable each
company to access the home market of the other and thereby market their products as being
affiliated with the well-known host company. This method of international business also enables
 35

a company to bypass some of the difficulties associated with internationalization such as

different political, regulatory, and social conditions. The home company can help the
multinational company address and overcome these difficulties because it is accustomed to them.
Finally, companies may participate in the international market by either licensing or franchising.
Licensing involves granting another company the right to use its brand names, trademarks,
copyrights, or patents in exchange for royalty payments. Franchising, on the other hand, is when
one company agrees to allow a company in another country to use its name and methods of
operations in exchange for royalty payments.
OVERVIEW OF INTERNATIONAL STRATEGY DEVELOPMENT
Generally, a company develops its international strategy by considering its overall strategy,
which includes its operations at home and abroad. we can consider four aspects of strategy: (1)
scope of operations, (2) resource allocation, (3) competitive advantage, and (4) synergy. The first
component encompasses the geographic locations—countries and regions—of possible
operations as well as possible markets or niches in various regions. Since companies have
limited resources and since different regions offer different advantages, managers must select the
markets that offer the company the optimal opportunities.
The second component of the global strategy focuses on use of company resources so that a
company can compete successfully in the chosen markets. This component of strategy planning
also determines the relative importance of various company functions and bases the allocation of
resources on the relative importance of each function. For instance, a company may decide to
allocate its resources based on product lines or geographical locations.
Next, management must decide where the company can achieve competitive advantage over
other companies in the industry. Management can identify their competitive advantage by
determining what the company does better (or can do better) than its competitors. Companies
may realize this advantage through a host of techniques such as using superior technology,
implementing more efficient organizational practices and distribution systems, and cultivating
well-known brands. This component of the strategy involves not only identifying existing or
potential areas of competitive advantage but also developing a plan for sustaining areas of
competitive advantage. Finally, global strategy should involve establishing a plan for the
company that enables its various functions and operations to benefit one another. For example, a
company can use one line of products to encourage sales of another line of products and thereby
enabling different parts of a business to benefit from each other.
Many companies are now outsourcing many of their operations internationally. For example, if
you call to get information on your credit card, you may well be talking to someone in India or
Mexico. Equally, manufacturers often outsource production to low labor cost countries.
Concerns over ethical issues, such as slave and child labor, have led to companies outsourcing
under controlled conditions—offshore production may be subject to surprise visits and searches
and outsourced factories are required to conform to specific criteria.
STAGES OF INTERNATIONAL STRATEGY DEVELOPMENT
Strategy development itself generally takes places in two stages: strategy formulation and
strategy implementation. When planning a strategy, companies identify their international
objectives and put together a strategy that will enable them to realize their goals. During the
planning stage managers propose, revise, and finally ratify plans for entering new markets and
competing in them.
 36

After a strategy has been agreed on, managers must take steps to have it implemented.
Consequently, this stage involves determining when to begin global operations as well as
actually starting operations and putting into action the other components of the global strategy.
More specifically, the first stage—strategy formulation—entails analysis of the company and its
environment, establishing strategic goals, and developing plans to achieve goals as well as a
control framework. By assessing itself and the global business environment, a company can
determine what markets, products, services, etc. offer opportunities for growth. This process
involves the collection of data on a company and its environment, including information on
global markets, regulation, productivity, costs, and competitors. Therefore, the collection of data
should supply managers with economic, financial, political, legal, and social information on
various countries and their markets for different products or services. Based on this information,
managers can determine what markets and products offer economically feasible opportunities for
global expansion.
Once this analysis is complete, managers must establish strategic goals, which are the significant
goals a company seeks to achieve through a particular pursuit such as entering a new regional
market. These goals must be practicable, measurable, and limited to a specific time frame. After
the strategic goals have been established, companies should develop plans that allow them to
accomplish their goals, and these plans should concentrate on how to implement strategic plans.
Finally, strategy formulation involves a control framework, which is a process management uses
to help ensure that a company remains on the right course when implementing its strategic plans.
The control framework essentially responds to various developments while the strategic plans are
being implemented. For example, if sales are lower than the projected sales that are part of the
strategic goals, then a company might increase its marketing efforts and temporarily lower its
prices to stimulate additional sales.
INTERNATIONAL MARKET EVALUATION
While many aspects of international strategy and its formulation are similar to their domestic
counterparts, some key aspects are not, and hence call for different methods and different kinds
of information. Gaining knowledge of international markets is one of these key differences—and
a crucial part of developing an international strategy. In order for a company to enter a new
market, capture market share, and thereby increase sales and profits, it must know what that
market is like. At a basic level, a company must examine different markets, evaluate the
advantages and disadvantages of entering each, and select only the markets that show the
greatest potential for entry and growth.
When examining different international markets, a company should consider the market
potential, competition, regulation, and cultural factors of each. Company managers can assess
market potential by collecting data on the gross domestic product (GDP), per capita GDP,
population, transportation, and other figures of various countries. This kind of information will
enable managers to determine the spending power of the consumers in each country and
determine if that spending power allows them to purchase a company's
GDP per Capita (2003 Estimate in
Country US$)

Luxembourg 55,100
 37

GDP per Capita (2003 Estimate in

Country US$)

United States 37,800

Norway 37,700

Bermuda 36,000

Cayman Islands 35,000

San Marino 34,600

Switzerland 32,800

Denmark 31,200

Iceland 30,900

Austria 30,000

products or services. Managers also should consider the currency stability of the different
markets, which can be done by using documents from the home countries to determine currency
value and fluctuation over a period of years.
To select the best markets for entry, managers also should consider the degree of competition
within different markets and should anticipate future competition in them as well. Determining
the degree of competition involves the identification of all the companies competing in the
prospective markets as well as their sizes, market shares, and prices. Managers then should
evaluate a prospective market by considering the number of competitors and their characteristics
as well as the market conditions—that is, whether the market is saturated with competition and
cannot support any new entrants.
Next, managers should evaluate the regulatory environment of the prospective markets, since
knowing tax, trade, other related policies is essential for a successful international business. This
step entails determining the respective tariffs and trade barriers of prospective markets. Different
types of trade barriers may influence the kind of business activity a company chooses for a
particular market. For example, if a prospective market has trade barriers that restrict the entry of
foreign-made goods, a company might decide to access the market through foreign direct
investment and manufacture its products in that country itself. Ownership restrictions also may
limit a company's interest in a particular market; some countries permit foreign companies to set
up local operations only if they establish a partnership with a local company. In addition,
managers should find out if prospective countries charge foreign companies higher taxes or if
they offer tax breaks and incentive to encourage economic development. A final consideration
 38

companies must make concerning government is stability. Since some countries have rough
government transitions resulting from coups and uprisings, companies must countenance the
possibility of political turmoil that could substantially disrupt business.
The last step in international market evaluation is the assessment of cultural factors. To avoid
difficulties associated with cultural differences, some managers look for new markets that have
cultural similarities to their home market, especially for initial international market penetration
endeavors. Unlike market potential, competition, and regulation, cultural differences are more
difficult to evaluate. Nevertheless, managers must try to determine the consumer needs and
preferences in the prospective markets. Managers must also account for cultural differences in
labor relations such as worker motivation, compensation, hours, etc. if planning foreign direct
investment in an overseas company. Moreover, a thorough understanding of a prospective
country's culture will greatly facilitate any kind of global business enterprise. This cultural
knowledge should include a basic understanding of a prospective country's beliefs and attitudes,
language and communication styles, dress, food preferences and customs, time and time
consciousness, relationships, values, and work ethic. This kind of cultural information is
essential for developing an effective and realistic global strategy.
Since conducting primary research is labor intensive and time consuming, managers may obtain
preliminary information on prospective markets from books such as Dun & Bradstreet's Guide to
Doing Business Around the World and Business Protocol: How to Survive and Succeed in
Business, or the Economist's "Doing Business in…" series, which list potential trade
opportunities, policies, etiquette, taxes, and so on for various countries.
After examining the prospective markets in this manner, managers are ready to evaluate the
advantages and disadvantages of each potential market. One way of doing so is the determination
of costs, advantages, and disadvantages of each prospective market. The costs of each market
include direct costs and opportunity costs. Direct costs are those a company pays when
establishing a business in a new market, such as costs associated with purchasing property and
equipment and producing and shipping goods. Opportunity costs, on the other hand, refer to the
costs associated with the loss of other opportunities, since entering one market rules out or
postpones entering another because of a company's limited resources. Hence, the profits that
could have been earned in the alternative market constitute the opportunity costs.
Each prospective market usually has a variety of advantages, such as the possibility for growth,
which will lead to greater revenues and profits. Other advantages include relatively low material
and labor costs, new technology gaining strategic advantage over competitors, and matching
competitors' actions. However, each prospective market also usually has a number of
disadvantages, including opportunity costs, greater business complexity, and potential losses
stemming from unforeseen aspects of prospective markets and from currency fluctuations. Other
disadvantages might result from potential losses associated with unstable political conditions.
ANALYSIS OF TWO INTERNATIONAL STRATEGIES
In the late 1990s after a significant amount of globalization had taken place, business analysts
began to examine the success of various strategies for doing business in other countries. This
examination led to the distinction between various orientations of international strategies. The
main distinction was between multi-domestic (also called multi-local) international strategies and
global strategies. Multi-domestic international strategies refer to those that address competition
in each country or region on an individual basis, whereas global strategy refers to addressing
competition in an integrated and holistic manner across country and regional boundaries. Hence,
multi-domestic international strategies attempt to appeal to the needs of customers in different
 39

countries or regions, while global strategies attempt to standardize products and marketing to
work across boundaries. Instead of relying on one of these strategies, multinational companies
might adopt a different strategy for different products or services. For example, a company might
use a global strategy for its electronics and a multi-domestic strategy for its appliances.
Critics of the standardization approach argue that it makes two questionable assumptions: that
consumers' needs are becoming more homogenous throughout the world and that consumers
prefer high quality and low prices over advanced features and functions. Nevertheless,
standardized global strategies have some significant benefits. Companies can reduce their
marketing expenditures, for example, if they use the same ads in all their markets. PepsiCo, for
example, uses the same televisions ads in all of its national markets, saving an estimated $10
million a year. Besides marketing savings, global strategies can lead to other kinds of benefits
and advantages in areas such as design, packaging, manufacturing, distribution, customer
service, and software development.
Some people argue that companies must customize their products or services to meet the needs
of various international markets, and hence must use a multi-domestic strategy at least in part.
For example, KFC planned a standardized approach to its foray into the Japanese market, but the
company soon realized it had to change its strategy to meet the needs of Japanese consumers and
customize its operations in Japan. Consequently, KFC introduced smaller pieces of foods to cater
to a Japanese preference, and located restaurants in crowded areas along with other restaurants,
moving away from independent sites. As a result of these changes, the fast-food restaurant
experienced stronger demand in Japan.
The development of regional trading blocs has promoted an emphasis regional strategies as
companies develop plans to take advantage of the conditions within various trading blocs such as
the North American Free Trade Agreement (NAFTA), the European Union, the Asia-Pacific
Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN). In
addition, the United States has signed 16 different trade agreements with South American
countries, creating a foundation for a trading bloc consisting of all North and South American
countries. Consequently, companies have been establishing regional strategies designed around
these trading blocs. Nike, for example, established central warehouses for its European
distribution, just as it has a central warehouse for its U.S. distribution. This strategy has enabled
Nike to reduce its inventory, cut down on redundancy, reduce costs, and enhance availability. In
addition, News Corporation originally relied on a global strategy with its STAR-TV satellite
television network; attempting to provide the same television shows across Asia in English. The
company quickly switched to a multi-domestic strategy, providing programming in local
languages after receiving low ratings and advertising dollars with its first approach.
A variety of corporate collapses, and the revelation of unethical and illegal practices in many
international companies, has led to a focus on Corporate Governance and Ethics in the early
twenty first century. Issues of what constitutes socially responsible behavior are likely to be a
major part of global strategy for the coming years.

Pom

3 cellular processes
 40

Cellular Manufacturing is a model for workplace design, and is an integral part of lean
manufacturing systems. The goal of lean manufacturing is the aggressive minimisation of waste,
called muda, to achieve maximum efficiency of resources. Cellular manufacturing, sometimes
called cellular or cell production, arranges factory floor labor into semi-autonomous and multi-
skilled teams, or work cells, who manufacture complete products or complex components.
Properly trained and implemented cells are more flexible and responsive than the traditional
mass-production line, and can manage processes, defects, scheduling, equipment maintenance,
and other manufacturing issues more efficiently.