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Importance of external factors affecting an organisation

Introduction

In an organisation there are several factors influence the growth and performance of the organisation. There are some factors which are influence the organization can be controlled by the management but some factors are beyond the organisation management control. The factors which are controlled by the organisation known as internal factors and factors which are beyond the management control known as external factors such as Political, economical, social and technical factors. For example apple iphone 4 technology factors affected their business because of the technological problem, FSA regulatory change made on impact to several banks with penalties and fines because of their regulations in not obliged by the financial institution. Therefore the external factors are more important to the organisation performance.

This essay analyses the importance of the external factors and how they affecting an organisation, needs and expectation of different stakeholders of an organisation and due to major changes in external environment how the strategy of the organisation will affect through analysing the TATA Group Organisation in India.

The organisation external environment consists of force and factors that affect the organisation in positively or negatively. Further in detail the external environment consists two categories which specific and general or volatile and non volatile environment. Specific or Volatile environment comprise of four factors which are customers, suppliers, competitors and public pressure groups. These factors directly influence the managerial decision, the organizational goals, structure and targeted groups of customers.

India has the 2nd world largest population in the world next to China. Therefore any of the business will look at these two countries strategy to design their International business strategy to be effective and sufficient to capture the big market. But compare to China, India has more opportunities with the ecological values. It is in the middle of Indian Ocean, the climate of the country, behaviour of the people towards fashion and new technology.

TATA GROUP has operations in every major international market. They have businesses in Africa, Asia Pacific, China, Europe, Middle East, North America, South America and United Kingdom.

Each operating company in the group develops its international business as an integral element in an overall strategy, depending on the competitive dynamics of the industry in which it operates. For some businesses a focus on the domestic Indian market remains the priority. For others it is developing a robust presence in neighbouring markets. And then there are Tata companies, a small but growing number, that have global ambitions.

Exports from India remain the cornerstone of the TATA Groups international business, but different TATA companies are increasingly investing in assets overseas through green field projects such as in South Africa, Bangladesh and Iran, joint ventures in South Africa, Morocco and China and acquisitions.

Acquisitions are crucial component of the global expansion of TATA enterprises. Over the past eight years the group has made overseas acquisitions of $18 billion. Among the bigger deals on this front have been Tetley. Brunner Mond, Corus, Jaguar and Land Rover in UK, Daewoo Commercial Vehicles in South Korea, NatSteel in Singapore, and Tyco Global Network and General Chemical in US.www.tata.com

Indian politics

Political factors involve changes in the global economy and rise in living standards would ultimately imply an increase in demand for products thereby, providing greater opportunities for businesses to make profits. An economy witnesses fluctuations in economic activities. This would imply that in case of a rise in economic activity the demand of the product will increase and hence the price will increase. In case of reduction in demand the prices will go down. Business strategies should be developed keeping in mind these fluctuations. Other economic changes that affect business include changes in the interest rate, wage rates, and the rate of inflation. In case of low interest rates and increase in demand Businesses will be encouraged to expand and take risks. Therefore, business strategies should have room for such fluctuations.

There is a democratically elected government in place in India and that contributes to an ideal political climate for foreign investors

This refers to the changes in government and government policies. Political factors greatly influence the operation of business. This has gained significant importance of late. For example: companies operating in the European Union have to adopt directives and regulations created by the EU. The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. Business must consider the stability of the political environment, government’s policy on the economy etc.

There is a democratically elected government in place in India and that contributes to an ideal political climate for foreign investors.

Cultural considerations: impact on business

These factors are related to changes in social structures. These factors provide insights into behaviour, tastes, and lifestyles patterns of a population. Buying patterns are greatly influenced by the changes in the structure of the population, and in consumer lifestyles. Age, gender, etc all determine the buying patterns and understanding of such changes is critical for developing strategies which are in line with the market situations. In a global environment it is important that business strategies are designed keeping in mind the social and cultural differences that vary from country to country. Consumer religion, language, lifestyle patterns are all important information for successful business management.

The culture of the country is never transparent, yet it extends almost every aspect of life and influences the choices of its people, whether in food, clothing, or cars. Culture also mediates business relationships, whether it is a relationship-intensive joint venture or a less intensive and low-involvement mode of doing business in foreign environment, such as indirect exporting.

According to Aruna.C , Pradeep A en al (2002), for marketing communications to be effective, this physics distance between the seller’s culture and the buyer’s culture needs to be minimized.

Legal systems in India for business

These factors that influence business strategies are related to changes in government laws and regulations. For a successful business operation it is important that the businesses consider the legal issues involved in a particular situation and should have the capability to anticipate ways in which changes in laws will affect the way they must behave. Laws keep changing over a period of time. From the point of view of business it is important that they are aware of these changes in the areas of consumer protection legislation, environmental legislation, health & safety and employment law, etc.

When doing business in India, it is important to realize the existence of some essential economic laws. There are adequate legal systems that favour investors in entering and executing binding contracts. Banking and credit laws provide rules for getting credits and protects investors. Commercial and company laws help starting Business and Protects investors. (http://www.doingbusiness.org/ExploreEconomies/?economyid=89 )

Mintzberg H & Quinn J B (1996) stated that, “Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and noneconomic contribution it intends to make to its shareholders, employees, customers, and communities.”

Customers are people who generate profits for or fulfil the purpose of the existence of the organization. Customers are an important factor as they can help to promote or create awareness of an organization by word of mouth. Hence this equals to free publicity resulting in more profits but no extra dollar spent. The Soup Restaurant thus has to maintain standard of hygiene, improve food quality and service efficiency to generate good publicity. The company is also affected if there is a change in customer’s preference.

Suppliers refer to people or organizations providing funds or labour. Managers need to understand this as a dearth or delay in such supply or inputs can adversely affect the organization.

Technological factors greatly influence business strategies as they provide opportunities for businesses to adopt new innovations, and inventions. This helps the business to reduce costs and develop new products. With the advent of modern communication technologies, technological factors have gained great impetus in the business arena. . Huge volumes of information can be securely shared by means of databases thereby enabling vast cost reductions, and improvements in service. Organisations need to consider the latest relevant technological advancements for their business and to stay competitive. Technology helps business to gain competitive advantage, and is a major driver of globalization. While designing the business strategies firms must consider if use of technology will allow the firm to manufacture products and services at a lower cost. Firms can select new modes of distributions with the help of technology. It has become easier for companies to communicate with their customer in any part of the world.

Expectations of stakeholders of an organisation

Stakeholders include those individuals, groups, and other organizations who have an interest in the actions of an organization and who have the ability to influence it. The stakeholder approach systematically integrates executives' concerns about organizational strategy with the organization's interests in marketing, human resource management, public relations, organizational politics, and social responsibility. This integrative perspective assumes that an effective organization strategy requires consensus from a plurality of key stakeholders about what it should be doing and how these things should be done. By assessing each stakeholder's potential to threaten or to cooperate with the organization, managers' may identify supportive, mixed blessing, non- supportive, and marginal stakeholders. The 1989 strike at Eastern Airlines illustrates these different types of stakeholders. An analysis of the case underscores the importance of four generic strategies for managing different stakeholders. The case also demonstrates that executives should use an overarching strategy to change relationships with stakeholders from less favourable categories (e.g., non supportive) to more favourable ones (e.g., mixed blessing)

Changes in the external environment & strategy

Roland Berger Strategy Consultants, one of the largest strategy consultancies in the world, and Tata Strategic Management Group (Tata Strategic), the largest Indian owned management consulting firm in South Asia, have today announced an alliance.

This alliance combines Tata Strategy’s unrivalled understanding of the Indian market with Roland Berger’s experience in international markets, to provide a complete range of services to clients in India and overseas. This is the first formalized cooperation between a major international strategy consulting firm and a domestic consultancy in India.

This alliance will enable both firms to offer Indian companies new high-end services requiring specialized or international experience. The alliance will support international firms in their expansion plans in India and large Indian firms planning to develop in Europe, China and Japan. The two companies will also seek to jointly develop new markets, including West Asia, South-East Asia and Africa. (www.tata.com/tataworldwide/index.aspx?sectid )

Diversification Strategies: In diversification Strategy, Mintzburg H & Quinn JB(1996) mentioned as, “Diversification refers to the entry into some business not in the same chain of operation. It may be related to some distinctive competence or asset of the core business itself (also called concentric diversification); otherwise, it is referred to as unrelated or conglomerate diversification”.

Strategic acquisition for new business entry:

Tata Strategic recommended a buy option based on a very strong strategic fit with the client’s aspiration to be the No 1 private telecom services provider in India. An attractive acquisition price was arrived at based on a detailed build versus buy analysis.

The client won the acquisition bid by a thin margin and is now a leading telecom operator offering integrated services in the Indian market. (www.rolandberger.com/news/ & www.icmrindia.org/casestudies/catalogue/Business Ethics/)

IT and Innovation strategy

Lynch R (2006) says, “Innovation contributes growth, competitive advantage and the possibility of leapfrogging major competition. However, innovation can be risky and can result in major company losses”.

There are two major drivers for innovation: customer needs analysis often called market pull and technology development analysis often called technology push.

Also Lynch R (2006) says that, “Disruptive innovation takes an existing market demand and identifies existing technologies that will offer simpler, less expensive products or services than have been offered previously”.

Innovation and Information Technology (IT) advancement has been one of the major strategies that India companies have used to achieve global dominance in over 110 countries. According Kumar (2001) the Indian software industry for example recorded a massive compounded annual growth rate of over 50 percent in the 1990s from estimated total revenue of US$ 175 million in 1989/90 to US$5.7 billion industry by 1999/2000. In this period, the industry recorded 70% rise in revenue from exports totaling us$4 billion.

Kumar (1997) identified the government of India’s deliberate policy of facilitating smart-partnerships between local and foreign companies in developing the industry. The TATA group has taken advantage of this policy and in its global expansion it has prioritized innovation as a key to its growth. The following have been TATA’s specific strategies:-

1. Prioritization of Innovation as the Key Driver for Success

A number of initiatives have been launched by the company to spread the message of innovation and recognize innovators:

Tata Group Innovation Forum (TGIF): This initiative aims to bring together a community of ‘innovation enthusiasts’ from across Tata companies. The main role of TGIF is to assist different companies in experimenting with ideas, propagate the relevant ones and spread them through the enterprise.

Innovation workshops: The group’s Quality Management Service invites experts to talk about various aspects of innovation and share best practices with Tata managers. Clayton Christensen, Langdon Morris and David Wittenberg are among those who have held such workshops in the recent past.

Tata Innovation Day: The Company has created an annual innovation day which aims to encourage creative thinking and awards innovation among Group companies.

2. Partnering with top universities

Kumar (2001) argues that one of the strategies the company has been using is to partner with top universities such as Harvard Business School, INSEAD, CEDEP and Michigan Business School in research to develop new technologies and innovation to drive its business in India and internationally. The Tata Group has been investing in building outstanding research facilities and forging partnerships with academic and research organizations which have encouraged creative thinking and find innovative solutions that improve the quality of their products.

The Nano car is one example, of a project which has been done in with the collaboration with academic institutions as is the Eka supercomputer (developed by another Tata company), which in 2008 was ranked the world’s fourth fastest. Anchored in India and wedded to traditional values and strong ethics, Tata companies are building multinational businesses that will achieve growth through excellence and innovation, while balancing the interests of shareholders, employees and civil society.

3. Use of Joint Ventures: Huchet J. F and Ruet .J (2006) argue that as means of capturing and keeping abreast to global technological advancement and trends, TATA has entered in joint ventures with international companies. By this TATA argues that a lot of skills and expertise has been transferred into the company. Examples of joint venture initiatives by the company are as follows:-

TATA Motors: the company has created ties with the Institute of Engineering, SPA (Italy), nachi Fujikoshi Corporation (Japan), Le Moteur (France), and Robert Bosch GmbH (Germany). Others are Cummins Engine Company Inc (USA) for TATA Cummins, Holset Engineering Company (UK) for TATA Holset, and TATA precision Industries (Singapore), Nita Company (Bangladeshi).

TATA Auto Comp Systems: Technology tie-ups with Chuo Spring Company (Japan) and Menzolit Fibron (Germany).

In the construction industry it has partner with Hitachi Construction Machinery Company (Japan), John Deere (USA) and Pauling & Harneishfeger (USA).

TATA Info tech: For the development of information systems it has formed alliances with Unisys, Compaq, Sum Systems, IBM, CISCO, Baan, Oracle, Tandem, Microsoft, MapInfo and Unilpex.

TATA Technologies: This Company has partnered with SAP Asia systems, Microsoft Corporation, Compaq Corporation, structural Dynamics Research Corporation, Knowledge Technologies International, Sage International Asia Pacific, IBM Corporation and Oracle to improve technology in the TATA group. Huchet, J. F & Ruet .J (2006), Kumar, N (2001),

Productivity and Marketing Strategy:

With the large population size of India, investors will find cheap labour and gain greater economies of scale and increase productivity.

Tata’s strategy is mainly focused on creativity and finding solutions for the complex problems faced by CEO. Tata is also mainly focused on needs of the client by offering improved and differentiated products. Tata focus on the client needs and productivity is designed according to its needs and wants.

Labour productivity :- Tata used a unique strategy in controlling the labour by allocating roles , responsibilities and activities to all the four categories of workers such as white collar , permanent ,daily labours , contract workers across departments .By introducing this strategy it can find out whether the activities performed added value or not and several productivity improvement techniques in order to reduce manpower (http://tsmg.com/resources/case-profiles-service-offerings/productivity-improvement.html)

Productivity in quality assurance: - Tata used four main strategies in order to meet the client’s objectives and goals. It is done by upgrading skill and knowledge in order to fill the gap of crucial area .So this is done by adding more manpower that are qualified and efficient. New rules and responsibilities should be redefined for the quality assurance of the product then only the employee will focus on the long term product and process improvement. Manpower is reduced by using the modern technology by upgrading the technology. (http://tsmg.com/435-productivity-improvement-in-quality-assurance.html)

Innovative Marketing Strategy:

Armstrong/Kotler (2005) argues, “The principle of innovation marketing requires that the company continuously seek real product and marketing improvements. The company that overlooks new and better ways to do things will eventually lose customers to another company that has found a better way”. Armstrong/Kortler (2005).

Marketing strategies of Tata:-Tata is focusing on latest technologies and innovation to drive its business in India and internationally. For example nano car introduced by Tata, Tata motors strategies which are not used in an adventurous to media outlets but to use them in an adventurous ways. Tata didn’t implement any television campaigns instead they mostly relied on innovative use of printed media, radio spots and the internet. . (http://www.examiner.com/x-10914-Indianapolis-Internet-Marketing- Examiner~y2009m6d14-Marketing-strategies-of-Tata-Motors-made-public)

Strategic Analysis/SWOT Analysis

Thompson, A. A & Strickland A J (2003) pointed out swot analysis as, “It is always incumbent on management to evaluate the organization’s performance and progress. It is management’s duty to stay on top of the company’s situation, deciding whether things are going well internally, and monitoring outside developments closely. Subpar performance or too little progress, as well as important new external circumstances, will require corrective actions and adjustments in a company’s long-term direction, objectives, business model;, and/or strategy”. Thompson, A. A & Strickland A J (2003 p19-20).

Mintzberg, H. & Quinn J. B (1996 ) mentioned ,“The implementation of strategy is comprised of a series of sub-activities which are primary administrative. If purpose is determined, then the resources of a company can be mobilized to accomplish it.” Mintzberg, H. & Quinn J. B (1996 p49).

SWOT Analysis: Lynch R (2006) argues the swot analysis in this way too. “This is an analysis of the strengths and weaknesses present internally in the organisation, coupled with the opportunities and Threats that the organisation faces externally”. and “Generic strategies are the three basic strategies of cost leadership, differentiation and focus (sometimes called niche) open to many business”.

The main strengths of the Tata Group are resources and capabilities (People and Raw Material), vast experience (Steel and Automobile) and the business model. The opportunities are the new markets, exports and acquisitions. The group requires overcoming the weakness; such as distribution, value chain innovation and macro environment, in order to serve the global markets with high quality and low price. Within the home country the threats are developing due to the India’s recent mergers of global markets and in global markets.

STRENGTH

Experience

Micro Environment

Business model

Resources and capabilities

Culture

WEAKNESS

Value Chain

Distribution

Macro Environment

OPPORTUNITIES

Export

New products

New Markets

Acquisition and Mergers

THREAT

Free Market

Law barriers

Globalization of Economy

Source:Johnson G., Scholes K., and Whittington R; (2005) ,http://www.tsmg.com

Conclusion:

TATA Group has taken advantage of these opportunities in India and have expanded in India and grown worldwide. Tata has benefited from large cheap labour available in India and have enjoyed greater deal of economies of scale and increased productivity. It has applied innovation strategy successfully to capture a greater share of the India market.

India has adequate legal regulations that protect investors and government liberalization policies for foreign investors which make India economy potentially safe for international companies to enter.

With the size of population and the growth rate of India economy, India’s requirements will exceed tens of billions of dollars in the years ahead therefore it would be prudent if companies adapt the India strategy and enter the market with the right products, services, and commitment.

Base on the successes of TATA Group and the large total trade between US and India in 2008 of $63.63 billion, we can conclude by agreeing that “No large international business can afford to do without the India Strategy”.

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