Small to medium sized business

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Executive Summary

A small to medium sized business considers its business venture into the GCC's area, Gulf Cooperation Council, State of Qatar. The business is a growing oil company and is considering this area due to its recent expansive growth and its large area of resources readily available for exploration, processing, and exporting. This review will detail the processes and aspects to consider to help the company make a better decision about entering the market. The business will need to make strategic decisions and formulate a strategy for entering the market so an analysis of strategy, strategic management, and key international business factors will need to be analyzed and considered. Lastly, the report will make recommendations on entering the area, the method and mode of entry, and key business areas to focus on such as trade and exporting.


Introduction

This report will detail the advise the small business on its potential first business entry into the State of Qatar, which is one of the Gulf Cooperation Council (GCC) based countries. This report will identify challenges and opportunities of embarking on such a business venture and detail the possibility of proceeding. The report will strategically analyze the general business environment, the oil industry sector, the GCC, and advice on how to enter the market successfully. First it is important to understand strategy and strategic management as two such core aspects must be understood as they will be the fundamental backbone of considering such a business venture. Once these principles are understood, an analysis can be conducted using several strategic management tools. We will analyze the GCC, the means of international trade, provide several strategic management tool reviews, and provide recommendations on proceeding.


Gulf Cooperation Council

The cooperation exists to, "effect coordination, integration and inter-connection between Member States in all fields, strengthening ties between their peoples, formulating similar regulations in various fields such as economy, finance, trade, customs, tourism, legislation, administration, as well as fostering scientific and technical progress in industry, mining, agriculture, water and animal resources, establishing scientific research centers, setting up joint ventures, and encouraging cooperation of the private sector" (GCC, 2010). It is important to consider the above statement when determining the possibility of entering one of the associated states within this cooperation, the State of Qatar. The council will indeed help in such move, however, it does have policies and procedures that will need to be followed. As a potential business venture, the company must consider these policies and adopt them as standards for its organization within this area.

The GCC area is a premier area for business ventures in the oil industry. Goldman states, "As is commonly known, the GCC region is exceptionally well-endowed with crude oil and natural gas reserves and, as such, it will continue to play a crucial role in global energy production in the coming decades. (Goldman, 2010). Goldman goes on to state, "The key question is whether this potential will be realized or not. We believe that important challenges will have to be overcome, and we also see certain macroeconomic and institutional weaknesses that could undermine the region's long-term growth potential. However, we believe that, with some effort and good economic management, the region can make a leap forward and emerge as one of the most prosperous regions of the world in the coming decades" (Goldman, 2010).


Strategy and Strategic Management

Strategy can be defined as "the art, science and craft of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives. It is the process of specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs" (Business Intelligence, 2009). Strategic management aligns the different business functions and organizational objectives into a solid company changing plan. "Strategic management is the highest level of managerial activity. Strategies are typically planned, crafted or guided by the Chief Executive Officer, approved or authorized by the Board of directors, and then implemented under the supervision of the organization's top management team or senior executives. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies" (Business Intelligence, 2009). Strategy and strategic analysis coupled with strategic change are important aspects that help an organization reach its goals. If a company can methodically design its strategy to align its business objectives with its operational objectives, the company should be able to offer something better than its competitors. This could be cheaper overhead costs, better operational or production efficiency, higher safety ratings, lower turnover rates, and much more. Ideally, a company or organization has achieved a competitive advantage when it makes more profit that its competitor in the same market. Using strategy to help obtain this can not only help a firm reach a competitive advantage, but help it sustain a competitive advantage. For this business, analyzing the GCC, the surrounding area, and the possibilities for trade and exporting are key factors to formulate strategy and create a sustainable competitive advantage.


International Trade

A key part of the decisions to enter the State of Qatar is the understanding of international trade. As a strong business opportunity is presenting itself in proceeding into this region a key financial backing in the oil industry is that of exporting and international trade. The dictionary definition of free trade states it as a policy of allowing people of one country to buy and sell from other countries without restrictions. There are two basic ways to provide protection to domestic import-competing industries; a tariff or a quota. The choice between one or the other is likely to depend on several different concerns. One concern is the revenue effects. A more common purpose of tariffs is protection against foreign competition. By raising prices of imported goods relative to the prices of domestic goods, tariffs encourage consumers to buy domestic rather than foreign products. An ad valorem tariff is a set percentage of the value of the good that is being imported. Sometimes ad valorem tariffs are problematic because when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. A specific tariff is a tariff of a specific amount of money that does not vary with the price of the good. A revenue tariff is a set of rates designed primarily to raise money for the government. A protective tariff is intended to artificially inflate prices of imports and "protect" domestic industries from foreign competition. A prohibitive tariff is one so high that no one imports any of that item.

Public choice also affects the choice between production subsidies, import tariffs and import quotas as ways to protect import competing industry. The welfare loss per unit of protection to the protected industry from quotas generally exceeds that from tariffs which exceeds that from subsidies. Thus consumers should rank the three policies in the indicated order. Home producers, people that would like protection, are aware that quotas are less visible than subsidies or tariffs, and consequently are likely to rank quotas above the other two. Those who benefit from government spending are likely to prefer the revenue raising tariff to the neutral quota, and both are preferred to the revenue absorbing subsidy. The strategic trade policy argument states that although competition exists in the world, its not perfect, therefore governments should intervene and shift excess returns from foreign to domestic firms.

Too often can economic vulnerabilities cause issues with trade protectionist laws. Maruqardt states, "The economic vulnerabilities exploited through current free trade practices have helped to further widen the gap between the rich and the poor in the decade of the 1990s. An International Monetary Fund assessment showed that "the relative gap between the richest and the poorest countries has continued to widen." Despite pleas from poor countries, current trade practices show no sign of abating. The election of the Bush administration brought hope to many free trade theorists that the administration would work to severely limit subsidies to local industries and push a free trade agenda on the world. Instead, the administration verbally came out in favor of free trade, while in practice took actions that amounted to monumental violations of the free trade theory" (Marquardt, 2003).

First of all, it is important for us to establish what the theoretical gains from free trade are, and we will do so by taking a closer look at the principle of comparative advantage. According to Ricardo, a country has a comparative advantage in the production of a certain good or service when its opportunity cost of producing that particular good or service is lower than in other countries. Therefore, if countries all focus on their productive efforts in activities that they possess comparative advantages in and trade, the total world output of these goods and services will increase and all countries will become better off through trade as their consumption possibilities will be expanded. Furthermore, participating in international trade exposes domestic producers to more competitive pressure than faced internally, and this could lead to greater efficiency of domestic firms through reorganizations and innovations. Technological diffusion between trading partners can also contribute to the innovative process, and in turn boost economic growth of the countries that are open to free trade. Furthermore, regular communications among countries will allow more opportunities for cultural exchange and learning, and this can be highly beneficial in promoting greater understanding between disparate nations with historical feuds. Conversely, restricting free trade will only lead to new policies that lead to retaliation between nations and more protection.


Strategy Formulation and Approaches

As stated with the previous recent challenge facing Gulf Cooperation Council, the need for appropriate strategic planning and strategy formulation is required. There are several processes that can be performed to formulate strategy. Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental. Concurrent with this assessment, objectives are set. These objectives should be parallel to a timeline; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.


Strategic Management Tools

A SWOT analysis is generally the most accepted tool used for making strategic decisions. A SWOT analysis is generally used in decisions about the direction a company is taking. It is a tool also used regularly to develop a strategic plan for an organization. The major focus of SWOT analysis is to 'recognize opportunities and avoid threats, while weighing an organizations strengths and weaknesses' (Morris, 2005, p53). It has also been explained that it 'achieves correct interaction of business management with its internal and external environment' (Mayer, 2008, p36).

Another key tool in strategic management decisions is the balanced scorecard. "The Balanced Scorecard has become a widely known management tool and recent surveys have indicated that many organizations use, or intend to use, the Balanced Scorecard" (Chan & Ho 2000; Speckbacher et al. 2003). "Since the introduction of the balanced scorecard (BSC) by Kaplan and Norton in 1992, it has become very popular among academics and practitioners. Many organizations, both in the private and public sectors, have embraced the concept and implemented it in an attempt to improve performance" (Chan & Ho 2000; Hoque & James 2000; Ittner & Larcker 2003). The company can utilize the balanced scorecard to consider its current business objectives to see if a business venture into the State of Qatar is feasible and if doing so would create profits and a competitive advantage.


Balanced Scorecard

The Balanced Scorecard has become a widely known management tool and recent surveys have indicated that many organizations use, or intend to use, the Balanced Scorecard (Chan & Ho 2000; Speckbacher et al. 2003). Since the introduction of the balanced scorecard (BSC) by Kaplan and Norton in 1992, it has become very popular among academics and practitioners. Many organizations, both in the private and public sectors, have embraced the concept and implemented it in an attempt to improve performance (Chan & Ho 2000; Hoque & James 2000; Ittner & Larcker 2003).

Customer Perspective

The customer perspective addresses the question of how the firm is viewed by its customers and how well the firm is serving its targeted customers in order to meet the financial objectives. In the customer perspective of the balanced scorecard, managers identify the customer and market segments in which the business unit will compete and the measures of the business unit's performance in these targeted segments. These segments represent the sources that will deliver the revenue component of the company's financial objectives.

Internal Business Process

Internal business process objectives address the question of which processes are most critical for satisfying customers and shareholders. These are the processes in which the firm must concentrate its efforts to excel. Objectives and measures for this perspective are typically developed after formulating objectives and measures for the financial and customer perspectives to enable companies to focus their internal business process metrics on those processes that will deliver the objectives established for customers and shareholders.

Innovation

The innovation process highlights the importance of, first, identifying the characteristics of market segments that the organization wishes to satisfy with its future products and services, and, then, designing and developing the products and services that will satisfy those targeted segments. This approach enables the organization to put considerable weight on research, design, and development processes that yield new products, services, and markets.

Operations

The operations process represents the short wave of value creation in organizations. It starts with receipt of customer order and finishes with delivery of the product or service to the customer. This process stresses efficient, consistent, and timely delivery of existing products and services to existing customers. It remains important and organizations should identify the cost, quality, time, and performance characteristics that will enable it to deliver superior products and services to its targeted current customers.

The Learning and Growth Perspective

The fourth perspective of the balanced scorecard, learning and growth, addresses the question of how the firm must learn, improve, and innovate in order to meet its objectives. It identifies the infrastructure that the organization must build to create long-term growth and improvement. The enablers for learning and growth come primarily from three sources: people or employees, systems, and organizational procedures.


Firm Level Factors

Firm level factors can have an affect on a organization's strategy as each factor does play a contributing role to its formulation. Hardy, Currie, and Ye state, "Having gained entry through brownfield or greenfield acquisition, ABB had to effect changes in or accommodate to the deep-rooted informal institutions inside the workplace. This can be understood either at the general level of collective understandings about the conduct of business in the locality or in the behavior, routines and norms in the workplace of SOEs" (Hardy, Currie, and Ye, 2005). Such firm level factors include the staff, or internal customers, office setup and technology, wages, benefits, or other financial aspects. Many organizations implement organizational strategy changes to influence or affect the firm level factors in the company. Many leaders of such change attempt to align the organization's internal environment along with its business objectives. This was discussed in depth by Mazzucato and her argument about organizational change. It is very insightful to understand the concept of change and to do so skillfully and carefully so that its successful. Too often companies implement organizational change (culture, strategy, etc) in hopes of aligning the company better with its business initiatives, only to get resentment from the employees and become even more negative than the company was before. "Rapid and continuous change is one of the leading causes of...negativity. It is not the change itself, but rather how the companies introduce and manage the change..."(Tophick, 2000, 95). Sometimes employees resent the change out of feat of the unknown or new processes that will come. "For many of us our fear of our weaknesses seems to overshadow our confidence in our strengths" (Buckingham and Clifton, 2001, 56).

Lastly, one must consider that change occurs as a result of evolution and innovation through time. As Grant details in chapter 5, industries adjust, evolve, and change over time. This indeed can be equated to the industry life cycle and an organization's strategy must change as well to compliment and enhance its strategy as the company changes. "As more and more sophisticated work takes place interactively online and new collaboration and communications tools emerge, companies can outsource increasingly specialized aspects of their work and still maintain organizational coherence. Much as technology permits them to decentralize innovation through networks or customers, it also allows them to parcel out more work to specialists, free agents, and talent networks" (McKinsey, Roberts, and Sprague, 2007).

Analyzing every detail, formulating a strategy plan which aligns with the company's objectives, and implementing the change was not only required, but was done so successfully. A key factor in implementing the change is that of employee attitudes and negative reactions to the change. It is important when changes are taking place within an organization is the staff and their attitudes toward the ongoing workplace transition or structural change. Meeting the expectations of the employees will be spotlighted. The expectations are frequently based on past and unspoken expectations and these will dominate attempts to renegotiate the employment relationship. "The organizational challenge is described as how to maintain employee commitment and performance standards at the same time as implementing changes in services and resources" (Harris & McGrady, 1999). Attitudes could be defined as an individual's certain feelings, thoughts and behavior towards an object. Attitudes toward change in general consist of the individual's feelings about, reactions to, and behavioral tendency toward change. This means that the individual could either be positive toward the change and thereby support it, or have a negative attitude toward the change and thereby resist it.

Previous findings indicate that about 70 per cent of all change initiatives fail, with resistance to change as the main reason (Vakola & Nikolaou, 2005). This implicates that the implementation of a strategy or structural change might meet obstacles from within the company, actually from those that are bound to carry it out. Several studies also suggest that the organizational change efforts could result in stressed employees, which could have a negative effect on factors as performance, job satisfaction, quality and service. According to Kraatz and Zajac (2001) it is also possible to view the human resource endowments as an asset that can actively promote a strategic change. From this point of view, the organization consists of numerous and various resources that have a great capacity in innovative changes. Due to the great capacity within the organization, the experience becomes important. Thus, marketing expertise, financial funds, research and development capability, production capacity and general management experience can all be considered as important facilitators of strategic change.


Environmental Factors

The environment of the company can also be divided in two broad categories depending upon the level of influence exerted by the environment. Some aspects of the environment can be classified as the immediate or close environment of the firm. Such close environment has more impact on the firms operating within this environment, as compared to impact it has on other firms. Factors outside their close environment constitute the general environment impact all forms in the environment equally. The close environment consists of entities like the industry within which the the firm operates, the competitors, suppliers and the customers. A key element in the external environment is that of overall globalization and politics. Keohane and Nye state, "Globalization shrinks distance, but it does not make distance irrelevant.And the filters provided by domestic politics and political institutions play a major role in determining what effects globalization really has and how well various countries adapt to it" (Keohane and Nye, 2000).

Industry specific factors, closely related to environmental factors, can have an influence on a company's strategy. Aspects of production or operating costs for its goods or services produced can have a direct effect on the firm's offerings. As an example, consider the automotive industry. Fuel costs can rise, fall, or level out. Automobile manufacturers can formulate strategy to help trim costs when fuel costs are high or analyze methods for using alternative fuels. Another industry to analyze would be that of the current US fishing industry. The current Gulf oil spill has a direct affect on the countries fishing industry and its estimated that due to the less available product that fish prices are going to rise. A seafood restaurant will see this cost and need to formulate strategy to accommodate the rising costs and still maintain profitability. A company that does this well can obtain and sustain a competitive advantage of its competitors and therefore ultimately help increase its bottom line. Other industry specific factors such as oil supply, demand, importing and exporting are to be considered. A business must consider other area competitors and countries as a means of considering its venture. "The shift in comparative advantage will not take place in one go but will occur gradually. As China and India move up the productive hierarchy through progressively more sophisticated export activities, this will create an opportunity for other developing countries to expand their labour intensive exports to the rich countries" (Rowthorn, 2006). WTO states, "the notion that trade, investment, and the growth of business detracts from non-economic facets of human rights is the contrary of the truth" (WTO, 2004).


Conclusion and Recommendations

This report has detailed several aspects to consider in the business venture into the State of Qatar. Specifically the report has analyzed the need for understanding strategic and strategic management as these are the foundation to considering such an opportunity. Utilizing strategic management tools, such as the PESTEL and SWOT analysis the results show that the region and GCC are favorable to proceed with the business venture. The area is politically developed and has economic stability. With its rich and vast amount of oil resources, a business venture in this area would definitely be worth proceeding. There are numerous benefits that outweigh any potential issues in proceeding with early market entry as there are few pioneering costs in this industry and area and would therefore allow you to make substantial profits in the beginning stages. Being that this review is for a small to medium sized business, it is important to consider a small scale entry as it does reduce exposure risks and allows you to consider partnerships and other strategic decisions that will help you obtain and sustain a competitive advantage. Along with a small scale entry, the business should consider a non-equity mode of entry. This allows the company to focus on exports and other contractual agreements. This also allows the company to focus strategically and allows for continued growth. In reviewing the report, the company should be able to make an informed decision about the great possibility of entering the State of Qatar market. Proceeding would be a wise and sound, yet strategic business decision for the company, and doing so with the proposed methods, allows the company to create and sustain a competitive advantage.


References

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