Q1) Define the concept of Business. Discuss the characteristics of business. 4+8

A1) Business refers to the economic activity conducted by human beings for production and distribution of goods/services in order to earn profits The concept of business consist of three elements i.e. production, distribution and sale of goods/services to earn profit. Some examples of such elements are-

Thus the term "business" refers to the organized efforts and activities of people to produce and sell goods and services for profit.

Figure: Concept of business

The following are the important characteristics of a business:

Business is an economic activity of concerned with creation of utilities for the satisfaction of human wants through production and distribution of products and services. It provides employment opportunities in several sectors like banking, insurance, transport, industries, trade etc.

2.  Buying and Selling:

The basic activity of any business is trading. The business involves buying of material, plants and machinery, stationary, property etc. On the other hand, it sells the finished products to the consumers, wholesaler, retailer etc.

3.  Continuous process:

Business is continuous process of production and distribution of goods and services. A business should be conducted regularly so as to grow and gain regular returns. Business should continuously involve in research and developmental activities to achieve competitive advantage.

4.  Profit Motive:

The primary goal of a business is to earn profit through the production and sale of goods and services. Profit acts as a driving force behind all business activities. Profit is required for survival, growth and expansion of the business.

5.  Risk and Uncertainties:

Business is exposed to two kinds of risk like market risk, risk of loss, fire theft, competition, change in environment, obsolescence etc.  Some of such risks are insurable and some of them are non-insurable. Thus the business organisation should take appropriate steps to identify and manage such risks associated with the business.

6.  Creative and Dynamic:

A business should start with creative and innovative ideas, approaches and concepts for production and distribution of goods and services. This uniqueness helps them to capture the market share and survive in the market. The online shopping sites like Flipkart, Amazon etc. are booming continuously because it makes easier for busy customers to buy variety of products without going to the market.

7.  Customer satisfaction:

The phase of business has changed from traditional concept to modern concept. Now a day, business adopts a consumer-oriented approach. Modern business believes in satisfying the customers by providing quality product at a reasonable price. It emphasizes not only on profit but also on customer satisfaction.

8.  Social Activity:

Business may be a socio-economic activity. Both business and society are interdependent. Modern business runs within the area of social responsibility. Business has some responsibility towards the society and successively it needs the support of various social groups like investors, employees, customers, creditors etc. by making goods available to various sections of the society, business performs a crucial social event and meets social needs. Business needs support of various section of the society for its proper functioning. The business organisation spends a part of their profit in social welfare activities of locality.

9.  Government control:

Business organizations are subject to government control. They need to follow certain rules and regulations enacted by the government. Government ensures that the business is conducted for social good by keeping effective supervision and control by enacting and amending laws and rules from time to time. Some important acts framed by the government include:

10.   Optimum utilisation of resources:

Business facilitates optimum utilisation of material and non-material resources and achieves economic progress. The scarce resources are delivered to its fullest use for concentrating economic wealth and satisfying the requirements and needs of the consumers. India favours labour intensive business and industries due to abundance of human resources. Thus India implemented the schemes like skill India, made in India etc. to utilise the human resources.

Q2) Discuss the functions of management.      5

A2) For the smooth functioning of business, there is a need to perform the following functions:

Figure: Functions of business

The Production function undertakes the activities necessary to produce the products or services. Its main responsibilities are production planning, scheduling control, supervision of the production workforce and managing product quality.

2.  Research and Development function:

The Research and Development (R&D) function is concerned with developing new products or processes and improving existing products/processes. R&D activities must be closely coordinated with the organization's marketing activities to make sure that the organization is providing exactly what its customers want within the most efficient, effective and economical way.

3.  Marketing function:

Marketing is concerned with identifying and satisfying customers' needs at the right price. Marketing involves researching what customers want and analyzing how the organization can satisfy these wants. Marketing activities is concerned with the selection of product markets, producing literature like product catalogues and brochures, placing advertisements within the appropriate media and so on. A fundamental activity in marketing is managing the Marketing Mix consisting of the ‘4Ps’: Product, Price, Promotion and Place.

4.  Human Resources function:

The Human Resources function includes with the following:

5.  Finance function:

The Accounting and Finance function is concerned with the following:

6.  Sales function:

In large firms the sales activities are performed by the sales division. The sales department works in close coordination with the marketing department. The sales department is concerned with the selling activities of the firm. It receives or book orders from dealers or customers, then distribute the products through the channel. The sales department may need to undertake follow up of sales, special in the case of durables or industrial goods.

7.  Public relations:

There is a need to maintain good relation with the public. Therefore, it makes a good sense to maintain separate department to look after public relations, especially in big organizations. It is the work of the PR department to manage corporate image of the firm and to develop quality relations with the various section of the society.

8.  Inventory management:

Inventory management refers to the management of inventory such as raw materials, semi-finished goods, finished goods and other items of inventory. It involves the following activities:

Q3) Discuss briefly the scope and significance of management.              12

A3) The scope of business is extremely broad. It covers a large number of activities which can be looked into from two perspectives, namely: Industry and Commerce.

(A)   Industry: The activities of extraction, production, conversion, processing or fabrication of products are described as industry. These products of an industry may fall into any one of the types:

2.  Secondary Industries: Secondary industries include the followings as listed below:

Figure: Structure of industry

(B)    Commerce: Commerce refers to all the activities from the point of production to the point of sale. It covers wholesale, retail, import, export trade and all those activities which facilitate or assist in such buying and selling like storing, grading, packaging, financing, transporting, insuring, communicating, warehousing, etc. The most functions of commerce is to get rid of the hindrance of

(i) persons through trade.

(ii)    place through transportation, insurance and packaging.

(iii)  time through warehousing and storage.

(iv)  knowledge through salesmanship, advertising, etc. arising in reference to the distribution of products and services until they reach the ultimate consumers.

The concept of commerce usually covers two important areas:

(i) Trade: The term trade refers the act or process of buying, selling, or exchanging commodities, at either wholesale or retail, within a rustic or between countries. It is also the process of transferring of products and services. It is the central activity around which the ancillary functions like banking, transportation, insurance, packaging, warehousing and advertising are surrounded. Trade are often categorized into two classifications:

(ii)    Service businesses: These are usually considered Aids to Trade. There are certain function like banking, transportation, insurance, ware-housing, advertising, communication, etc. which constitute the main auxiliary functions helping trade both internal and international. These auxiliary functions are discussed below:

Figure: Elements of commerce

Q4) Distinguish between traditional and modern concept of business.  5

A4) The concept of business changes over a period of time. The traditional concept of business mainly focuses on production, distribution and sale of products/services. But the modern concept of business also considers customer satisfaction along with the traditional approach. Some of the basic differences between traditional and modern business are-

Q5) Discuss the steps involved setting up of business objectives.           5

A5) The steps involved in formulating business objectives are highlighted in the following figure-

Figure: Business objectives setting process

1)  Analyse Internal Environment:

An analysis of internal environment helps in fixing realistic Objectives. Internal environmental factors include human resources, financial resources, physical facilities, management structure, internal relationship etc. must be studied. Such an analysis helps in understanding strengths and weaknesses of the organisation. The Organisation has to make every possible effort to correct weaknesses and to boost the strengths of the organisation.

2) Analyse External Environment:

The Organisation also has to analyse the external environment. It includes customers, suppliers, competitors, political, economic, social, technological and natural and so on. Such an analysis reveals the opportunities and threats created by the environment such analysis would help the organisation to grab the opportunities and to attenuate or defuse the threats.

3) Awareness of past Objectives:

Past Objectives and achievements of the organisation serve as guidelines for formulating future objectives. Normally an organisation doesn't deviate an excessive amount of from the past objectives while setting objectives.

4) Setting of objectives:

After analysing the interior and external environment, the firm should set the objectives in all the areas. Long term and short-term objectives must be set. Further, these must be set on the basis of priority. Once the objectives are decided, it must be informed to the all personnel.

5) Implementation:

After setting objectives, the management must plan and implement the goals. Implementation involves:

6) Review:

There must be periodic review of activities. This might assist the firm to seek out whether the listed objectives are targeted or not, if any deviation takes place, corrective measures can be taken immediately including resetting of the objectives.

Q6) Discuss briefly the economic objectives of business.       5

A6) The main economic objective of business is profit. The important-economic objectives of business are as follows:

1)  Profit: The main economic objective of business is to earn profit and is necessary for survival, growth and prestige of an enterprise. Profit is an indicator of business performance and a sign of efficiency. It is a reward for bearing risk and uncertainty in business.

2)  Creation of Wealth: Creating wealth involves increasing the wealth of the shareholders. It happens as long as the business grows steadily whereby the shareholders get higher dividends and there is an appreciation in the market price of the shares.

3)  Creation of Customer: The target of the business should be to identify the customer for their goods and services. This needs creation of customer in the market and distributes goods and services.

4)  Innovation: Innovation refers to introduction of latest ideas or new methods of production. Innovation plays an important role in increasing the competitive strength and improving the image of business enterprise in the mind of consumers.

5)  Optimum Utilisation of Resources: Resources available with the business are generally limited. So, every business enterprise aims to make best possible use of physical, financial and human resources. This objective can be achieved through –

(a) Employing efficient and competent work force

(b) Making full use of installed machinery

(c) Minimizing wastage of materials.

Q7) Discuss the social objectives of business. 5

A7) Business is an integral a part of society. Following are the social objectives of business:

1)  Social Objectives towards Customers: The Survival and success of any business concern depends on its consumers. One universally accepted social objective of business is to satisfy consumers by providing goods and services as per their needs and expectations. Business activities are essential for meeting the requirements of consumers.

2)  Social Objectives towards Employees: The Social Objective of a business concern towards its employees is to treat them with respect and provide them with the right compensation and facilities. Business should provide better wages, working conditions, good treatment to the workers. It also provides monetary and non-monetary benefits for satisfaction of the workers. This also ensures industrial peace and harmony.

3)  Social Objectives towards shareholders: Shareholders invest their money in the business in the form of shares, debentures bonds etc. the essential objective is that the shareholder should receive a good, return on their investment. The target of the business is to utilise efficiently the capital of the shareholder and provides them fair return on their investment in the form of dividend and interest.

4)  Social Objectives towards Government: A business can’t function smoothly without the support and co-operation of the government. Hence, it becomes necessary on the part of the organization to satisfy its social duties towards the government. These include payment of taxes and duties, following the principles and regulations framed by the government from time to time, contributing towards the welfare activities of the government and so on.

5)  Social Objectives towards Suppliers: The suppliers can play a crucial role in the success of an organization by Supplying the right quality and quantity of material at the correct time. Therefore, a business concern needs to have social objectives towards supplier in respect of timely payment of dues.

6)  Social objectives towards Dealers: Dealers assist firm by promoting and pushing goods and services within the market at the right time at the right place. It is one of the essential social objectives that goods of special quality be produced and supplied. If this basic demand of the society is met, the business may survive in the long run.

7)  Social Objectives towards Society: Business gain profit due to the support of the society. Naturally, they are expected to supply support for various social, educational and cultural activities. It is also necessary for maintaining cordial relations with the society.

Q8) Discuss the national objectives of business.  8

A8) National objectives are aimed toward fulfillment of national needs and aspirations. The government has to implement the national plans and policies in accordance with the accepted priorities. Following are the important national objectives of business-

1)  Social Justice: Social justice means providing equal opportunities to all, protecting the interest of neglected, unorganized and economically backward sections of the society and prevention of any kind of exploitation. For instance, a business concern should do social justice to its handicapped workers, and women employees.

2)  Development of small-scale industries: Small scale industries are people who require less capital and generate more employment. In the present era of globalization, this sector is adversely affected; so as to spice up this industry, business organizations should assist the expansion of small-scale industries by purchasing raw material from them.

3)  Self Sufficiency: Every business concern should make use of available natural resources and human resources for economic development. It should reduce the countries dependence on foreign countries by producing goods indigenously or by promoting exports and reducing imports.

4)  Production as per National Priorities: Business organizations must make efforts to provide the essential requirement of life i.e., food, clothing and shelter at reasonable prices. In other words, every business concern should set its objectives after considering national priorities. Secondly, efforts should be made to reduce the nation’s dependence on foreign countries. This might be done by undertaking production indigenously, promoting exports and reducing imports.

5)  Social welfare: Business concern may additionally support directly or indirectly welfare schemes in the society. The welfare schemes that business has to adopted i.e., adopting schools in backward areas, providing funds for rural development activities like construction of roads, irrigation etc. organizing health camps etc.

6)  Development of Backward Areas: business concern can contribute towards development of backward areas of the state. This will be done by fixing industries in such areas. Also, financial and technical assistance can be provided to units in such backward areas. The government too, encourages the event of backward areas by providing many incentives like tax holidays, low rates of taxation, tax exemptions then on.

7)  National Integration and communal Harmony: Business concern is referred as corporate citizens. Therefore, they should work for national integration and communal harmony. They should not support anti-social elements or communal forces who work against national integration. This is often one of the most important national objectives of business.

8)  Creation of Employment opportunities: Business creates employment opportunities either directly or indirectly. In a country like India where unemployment and disguised employment are at a very high level, it is advisable for the industries to adopt wherever possible labour intensive techniques so as to employ a greater number of individuals and thereby reduce the amount of people below the poverty line.

Q9) How business objectives are classified? 12

A9) Business objectives are many and varied in nature. The success of any organisation depends on how well these are balanced.  Business objectives are broadly classified into five major categories highlighted in figure

Figure: Classification of business objectives

The organic objectives are also called as three-fold objectives of business.

1)  Survival: Survival is the basic objective of each organisation. Due to globalization, liberalization and privatization, the business environment has become extremely competitive. This has made survival extremely difficult. Constant monitoring of the business situation and strategic planning are necessary for survival in the competitive business environment.

2)  Growth: Growth is the second major organic business Objective. Business should grow in all directions over period of your time. Growth takes place through expansion or diversification. Expansion involves increase in business by introducing a product which is similar to the prevailing line of products of the business. While diversification involves introducing a product which is completely different.

3)  Prestige: Every business enterprise desires to possess social recognition and prestige. This objective is partly economic and partly social. Prestige of an organisation is due to standard quality of its products, regularity in their supply, reasonable prices and satisfactory service to customers. Recognition indicates public confidence on an organisation. Such recognition is feasible only after a long period of useful service to the society.

B. Economic Objectives of Business:

The main economic objective of business is profit. The important-economic objectives of business are as follows:

1)  Profit: The main economic objective of business is to earn profit and is necessary for survival, growth and prestige of an enterprise. Profit is an indicator of business performance and a sign of efficiency. It is a reward for bearing risk and uncertainty in business.

2)  Creation of Wealth: Creating wealth involves increasing the wealth of the shareholders. It happens as long as the business grows steadily whereby the shareholders get higher dividends and there is an appreciation in the market price of the shares.

3)  Creation of Customer: The target of the business should be to identify the customer for their goods and services. This needs creation of customer in the market and distributes goods and services.

4)  Innovation: Innovation refers to introduction of latest ideas or new methods of production. Innovation plays an important role in increasing the competitive strength and improving the image of business enterprise in the mind of consumers.

5)  Optimum Utilisation of Resources: Resources available with the business are generally limited. So, every business enterprise aims to make best possible use of physical, financial and human resources. This objective can be achieved through –

(a) Employing efficient and competent work force.

(b) Making full use of installed machinery.

(c) Minimizing wastage of materials.

C. Social objectives of business

Business is an integral a part of society. Following are the social objectives of business:

1)  Social Objectives towards Customers: The Survival and success of any business concern depends on its consumers. One universally accepted social objective of business is to satisfy consumers by providing goods and services as per their needs and expectations. Business activities are essential for meeting the requirements of consumers.

2)  Social Objectives towards Employees: The Social Objective of a business concern towards its employees is to treat them with respect and provide them with the right compensation and facilities. Business should provide better wages, working conditions, good treatment to the workers. It also provides monetary and non-monetary benefits for satisfaction of the workers. This also ensures industrial peace and harmony.

3)  Social Objectives towards shareholders: Shareholders invest their money in the business in the form of shares, debentures bonds etc. the essential objective is that the shareholder should receive a good, return on their investment. The target of the business is to utilise efficiently the capital of the shareholder and provides them fair return on their investment in the form of dividend and interest.

4)  Social Objectives towards Government: A business can’t function smoothly without the support and co-operation of the government. Hence, it becomes necessary on the part of the organization to satisfy its social duties towards the government. These include payment of taxes and duties, following the principles and regulations framed by the government from time to time, contributing towards the welfare activities of the government and so on.

5)  Social Objectives towards Suppliers: The suppliers can play a crucial role in the success of an organization by Supplying the right quality and quantity of material at the correct time. Therefore, a business concern needs to have social objectives towards supplier in respect of timely payment of dues.

6)  Social objectives towards Dealers: Dealers assist firm by promoting and pushing goods and services within the market at the right time at the right place. It is one of the essential social objectives that goods of special quality be produced and supplied. If this basic demand of the society is met, the business may survive in the long run.

7)  Social Objectives towards Society: Business gain profit due to the support of the society. Naturally, they are expected to supply support for various social, educational and cultural activities. It is also necessary for maintaining cordial relations with the society.

D. Human or Individual Objectives

Human or individual objectives refer to the objectives related to the individual needs of the employees of an organization. As employees are one of the most valuable resources for an organization, satisfaction of their objectives is very important.

Individual objectives include the subsequent objectives:

E.  National Objectives of business: National objectives are aimed toward fulfillment of national needs and aspirations. The government has to implement the national plans and policies in accordance with the accepted priorities. Following are the important national objectives of business-

1)  Social Justice: Social justice means providing equal opportunities to all, protecting the interest of neglected, unorganized and economically backward sections of the society and prevention of any kind of exploitation. For instance, a business concern should do social justice to its handicapped workers, and women employees.

2)  Development of small-scale industries: Small scale industries are people who require less capital and generate more employment. In the present era of globalization, this sector is adversely affected; so as to spice up this industry, business organizations should assist the expansion of small-scale industries by purchasing raw material from them.

3)  Self Sufficiency: Every business concern should make use of available natural resources and human resources for economic development. It should reduce the countries dependence on foreign countries by producing goods indigenously or by promoting exports and reducing imports.

4)  Production as per National Priorities: Business organizations must make efforts to provide the essential requirement of life i.e., food, clothing and shelter at reasonable prices. In other words, every business concern should set its objectives after considering national priorities. Secondly, efforts should be made to reduce the nation’s dependence on foreign countries. This might be done by undertaking production indigenously, promoting exports and reducing imports.

5)  Social welfare: Business concern may additionally support directly or indirectly welfare schemes in the society. The welfare schemes that business has to adopted i.e., adopting schools in backward areas, providing funds for rural development activities like construction of roads, irrigation etc. organizing health camps etc.

6)  Development of Backward Areas: business concern can contribute towards development of backward areas of the state. This will be done by fixing industries in such areas. Also, financial and technical assistance can be provided to units in such backward areas. The government too, encourages the event of backward areas by providing many incentives like tax holidays, low rates of taxation, tax exemptions then on.

7)  National Integration and communal Harmony: Business concern is referred as corporate citizens. Therefore, they should work for national integration and communal harmony. They should not support anti-social elements or communal forces who work against national integration. This is often one of the most important national objectives of business.

8)  Creation of Employment opportunities: Business creates employment opportunities either directly or indirectly. In a country like India where unemployment and disguised employment are at a very high level, it is advisable for the industries to adopt wherever possible labour intensive techniques so as to employ a greater number of individuals and thereby reduce the amount of people below the poverty line.

Q10) How economic and social objectives are recounciled.      5

A10) Business is a part of society and thus, it has to balance its economic and social objectives so as to satisfy the various groups i.e., consumers, employees, shareholders, Government, suppliers, competitors and society. The economic and social objectives can be reconciled as under:

1)  Profit and consumer price: An important economic objective is to earn more profit. This might be done not by charging high price but by increasing efficiency, reducing wastages, putting the available resources to optimum use, innovations etc. Such strategies on the part of the management would enable them to charge reasonable price for the products. This is often how a balance can be caused between the economic objectives of earning profit and therefore the social objective of charging a reasonable price.

2)  Profit and Research and Development: A business concern must earn profit. a part of the profit must be invested in research and development. This would help the organisation to enhance the standard. Improvement in quality would not only bring customer satisfaction but also higher sales to the business concern.

3)  Business expansion and social Interest: Business concern should bring expansion of business activities not merely for profit maximisation except for serving the customer better. However, expansion of business for securing the benefits of large- scale operations and passing on same portion of benefit to consumers is desirable. Expansion for generation of employment opportunities is also economically and socially desirable.

4)  Profit and After-Sale-Service: business concern must focus on after sale service, especially in the case of durables. A part of the profit must be spent in training the after-sale-service work force. Additional after-sale-service work force could also be appointed by the firm to provide better service to the customers.

5)  Profit and shareholders’ Interest: Shareholders expect higher dividend, which is feasible as long as the profit is high. When the organisation earns higher profits, the employees may demand higher wages. Business concern needs to accept this fact and pay higher wages to the employees by correlating their performance with the pay. This would motivate the employees to put in their best efforts. Simultaneously, the organisation should also pay higher dividend to the shareholders for the danger undertaken by them by investing in the company. Thus, reconciliation between the two objectives could be brought out.

6)  Profit and Employees welfare: Business concern makes profits due to the efficiency of its manpower. Therefore, business must spend a part of its profits for the welfare of its employees by providing better facilities like improved working conditions, additional welfare facilities, and increase in salaries etc.

7)  Profit and Social Development: Business organisation spends some a part of profit for the social development activities like donations to colleges, colleges, trusts etc. contributions to government at the time of natural calamities, floods, famines etc,. And for such other social activities.

8)  Business expansion and Suppliers: business concern needs support of suppliers for its business expansion plans. It shouldn't attempt to exploit the suppliers. There are a good number of cases, where large business concern exploits suppliers by delaying payment, demanding unreasonable higher discount etc.

Q11) Discuss about the strategy alternatives in the changing scenario.  12

A11) Organisation need to adopt certain strategy with the changing scenario. William F. Glueck in his book “strategic management” has identified the strategic alternatives into four broad groups.

Figure: Strategy alternatives in the changing scenario

1)  Stability strategy: Stability strategy aims at stable growth. The firm using this strategy concentrate on the current products and markets. This strategy is followed by those firms which are satisfied with their present product-market position. For instance, if a firm gets 10% growth in sales in the Mumbai market, it may be satisfied with the same. It does not mean growth at all. Firms adopting this strategy aim at moderate growth and profits. The firms make an attempt to improve efficiency through effective allocation and utilization of resources.

2) Growth strategy: ‘Growth strategy’ refers to a strategic plan formulated and     implemented for expanding a firm’s business. Growth strategy is the much-talked and published strategy in the present Indian environment. Growth means an increase in the size or scale of operations of a firm usually accompanied by increase in its resources and output. Business growth is a natural process of adaptation and development that occurs under favourable conditions. In life of any organisation, growth is necessary at some point of time. As a matter of fact, growth is precondition for the survival of a business firm. Growth strategies can be divided into two broad categories i.e. internal growth and external growth.

a) Internal growth: It is growth within the organisation with the help of its internal resources. It is planned and slow increase in the size and resources of the firm. Internal growth is slow and involves comparatively little change in the existing organisation structure. Internal growth strategies include-

i) Intensification / expansion,

Ii) Diversification,

Iii) Modernization.

b) External Growth: External growth is fast and allows immediate utilisation of acquired assets. External growth strategies includes:

i) Merger and amalgamations.

Ii) Acquisitions and takeovers.

Iii) Foreign Collaboration and Joint ventures.

3) Retrenchment Strategy: Retrenchment strategy, though less frequently used has been pursued by various companies successfully. In retrenchment strategy, unattractive and unwanted areas of business are 49 sequenced gradually. It is a planned exercise to get rid of unprofitable parts of business which helps the organisation to focus on most profitable and promising areas of business. Retrenchment strategies can be divided in to two board categories i.e. divestment strategy and liquidation strategy.

a) Divestment strategy: Divestment involves the sale or liquidation of a portion or a major division, or segment of the business unit. It is usually a part of revival, rehabilitation and restructuring plan.

b) Liquidation strategy: A retrenchment strategy considered the most extreme and unattractive is liquidation, Strategy, which involves closing down a firm and selling its assets. It is considered as the last resort because it leads to serious consequences such as loss of employment, termination of opportunities where a firm could pursue any future activities and the stigma of failure.

4)  Restructuring and Turnaround Strategies:

Corporate restructuring refers to reorganizing a business form it is done in order to make best use of resources and to generate maximum return on investment. The following are the various strategies of corporate restructuring:

a)  Mergers: A merger, refers to a combination of two or more companies into one company it may involve absorption or consolidation in absorption one company acquired the company and in consolidation two or more companies join to form a new firm.

b)  Takeovers: It generally involves the acquisition of a block of equity capital of a company which enables the acquirer to take control of the office of the taken over firm. In theory, the acquirer must buy more than 50% of the paid-up equity of the acquired company to take over the control of the office of the acquired firm but, practically in most of the cases acquisition of equity in the range of 20% to 40% is sufficient enough to exercise control. SEBI regulates takeover in India. It has laid down guidelines for takeovers so as to protect the interest of small investors.

c)  Purchase of Division/plant: A firm can purchase a division of plant of another firm for the purpose of improving its market and financial position. When a firm purchase a division of plant of another firm it takes over the assets and liabilities of the division. Such purchase of a plant or division would enable the purchaser or acquirer to consolidate its position in the market.

d)  Divestiture: A divestiture involves the sale of a division or a plant or a unit of one form to another for instance L&T sold it cement unit to A.V. Birla Group focus on engineering business. From seller's point of view, it represents contraction of portfolio and from the buyer's point of view it represents expansion.

e)  De-merger: A de-merger takes place when a firm transfers one or more of its units to another firm The company whose unit is transferred is called the demerged company and the firm to which the units is transferred is called the resulting company. De-merger can take place in two forms-  a spin-off or a split-up.

f)    Buyback of shares: share buyback in walls of forms decision to repurchase his own share of the market by bike is common in advanced countries and has now been permitted in India as he has laid down guidelines for buyback of shares the main reason for buyback are:

Q12) What is turnaround strategy. Explain the essentials of turnaround strategy.      8                                                                                                                                      

A12) Turn around refers to transformation of loss making it into profitable one. Turnaround is possible only when the company restructure its business operations. Turnaround strategy is broader strategy and it can include divestment strategy - where a firm decides to divest or get out of a certain business and sell off units or divisions. Normally the turnaround strategy aims at improvement in declining sales or market share and profits. The declining sales for market share may be due to several factors both internal and external to the firm. Some of these factors may include high cost of materials, lower price utilisation for the goods and services, increased competition, reception managerial inefficiency etc.

Essentials of Turnaround Strategy:

Turnaround to be successful, the following guidelines must be followed by the management or turnaround experts:

1. Communication: There must be good communication throughout the organisation. Any information relating to turnaround strategy to the concerned departments or persons must be quick, clear and complete. Communication can play an important role in making the turnaround strategy more effective.

2. Availability of Resources: There must be availability of required resources to make turnaround effective. The turnaround strategy would require proper amount of cash to meet working capital needs and certain fixed capital needs. The business unit may also require skilled manpower to handle newly introduced technical jobs.

3. Leadership: To make turnaround successful, there is a need to have good leadership at all levels, especially at the top level management. The CEO needs to be committed and dedicated to the organisation. He needs to be a dynamic person with creative skills to handle the turnaround situation. If need be the Board of Directors may change the CEO, and appoint a new leader to handle the situation.

4. Long-term Approach: Firms must undertake turnaround strategy not only from short-term point of view, but also from long-term point of view. The top management must implement the turnaround strategy by keeping in mind its impact on long-term prospects of the firm.

5. Review of the Situation: The turnaround team needs to conduct a proper review of both the internal and external situation affecting the firm. The turnaround team should review:

Such a review will help the turnaround experts to know their strengths, weaknesses, opportunities and threats (SWOT).

6. Support from Various Parties: To make turnaround effective, there should be good support from various parties such as employees, suppliers, shareholders, dealers, government authorities, Financial institutions, etc. For instance, support is required from employees to implement the various decisions required for turnaround purpose.

7. Viability of Business: Turnaround strategy can work only when there is viability of business. One cannot revive a business which has no prospects. It is better to close down a business i when there are no prospects. For instance, Encyclopedia Britannica announced in May 2012, the closure of 32 printed volumes after 244 years of existence. The main reason is that the demand for the Encyclopedia dwindled due to the popularity of internet.

8. Planning and Control: There must be proper planning and control of various operations. A firm implementing turnaround strategy needs to analyse both internal and external environments and then plan accordingly. Apart from planning, there must be effective control of various activities – both financial and non-financial.

Q13) Discuss about the Human objectives of business.    5

A13) Human or individual objectives refer to the objectives related to the individual needs of the employees of an organization. As employees are one of the most valuable resources for an organization, satisfaction of their objectives is very important.

Individual objectives include the subsequent objectives:

Q14) Discuss the steps involved in turnaround strategy.             8

A14)

1. Setting up of a Turnaround Committee: The business firm may set up a turnaround committee or a team to deal with the turnaround strategy. The committee may involve top management personnel, consultant, and may include employees' representative. At times, business firms appoint a new CEO to deal with turnaround strategy. The CEO may take the help of some top management personnel to manage the turnaround strategy.

2. Identifying the Causes of Losses: The turnaround team has to identify the possible causes of losses. The losses may be due to internal factors or external factors or both.

The internal causes may be:

-Entry in a new non-viable business.

-Excessive manpower.

-Focus on several product lines or brands.

-Growing customer complaints, etc.

The external causes may be:

-Changes in government policies

-Competitors' strategies.

-Changes in customer preferences.

-Technological changes.

-Prolonged recession in the market.

3. Investigation of Causes: The turnaround team needs to conduct a detailed analysis of the various causes. The turnaround team may undertake the following activities:

2. Analysis of Alternatives: The turnaround committee must analyse the various alternatives. There must be analysis of benefits and costs of every alternative solution or strategy:

-The benefits to be analysed in terms of returns or performance.

-The costs to be analysed in terms of money, manpower, etc.

The analysis of benefits and costs must be undertaken not only from short term perspective but also from long term point of view.

3. Selection of Best Alternatives: The team may select a proper mix of alternatives. The team may select two or three alternatives out of the several listed. The choice of the best alternatives depends upon the causes of poor performance and the current situation. The management must also consider the viability of the alternative, the availability of funds, support from employees, etc.

4. Communication of Turnaround Strategy: The management must communicate the turnaround strategy to the employee’s shareholders and other concerned stakeholders. Effective communication will receive support from the stakeholders for implementation of the turnaround strategy.

Organisation and Allocation of Resources: The company need to organise the resources required to implement the selected" strategy. In case of divestment, the firm will get the capital resources from the sale of the unit or product line. In certain cases, the company needs to negotiate with financial institutions for funds required for implementation. The shareholders may also contribute by way of right issue of shares.

5. Implementation: The company needs to get good support from the employees, shareholders and financial institutions to mas the turnaround strategy successful. "There must be a continue dialogue between the turnaround team and the employees firm also needs to hold talks with the financial institutions and other investors.

Q15) Discuss about the restructuring strategy of a corporation.    5

A15) Corporate restructuring is an action taken by the corporate entity to modify its capital structure or its operations significantly. It is the process of making changes in the composition of a firm’s one or more business portfolios in order to have a more profitable enterprise. 

Companies may choose to restructure their finances and/or their organization for the following reasons:

If a company isn’t properly deploying its assets to maximize profit, restructuring may be pursued to get the company on a more solid financial footing. The direction the company takes in its restructuring will be determined by the corporate strategy that best employs the resources available.

2.  Change in business strategy: 

A company may choose to eliminate subsidiaries or divisions that do not align with its core strategy and long-term vision and raise capital to support advancing the core strategy. Additionally, corporate strategy can be to maximize tax opportunities or improve flexibility.

3.  Reverse synergy: 

Just as companies sometimes seek mergers and acquisitions to create business synergies, the reverse is also true. Sometimes, the value of a merged or conglomerate unit is less than the value of its individual parts. Some divisions or subsidiaries may have more value in a sale than they do as a part of the larger corporate entity.

4.  Cash flow requirements: 

Divestment of underperforming or unprofitable divisions or subsidiaries can provide liquidity that the corporate entity cannot access otherwise. The sale of some assets can provide both an influx of cash and reduction of debt, giving the corporate entity easier access to financing and/or more favourable terms-

There are generally two different forms of corporate restructuring-

It may occur to changes in the market or legal environment and are needed in order for the business to survive. . For example, a corporate entity may choose to restructure their debt to take advantage of lower interest rates or to free up cash to invest in current opportunities. .

2.  Organizational restructuring 

It is implemented for financial reasons as well but focuses on altering the structure of the company rather than its financial arrangements. Legal entity restructuring is one of the most common types of organizational restructuring. Two common examples of restructuring are in the sales tax and property tax arenas. The first involves creation of a leasing company for operating assets that can allow for sales and income tax savings. In the second example, for property taxation, restructuring can change the method of taxation or create a revaluation opportunity to improve reporting positions. This can also lead to transfer pricing opportunities.