Strategy in most generic terms can be identified as the long-term direction of the firms and it defines the business scope of the firm specifying the path to be followed by it in the long-term. Strategy enables a firm to consolidate its available resources to gain the capacity to compete with other players operating in the market. The objective of creating and implementing a strategy is to help the organization align the available resources. In doing so, the firm assesses the external and internal environmental factors affecting the business of the firm. It is important for a firm to adopt well-designed strategies to prepare it to meet the demands of the market and to increase the wealth of the stakeholders.
Michael Porter (1980) has pioneered the approach to strategic management. According to Porter, (1980) there are only two basic components of competitive advantages which is comprised in several strengths and weaknesses possessed by the competitors. These basic strategies are represented by ‘low cost’ or ‘differentiation’. The basic competitive advantages of low cost and differentiation when coupled with the other competitive advantages of the firm lead to other generic strategies. The other generic strategies include cost focus and differentiation focus strategies.
Creating strategy forms a component of astute entrepreneurship. It entails actively searching for new business opportunities or doing existing things in new ways. With rapid changes in the business environment, it becomes critical for the managers to diagnose the direction and force of the changes happening and to respond with strategic modifications.
Competitive advantages of a firm can be developed by through the formulation of various strategic approaches and these strategies in turn are formulated based on the internal and external environmental analysis related to the firm. There are different types of strategies such as business strategies, corporate strategies, acquisition and restructuring strategies, international expansion and co-operative strategies. Even though these different types of strategies exist, a firm may not put all of these strategies into use. It is important for any firm to have a business level strategy developed to identify, nurture, and sustain its competitive advantage (QuickMBA, 2007).
Strategic Management in Smaller Companies
In the case of a small business, which has a single activity, the implementation of corporate and business strategies converge into a single level and termed as a business strategy. This is so because the strategy for the whole company focuses on one distinct line of business. Thus, an organization can have three different strategic areas. Business strategy covers the long-term planning for the entire organization. Functional strategy is developed for each division or functional areas of the organization. Operating strategy provides the short-term courses of action for the lower-level employees to achieve the long-term objectives of the organization. (Thompson & Strickland, 2004, p 24). However, business forms such as individual ownerships, partnership concerns, and firms managed by owners may consist of one or maximum of a couple of strategic decision areas. In these types of organizations, strategy making and execution can be handled by a few key executives or managers.
A powerful business level strategy is aimed at creating value for the owners by producing products and services with values exceeding the cost of producing them. The strategy is implemented to capture value from the competitors, customers, suppliers so that the firm can successfully compete against other players for a higher market share. The other aim is to enlarge the potential market selectively by applying a product or cost differentiation strategy. The implementation of strategies in large organizations includes analysis of the external and internal environments, strategic thinking o formulating and implementing and assessment of the strategies evolved. However, Wheelen & Hunger, (1998) contend that this strategy implementation process as applied to large business undertakings may not fit the small businesses and new entrepreneurial ventures in smaller scales.
Aims and Objectives
The Aim of this project is to identify the impact of the economic environment of China upon a small non-ferrous Chinese business, and to develop choices for its competitive strategy. In achieving this central aim, the research attempts to achieve the following other objectives also.
- To analyze the macro and micro environment of the non-ferrous metal industry in China, using the available strategic analysis models like PESTEL
- To study and present an overview of the Chinese non ferrous Industry including players/market share, values, contribution to GDP represented by facts and figures and to carry out Porter’s Five Forces Analysis
- To make a strategic analysis of a small business’s current position in China using the SWOT analysis model and to assess the internal environment of the small non ferrous Chinese business in order to determine its resource configurations that deliver competitive advantage
- To present strategic choices to the small Chinese Firm based on the results of the strategic analysis
Based on the review of relevant literature and the case study of a small business organization in the non-ferrous metal industry of China the research will attempt to find the answers for the following research questions.
- How can a small Chinese non-ferrous organization remain profitable in China as new multinational competitors enter the market?
- What are the best future strategies for this firm?
Structure of the Dissertation
For presenting a cohesive research report, this paper is organized to have different chapters. The first chapter while introducing the research topic of strategic management lays down the aims and objectives of the research and it also outlines the research questions. Chapter two presents an analytical review of the relevant studies on the process of strategic management with the objective of adding to the existing body of knowledge on strategic management and its role on organizational performance. While chapter three provides a brief description of the research methodology, chapter four contains the case study of Shengteng Titanium Company China. Chapter five contains an analysis of the findings and discussion on the analysis. Chapter six concludes the report with few concluding remarks and recommendations of best practices in strategic management of Shengteng Titanium Company China and areas for further research.
Strategy in general encompasses the planning for the long-range growth of the firm, aligning the actions of the firm to suit the business climate so that the firm may be able to reduce the risks and enhance the chances for growth and aligning the firm’s capabilities to the resources that the firm possess (McDonald 1996). Mintzberg et al (1999) provided a concise definition of strategy and Idenburg (1993) developed different approaches to strategy. Strategy aims at making people understand the ways of doing things within a business organization, so that the business can grow and the customers can be satisfied. It also covers imparting knowledge on the ways of meeting the challenges of the competing firms and the ways the firm must react to changes in the market place. The other objective of strategy is to increase the ability of the organization to reach the long-term objectives by managing each functional area effectively (Thompson & Strickland, 2004, p 20). A strategy is a plan of how the organization could achieve its goals and objectives (Aaker, 2001; Davies 2000; Drucker, 1999; Ferdinand, 1999; Mintzberg, 1996; Stevenson, 1976). Porter (1990) widened the scope of the strategic management concept by combining the subtle organizational factors along with the tangible ones and redefined the strategic planning as a process of describing the patterns of gathering both the isolated and interrelated business processes. Strategic Planning is an essential ingredient and starting point for the Strategic Management process. Organizational plans of implementing strategies includes the efforts of the organization to improve its strength as compared to the other players in the market in the most competent and successful manner. The core activities of strategic process in any firm encompass taking steps essential to ensure efficient organizational systems leading to the achievement of its objectives. A strategy in general is a combined and organized set of dedication and performance designed to exploit core capabilities and gain a competitive advantage for the firm. Strategic management process on the other hand aim at integrating and coordinating organizational effort directed towards utilizing the core capabilities to secure the strength to compete other firms operating in the market (Rindova and Fombrun 1999). Pett and Wolff (2003) say that once formed the business strategy reflects where and how the firm has an advantage over its rivals. Thus according to Porter (1996) the core of an organization’s strategic approach at the organizational level is to enable each functional area to work differently than that of the competing firms. Hewlett (1989) identifies strategic planning as a process by which the firms are able to derive a strategy to enable them to anticipate and initiate quick responses to the changing environment in which the firms operate. According to Stonehouse and Pemberton (2002), strategic management focuses on the long-range growth of the entire business and is a tool for enabling the management to direct the future course of actions of the firm.
Organizational Purpose of Strategies
Coulter (2002:7) defines strategies as a series of decisions, which are goal-oriented. According to him, strategy also includes actions in terms of the skills and resources of a firm and the opportunities and threats emanating from the environment in which the firm is operating. Strategies are the tools to achieve the long-term business objectives and represent the firm;s actions to conduct its business and the ways the firm has to follow. It also involves the decision-making process of the firm to achieve growth and profitability (Thompson, 2001:7). Johnson and Scholes (1993) state strategy defines the scope and direction of a firm over the longer time horizon. Strategy creates the competitive advantage for the organization based on the resources and the environmental circumstances and strategy enables the organization to meet the expectations of the stakeholders and the market. Strategic management aims at achieving the central objectives of the business by adopting careful planning. The central objectives are the goals that are presently in view. Therefore, there will be no place for strategy if no objectives are established. From this perspective, strategy is to be considered as a vital element in meeting the ends through different means (Thorelli 1977). Chandler (1962) is of the opinion that strategy represents the organizational activities, which are concerned with formulation of long-term goals and objectives and efficient allocation of the available resources for achieving the goals established.
Nature of Strategy
Organizational strategy is the correlation between its own resources and strengths and it’s outside affiliation. It describes about the nature of the firm’s responses to its other stakeholders, like the customers, suppliers, competitors and how the firm deals with its socio-economic and environmental issues. The nature of strategy can be identified with its capabilities to provide a chain of connected actions, which lead to the development of a consistent business practices essential for the success of any firm. During the last twenty years, the importance and relevance of the concept of strategy have become applicable not only to major business issues but also to every aspect in the total business environment (Kay 1993).
The nature of strategy is such that it not only concerns itself with the key issues of an organization like employee management, financial and accounting management or marketing management, but also extends itself to every aspects of the business behavior. Strategy covers the selection of certain type of practices and at the same time fixing the priorities for those practices and directing them towards the organizational success. Strategy also encompasses the activity of coordinating the scarce resources and deploys them in the proper order to make the firm’s performance excel over the competitors. Kaplan (1999) adds that strategy attempts to make a distinction amongst different activities to help management to decide main and supplementary activities. The nature of Strategy also involves the function of differentiation of the purpose of the activities connected with the organization and breaking them down into primary ones and those, which are designed to support others.
In this highly competitive business environment, it is essential that the successful management look for the possibilities beyond the traditional ways of functioning. The innovative business leaders consider strategy as a ‘thinking process’ rather than a planning process.
Strategies rely on the development of useful methodologies for meeting the objectives of the firm and the adaptation of such methodologies in relevance to the particular circumstances. Workable and effective strategies are shaped by the interaction of consistent planning, execution and assessment of the performance (Kaplan 1999). The strategic thinking is a continuous process, which goes along with the organizational performance for a constant monitoring and evaluation to offer alternative strategies depending upon the effectiveness of the strategic methodologies already developed and deployed.
There are five basic principles on which the strategic thinking can be developed. They are (i) looking behind the symptoms, (ii) making the combination of intuition and data work, (iii) reconstructing the value of synergy, (iv) defining the customer values and (v) balancing the short term and long-term objectives.
Formulation of Strategy
There have been some early contributions by Chandler, (962), Ansoff (1965) Andrews (1971) and Barney (1991) to the concept of strategic management. Mitchell defines the strategic management process as a continuous process. Strategic management is not a one-time activity. It is a continuous process of developing and refining the plans, which enable a firm to meet its goals with the available facilities and within the limitations on its capacities. Thus, the strategic management consists of three essential phases namely diagnosis, formulation and implementation. Diagnosis includes situation analysis encompassing an analysis of the internal environment of the organization, analyzing the organization’s external environment and identifying the major critical issues facing the organization. Hence strategy formulation is based a proper diagnosis of the strategic needs of an organization. Formulating strategies is a continuous process of deciding on the proper actions by the firms for meeting their goals and improving the organizational functioning (E coach).
There are distinct steps involved in the formulation of strategies:
- Review of the current key objectives and strategies of the organization, that are identified at the diagnosis stage
- Identify a range of alternative strategies that can be employed to suit the corporate level, competitive and functional needs of the organization.
- Evaluate the relative merits and demerits of the alternative strategies with respect to their feasibility and adaptability to the organizational values
- Decide on the best alternative that can be implemented to make the recommendation.
Organizations should formulate the strategies to cater to the needs of the corporate level requirements, to meet the competitive challenges and to guide the functional needs of the organization. The corporate level strategies may include the growth strategies, stability strategies, human resource strategies and portfolio strategies. Firms should continuously scan the external environment to identify potential substitutes for technologies that are in current use as well as to spot newly emerging technologies from which they could derive competitive advantage (Hill & Rothaermei, 2003).
The strategies to meet the competitive challenges are to include the marketing strategies and various other internal strategies of pricing, product differentiation, branding, and optimal product mix. “Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value” (Porter, 1980). Prahalad & Hamel (1990) state that the essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today.
The formulation of the strategy should focus on the organizational environment and should help the people fulfillment of the organizational mission. The strategy formulated should enable the organization reach the objectives of the organization with ease. For formulating the strategy for an organization there are specialized tools available. The tools that can be used are “critical question analysis, SWOT analysis, business portfolio analysis, Porter’ model for industry analysis and resource based model” (Kotelnikov, 2001). By an efficient use of any or a combination of these tools, it is possible to formulate the strategy of an organization effectively.
Ferrier (2001) comments, that in a hyper-competitive market, firms often aggressively challenge their competition in the hopes of improving their competitive position and ultimately their performance. Quite often, this calls for changes in the strategies followed by the organization. “Strategic change management is the process of delivering the strategy of an organization in a controlled, efficient and effective manner” (Tapster Rock). Strategies are organic in that they must be adapted over time as the external environment and the firm’s resource portfolio change (Farjun 2002).
In any organization by doing things recurrently people start to assume that is the way, they should do things. When people begin adopting ways of working by assumptions without going through the process of explicit discussions of issues, then that becomes the organizational culture. When the organization becomes successful, this culture becomes stronger. However, when the external environment in which the organization is functioning changes this culture poses a problem for the managers to cope up with the changes. There the strategic changes come in handy. “Leaders who recognize the need for strategic change must determine whether a particular approach is likely to be successful, and then are faced with the task of implementing the change to its conclusion.” (Stanford Graduate School of Business 2007)
Strategic Management Process
The strategic management process is a rational approach to help a firm respond effectively to the challenges of the modern day business environment. In order to coordinate, this process effectively, firms should undertake a detailed analysis of both the internal and external environments in which they are operating. Based on the analysis, strategic thinking can help the firm formulate the strategies that are required at the corporate level, for the competitive environment and for the functional areas. Normally a diagnosis of the organizational needs precedes the formulation of strategy. Similarly, a careful monitoring of the strategies is ensued by a strategic thinking process for making any amendments to the strategies depending on the changes in the internal and external environments (Pearce II & Robinson 1994). This calls for an efficient strategic change management. Thus, competition requires firm to make choices, which are strategic in nature and includes selection of a strategic intent and strategic mission, determination of which strategies to implement, choosing an appropriate level of corporate scope and designing governance and organizational structure (Jones 2001).
Defined in simple terms strategic planning is the process to determine the course of the organization over the next few years and deciding on the ways in which the organization can achieve the desired goals. “The focus of a strategic plan is usually on the entire organization, while the focus of a business plan is usually on a particular product, service or program” (Carter McNamara).
In the present day highly competitive business environment, the utility of budget-based planning or long-term forecast based planning methods has faded away and the large corporations with multi-product, multi-location environment have started engaging strategic planning in order to survive and prosper. “The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track” (Quick MBA). The following figure illustrates the steps involved in the strategic planning process,
Mission and Objectives
The Mission statement of the organization encompasses the business vision with the definite organizational values embedded therein. The mission should also consist of a statement of the purposes of the firm. It also should contain vision-based futuristic goals that will steer the organization towards capturing all potential business opportunities. The business vision forms the basis for formulating the financial and strategic business objectives. The organization may also evolve goals for its finance function, which would specify quantitative targets for sales growth and profitability. “Strategic objectives are related to the firm’s business position, and may include measures such as market share and reputation” (QuickMBA).
An integrated understanding of the external and internal environments is essential for the firm to understand the present and predict the future (Zahra & George, 2002; Sirman et al, 2003). The environmental scan consists of the following essential components.
- Internal analysis of the firm
- Analysis of the industry environment
- Analysis of the external environment
The internal analysis involves the identification of the power and weak spots of the firm and the potential chances offered by the industry and the risks that the industry faces which will have an impact on the performance of the organization. Firms can accomplish the analysis using SWOT model. “Strategic management is founded on the notion that organizations must analyze themselves and their environments and act to create their future in light of their internal strengths and weaknesses and their external threats and opportunities” (Rabin et al 2000). The objective of making an analysis of a firm’s internal environment is to understand how to make effective use of the resources possessed by the firm. In fact, this is the key outcome the decision makers seek while analyzing the internal environment. There is a definite relationship between the firm’s resources, capabilities, core competencies and this relationship can be used to maximize the competitive strength of the firm (Hitt, Ireland and Hoskisson, 2005). The growing gender, ethnic, and cultural diversity in the workforce creates challenges and opportunities invariably to every industry (Barlett & Goshal, 2002; Rugman and Verbeke, 2001).
The firm’s external environment is comprised of
- General environment
- Industry environment and
- Competitor environment
“The general environment is composed of dimensions in the broader society that influence an industry and the firms within it. Compared with the general environment, the industry environment has a more direct effect on the firm’s strategic competitiveness and above-average returns, as exemplified in the strategic focus,”(Carpenter, Bauer & Erdogan). The use of PESTLE analysis helps analyzing the general environment (Hamel & Valikangas, 2003; Hawawini et al 2003). The economic environment refers to the nature and direction of the economy in which a firm competes or may compete (Fahey and Narayanan 1986).
The industry environment is the set of factors that influence a firm and its competitive actions and competitive responses – the risk of new firms entering the market, the bargaining ability of the providers, the bargaining capacity of customers, the risk of alternative product, and the intensity of competition from other players in the market. Porter’s Five Forces model helps completing this analysis (Browne, 1994; Fahey, 1999; Feurer & Chaharbaghi, 1995; Robbins et al 2000). “Research suggests that different geographic markets for the same product can have considerably different competitive conditions,” (Carpenter, Bauer & Erdogan; Garcia-Pont and Nohria, 2002).
Identifying Strengths, Weaknesses, and Distinctive Competencies
The process of identifying the strengths and weaknesses of the organization involves the understanding of the role of resources, capabilities, and distinctive competencies in the process of creating value and profit by the organizations. The managers must also look into the importance of superior capabilities, innovative abilities of the organization, quality concepts, and services to the customers and the factors contributing to the ability to compete effectively. There are different management tools available to the managers to identify the strengths, weaknesses and the core competencies of the organization.
The SWOT analysis enables the managers to make a meaningful assessment of the internal strengths and weaknesses of the firm. This analysis also brings out the potential opportunities available to the firm as well as the threats the industry is facing which may have an impact on the sales and profitability of the firms. The Value Chain is another tool available to the managers to identify the resources and capabilities of the organization. This tool recognizes that a firm is a chain of activities for transforming the inputs into outputs that the customers value more. The transformation process is composed of main and support actions that enhance significance to the product. The value chain analysis this enables the mangers to identify the core competencies of the organization, which result in the incremental value to the products.
Resources, capabilities and core competencies are the characteristics that make up the foundation of competitive advantage. Resources are the sources of a firm’s capabilities. Capabilities in turn are the sources of a firm’s competencies, which are the basis of competitive advantages. As shown in the figure combination of resources and capabilities lead to create core competencies.
Components of Internal Analysis Leading to Competitive Advantage and
Diversification is one of the strategies that firms adopt for growth. With the related diversification, corporate-level strategy the firm builds upon or extends its resources, capabilities, and core competencies to create value (Doukas & Lang, 2003). Successful diversification is expected reduce variability in the firm’s profitability in that earnings are generated from several different business units (Kim et al 2001). The firm using the related diversification strategy wants to develop and exploit economies of scope between its business units available to companies operating in multiple industries or product markets (Porter, 1985). The recent literature on organizational restructuring reflect increasing emphasis on identifying, building and guiding dynamic organizational capabilities in business environments which are subjected to rapid changes (Shay and Rothaermel, 1999; Eisenhardt and Martin, 2000; Teece, Pisano & Shuen 1997). In order that a competitive advantage becomes sustainable, a firm should possess resources and capabilities, which are scarce and imperfectly mobile (Besanko et al., 2008). There is a resource-based view of strategic management which is of recent origin (Wernerfelt, 1984; Henderson & Cockburn, 1994).
The objective of this chapter was to present a review of the relevant literature on strategic management and its process. The review highlighted the salience of strategies and their role in improving the organizational performance. This chapter helped adding to the existing knowledge on strategic management and the process of strategic planning including environmental analysis of the firms.
This chapter presents a description of the research methodology, used in conducting this study. The purpose of this chapter is to illustrate the process, strategy and approach followed for accomplishing the objectives of the research. The chapter also discusses the process of data collection and analysis. The research has used the qualitative research method of case study. A brief description of the case study method forms part of this chapter.
According to Walliman (2005), research is a systematic examination of a social or other issue to arrive at a resolution for the issue, using a critical analysis of the factors influencing the issue. Therefore, any research involves a process more than a mere collection of facts and shuffling them around. The Oxford Encyclopaedia English Dictionary defines research as (i) “the systematic investigation into the study of materials, sources etc. in order to establish facts and reach new conclusions. (ii) an endeavour to discover new or collate old facts etc. by the scientific study of a subject or by a course of critical investigation” Leedy (1989) defines research as a process by which the researcher attempts to discover systematically, and with the evidence supported by facts, the answer to a question or the resolution of a social issue. Kerlinger (1970) define research more technically to mean “the systematic, controlled, empirical and critical investigation of hypothetical proposition about presumed relations among natural phenomenon.”
Social researches follow either a deductive, or an inductive approach. Saunders et al (2003) observe that deductive approach enables the researcher develop several hypotheses and pursue a research strategy to test the hypothesis and report thereon. Under inductive approach, the researcher starts the process of research with the collection of data using different methods and after the data collection designs, a theory based the analysis of the data collected. For conducting the research on strategic management, the inductive approach is the appropriate one and it was followed in completing the study. Creswell (1994) is of the opinion that the inductive approach aptly associates with the exploration of research themes, which are relatively interesting and exciting as well as controversial.
Sources of Data
Data collection is an important step involved in the research process. Data for the research can be collected from primary and secondary sources. Data collected using the primary sources are known as the primary data and from the secondary sources are called secondary data. The researchers use these sources of data depending on the nature of inquiry to meet the research objectives.
Walliman (2005) defines primary data, as “primary data are those from which the researcher can collect data by direct, detached observation or measurement of phenomena in the real world, undisturbed by an intermediary interpreter”. According to Walliman (2005), data and information collected from the primary sources may represent influential readings and includes the process of counting and measuring taking an inanimate form. The inanimate forms are the result of reports or observance of conditions or events relating to the research issue. The researcher may also record the experiences of the people involved in the research to become primary data for the research. The primary data for the current research were collected from the case study of Shengteng Titanium Company China.
The researcher is at liberty to choose the sources from which he would like to collect as identified by him. The data collected from sources other than the primary sources is secondary data. Some of the sources that offer secondary data are newspapers, articles in journals, other printed sources and electronic sources. Saunders et al (2003) are of the opinions that the utility of the secondary data is enhanced greatly as it draws information from many sources. However, the secondary data suffers from a shortcoming, that such data in some cases become unreliable. Walliman (2005) considers the secondary sources to provide information of inferior values because errors may occur in the secondary data, as in the case of secondary data, information passes from one person to another. For the completion of the current research, electronic sources like Internet, electronic database of different Universities, academic journals, magazines and various other textbooks were used.
The researcher considered the use of different research methods for the current study. The selection of an appropriate research method is crucial to ensure successful outcome of the research and the selection often depends on the subject under study. Based on the available information about different research methods and on a careful analysis of merits of using the qualitative and quantitative research methods, the researcher proposed to use the qualitative method for the conduct of the research. The following sections present a brief description of the qualitative and quantitative methods.
The qualitative method is one of the two major approaches to research methodology in the field of social science. It involves investigation of the opinions of the participant, their behaviours and experiences from perceptions of the informants themselves. As against the quantitative research method, the qualitative method does not involve the analysis of quantitative data and the method does not rely on statistical analysis. Instead, the qualitative method makes use of logical deductions to analyse the data collected, which deal with the human aspects of the issue under study. There are some demerits of this method in that it is more expensive and considers the opinions and viewpoints of small sample population and it is often difficult to measure. Lofland & Lofland (1984) observe that qualitative research method uses non-quantitative methods of data collection and analysis. The central focus of qualitative research method is “quality” of the data and findings rather than “quantity”. Researchers like Adler and Adler (1987) are of the opinion that qualitative method is more a subjective methodology and in most cases makes the researcher himself the research instrument. According to Patton (1990), since there is no particular design for a qualitative research, the purpose of the inquiry and credibility of information required form the basis for arriving at the research design. “Qualitative studies typically employ multiple forms of evidence.… [and] there is no statistical test of significance to determine if results ‘count’” (Eisner, 1991). The usefulness and the credibility of the data and information reflect on the findings of the research, which need to be evaluated by researcher and reader.
Case study has been a popular research method used by a number of social researchers. “Case study is an ideal methodology when a holistic, in-depth investigation is needed” (Feagin, Orum, & Sjoberg, 1991). Various sociological investigative studies have used case study as an important research method to acquire relevant data about the issues studied. By following case study method, the researcher is sure to follow methods, which were well developed and tested for any kind of exploration. “Whether the study is experimental or quasi-experimental, the data collection and analysis methods are known to hide some details,” (Stake, 1995). The case studies have the ability to bring out extensive information from different viewpoints drawn from multiple sources of data. There are different types of case studies that can be used according to the nature of each research. They are (i) Exploratory, (ii) Explanatory, and (iii) Descriptive. Stake, (1995) proposed three other case study methods: Intrinsic case study in one where the researcher has an interest embedded in the case; Instrumental case study enables the understanding of more than that is obvious to the observer; Collective case study pertains to a group of cases under study. One cannot consider the case study research as a sampling research. The choice of the cases provides the base for the collection of maximum information for facilitating the completion of the study within schedule. Case study suffers from the criticism that it does not facilitate generalization of the findings and it is a frequent complaint on case study research that the findings are cannot be applied widely in real life. Yin (1984) refuted this criticism based on his explanation of the difference between analytic generalization and statistical generalization “In analytic generalization, previously developed theory is used as a template against which to compare the empirical results of the case study” (Yin, 1984)
Because of the distinct advantages of the case study method and its suitability to the current research inquiry, case study method is adopted for conducting this research.
The objective of this chapter is to present the case study of Shengteng Titanium Company, engaged in titanium processing in China. The analysis of internal environment of Shengteng is undertaken using a SWOT analysis. The chapter also presents an environmental analysis of the non-ferrous metal industry in China to suggest strategic management approaches to Shengteng.
Non-Ferrous Metal Industry in China
The global production value of non-ferrous castings is estimated at $ 100 billion and the international trading is presently at US $ 10 billion and is expected to increase drastically in the coming years. “Non-ferrous metals regularly occur in smelter by-products, in the residues of industrial treatments processes and also in a variety of complex metal combinations” (Metal World, 2008). It is important that the processor should treat each of these by-products as separate materials. In addition, they have to employ necessary skill and technical resources for identification of the individual metals and conversion into a usable form to be supplied to the industries requiring such metals. Non-ferrous metals like aluminium, copper and zinc plays an equally important role as that of the steel in the user industries. Non-ferrous metals constitute 2 to 3 percent of the total inflation contents. Over the past four years, there has been a tremendous increase in the price of to the extent of about 300 percent, the reason being shortage in supplies. The companies have not increased in their investment in non-ferrous production activities like mining, smelting and processing. Though there is increased demand from BRIC countries, like India the supply remained inadequate because of lack of investment in new mines.
In the year 2006, China made some progress in the non-ferrous sector; however, the industry witnessed a decline in the growth rate of fixed assets investment. “The investment in non-ferrous metal industry added up to RMB 1180.8 billion, up 24.1 percent and the growth rate decreased by 11% over 2005-09,” (Metal World, 2008). The investment in non-ferrous metals sector constituted 12.7% of the total investment of China in fixed assets made in rural as well as urban areas. With continued restraint on the new started smelting projects, the investments were diverted to mining process involving substantial capital outlays. The period 2009-2012 is expected to be crucial in the development of non-ferrous industry. The following figure shows the forecast of planned production capacity of the non-ferrous metal industry in China.
PESTLE analysis deals with the external environment of the industry as affected by political, economical, social, technological, legal and environmental factors. This section presents the PESTLE analysis on the non-ferrous metal industry of China
Since the period from 2009-2012 represents the transition period from the 11th Five year plan to 12th Five year plan there is the likelihood that there will be the announcement of a series of new policies, which will have a significant and positive impact on the development of the industry. “China’s State Council on Wednesday announced support plans for the country’s nonferrous metals and logistics sectors. Presided over by Premier Wen Jiabao, Cabinet members agreed to promote company restructuring and will offer subsidized loans to support technical innovations within the nonferrous metals sector. The export rebate rates of nonferrous products should be adjusted, said the Cabinet without elaborating” (China View, 2009). These measures are sure to contribute to the development of the non-ferrous metal industry in the country.
In the context of global economic downturn, the domestic as well as international demand for non-ferrous metals is facing a severe challenge. However, in the Executive Committee of the State Council held in November 2008, it was decided to take serious measures for expansion of domestic demand and promotion of a stable and rapid economic growth, by pursuing the 10 measures for the revival of the economy. Accordingly, an estimated 4 trillion Yuan is expected to be invested towards end of the year 2010, which will boost the non-ferrous metal industry also.
Consumer goods, utility services and transport sectors are the most prominent industries, which make use of non-ferrous metals. With the revival of the global economy, these are the sectors, which are likely to register faster growth due to increased spending by the people. Chemicals, sports and leisure areas are the major consumers of the non-ferrous metal of Titanium. The industrial figures of China for the year 2007 show that chemicals sector consumes 36.9% of the overall titanium manufactured in the country, with sports and leisure industry consumes 24.3 %. As there is an estimated annual growth rate of population around 5% in China, these industries are also likely to register a comfortable growth, consuming more titanium. Therefore, a favorable climate can be expected.
China has beaten even industrially advanced countries in the area of technological development. Technology is an important aspect in the processing and production of non-ferrous metals. Despite the local development of technological capabilities, China has to depend largely on the import of the technical knowhow and some of the high-tech equipments and machines required for processing. To this extent, the industry faces a challenge in respect of the impact of technological factors.
There has been continued support from the government of China for the development of non-ferrous metal industry. With years of experience after opening up of the market economy, the government has formulated several legislations and systems to ensure smooth flow of industrial operations in all the sectors. All the legislations including labor and contract laws apply equally to promote the non-ferrous metal industry. Since all the legal frameworks are in a developed state in China, this factor may not have any adverse influence on the functioning of the non-ferrous metal industry.
Production of non-ferrous metals, especially titanium has an effect on the environment, as the production is likely to cause pollution. Despite the arrangement for discharge of waste materials, there is most likely some effect of the production will be felt on the environment in the form of pollution. In future when the environmental regulations are to become stringent, the industry is likely to have new challenges to face. Therefore, there must be adequate thinking towards decreasing the impact on environment is to be undertaken.
Porter’s Five Forces Model
Porter’s five forces model analyzes the impact of different forces acting on the competitive position of the firms operating in the industry. The intensity of the factors is assessed to determine the relative position of the firm with respect to competition in the industry.
Threat of New Entrants
There is no barrier to new entrants to the non-ferrous metal industry, as it does not require a huge capital outlay to set up a new production facility. With the encouragement by the government, there is the likelihood that more enterprises may venture in to the manufacture of non-ferrous metals especially titanium. Most of the new entrants use strategies of lower price and/or deferred payment strategies to compete effectively in the market. The intensity of threat from new entrants is high in the competitive position of non-ferrous metal industry in China.
Bargaining Power of Suppliers
With more number of suppliers available in the market with a reduced demand for the finished products, the suppliers do not enjoy a high bargaining power. The intake of raw materials from the non-ferrous metal producers has been severely hit due to reduced domestic as well as international demand for the final products. This factor does not a high intensity on the competitive position.
Bargaining Power of Customers
With the present economic conditions, the buyers have great power over the non-ferrous metal manufacturers, as the current demand for the finished products is less. There is stiff competition existing in the market in terms of price offerings, as every manufacturer is competing to acquire the available business.
Availability of Substitute Products
Availability of substitute products is not a serious factor affecting the competitive position of firms in the non-ferrous metal market. More particularly titanium, with its qualities of low density, strong and corrosion resistance, has been identified as a substitute for other non-ferrous products. For instance, titanium is one of the important raw materials in the production of space equipments and military weapons used as an alternative to steel. The metal is also used in making submarines. Since titanium is in the developing stage as a substitute for other products, there is no real threat from the availability of other substitute products.
With a large number of players operating in the industry, there is stiff competition existing among the manufacturers to capture a higher market share. Low cost is the main strategy used by the firms to compete with each other. Firms find it difficult to avoid price wars. The competitive rivalry is very high in the non-ferrous metal industry making it difficult for the firm to face the stiff competition among each other.
Case Study of Shengteng Titanium Company
The following sections present the internal environmental analysis of Shengteng Titanium Company to suggest suitable strategic measures for improving the working of the company.
Shengteng Titanium Company – a Background
Shengteng Titanium Company is one of the pioneers in titanium manufacturing in the northern China region, established in the year 1992. The factory employs 100 workers and 20 administrative staff. The company has specialized in mill products of titanium and its alloys. The production system is integrated to include melting, forging, rolling, drawing and fabricating. The finished products include ingots, billets, bars, wires, plates, sheets, tubing, forging and different grades of C.P. titanium and other down-stream products. The capacity of Shengteng is around 2500 tons of titanium lumps and 1200 tons of titanium-based merchandise including those made of other titanium-based metals per annum. The production unit of Shengteng has several furnaces and imported equipments to facilitate the smooth production of titanium-based products. Shengteng has other production activities like production of titanium scrap materials.
During the last seventeen years, Shengteng Titanium faced the impact of three cycles, which happened to be the largest global cycles with affected the titanium industry. First, the collapse of the USSR and the end of the cold war had resulted in a decline in the global military expenditure and the titanium held in stock by the USSR when offered for sale globally resulted in a glut in the world market resulting in drastic reduction in titanium rates. Secondly, the Asian financial crisis had an adverse impact on the international airline sector, which in turn affected the performance of the titanium production and industry growth. Finally, the 9/11 terrorist attack had its impact on the global airline industry leading to a decline in the growth of the titanium industry.
Despite the adverse impacts of these economic events, Shengteng was able to withstand the impact by its brilliant management strategy and stable production capabilities. The company took advantage of the increase in prices during 2004 and 2005. However, the drastic decline in prices because of reduced price of raw material for titanium during 2007 and the impact of global economic meltdown in the year 2008 had its impact on the financial performance of Shengteng. Because of these events, the company suffered heavy losses in the last two years and from the end of 2008 until the first half of 2009, sales of Shengteng suffered a downward trend and the turnover has fallen into unexpected predicament. This situation calls for the recommendation of strategic management in Shengteng Titanium Company.
Internal Analysis of Shengteng Titanium
The objective of applying key analytical tools is to identify the strengths and weaknesses of the firm. The analytical tools are applied to understand the implications of resources, capabilities, and distinctive competencies in the process of creating product and firm values and in enlarging the stakeholder wealth. The owners of small businesses have to take into account several factors while applying the key analytical tools. These factors include the importance of improving the efficiency of the firm, improving the innovative capabilities of the firm, quality levels of products and the ability of the firm to respond to the customer needs and preferences and other sources of competitive advantages. Owners can apply different strategic tools for identifying the strengths, weaknesses and the core competencies of the form leading to sustainable competitive advantages.
For instance, the objective of undertaking a SWOT analysis is to generate information, which helps in aligning the organizational goals and its resources and capabilities, so that then firm can perform to adapt itself to the external environment in which it operates. The strengths represent the positive tangible and intangible attributes which are internal to an organization and which are well within the control of the organization. The weaknesses on the other hand include the elements, which are within the control of the organization that detract from its ability to reach the organizational goals. The weaknesses also identify areas, which require improvements. While the external attractive factors, which represent the reasons for which the organization has to exist and grow are identified as opportunities, the external factors which are outside the organizational control and which can hinder the organization’s mission are known as threats. Using the distinct elements of SWOT analysis as a strategic planning tool, the management team of a small business can undertake a traditional strategic planning process. During the analysis, the management team makes a list of the organization’s strengths, weaknesses, opportunities and threats and assesses each of these individual elements purely from a growth perspective of the organization. “Each of these controlling forces prompts the team to consider factors that might easily be overlooked as it shapes the future of the organization”. (RapidBi, 2000). The steps involved in the SWOT analysis enables a complete understanding of the firm’s own strengths and resources and its relative position in the market with respect to competitors. The process evaluates all the elements both inside and outside the organization acting on the performance of the organization thoroughly to facilitate meaningful decision-making.
Over the period, Shengteng has made the quality of the products as the first priority. The cost savings initiatives of the company have helped the company offer its products at competitive prices. The company has maintained a long-term relationship with many suppliers and customers, by consistently dealing with them. This has enabled the company to create a widespread network throughout China. The company has a very low employee turnover rate and more than 35% of its employees have been working for a long time with the company. Above all the company has accumulated rich experience in surviving critical periods due to its exposure to economic shocks like the Asian Crisis and 9/11 terrorist attack, in both of which the industry suffered greatly.
The major weakness in Shengteng relates to the human resources available. Recruitment and retention of better-qualified and experienced managerial personnel has always been a problem for Shengteng. The location of the production facility acts as a hindrance for recruiting persons with qualifications from good business schools as those talents would prefer to work only in cities like Beijing and Shanghai. Even though Shengteng has an integrated production system, most of the plant and equipments are old existing since 1999. The company has not invested in modernizing any of the machineries with the result that the production capabilities of the company have become inefficient as compared to the new competitors entering the industry. In the absence of better-qualified marketing team, the company is unable to take part in trade fairs and exhibitions making its presence in the market. This is a serious weakness for the company.
As a result, the company is unable to gather the market information on the developments in the industry, which serious affects the growth of the company.
The decline in the price of raw materials presently provides an opportunity to procure and stock for future consumption at lower cost. The support from the government to the non-ferrous metal industry will act to improve the position of Shengteng. The revival of the global economic situation will lead to revival of the consumer goods, chemical, and sports and leisure industries, which are important users of titanium and this offers an opportunity for the company. With the economic downturn most of the unviable industries, which were unable to withstand the economic pressure has exited the industry. This increases the opportunity for Shengteng to sustain its growth efforts.
Despite the likely revival of the global economy, the titanium prices have not moved up significantly. This is a clear threat to the performance of the industry. The competitive action in the industry in the form of “low price” and “deferred payment” strategies affect the business of Shengteng seriously. With the economic situation, the industry faces considerable difficulties in recovering the dues from the customers to whom the companies have supplied on credit. This affects the cash flow situation and the companies are unable to invest on new capital equipments for modernizing their production facilities.
This chapter made an environmental analysis of the non-ferrous metal industry and SWOT analysis of Shengteng Titanium Company, the entity chosen to make a case study. The next chapter presents an analysis of the findings of the case study.
Analysis and Discussion
Based on the internal and external analysis conducted Shengteng should be able to formulate different strategies to develop a competitive advantage. Even though there are choices of different strategies like business level strategy, corporate level strategy, acquisition and restructuring, international, and co-operative strategy, Shengteng may not use all of these. It is important for a firm such as Shengteng to have a business level strategy developed to identify, nurture, and sustain its competitive advantage (Quick MBA). The application of any management tool can help to understand the particular aspects of an organization and the environment surrounding it in a better way. However, there are no other models for pursuing strategic management practices next to the application of the management tool. It is for the managers to draw the necessary conclusions based on the information provided by the analysis. Therefore, the application of strategic planning models like SWOT analysis would be able to provide the maximum information on the different aspects of an organization or its environment and the management has to use this information to formulate appropriate strategic plans to enlarge the sales and to improve the growth of the organization.
In order to be effective, the strategies developed should have the backing of systems and coordinated efforts from the organization for their implementation. “Implementation involves organization of the firm’s resources and motivation of the staff to achieve objectives” (QuickMBA). The success of the strategies largely depends on the way in which they are implemented. Since in large corporate level organizations there will be different set of people for formulating and implementing the strategies, a proper, clear, and cohesive communication of the strategies becomes vitally important (Quick MBA). However, it may not be possible in smaller companies like Shengteng. According to Wheelen & Hunger (1998), the smaller companies should have new mission, objectives, strategies and policies as compared to the available external opportunities and threats to their potential strengths and weaknesses. To improve the effectiveness of the strategies, there should be a continuous monitoring, assessment and management of the execution of the strategies. The evaluation and control process involves:
- Definition of the parameters for measurement of performance
- Definition of the different targets for the defined parameters
- Measurement of performances
- Comparing the performance measured against the predetermined standards and
- Making the necessary changes and amendments wherever necessary
As already observed Wheelen & Hunger, (1998) have dealt with the issue of strategic management in smaller companies. Shengteng in order to sustain its market position and growth should adopt strategic management practices immediately. According to the strategic management model developed by Wheelen & Hunger, (1998) the following are the steps involved in the process applying strategic management to small businesses.
- Developing the basic business idea revolving around a product and/or service, which have a definite target customers and/or definite markets. The business purpose can also be called the mission of the business. Mission is a brief statement about the purpose for which the business exists. A mission need not necessarily be a difficult one, but at the same time should provide the core idea of the entrepreneur with respect to his business in nutshell.
- Setting organizational goals, which aim at accomplishing the business purpose or mission already established. In this step, there is the need to make choices by looking at a wide range in selecting the business objectives. SWOT analysis is an analytical tool, which can help in setting organizational goals.
- The next step in the strategic management for small enterprises is to evolve strategies for reaching each goal. In this step, the entrepreneur has to analyze the individual business goals and formulate strategies for achieving the goals.
- The implementation of strategies can be achieved by drafting suitable action plans. Proposed course of action represents the particular sequence of actions that the business will use to make the strategies implemented. This course of action in general represents the short-term business goals.
- The final step in the implementation of strategies in small businesses is to evaluate the implemented business plans by comparing the actual performance against projected performance levels. This is the stage, at which many of the strategic plans fail. If a proper follow up is not made as to whether the action plans have been implemented properly, the entire efforts of implementation of strategies may be wasted.
Shengteng should follow the above steps in introducing strategic management concept in its functioning and first define its business objectives in terms of sales growth, revenue growth, improvements in its value chain, increasing the stockholders’ wealth and employee performance. The recommendations for Shengteng are detailed in the next chapter, which concludes this research report.
Conclusion and Recommendations
With the general economic improvement plans and the proposed boost to non-ferrous metal industry, there is most likely to be a bright future for smaller companies like Shengteng Titanium Company, provided, the company is able to streamline its activities by engaging strategic management practices. The external environmental analysis and the internal analysis through SWOT analysis will enable the company to formulate its strategies based on its resources and capabilities, which can be converted into definite competitive advantage. In the case of Shengteng, the quality of its products and its market reputation appear to be its core competencies, which the firm should be able to convert into its competitive advantage. To achieve this, first, the company should set its business objectives clearly by defining its mission and vision and business levels it would like to achieve in the years to come. The company must strengthen its information base so that it can remain competitive. Second, although there is the location constraint, the company can become one of the best employers by providing better service benefits and ensuring work-life balance comparable with other best companies in the industry. Third, the company must do a complete reengineering of its production facilities to remove the inefficient plant and machineries and replace them with modern and more efficient equipments. Unless Shengteng undertakes a modernization effort, the company may not be able to become competitive. Fourth, Shengteng should take advantage of the proposals supported by the government to diversify into another profitable area to supplement the existing titanium production activity. There are certain projects identified by the government eligible for support in the form of project subsidies, which Shengteng must pursue to diversify its activities.
Fifth, the company should develop and install a performance measurement system so that the company is able to assess where the company is lacking in terms of productivity and efficiency and take corrective action to improve the efficiency in those areas of weaknesses.
Limitations of the Study
The major limitation of the study was to determine the findings and results of the past studies that could be included in the research report, as there is abundance of past literature on the topic of strategic management in general. However, there was dearth of studies that addressed the application of strategic management principles to a small organization as that of Shengteng. The second limitation was on the research method that could be adopted for the study. Even though case study is a prominent research method, an empirical study including a quantitative survey would have enhanced the value of the research. However in the absence of small industries having knowledge on applying strategic management principles appeared to be very less in the non-ferrous metal manufacturing sector, which did not justify a quantitative survey. Therefore, the researcher has to settle with case study method. Nevertheless, the findings of the case study have provided a reasonable understanding of the necessity on the application of strategic management principles and practices in a small non-ferrous metal manufacturing concern.
While the recommendations for Shengteng Titanium Company are dealt with in section 6.1 this section makes some recommendations for further research in the area of strategic management in smaller enterprises in different industries. An empirical study on the implementation of strategic management practices in small companies functioning under different industries will throw light on the difference in practices of the respective industries. This will help improving the utilization of strategic management approaches in different industries. An elaborate study of the software-based modern strategic management applications that can be used by small industrial firms will enhance the knowledge on the area. A comparative study of the strategic management practices in different settings like China and the US or China and the UK will be beneficial to the small entrepreneurs in China to improve their strategic management applications.
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