The Impact of the Domestic Regulatory Environment - Case Study Example

? Word count: 1248 Order # 541181 d 31st May The impact of the domestic regulatory environment on competition and corporate strategy development. The biggest challenge faced by private firms or industrial houses is in the form of competition from other firms in production of similar goods and services. Hence, the objective of any corporate agency would be designed to achieve the best quality produce that derives maximum customer satisfaction. In addition, the ability to produce the unit quantity of produce with minimum cost and value addition for obtaining maximum price would be preferred by the industries to strive well in the competition. Now a days, after the globalization and liberalization policies, the competition is not only from companies located with in a nation but also from firms established globally. All these factors that affect the competition and firm’s strategic management plans would be further influenced by domestic regulatory environment. The domestic regulatory environment includes the government policies that aim at social and economic justice, tariff structure in different services and technical regulations that aim at enhancing the growth rate. The influence of external environment and government polices on the corporate strategic options was well established (Venkatraman and Prescott, 1990). Though it was proved that the role of management positively influences the company’s performance, still the constraints caused by the domestic environment may result in negative growth rate (Thomas et al., 1991). This may happen at higher intensity when the domestic regulatory environment discourages the products of the company by putting environmental safety norms. The government policies may also aim at bringing welfare state of the society for which the companies may be asked to follow the steps fulfilling the social obligations which in turn negatively influence the firm’s performance (Bryer, 1982). At the same time, the government regulations on the market structure may give benefit to some firms and may prove detrimental for other firms. In other words, the companies may take competitive advantage if government policies bring positive change in its production factors. For example, a company that manufactures automobiles may get tremendous benefit, if government policy is taken to reduce the excite tax on spare parts of automobiles. Similarly, the companies which are involved in fruit juice making may get huge benefit if the government policy encourages the export environment by giving tax concessions. At the same time, the companies that are involved in electronic goods may incur losses if the domestic environment encourages the imports from other nations at a cheaper price. Hence, the private or corporate business firms must have dynamic strategic management development options which provide higher adaptation compared to its competitors in the market (Teece et al., 1997). The element of diversification gives remarkable edge to the corporate houses in making flexible adjustments in response to any domestic regulatory environment. The advantage of mixing several products that suit the customer needs in terms of competitive edge and firms performance was well established (Simmonds, 1990). Those firms which concentrated only on one product have higher risk due to change in domestic regulatory environment. These firms may respond well to the technical regulations laid down by the government from time to time, but they fail in their competitive ability and adjusting to the new tariff structure in the market and to the regulations related to social and economic justice in the society. The companies which have strong and dynamic strategic development / management team strive well in the market as they predict the new changes in domestic regulatory environment and hence they respond faster to the changes with highest competitive ability. The corporate houses must respond to the domestic regulations as early as possible to reduce the losses and to capitalize the new situation better than other firms. If earlier response to domestic regulations can be guaranteed by the firms, the impact of government policies on corporate strategic development would be very much positive. Moreover, the strategic management team should have the ability to study and analyze the global changes that may influence the domestic regulations. In other words, the strategic management experts must be efficient in predicting the future changes in domestic polices so that the firm’s competitiveness would be improved relative to other firms. For example, Du Pont responded quite early to the Montreal Protocol signed in 1987 that aimed at reducing the emission of CFCs (chloroflouro carbons) for protecting the ozone layer. Du Pont was the largest producer of CFCs and it understood the consequence of Montreal protocol on its net profits and it was committed to safety and protection regulations (DuPont, 2011). Hence, it immediately declared that it was committed to produce the products that emit less concentration of CFCs. At the same time, it also infused an element of confidence among its existing customers to supply the produce at lower prices and hence it developed better competitive ability in the market. This was made possible due to its strong strategic research and analytical team which predicted the possibility of such regulations on the emission rate of CFCs and hence facilitated its faster response to the domestic regulations. The advantage of early response of the corporate firms to domestic regulations was also reported by Kerin et al. (1992) and Nehrt (1998). Mc Donalds is another example that succeeded in adapting well to the domestic environment regulations (Mc Donalds, 2011). Mc Donald, the world’s largest fast food provider, initially had problems with environmental norms and hence its image in maintaining the environmental safety was not that satisfactory. Realizing its impact on the customer loyalty and satisfaction, the strategic management team of Mc Donald took some remarkable steps for improving its image in the market. It has initiated several environmental safety campaigns and developed technology that is environment friendly and most importantly developed linkages with reputed environmental agencies of USA like EDF (Environmental Defence Fund) (EDF, 2011). This has elevated its image in terms of producing food that is safer with out affecting the environment. Hence, Mc Donald proved that the challenges that arise in the form of domestic regulations and technical regulations can be transformed in to opportunities by developing competitive ability and suitable techniques by strategic development team. Overall, it may be concluded that the domestic regulatory environment has tremendous influence on the performance of the corporate firms in the form of competitive ability and strategy development. The ability of the firms to predict the changes in domestic regulatory environment and faster response to the new changes would certainly provide better competitive edge to the firms than others. References Bryer, S. (1982). Regulation and its Reform. Cambridge, MA: Harvard University Press.P:472. ISBN 0674753755. Du Pont. (2011). Welcome to Safety & Protection. Du Pont. http://www2.dupont.com/Safety_and_Protection/en_US/. Retrievd on 30th May 2011. EDF. 2011. Environmenatl Defense Fund. http://www.edf.org/home.cfm, Retrieved on 29th May 2011. Kerin, R.A., Varadarajan, P. R. & Peterson, R. A. (1992) First-mover Advantage: A Synthesis, Conceptual Framework and Research Propositions, Journal of Marketing, 56: 33-52. Mc Donalds, 2011. Values in Action, http://www.mcdonalds.com/us/en/our_story/values_in_action.html. Retreived on 30th May 2011. Nehrt, C. (1998). Maintainability of First Mover Advantages When Environmental Regulations Differ Between Countries. The Academy of Management Review 23(1): 77-97. Simmonds, P. G. (1990). The combined diversification breadth and mode dimensions and the performance of large diversified firms, Strategic Management Journal, 11: 300-312. Teece, D. J., Pisano, G. & Shuen, A. (1997). Dynamic Capabilities and Strategic Management, Strategic Management Journal, 18(7): 509-533. Thomas, A. S., Litschert, R.J. & Ramaswamy, K.(1991). The Performance Impact of Strategy-Manager Coalignment: An Empirical Examination, Strategic Management Journal, 12: 509-522. Venkatraman, N. & Prescott, J. E. (1990). Environment-Strategy Coalignment: An Empirical Examination of its Performance Implications, Strategic Management Journal, 11: 1-23. Read More