Scenario Planning Issues - Essay Example

Scenario planning is an approach of forecasting or evaluating the future concerns or problems and go about solving them before hand. Scenario planning nowadays is widely used by manager as a part of contingency planning or to devise backup plans if business plan or plan of actions does not go according to predetermined plans. For example, suppose that a business demand is booming, so it doubles it production but later it finds out that advent of new competitors would mean that most of the increased production will have to be go to warehouses as company's market share falls. In this case, strategic managers should plan in advance and foresee future problems and counter them. For example, in this case, a business might introduce various promotions and selling activities to make sure its market share remains high. (Kevinlane Keller and Kotler, 2000) Scenario planning is also used by various exporting business as a part of their strategic management policies to counter problems caused by uncertainty. For example, in our case we are analyzing a business which exports organic clothing to India. This involves certain processes which are not under control such as crops that are used to manufacture clothes and textile mills which are going manufacture these crops into raw cloth. Exporting process is a tough job and time management is extremely necessary, otherwise the importing companies which are based in Europe and the US do not accept the cloth. The rules are so strict that even if the exporting companies are one day late, these companies cancel the order and exporting companies suffer huge losses. Now let's look at the situation of our clothing company in light of PEST analysis of India. As we all know that India is biggest democracy in the world and perhaps the biggest economy of all emerging market economies of the world. In the recent year, we know that India has faced problems like terrorism and strikes. During these strikes all the business activity is ceased in India. This causes a lot of problem for exporting business and they have to plan head and keep themselves ahead of the deadline. So, considering the political environment of India and acts of terrorism, our organic clothing company will have to be very cautious of political situation of India and will have to be ahead of time, so that it does not find its buyers canceling orders. This can be done by telling textile firms and farmers that they need the particular quantity of material on the specified dates and keep check and balance by visiting the sites such as farms and textile factories to see that both the farms and factories will be able to provide the necessary amount of material at the specified dates. If these farms and factories do not provide the firms with the specified material, the firm should use its contingency plan, to make sure it does not lag behind the shipment data. These contingencies plans can be buying cloth that is already available in the market and then process it and export it to the USA and Europe. This way, our clothing firm can beat the political challenges that are there in the Indian economy. (CNN IBN Video Report on Terrorism in India, 2008) If we look at economic analysis we will find out that Indian economy relies on old and unreliable infrastructure. This infrastructure often gets badly damage and does not function properly in case of rains and other natural catastrophes. In order to remove this problem, firm can contract an international firm like Fed-Ex or any other big name in the market to make sure that its material always reaches the buyers on time (Data Monitor, 2008). Similarly, another problem in the Indian economy is less mechanization and more dependence on unskilled labor. This labor often spoils the whole lot, which is a big profit-reducer for our firm. Our firm therefore, should try to invest on R& D to make sure that we transfer the best technology to India which will not only increase our reputation in the international market, but this will also help us into becoming more efficient and hence more profitable.(Bamford, 2003). There are also lot of benefits offered to exporting companies such as reduced duties which will also make us more likely to beat the competition that comes from Bangladesh, Pakistan and Sri Lanka. We can use this to increase our buyers based and improve our position in the market. (Vladmir Kvint, 2009) If we look at the social facet of the India economy, we will find out that very few women work in the clothing industry. This limits the labor available for firms to hire and as a result they have to rely on child labor and as a result these firms get a bad name in the international market. They can counter this problem by encouraging woman to work and by encouraging people to become more career-oriented through advertising and this will help them relish the benefits of more people working in the economy in future. (India Pestle Analysis, 2008) The discussion in PEST analysis proves that since Indian economy is a developing one, there's a dire need for our firm to invest heavily in human capital and mechanization. Our firm will also face a lot of uncertainty in this economy in the form of terrorism, strikes and social issues, but if we are able to successfully foresee these problems then the work will become a lot easier for us and we can always rely on scenario analysis to smooth out any kinks that we face in our operations. Porter forces model is an approach developed by Michael E. Porter, to determine the competition in the industry. It views the competition in the industry through lens of the said model. (Daft, 1997) In the light of porter analysis, we can see that threat of new entrants that our company faces is very high. This is because there is very little capital required setting up a firm like us and it is going to provide a lot of competition to us. In order to counter this we will have to develop a good market share and loyal customer, so that our customers don't desert us one the competition appears. The supplier power of farmers and textile factories is very low and hence we are in a strong position and they cannot exploit us. The reason why they have low power is because the availability of plentiful supplier in the market and hence we can take advantage of threatening the suppliers if we purchase in bulk. The threat of substitutes is very high in the industry in the form of non-organic cloth and hence we are in a dangerous position if people's trend shifted from buying organic to non-organic. We can counter this problem by persuasive advertising and persuading people to buy organic than non-organic to make sure our position turns from weak to strong. Our company is also in a good position, since there are a lot of buyers in the USA and European market who would want to import organic cloth. However, our position currently is only neither weak nor strong unless we differentiate our products or build a valuable brand name. Our position can also be improved if we supply cloth at lower rates than our competitors. This way we can have a good competitive position in the market against our competitors and buyer will prefer us instead of our competitors. Industry rivalry in the organic clothing industry is also very high due to the factors discussed above such as low barriers of entry, a lot of substitutes and this market being a perfectly competitive market. (Armstrong, 2004) The above situation is labeled on the diagram: References: Richard L. Daft.(1997) Management 4th Edition. The Dryden Publishing Gary Armstrong and Phillip Kotler (2004). Principle of Marketing. McGraw Hill Vladmir Kvint. Forbes.Com: Defining Emering Markets. 29 January 2009 Kevinlane Keller and Phillips Kotler (2000). Marketing Management. McGraw Hills Collin Bamford (2003). As and A Level Economics. Oxford University Press Peter Stimpson. (2000). Business Studies. Oxford University Press. John D. Sloman. (2001). Economics. Pearson Publishing India Foreign Investment Incentive. (2009). Tax Encouragement Law. www.worldwide-tax.com/india/ind_invest.asp CNN IBN. (2008). "News report on Mumbai Attacks". Can be viewed at You Tube. Data Montior (2008). A Detailed Report on India Pestle Analysis. Read More