PPT-IM UNIT- III Global Entry PDF

GLOBAL ENTRY  UNIT III GLOBAL ENTRY 9 Strategic compulsions-–Strategic options – Global portfolio management-Global entry strategy, different forms of international business, advantages - Organizational issues of international business – Organizational structures –...

GLOBAL ENTRY  UNIT III GLOBAL ENTRY 9 Strategic compulsions-–Strategic options – Global portfolio management-Global entry strategy, different forms of international business, advantages - Organizational issues of international business – Organizational structures – Controlling of international business, approaches to control – Performance of global business, performance evaluation system.  Learning Outcome 1. To Understand the Concepts of strategic compulsions and their importance in international business. 2. To Identify Options for various strategic options available to businesses in the international context. INTERNATIONAL STRATEGIC MANAGEMENT International Strategic Planning International strategic planning is a process of evaluating the internal and external environment by multinational organizations, through which they set their long-term and short-term goals and then they implement a specific plan of action in order to achieve those objectives. Strategic management is the process of systematically analyzing various opportunities and threats vis-à-vis organizational strengths and weaknesses, formulating and arriving at strategic choices through critical evaluation of alternatives and implementing them to meet the set objectives of the organization. INTERNATIONAL STRATEGIC MANAGEMENT Strategic Compulsions: It means that the companies face the compulsion to be global if they want to gain the global market and more values. But in the modern context strategic management faces many compulsions. The present and future development of the field of strategic management is likely to be driven by compulsions like contemporary developments in social and economic theory and recent changes in the nature of the business and economic context. To survive in the world of cut- throat competition, companies must sell their products in the global market. It is necessary to come up with new strategies to win more customers. Effective strategic management requires strategic estimation, planning, application and review/control. The path for strategic management is activated by compulsions like modern developments in the societal and economic theory and the recent changes in the form of business, apart from the economic context. INTERNATIONAL STRATEGIC MANAGEMENT Areas of Strategic Compulsions :  E-commerce and Internet Culture − Expansion of internet and information technology made the business move towards e-commerce. Online shopping /Selling and Advertising are important issues. These factors compel the businesses to go modern.  Hyperactive Competition − Businesses now are hyper-competitive which compel them to draw a competitive strategy that includes general competitive intelligence to win the market share.  Diversification − Uncertainty and operational risks have increased in the current global markets. Companies now need to protect themselves by diversifying their products and operations. Businesses now are compelled to focus on more than one business, or get specialized in one business.  Active Pressure Groups − Contemporary pressure groups direct businesses to be more ethical in their operations. Most of the multinationals are now spending a good deal to address their Corporate Social Responsibility (CSR). INTERNATIONAL STRATEGIC MANAGEMENT Strategic Options: Strategic Options include a set of strategies that helps a company in achieving its organizational goals. It is important to do a SWOT analysis of the internal environment and also the external environment to get the list of possible strategic alternatives. INTERNATIONAL STRATEGIC MANAGEMENT Strategic Options: Strategic Options include a set of strategies that helps a company in achieving its organizational goals. It is important to do a SWOT analysis of the internal environment and also the external environment to get the list of possible strategic alternatives. A business can’t run on gut feeling and hence, strategic options are indispensable tools for every international business manager. The following diagram shows the very basic options to choose – whether to go global or act local while improving the business in a holistic manner. Strategic options/choice involves the selection of a strategy or set of strategies that helps in achieving organizational objectives.  Global strategy  International strategy  Transactional strategy  Multi-domestic strategy INTERNATIONAL STRATEGIC MANAGEMENT Global strategy: It views the world as a single market. Tightly controls global operations from headquarters to preserve focus on standardization. International strategy: In this strategy company extends marketing, manufacturing and other activities outside the home country. Multi-domestic strategy: the international company discovers that differences in markets around the world demand an adaptation of its marketing mix in order to succeed. Transactional strategy: this is company that thinks globally and acts locally. The transactional corporation is much more than a company with sales, investments and operations in many countries. INTERNATIONAL STRATEGIC MANAGEMENT INTERNATIONAL STRATEGIC MANAGEMENT Factors that Affect Strategic Options There are many factors that need to be taken care of while choosing the best possible strategic options. The most influential ones are the following −  External Constraints − The survival and prosperity of a business firm is fully dependent on interaction and communication with the elements that are intrinsic to the business. It includes the owners, customers, suppliers, competitors, government, and the stakeholders of the community.  Intra-organizational Forces − The big decisions of a company are often influenced by the power play among various interest groups. The strategic decision-making processes are no exception. It depends on the strategic choices made by the lower Management and top notch strategic management people.  Values and Preferences towards Risk − Values play a very important role, It has been observed that the successful managers have a more pragmatic, interactive and dynamic progressive and achievement seeking values. The risk takers in the high-growth less-stable markets prefer to be the pioneers or innovators. They seek an early entry into new, untapped markets.  Impact of Past Strategies − A strategy made earlier may affect the current strategy too. Past strategies are the starting point of building up a new strategies. INTERNATIONAL STRATEGIC MANAGEMENT Factors that Affect Strategic Options There are many factors that need to be taken care of while choosing the best possible strategic options. The most influential ones are the following −  Time Constraints − There may be deadlines to be met. There may be a period of commitment, which would require a company to take immediate action.  Information Constraints − The choice of a strategy depends heavily on the availability of information. A company can deal with uncertainty and risks depending on the availability of information at its disposal. Lesser the amount of information, greater the probability of risks.  Competitor’s Risk − It is important to weigh the strategic choices the competitors may have. A competitor who adopts a counter-strategy must be taken into account by the management. The likelihood of a competitor’s strength to react and its probable impact will influence the strategic choices. INTERNATIONAL STRATEGIC MANAGEMENT Global Portfolio Management Global Portfolio Management, also known as International Portfolio Management or Foreign Portfolio Management, refers to grouping of investment assets from international or foreign markets rather than from the domestic ones. The asset grouping in GPM mainly focuses on securities. The most common examples of Global Portfolio Management are −  Share purchase of a foreign company  Buying bonds that are issued by a foreign government  Acquiring assets in a foreign firm Factors Affecting Global Portfolio Investment Global Portfolio Management (GPM) requires an acute understanding of the market in which investment is to be made. The major financial factors of the foreign country are the factors affecting GPM. The following are the most important factors that influence GPM decisions. Tax Rates: Tax rates on dividends and interest earned is a major influencer of GPM. Investors usually choose to invest in a country where the applied taxes on the interest earned or dividend acquired is low. Investors normally calculate the potential after-tax earnings they will secure from an investment made in foreign securities. Interest Rates: High interest rates are always a big attraction for investors. Money usually flows to countries that have high interest rates. However, the local currencies must not weaken for long-term as well. Exchange Rates: When investors invest in securities in an international country, their return is mostly affected by −  The apparent change in the value of the security.  The fluctuations in the value of currency in which security is managed. Investors usually shift their investment when the value of currency in a nation they invest weakens more than anticipated. Modes of Global Portfolio Management Foreign securities or depository receipts can be bought directly from a particular country’s stock exchange. Two concepts are important here which can be categorized as Portfolio Equity and Portfolio Bonds. These are supposed to be the best modes of GPM. A brief explanation is provided hereunder. Portfolio Equity : Portfolio equity includes net inflows from equity securities other than those recorded as direct investment and including shares, stocks, depository receipts (American or global), and direct purchases of shares in local stock markets by foreign investors. Portfolio Bonds Bonds are normally medium to long-term investments. Investment in Portfolio Bond might be appropriate for you if −  You have additional funds to invest.  You seek income, growth potential, or a combination of the two.  You don’t mind locking your investment for five years, ideally longer.  You are ready to take some risk with your money.  You are a taxpayer of basic, higher, or additional-rate category. Global Mutual Funds: Global mutual funds can be a preferred mode if the Investor wants to buy the shares of an internationally diversified mutual fund. In fact, it is helpful if there are open-ended mutual funds available for investment. Closed-end Country Funds: Closed-end funds invest in internationals securities against the portfolio. This is helpful because the interest rates may be higher, making it more profitable to earn money in that particular country. It is an indirect way of investing in a global economy. However, in such investments, the investor does not have ample scope for reaping the benefits of diversification, because the systematic risks are not reducible to that extent. Drawbacks of Global Portfolio Management: Global Portfolio Management has its share of drawbacks too. The most important ones are listed below.  Unfavorable Exchange Rate Movement − Investors are unable to ignore the probability of exchange rate changes in a foreign country. This is beyond the control of the investors. These changes greatly influence the total value of foreign portfolio and the earnings from the investment. The weakening of currency reduces the value of securities as well.  Frictions in International Financial Market − There may be various kinds of market frictions in a foreign economy. These frictions may result from Governmental control, changing tax laws, and explicit or implicit transaction costs. The fact is governments actively seek to administer international financial flows. To do this, they use different forms of control mechanisms such as taxes on international flows of FDI and applied restrictions on the outflow of funds.  Manipulation of Security Prices − Government and powerful brokers can influence the security prices. Governments can heavily influence the prices by modifying their monetary and fiscal policies. Moreover, public sector institutions and banks swallow a big share of securities traded on stock exchanges.  Unequal Access to Information − Wide cross-cultural differences may be a barrier to GPM. It is difficult to disseminate and acquire the information by the international investors beforehand. If information is tough to obtain, it is difficult to act rationally and in a prudent manner. Global Entry Strategy -Global market entry strategies How you enter your new market will be determined by the nature of your product and/or service, and the conditions and requirements of your chosen market segment and location. Exporting strategies: Direct strategies When you sell directly to end-users, you eliminate the middlemen making it easier to customize your market entry strategy to reflect the market conditions you may face. Sales can be made directly between you and end-users, or they can be made through local sales representatives who promote your product and/or service without taking ownership. You can use a distributor to sell your products directly to buyers. When you sell directly to end-users, you'll be responsible for:  market research  marketing  distribution  warehousing and delivery of your product and/or service  customer and after-sales service  Sales order, and billing. Indirect strategies: When you sell indirectly to end users, exports are not handled directly by the manufacturer or producer, but through intermediaries such as agents, export management and trading companies. In most cases, the exporting process is simplified and export management companies are usually responsible for:  providing market information  appointing sales representatives in the importing country  devising promotional strategies  organizing shipping  export documentation Export trading companies usually provide support services such as distribution, warehousing, shipping, billing and insurance. Indirect strategies: When you sell indirectly to end users, exports are not handled directly by the manufacturer or producer, but through intermediaries such as agents, export management and trading companies. In most cases, the exporting process is simplified and export management companies are usually responsible for:  providing market information  appointing sales representatives in the importing country  devising promotional strategies  organizing shipping  export documentation Export trading companies usually provide support services such as distribution, warehousing, shipping, billing and insurance. Countertrade :A countertrade is a form of exporting where goods and services are paid for in full, or in part, with other goods and services. Selling online There are a few different approaches to selling online. You can:  set up your own website in the export destination country which incorporates an online store, known as Business-to-Consumer  sell your product wholesale to major e-commerce sites, which will then manage the marketing, sales and distribution to customers, known as Business-to-Business  set up an online store within a major e-commerce site, known as Business-to-Consumer  Sell your product through a third-party store or online supermarket, known as Business- to-Business to-Consumer. Contractual entry modes: Licensing: Licensing allows an individual or a company that owns intangible property (such as copyright or a trademark) to grant another party the right to use that property for a specified period of time, and under specified conditions. Payment is received in the form of royalties. Contractual entry modes: Franchising: Franchising is when the owner of the business providing a product and/or service (the franchiser) assigns to independent people (the franchisees) the right to market and distribute the franchiser's products and/or service, and to use the business name for a specified period of time, and under specified conditions. Investment entry modes: Joint ventures: A joint venture is when a separate company is created, and jointly owned by two or more independent entities to achieve an objective. Strategic alliances: A strategic alliance is when two or more entities cooperate to achieve a strategic goal. Depending on the goals, alliances can be formed between a company and its suppliers, customers, or even its competitors in some instances, for short, medium or long-term periods. Wholly owned subsidiaries: A wholly owned subsidiary is a company that is completely owned and controlled by a single parent company. Forms of International Business Forms of International Business : 1.Exporting: Exporting means producing/procuring in the home market and selling in the foreign market. Exporting is not an activity just for large multinational enterprises; small firms can also make money by exporting. In recent days, exporting has become easier though it remains a challenge for many firms. 2. Licensing: A licensing is an agreement whereby a licensor grants the rights to intangible property (patents, intentions, formulas, processes, designs, copyrights and trademarks) to another entity (licensee) for a specified period and in return the licensor receives a royalty/fee from the licensee. 3. Franchising: Franchising is basically o specialized form of licensing in which the franchiser not only sells intangible property to the franchisee but also insists that the franchisee agrees to abide by strict rules as to how it does business. 4.Joint venture: A joint venture entails establishing a firm that is jointly owned by two or more independent firms. Forms of International Business : 5. Management Contracts: A firm in one country agrees to operate facilities or provide other management services to a firm in another country for an agreed upon fees. 6. Turnkey projects: In a turnkey project, the contractor agrees to handle every details of the project for a foreign client, including the training of operating personnel. At completing of the contract the foreign client handles the ‘key’ of a plant that is ready for full operation 7. Strategic international alliances: A strategic international alliance is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective. 8. Direct foreign investment: Direct foreign investment is another important form of international business. Companies may manufacture locally to capitalize on low cost labor, to avoid high import taxes, to reduce the high cost of transportation to market, to gain access to raw materials or gaining market entry.  Advantages of Different Forms of IB Direct Exporting  You can select your foreign representatives in the overseas market.  You can utilize the direct exporting strategy to test your products in international markets before making a bigger investment in the overseas market.  This strategy helps you to protect your patents, goodwill, trademarks and other intangible assets. Licensing and Franchising  Low cost of entry into an international market  Licensing or Franchising partner has knowledge about the local market  Offers you a passive source of income  Reduces political risk as in most cases, the licensing or franchising partner is a local business entity  Allows expansion in multiple regions with minimal investment Joint Venture  Both partners can leverage their respective expertise to grow and expand within a chosen market  The political risks involved in joint-venture is lower due to the presence of the local partner, having knowledge of the local market and its business environment  Enables transfer of technology, intellectual properties and assets, knowledge of the overseas market etc. between the partnering firms  Advantages of Different Forms of IB Strategic Acquisitions  Your business does not need to start from scratch as you can use the existing infrastructure, manufacturing facilities, distribution channels and an existing market share and a consumer base  Your business can benefit from the expertise, knowledge and experience of the existing management and key personnel by retaining them  It is one of the fastest modes of entry into an international business on a large scale. Foreign Direct Investment  You can retain your control over the operations and other aspects of your business. Leverage low-cost labor, cheaper material etc. to reduce manufacturing cost towards obtaining a competitive advantage over competitors  Many foreign companies can avail for subsidies, tax breaks and other concessions from the local governments for making an investment in their country.  Organizational Issues of IB Expanding business overseas means reaching new clients or customers and potentially boosting profits. Despite all the uncertainty and the challenges that have yet to reveal themselves, there are some guidelines for conducting business on a global scale that we should always consider before leaping into new international operations. Here is some advice on how to tackle the 11 biggest challenges for international business: 1. International company structure 2. Foreign laws and regulations 3. International accounting 4. Cost calculation and global pricing strategy 5. Universal payment methods 6. Currency rates 7. Choosing the right global shipment methods 8. Communication difficulties and cultural differences 9. Political risks 10. Supply chain complexity and risks of labor exploitation 11. Worldwide environmental issues Organizational Structures Every international business firm has to face various issues related to organizational policies. These organizational issues are to be addressed carefully in order to keep the business healthy and profitable. Centralization vs. Decentralization: Centralization is the systematic and consistent reservation of authority at central points in the organization. In centralization, the decision-making capability lies with a few selected employees. The implications of centralization are :  Decision making power is reserved at the top level.  Operating authority lies with the mid-level managers.  Operation at lower level is directed by the top level. Almost every important decision and operational activities at the lower level are taken by the top management. Decentralization is a systematic distribution of authority at all levels of management. In a decentralized entity, major decisions are taken by the top management to build the policies concerning the entire organization. Remaining authority is delegated to the mid- and lower-level managers. Organizational Structures Use of Subsidiary Board of Directors International firms, especially the fully-owned ones, usually have a board of directors to oversee and direct the top-level management. The major responsibilities of board-members are to −  Advice, approve, and appraise local management.  Help the management unit in providing response to local conditions.  Assist the top management in strategic planning.  Supervise the firm’s ethical issues. Organizational Structures Any international business organization, depending on its requirements and operations, would have an organization structure to streamline all its processes. Initial Division Structures: Initial division structures are common in subsidiaries, export firms, and on-site manufacturers. Subsidiaries that follow this kind of organization structure include firms where the main export is expertise, for example, consultants and financial firms. Export firms include those having technologically advanced products and manufacturing units. Companies having on-site manufacturing operations follow this structure to cut down their costs. International Division Structure: This structure is built to handle all international operations by a division created for control. It is often adopted by firms that are still in the development stages of international business operations. International Division Structure: This structure is built to handle all international operations by a division created for control. It is often adopted by firms that are still in the development stages of international business operations. Advantages  International attitude gets the attention of top management  United approach to international operations. Disadvantages  Separates domestic managers from their international counterparts  Difficulty in ideating and acting strategically and in allocating resources globally Global Product Division: Global product divisions include domestic divisions that are allowed to take global responsibility for product groups. These divisions operate as profit centers. Advantages  Helps manage product, technology, customer diversity  Ability to cater to local needs  Marketing, production, and finance gets a coordinated approach on a product-by-product, global basis. Disadvantages  Duplication of facilities and staff personnel within divisions  Division manager gets attracted to geographic prospects and neglects long-term goals  Division managers spending huge to tap local, not international markets Global Area Division: Global area division structure is used for operations that are controlled on a geographic rather than a product basis. Firms in mature businesses with select product lines use it. Advantages  International operations and domestic operations remain at the same level. Global division managers manage business operations in selected geographic area  Ability to reduce cost per unit and price competitively Disadvantages  Difficult to align product emphasis in a geographically oriented manner.  New R&D efforts are often ignored, as sale in mature market is where the focus is. Global Functional Division: This structure is to primarily organize global operations based on function; product orientation is secondary for firms using global function division structure. Advantages  It emphasizes on functional leadership, centralized-control, and leaner managerial staff  Favorable for firms that require a tight, centralized coordination and control over integrated production mechanisms  Helps those firms that need to transport products and raw materials between geographic areas. Disadvantages  Not suitable for all types of businesses. Applicable to only oil and mining firms  Difficult to coordinate manufacturing and marketing processes  Managing multiple product lines can be challenging, as production and marketing are not integrated. Mixed Matrix: This structure combines global product, area, and functional arrangements and it has a cross-cutting committee structure.. Advantages  Can be designed to meet individual needs  Promotes an integrated strategic approach tailored to local needs and priorities Disadvantages  Complex structure, coordinating and getting everyone to work toward common goals becomes difficult.  Too many independent groups in the structure Controlling of International Business There are three main levels at which control can be implemented and managed in an international business. These three key levels of control are as follows: Strategic Organizational Operational Strategic Control: Strategic control in intended both how well an international business formulates strategy and how well it goes about implementing it. Thus strategic control focuses on how well the firm defines and maintains its desired strategic alignment with its environment and how effectively it is setting and achieving its strategic goals. Strategic control also play a major role in the decisions firms make about foreign-market entry and expansion and most critical aspect of strategic control is control of an international firm’s financial resources. Organizational Control: Organizational control focuses on the design of the organization itself. There are many different forms of organizational design an international firm can use. But selecting and implementing a particular design does not necessarily end the organization design process. International firm generally use one or more of three types of organizational control systems: i. Responsibility Centre Control: The most common type of organizational control system is a decentralized one called responsibility centre control. Using this system, a firm first identifies fundamentals responsibility centers within the organization. Strategic business units are frequently defined as responsibility centers, as are geographical regions or product groups. ii. Generic Organizational Control: A firm may prefer to use generic organizational across its entire organization; that is, the control systems used are the same for each unit or operation, and the locus of authority generally resides at the firm’s headquarters. iii. Planning Process Control: A third type of organizational control, which could be used in combination with either responsibility center control or generic organizational control, focuses on the strategic planning process itself rather than on outcomes. Planning process control calls for a firm to concentrate its organizational control system on the actual mechanics and processes its uses to develop strategic plans. Operations Control: The third level of control in an international firm is operations control. Operations control focuses specifically on operating processes and systems within both the firm and its subsidiaries and operating units. Thus a firm needs an operation control system within each business unit and within each country or market in which it operates. Establishing International Control Systems: Control systems in international business are established through four basic steps: Set Control standards for performance Measure actual performance Compare performance against standards Respond to deviations. Approaches to Control Mechanisms There are seven major approaches for controlling a business organization. These are discussed below − 1. Market Approach :The market approach says that the external market forces shape the control mechanism and the behavior of the management within the organizational units of an MNC. Market approach is applied in any organization having a decentralized culture. In such organizations, transfer prices are negotiated openly and freely. The decision-making process in this approach is largely directed and governed by the market forces. 2. Rules Approach: The rules approach applies to a rules-oriented organization where a greater part of decision-making is applied to strongly impose the organizational rules and procedures. It requires highly developed plan and budget systems with extensive formal reporting. Rules approach of control utilizes both the input and output controls in an organized and exclusively formalized manner. 3.Corporate Culture: Approach In organizations that follow the corporate culture approach, the employees internalize the goals by building a strong set of values. This value-syndication influences the operational mechanism of the organization. It has been observed that even when some organizations have strong norms of behavioral controls, they are informal and less explicit. Corporate culture approach requires more time to bring the aimed changes or adjustments in an organization. 4. Reporting Culture :Reporting culture is a powerful control mechanism. It is used while allocating resources or while the top management wants to monitor the performance of the firm and the employees. Rewarding the personnel is a common practice in such approaches of control. However, to get the maximum out of reporting approach, the reports must be frequent, correct, and useful. 5. Visits to Subsidiaries Visiting the subsidiaries is a common control approach. The disadvantage is that all the information cannot be exchanged via visits. Corporate staff usually and frequently visit subsidiaries to confer and socialize with the local management. Visits can enable the visitors to collect information about the firm which allows them to offer advice and directives. 6. Management Performance Evaluation Management performance Evaluation is used to evaluate the subsidiary managers for the subsidiary’s performance. However, as decision-making authority is different from the operational managers, some aspects of control cannot be managed via this approach. Slow growth rates of firms and risky economical and political environment requires this kind of approach. 7. Cost and Accounting Comparisons Cost and Accounting Comparisons is a financial approach. It arises due to the difference in expenditure among various units of the subsidiaries. A meaningful comparison of the operating performances of the units is necessary to get the full output from this approach. Cost accounting comparisons use a set of rules that are applicable to the home country principles to meet local reporting requirements. The prominent features of each stage are discussed below. Establish Standard of Performance Standard of performance is applicable to cost, quality, and customer service. More than one standard may be necessary because they reflect expected levels of various units of the manufacturing performance. This includes process yields, product quality, overhead spending levels, etc. Measure Actual Performance To measure actual performance, the use of automated data collection systems is suggested to gather information. A standard cost measurement system includes man-hours, machine-hours, and material usage. Analyze the Performance and Compare it with standards There must be some set standards to compare the actual performance. The standards should be realistic and achievable. The results of the comparison can be used to apply further rules, targets, and reporting. Construct and Implement an Action Plan Constructing and implementing an action plan is key to success. Variance analysis can be used to detect potential problem areas. Finding the source of the problem and improving the situation may be useful. Its effectiveness depends on the management’s adaptability to the information obtained. Review and Revise Standards Review and revise is an important step, as modern organizations are in a constant state of change. If the variances are significant, the performance standards can be adjusted. Effective Performance Measurement must be integrated with the overall strategy. This step requires various financial and non-financial indicators. Effective Performance Measurement System For getting an effective performance measurement system −  The measurement objectives must be owned and supported throughout the organization.  The process must be applied top-down for maximum benefits. The measures applied must be fair and achievable.  The measurement system and the reporting structure must be simple, clear, and recognizable.  The firms need to prioritize and focus to address only the key performance indicators. Performance Evaluation System: A performance evaluation system must contain periodic review of operations so that the objectives of the firm are accomplished. It is important to have the accounting information to evaluate domestic and foreign operations’ costs and profitabilities. It is not all that simple to measure the performance of an individual, a division, a subsidiary, or even a company as a whole. It is a lengthy and hectic process. The objectives of performance evaluation are to −  Find the economic performance of the firm  Analyze each unit’s management performance  Monitor the progress of objectives, including the strategic goals  Assist in appropriate allocation of resources Financial and Non-Financial Measures of Evaluation ROI (Return on Investment) − ROI is the most common method to evaluate the performance of an international firm. It shows the relationship between profit to invested capital and encompasses almost all important factors related to performance. An improved ROI can act as a logical motivator of the managers. Budget as Success Indicator − Budget is an accepted tool for measuring and controlling the operations. It is also used to forecast future operations. A budget is a clearly expressed set of objectives that guide the managers to set their individual performance standards. A good local or regional budget helps the company to facilitate its strategic planning process smoothly. Non-Financial Measures − The major non-financial measures that can be used to evaluate performance are − Market Share, Exchange Variations, Quality Control, Productivity Improvement, and Percentage of Sales. Types of Performance Evaluation Systems Performance evaluation systems can be of the following types −  Budget Programming − Budget programming is prepared for operational planning and financial control. It is an easy-to-calculate system to evaluate the variance. It is used to measure the current performance in relation to some comparable performance metric from the past.  Management Audit − It is an extended form of financial audit system which monitors the quality of management decisions in financial operations. It is used for appraisal and performing audit for management.  Programme Evaluation Review Technique (PERT) − Based on CPM, PERT delineates a given project or program into network of activities or sub-activities. The goal is to optimize the time spent by the managers. In this process, performance is measured by comparing the scheduled time and the cost allocated with the actual time and the cost.  Management Information System (MIS) − MIS is an ongoing system designed to plan, monitor, control, appraise, and redirect the management towards pre-defined targets and goals. It is a universally acceptable practice which encompasses the financial, budgeting, audit and control systems of the PERT.