Executing Strategies in a Global Environment Essay Example for Free

Executing Strategies in a Global Environment Essay Abstract This paper will analyze Federal Express’s value creation frontier, and determine which of the four building blocks of competitive advantage the company needs in order to continue their above average profitability. It will also explore the main aspect of product differentiations and capacity control of the company to maintain an edge on their rivals. Furthermore, for this assignment I will attempt examine the efficiency of FedEx’s current business model and recommend a new business level strategy that will give Federal Express a competitive advantage over it rivals. In addition, this paper will also examine the manner in which overall, global competition may influence my recommended business strategy and I will suggest a significant way that Federal Express can confront its global competition. Introduction Federal Express began operating in 1973, under the leadership of Fred Smith Jr. Before Federal Express, a major portion for small packaging airfreight flew on commercial passenger flights. Fred Smith believed that these two services should be treated differently, because the commercial passenger and cargo shipper had different needs. The commercial passenger they wanted the convenience of daytime flights. As for the cargo shippers, they preferred night services, which would afford them late afternoon pickups and next day delivery (Hill,2013). Since small-package airfreight only went out based on the commercial flight scheduling, it was hard for cargo shippers to achieve next day delivery. To remedy the shipping issue cargo shippers had Smith aimed to build a system that could achieve next day delivery of small package airfreight (Hill,2013). Today Federal Express has grown from a express delivery company to a global logistic and supply chain management company (Crane, et al., 2003). Over the years Federal Express was able to grow through acquistions and large investmenst in information technoloy. The company was also able to stand out from the rest best on their business model operate independently, compete collectively. Smith segmented his compnay into 6 different  component – FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services, which allowed each component to focus on their own maket segment. By segmenting of each component it provided Federal express the oppurtunity to focus more on customer. Even though Federal Express 6 different components operated seperatley the competed together under FedEx Corporation. Federal Express’s Value Creation Frontier and Their Four Building Blocks of Competitive Advantage Federal Express profitability depends on three factors: The value a customer places on t heir services, the price Federal Express charges for their services, and the cost Federal Express has to incur to produce the services they provide (Hll Jones, 2013). The more favorable these factors are the more value is bestowed on Federal Express’s product. To accurately value, a company’s product management must distinguish the difference between utility and price (Hill Jones, 2013). Utility is the customer’s satisfaction or happiness with using or owning a company’s product or services. Federal Express has stepped up to the plate by making shipping easier and convenient for their customer. Today we can find drop off boxes in front of office buildings and small neighborhood shipping stores. Having drop off boxes offers the customer anytime drop offs and no waiting time. Federal Express has also invested heavily in innovation to add to the customer’s experience (Crane, et al., 2003). The option of wireless technology and the ability to track deliveries and schedule picks on the company’s website provides the customer shipping right at their fingertips. For their global customer Federal Express can offer shipping option to more than two hundred companies. The prices Federal Express set for their services are higher than many of their competitors. Federal Express pricing is considered a premium, which reflects the high quality level of service FedEx provides (Crane, et al., 2003). Based on FedEx stance, their premium pricing is worth it, but they fail to realize their very price sensitive customer who may go with a more cheaper option for certain services (UPS). In this case it make it difficult for Fedex to standout based on branding and the amenties they offer. They may have to think of a different way to differeinate themselves from the competitior. Since Federal Express’s growth and customer, satisfaction comes with a high price tag. Their return on invested capital (ROIC) is very low compared to its biggest competitor UPS. In 2011, FedEx ROIC was 7.41% and UPS was 19.39%  (Hill, 2013). Some say in time the money FedEx spent to build up their company, technology infrastructure, and customer satisfaction may soon pay off. The other positive side is that FedEx spending and acquisition expenses have made it hard for new companies to enter and compete in the packaging industry Along with value creation, a company must excel in the four building block of competitive advantage efficiency, quality, innovation, and customer responsiveness. How well a company performs in these four areas will determine their profitability and competitive advantage over the competitor. These four generic building blocks are a product of a company’s distinctive competencies, which will allow a company to differentiate its product and lower its cost structure (Hill Jones, 2013). In turn, sustain a competitive advantage and better profitability outcomes over their competitor. When determining a company’s efficiency we can look at what it takes (inputs) to produce a product or services (outputs). According to Hill and Jones, the more efficient a company is the fewer inputs it required to produce a particular output. The most common way to measure a company’s efficiency is through employee productivity – the out pout produced per employee (Hill Jones, 2013). When examining FedEx efficiency they were the first packaging company to invest in technology that enabled their employees to access company information wireless 24 hours a day. This wireless feature also allows the employee to collect packaging data, which allows employees to quickly enter packages into the company’s package tracking system, which reduces the possibility of error (Crane, et al., 2003). As for FedEx service, they can be review by its features, performance, durability, reliability, style, and design (Hill Jones, 2013). These features are used by customers to determine the quality level of the services that are offered by FedEx. Based on FedEx’s history, spending to build its infrastructure, and premium pricing FedEx is committed to providing a service of high quality standings. FedEx has also invested heavily in new technologies, which will improve their services, make it more reliable, and valuable to its customers (Amsler, Cullen, Erdmenger, 2010). An example that show FedEx is all about quality is their technology efforts such as tracking deliveries on their website, and offering convenient shipping at the customer’s fingertips. As mentioned before FedEx is all about innovation. They are into creating new services  and processes to make shipping easy and convenient for their customers. One of their major investments is the joint venture with University of Memphis. University of Memphis and FedEx have joined and formed the FedEx Institute of Technology. This investment will ensure that FedEx will not be let in dark when it comes to new technology (Crane, et al., 2003). When it comes to customer satisfaction FedEx tries to identify their customer needs. FedEx heard the customers demanded for a more convenient way of shipping. FedEx has extended drop off times by three hours, offer drop off boxes, and the ability for customer to schedule pickups on FedEx’s website. The only dissatisfaction is the premium pricing set on their services. FedEx fail to adhere to the demands of their cost sensitive customers. These are the customers who only care about inexpensive delivery services. This group of people may use FedEx as a last resort for their shipping needs. Product Differentiation The idea behind product differentiation is creating a product that satisfies the customers’ needs (Hill Jones, 2013). In order for a company to obtain a competitive advantage they must offer a product that better satistfies the customer’s need than its rival. When a company creates a stratergy that involves innovation, execellence, quality, and customer responsiveness they are offering custumers differentiation product. When the a company’s stratergy is about finding ways to increase efficiency and reliablity to reduce cost they are offering the customer low priced product (Hill Jones,2013). In the case of Federal Express their stratergy is not about offering a low priced product, but offering a product that is innovative, meets a high standard of execellence, high quality, and basing the product on the customer’s need. Federal Express understood the importance of differentiation. Since their strategy is not based on offering a low costing product Federal Express had to focus on information technology. Today customers are interested in monitoring their shipments, estimating arrival times, price and cost of shipments. These elements are important to most businesses and consumers as well as the safety of their delivery (Crane, et al., 2003). To satisfy the needs of their customers and to stand out from their competitor FedEx has  invested heavily in the technology infrastructure, which provides options for customers to track and validate shipments at their personal computer. Federal Express works hard to create a high quality level of service that is difficult for their rival to match (Crane, et al., 2003). Over the years, FedEx has been known as an innovator in the shipping sector, and providing a high level of quality services. Due to FedEx’s higher prices the level of service they provide may become unnoticed. To differentiate their standard of quality from their competitor FedEx lets their customers know that if they are willing to pay more it will be worth it (Crane, et al., 2003). Capacity Control With technology, forecasting, and planning strategies Federal Express is able to handle the fluctuating demand in shipping. With General Information Science (GIS) Federal Express is able to build routes for the driver, guide sorting activities of inbound freight, estimate and record delivery times. This information is stored on a cloud, which is use for future planning and test the durability of a route to accommodate package volume fluctuation (Conger, Dezemplen, Haas, McLeod, 2010). Efficiency of Federal Express’s Current Business Model Federal Express’s current business model is to â€Å"operate independently, compete collectively.† Currently Federal Express is under the leadership of FedEx Corporation. FedEx Corporations provides strategic direction and financial reporting for the following operating companies that compete collectively, but operate separately worldwide: FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services (Amsler, Cullen, Erdmenger, 2010). The idea behind â€Å"Operate independently, compete collectively† is that each company will operate independently, compete collectively and manage collaboratively. By operating independently, each of the organizational components (FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services) can focus solely on their market segment. Also by segmenting off each component by its own market segment has provided FedEx the competitive advantage in customer responsiveness and has limited wasted time and resources on problem that are not associated with each market (Amsler,  Cullen, Erdmenger, 2010). The benefit of all the organizational component competing collectively is carrying and competing under a well know name – FedEx, which is one of the most recognized names in the industry (Smith, 2005). Even though â€Å"operate independently, compete collectively† has worked for Federal Express thus far, but keep in mind it only provided FedEx with a competitive edge in specific customer focus. To gain a stronger competitive advantage FedEx should add cost leadership to their business level strategy. Cost leadership is a business model strategy that works towards lowering a company’s cost structure so they can make and sell their products at a lower price than its competitors (Hill Jones, 2013). This has been difficult for FedEx, because of their constant expenditures in their infrastructure (Amsler, Cullen, Erdmenger, 2010). Due to FedEx costly expenditures, they are unable to compete with their biggest rival, UPS in setting prices. Global Competition and the Impact on Suggested Business Strategy Based on the international shipping demand among integrated global corporations and manufactures it will be FedEx’s as well as its competitors best interest to enter into the global shipping industry. Global manufactures are interested in keeping their inventory at a minimum and have just in time delivery option. This way global manufactures can keep cost down, fine-tune their production, and meet delivery deadlines (Hill, 2013) . As for global corporation their shipping need are different. They are in need of fast and a safe way to ship document that are to confidential for internet transmisson or require a real signiture. These global coroporation are seeking for the same shipping services the receive in the U.S for their global operations (Hill, 2013). According to Case 7: â€Å"The Evolution of the Small Package Express Delivery Industry, 1973 -2010† the trend for global shipping need is forcasted to grow approxiamently 18% annually from 1996 to 2016. This means there is a big demand for air cargo operators to build global shipping networks that will allow them to provide shipping services across the globe with in a 48 hour time frame. Through acquistion Federal Express was able to build a global shipping network to meet the demand among intergrated global corporations and manufactures. The acquisition expenses, international start cost, customs regulation cost , labor issue associated with global shipping, and the barries to attaining landing right in many markets prevented FedEx to  include cost leadership in their global busines stratergy. Eventhough FedEx does not have the competitive edge when it come to pricing they are t more visible in the global shipping industry than their competitors. They can offer services and shipping time frames their rivals can not offer. FedEx also has shipping hubs all over the world, which include 600 or so air crafts , which allows them to provide shipping option most of their comepitives can not offer. Based on history this was very difficult for other companies to establish this task. Since very few competitor have the same golobal infrastructure as FedEx global companies relay more FedEx for the international shipping needs (Crane, et al., 2003) Conclusion In conclusion, Federal Express’s competitive advantage is not based on cost, but on its technology infrastructure. Over the years, Federal Express has spent heavily on technology and in acquisitions in order to offer delivery options and services their competitor cannot. The spending was geared towards satisfying the needs of the customer, innovation, offering a quality product and excellence services. The only negative side on spending heavily is that the cost was passed on to the customer, but Federal express stance is that they offer premium services and products. Federal Express can offer their international customers shorter delivery time, because of the major acquisition transactions Federal Express was involved in over the years. As for their domestic business, it may be a little difficult to stand out from their competitor. Currently the competitor (UPS) can offer similar services and convenient shipping options at a lower cost. References Amsler, M., Cullen, J., Erdmenger, J. C. (2010). Strategic Report for FedEx Corporation. Vector Strategy Group. Conger, R., Dezemplen, R., Haas, J., McLeod, J. (2010). Using GIS Strategic Planning and Execution at FedEx Express. Crane, B., Landthorn, B., Miri, B., Relph, J., Sanchez, C., Vernerova, A. (2003). FedEx Corpration: Strategic Management Project. Hill, C. L. (2013). Case 7: The Evolution of the Samll Package Express Delivery Industry, 1973-2010. In C. L. Hill, G. R. Jones, Strategic Management: An Integrated Approach (pp. C83-C96). Independence: Cengage. Hill, C. L., Jones, G. R. (2013). Strategic Management: An Integrated Approach (10th ed.). Independence: Cengage. Smith, F. W. (2005). FedEx. Retrieved from FedEx corporation annual report: http://www.fedex.com/us/investorrelations/financialinfo/2005annualreport/online/msg_chair.html

The Beatles :: Essay on The Beatles

The Beatles are even today known as the greatest and most influential act of the rock era. They introduced more innovations into popular music than any other rock band of the 20th century. Moreover, they were among the few artists of any genre that were simultaneously the best at what they did, and the most popular at what they did. They were also the first British rock group to achieve worldwide prominence, launching a British Invasion that made rock truly an international phenomenon. Guitarist and teenage rebel John Lennon got hooked on rock & roll in the mid-'50s, and formed a band, the Quarrymen, at his high school. Around mid-1957, the Quarrymen were joined by another guitarist, Paul McCartney. A bit later they were joined by another guitarist, George Harrison, a friend of McCartney's. As the line up of the Quarrymen grew and depleted, the Quarrymen were eventually reduced to the trio of guitarists: Lennon, McCartney and Harrison. The Quarrymen changed their name to the Silver Beatles in 1960, quickly dropping the "Silver" to become just the Beatles. Lennon's college friend Stuart Sutcliffe joined on bass, but finding a permanent drummer was a problem until Pete Best joined in 1960. Although the Beatles had "artfully combin[ed] the best of American musical influences , the vocal style of black rhythm and blues groups from the 1950s, the primitive excitement of rock 'n' roll, the flair of Elvis, and the slickness of the American "hit parade"" (Assayas, 26) they hadn't fully developed , and some of their early recordings were issued only after the band's rise to fame. Near the end of 1961, the Beatles' exploding local popularity caught the attention of local record store manager Brian Epstein, who was soon managing the band as well. He used his contacts to acquire a January 1, 1962, audition at Decca Records. After weeks of deliberation, Decca turned them down, as did several other British labels. Epstein's perseverance was finally rewarded with an audition for producer George Martin at Parlophone, an EMI subsidiary; Martin signed the Beatles in mid-1962. By this time, Epstein was grooming the band for national success by influencing them to get rid of their leather jackets and throw on a suit and tie.One more major change was kicking Pete Best out of the band. Best was replaced by Ringo Starr. As each of the groups singles sold over a million copies in the U.

Qualitative Research Project Essay

Introduction Since the 1990’s Racial Profiling has become a major issue in our society. There has been an abundance of court cases, killings and protests where people from the Black community feel that they are being harassed, stopped and questioned or arrested, simply for their outward appearance and look. Racial profiling for the most part has been linked to the police and their investigative methods. However racial profiling is not just limited to the police and their methods. Since 9/11 and the Iraq war racial profiling has become apparent in our view and beliefs against the Muslim/Islamic community. Summary My topic of discussion for my project is racial profiling and how it affects a certain socioeconomic group. The type of research that I will use in my project is the Qualitative Method, using Ethnographic research. By using this form of qualitative research you can target all aspects of the social settings and attempt to find out and describe how various parts fit together, where the Quantitative method would not be ideal because it mainly deals with numbers and statistics. In this type of research you need to have behavior and social qualities that numbers cannot measure. Ethnographic research is the best type of research to use for this issue of â€Å"racial Profiling† because â€Å"it is based on a broad perspective that emphasizes looking for the meaning attached to social setting by the participants. Ethnographic research is not confined to any method of data collection. But is typically is based on a small number of cases and depends on intensive open-ended interactions with them†. (Dorsten, L. 2014) Analysis The first article that I will analyze is â€Å"Racial Profiling and Police Subculture†. The article deals with is the practice of subjecting citizens to increased surveillance or scrutiny based on racial or ethical factors rather than â€Å"reasonable suspicion.† (Chan, J. 2011). The article touches on  how racial profiling is difficult to prove when dealing with the police and their investigative methods. The second article â€Å"Is Racial Profiling Just? Making Criminal Justice Policy in the Original Position†. This article discusses how racial profiling is addressed without using racism and with using racism. The author attempts to prove is racial profiling is just? Finally the third article titled â€Å"The Art of the Unseen: Three Challenges for Racial Profiling†. In this article the author attempts to express how racial profiling is analyzed using the moral status when dealing the costs and benefits involved in police investigative procedures. Methodology How does racial profiling affect the black community. Racial profiling affects the black community directly by police continually going outside of their way to stop, harass or arrest blacks simply by the fact that they look a certain way. It affects the black community indirectly because the black community knows or experiences racial profiling and no longer have complete trust of policemen. Hypothesis Through my research on the topic of â€Å"Racial Profiling† have noticed that there are many issues of the black community that are affected, be it by discomfort, senseless, irrational methods of police and society. Conclusion Racial profiling is a pervasive nationwide practice that federal and local law enforcement agencies use. Whatever type of racial profiling that is demonstrated is an unjust and ineffective method of law enforcement. There are now more laws, policies and procedures that are now in place to help alleviate racial profiling towards any type of race, origin or ethnicity. Becoming more aware of these issues will help and deter any type of unjust, unlawful type of discrimination towards anyone. References Chan, J. (2011). Racial Profiling and Police Subculture. 75-77. Dorsten, L. E. (2014). Research Methods and Society. Pearson Custom Library. Reiman, J. (2011). Is Racial Profiling Just ? Making Criminal Justice Policy in the Original Position. 1-5. Thomsen, F. K. (2010). The Art of the Unseen: Three Challenges for Racial Profiling. Department of Philosophy and Science Studies, 100-115.

The different Financial Management Practices in business - Free Essay Example

Sample details Pages: 11 Words: 3315 Downloads: 8 Date added: 2017/06/26 Category Finance Essay Type Compare and contrast essay Did you like this example? The previous section provides a review of SME and financial management. This section reviews SME financial management practices in the developed economies such as the USA, Canada, the UK and Australia. The context of financial management practices Financial management practices in the SME sector have long attracted the attention of researchers. Depending on different objectives, researchers emphasize different aspects of financial management practices. McMahon, Holmes, Hutchinson and Forsaith (1993) and McMahon (1998) summarize their review of financial management practices in Australia, the UK and the USA. In their review the context of financial management practices includes the following areas: Don’t waste time! Our writers will create an original "The different Financial Management Practices in business" essay for you Create order Financial reporting and analysis the nature, frequency and purpose of financial reporting, auditing, analysis and interpretation of financial performance Working capital management non-financial and financial considerations in asset acquisition, quantitative techniques for capital project evaluation, investment hurdle rate determination and handling risk an uncertainty in this context Financial structure management financial leverage or gearing, accounting to lenders, knowledge of sources and uses of finance, non-financial and financial considerations in financial structure decisions and non-financial and financial considerations in profit distribution decisions Financial planning and control financial objectives and targets, cost-volume-profit analysis, pricing, financial budgeting and control, and management responsibility centers However, the purpose of this study is not to cover all the contexts of financial management practices as indicated above but to review selected financial management practices that affect on or are related to SME profitability. These include accounting information systems, financial reporting and analysis, working capital management, fixed asset management, and capital structure management. 2.3.1 Financial reporting and analysis Recording and organizing the accounting information systems will not meet objectives unless reports from systems are analyzed and used for making managerial decisions. This section provides a review of financial reporting and analysis of SMEs. Louma (1967) conducted a survey of 62 manufacturing SMEs on the use of accounting information in managerial decision-making. 86% of respondents reported that they used some form of financial statement analysis and interpretation. Of these, 40% indicated that the founder of the businesses was actively involved. In their survey, DeThomas and Fredenberger (1985) found that 81 percent of the small enterprises regularly obtained summary financial information. Ninety-one percent of the summary information was in the form of traditional financial statements (balance sheets, profit and loss statements, fund statements), the remainder being bank reconciliation and operating summaries whereas no business was regularly receiving cash-flow information. DeThomas and Fredenberger also found that 61 percent of respondents felt the financial statements provided the information they required for planning and decision-making. Nevertheless, only 11 percent of respondents reported that they had used financial statement information formally as part of managerial evaluation, planning and decision-making, 2 percent of businesses utilized financial ratio analysis, and few made even simple historical comparisons. Thomas and Evanson (1987) studied 398 small pharmacies (in Michigan, North Carolina, Nebraska, Rhode Island and Washington) to examine the extent to which financial ratios were used in a specific line of small retail business and tested for a relationship between use of financial ratios and business success. They used regression analysis to examine the relationship between financial ratio usage and SME profitability. However, they could not demonstrate any significant relationship between earnings-to-sales and the number of financial ratios used by the owner in operational decision-making. When efforts were made to include the effects of other managerial practices and variations in business environments, no association between use of individual ratios and total earnings or totalto-sales was found. They explained the lack of association between financial ratio usage and either survival or profitability, may also indicate that the level of sophistication in use of ratios has not reache d a high enough level among pharmacies to make a discernible difference between those which use and those which do not use financial ratios. However, Thomas and Evanson (1987)s study only examined the association between SME profitability and the number of financial ratios, while the relationship between SME profitability and the efficiency as the result of using the financial ratios was not studied. McMahon (1998) examined which enterprises and financial management characteristics seem to most influence financial reporting practices adopted in small and medium-sized manufacturing enterprises in Australia and what impact these financial reporting practices appear to have on achieved business growth and performance. The research results showed that development orientation, extent of owner-management, technological complexity, degree of reliance upon external financial advice, and financial reporting climate significantly influence on the comprehensiveness of financial reporting practices in Australian small manufacturing enterprises. According to McMahon (1998) the relationship between financial reporting practices and business growth and performance is difficult to identify, describe and explain. The reason explained for this is that management is a complex activity affected by a myriad of interacting internal and external factors. Recently, McMahon (1999) reported new empirical evidence on financial reporting to financiers by small and medium-sized enterprises and found a significant relationship exists in the study sample between enterprise size in employment terms and provision to financiers of a business plan or future-oriented financial statements or annual historical financial statements or periodic historical financial statement. However, no statistically significant relationship exists in the study sample between enterprise size in employment terms and the likelihood of being asked to provide financial information by potential financiers. 2.3.2 Working capital management This subsection reviews the literature on working capital management practices of SMEs.The context of working capital management includes cash management, receivables and payables management, and inventory management. Regarding cash management practices, Grablowsky (1978) and Grablowsky and Rowell (1980) conducted a questionnaire survey concerned with the cash management practices of 66 small enterprises from a number of industries located in and around Norfolk, Virginia. The results showed that 67% of respondents replied they did not do forecasting of cash flows. When asked how they determined the level of cash to be held by the business, less than 10% of enterprises reported using any type of quantitative technique. The method most often employed was to hold cash as a fixed ratio of projected expenses, forecasted sales or anticipated purchases. Non-quantitative methods used consisted of meeting compensating balance requirements, maintaining the level considered safe by management or achieving a level recommended by outside advisers. Additionally, 71% of business in the Virginia survey reported that they had no short-term surpluses of cash in their recent history. Only 23% had a long-term surplus. Nearly 30% of respondents had invested excess cash in earnings securities or accounts. The most common investments were savings accounts, certificates of deposit, treasury bills, repurchase agreements, commercial papers, shares, bonds and other investments. Regarding accounts receivable management practices, Grablowsky (1976) and Grablowsky and Rowell (1980) found generally low standards. Approximately 95% of businesses that sold on credit tended to sell to anyone who wished to buy. Only 30% of respondents subscribed to a regular credit reporting service. Most had no credit checking procedures and guidelines, and only 52% enforced a late-payment charge. 34% of businesses had no formal procedure for aging accounts receivable. Bad debts averaged 1.75% of sales, with a high of 10% in some concerns. Murphy (1978) revealed a very high level of awareness and utilization of credit control systems in the UK, even in the smallest businesses. On inventory management practices, Grablowsky and Rowell (1980) found that most of the respondents had in excess of 30% of their capital invested in inventory, the general standard of inventory management was poor. Only 6% of businesses in their survey used a quantitative technique such as economic order quantity for optimizing inventory and 54% had systems which were unable to provide information on inventory turnover, reorder points, ordering costs or carrying costs. In general, depending upon their objectives, in examining working capital management practices, the previous researchers emphasized specific aspects of working capital management. Burns and Walker (1991) examined working capital management as a whole. In their survey of working capital policy among small manufacturing firms in the USA, the following aspects of working capital were considered: working capital policy, managing working capital components, including cash, receivable, payable and inventory management, and relationships between working capital management practices and profitability Probably this survey was one of the most comprehensive surveys of working capital management practices where almost all aspects of working capital management were examined. Burns and Walkers (1991) findings can be summarized into some main points as follows: Overall, companies had an informal procedure or no written policy for working capital management. However, those that did have a written policy were probably more profitable than others. For cash management, the typical company used cash budgeting on a weekly basis mainly to plan for shortages and surpluses of cash. Company would determine target cash balances based on needs for transaction balances, and put its idle cash in cash management accounts or certificates of deposit. For accounts receivable, the typical company used both the collection period and aging schedule to monitor the payment behavior of credit customers. With regard to inventory policy, the typical firm used computerized inventory control systems to decide on the appropriate amount to replenish its storage points by using ad hoc decisions. Company mainly considered the availability of parts and materials in deciding on reorder quantities for inventory purchased. As for accounts payable, the typical firm became a net supplier of credit believing that the cost of foregoing trade discounts was only about 13%, yet it always or sometimes took the discounts. In summary, working capital management practices have long attracted the attention of previous researchers. The main research areas related to these practices included cash, receivable and inventory management. However, relationships between working capital management practices and SMEs survival and growth have not been investigated. 2.3.3 Fixed Assets Management This subsection reviews the previous researches on fixed asset management practices of SMEs. Brigham (1992) suggested that capital budgeting might be more important to asmaller firm than its larger counterparts because of the lack of access to the publicmarkets for funding. Capital budgeting has attracted researchers over the past severaldecades. McMahon et al. (1993) claimed the earliest study of capital budgeting of SMEswas reported by Soldofsky (1964). During 1961, Soldofsky interviewed 126 owners ofsmall manufacturing businesses in Iowa and the results were published in 1964. Soldofsky (1964) found there was considerable variation in the methods of calculating payback period and in determining payback standards. In many businesses, required payback periods were flexible according to circumstances such as the variability of cash, planned product changes and business outlook. In the smaller enterprises, approvals for capital outlays tended to be given as required, whereas larger concerns were more likely to have annual capital budgets. Only four firms attempted to calculat e some variation of the average cost of capital for use as a hurdle rate for capital projects. Most businesses seemed unaware of the link between their financing and investment decisions. On the positive side, it was quite clear that the evaluation of capital projects was heavily cash flow oriented. Regarding capital project selection techniques, there were several surveysconducted by previous researchers such as Soldofsky (1964), Luoma (1967), Grablowsky and Burns (1980), Proctor and Canada (1992), and Block (1997). Soldofsky (1964) found that around 58 percent of respondents used payback period methods whereas only 4.1 percent employed accounting rate of return technique. Blocks (1997) survey of 232 small businesses in the USA indicated payback method remains the dominant method of investment selection for small businesses, whereas large corporations widely incorporate discounted cash flow models in financial analysis of capital investment proposals (Proctor and Canada, 1992). This is not evidence of a lack of sophistication as much as it is a reflection of financial pressures put on the small business owner by financial institutions. The question to be answered is not always how profitable the project is, but how quickly a loan can be paid back. Nevertheless, more sophisticated methods using discounted cash flow (IRR and NPV) have increased in use over time. Scott et al. (1972) examined the capital investment evaluation procedures of 135 small manufacturing enterprises in the USA and the following are some principal findings: 84% of respondents indicated that some investments were necessary in the short-run, regardless of their profitability. Payback period was used to evaluate capital projects by 51% of respondents, while 30% reported use of some variation of accounting rate of return. Only 10% reported use of discount cash flow methods such as net present value (5%) and internal rate of return (2 percent). This finding is consistent with the Louma (1967), Grablowsky and Burns (1980) findings of a tendency in using simple and complicated methods of capital investment project evaluation. 61% of respondents indicated that they screened capital expenditures by comparing the expected rate of return on investment with the cost of capital or some cost of financing. In summary, the previous findings related to fixed asset management practices reveal that Payback period method continues keeping its dominant position in evaluating capital investment projects of SMEs. 2.3.4 Capital structure management This current subsection reviews capital structure management or financial management practices related to the decisions of sources of financing. It includes examining what factors affect capital structure decisions and how capital structure impact on SME growth and survival. Small companies frequently suffer from a particular financial problem lack of a capital base. Small businesses are usually managed by their owners and available capital is limited to access to equity markets, and in the early stages of their existence owners find it difficult in building up revenue reserves if the owner-managers are to survive. A question concerns how small businesses determine sources of finance in such difficult circumstance. According to Brigham (1995, p. 447), modern capital structure theory began in 1958, Since that point of time, researchers have attempted to explain how firms choose their capital structure. Literature of the 1980s has attempted to explain small firm financing decisions by using modern financial theories. McConnell and Pettit (1984) suggested that small businesses generally have proportionally less debt than large firms because: (1) small firms generally have lower marginal tax rates than larger firms, thereby, less tax deduction benefit of debt, (2) small firms may have higher bankruptcy costs than large firms, and (3) small firms may find it more difficult to express their business health to creditors. Another attempt to explain small firm financing behaviour relied on agency theory. Agency theory holds that investors who have equity or debt in a firm require costs to monitor the investment of their funds by management or the small business owner (agency costs). This view suggests that financing is based on the owner-manager being able to assess these agency costs for each type of financing, and then select the lowest cost method of financing the firms activities. One weakness of this explanation is that no one has yet been able to measure agency costs, even in large firms (Myers, 1984). In contrast, more recent theoretical and empirical work suggests that a strategic perspective may have promise in explaining the financing decisions. Barton and Gordon (1988) suggest that the following characteristics must be accounted for in any explanation of firm financing decisions: behavior at the firm level fact that the capital structure decision is made in an open systems context by top management, and decisions reflects multiple objectives and environmental factors, not all of which are financial in nature The arguments of Barton and Gordon (1988) for the management choice perspective on large-firm financing decisions may have even more relevance and validity for small firms. First of all, because most small firms are not actively traded on a financial market as large, public firms are, they are unconcerned with the financial markets assessment of their capital structure. As a result, modern financial leverage theory, which is based on the markets assessment of total stock valuation, does not always apply. Second, as Levin and Travis (1987) pointed out the owners attitudes toward personal risk not the capital structuring policies public companies use determine what amounts of debt and equity are acceptable. In effect, the authors argue that small firms choose debt based on personal, managerial preference. Conversely, Norton (1991) provided empirical evidence on capital structure selection by conducting a survey of 400 small, high-growth corporations. In his survey, respondents were asked to describe the underlying firm philosophy in making debt and equity decisions. There were 261 respondents answering this question and the results are shown in Table 2.3. Other empirical evidence on capital structure was provided by Peterson and Shulman (1987). Peterson and Shulman (1987) analyzed the empirical data collected for 1984 International Small Business Congress. Approximately 130 questions were asked in 4,000 interviews conducted in 12 countries including Brazil, Colombia, Spain, Kenya, Cameroon, Indonesia, USA, Canada, West Germany, United Kingdom, Netherlands, and Japan. The survey questionnaire contains information regarding the source of funds, including traditional debt, internal equity, friends/relatives, and trade suppliers. The actual percentage of each source that a firm employs varies depending on such factors as (1) age of firm, (2) location of the firm, (3) cost of the source, (4) availability of the source, (5) profitability of the firm, (6) growth level of the firm, and (7) information flows. The results of the study show that a life cycle of capital structure among small growing firms depend on age, size, and economic development. Most firms appear to be initially dependent on relatives/friends and personal equity for expansion/working capital needs and over time are able to rely on more heavily on traditional source of bank debt for financial support. Since firm managers/owners will attempt to minimize the overall cost of capital, the firm is seen as having a rising level of debt as it becomes available. This section reviewed the literature of financial management practices of SMEs in the developed countries. Most previous researchers in the literature concentrated on examining, investigating and describing the behavior of SMEs in implementing financial management. Specific areas of financial management practices including accounting information system, financial reporting and analysis, working capital management, fixed asset management and capital structure management, have attracted the attention of many researchers. However, their findings are mainly related to exploring and describing behavior of SMEs in financial management practices. As a result, they provided many descriptive findings but seem to lack the associative findings of the relationship between financial management practices and financial performance of SMEs. 2.4 Research Model Based on the literature, this research chapter was seeking to provide an overview of the findings of financial management practices, financial characteristics and SME growth and survival. Related to financial management practices, most previous researchers from the literature concentrated on examining, investigating and describing the behaviour of SMEs in implementing financial management. The specific areas of financial management practices including financial reporting and analysis, working capital management, fixed asset management and capital structure management have attracted the attention of many researchers. Their findings are mainly related to exploring and describing behaviour of SMEs in financial management practices. Although they provided much descriptive statistical data and empirical evidence on SME financial management practices, it appears that there are some limitations in past research, which need to be addressed. Firstly, most empirical evidence comes from developed economies such as the USA, UK, Canada and Australia. Evidence seems to lack evidence from emerging economies, especially from the transiting economies such as Vietnam and China. Secondly, most researchers in the literature only focus on investigating and describing financial management practices, whereas few examine the impact of financial management practices on SME profitability. It will be difficult to convince financial management practitioners of the importance of financial management until evidence on the impact of financial management practices on SME profitability is provided and the relationship between the two variables are discovered. In addition to financial management practices, the literature also provided the valuable findings related to financial characteristics of SMEs. Four variables including liquidity, financial leverage, activity and profitability are popularly used by previous researchers to identify and measure financial characteristics of SMEs. Based on these findings provided by previous researchers and these gaps, a model of the impact of financial management on SME is developed. Such a model is presented in Figures 2.7. Figure 2.7 describes the detailed model of the impact of financial management practices on SMEs growth and survival in which the components measuring financial management practices such as financial reporting and analysis, working capital management, fixed asset management, capital structure management and financial planning, and components measuring financial characteristics such as liquidity, financial leverage, and business activity are identified.