Question

respond:

a. The global recession forced thousands of firms into bankruptcy. Does this fact alone confirm that “external factors are more important than internal factors” in strategic planning? Why or why not?

First, I don't like to use one example to prove a rule for many. ONE salmonella outbreak may have been caused by contaminated spinach. This does not prove that all spinach is dangerous or unhealthy.

Two, I do not believe that external factors are more important than internal factors. In this example, many of the businesses that filed bankruptcy were making poor financial choices that either caused the recession, or were making poor choices while the recession occurred around them. I think BOTH external and internal factors are important, however, business owners have more control over internal factors than external factors. We can't totally prepare for recessions, but we can expect them to take place after times of increased growth. If we can be wise in how we spend, save, and invest our resources in times of growth, we can be better prepared in times of depression.

b. Are there other external factors than recession that might force a company into bankruptcy? If so, identify those other external factors and reply about how these external factors might force a company into bankruptcy. If not, why not?

Natural disasters and states of emergency: Businesses closed in New Orleans during Katrina due to store damage, lack of power, looting, and no customers.

Political conflict and unrest: Businesses closed in South Sudan due to conflict. Either storekeepers were fleeing, or all their customers had fled, (or died, or were hiding).

Changes in law: If your whole business used to be legal and is now illegal after changes in law, you may face bankruptcy. Either people will not want to purchase what you are selling because it is illegal, or you will no longer sell the items in good conscience.

Answer 1

a. The global recession forced thousands of firms into bankruptcy. Does this fact alone confirm that “external factors are more important than internal factors” in strategic planning? Why or why not?

In my opinion, recessions do have an impact on firms performance but very very rarely can it lead to bankruptcy. It needs big mismanagement to lead to bankruptcy. When firms have normal times, it should prepare for any contingency. There are many companies which went bankrupt even when market was buzzing. Ex. Many mobile handset making companies in India. Ex. Mobiistar.

Recessions may lead to cyclical fluctuations. In my opinion, it is internal mismanagement that leads to bankruptcy. Any company that has good management leads to product diversification or may merge or do joint venture looking at turbulent times rather than going bankrupt.

b. Are there other external factors than recession that might force a company into bankruptcy? If so, identify those other external factors and reply about how these external factors might force a company into bankruptcy. If not, why not?

Yes, political changes and preferences may lead to bankruptcy. Example- Enron in India suffered financially due to change in regime. similarly Indian company GMR infrastructure suffered a lot in Maldives. Other factors can be cultural acceptance. Example- religious preference may mislead information about a company and it may lead to losses.