Chapter 2

Basic Concept of Strategic Management

Strategic management is the concept of identification, implementation, and management of the strategies that
managers carry out to achieve the goals and objectives of their organization. It can also be defined as a bundle of
decisions that a manager has to undertake which directly contributes to the firm’s performance. The manager
responsible for Strategic management must have a thorough knowledge of the internal and external organizational
environment to make the right decisions.

The Basic Concept of Strategy Management Includes:

Strategy Management – Definition

Components of Strategy Management
Process of Strategy Management

Let’s start with the definition of Strategy Management

Strategy Management – Definition

The basic concept of strategic management consists of a continuous process of planning, monitoring, analysing and
assessing everything that is necessary for an organization to meet its goals and objectives. In simple words, it is a
management technique used to prepare the organization for the unforeseeable future. Strategy management helps
create a vision for an organization that helps to identify both predictable as well as unpredictable contingencies. It
involves formulating and implementing appropriate strategies so the organization can attain sustainable competitive
advantage.

2. Components of Strategy Management

Strategic Intent

Strategic Intent of an organization clarifies the purpose of its existence and why it will continue to exist. It helps paint a
picture of what an organization should immediately do to achieve the company’s vision.

Mission

Mission component of strategy management states the role by which an organization intends to serve its stakeholders.
It describes why an organization is operating that helps provide a framework within which the strategies to achieve its
goals are formulated.

Vision
The visual component of strategy management helps identify where the organization intends to be in the future. It
describes the stakeholder dreams and aspirations for the organization.

Goals and Objectives

Goals help specify in particular what must be done in order to attain an organization’s mission or vision. Goals make
the mission component of strategy management more prominent.

Process of Strategy Management

The strategic management process includes 7 steps:

Setting the Goal – The first and foremost stage in the process of strategic management requires the organization to set
the short term and long term goals it wants to achieve.

Initial Assesment – The second stages says to gathers as much data and information as possible to help state the
mission and vision of the organization.

Situation Analysis – It refers to the process of collecting, scrutinizing and providing information for strategic purposes.
It helps in analyzing the internal and external environment that is influencing an organization.

Strategy Formulation – Strategy formulation is the process of deciding the best course of action to be taken in order to
achieve the goals and objectives of the organization.

Strategy Implementation – Executing the formulated strategy in such a way that it successfully creates a competitive
advantage for the company. In simple words, putting the chosen plan into action.

Strategy Monitoring – Strategy Monitoring involves the key evaluation strategies like taking into account the internal
and external factors that are the root of the present strategies and measuring the team performance.

SWOT Analysis – It helps in determining the Strengths, Weaknesses, Opportunities and Threats (SWOT) of an
organization and taking remedial/corrective courses of actions to fight these weaknesses and threats.

The increasing importance of strategic management may be a result of several trends. Increasing competition in most
industries has made it difficult for some companies to compete. Modern and cheaper transportation and
communication have led to increasing global trade and awareness. Technological development has led to accelerated
changes in the global economy. Regardless of the reasons, the past two decades have seen a surge in interest
strategic management. Many perspectives on the strategic management and the strategic management process have
emerged. This book’s approach is based predominantly on three of these perspectives:

(1) the traditional perspective,

(2) the resource-based view of the firm, and

(3) the stakeholder approach, which are outlined in table 1.1.

The traditional perspective

As the field of strategic management began to emerge in the latter part of the 20th century, for some time,
economists had been actively studying topics associated with the competitiveness of industries. These topics included
industry concentration, diversification, product differentiation, and market power. However, much of the economics
research at that time focused on industries as a whole, and some of it even assumed that individual firm differences
didn’t matter. Other fields also influenced early strategic management thought, including marketing, finance,
psychology, and management.

Academic progress was slow in the beginning, and the large consulting firms began to develop their own models and
theories to meet their clients’ needs. Scholars readily adopted many of these models into their own articles and books.
Eventually, a consensus began to build regarding what is included in the strategic management process. The
traditional process for developing strategy consist of analyzing internal and external environment of the company to
arrive at organizational strengths, weaknesses, opportunities, and threats (SWOT). The results from this “situation
analysis,” as this process is sometimes called, are the basis for developing missions, goals, and strategies. In general,
a company should select strategies that (a) take advantage of organizational strength and environmental
opportunities or (b) neutralize or overcome organizational weaknesses and environmental threats. After strategies are
formulated, plans for implementing them are established and carried out. Figure 4 presents the natural flow of these
activities. The model contained in figure 4 provides a framework for understanding the various activities described in
this book. However, the traditional approach to strategy development also brought with it some ideas that strategic
management scholars have had to reevaluate. The first of these ideas was that the environment is the primary
determinant of the best strategy. This is called environmental determinism. According to the deterministic view, good
management is associated with determining which strategy will best fit environmental, technical, and human forces at
a particular point in time, and then working to carry it out. The most successful organization best adapts to existing
forces. Basically, a large firm may decide not to compete in a given environment. Or, as an alternative, the firm may
attempt to influence the environment to make it less hostile and more conducive to organizational success. This
process is called enactment , which means that a firm can influence its environment.

The principle of enactment

The principle of enactment assume that organizations don’t have to submit to existing forces in the environment; they
can, in part, create their environments through strategic alliances with stakeholders, investments in leading

technologies, advertising, political lobbying, and a variety of other activities. Of course, smaller organizations are
somewhat limited in their ability to influence some components of their environments on their own. For example, a
small restaurant firm may have a difficult time influencing national government agencies and administrators.
However, smaller organizations often band together into trade groups, such as the national restaurant association, to
influence government policy on pressing issues like minimum wage, immigration policy, and health-care costs. Also,
they may form alliances with other entities. The key to enactment is understanding that a firm doesn’t necessarily
have to adapt completely to the forces that exist in its operating environment. It can at least partly influence certain
aspects of the environment in which it competes.

Deliberate strategy versus emergent strategy

The traditional school of thought concerning strategy formulation also supported the view that managers respond to
the forces discussed thus far by making decisions that are consistent with a preconceived strategy. In other word,
strategy is deliberate. Deliberate strategy implies that managers plan to pursue an intended strategic course. In some
cases, however, strategy simply emerges from a steam of decisions. Managers learn as they go. An emergent
strategy is one that was not planned or intended. According to this perspective, managers learn what will work
through a process of trial and error. Supporters of this view argue that organizations that limit themselves to acting
on the basis of what is already known or understood will not be sufficiently innovative to create a sustainable
competitive advantage. Despite the strength of this example of emergent strategy, it is not a good idea to reject
deliberate strategy either. When Starwood first launch the concept of the heavenly bed in 1999, the strategy was a
deliberate effort, but the opportunity to provide retail sales was an unintended outcome, and this unforeseen
opportunity led to an emergent and highly successful retail strategy, as the above example show.

Effective strategic planning

In summary, scholars have determined that both adaptation and enactment are important to organizations, they
should adapt to environmental forces when the costs of enacting (influencing) the environment exceed the benefits.
However, they should be proactive (taking the initiative by acting rather than reacting to events) in creating their own
opportunities, in additions, organizations should engage in deliberate strategic planning processes, but they should
also be willing to make mistake and learn from them as they chart a strategic course. In other words, strategy should
be both deliberate and emergent, and firms should both adapt to and enact their environment, with the situation
determining which option to choose. Westin learned these lessons by paying attention to their customers.

The organization as a bundle of resources: the resource-based view

In recent years, another perspective on strategy development has gained wide acceptance. The resource-based view
of the firm has its roots in the work of the earliest strategic management theorists. It grew out of the question, “why
do some firms persistently outperform other firms?” an early answer to that question was that some firms are able to
develop distinctive competencies in particular areas. One of the first competencies identified was general
management capability. This led to the proposition that firm with high-quality general managers will outperform their
rivals. Much research has examined this issue. Clearly, Effective leadership is important to organizational
performance, but it is difficult to specify what makes an effective leader. Also, although leaders are an important
source of competence for an organization, they are not the only important resource that makes a difference.
Economic thought also influenced development of the resource-based view. Nearly two centuries ago, an economist
named DAVID RICARDO investigated the advantages of possessing superior resources, specially land. One of
RICARDO’s central propositions was that the farmer with the most-fertile land had a sustained performance
advantage over other farmers. More recently, another economist, EDITH PENROSE, expanded on RICARDO’s view by
notion that various skills and abilities possessed by firms could lead to superior performance. She viewed firms as an
administrative framework that coordinated the activities of numerous groups and individuals, and also as a bundle of
productive resources. She studied the effects of various skills and abilities possessed by organization, concluding that
a wide range of skills and resources could influence competitive performance. A common thread of reasoning in the
distinctive competency literature and the arguments of Ricardo and Penrose is that organizational success can be
explained in terms of the resources and capabilities possessed by an organization. Many modern scholars have
contributed to this perspective of the firm. According to this view, an organization is a bundle of resources, which fall
into the general categories of:

1 – financial resources, including all of the monetary resources from which a firm can draw.

2 – physical resources, such as land, buildings, equipment, locations, and access to raw materials.

3 – human resources, which pertains to the skills, background, and training of managers and employees, as well as
the way they are organized.

4 – organizational knowledge and learning

5 – general organizational resources, including the firm’s reputation, brand names, patents, contracts, and
relationships with external stakeholders.

The organization as a bundle of resources is depicted in figure 5

Much of the research on the resource-based perspective has demonstrated that firms can gain competitive advantage
through possessing “superior resources”. Superior resources are those that have value in the market, are possessed
by only a small number of firms, and are not easy to sustainable. If a particular resource is also costly or impossible to
imitate, then the competitive advantage may be sustainable. A sustainable competitive advantage may lead to higher-
than-average organizational performance over a long period. Many strategy scholars believe that acquisition and
development of superior organizational resources is the most important reason that some companies are more
successful than other. Most of the resources that a firm can acquire or develop are directly linked to its stakeholders,
for example, financial. resources are closely linked to establishing good working relationships with financial
intermediaries. Also, the development of human resources is associated with effective management of organizational
stakeholders. Finally, organizational resources reflect the organization’s understanding of the expectations of society
and the linkages it has established with stakeholder.

Figure 5: The organization as a bundle of resources

The emergence of the stakeholder approach

In the mid-1980s, a stakeholder approach to strategic management began to emerge. It was developed as a direct
response to the concerns of managers who were being buffeted by increasing levels of complexity and change in the
external environment. The existing strategy models were not particularly helpful to managers who were trying to
create new opportunities during a period of such radical change. The word stakeholder was a deliberate play on the
word stakeholder. Much of the strategy literature at the time was founded, either explicitly or implicitly, on the idea
that stockholders were the only important constituency of the modern for-profit corporation. Stakeholder theory
contradicted this idea by expanding a company’s responsibility to groups or individuals who significantly affect or are
significantly affected by the company’s activities; including stockholders.

Figure 6 contains a typical stakeholder map. A firm has internal stakeholders, such as employees, who are considered
a part of the internal organization. In addition, the firm has frequent interactions with stakeholders in what is called
the operating (or task) environment. The firm and stakeholders in its operating environment are influenced by other
factors, such as society, technology, the economy, and the legal environment.
 Figure 6

Survival strategic to counter competition in the new business If there is no competition, there will be no need for a
strategy. In industrially developed countries, the market is matured and more saturated. These countries are,
therefore, looking for new markets. Foreign investors have been very active in our capital market from the time the
earning per share (EPS) and price came down to its realistic level. If the management is not competent, it is likely to
lose control of the company. It is generally believed that India has cheap labor but if labor productivity is taken into
consideration, Indian laborers are not that cheap. This does not mean that Indian labor can’t generate higher
productivity. Trade union activity is responsible for labor policy, cost of labor. Availability of Indian managers, who are
considered to be one of the brightest and most capable managers in the world, will be a problem. Thus, be a scarcity
of efficient and capable business managers. Large multinational companies will try to grab them at a higher price.
Managers will be required to work in a highly dynamic global environment. They will be increasingly dependent on
technology since the internet has now redefined the way we do business. We need to develop strategies for survival
and growth in a highly competitive environment. Since, 1960, Japan has been steadily increasing its share of world
market from five percent to 20% and has overtaken both US and Germany. This was possible because Japan made
real value addition in its manufacturing sector and continues to lead in manufacturing technology. All new products
and inventions are being conceived in Europe or USA, but the Japanese have consistently demonstrated superior
ability in translating concepts into marketable products by using those technologies. Europe was all set to become the
largest single world market during the 1990s, but it is not clearly known whether it will develop tendencies to protect
its own industries against the threat of external competition. Worldwide, there is a growing concern about
environmental safety, pollution, declining International Journal of Sciences: environmental quality and depletion of
natural resources. For example, Motorcar designs are now determined by environmental considerations. future cars
will have to be designed in conformance with zero emission norms. Already legislation in the US and Europe has
adopted the same. All these tendencies to protect its own industries. But, most of these environment friendly products
will be more expensive. Customers, by and large, will be willing to pay the price of perceived value of the product but
competition will keep the price and quality at a reasonable and affordable level. The manufacturing company will be
required to be watchful for the ways of legislation on the one hand and changing customer preference on the other.
The market is expected to develop rapidly for high value domestic and industrial products. Knowledge management
for an effective sales and marketing function.

Tacit to explicit: articulation

Tacit knowledge is transformed into explicit knowledge using documentation of policies that define the philosophy of
the firm. (Baumard,1999).

Explicit to explicit: combination

Explicit knowledge can be converted into explicit knowledge by combining the knowledge through mechanisms such
as conversations or exchange of documents. In this type of exchange, “fitting together” dominates as an explicit
combinative logic (BAUARD, 1999).

Explicit to tacit: internalization

Visual or codified knowledge available within organizations can be internalized by employees by watching, reading,
and observing the artifacts. At times, explicit manifestations of tacit knowledge can also be seen in body language or
facial expressions.

Tacit to tacit: socialization

It is difficult to transform and more difficult to convert from tacit knowledge into tacit knowledge. this can happen
only through one-to-one interaction and socialization of individuals and also, happen without use any language.
Knowledge within organizations exists at two levels- individual and collective. The transfer of knowledge from
individual to collective levels marks knowledge creation at organizational level.

Sales and marketing functions

Three most important S&M functions which create and deliver maximum value to customers are: new product
development, segmentation and targeting, selling process.

1 – new product development process: collective.

The process of new product development includes generation of new idea, concept development, test marketing, and
product launch. involves knowledge of markets, consumers, and competitors to successfully target customers and
make an offering to them. New product development starts by collecting information on customer needs and
transforming this information first into organization knowledge about customer needs. This knowledge needs to be
shared across departments to convert customer needs successfully into product design attributes. It is extremely
important that market knowledge in general is in explicit form, so that sharing across departments is easily facilitated
to facilitate efficient and effective response to market needs in a timely manner. The concept of time-to-market of
new product introduction also corroborates importance of knowledge about markets to move in explicit form within
organizational sub-unites.

Segmentation and targeting process: collective

Segmenting customers based on their common needs, wants or demands has been used by firms for several decades.
A plethora of variables have been used for segmentation including demographic, variable such as age, gender,
education; psychographic variables such as consumer lifestyle patterns; or even geographic variables such as political
boundaries within the market. The effectiveness of segmenting depends on the accuracy of information on each of
the variables. Segmentation of customers and targeting profitable ones has also been shown to be helpful in
determining the market structure i.e. whether the market is monopolistic, duopolistic, oligopolistic, or near to perfect
competition.

Selling process: individual to collective

Sales people build an accumulated stock of knowledge, which is also known as their experience.This experience helps
them categorize customers, as well as selling situations. The classification helps sales people sell more effectively to
new customers, using the a priori mental schema for classification. This knowledge is often called declarative. Sales
people use yet another type of knowledge called procedural knowledge. Simultaneous use of declarative and
procedural knowledge by sales people is popularly called adaptive selling strategy.Issues, controversies and problems
in managing S&M knowledge We discuss the key issues, controversies, and problems in knowledge management in
S&M function of organization.
To create and deliver value to customers:

Customer value is a function of customer benefits net of their costs, and a perceived measure of their utility. Besides
the price paid, costs incurred by customers would include, information search costs and transaction costs. Benefits
maybe either functional or experiential, functional benefits providing information to customers, experience is
something that a customer perceives as a gestalt. Value creation and delivery in the services context happens at the
same time while the service is consumed. The role of KM in creating customer value requires dual focus on time and
delivery dimensions of information exchange with customers.

New product development (npd):

Most often the best ideas for developing new products come from customers. It is difficult to find organization
mechanism that really encourages, motivates, and promotes their employees and other stakeholders to contribute
“really new” ideas.

Targeting customer segments:

Targeting customers poses several challenges for firms. who has decisions , said that half of advertising goes waste,
as it is impossible to reach all the targeted customers. Therefore, knowledge management for targeting customers
needs timely and customized information delivered to the right customer, using a right choice of media for delivery.
Often the same information needs to be provided to customers using several media to reinforce their latent needs and
to stimulate their purchase intention and reduce the purchase cycle. Most firms fail to provide timely and useful
information to customers either because of poor choice of media or sub-optimal media planning. Marketing and
advertising scholars are yet to be fully convinced of the nature of the relationship between the number of ad
exposures and product sales, purchase intentions, or brand attitudes. Therefore, the quality, quantity, and timeliness
of information to customers need to be more precisely understood before increasing marketing expenditures for any
given media.

Optimal level of advertising

In imperfectly competitive markets. Competition between firms is based on using a combination of advertising, price
and product characteristics. If the firm can adjust both price and advertising expenditure, then the firm is able to use
a combination of both to compete with its rivals. To maximize profits a firm will equate marginal revenue and
marginal cost . in figure 11.4 the curve ACA shows the average cost of advertising: this increases average total cost
from ACP to ACP+A but doesn’t alter the marginal cost curve since advertising expenditure is treated as a fixed cost.
This level of advertising generates a demand curve(AR) and allows the firm to maximize profits by selling 0Q products
and charging price 0P. the average cost of advertising is QG or EF. For every level of advertising expenditure. The
profit-maximizing position can be determined and the price, quantity and average advertising cost can be determined.
 Figure 7: profit maximizing with a advertising p

In figure 7 the combinations of price and quantity that maximize profit for each level of advertising expenditure are
plotted as the AAR curve. On this curve two combinations, p1 and Q1 AND P2 and Q2 are identified at points E and F.
for each price-quantity outcome there is an associated average cost of advertising. These points are plotted as the
AAC curve. On this curve the average cost of advertising for output Q1 is Q1G and for output Q2it is Q2H. the general
share of these new curves reflects the underlying presence of diminishing return to advertising expenditure and the
increasing average cost of advertising as it becomes less effective. Since both represent average functions, it is
necessary to derive their respective marginal functions, parts of these curves are shown in figure 8 as the AMC and
AMR curves. The optimal level of advertising expenditure for the firm is determined where the marginal increase in
costs of advertising are equal to the marginal increase in revenue: this achieved at point K where the firm charges
price 0P2, sells quantity 0Q2 and average advertising costs of Q2H.

Figure 8: Optimal price and advertising

Sustainability

The origin of sustainable development came from concerns about the limits to growth, fast growing world population
and finite resource supplies. The most definition of sustainable development is provided by the report of the
BRUNDTLAND commission: "meets the needs of the present without compromising the ability of future generations to
meet their own needs". this definition concept of human development. Following sustainable practices as ways to
"manage technology and social organization to make balanced and equitable progress on economic, environmental
and social needs so that meeting these needs in the present doesn’t compromise the ability of future generations to
meet their own needs."

Since late 1980s sustainable development has become one of the hottest topics of discussion and debate at the
political level, in academic, business and corporate sustainability is "a meeting the needs of the firm's direct and
indirect stakeholders (such as shareholders, employees, clients, pressure group and communities) without

comprising its ability to meet the needs of future stakeholders as well. The phrase, either corporate sustainability or
sustainable development, is increasingly used to describe a broad range of environmentally and socially business
practices. In particular corporate sustainability frequently refers to the notion of triple bottom line, in terms of social,
environmental, and economic dimensions. It involves the improvement of managing corporate social and
environmental impacts and advancement of stakeholder integration in terms of corporate social responsibility and
corporate citizenship.

Stakeholder theory has become one of the main theoretical foundations of corporate social performance (CSP). There
are three interconnected constructs related to CSP in the literature, and referring to different aspects of business
involvement in social issues. First, corporate social responsibility (CSR) refers to the business philosophy that directs
managers making policy and management decision towards normatively correct performance regarding expectations
of multiple stakeholders of the firm [19] VAN DER and his colleagues 2008). Distinguishes social expectations as four
dimensions of CSR: economic, legal, ethical, and available.

Second, corporate social responsiveness (CSR2) describes how firms respond to social issues. CSR2 is concerned with
the "ability to achieve significant levels of social responsiveness" the meaning of social responsiveness is "the ability to
manage the company's relations with various social groups" Suggests four responsiveness strategies to resolve social
issues: 1- reaction, 2- defense, 3- accommodation, 4- pro action.

These CSR2 strategies are neatly summarized by that is mean the term of responsiveness, "the manager must resolve
the inevitable conflicts between primary stakeholders groups over the distribution of the increased wealth and value
created by the corporation"

Third, corporate social performance (CSP) is concerned with the outcomes of socially responsive behavior.

describes CSP as the "the social impacts of corporate behavior, regardless of the motivation for such behavior or the
process by which it occurs; the programs companies use to implement responsibility and/or responsiveness; and the
policies developed by companies to handle social issues and stakeholders interests". The corporate social performance
(CSP) construct represents a feature of principle- problem-action framework that focuses on both stakeholders and
social issues.According to the stakeholders approach has also been used to support corporate sustainability, which
concerns a firm's long-term success and survival. As a stakeholder view considers a firm as a value-creation network,
moving towards creating value for all stakeholders involved. Corporate sustainability depend on sustainable
relationships between the firm and its multiple stakeholders [28] The concept of value based network emphases the
issue of value creation beyond the boundaries of an organization. it would be challenging since individuals, firms, and
society may have dissimilar interests and viewpoints about what value is and how it should be created. Corporate
sustainability and corporate social responsiveness are very similar concepts. The criticisms of corporate sustainability
came from two reasons. First, the concept of corporate sustainability and its underlying theoretical perspective,
stakeholder theory, are inherently corporate oriented. Stakeholder theory was rooted in strategic management. That
mean the stakeholder theory tends to offer managers a practical tool and give preference to stakeholders with high
power, which is inconsistent with the criteria of global sustainability.

Second, primarily based on stakeholder requests, the concept of corporate sustainability is changing continuously.
Stakeholder attributes are socially constructed, not objective really. In the other words, when we refer to
stakeholders, we are constructing a narrative about the company, the narrative is shaped by assumptions,
descriptions, values and criteria. Like when we are talking about global sustainability and related stakeholders; we are
constructing a narrative as well, a narrative about a sustainable world. For instance, we are constructed with the
flourishing of life on earth over an indefinite time frame, and where this flourishing of life goal incorporates ideas of
human and ecological wellbeing, grounded in principles of intra-and –inter-generational justice.Apparently, corporate
sustainability and global sustainability are regarded as two distinctive frames of references.

The corporate of sustainability is concern with the issues of business management, whereas, global

sustainability concern a balanced and sustainable human development. Corporate sustainability focus on a more micro
level, about what corporation do, while global sustainability emphasizes the macro level and society as a who le. There
are the results of separate but interrelated learning processes, and evolving and responding to constant stakeholder
demands.

Kuwait
Monetary policy objectives

It is set and implemented by central bank of Kuwait (CBK) in accordance with the law NO. 32 of the year 1968
concerning currency, the CBK and the organization of banking business monetary policy's prime objective is to
maintain monetary stability with the aim to mitigate the impacts of inflation. A related objective mandated by the law
is that monetary policy should be managed in such a manner as to enhance the social and economic progress and
growth of national income.

CBK also focuses its efforts toward maintaining financial stability of banking system through the use of macro
prudential instruments including monitoring bank liquidity, bank credit, and introducing and monitoring prudential
regulations.

1- A central bank has confliction objectives. The bank must try keep inflation from making goods too expensive, while
also ensuring that citizens of a country can find jobs. if the bank focuses on unemployment alone, inflation will rise.
According to the federal reserve, a policy only designed to reduce inflation can create long-term unemployment, and
prices will be higher in the future because workers who lack skills because of long-term unemployment will be less
productive.

2- Central banks plan for a small amount of inflation. According to the federal reserve, an inflation rate of 2% per
year is helpful because it reduces the risk of deflation. With deflation, wages will drop in the future, creating a strong
incentive for employers not to hire workers, because they can hire them for lower wages next year and their current
inventory will sell for lower prices.

Exchange rate policy

CBK policy for the Kuwaiti Dinar (KD) exchange rate aims at maintaining and enhancing the relative stability of the KD
against other currencies, and shielding the domestic economy against the impacts of imported inflation. These
responsibilities reflect the importance of the exchange rate policy in the Kuwaiti economy where no restrictions are
imposed on the movement of capital.

During the period from 18 march 1975 to the end of the year 2002, CBK adopted an exchange rate policy pegging the
KD to a weighted basket of major currencies. The policy based the determination of the KD exchange rate on a
special weighted basket of currencies of the countries that have significant trade and financial relations with the state
of Kuwait. This policy proved to be effective in achieving a high degree of relative stability of the KD exchange rate
against major world currencies.

Kuwait stock exchange (KSE)

KSE has witnessed significant changes in terms of regulations, market operations and the number of listed companies.
(HESHAM. School of accounting and financial. UNIVERSITY OF DUNDEE, UK.). between 2002 to 2008, the number of
companies in the KSE increased from 89 to 218 (central bank of Kuwait, 2008). Further, the price index and the
annual value of shares traded on the KSE witnessed incredible growth over the 17 years period ending in 2008
(central bank of Kuwait, 2009). Also, the market has experienced a privatization program and the introduction new
regulations such that international investors are now allowed to purchase, sell and own KSE companies.

The Kuwait stock exchange has one physical location in Kuwait city with a main trading hall surrounded by 14
brokerage offices that provide services to investors. stock market investors in developed countries like USA and UK
are geographically diverse and transact with a large number of brokerage firms who don’t operate in one location.
Thus, one might expect that KSE investors would use different investment techniques from their Western counterparts
since all market facilities are in one geographical location and informal communications as well as rumors circulate
among market participants (Al-LOGHANI, 1995). In addition, family networks are

possibly stronger in Kuwait than in developed countries which supports are argument that equity investors place less
emphases on annual reports and articles about companies in financial press; information is obtained from informed
family members rather than from other resources (ALSHMALI, 1989). According to AL-YAQOUT (2006), the Kuwait
stock exchange established until 1977, share trading occurred long before the establishment of the KSE; it started in
the early 1950s after an initial public offering (IPO) from the national bank of Kuwait. This the first Kuwaiti company
to sell its shares to the public. it was allowed by the National Cinema of Kuwait in 1954 and several financial services
and insurance companies that joined the born unofficial market in the 1960s, such as the Gulf Bank, the Kuwait
commercial Bank and the Kuwait insurance company (ALSHAMALI, 1989; AL-YAQOUT, 2006; Kuwait Stock Exchange
Bulletins, 2008). With the share of these companies owned by the public, mechanisms developed to facilitate the
transfer of securities among Kuwaiti investors. thus, Kuwait's unofficial stock market was born. The environmental of
the country and the unofficial stock markets activities were driven by oil prices, as the government of Kuwait's
revenue grew following increases in oil prices, domestic liquidity within the country improved and this led to a higher
level of security transactions among investors.

Figure 9

The domestic liquidity increased because of a rise in government spending, this rise increased upward pressures on
share prices and led to a stock market crash at the end of 1976. The value of shares traded in the market at the
beginning of 1977 declined by 66%. Associated with this decline was a fall in the capitalization of the market to
KD346 million from KD936 million, a drop of 64%. This crash was followed by one of the most serious recessions in
Kuwait's history. The economy recovered and share trading resumed until the ALMANAKH market Crisis of august
1982. After the ALMANAKH Crisis, the Kuwaiti government intervened and an official stock market, the KSE, was
launched (BUTLER and MALAIKAH, 1992). In September 1984, the KSE opened its new building to the public; this
was the birth of the modern KSE as an independent financial organization, controlled by an executive committee.
Evidence suggests that Kuwaiti stock market behaves differently from its counterparts in developed countries in the
sense that share price movements are often the result of social interaction, competition among rival business groups,
rumors, the political situation in the Gulf region and the size and distribution of government spending (AL-LOUGHANI,
1995). These differences are apparent from KSE statistics over the past of two decades. For example, the KSE
witnessed an incredible growth between 1985 and 2008;

Figure 10
Central Bank Of Kuwait Bulletins, 2008.

The price index of the KSE recorded a new high in 2007; it rose from 1365 in 1995 to 12558 in 2007. However, In
2008, it declined 38% as a consequences of a downward trend among the world's stock markets. the Kuwait
Investment Authority, which acts on behalf the Kuwaiti government in the KSE, launched a privatization program
between 1994 and 1999; 2,499 million shares in 30 companies were sold to the public for KD901.6 million (ABUL,
2005). Further, new regulations were introduced to increase the transparency and protect the rights of shareholders.
In addition, the KSE allowed foreign nationals to own up to 100% of any company listed on the KSE. Moreover, the
profits earned by foreign investors on transactions in the Kuwait stock market, either directly VIA their own purchases
and sales of shares or indirectly through investment funds, weren’t subject to taxation (Kuwait AL-YOUM Magazine,
2008)

3. Conclusion

The relationship between organizations and society has been subject to much argue, often of a critical nature,
evidence continues to mount that the best companies make a positive impact their environment. Furthermore, the
evidence continues to mount that such socially responsible behavior is good for business, not just in ethical terms but
else in financial terms. In other hand, that corporate social responsibility is good for business as well as all its
stakeholders. Therefore, ethical behavior and a concern for people and for the environment have been shown to have
a positive correlation with corporate performance.

4. My opinion

Businesses policy and strategy, its whole organization and correlation with internal and external, society, environment,
and sustainability. Focuses of the factors that influence societal or business behavior and thereby contribute towards
social responsibility. Particular volume focuses upon the increasingly important topic of sustainability and its link to
business strategy. And consider the relationship between corporate performance and corporate social responsibility.