ICAP Past Papers Solutions- Business Management Summer 2013 to Winter 2014

Human Resource Management

1 Q.1 Grand Shipping Company Limited (GSCL) operates a fleet of container ships and plies on some of the

busiest sea routes. To render efficient services in a competitive business environment, it is critical for GSCL to develop and retain a trained and motivated workforce comprising of onboard crew, staff at the ports and office personnel. GSCL makes concerted efforts to implement high-performance systems in all spheres of its operations in which the human resources are of vital importance. Describe the human resource policies and practices which may have contributed towards GSCL’s success in achieving high-performance systems in its operations. (09 marks)

Summer 2013

A.1 The following human resource policies and practices may have contributed towards GSCL’s success in achieving high-performance systems in its operations: (i) Selective Hiring - Pursuance of rigorous hiring procedures and recruitment of only those individuals who have necessary qualifications/skills, fitness, aptitude and willingness to perform in challenging and demanding work environments. (ii) Extensive Training Programs - GSCL would have accorded high priority to the learning proficiencies, cultural flexibility and open mindsets of its staff to perform in diverse working conditions because official regulations, working environment and cultures vary considerably from ports to ports. Comprehensive training would have been provided on a continuous basis to enable the employees to meet the challenges in the performance of their duties. (iii) Self-managed teams and decentralised decision making - GSCL would havedeveloped effective work groups and teams of individuals of diverse backgrounds, both on the ships and at the ports, because they are required to take timely actions, reach well-considered decisions and assume responsibilities. (iv) Emphasis on high-quality performance - A culture of high quality performance from the employees would have been expected and encouraged at all levels since their cumulative efforts are of critical importance for achievement of GSCL’s goals. (v) Pay for performance rewards - A performance related rewards system would have been instituted in GSCL in order to retain a motivated and committed workforce. Such a reward system must have been perceived by the employees to be fair, equitable and merit-based. (vi) Employment security - GSCL would have provided security to its employees in order to gain their loyalty and commitment for achieving top quality performance. (vii) Transformational leadership - The top leadership would have pursued a transformational style of management whose positive impact permeates at all levels in GSCL. This style of leadership would be a source of continuous inspiration and motivation for the employees who have to work as a coordinated team. 2 Q.4 (a) State the advantages of pursuing a policy of congenial human relations management in a large-

sized industrial organisation having several divisions/departments.(05) (b) In the course of selection process, candidates are administered various kinds of tests to ascertain their suitability for the positions. These tests must show a high degree of Reliability and Validity. State what is meant by Reliability and Validity of these tests and why these concepts are considered important in the selection process. (05)

Summer 2013

A.4 (a)(i) A policy of congenial human relations management would enable the organisation to achieve harmonious working relationships between the management, employees at various levels in different departments and the workers union.

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(ii) A policy of congenial human relations management would encourage commitment and motivation among the employees at all levels to achieve high levels of productivity and profitability to achieve the corporate objectives. (iii) A policy of congenial human relations management would minimise industrial conflicts and establish procedures for prompt and amicable settlements of grievance and disputes. (iv) A policy of congenial human relations management would facilitate two way communication and dissemination of information between the management and the employees at different levels and build trust and promote better relations in the organisation. (v) A policy of congenial human relations management would achieve optimal employee flexibility. (b) Reliability means that the tests yield consistent scores when the same test is administered to an individual on two or more different occasions. Reliability is important because if an intelligence test is given to an individual on two separate occasions and the results show marked variations, then there would not be much faith in the consistency of the results and it would lead erroneous decisions. Validity denotes the accuracy with which a test is able to measure what it purports to measure. Validity of a test refers to the correctness of the inference that can be made on the basis of the results of the test. The result of a high test score administered to an engineer should reflect on the candidate’s on-the-job performance to substantiate the validity of the test. A selection test must show valid results, otherwise there would be no justification to continue with the particular test.

3 Q.10 Mercury Telecom Limited (MTL) recognises the need for developing a cadre of trained management staff to provide efficient services to its customers. You have been engaged by MTL as an external consultant to prepare and implement a Training and Development Program for its new management trainees.

Describe the essential steps you may take to develop a comprehensive Training and Development Program which would meet the management training objectives of MTL. (07)

Summer 2013

A.10 The creation of a comprehensive Training and Development program for the new management trainees would involve the following steps: (i) Conduct a need analysis approach to identify the required job performance skills and match them broadly with the levels of present skills of the management trainees and develop specific objectives to overcome the deficiencies. (ii) Design and compile the training program material, including instruction manuals, exercise workbooks for providing job related learning skills and computer-assisted learning modules. (iii) Devise a validation program which would be presented to a small group of trainees so that the initial flaws and shortcomings, if any, in the training material are rectified. (iv) Administer the training and development program by imparting training to the individuals nominated by MTL to participate in the program. The training would be provided through lecture sessions, participative seminars and simulated on-the-job learning techniques. (v) Evaluate the effectiveness of the training and development program by assessing the extent of success of the program towards enhancing work skills among the trainees and achieving the objectives of MTL.

4 Q.5 Identify the business strategy/policy/definition which is most relevant in each of the following situations:

(i) The process through which representatives of management and workers union negotiate a labour agreement is known as __________ Collective bargaining agent

Summer 2013

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5 Q.2 Peak Corporation Limited (PCL) has acquired your services as an HR Consultant for preparation of employee disciplinary procedures to be implemented in the organisation. The draft procedures would be presented to the management for approval and inclusion in the Employee Handbook, copies of which would be provided to all the employees. State the important aspects of the guidelines that you would cover in the draft of employee disciplinary procedures in PCL.(08)

Winter 2013

Ans.2 The important aspects of guidelines of the draft disciplinary procedures of PCL should include the following: (i) Specific mention that whether the procedures would apply to all the employees or only to certain categories of employees in the organisation. (ii) List of the types of improper conduct/offences that would constitute violation of rules and warrant disciplinary action. (iii) Statement of the manner of communication of the specific charge of misconduct/offence which may be an oral warning or in the form of a memo in writing to the concerned employees. (iv) Statement of the types of disciplinary actions that would be taken for the various offences committed by the employees. (v) Stipulation that every case would be properly investigated before any disciplinary action is proposed against the concerned employees. (vi) Stipulation that the reason(s) for imposition of any penalty would be provided to the concerned employees. (vii) Clear statement that the concerned employees would be provided an opportunity to respond to the charges and present their case within a specified time limit. (viii) The employees right to appeal and the procedure for filing of appeal against any disciplinary action/imposition of any penalty. (ix) Level of the officials who would be responsible for instituting enquiries against employees in various grades. (x) The time limit in which all the matters would be disposed of to ensure prompt and speedy action. 6 Q.7 (a) Governments in all countries consider it their responsibility to promulgate and implement laws

and policies concerning health, safety and security of workers. State five objectives which governments seek to achieve by making these laws and ensuring their compliance.(05)

Winter 2013

Ans.7 (a) Governments seek to achieve the following objectives by promulgating comprehensive laws and enforcing compliance of these laws for the health, safety and security of workers: (i) Encouraging employers and employees to reduce hazards in the work place and strengthening the health, safety and security programs. (ii) Establishing minimum safety and health standards. (iii) Creating an effective legal framework for enforcement of the rules and regulations. (iv) Framing procedures for reporting of job-related accidents, injuries, illnesses and deaths. (v) Preventing employment of child workers. (vi) Providing special facilities for female workers. 7 Q.9 State what is meant by the term ‘Employee Attitude Survey’. How an Employee Attitude Survey is

conducted and what are the different purposes for conducting the survey?(05)

Winter 2013 Ans.9 Employee Attitude survey is a systematic investigation of the views and opinions of the employees in an

organisation on issues relating to the work of the organisation or their role within the organisation. Employee attitude survey may be conducted by means of questionnaires or interviews.

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Employee attitude survey may be undertaken: (i) to make a general assessment of employee morale (ii) to obtain their opinion/input regarding introduction of any new policy in the organization (iii) to encourage employee commitment in the planning and implementing new initiatives in the organization (iv) to give the employees a sense of ownership in the organization’s decision making process.

8 Q.10 Goodhope Enterprises had implemented several employee incentive schemes with the expectations that they would raise the level of motivation amongst the employees and improve their overall performance. However, the incentive schemes failed to yield the desired results and the company’s management has initiated enquiries to determine the reasons for the lack of success of the incentive schemes. Identify and explain three factors which in your opinion may have contributed to the lack of success in the implementation of the incentive schemes.(06)

Winter 2013

Ans.10 Lack of success in implementation of incentive schemes by Goodhope Enterprises may be due to the following factors: (i) Increased earnings may not have been an incentive for some individuals. Employees who already have enjoyed adequate income may be more concerned with other aspects of their work, such as leisure time. (ii) Employees may have felt that their efforts have not received adequate recognition due to external impediments or inefficiencies prevailing elsewhere in the organisation. This may have led to frustration and discontentment amongst such employees and adversely affected their performance. (iii) Even if employees were motivated by money, the effects may have not been altogether in the best interests of the company. An individual orientation may encourage self-interest at the expense of teamwork; it may lead to emphasis on output at the expense of quality and lowering of standards to achieve bonus incentives. (iv) Employees may have perceived that the targets set by the management in the incentive schemes are not achievable in spite of their best efforts and that the scheme is a ploy to extract more work from them. Further, the employees may have considered that the incentive schemes to be of a discriminatory nature and may be manipulated to favour certain individuals rather than to be adopted equitably for the entire workforce.

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Q.11 Briefly state what is meant by the following terms: (i) Human resource management (iii) Behavioural interviews (iv) Competency-based salary system (06)

Winter 2013

Ans.11 (i) Human resource management involves planning, organising, directing and controlling the human resources by placing the right persons in the right places and providing them with training in order that they make effective contribution towards achievement of the organisation’s corporate objectives. (iii) Behavioural interviews are conducted to ascertain how the candidate responded to various real-life job-related situations in the past. (iv) Competency-based salary system means the employees are paid for the range of skills and knowledge they provide to the employer, rather than for the positions or jobs that the employees hold.

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Q1(b) Allcom Limited (AL) has been established recently to provide internet services. AL has received numerous complaints of the poor quality of services of the company’s customer care personnel. State what measures AL’s management should adopt to improve the performance of its front-line customer care staff. (04)

Summr 2014

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(b) Allcom’s management should implement the following measures to improve the performance of its front-line customer care staff:

i. The customer care personnel should have good soft skills and be able to handle the difficult and demanding customers tactfully.

ii. The personnel should be provided adequate training so that they are fully conversant with the offerings of products/packages and can respond to the customers queries satisfactorily.

iii. The front-line customer care personnel should be delegated sufficient discretionary powers and autonomy to resolve the routine problems faced by the customers promptly.

iv. The telephone conversations between the front-line customer care personnel and the customers should be monitored to ensure that the quality of the services provided to the customers are satisfactory and up to the required standards.

v. Management should obtain feedback from customers to ascertain whether or not the quality of customers care services are satisfactory. Appropriate corrective actions should be taken to improve the skills of those individuals whose customer-care performance feedback is not up to the mark.

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Q.3(a) Briefly explain the reasons why certain organisations prefer to outsource functions concerning recruitment of new employees to private employment agencies and professional recruiters rather than to handle these functions themselves. (08) (b) Interviews are a widely accepted method of the recruitment process and often play a major role in the decision whether to accept or reject a candidate for a particular position. However, the results of these interviews may not always be reliable due to the weaknesses in the process of the interviews which may result in erroneous recruitment outcomes. Describe four shortcomings in the interview process which, in your opinion, may result in erroneous recruitment outcomes. (06)

Summr 2014

Ans.3 (a) Organisations prefer to outsource functions regarding recruitment of new employees to private employment agencies and professional recruiters because : (i) These organisations may not have adequately trained staff in their human resources departments to prepare and place suitable advertisements in the media, handling/scrutinizing the applications for identification of suitable candidates and subsequent processing of their applications. (ii) These organisations may not want to disclose to their competitors that they are in the process of recruiting particular types of professionals as it may reveal the direction of their expansion schemes. (iii) These organisations may anticipate an overwhelming response to the advertised position(s) and consider that it would be cost-effective to appoint professional employment agencies to process and screen the large number of applicants and short-list the most suitable applicants for final selection by the organisation. (iv) These organisations may consider that placement of advertisements for recruitment of personnel may provide clues to the rates of their employee turnover and create negative perceptions of their human resource policies among their stakeholders and rival competitors. (v) Private employment agencies generally maintain databanks of potential candidates from which the most suitable candidates can be identified readily if the particular position has to be filled-in quickly. (vi) Many senior level personnel may not consider it discreet to respond directly to advertisements placed in the media as it would compromise the confidentiality of their personal information to outsiders and disclosure of their interest in change of jobs which may not materialise. These individuals would be comfortable in dealing

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with the professional head-hunters who would match the suitable candidates and the prospective employers prior to pursing the matter any further. (b) The recruitment interviews may result in erroneous selection outcomes because of thefollowing shortcomings: (i) Interviewers do not possess the requisite job knowledge and/or interviewing skills to evaluate objectively the suitability of the candidates for the particular position. (ii) Interviewer’s judgments may be influenced by the candidate’s affiliations with educational institutions, racial backgrounds and political leanings. (iii) Interviewers often make up their minds about a candidate within the first few minutes of the interview on the basis of the candidate’s CV, mannerisms and appearance and do not utilize the available time for objective evaluation. (iv) Interviewers are not able to concentrate at the same level over prolonged periods when they are required to interview several candidates in a single session. Consequently all the candidates may not receive the same degree of attention and discerning evaluative capability from the interviewers. (v) In panel interviews individual interviewers often assign widely different marks on the rating scale because of lack of specific criteria and on the basis of their own perceptions.

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Q.4 (a) Sigma Corporation Limited (SCL) is engaged in the business of manufacturing assorted range of components and parts for different types of original equipment manufacturing and assembling units. SCL wants to implement high performance work systems in the different stages of the manufacturing processes. State the practices that SCL must adopt to achieve high performance work systems in all their manufacturing processes. (06)

Summr 2014

Ans.4 (a) SCL must adopt and implement the following policies to achieve high performance work systems in the manufacturing process:

(i) well-designed policies for recruitment, selection, training and development of theworkers involved in the manufacturing processes;

(ii) having properly aligned job descriptions and job specifications and ensuring that all positions are filled-in by trained and skilled workers in the different stages of the manufacturing processes;

(iii) having a congenial and safe working environment in which the workers are provided proper tools and equipment to perform the task assigned to the different individuals.

(iv) appropriate promotion and compensation systems for recognition and rewards toachieve high levels of work performance.

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Q.6 Identify the business strategy/policy/definition which is most appropriate in each of the following situations: (iv) Super Sports is engaged in the manufacture and export of hand-stitched footballs and pays salaries to its employees according to the number of units stitched during the course of a week. The employees are paid ________ salaries. (vii) Tests designed to evaluate the skills and competency levels of candidates to perform the jobs actually required of these individuals are called ________. (viii) The cumulative pool of education, knowledge, skills, expertise and training of the individual workers in an organisation is known as ________.

Summr 2014

Ans.6 The appropriate business strategy/policy/definition are:

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(vii) proficiency tests (viii) human capital

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Q2. (b) What are the advantages of having appropriately designed Job Application Forms?(03) (c) Some organisations are moving towards policies of more frequent exercises of Employee Performance Appraisal as compared to Annual Appraisals. Explain briefly the main objectives of such shift in Employee Performance Appraisal policies. (05)

Winter 2014

(b) The following advantages can be derived by adopting appropriately designed Job Application Forms: (i) They facilitate obtaining information regarding the applicants in a specified format which facilitates comparison of particulars of the various applicants. (ii) They help to obtain comprehensive information regarding applicant’s age, qualifications, previous work history, job related skills, general interests, etc. (iii) They help in retaining a permanent record of the candidate for future reference. (c) The main objectives of shift in policies towards more frequent Employee Performance Appraisal exercises are as follows: (i) They ensure that frequent employee performance appraisals for pay and promotions are reflective of the full year’s performance rather than a single appraisal which assigns greater weight to performance during the most recent few months. (ii) They help to identify deficiencies and training needs on a regular basis. (iii) They help to improve performance by providing timely and regular feedback to the staff. (iv) They enable establishment of realistic performance standards and targets for the employees. (v) They ensure that the performance of the staff remains fully aligned with the objectives of the strategic plans by taking timely corrective measures.

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Q.3 (a) Alpha Enterprises, a partnership firm, intends to launch a major expansion program for which a large number of employees would be recruited for appointment at different tiers in the firm. As Manager Human Resources advise the partners of the main advantages and shortcomings of recruitment tests. Also identify and state the key features of any four types of recruitment tests.(08) (b) Business entities often fail to realise that high rates of employee turnover not only result in high operating costs but also have adverse repercussions on the overall performance of the organisation. Identify the different costs and disadvantages associated with high rates of employee turnover. (07)

Winter 2014

Ans.3 (a) The advantages of recruitment tests: (i) They help to assess the behavioural and competency aspects of the applicants to perform the assigned jobs (ii) Well-designed recruitment tests provide reliable and valid results of the applicants capabilities and skills on a consistent basis. The shortcomings of recruitment tests: (i) They may not be designed to measure the specific qualities which are essential for the actual performance of the job (ii) They may give unrealistic and spurious sense of accuracy to complex issues.

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The different types of tests and their key attributes are given below: (i) Psychological/personality tests - Psychological/personality tests are administered by asking a series of questions to ascertain the applicant’s basic attitude and temperament profile. (ii) Intelligence tests - Intelligence tests are designed to assess the applicant’s intellectual abilities of general knowledge and comprehension skills. (iii) Proficiency tests - Proficiency tests are designed to ascertain the applicant’s ability and competence level to perform the assigned work satisfactorily. (iv) Aptitude tests - Aptitude tests are administered to obtain information about the applicant’s overall mental and numerical abilities and physical dexterity. (v) Psychometric tests -Psychometric tests are administered by asking questions and obtaining applicant’s responses to enable the recruiters to measure the applicant’s psychological characteristic such as intelligence, personal outlook and motivation. (b) Business entities which experience high rates of employee turnover incur high costs and also result in disadvantages for the organisations as follows: (i) Administration costs of completing formalities of the leaving employees such as out-of-turn preparation of salaries, calculation of benefits and completion of formalities involved in the discharge of the employee. (ii) Opportunity cost of time spent by line managers and other staff during the course of recruitment, training and induction of the leaving employee. (iii) Direct cost of recruiting replacements by way of advertisements, interviews, administration of tests and reference checks. (iv) Cost of training new employee to develop necessary skills for the performance of the required job. (v) Cost of loss of output before the replacement employee is adequately trained and capable of assuming the necessary responsibilities. (vi) High turnover may lead to key employees joining rival competitors and disclosing company’s secret policies and working methods. (vii) High turnover may be indicative of flaws in HR policies and would create negative feelings amongst the existing employees. (viii) Employees who leave on account of job dissatisfaction prove bad ambassadors resulting in bringing disrepute for the organization.

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Q.7 In your role as an internal human resource specialist, explain briefly the human resource policies you would recommend for a learning organisation which pursues and implements a system of efficient knowledge management at all levels of the organisational hierarchy. (09)

Winter 2014

Ans.7 As an internal specialist in a learning organisation, I would recommend the following human resource policies for pursuing and implementing a system of efficient knowledge management at the various levels of the organisational hierarchy: (i) Designing an organisation structure which facilitates knowledge sharing through the various channels of communication and promotes teamwork at all levels in the organisation hierarch. (ii) Adopting merit-based policies of recruitment whereby the organization is able to identify, induct and retain employees who can contribute towards creation of knowledge and its sharing in the organization. (iii) Adopting result-based recruitment polices with well designed procedures to short list, evaluate and select employees. (iv) Hiring professionally qualified and experienced HR manager and staff to manage the HR functions. (v) Creating a culture of commitment and trust in which the values and norms emphasize importance of sharing knowledge amongst the employees at various levels in the organization.

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(vi) Pursuing human resources policies with necessary flexibility for motivating and rewarding employees who focus on personal achievement of knowledge and its sharing with colleagues, systems thinking and team learning. (vii) Encouraging training by participation in workshops, conferences and seminars to ensure dissemination of knowledge amongst the employees. (viii) Developing IT systems for capturing and coding explicit and tacit knowledge for use by employees at various levels from time to time.

Strategy Management and Implementation

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Q.3 (a) Various studies show that in the present business environment, strategies of vertical expansion are pursued less frequently than the other strategies of business growth. Explain briefly the reasons why firms do not always consider it advantageous to pursue strategies of vertical expansion vis-á-vis the other strategies of business growth.(08) (b) Mission of an organisation, articulated and clearly defined in its mission statement, is a combination of the inspiration and description of the road ahead for the organisation. State the essential elements which a progressive organisation would want to capture and propagate amongst its employees in a well-crafted mission statement.(05)

Summer 2013

A.3 (a) In the present environment, strategies of vertical expansion are not always considered to be as advantageous as other strategies of business growth due to the following reasons: (i) Vertical expansion requires huge capital investments, diverse management competencies and technical skills which are often beyond the capabilities of individual firms. (ii) Firms seek to achieve advantages of economies of scale which can be obtained only if the volumes in their main lines of business are sufficiently large and enable specialist firms to provide the products/render services at costs which are lower than those which can be achieved through pursuance of policies of vertical expansion. (iii) Vertical expansion requires long term commitments in different types of business activities from which it may be difficult to withdraw in times of changes in business environment. Therefore, firms prefer to enter into business relationships of long-term contracts, alliances, franchising, licensing, etc with external parties rather than pursue policies of vertical expansion. (iv) Advantages of business specialisation outweigh the disadvantages on account of lack of direct control of sources of raw materials or distribution channels. In present business situations, large and reputable manufacturers and service providers are competing vigorously for securing business. Consequently, these firms prefer to concentrate in their core business activities and procure supplies/services from specialists in their chosen fields. (b) The essential elements which an organisation would want to capture and propagate amongst its employees in a well-crafted mission statement are as follows: (i) purpose of existence of the organization. (ii) the manner in which the organization defines success. (iii) strategy that should be pursued to achieve success. (iv) shared values and behaviour that the organisation expects from all its employees. (v) pursuance of the mission as a living statement that can be translated into goals and objectives at different levels in the organisation.

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Q.5 Identify the business strategy/policy/definition which is most relevant in each of the following situations: (vi) The activities of two or more businesses when brought together create value that is greater than the value which they can achieve individually is due to the effect of __________Synergy (viii) Purchase of all or part of a business from its owners by its managers is called __________MBO

Summer 2013

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Q.8 Products of leading multinational companies have firm footholds in the markets in several countries around the world. State six strategic factors which contribute towards the success of these companies in such highly diversified business conditions and market environments. (09)

Summer 2013

A.8 The strategic factors which contribute towards the success of leading multinational companies in several countries having diversified business conditions and market environments are: (i) These companies have well-defined corporate missions which are important part of their business strategy formulation process and are implemented at all levels in their organisational hierarchy. (ii) These companies have strong and competent global business leadership with sound knowledge of the business environment in the countries in which they operate. (iii) These companies view the entire world as a potential target market and often adapt products to cater to the needs of the markets in different countries. The MNCs also launch global as well as country-specific advertising/promotional campaigns to attract and create satisfied customers. (iv) These companies have created internationally recognised trademarks and brands which are their most valuable assets. Customers in their target markets have strong brand preferences and loyalties and purchase the products by their popular brand names. (v) These companies have developed effective distribution systems which deliver the products to the different markets located in the cities as well as in the remote villages. (vi) These companies have abundant financial resources which are allocated intelligently in countries in which they can earn high returns on investment.

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Q Q.9 (a) What are the different types of entry barriers which may discourage entrants from establishing new manufacturing units in spite of substantial demand/supply gap for products in any industry?(07) (b) Identify the various steps involved in the Delphi Technique of decision making. (05)

Summer 2013

A.9 (a) The different types of entry barriers which may discourage new entrants from establishing new manufacturing units in spite of the substantial demand/supply gap for products in any industry are: (i) It may be difficult to achieve economies of scale quickly due to technical/operating constraints with the result that the new entrants may sustain substantial losses for a considerable period. (ii) The technology and specialised know-how for manufacture of the products may be held closely by a few suppliers and it may be difficult or too expensive for new entrants to gain access to such technology. (iii) The existing suppliers may have deeply-entrenched brands and enjoy strong customer loyalty which may make it difficult for the new entrants to compete with them. (iv) The existing suppliers may be financially resourceful and enter into price wars to deter new entrants. (v) The initial capital requirements may be too large and beyond the capacity of potential new entrants. (vi) It may be difficult for new entrants to have access to sources of raw materials as the existing manufacturers may have highly favourable ownership/lease rights of these sources. (vii) The existing suppliers may have well-established relations with knowledgeable and resourceful distribution channels and the new entrants may find it difficult to develop new marketing channels for distribution of their products. (viii) The government regulatory policies may prohibit new entrants from establishing new units to provide protection to state-owned industries. (b) The various steps involved in the Delphi Technique of decision making are: (i) Problem is identified.

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(ii) The group members (physically separated and unknown to each other) are asked to offer solutions to the problem by providing anonymous responses to a carefully designed questionnaire. (iii) The responses given by all the group members to the questionnaire are compiled and re-circulated to all the group members. (iv) The group members are individually asked to offer a new solution to the problem after having studied the individual responses given by all other group members. (v) The steps at (iii) and (iv) above are repeated until a consensus solution of the problem is reached by the group.

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Q.5 Zest Pharmaceutical Company Limited (ZPCL) had assigned some of the most talented individuals in the organisation to formulate the company’s strategic plan. The strategic plan was considered and approved by the top management, including the board of directors. However, ZPCL’s actual performance was rather disappointing and the company was not able to achieve the objectives envisaged in the strategic plan due to shortcomings in the various stages of implementation of the strategic plan. As an external consultant, identify and explain six critical factors in the strategy implementation process which may have been responsible for the poor performance of ZPCL. (12)

Winter 2013

Ans.5 The important factors which may have been responsible for the poor performance in ZPCL’s strategy implementation process in spite of formulation of a well-conceived strategic plans are discussed below: (i) Changes in business conditions The actual business conditions may have unexpectedly deteriorated due to factors beyond ZPCL’s control. These may have derailed the strategic plan and created impediments in its implementation. (ii) Communication of objectives of the strategic plan If the objectives of the strategic plan were not communicated fully to those responsible for implementation of the strategic plan, the employees not being fully aware of the goals envisaged in the strategic plan may have performed without complete knowledge of the specific goals assigned to the various departments. (iii) Non-supportive corporate culture The management may not have been able to create a conducive organisational culture which is necessary for promoting sound work ethics and thus obstacles may have been created in the achievement of the objectives of the strategic plan. (iv) Lack of alignment between the organisation structure and the strategic plan The organisational structure comprising of production, R&D, marketing and human resources departments may not have been able to work in close collaboration in pursuit of the goals envisaged in the formulation of the strategic plan due to imbalances in the allocation of powers and responsibilities. (v) Improper allocation of resources Resource allocation is a critical management activity which facilitates the implementation of the strategic plan. The resource allocation process in ZPCL may not have been in accordance with the strategic plan because of pressures from certain groups and personal considerations. (vi) Inadequate monitoring of implementation of the strategic plan ZPCL may not have established milestones and standards for measuring the performance in the various stages of implementation of the strategic plan. This may have prevented ZPCL from identifying any deviations and taking prompt corrective actions to ensure that the implementation process was in accordance with the objectives envisaged in the strategic plan. (vii) Poor linkage between employee performance and rewards with the strategy

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Decisions regarding salary structures, rewards and promotions must be aligned with the aims of the strategic plan and be able to motivate the employees towards achievement of the objectives of the strategic plan. The compensation and reward packages in ZPCL may have been based on personal considerations and may have resulted in lack of motivation among the employees which created impediments in the achievement of the objectives of the strategic plan. (viii) Inability to manage conflicts Individuals and groups within the organisation may have had conflicts on certain issues. Differences in expectations, perceptions, work schedules and departmental goals in ZPCL may have resulted in conflicts which may have been impediments to the achievement of the goals envisaged in the strategic plans.

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Q.6 (a) Long-life Concrete Limited (LCL) is a manufacturer of pavement blocks and enjoys a sustainable cost-leadership position in its line of business. Recently, a number of competitors have posed serious challenges to the favourable cost-leadership advantage enjoyed by LCL over its rivals. State the different strategies and tactics that LCL should pursue to sustain its cost-leadership advantage over its competitors. (06)

Winter 2013

Ans.6 (a) Long-Life Concrete Limited should adopt the following strategies and tactics to meet the challenges posed by the competitors and maintain its sustainable cost-leadership advantages: (i) Efficient operation of the physical facilities – The manufacturing plant, raw material handling equipment and packaging and loading facilities should operate at high capacities with minimum down-time for maintenance, repairs and other stoppages. (ii) Vigorous pursuance of policies of purchase of raw materials in optimal quantities to minimise costs, including inventory carrying costs and overall financial costs. (iii) Exercise of tight control on all operating costs, such as salaries and wages, power and fuel and other overhead expenses. (iv) Continuous review and revision of marketing strategies to make them more effective and customer-value oriented.

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Q.8 Most companies prefer to achieve their objectives of expansion through organic/internal growth. Give any four reasons why a company may prefer to achieve expansion through internal growth and not through acquisition of other entities. (06)

Winter 2013

Ans.8 Companies prefer to pursue policies of growth by organic/internal expansion and not through acquisition for the following reasons: (i) Expansion of physical infrastructure and facilities can be planned more efficiently to fulfill the organizational requirements. In case of acquisition, the company would have to utilize the existing sites and facilities which may not be the most suitable option for its requirements. (ii) The cost of acquisition of an existing company may be much higher than the cost of expansion of assets through internal growth. (iii) The sizes of the entities presently available for acquisition may not be appropriate for the particular need of the entity. (iv) In acquisitions, a company acquires all the functions of other companies resulting in duplication of facilities or redundancies which ultimately results in inefficient performance and lowering of employee morale. (v) Human Resources can be utilized more effectively and with a greater degree of cohesion of corporate culture by adopting strategies of organic growth. Also, in the case of organic growth, better career development opportunities are provided to the employees.

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Q.1(a) Companies prepare formal mission statements which purport to define their unique characteristics and set them apart from other organisations. However, it is observed that mission statements of a number of companies do not have much bearing and relevance with their overall corporate culture and values, aspirations of their employees and actual achievements. Identify and explain briefly four factors which may be responsible for the variances in the objectives stated in the mission statements of these companies and their culture, values and performance levels.(06)

Summer 2014

Ans.1 (a) The factors which may be responsible for the variances in the objectives stated in the mission statements of companies and their culture, values and performance levels are as follows: (i) Mission statements of these organisations are primarily public relations exercises and are not adopted with seriousness of purpose and commitment for decision making and performance in the various tiers of the organisational hierarchy. (ii) Mission statements prepared without the participation and involvement of the key management team may not elicit their whole-hearted support towards the philosophy, purpose and beliefs enunciated in the mission statement. (iii) A culture of short-termism permeates among the individual departments without any concern for achievement of the overall long-term objectives of the company as enunciated in the mission statement. (iv) Mission statements may be formulated under the influence of statements of other successful organisations but lack the requisite culture of work ethics and values, human and physical resources and other core strengths to achieve the objectives stated in the mission statement. (v) Mission statements may be based on generalised expressions and perceptions or ‘wish lists’ and popular concepts with exaggerated objectives prepared by individuals who are neither responsible nor accountable for achievement of the objectives stated in the mission statement.

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Q.2 Strategic Management is a long-term planning process undertaken to achieve the organisational goals during a period ranging between 3-5 years. Describe the important stages involved in the Strategic Management process of major business organisations. (09)

Summer 2014

Ans.2 The important stages involved in the Strategic Management process are: Strategy Formulation: This includes developing the organisation’s vision and mission, identifying the organisation’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives and selecting the particular strategies to be pursued during a period of 3-5 years. Strategy formulation issues mainly include allocation of resources among the different business segments and decisions whether to expand existing business lines or to pursue diversification strategies. Strategy Implementation: Creating an effective organisational structure, directing marketing efforts, preparing budgets, developing information systems and motivating the staff to create a culture to achieve the objectives stated in the strategy formulation stage and aligning employee performance with the target performance levels are activities involved in the strategy implementation stage. Strategy Evaluation: This process involves obtaining information to ascertain whether or not the strategy is working as envisaged originally. It includes reviewing external and internal factors on the basis of which the strategy was originally formulated, measuring performance and determining variances and taking timely corrective actions including modification of the strategies due to changing external and internal factors to ensure continuity of the organisation’s performance.

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10

4(b) Various types of Benchmarking are used as points of reference or standards against which performances of organisations are measured. State the difference between Internal Benchmarking and Functional Benchmarking. Give one example each of Internal Benchmarking and Functional Benchmarking.(05)

Summer 2014

b) Internal Benchmarking is a method by which one operating unit or function is compared with the other similar function within the same industry. OR is a method by which the best practices or functions are compared within the same organisation. Functional Benchmarking compares similar functions in one organisation with those of other external entities who also perform that particular function regardless of the industry in which these functions are performed. Example of Internal Benchmarking: Gross profit percentage of one airline with gross profit percentage of another airline. Example of Functional Benchmarking: Compensation packages of the CEOs of a pharmaceutical company and a company engaged in manufacturing of textile products.

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Q.6 Identify the business strategy/policy/definition which is most appropriate in each of the following situations: (i) A leading manufacturer of textile products is considering acquiring an existing fast-food chain which has outlets throughout the country. It is pursuing a policy of________. diversification/conglomeration (ii) Fortune Bank Limited envisages adding 50 new branches to its existing network of 450 branches in the country. The bank is launching a policy of ________. market penetration / market expansion/ market development (iii) Sunrise Juices Limited manufactures an assorted line of juices, jams and pickles. The company is in the process of acquiring a fully developed 500 acre fruit and vegetable farm to meet a significant proportion of its raw material requirements. Sunrise Juices is pursuing a policy of ________. Backward Integration

Summer 2014

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Q.8 Discuss the relevant competitive environment in the context of Michael Porter’s Five-Forces Model of Competition in each of the three scenarios presented below. Substantiate your answer by stating the significant characteristics of competitive environment facing the organisations in each of the scenarios. (i) Ocean Ship Breaking Company is located in a country which has access to skilled low-cost manpower, convenient berthing/ship-dismantling facilities, liberal tax incentives and an expanding domestic market for sale of steel scrap. Despite the above favourable factors, very few entrepreneurs have interest in this so called ‘dirty and demanding’ business. On the other hand, the shipping industry is facing a surplus of unserviceable vessels. These vessels have to be scrapped as early as possible due to their high maintenance costs and port charges. (ii) Two companies have developed genetically modified rice seeds after intensive research at a considerable cost. These companies have also made substantial investments in physical facilities for producing the seeds. These seeds have resulted in unprecedented increase in per acre yields in the three countries in which these seeds have been marketed to-date. Both the companies expect phenomenal increase in their revenues and earnings after they launch their products in other rice growing countries due to the envisaged demand in these countries. (iii) In Country PQR there are six cement manufacturers of similar strength and resourcefulness. These manufacturers share among themselves 90 percent of the aggregate market which is expected to remain stagnant due to lack of demand for new housing and absence of plans for major infrastructure projects in the country in the foreseeable future. (09)

Summer 2014

Ans.8 (i) Bargaining Power of Buyers Ocean Ship Breaking Company enjoys an exceptionally strong bargaining position vis-à-vis the ship-owners. OSBC can purchase ships at very low prices. Besides, OSBC has the significant advantages of low ship dismantling costs, favourable tax policies and a ready market for sale of steel scrap material combined with limited number of interested entrepreneurs in this line of business which would strengthen its position vis-à-vis the ship owners (ii) Potential Threat of Entry of New Competitors Since the market for genetically modified rice seeds is expected to offer significant growth prospects resulting in increase in revenues and lucrative profits by the two companies, there would be a strong attraction for other resourceful research-oriented companies to enter this market. Although the new entrants would have to incur huge R&D costs to develop the specialized products, and make substantial investments in creation of production facilities yet threats from potential competitors cannot be ruled out. (iii) Rivalry among Existing Firms Since six companies of equal size and strength are involved in competition in the market for cement which is not expected to show any growth, the strategies pursued by only those companies would be successful to the extent that they have competitive advantages over the strategies of their rivals. Price competition, campaigns for creation of perceptions of better quality of cement, free onsite delivery to bulk buyers and aggressive promotional strategies would be common features among the competing firms.

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Q.1 Rivalry among competing firms is usually considered to be the most powerful of Michael Porter’s Five-Forces Model of competitive analysis. Identify and illustrate the circumstances in which rivalry among the competitors would be intense. Also identify any one business in Pakistan in which you consider rivalry among competitors to be intense and give a reason for your choice. (09)

Winter 2014

Ans.1 Rivalry among the competitors will be intense/high:

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(i) if the number of competitors is high and they are equal in size, strength and capabilities. (ii) in case the overall market is not expanding and the competitors resort to price cutting and aggressive promotion to capture a larger share of the aggregate market. (iii) if there is not much brand loyalty among the customers and it is easy and less costly for them to switch suppliers. (iv) in industries which have to incur substantial fixed costs. The competitors would strive hard to manufacture and sell larger quantities to spread and recover their fixed costs from sale of a large number of units. (v) if the products are perishable or have limited shelf lives as the competitors would resort to price cutting and aggressive promotion to dispose of their stocks. (vi) when there are major exit barriers and alternatives uses of the assets are limited. Example: Manufacturers of soaps/soft drinks/biscuits etc., mobile/telephone service providers. Reasons: These are relatively low value-products and are purchased frequently by the customers at convenient outlets. The customers can be persuaded easily to change their preferences and hence their brand loyalties.

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Q.6 Identify the strategy/policy that the companies are pursuing in each of the scenarios given below and state the important features/characteristics of the strategy/policy: (i) Saaf Soap Company (SSC) is a manufacturer of washing soap for clothes whose target market comprises of low income consumers. SSC’s strategy is highly focussed and it successfully fulfils the needs of customers who want to economise on their day-to-day household expenditures. (ii) Wholesome Meat Company (WMC) is engaged in the business of selling meat and caters to affluent customers who prefer to purchase good quality meat in a clean environment. WMC’s prices are approximately 25 percent higher than the prices charged by the traditional meat shops. (iii) Strong Steel Limited (SSL), a manufacturer of steel billets, intends to acquire and develop its own iron ore mines within the country. Shipments of imported iron ore are often delayed due to transportation bottlenecks and besides, the foreign suppliers manipulate prices during peak demand periods causing uncertainties for SSL. (iv) Winall Appliances Company (WAC) is a leading manufacturer of refrigerators and is rated among the four top players in the country. WAC is presently in the advanced stage of establishing facilities for manufacture of air conditioners. (08)

Winter 2014

Ans.6 (i) Overall cost leadership strategy: SSC is pursuing a cost leadership strategy which creates a low cost position vis-à-vis other manufacturers of washing soaps. Companies pursing this strategy have to place emphasis on reducing the costs in the entire value chain to be able to maintain the low prices for its target customers. (ii) Differentiation strategy: WMC pursues a differentiation strategy of creating an impression of superior quality of its products and services which the customers perceive to be of value and are willing to pay premium prices. OR Niche marketing strategy: WMC is pursuing a niche marketing strategy as it caters to a narrowly defined customer group seeking distinctive benefits of good quality meat in a clean environment and for which they a willing to pay premium prices. (iii) Backward vertical integration strategy: SSL intends to pursue a policy of backward vertical integration as it intends to acquire ownership and control of its own sources of raw materials within the country and thus reduce its dependence on imported iron ore.

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(iv) Related/concentric diversification/horizontal integration strategy: WAC is pursuing a policy of related diversification/integration by adding a new but related product line to its business to seize advantages of related technical competencies, marketing insight and sales of the products through its existing network of distributors.

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9(b) Quality is a strategic advantage which can be achieved by an enterprise through long-term commitment to excellence in all areas of operations. Identify the factors you consider to be most critical for achieving quality as a sustainable strategic advantage. (04)

Winter 2014

(b) The critical factors for achieving quality as a sustainable strategic advantage are: (i) Understanding the needs and preferences of the customers. (ii) Paying attention to laid out specifications. (iii) Striving to learn and improve continuously. (iv) Giving importance to customer feedback. (v) Stress on quality assurance in all stage of the value chain.

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Globalisation / Global Strategy

1

Q.5 Identify the business strategy/policy/definition which is most relevant in each of the following situations: (v) The approach in which a multinational company assigns the best employees to key positions in its worldwide operations regardless of their nationalities is __________ geocentric staffing/orientation/geocentricism (ix) Potential changes in political conditions in a country that may cause a company’s operating performance or financial position to deteriorate are called __________ Political Risks (x) Implementation of measures to reduce electricity, petrol/diesel and gas consumption by efficient control and management and also to protect the natural environment is called __________Energy Conservation

Summer 2013

2

Q.7 (a) The magnitude of Foreign Direct Investments has increased significantly in recent times and the momentum of its expansion continues as an ongoing process. Describe any five factors which in your opinion have contributed to the expansion of foreign direct investments in recent times. (7.5) (b) State three advantages of market-value based transfer pricing transactions among inter-group companies. (4.5)

Summer 2013

A.7 (a) The factors which have contributed towards the expansion of foreign direct investments in recent times are: (i) Expansion of global markets and competition to secure business globally require firms to operate simultaneously in several countries by making direct foreign investments in the host countries. (ii) Foreign direct investments allow the firms to gain first-hand advantages of the prevailing and emerging business opportunities in the host countries. (iii) Foreign direct investments enable firms to overcome barriers to trade and operate abroad as domestic entities without the unfavourable impact of customs duties, tariffs and other import restrictions. (iv) Foreign direct investments are channeled in business opportunities to seize advantages of low costs of labour, raw materials and energy in the host countries and ensure their uninterrupted supplies. (v) Foreign direct investments in manufacturing facilities in host countries create a perception of locally manufactured products among the buyers. (vi) Various countries offer attractive incentives such as tax holidays and facilities of special export/industrial zones to companies to attract them to make foreign direct investments. (b) Market-value based transfer pricing transactions among inter-group companies offer the following advantages:

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(i) The selling entity would have to offer good quality products as the buying entity has the option to purchase the goods/services from other sources. Consequently, there would be all round improvement in the levels of efficiency within the transacting entities of the group. (ii) Market-value based transfer pricing are free from administrative biases and help in accurate measurement of performance of individual entities. (iii) Since the individual entities function as independent cost/profit centers, the chances of internal disputes over determination of prices of inter-company transactions would be eliminated. (iv) The tax authorities would more readily accept the tax returns filed by the different entities based on market-value based transfer pricing transactions.

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Q.8 Products of leading multinational companies have firm footholds in the markets in several countries around the world. State six strategic factors which contribute towards the success of these companies in such highly diversified business conditions and market environments. (09)

Summer 2013

A.8 The strategic factors which contribute towards the success of leading multinational companies in several countries having diversified business conditions and market environments are: (i) These companies have well-defined corporate missions which are important part of their business strategy formulation process and are implemented at all levels in their organisational hierarchy. (ii) These companies have strong and competent global business leadership with sound knowledge of the business environment in the countries in which they operate. (iii) These companies view the entire world as a potential target market and often adapt products to cater to the needs of the markets in different countries. The MNCs also launch global as well as country-specific advertising/promotional campaigns to attract and create satisfied customers. (iv) These companies have created internationally recognised trademarks and brands which are their most valuable assets. Customers in their target markets have strong brand preferences and loyalties and purchase the products by their popular brand names. (v) These companies have developed effective distribution systems which deliver the products to the different markets located in the cities as well as in the remote villages. (vi) These companies have abundant financial resources which are allocated intelligently in countries in which they can earn high returns on investment.

4

Q.3 (a) Eastern Company Limited (ECL) is located in Country A and its assorted line of fast-moving consumer goods are well accepted in the domestic market. ECL is presently considering to expand its operations and establish manufacturing facilities in three overseas countries. List four different types of factors/influences which would form the basis for determining whether ECL should adopt policies of product standardisation vis-a-vis policies of product customisation, in the market environments in different countries. (06) (b) Give two examples each of products which are usually marketed as: standardized products customized products (02)

Winter 2013

Ans.3 (a) The factors/influences which would form the basis for determining whether ECL should adopt policies of product standardisation vis-à-vis policies of product customisation in markets in different countries are: (i) If the needs and preferences of customers in the markets in the three countries are of a homogeneous nature, ECL should adopt policies of product standardization. Conversely, if the needs and preference in the

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countries show considerable variations, ECL should adopt policies of product customization to cater to the needs and preferences of customers in the different countries. (ii) If the income levels in all the three countries are more or less the same, ECL should follow a policy of standardisation of products. However, if there are marked differences in the income levels among the countries, a policy of customization of products would enable ECL to develop products which can meet the requirements of customers in the target market segments at affordable prices in the different countries. (iii) If significant economies of scale can be achieved by manufacturing homogeneous products for the different markets, it would be advisable to adopt policies of standardisation. However, if the economies of scale are not available, it would be preferable to adopt policies of product customization according to the economies which can be obtained in each of the markets. (iv) If significant advantages of efficiencies in marketing, distribution and after-sales services can be achieved by adopting uniform policies in all the three countries, it would be advisable to manufacture standardised products. However, if the promotional strategies have to be tailored to appeal to the different cultures prevailing in the different countries, it would be necessary to adopt policies of product customisation for the different countries. (v) If it is necessary to face aggressive marketing policies of domestic manufacturers in different countries, ECL would have to adopt policies of product customisation to counter the policies of the competitors in the markets in different countries. In the event the marketing policies of domestic competitors would not have much bearing on the products of ECL, it would be advantageous to adopt policies of product standardisation in all the countries. (b) Examples: Standardised products: Lux soaps, Head and Shoulders shampoo, Sony TVs, HP Laptop computers, etc. Customised products: McDonald Burgers, Suzuki vehicles, Zong mobile phone services, etc.

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7(b) Give three reasons why multinational companies often enter into agreements of collaboration with partners in foreign countries to seize certain advantages instead of operating entirely on their own in these foreign countries. (06)

Winter 2013

(b) Multinational companies enter into agreements with partners in foreign countries to seize the following advantages: (i) Obtain country-specific advantages – Differences in cultural, economic and political conditions may create barriers which may make the entry difficult for the MNC in the foreign country. The MNC may therefore need to collaborate with a knowledgeable local partner to establish the asset base quickly on favourable terms. (ii) Overcome regulatory constraints – Many countries impose restrictions on ownership of majority shareholding by foreign companies. Moreover, a local investor is better placed to understand and implement the regulatory requirements, particularly where the MNC does not intend to make a very major investment. (iii) Reduce political risks – MNCs are concerned that political and economic changes would adversely affect the safety of their assets and earnings in foreign countries. Collaboration arrangements with domestic partners would help to reduce political risks by limiting their overall investment exposure in such countries.

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Q.11 Briefly state what is meant by the following terms: (ii) Offshore manufacturing (v) Tax havens

Winter 2013

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(ii) Offshore manufacturing means an arrangement by which a firm in one country enters into a contract with a foreign-based firm in another country to manufacture its products or components on behalf of the firm which has awarded the contract. (v) Tax havens are countries that have highly generous tax laws to encourage foreign citizens to conduct their operations in such countries.

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Q.6 Identify the business strategy/policy/definition which is most appropriate in each of the following situations: (vi) A multinational company follows a policy of manufacturing products and adapting its marketing strategies to the local environments in the different countries in which it operates. This multinational company is pursuing a policy of ________. polycentrism x) A process by which a multinational company having a number of subsidiaries in different countries may make adjustments of foreign currency transactions/balances among the different subsidiaries is called ________.Multilateral Netting

Summer 2014

7

Q.9 (a) Purex Limited (PL) has considerable experience in its particular line of business and is considering making direct foreign investments in an African country. Besides the political risks, state what other factors PL should consider while making a decision regarding direct foreign investment in that country. (05) (b) Nova Cosmetics Limited (NCL) considers that there are favourable business opportunities for its assorted line of cosmetic products due to rise in income levels in a number of countries. NCL realises that tax considerations can have far reaching impact on its policies related to international business operations. List the types of decisions relating to international business operations where NCL is likely to be influenced by tax considerations. Note: List the types of decisions only - explanations are not required. (04)

Summer 2014

8 Q.10 Explain briefly the reasons why certain global corporations consider it essential to pursue highly centralised decision making strategies to achieve their overall global objectives. (08)

Summer 2014

Ans.9 (a) PL should consider the following factors to determine whether or not it should make investments in the African country: (i) the legal, demographic, cultural and technological forces in the African country to ascertain whether the environment is conducive for making investment in that country, (ii) the availability of adequate infrastructure facilities in the African country to enable PL to undertake its business operations satisfactorily, (iii) the strengths and weaknesses of the local and other foreign competitors in the African country to evaluate the nature of competition, (iv) the monetary policies in the African country, availability and access to financial facilities, stability of exchange rates and the regulations regarding repatriation of profits, (v) availability and reliability of economic and marketing data/statistics for estimating the size of the market and potential for growth, (vi) tax laws and foreign exchange regulations prevailing in the African country and special incentives offered to the foreign investors. (b) The different tax considerations which would influence and impact NCL’s international business decisions are: (i) Location of business facilities/operations in countries which offer tax exemptions or low tax rates. (ii) Operating forms of business whether to export, enter into licensing, franchising arrangements, etc. to minimise tax liabilities.

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(iii) Structuring of entities for international business operations by way of overseas subsidiaries, branches or appointment of distributors to obtain tax advantages. (iv) Policies for determining transfer prices for transactions among inter-group companies to obtain tax advantages. (v) Raising financing through equity or debt sources to minimise tax liabilities. Ans.10 Certain global corporations pursue highly centralised decision-making strategies to achieve the following objectives: (i) They sell their products through coordinated market strategies and distribution channels which consider the world as one market with no differences in consumer tastes and preferences. These firms provide quality products at attractive prices to the customers. (ii) They launch coordinated financial strategies and implement standardised worldwide financial controls systems. (iii) They monitor closely the performances of the individual entities which have far-reaching implications on the financial standing and profitability of the global corporation. (iv) They ensure maximum security and confidentiality of the manufacturing process involving sophisticated technology which has been developed by the global corporation. (v) They ensure that the closely integrated subsidiaries perform according to their assigned targets as shortfall in any one subsidiary can have adverse impact on the overall group performance. (vi) They comply with the stringent quality control requirements in highly environmentally sensitive industries in which any lapse or mishap by any subsidiary can adversely affect the standing and reputation of the global corporation.

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Q.10 (a) Certain companies prefer penetrating in foreign markets through licensing arrangements in the target countries instead of exporting or making direct foreign investments. Describe briefly the advantages which companies seek to achieve by pursuing strategies of entry in foreign markets through licensing arrangements. (04) (b) Identify six major impediments in attracting foreign investments in an underdeveloped country. (03)

Winter 2014

Ans.10 (a) The advantages of penetrating into foreign markets through licensing arrangements with local entrepreneurs in foreign countries are: (i) the licensor obtains the benefit of the expertise and contacts of the licensee in the foreign market. (ii) entry in foreign markets through licensing arrangements can enable the licensor to make rapid penetration in the markets in these countries. (iii) licensing arrangements are more attractive than exporting because high tariffs, quotas or other import restrictions in overseas markets increase the costs of exports. (iv) licensing arrangements do not require substantial financial resources of the licensors. (v) licensing arrangements helps to minimize political risks because the licensee is considered as a domestic entity in the licensee’s country. (b) The impediments in attracting foreign investment in an underdeveloped country are: (i) poor infrastructure facilities of roads and communications and unreliable network of utilities. (ii) absence of laws relating to patents, copyrights and intellectual properties. (iii) widespread corruption in the government and other social sectors. (iv) an unstable system of governance. (v) lack of education and absence of a skilled work force. (vi) absence of generally accepted accounting principles. (vii) uncertain economic and financial policies. (viii) non-availability of reliable economic and financial data.

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10

Q.9 (a) A phenomenon witnessed in several progressive business groups is to own and manage diversified businesses. Identify and describe significant corporate level strategies which these groups pursue for successful management and operations of their diverse business enterprises. (08)

Winter 2014

Ans.9 (a) Business groups pursue following corporate strategies for successful management of their diverse business enterprises: (i) The groups continuously explore opportunities of acquisitions, mergers and strategic alliances to achieve maximum competitive advantages. (ii) The groups evaluate whether the different business entities are competing in the most suitable businesses considering the opportunities and threats that are present in the environment. (iii) The groups consider whether they should realign strategies of related or unrelated diversification and decide which businesses should be divested from their portfolio to achieve optimum strategic fits. (iv) They follow aggressive and proactive business policies and set high standards of performances and continuous and critical evaluation thereof. (v) The groups make concerted efforts to identify and attract top caliber individuals and motivate their senior corporate executives to function as teams and manage the various business risks in a prudent manner.

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Q.4 Joint ventures and strategic alliances are popular modes of penetrating in foreign markets to achieve synergies and augment competitive advantages. Despite the potential benefits of these partnerships, the participants must be cognisant of the risks of these arrangements and keep them within manageable proportions. (08)

Winter 2014

Ans.4 The risks which should be considered by the participants entering into joint ventures/collaboration arrangements are:

(i) Lack of well defined strategy for the joint venture/strategic alliance arrangements -The purpose and need of the joint venture/strategic alliance arrangement must be clearly understood by the participants. In the absence of clearly defined benefits that would be derived from the arrangements and their significance to the participants, the joint venture/collaboration arrangement would not yield satisfactory results.

(ii) Inadequate knowledge of capabilities and resources of the participants - The participants entering into the joint venture/strategic alliance must be aware of the strengths and resources which each of them would bring to the joint venture/strategic alliance arrangement and its synergy impact for achieving the desired outcome. Failure to correctly ascertain the capabilities and resourcefulness of the participants would create friction and result in unsatisfactory performance of the joint venture/collaboration arrangement.

(iii) Lack of clarity on issues of management and control - In joint venture/strategic alliance arrangements the management and control of the assets are shared between the participants. In the absence of well-defined arrangements for sharing of management and control and strong support by the top management the joint venture/strategic alliance would not be able to achieve its objectives.

(iv) Inability to recognize differences in cultures between countries - Companies in different countries

have different leadership styles and in some cultures authoritarian styles of leadership/management may be the norm and in other cultures participative and consultative style of management is considered to be the appropriate style. Failure to recognize differences in the cultures and make necessary adjustments in the working styles may result in working incompatibility and failure of the joint ventures/strategic alliance arrangements.

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Q.2 (a) MNCs pursue policies of managing their foreign businesses through local nationals of the countries in which the MNCs conduct their operations. Give four significant advantages which the MNCs seek to achieve by appointing local staff in the countries in which they conduct their business operations.(04)

Winter 2014

Ans.2 (a) MNCs seek to achieve the following advantages by appointing local staff in the countries in which they conduct their business:

1. The salary packages of local nationals are substantially less than the salary packages and other allowances which would have to be paid to the expatriate staff in the host countries.

2. The host countries look upon favourably towards MNCs who appoint local managers as these individuals can have access to attractive job opportunities.

3. The local staff prefers to work with local managers because they can communicate with them more easily and share common cultures.

4. The local staff are better capable of interpreting and dealing with local conditions than expatriate staff. 5. The expatriate staff would suffer career setbacks and poor morale in case of unsatisfactory performance

in their overseas assignments. 6. The host country staff who have work experience in foreign countries are conversant with the norms and

cultures of international business and can interface with the top management of the MNCs easily.

MARKETING MANAGEMENT 1

Q.2 Markets are often demarcated into different segments on the basis of their unique characteristics and attributes. The different market segments may be classified as: (i) Geographic or location segments (ii) Demographic segments (iii) Time segments (iv) Usage or consumption segments Appropriate pricing strategies must be adopted for each of these market segments to achieve the desired objectives. Explain and illustrate with appropriate examples the pricing strategies which may be pursued for each of the above market segments to achieve specific objectives. (10)

Summer 2013

A.2 (i) Geographic or location segments - High prices are charged for the sameproducts/services in posh locations where customers are willing to pay the high prices and low prices are charged in relatively less affluent areas where the consumers are not well-off or have different types of needs, although the cost of offering may be the same in both the locations. A bottle of water of 1.5 liters may sell for Rs 25 in the super market, but in a prestigious restaurant the price charged for the same brand of bottled water may be as high as Rs 95.

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(ii) Demographic segments - Different prices may be charged from different customers for the same product/service on the basis of differences in their age, gender or profession. Lower entry fees may be recovered from students and senior citizens to encourage them to visit a museum or an amusement park as compared to the entry fees charged from other visitors.

(iii) Time segments - The market may be segmented to recover high prices for use of the service during peak business hours and low prices for use of the same service during the slack or off-peak periods. A provider of telephone services may levy a higher tariff structure for calls made during the business hours and lower rates for services provided after the normal business hours. This pricing strategy would encourage more customers to make their calls during the off-peak periods.

(iv) Usage or consumption segments - Marketers often differentiate the market segments on the basis of customers volume of purchases, frequency of usage or their particular types of use and reward them with low prices as compared to the high prices charged from those customers who make their purchases in small quantities or usage for specific purposes. A supermarket may offer special discounts on certain items to those customers whose purchases are in excess of a specified quantity to encourage bulk purchases. Also, lower tariff structures may be charged for electricity used for drawing water from tube wells for agricultural purposes to reduce costs of inputs used in the production of agricultural products and higher rates for electricity consumed in commercial establishments.

2

Q.5 Identify the business strategy/policy/definition which is most relevant in each of the following situations: (ii) Promotion of a firm’s brand status and acceptability by increasing customer perception of its superiority over other brands of similar products is __________ Brand Equity (iii) A form of promotion that links a brand of a consumer product to cultural, social, sports or other activities of high public interest is known as __________

A company’s obligation to be sensitive to the needs of all its stakeholders and create an overall positive impact on the society is known as __________ Corporate Social Responsibility (vii) The protection granted by law to intangible assets such as patents, copyrights, trademarks and authors of books is called __________ Intellectual Property Rights

Summer 2013

3

Q.6 (a) Fine Foods Limited, a recognised name in the packaged food industry, intends to launch its new line of cereal-fruit based products for infants. State the important information which should be presented/contained in the labels on the new line of products. (04)

(b) State how manufacturing companies find and develop new product ideas. (04)

Summer 2013

A.6 (a) The labels on the cereal-fruit based products for infants should provide/contain the following information:

1. name of the manufacturer and country of origin 2. statement that the product is for consumption of infants 3. price of the product 4. ingredients used in the manufacture of the product 5. nutritional values of the product 6. net weight of the contents of the product 7. date of manufacture of the product and expiry date 8. easy-to-understand information/instructions on how to use the product 9. method of storage of the product - before and after opening the package

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10. warning about potential misuse 11. contact point with the company in the event of any complaint/additional 12. information.

(b) Manufacturing companies find and develop new product ideas by:

1. conducting formal research and development in R&D departments brain storming sessions in internal meetings

2. suggestions/ideas put forward by employees 3. market surveys of customer needs 4. tracking of offerings by competitors 5. re-engineering of different products available in the market 6. information provided by distributors and retailers regarding consumers problems and needs 7. ideas gained in trade and industrial shows and exhibitions.

4

Q.1 Marketing policies relating to five different types of businesses/products/services are presented in the following table: You are required to identify the policies which you consider to be inappropriate along with brief reasons to support your point of view.

Winter 2013

Ans.1 Fast-food restaurant

(i) Skimming pricing is inappropriate – should be based on market penetration policy. (ii) Location is inappropriate-should be in highly–frequented and busy areas. (iii) Promotion in prestigious business magazine is incorrect – should be promoted on billboards and widely

circulated newspapers.

High-end ladies beauty parlour

(i) Discount pricing policy for large groups is inappropriate – ladies prefer to visit beauty parlours alone or with selected few family members/friends.

Branded pickles and jams

(i) Prices substantially lower than established competitors are inappropriate – it may convey an image of inferior quality of products.

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(ii) Selling in company owned outlets is an inappropriate policy – pickles and jams are purchased at large number of dispersed locations such as super markets, grocery shops and local convenience stores.

(iii) Limited promotion in national newspapers and TV cooking shows is inappropriate – products are purchased frequently and customers have to be reminded continuously of the brand and superior quality of the products.

Uniforms for students in government schools

(i) Extreme price cutting competitive policy is inappropriate – school uniforms are almost of the same quality, hence there is no need for extreme price competition.

(ii) Distributors in leading shopping malls is inappropriate – school uniforms for students in government schools are purchased in outlets located close to the schools and through retail outlets.

(iii) Promotion in live cricket matches on TV is inappropriate – TV advertisements are expensive and uniforms are normally sold at reasonable prices and at the beginning of the school sessions.

Locally manufactured refrigerators and air conditioners

(i) Pricing policy is not appropriate – customers prefer to purchase locally-manufactured refrigerators and air conditioners only if the prices are considerably lower than imported products of well-known brands.

(ii) Location at a distance from main markets for similar products is not appropriate – customers prefer to shop around and compare product features and their prices in the main markets.

(iii) Promotion policy is not appropriate as prospective customers do not place reliance on advertisements in local newspapers for these products.

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Q.4 (a) Define the term Consumerism. Identify the inherent rights of consumers in the prevailing business environment. (06) (b) While formulating its marketing strategy, a manufacturer must decide whether it intends to pursue a pull marketing strategy or a push marketing strategy. State the salient features of a pull marketing strategy and a push marketing strategy and indicate the situations in which each of these strategies would yield optimal results. (07)

Winter 2013

Ans.4 (a) Consumerism is an organised movement of the consumers to strengthen their rights and powers by forming consumer groups and impressing upon the producers that consumer satisfaction is essential for the long-term profitability of the producers.

In the prevailing business environment, consumers have:

1. the right to expect that the product would perform according to the claims made by the manufacturer 2. the right to have information about the ingredients/composition of the products 3. the right to be protected against unfair exploitation or intrusion of privacy by the manufacturer 4. the right to expect that the product would be safe for the user 5. the right to good quality of life and protection of the environment for the existing and future

generations of consumers.

(b) Pull Marketing Strategy: In a pull marketing strategy, the manufacturer places greater reliance on advertising, direct promotion and other forms of direct communication with the consumers to persuade them to demand the product from the intermediaries and thus induce the intermediaries to place orders with the manufacturer. A pull marketing strategy would yield optimal results when there is strong brand loyalty for the

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product and the consumers are convinced of the superiority of the product and demand the particular brand by name from the intermediary.

Push Marketing Strategy: In a push marketing strategy, the manufacturer deploys own sales force and offers attractive margins and extended credit terms to the intermediaries to encourage them to carry, promote and sell the product to the end users. A push marketing strategy may be adopted when there is low brand loyalty for the product or the intermediary is in a position to influence the customer’s decision or the product is an impulse purchase item.

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6(b) Innovative companies allocate dedicated resources to identify and explore opportunities for developing new products. List the basic attributes which are essential to make a new product viable and worthwhile for expending further time and effort on its consideration. (04)

Winter 2013

(b) The new product should possess the following basic attributes to make it worthwhile to expend further time and effort:

1. The new product should offer an attractive opportunity for its acceptance in the market, i.e. there must be demand potential for the new product.

2. The opportunity for development of the new product must be practicable and physically possible. 3. The opportunity must have potential for profitability and the benefits must exceed the cost of the product

by a significant margin. 4. The opportunity must be attractive for a considerable period that is the opportunity must be available for a

reasonable period to make it worthwhile for consideration.

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Q.5 (a) Aggressive marketing and promotional campaigns of consumer products through repetitive TV advertisements, eye-catching displays on large-sized billboards reinforced by appealing slogans and attractive advertisements in prominent newspapers and magazines are launched by marketeers to attract customers. Explain briefly the different objectives of these aggressive marketing and promotional campaigns on which substantial expenses are incurred by the manufacturers of consumer products. (06) (b) What is meant by the term Test Marketing? (03)

Summer 2014

Ans.5 (a) Aggressive marketing and promotion campaigns of consumer products launched

through repetitive TV advertisements, displays on billboards and advertisements in newspapers and magazines are undertaken to achieve the following objectives:

1. Pursuance of pull marketing strategies to appeal to customers to demand the products. 2. Encourage the market intermediaries such as distributors, wholesalers and retailers to build up inventories

of new products/brands introduced in the market. 3. Obtain trial purchases from customers in response to offerings of discounts prices/coupons for special

offers, etc. to encourage first time purchases of new products. 4. Counter competitive advertising and sales promotion campaigns to offset the impact of competitors’

marketing and sales promotion efforts. 5. Increase in consumption levels of the aggressively promoted products by existing customers. 6. Enhance the image of the brand in the market to create and strengthen brand equity. 7. Generating greater enthusiasm among the sales field force to promote sales of redesigned or improved

products.

(b) Test Marketing is a method of forecasting demand where a new product is marketed in a limited geographical area to determine the consumer response to the product and on the basis of the findings, sales are projected over a larger area.

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Q.7 (a) Narrate (with brief comments) the different types of promotional strategies which are adopted for marketing of consumer goods in the following stages of their Product Life Cycles: (i) Introduction stage (ii) Growth stage (iii) Maturity stage (iv) Declining stage (06) (b) State what is meant by the term Brand. What brand attributes are important for creating a successful image of the brand in the market? (05)

Summer 2014

Ans.7 (a) Marketers pursue the Promotional Strategies consumer for goods in the different stages of their Product Life Cycles as follows:

(i) Introduction Stage

1. inform and educate the potential customers of the existence of the product. 2. encourage trial of product and create awareness of the benefits that would accrue to the customers by

using the product and how it should be used. 3. secure distribution in leading retail outlets. 4. place heavy emphasis on personal selling and promotion in trade shows and exhibitions.

(ii) Growth Stage

1. stimulate demand in selected market segments and promote the particular brand as competition increases. 2. increase emphasis on advertising to capture a large share of the growing market. 3. enter new markets and expand coverage. 4. identify new distribution channels. 5. shift emphasis from product awareness to the individual firm’s brand preference through aggressive

advertising (iv) Maturity Stage

1. focus on promotion and advertising to persuade the customers to purchase 2. the particular brand rather than to provide information about the product selective promotion only as

intense competition and increase in promotion 3. expenditures would result in lower profits increase R&D budgets to improve product quality vis-a-vis

competitors extend product lines to meet niche customer demand.

(iv) Declining Stage

(i) reduce promotion expenses as the size of the market is shrinking (ii) focus of promotion towards reminding remaining customers.

(b) Brand is the distinctive proprietary name, symbol or trade mark that differentiates a particular product or service from other competing products and services available in the market.

The important brand attributes for creating a successful image of the brand in the market are that it should be :

1. able to attract attention of the target market 2. easy to remember and communicate

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3. reflective of the positioning of the product in the selected target market 4. distinctive and different from brands of other competing brands.

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Q.8 (a) The edible oil industry in Pakistan is characterised by a large and expanding market in which the leading players pursue aggressive ‘pull marketing strategies’. Identify and explain briefly the main objectives and important features/characteristics of the pull marketing strategies which might be pursued by these companies. (06) (b) State the advantages which firms seek to achieve by developing ongoing relationships with a base of loyal customers. (04)

Winter 2014

Ans.8 (a) The main objectives and important features/characteristics of pull marketing strategies designed to target the end users of edible oil are:

1. launching aggressive advertising and promotional campaigns to strengthen the brand loyalties of the existing customers and remind them that the use of the particular brand of edible oil is essential for preparation of delicious and nutritious meals which are enjoyed by a happy family

2. persuading customers of other competitive brands of edible oil to change their loyalties and preferences in favour of the advertised brand of edible oil

3. offering incentives in the form of gifts, special discounts, extra quantity at the same prices to increase sales to existing customers and attract new customers

4. emphasizing points of purity and necessary vitamins of the advertised brand to differentiate it from other competing brands

5. encouraging the distributors of edible oil to stock up the particular brand.

(b) The advantages which firms seek to achieve by developing ongoing relationship with a base of loyal customers are:

(i) achieving sustainable revenues and higher profitability from a base of loyal customers

(ii) serving costs associated with catering to existing customers are generally lower than identifying and serving new customers

(iii) word of mouth positive information conveyed by satisfied customers can lead to generation of sales revenue from new customers

(iv) strong customer preferences lock in retailers/dealers to ensure the availability of the products in their stores.

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Q.5 (a) Identify the key stages involved in the process of conducting market research. (05) (b) In the present business environment, consumer power is accorded more importance by marketers than in the past. Explain briefly the factors which are responsible for the increase in consumer power. (05)

Winter 2014

Ans.5 (a) The key stages involved in the process of conducting market research are:

1. defining the marketing problem and stating objectives of the research 2. determining the sources of information, whether data should be obtained from primary or secondary

sources 3. designing of strategy for collection of data - methodology of collection of data by observation or personal

interviews, etc. and ensuring the representative nature of the data 4. actual collection of data

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5. analysis of data including editing, coding and tabulating the data 6. presentation of the market report in accordance with the objectives of the research.

(b) The increase in consumer power is attributable to the following factors:

(i) Better means of communications: The consumers are able to make well-informed decisions based on the quality, product attributes and prices comparisons of different products offered by the competing suppliers as they can access information from several different sources.

(ii) Greater knowledge among the consumers: The consumers are now more knowledgeable about their tastes and preference and have therefore become more assertive regarding the quality standards in accordance with the specifications proclaimed by the manufacturers /service providers.

(iii) Greater flexibility to purchase goods at their convenience: The ability to make online purchases of their choice of goods and services at their door steps have strengthened the consumers powers as they can purchase the goods and services from suppliers who more fully meet their requirements.

(iv) Effective consumer protection laws: Governments in several countries have promulgated laws to safeguard the interests of the consumers and ensure that the products do not cause injuries or result in any harmful affects to the users of the products.

(v) Ready access to information: Consumer powers have increased considerably as they are now in a position to make comparisons of goods easily at large departmental stores and shopping malls which carry wide ranges of different products.

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