MIZ/S/BUSNT/HP2/ENGITZ0NXX © Pp nrernational Baccalaureate? Baccalauréat International I saci 722125012 BUSINESS AND MANAGEMENT HIGHER LEVEL PAPER 2 ‘Monday 21 May 2012 (morning) 2hours 15 minutes INSTRUCTIONS TO CANDIDATES Donot open this examination paper untiinstructed to do so. ‘Section &'answer one question, Section 8 answer two questions. ‘Acaleulators required for this examination paper. ‘lean copies ofthe Business and Management formulae sheet and discount tables are required for this amination paper ‘The maximum mark for this examination paper Is [75 marks). ‘neratonaldaccaeeteOrgininon2012MI26/BUSMT/MP2/ENGTZOXX SECTION A Answer ome question from this section Safe Passage (SP) ‘Trent Peters is one of seven partners at Safe Passage (SP). It provides bodyguard* services to film stars, politicians and ether important people in Europe and the Americas. Trent would like satisfy a growing demand from Asia but bas to choose rom two options for the recruitment and traning 0° bodyguards. These are: + offshoring by setting up its own overseas branch in Asian country X at Y¥ or Z + subcontracting by using an external agency in Asian country X of Y or Z. ‘The foroeist costs and revenues of offshoring are given below (all figures in USS million) (Option Forecast costs | Forecast revenue | Forecast revenue successful | not successful Probability: 0.3. | Probability 0.7 1, Offshore to county Xohas| a 19 2 a istry of earthquakes, 0d infrastructure 2. OffShoreio country V. has 3 16 4 no history of earthquakes, oor infrastructure 3. Offshore to country Z oa 2 a under reconstuetion afer recent earthquake ‘The forecst costs of subcontracting tothe same Asian countries ae given below: Country X: USS1.5 million, Country ¥: USS2.8 million Country Z: USS4.2 millon © ety pen (This question continues onthe following page)ao MIQ/S/BUSMTIHP2/ENG/TZOXX (Question I costinued) “The thes suitable Asian countries are located in earthquake zones. An earthquake exper assured ‘Tren tha all three areas are safe. Trent is concemed and decides to prepare a contingency plan for cach posible location in Asia, Control over recruitment and taining of bodyguards is vital w SP. Customer service and gust are their unigue selling propositions (USP), Clients will pay high fees t ensure their safe transport to concerts, meetings and important evens. However, Trent is refusing valuable contracts in ia due toa lackof suitably trained bodyguards, Asa result SPs missing out on large profs. “Trent har mentioned to previous customer of his plans to subcontract the recruitment and training of bodyguards. She hat threatened not to use SP again and would tell her friend if th plans ‘went ahead. Tren is concemed as word-of-mouth promotion is crucial to SP. He calls a meeting of all the partners. Three partners prefer subcontracting the recruitment and training as it is cheaper, quicker and less risky. The three other parners prefer offihoring. They beieve that subcontracting will damage SPS USP. They argue thatthe higher costs of offshorirg will be covered by the forecast high revenue (@) Describe two features of a parmership. Fmarks} (©) Explain two benefits and one cost to SP of preparing a contingency plan ofthe the posible locations in Asia, Fémarks} (© @ Construct filly labelled decision ree and calculate he predicted outcome ‘of each offshoring option (show all your working) [marks] Comment on the value for SP of usinga decision tree as a decision-making ool Bi marks] (@) Examine two disadvantages for SP of subcontracting its recruitment and taining ofbodyguards. Femarks] ‘Tarn overa4 (MI2/S;BUSMT/HP2/ENGITADXX 2 Gr Barbara Johnson manages a small business (GF) that produces and sells gltemfree* bred. GF hasbeen recognized for meeting national quality standards fr gluten-free bread which bas helped increase sles, Local supermarkets sel their own abel brands of gluten-free bread which do nat meet national quality standards ata price 20% cheaper than GF. Barbara aims to make national quality standard gluten-free bread more affordable and in larger batches. GF has 21 employees. Four ae gluten sensitive (Intolerant) testers who check the quality of the final bread. This traditional method of quality contol is important, but takes significa time snd resources Several espitals have asked if GF can provide them with an additional 1200 loaves of ghitea-free bread every day for the next year. Barbara is keen, however in a small market like this, becoming larger dots not automatically result in economies of scale. GF supplies cannot provide larger {quantities of gluten-free flour without increasing ther prices and consequently GP'S eos. Barbara hs two options: + Optior 1: Increase GF's production of gluten-free bread and maintain national quality sandads by introducing total quality management (TQM) contol at a one-off cost of $4000. This sould also speedup the batch production process. + Optioe 2: Buy-in the additional 1200 loaves from the company that supplies the local supermarkets and then sell this bread to the hospitals. However tis supplier uses flow production and doesnot meet national quality standards. ‘The sales price per loaf of GF bread is $6.80 regardless of the option chosen ‘Barbara prepared the following figures foreach option (in $) Option I: inrease GF production to make the additional 1200 loaves. Fined corte one-off cost from introducing TOM _| 4000 ‘Semi-variable costs: suditona electricity costs 2000 + an additional 0.20 per loaf baked Variable costs: ditional gluten-free flour 0.80 per loaf overtime pay for staff 0.40 pet oat Option 2: Buy-in the additional 1200 loaves ‘Toi vatable cost of buying in 1200] 7200 Joaves Sm local supermarkets” supplier (This question cominueson te following page)-s- MI2/9/BUSMT/HPD/ENGITZOXX (Question 2 continued) @ o © @ © [deatify two features of an own label brand Deine the term economies of sale [Explain two benefits and one cost to GP of meeting national quality standards forits brea, (Calculate the variable cost per loaf to GF if they buy-in the additional 1200 loaves from the local supermarkets’ supplier (ii) Using relevant information given, calculate whether GF should cither ‘buy-in the additonal 1200 loaves from the local supermarkets” supplier, ‘or make the loaves themselves (show all your working and state any ‘assumptions you mate). (Gi) Comment on whether GF should make or buy-in the additional 1200 leaves. [Amilyse two reasons why GF should move from traditional quality contol ‘methods to a TQM approach marks} P2marks} Poms} A mark [marks] (Smarts) Femarks] ‘Tanover‘MI2//BUSMTIHP2/ENGT2ONX. SECTION B Answer ovo questions from this section 3. ‘The S99 toy shop James Lai's toy shop is popular with no toy priced above $1.99. The toy shop uses psychological Fring ats level mich Inver than ite rampetitars James imports 90% of hit stock feom China Teis located in a poor part of the city centre. Its target market is low-income families. The shop is very busy at weekends with a Jong queue (ine) atthe one cash register. Most employes are teenagers, who are very low paid Several sukebolder groups have complained ‘+ parents are concemed about the quality and safety of the toys and have setup an online social networking web site urging people to stop purchasing from the shop + older customers have complained about the long queue atthe one cash register + one enployce representative (union oficial) contacted James about employing teenagers on very low wages + Tocaltey manufacturers have questioned James’ use of Chinese suppliers. CCompetiors have argued that the $1.99 toy shop's psychological pricing method is uncthical James replied to stakeholder concerns, ina letter to a loeal newspaper, By stating tht his shop allows yeung children to purchase affordable toys and provides job opportunities for tecngers James fas decided to create @ socal networking web site to respond to critics and to manage ‘customers’ perceptions James admits thatthe rate of stock turnover could be improved. He admits thatthe long queue is causing many customers to leave without buying anything. James is considering opening a ‘second, larger toy shop called $4.99, He announced the opening on his social networking web site, informing stakebolders that he would stock higher quality products and have more eash registers However, be immediately received negative online feedback feom customers who SW the ‘5499 toy shop as just a $3 price increase for the same toys. (@) Define the following terms: © targer market P2marks} (i) stoek eurmover marks} (©) Explain two disadvantages of James using psychological pricing, fomarks} (©) Analyse two possible contcts berween stakeholders ofthe $1.99 toy shop. [omarks} (@) Discuss whether the introduction of the $499 toy shop as a new strategy will change customer perceptions of James 40 shops. f9marks}-7- MI2/S/BUSMT/AP2ENGITAOXX 4. Motuoro High School (MHS) Motuoro High Schoo! (MHS) is a new residential (boarding) school for 16-18 year olds. It is a public-private partnership funded 60% by the state and 40% by the private sector, ‘The school has two managers + Charles Ledger, a government offical, who is responsible fr finance, + Julian Santiago, a Successful businessman, who manages the daily operations. Julian was asked to help set up MHS as a new innovative and flexible school. He interviews all ‘new students. They can choose to attend classes or telework from ther rooms. MHS has an up-to-date Internet system to provide communication and educational resources. It has a flat organizatoal structure, Teachers and students are at the same level of hierarchy, but below Charis ard Julian The teachers were selected by Julian and didnot sign contracts. Julian and the students meet to decide together on the appraisal process for teachers, The teachers themssives are not preset at these meings. MGS provides teachers with free accommodation, food and a generous salary. 12 months ago a television series about the opening of the school gave it enormous publicity. This lead te many pplicetioas from potential students and teachers, However, a number of problems have now emerged. New student applications are decreasing. Government funding has been reduced, A number of students are missing classes or not ‘submitting work. Teachers are insisting thet MIS provide contracts. They ae also concerned that the informal organization within the schoo! i having too much influence on Julian’s decision aking, One frustrated teacher complained to Charles without Julian knowing. This caused an issue between Charles and Julien. Julian wanted to dismiss the teacher, but Charles was concerned that dismissing the teacher would have lead to strike action, This would have created unwelcome publicity ata time ‘when stent numbers were falling. Julian suggestod that a no-strike agreement should be put in place and that teachers should consider working at MHS as a privilege. The mecting finished without a resolution. (®) Define the following terms © appraisal Pomartsy (ste action P2marts} (©) Bagi one advantage and one disadvantage to the two managers of MIS a public pate partes {mort} (©) Anse the portance ofthe informal rnin t MES {6mars} (@)_ Discs two appotches to conic resolution at MHS mart} aansi Turn over(MI2/3/BUSMT/HP2/ENGITZONX Columbe Coffee (CC) Columbo Coffee (CC) is a family business that produces four espresso coffee mchines. CC objective is to provide the highest quality machines, but iti curently unprofitable. Expreso coffee] Pricein$ | Existing Future machine model _market share_| market growth The Ventura 3000 Low Low The Crema 5000 High High | The Rocket 1000, High Low The Foruna 2000, Low High ‘A marketing audit ofthe four espresso machines had the following results + The Ventura was CC' bestselling espresso coffee machine, It as the strongest brand loyalty ofall four machines but has been suffering from overseas competion. Many custoners of ‘The Ventura want a new, improved version, However, because ofits weak financial rsiion, the campany has not been able to develop it +The Crema is CC's exclusive luxury espresso coffoe machine. Considerable publicity for CC was _gined when it featured in a recent popular television series. Sales of The Crema ae forecasted to row further despite its high price. + The Rocket has been very successful. However, technical problems have resulted ia many customers returning their machines. Reduced brand loyalty and quality contol are signifieant + The Fortuna is the company's newest model, It was developed to replace The Ventura tout consumer resistance has foreed CC to keep The Ventura in proiuction. ‘The Chief Executive Officer (CEO) of CC sees The Fortuna es a potential market lade, but to Achieve brand awareness this would require most of CC's limited marketing budget ‘The CED of CC is considering reorganizing the four espresso coffee machines into separate cost cents, However, before any decision is made the CEO receives an offer ffom its msin competitor to work together. As part of a strategic alliance, the competitor wil provide funds to alow CC to finance extension stategies or enter new intemational markets. The only conditioc is thet ‘The Venura is discontinued. The family is divided. Some family members are woried about the impact ofthe business losing its most recognizable brand. Others think the competitor's offer will allow CC’ other three machines to achieve their fll market potential (his question continues on the following page)-9- (MI203/BUSMT/HP2IENGITZWXX (Question $ continued) (@) Define the following terms: © marker share P2marks] (i) extension srategy: marks] (6) Explcin two values ofa marketing audit a a business tol for CC. {6 marks} (©) Analyse the implications forthe CEO of converting CCinto four cost centres. (6 marks] (© _Disetss whether the family should accept the offer of «strategic alliance with its competitor. marks}