CHAPTER 6 CORPORATE LEVEL STRATEGY

DEC19 Q2 GREEN CARE ORGANIZATIONAL LIMITED

a. Briefly explain 2 other diversification initiatives that can help GCO to create value
for the business besides the current diversification initiatives by GCO

A strategy of acquisition is one where the one organisation (such as GCO) takes
acquisition of other existing organisations in the target countries. Acquisition involve one
firm buying another either through share purchase, cash or issuance of debt instruments.
This diversification initiative if taken by GCO can help to create value as firm will directly
acquire another firm’s assets and competencies. GCO will also be able to obtain valuable
resources, such as critical human capital that can help its business to expand its product
offerings; provide opportunity for firms to attain three bases of synergy, leveraging core
competencies, sharing activities and build market power; lead to consolidation within an
industry and force other players to merge; enter new market segments.

Joint venture involves the formation of third-party legal entity whereby the two (or more)
firms each contribute equity. It is another option for diversification whereby corporations
may agree to pool the resources of other companies with their resource based. GCO might
pool its resources with other companies of the same industry to create value by expanding
the business such as entering new markets as manufacturing costs can be reduced in the
value chain and able to develop and diffuse new technologies.

b. Discuss the first diversification initiative and how three benefits are attained from
the initiative GC pursued

The first diversification initiative undertook by GCO is diversification through internal

development or organic growth. Internal development takes place when strategies are
developed by building on or developing the organisation’s own capabilities. Organisations
can diversify by means of corporate entrepreneurship and new venture development. This
is how GCO has diversified their business. GCO from being a training and consulting
provider of environmental management has successfully expanded into new venture
developing sustainability business software solution for various industries.

Benefits of internal development:

● GCO capture the value created by their own innovative activities without having to
share the wealth with other parties. GCO has strengthened their internal resources
having increasing number of expertise. Member of GCO comprises industry
professional and chartered practitioners who have extensive experience from
various fields which include oil and gas, pharmaceuticals, utilities and chemicals.
The high dedication in innovation, research and development activities and cutting
edge technologies had fueled GCO’s first diversification through internal
development. Significant support from Mike Furhan founder an CEO of GCO with
artificial intelligence engineering background together with his passionate industry
professional team make the diversification initiative a success.
 ● Internal development/Organic growth is much easier to manage and plan and
offers less description than an acquisition or strategic alliance. GCO has control
over the whole operation and value chain. Therefore, GCO did not face any
difficulties associated with combining activities across the value chains.
● Organic growth/internal development does not involve merging with external
parties. Thus, GCO is not dealing with difficulties to merge diverse corporate
cultures as compared to other diversification alternative. As a means of growth,
organic growth involves much less risk than an acquisition or strategic alliance.
Therefore, it is likely to be suited to the culture of the organisation which is notably
risk averse and cautious.
● Internal development does not require external funding for the expansion. As
internal funding is often used, the organic approach spreads cost and risk over
time and may allow an organisation to benefit from economies of scale.

c. Discuss the concept of strategic alliances and how the cooperative relationship
resulted in 3 advantages for GCO

Strategic alliances are cooperative relationship relationships between two or more

organisations. Alliances may be either informal or formal (formal - involving a written
contract). Strategic alliances assume an increasingly prominent role in the strategy of
leading firms both large and small. Such cooperative relationship has potential
advantages; entering new markets, reducing manufacturing (or other) costs in the value
chain and developing and diffusing new technologies.

Benefits of strategic alliances:

● Entering new markets. Through strategic alliance, GCO was able to enter new
markets in Phillipines through a strong partner Green Expert Limited a group of
internationally accredited environmental and safety professionals. GS’s core
competence spans risks, healthy and safety. GE will help to offer the
environmental management course specifically in the city of Manilla. GCO thrived
to gain support from Manilla based training company thus, expanding its product
into the global market.
● Reducing other costs in the value chain. Strategic alliance firms to pool capital,
value-creating activities or facilities in order to reduce costs. For GE besides
offering their own training, the company will also offer GCO’s courses using GE’s
current resources. For GCO, their training courses will be expanded to the
Phillipines market with minimum additional costs compared to establishing their
own training centre in another country which may lead to a substantial financial
outlay. Strategic alliance is a diversification initiative with lower costs incurred but
it resulted into significant advantage gained by GCO.
● Developing and diffusing new technologies. The strategic alliances partner of
GCO is also a training provider company with a more advanced online training
system. Cooperative relationship with GE would benefit GCO in terms of sharing
the advanced technology used in providing valued training to customers.
JUN2019 Q2 BLUEONE

a. Briefly explain any two (2) possible integration challenges that BlueONE may face in
acquiring Elite Corporation. (UNRELATED DIVERSIFICATION)

● Joining a different corporate culture will have some difficulties to the BlueONE

Since BlueONE is a telecommunication company, they might face some difficulties if they acquire
Elite Corporation, as it is a hospitality management company. It is two different companies with
two different cultures. Also, the management of BlueONE has no experience in working in the
hospitality management company So, it might affect the performance of both companies.

● Might be hard to build a good working relationship between the employees

There might be some employees from both companies that disagree with the management’s
decisions to acquire Elite Corporation. It is crucial to ensure that there exists a good working
relationship between the employees in both companies. But, with different management styles,
some employees might find it hard to work under BlueONE’s management. This will affect both
companies’ performance if it continues to happen in a longer time. Having good relationship
management is important for the companies to strive further.

b. Discuss three (3) benefits of an unrelated diversification strategy to the Board of

Directors, if BlueONE requires Elite Corporation and Jingga Production House

● The unrelated diversification strategy allows BlueONE to distribute their resources among the
three businesses in different industries. Since there is no relationship between them as they are
in the different industries, so if BlueONE is having difficulties, they can lean on them.

● The unrelated diversification strategy may increase the business's value as well as improve the
overall performance. Since some of the resources are being shared among the three businesses,
this allows BlueONE to reduce costs or increase revenue and at the same time enable them to
increase their profitability.

● Under related diversification strategy, the business may gain benefit through restructuring of
acquired assets. It may even involve the sale of unproductive assets or acquisition that
strengthens the core business. For example, BlueONE acquires and restructures its assets that
enable other businesses to use them to gain profitability.
c. Explain three (3) reasons how some managerial motives can erode BlueONE’s value
creation.

● Growth and Growth’s Sake

The concern on Gurnam actions to grow the size of their firms through acquiring unrelated
diversification is not to increase long-term profitability but to serve managerial self-interest. This
can cause trouble to BlueONE as the revenues received from the diversification may be
temporary. For example, for the current situation Pandemic gives a huge impact to the Hospitality
Sector. Gurnam should consider related diversification that could enable BlueONE to benefit from
leveraging on core competency and sharing activities such as production efficiency and
distribution facilities.

● Egotism

Managers’ actions to shape their firms’ strategies to serve their selfish interests rather than to
maximize long term shareholder value. Due to Gurnam pride, he wanted to carry out a
“synergistic” corporate marriage where BlueONE acquired Elite Corporation and Jingga
Production. This acquisition may not generate profit or any synergy and may cause Gurnam to
regret his decision that he made because of ego.

● Anti-takeover tactics

If BlueONE diversified, the company may face some difficulties that will lead to failure to compete
and maintain in the market. Competitors will try to take over BlueONE and fire the management
team. The managers in the company will be worried about their wealth such as salary, bonus and
benefit will be affected. Thus, Gurnam may use anti-takeover tactics to preserve his wealth which
is either greenmail, golden parachute or poison pill.

DEC18 ASB Q2

a. Briefly explain 2 risk ASB may face from vertical integration

● Cost & expenses associated with increased overhead and capital expenditures. The
combination of 2 business will definitely increase a different set of costs such as
administrative costs. When GP has been acquired by ASB, the different stages of value
chain which are now being internalized will have to be re-coordinated. These actions wil
cause administrative costs to go up.
● Loss of flexibility resulting from large investments. The large investment used to
acquire GP will make ASB loss its capability to do other investment in short term period.
It will increase the risk if the investments into GP turn to be a wrong decision.
● Problems associated with unbalanced capacities along the value chain. As an in
house supplier for ASB, the capacities of GP must be larger than wahat ASB ned in order
to benefit from economies of scale in the market.
b. Discuss 2 benefits from economies of scope gain by ASB through their related
diversification.

i. Leveraging core competencies. It involves transferring accumulated skills and

expertise access business units in a corporation. When ASB acquire TMSB , they
will have to combine all the resources available in both companies. Core
competencies which are a firm’s strategic resources that reflect the collective
learning in the organization will be leverage such as by coordinating diverse
production skills, integrating multiple streams of technologies and market diverse
product and services.
ii. Sharing activities. ASB could sharing activities of two or more businesses’ value
chains done by the business with TMSB. ASB could create a value in each value
chain activities such as common manufacturing facilities, distribution channels and
sales force. By sharing activities, ASB can potentially provide two primary payoffs;
cost savings and revenue enhancement. Cost savings can come from many
sources including the elimination of jobs, facilities, and related expenses that are
no longer needed when functions are consolidated. Thus, ASB could gain the
benefit from economies of scope for related diversification.

c. Advice 3 potential drawbacks of acquisition activity that ASB may face.

● Takeover premiums paid for acquisitions are typically high. Usually the
acquiring company will pay a higher premium for the target market. Therefore, the
acquirer must create synergies and scale of economies in order to cover the higher
premium paid. It resulted to sales gain exceeding the premium price. Thus, paying
a high premium over the stock price has been a poor strategy.
● Competing firms often can imitate any advantages or copy synergies that
result from the merger or acquisition. The synergies obtained by ASB can also
bing imitated by competitors.
● Cultural issues may doom the intended profits from acquisitions
endeavours. ASB may face the cultural issues from its acquisition. Especially whn
the acquisition was not accepted by the companies’ acquired.
JUN 2018 Q2 OPSB

a. Determine two (2) principal means that could lead OPSB to achieve synergy through
market power in the animation industry.

The two principles that could lead OPSB to achieve synergy through market power in the
animation industry are pooled negotiating power and vertical integration.

The first principle is pooled negotiating power is the improvement in bargaining position relative
to suppliers and customers. Collaboration with a strong parent company in related diversification
by similar company can increase the strong bargaining power for both the company in related to
their customer and suppliers besides being competitive with their competitors. Pooled negotiating
power can be achieved by acquiring a related company who is in the same industry. As they are
capable of producing better products through knowledge and idea sharing both companies can
increase their market power thus increasing the bargaining power. Nevertheless, managers of
both companies should evaluate thoroughly whether the combined businesses may affect
relationships with actual and potential customers, suppliers, and competitors. Thus, it is important
for OPSB to evaluate the diversification thoroughly to ensure they can create worthy relationships
with actual or potential competitors, suppliers and customers.

Next principle is vertical integration which is an expansion or extension of the firm by integrating
preceding or successive production processes. It occurs when a firm becomes its own supplier
or distributor. OPSB can either integrate more processes toward the original source of raw
materials (backward integration) or toward the ultimate consumer (forward integration) and it is a
great tactic for smaller companies. The advantage of vertical integration for OPSB is they can
secure the supply of the material and distribution channels. Besides it will protect and control
OPSB’s assets and services as well as access to new business opportunities and technology.
Nevertheless, OPSB should be aware of the risks of incurring high costs associated with
overhead, expenditures, and administration and a loss in flexibility due to the large investment
made into vertical integration activities.

b. Discuss three (3) criteria of core competence that could create value and provide a viable
basis for synergy in OPSB’s business.

Core competencies reflect the collective learning in organizations such as how to coordinate
diverse production skills, integrate multiple streams of technologies, and market diverse products
and services. Core competencies may also be viewed as the “glue” that binds existing businesses
together or as the engine that fuels new business growth. For a core competence to create value
and provide a viable basis for synergy among the businesses in a corporation, it must meet three
criteria.

1. The core competence must enhance competitive advantage(s) by creating superior

customer value. Every value-chain activity has the potential to provide a viable basis for building
on a core competence. OPSB should probably improve or maintain their skill and come out with
new innovation that can attract their customer. It is because customers are willing to pay more for
such technologically differentiated products.
2. Different businesses in the corporation must be similar in at least one important way
related to the core competence. It is not essential that OPSB’s products or services themselves
be similar. Rather, at least one element in the value chain must require similar skills in creating
competitive advantage if the corporation is to capitalize on its core competence.

3. The core competencies must be difficult for competitors to imitate or find substitutes
for. Competitive advantages will not be sustainable if the competition can easily imitate or
substitute them. Similarly, if the skills associated with a firm’s core competencies are easily
imitated or replicated, they are not a sound basis for sustainable advantages. In order to make it
difficult for competitors to imitate or find substitutes, OPSB must have the latest technology for
every equipment used in the industry and also need to have special skills that are hard to find in
other same industry competitors.

c. Suggest three (3) benefits that OPSB may gain if it decides to accept the offer from
Wisney Production.

Three benefits that OPSB may gain if it decides to accept the offer of merger and acquisition from
Wisney Production are:

1. OPSB can increase their market power once the merger and acquisition has performed. This
is because Wisney Production is a well established company who has stable market power.
Therefore, OPSB as a small firm trying to create their name can use this opportunity to extend
their market power. Besides, without thinking about higher investment costs for advertisements,
OPSB could concentrate on its core strengths in the development of computer animated films.The
merger and acquisition will allow OPSB to have easy access to increase market power as Wisney
Production is a big company and the advantage OPSB can cut the cost of aggressive marketing.

2. OPSB also can obtain valuable resources from Wisney Production. OPSB can expand its
skills by obtaining the value and talent as Wisney Production is the leader in the animation
industry. With the amount of experience and success achieved, it can be a valuable resource to
OPSB. For example, OPSB may develop a method distribution channel used by Disney
Production and learn the capabilities to produce quality merchandise.

3. OPSB can enjoy technological advancement. OPSB can gain the strengths of Wisney
Production in producing their animation films. Wisney has gained high profit in producing its
animation motion pictures by using technological advancement. Thus, the acquisitions enable
OPSB to enjoy the access of using the technology that may capture more customers and lead to
higher income as they can produce high quality films.
JAN 2018 Q2 SC

a. Determine whether it is a wise decision for Sweet Clothier to expand its business during
the recession.

Yes. During recession, the economy continues to slow down but it does not mean that business
should slows down their business as well. It is a good decision for Sweet Clothier to expand their
market by expanding their collection to include apparels for plus-size customers this is because
if the company manage to grow their business and increase sales during recession they will be
recognized as the economy recovers.

If Sweet Clothier wants to expand their business they should do it wisely for example by increasing
their marketing and advertising campaign to market their products to customers better than their
competitor as most companies will cut down their marketing expenditure. Sweet Clothier also can
deliver better services and experiences to customers so that the company can build a great
customer relationship and the customers will stay loyal with them when the economy becomes
better later. With a good strategy and steps, it is wise for Sweet Clothier to expand their business
during recession.

b. Discuss three (3) issues that Engku Azrena should consider before making vertical
integration decision.

Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors or
retail locations to control its value or supply chain. Vertical integration benefits companies by
allowing them to control processes, reduce costs and improve efficiencies.

The first issue that Engku Azrena should consider before making a vertical integration decision is
there is a high level of stability in the demand for the organization’s products. This is
because when the acquisition happens, it will involve costs in plant and equipment, and increase
operating force. Therefore, if the sales or demand fluctuates, then it will result in unused capacity
which will lead to waste of sources such as raw materials and this will lead to a loss to the
company.

Next, does SC have the necessary competencies to execute the vertical integration
strategies. SC should ensure that its company has enough human resources to manage and
control the manufacturing activities, and has competencies in technology and the company needs
to have expertise in the area to avoid any problem occurring. As the company has plans to open
another 3 outlets, SC should also ensure that its company has financial support to provide the
human resource and technology as the production also will be increased.

Another issue is whether the company satisfied with the quality of the value that Lovely
Fabrics Bhd (LFB) is currently providing or not. If SC is satisfied with the product, it may
acquire LFB. Therefore, SC will have the advantage in controlling the raw material and cost
involved during the manufacturing process. SC can decide to increase or decrease the raw
material compatible with cost that the company can afford.
c. Explain three (3) benefits that Sweet Clothier can realized if the business decides to
acquire Women Exclusive Store.

The benefits of the acquisition of Women Exclusive Store (WES) are:

● The acquisition can be a means of obtaining valuable resources that can help SC to
expand its product offerings and services to meet changing customer needs. SC can use
the experts from WES as they can share knowledge/strategy that may benefit SC By
sharing resources in terms of the excellent sales force that WES may probably possess,
this will help to increase SC’s sales. The use of WES human capital can enhance SC’s
performance. To realize the greatest value from its acquisition, SC can learn to integrate
WES efficiently and effectively.
● The acquisition also can provide the opportunity to SC to attain the three bases of synergy
which are leveraging core competencies, sharing activities and building market power.
With the acquisition of WES, SC can leverage its core competencies as well as its
reputation to strengthen WES while also expanding SC’s ability to work with medium to
large brands. SC can expand its business into new geographic markets, share
development plan and indirectly build up their market power.
● The acquisition can lead to consolidation within an industry and can force other players to
merge. When other competitors look at SC’s strategy, they will also imitate the strategy.
Therefore, only a few major market players will remain in the industry. The consolidation
of companies will enable players to seek greater efficiencies by combining their networks
and resources, which eventually will dampen the rivalry in the industry. SC can overcome
market entry barriers that were previously challenging since the company now is stronger
because they enjoy the reputation held by WES.

JUL17 Q2 HHG

a. Explain with two (2) reasons the importance of business ethics to HHG.

1) Improve reputation of the business

The company’s reputation speaks volumes about the business before people have any interaction
with the employees. A good reputation helps to attract opportunities that company least expected.
Good business ethics ensure that the business’s reputation remains as pristine as possible. The
company’s good reputation will enhance the investment capital and give benefit to the company
especially when a crisis happens. For example to improve the reputation is by giving good
customer service such as entertaining customers with manners. When you have a good
reputation for being ethical in how you source and build products, treat employees and customers,
then more people will want to do business with you.

2) Strengthen the customer loyalty

The customers are the main income earning in the company therefore they deserve to be
rewarded. Customers want to feel appreciated because they choose to spend their money
everywhere and they choose HHG. That is not a small gesture therefore HHG should return the
favour through a reward like give or discount. It is vital for HHG to maintain a good reputation in
order to boost up their business. Customer concern about good ethics, therefore if you maintain
good business ethics, your loyal customer will continue to purchase from you and at the same
time potential customers attracted to you too.

b. Analyze the position of all three companies within HHG using Boston-Consulting Group
(BCG) matrix. Discuss strategic decisions that can be made for each of the businesses.

In the BCG approach, each of the firm’s strategic business units (SBUs) is plotted on a two-
dimensional grid in which the axes are relative market share and industry growth rate. Relative
market share is measured by the ratio of the business units size to that of its largest competitor.
Growth rate is estimated from market data. The four quadrants of the grid include stars, question
marks, cash cows and dogs.

For HHFish, the company is experiencing low growth due to a competitive marketplace. The
position for HHFish is dogs. Dogs in BCG approach are companies with weak positions and
limited potential. The CEO of HHG is considering divesting HHFish and using the investment for
a more profitable project. The marketing advice here is to aim to remove any dogs from your
product portfolio as they are a drain on resources. T is recommended for HHFish to divested due
to its weak position and limited potential.

For HHPro, the company benefited from government grants and managed to secure consistent
profit. HHPro in BCG is stars. Stars is where the firms with long term growth potential that should
continue to receive substantial investment funding and the product produce in high growth
markets with high market share. HHPro holds a substantial market share but in a mature and low
growth marketplace. So HHPro in BCG is a stars. It is recommended for HHPro to find an
investment in order to retain their market position, boost growth, and maintain a competitive
advantage.

For HHFarm, where HHG saw this acquisition is to maintain supply to HHPro. So HHFarm in BCG
is a question marks. Even though HHG saw this acquisition is to maintain supply to HHPro,
hhFarm has low market share and still growing but not as fast as its market. The operating cost
for HHFarm is higher than expected and securing areas for new fish farm is challenging and
require additional investment. Question marks in BCG is where the company is operating in high
growth industries with relatively weak market shares where resources should be invested in them
to enhance their competitive positions. Maybe HHPro can help to finance project under HHFarm.

c. Explain three (3) principles of successful divestiture that can be adopted by HHG should
Mr Adam decides to divest its business.

The Boston Consulting Group has identified seven principles for successful divestiture which
could be implemented by Mr Adam in HHG:

1. Communicate clearly and frequently. Mr Adam needs to clearly communicate to internal

stakeholders, such as employees, and external stakeholders, such as customers and
stockholders, what their goals are with divestment activity, how it will create value, and how the
firm is moving forward strategically with these decisions. By giving a proper explanation to the
related party this strategy will succeed as this activity will give a good impact to the parties which
will benefit them instead of make them suffer by continuing operating non profitable activities.

2. Remove the emotion from the decision. Mr Adam needs to consider objectively the
prospects for each unit in the firm and how this unit fits with the firm’s overall strategy. Issues
related to personal relationships with the managers of the unit, the length of time the unit has
been part of the company, and other emotional elements should not be considered in the decision.
All the decisions must be made in a professional condition so that the decision made reflects the
current situation that the company needs to save in order to maintain sustainability as a whole.

3. Know the value of the business you are selling. Divesting firms can generate greater interest
in and higher bids for units they are divesting if they can clearly articulate the strategic value of
the unit. By having a proper valuation of worthiness of the company could create more advantages
to the correct people and timing. By that the divestment will succeed and worth every decision
made.

DEC2016 PLAYLAND

a. Justify with two (2) reasons whether Playland needs to invest in advertisements and
proYes, Playland need to invest in advertisements and promotional campaign because:

1) Brand awareness or recognition

- It is important for Playland to invest in advertisements and promotional campaigns in order to

ensure the customers are aware and realized regarding their brand’s existence. Since Playland
offers services to the customer, the advertisement and promotional campaign could attract new
customers to use Playland’s services for their children’s learning and development. Besides,
advertisement and promotional campaigns are beneficial to them where it can help Playland to
increase their sales if Playland is having declining issues regarding their sales.

2) Focus on their brand or business model - By focusing on brand or business model, it will allow
Playland to work more on the particular product in order to ensure the customer could gain more
knowledge regarding the specific product that is produced by Playland. This will be more effective
for Playland by narrowing down the target market and also to encourage them to feel connected
to and empower their brand existence.motional campaigns despite its strong brand name and
high reputation.

b. Discuss three (3) issues that Rashid should consider when making vertical integration
decisions.

1) Is the company satisfied with the quality of the value the present distributor or supplier
is providing. Before making the vertical integration decision, there are two types of vertical
integration which are backward integration and forward integration. In this case, En Rashid wants
to make vertical integration decisions, so he should first see whether the existing supplier or
distributor provides good quality of the value to Playland or not. If it is good or you are satisfied
with them therefore you do not have to go for backward integration. If the quality provided by the
supplier is not good enough or you think you can supply or perform better, you can come out with
a new company or you can take over another company that has similar business with your supplier
then you can supply on your own.

In this situation, Playland appoints an agent to promote the company and the company activities.
If the agent is not good enough, Playland can come out with the forward integration. You can be
the distributor or create another company to make promotions. You can also create an agent to
find a travel agency or open your own travel agency so you can sell tickets to the travel agent and
the travel agent will include Playland as one of the companies they will visit.

2) Does the company have necessary competencies to execute the vertical integration
strategy. First look at your resources competencies, whether we can proceed with this vertical
integration or not. If we have a good specialist, we can proceed with the vertical integration, if not
then you have to think properly first. Is it necessary for you to come out with vertical integration.
If you proceed with vertical integration whether backward or forward integration, you are going to
invest more, if the investment can not confirm the good return to you then you have to study first.
You will need to study the cost benefit analysis.

3) Will the vertical integration initiative have a potential negative impact on the firm
stakeholders. Look at whether your vertical integration will give a negative impact to the firm
stakeholders. For example, if you look at backward or forward integration, you want to become
the supplier to your own manufacturing company, so you have to look at the impact to your other
company as well, if any negative impact then you have to think before you can proceed with the
vertical integration. Sometimes, there are similar companies you create to become the backward
of your own company, but then it will give impact to your own company. Another example is you
have another subsidiary company or your parent company open another subsidiary company to
become the backward doing the same nature of business to your company, later on another
subsidiary company will face the problem. That is why you have to think properly before you can
proceed with the vertical integration.

c. Explain three (3) reasons to Rashid on why some managerial motives can erode the
company’s value creation.

1) Over emphasizing on company’s growth could lead to bad results. If Rashid is too focused on
his motives to expand the business to increase revenue, this may lead to him ignoring other things
that are equally important to growth such as business ethics as well as laws and regulations. For
example, if Rashid aims to increase the sales by investing on promotions, he will probably incur
high cost as he is only fixated to increase profit and ignore other consequences. The extensive
promotions may lead to high profit for Playland, however it may also cause the company to incur
high costs which will reduce the profit of the company or worse, the company incurring loss. Thus,
Rashid has to study and do some research before investing for the growth of the company as
everything has its consequences to the company as well as the shareholders.

2) Egotism is a manager’s action to shift the firm’s strategy to serve their selfish interest rather
than to maximize the firm’s value. If Rashid makes decisions without discussing it with the
shareholders, the shareholders’ value can be affected. When the shareholder’s values are
affected and not satisfied, they might choose to stop investing in the company and Playland will
lose its important investors that have kept the business running and directly the value creation of
the company would also be reduced. Hence, Rashid should put aside his inner motives and
egotism to profit and use his power to conduct the business for the better satisfaction of both
parties, himself and the shareholders.

3) Anti-takeover tactic is defined as any action taken by a company to prevent it from being
acquired by another company. This could happen when the value of the shares of the company
dropped due to poor planning. If Rashid makes a decision without proper planning, he may
jeopardize the value creation of Playland. For instance, when Playland’s shares become under-
valued as the consequences to Rashid’s hasty action for the company’s growth, the competitors
are capable of buying the shares which will give an effect to the company. The competitors will
acquire the shares and become the major shareholders of the company which will also reduce
the current shareholder’s wealth and value creation of the company. Hence, before deciding for
anything, even though it is for the sake of the company, Rashid needs to properly plan it and
study the pros and cons of his actions.

JUNE2016 FITNESS4ALL

a. Explain one benefit that Fitness4All has attained from the Government initiative in
promoting a healthy lifestyle to Malaysian.

There is a benefit that Fitness4All has attained from the Government initiative in promoting a
healthy lifestyle to Malaysian. Due to the government initiative, the announcement of Hari Sukan
Negara on 10 October 2015 gives a positive impact to Fitness4All. The government intention for
this program is to increase the awareness of health fitness, this is because the Malaysian problem
is a lot of adults are overweight or obese, and the rate is possibly the highest in Asia. After the
announcement the number of people joining the Fitness4All increased in order to have a healthy
lifestyle, indirectly the revenue of the Fitness4All also increased. This is also helping Fitness4All
to sustain in the industry for the longer period. Fitness4All have to try their best to come out with
the new idea to remain in the industry.

B. Explain 3 criteria Fitness4All must meet for its core competencies to create value and
provide a viable basis for synergy in its business.

Core competencies are the firms’ strategic resources that reflect the collective learning in the
organization. It involves the way to coordinate diverse production skills, integrate multiple streams
of technologies and market diverse products and services. There are three criteria for a core
competency to create value and provide a viable basis synergy in its business.

The first criteria is the core competence must enhance competitive advantages by creating
superior customer value. Every value chain activity has the potential to provide a viable basis
for building on a core competence. In this case, Fitness4All should develop strength through
having professional trainers, good facilities and latest fitness equipment and should understand
customer needs and have the ability to combine technology to develop innovative strategies. The
company should include innovative skills by improving the training sessions that are specifically
designed to suit the customer specific needs in order to develop synergy. Innovation can
contribute to value added strategy in order for the company to outperform its competitors and to
remain in the industry. The innovation strategy should be included in the plan in order to enhance
competitive advantage.

The second criteria is different businesses in the corporation must be similar in at least one
important way related to the core competence. It is not essential that the products or services
themselves be similar. At least one element in the value chain must require similar skills in
creating competitive advantage if the corporation is to capitalize on its core competence. In this
case, Fitness4All may come out with different strategies such as having professional trainers and
developing new packages to attract the customers. New competitors may not outperform
Fitness4All but they always can develop new strategies to compete with the company. The
company can hire wellknown trainer in order to help the company to boost the sales. This can
create value and synergy for the company.

The last criteria is the core competencies must be difficult for competitors to imitate or find
substitutes for. Competitive advantages will not be sustainable if the competition can easily
imitate or substitute them. If the skills associated with a firms’ core competencies are easily
imitated, they are not a sound basis for sustainable advantages. In this case, the package offer
should be different from competitors and not easy to be imitated. For example, the packages
offered by the company can include extra services from dietician and consultation for customers.
In order to gain trust from customers, the company can include the success rate for losing weight
in the promotion package. Other than that, the company also can include different services from
the competitors such as aquatic training which not all competitors have this kind of service. The
differentiated package or service offered that is not easy to be imitated will add value and synergy
for the company.

C.Recommend with three (3) reasons which proposal would escalate the growth of
Fitness4All without breaking its cash flows.

Based on the case, the proposal of Plan B is way more suitable to escalate the growth of
Fitness4All without breaking its cash flows. There are three recommended reasons for choosing
proposal B which are the lower cost required to activate Plan B, the availability of current
resources and the plan can start immediately.

First of all, considering choosing Plan B will not break the company's cash flows as it requires
a low cost to activate the plan.The Directors of Fitness4All were suggested for the company to
offer the latest trend of fitness workout which includes Zumba, Bokwan, Katami and aquatic
training. These workout programs can be easily developed or created when two or more existing
trainers are seated together and discuss how to come out with new steps to make it more
interesting and challenging. It requires a low cost as Fitness4All uses its own existing trainers to
come out with the new offer programs. This way, Fitness4All can have a lot of cost saving without
damaging their cash flows.

Furthermore, Fitness4all might maintain their cash flow by utilizing all the available current
resources of the company. This means they do not have to spend more money in performing
Plan B. For example, the development of new workout programs such as zumba requires the
same studio and equipment. Fitness4All does not have to rent a new space just for that reason
as the programs are suitable enough to conduct in the existing space. Most fitness clubs are
equipped with the internet, therefore the trainer can use this resources to find new workout trends
from YouTube such as Pamela Reif channel. As Fitness4All is the leading fitness club in Kuala
Lumpur, its trainers must have good experience and have a big name in the industry. So,
Fitness4all should take this opportunity to attract more customers to enroll with the programs by
using its trainers as the ambassador of the company. Fitness4All can also look forward to
promoting through its own social media or trainers’ social media. This way they can generate
more profit and prevent the cash flows from breaking.

Last but not least, Plan B can be performing immediately. Once the new workout trends are
decided, Fitness4All can start immediately with the plan by announcing or promoting it to all the
prospect customers. They may also require a little time to develop the new workout programs as
they do not need many steps to make it possible. Plan B can start at any time once all the parties
take part in the discussion with Plan B is happy with the outcomes of discussion. The faster the
decision is made the faster the Plan B can be operated. It is an advantage for Fitness4All for
being the first club offering a modern-contemporary workout program to the customers as it may
obtain more customers joining the class and try the new trend workout. Therefore, the revenue of
Fitness4All is increasing and the cash flow is also improving.

Based on the above reason, Plan B is way more efficient to implement as compared to Plan A.
This is because Plan B helps Fitness4All maintain the cash flows while Plan A will result in the
company having more cash outflows. To conduct Plan A, the company requires a huge amount
to acquire PharmaBusiness as well as they need more time to complete the process as it required
mana involvements from various parties such as lawyers.
ADDITIONAL CASE SALIM CARPET BUSINESS

a. Discuss briefly whether it is wise for Salim not to invest in advertisements and
promotional campaigns to further increase sales and to sustain his branding and market
positioning since he is convinced that his carpets are already differentiated and of high
quality.

Not wise for Salim to not invest in advertisement and promotional campaigns. Even Though your
product is already successful, you still need advertisement & promotional campaign in order to
increase sales or to sustain your branding/market positioning in any time. Because advertisement
& promotional campaign would ensure that your customer is always aware of the existence of
your product in the market. Therefore, salim must do the advertisement in order for him to ensure
that the consumer is aware about his product. He needs to communicate with his current/potential
about his product. He needs to make a new innovation & also need to be involved with higher
quality products in order for him to sustain in the market. Investing in advertisement & promotional
activity is necessary to capture the new market share

b. Explain three (3) benefits of the backward integration strategy to Salim to convince
him that it is a viable option.

● salim would secure the original source of raw materials by producing the product in house.
Salim would not have to worry about the quality supply, reliability of the stock changes &
the pricing since the company is also its own supplier. The transaction cost e.g searching
cost, negotiating cost, contracting cost, monitoring cost can be eliminated from the
business. This would indirectly give salim the opportunity to reduce the price if he wanted
to do that. This will subsequently increase the co's profit
● salim would be in control of any valuable asset, production process of technique required
in the preparation in getting the raw materials. E.g salim does not have to rely on the
supplier of the raw material & make his own decision bcs the raw materials is in hand. This
would give salim its competitive advantage over its competitors. E.g the competitors
having suppliers for them compared to salim who is the supplier of its product. Salim can
also supply to his competitors
● salim would have the proprietary access to new technologies developed by original source
of raw material which would give its competitive advantage over its competitors. It gives
salim the power over its competitors. Can discuss in terms of the procurement &
administrative procedure regarding the raw material produced by salim & production of
carpet now can be simplified which would lead to lesser time spent on the procurement.
Salim can practise just in time since he is the producer of the raw material, so he can
supply exactly when and how much the quantity that needs to be produced. This can
reduce the storage cost. This indirectly would enhance the efficiency & affect the return
positively to salim's company
c. Explain the three (3) criteria that must be met for a core competence to create value
and provide a viable basis for synergy in Salim’s business.

● salim core competence must enhance the competitive advantage by creating

superior customer value through value chain activity or more than what would
provide a viable basis for building on a desirable value added core competence which
customer would willing to pay for. Salim needs to plan or do something that can enhance
the competitive advantage.e.g put value added to the product (something that is more
valuable to the product). Carpet produced by salim should have uniqueness or additional
innovation to the product in the order to attract the customer at the same level of pricing
to be consider meeting the core competence
● different products/services of salim must be similar in at least one important way
related to core competence. Value chain that required similar skills in creating the
competitive advantage so that salim could capitalise on its core competence. In order for
salim to achieve economies of scale, salim need to look at the value chain activities where
it should have at least 1 important way that related to core competence
● core competency and skill associated with it must be difficult for competitors to
imitate or find substitutes for to ensure the competency of sustainable advantage in the
long run. Salim needs to produce something that cannot be imitated by his
substitute/rivals. Once the rivals can have the similar product then definitely the sales of
his product will fall down. Therefore, salim needs to have a strategy to come out with a
non imitative product so therefore the rival cannot replicate the product. This can be
achieve if salim having their on raw material by using the backward integration which leads
salim to have a special raw material that can be included in the process of preparing the
carpet which can be one of its advantages/core competence/value added to the product
which makes the rival unable to imitate salim's product since the raw material is only
available at salim's company