M16/3/BUSMT/HP1/ENG/TZ0/XX BUSINESS MANAGEMENT STANDARD LEVEL PAPER 1. Practice examination 2016 Todos os Mercados.

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1 M16/3/BUSMT/HP1/ENG/TZ0/XX BUSINESS MANAGEMENT STANDARD LEVEL PAPER 1 Practice examination 2016 Todos os Mercados 1 hour 15 minutes INSTRUCTIONS TO CANDIDATES Do not open this examination paper until instructed to do so. A clean copy of the IB Business Management case study Todos os Mercados is required for this examination paper. Read the case study carefully. A clean copy of the IB Business Management formulae sheet is required for this examination paper. Section A: answer two questions. Section B: answer question 4. A calculator is required for this examination paper. The maximum mark for this examination paper is [40 marks].

2 Answer two questions from this section. SECTION A QUESTION ONE a. Outline the importance of the marketing mix to Todos os Mercados in achieving its sales targets. b. Apply Pink s Drive Theory (line 61) to Henri Trouvé s motivation to work in his job at Todos os Mercados. [6 marks] QUESTION TWO a. Explain the importance to Todos os Mercados of having a unique selling point (USP; line 6). b. With reference to Todos os Mercados, distinguish between autocratic leadership (line 34) and paternalistic leadership (line 65) styles. [6 marks] QUESTION THREE a. With reference to Todos os Mercados, outline two key features of operating as a public limited company (line 11). b. Analyse the impact of two external environmental factors on the business objectives of Todos os Mercados. [6 marks] P a g e 2 9

3 SECTION B Answer the compulsory question from this section. QUESTION FOUR Henri Trouvé was presented with the following financial information for Todos os Mercados in his MBA case study on the firm. Table 1: Selected financial information for Todos os Mercados Selected financial information for Todos os Mercados Year ending 31 st March 2016 Year ending 31 st March 2015 Cash $200m $600m Creditors $8 500m $7 500m Debtors $3 100m $3 100m Short-term loans $900m $400m Stock $3 750m $3 050m Sales revenue $ m $ m Cost of goods sold $ $ m Expenses $ $ a. Explain how Todos os Mercados can have, at the same time, increasing sales and decreasing market share in its US market. b. Using information in Table 1 above calculate i. Gross profit margins for the years ending 2016 and 2015 [1 mark] ii. Net profit margins for the years ending 2016 and 2015 [1 mark] c. Apply the Ansoff matrix to Todos os Mercados objective of increasing market share. P a g e 3 9

4 d. Using the additional information in the case study, table 1 above, and items 1-6 below evaluate the two strategies of market penetration and market development to achieve its strategic objectives of market share and profit maximisation. [10 marks] P a g e 4 9

5 Additional information ITEM 1: RETAILERS MARKET SHARE Global market share of multi-national food retailers. P a g e 5 9

6 ITEM 2: SUPERMARKET SALES OF ORGANIC PRODUCTS ARE A BIG GROWTH AREA Relatively, Todos os Mercados has a very low market share of organic food products which is the fastest growing category of food products, with compound average growth rates of 12% from ITEM 3: FORCASTED GROWTH RATES FOR SELECTED REGIONS P a g e 6 9

7 ITEM 4: TOP 10 MULTINATIONAL FOOD RETAILERS BY TOTAL GLOBAL SALES, 2015 Top 10 multinational food retailers by total global sales, 2015 Top 250 rank Name of company Country of origin 2015 Retail revenue (US$ mil) 2015 Retail revenue growth 2015 Net profit margin 2015 Return on assets CAGR* Retail revenue # countries of operation % retail revenue from foreign operations 1 Todos os Mercados, PLC 2 Costco Wholesale Argentina % 3.5% 8.2% 3.3% % US % 2.0% 6.8% 7.7% % 3 Carrefour France % 1.8% 3.1% -3.0% % 4 SUT KG Germany % 2.2% 4.3% 6.5% % 5 Tesco UK % 1.5% 1.9% 2.9% % 6 The Kroger Co US % 1.6% 5.2% 5.3% % 7 Metro Ag Germany % 0.7% 1.4% -0.9% % 8 Aldi EG Germany % 2.1% 3.5% 5.5% % 9 The Home Depot US % 6.8% 13.3% 2.0% % 10 Target US % 2.7% 4.4% 2.9% 2 1.8% Top % 2.8% 6.0% 3.0% % Top % 3.4% 5.3% 4.2% % Top 10 share of Top 250 retail value 93.8% * CAGR = compound annual growth rate Average P a g e 7 9

8 ITEM 5: TODOS OS MERCADOS SUMMARY SWOT ANALYSIS Strengths: Investment capabilities. During fiscal year 2015 the company generated total revenues of $136 billion Well recognised brand. Todos os Mercados is the world s fourth largest public company by revenue and the largest retailer in the world. Innovative technologies. The company has a technologically advanced information system to support its supply chain management real time order, inventory tracking for better decision-making and more efficient supply chain management. Loyalty of customers. Prices lower than competitors. Large volume allows the company to receive huge discounts from suppliers. The widest selection of products amongst retailers a better chance of keeping customers in one place and increasing the average customer spend. Opportunities: Expanding in and focussing on previously unexploited consumer markets such as Latin America and Asia (especially India and China). Increasing sales of groceries and food items will encourage people to eat at home as health and wellness trends continue to develop. Growth in the internet, backed by technological capabilities will allow retailing to serve an even larger market. Depressed global economic growth, especially in Europe and China. Customers with lower incomes will demand lower prices. Taking advantage of efficient supply chain supported by innovative technologies that might result in further expansion and reduced costs. Partnerships with large companies providing various services; e.g., healthcare, insurance, travel agencies and coffee houses. Takeovers of smaller competitors and mergers with various retailers will strengthen market share for TS. Weaknesses: The company tends to hire more part-time employees than they do full time. Hostility in some communities due to the fact that the company has put many small stores out of business. Reduced profit margins in order to keep prices lower than competitors. Liquidity problems from expansion. Some of the products sold have poor quality, which reflects on the brand in a bad way. Poorly prepared investment decisions. The company has already retreated from the South Korean and German markets. Involved in multiple law suits, including questionable business practices, unpaid wages and community activists trying block new stores opening. Due it its large number of employees, Todos os Mercados is an object of constant media and government attention. Due to the size of the company, keeping consistency in management quality and local business decisions is difficult. High operational costs connected with largest employment level. The company faces one of the highest staff turnover levels and needs to raise wages in order to attract new employees. Threats: Two million employees increases exposure to rising wages and high health insurance costs. Increasing resistance to further expansion from local organisations and communities. Growing US economy can change customer motivation from one driven by low cost to one driven by quality and convenience. The competition. Retailers such as Costco can attract customers with a better offer and a positive company image. In Europe, the fast expansion of the German discount retailers Aldi and Lidi. Increasing community concern about the company s ethical position; e.g., low wages and work conditions. Danger of recurring recession. A possibility of aggressive German-style discounting of prices in American markets. Growing competition from internet-based retailers such as Amazon and ebay. Retreat from shopping in large retail stores in favour of small local markets and grocery stores. P a g e 8 9

9 ITEM 6: BREAKING BUSINESS NEWS News item appearing in all major newspapers and global media with a business focus. American antitrust regulators rule that the Ford and Hyundai merger can proceed NEW YORK Carrefour CEO Georges Plassat ready to announce the news that Carrefour and the Kroger are about to merge, at the Carrefour headquarters, Boulogne-Billancourt, France. April 15, REUTERS/MILENA BAENSCH In a surprise move, both US and European antitrust regulators have indicated that the two supermarket giants Carrefour and the Kroger can proceed with their proposed merger. The announcement was largely unanticipated and seems to have the approval of investors as the shares of both companies rose sharply immediately after the announcement was made. Carrefour CEO, Georges Plassat stated that he was thrilled the last regulatory obstacle to the deal had been overcome, and that he and his executive team could now finalise the terms of the agreement with Kroger. Industry analysts said that the merger made a lot of sense for both companies as Kroger was established and profitable in its US market and Carrefour had a worldwide reach. Significant cost savings would likely emerge from the newly restructured company allowing the new firm to be more price competitive. P a g e 9 9