Do not open this examination paper until instructed to do so. A clean copy of the IB Business Management case study – Utopia 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. Section C: answer question 5. A calculator is required for this examination paper. The maximum mark for this examination paper is [60 marks].
IB Business Management Higher Level Paper 1 Examination IB Business Management : www.BusinessManagementIB.com
SECTION A
Answer two questions from this section.
QUESTION ONE
a.
Outline the importance of market research (line 69) to Utopia in achieving its sales [4 marks] targets.
b.
Examine why Utopia sets ethical objectives (line 17) and implements corporate social [6 marks] responsibility strategies.
QUESTION TWO
a.
Explain the importance to Utopia of having a unique selling point (USP; line 4). [4 marks]
b.
With reference to Utopia, distinguish between strategic alliance (line 74) and joint [6 marks] venture (line 50).
QUESTION THREE
a.
With reference to Utopia, outline two key features of operating as a private limited [4 marks] company (line 1).
b.
Analyse how John Ariki’s paternalistic leadership style would impact on the business [6 marks] objectives of Utopia.
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IB Business Management Higher Level Paper 1 Examination IB Business Management : www.BusinessManagementIB.com
SECTION B
Answer the compulsory question from this section.
QUESTION FOUR
The following financial information for the latest financial years is Utopia’s .
Table 1: Selected financial information for Utopia
Selected financial information for Utopia
Year ending 31st December 2016
Year ending 31 st December 2015
Cash
$200 000
$600 000
Creditors
$85 000
$75 000
Debtors
$31 000
$35 000
Short-term loans
$90 000
$40 000
Stock
$37 500
$30 500
$2 900 050
$4 330 405
$852 112
$600 054
$3 504 900
$2 904 510
Sales revenue Cost of goods sold Expenses
a.
Explain why the capital expenditure (line 64) required to rebuild the 17 damaged villas would not feature in Utopia’s profit and loss account . [4 marks]
b.
Using information in Table 1 above calculate i.
Gross profit margins for the years ending 2016 and 2015
[2 marks]
ii.
Net profit margins for the years ending 2016 and 2015
[2 marks]
iii.
The current ratios for the years ending 2016 and 2015
[2 marks]
iv.
The acid test/quick ratios for the years ending 2016 and 2015
[2 marks]
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IB Business Management Higher Level Paper 1 Examination IB Business Management : www.BusinessManagementIB.com
c.
Discuss the impact of the 2016 natural disaster (line 40) on Utopia’s liquidity position and strategies the business could have used to improve its cash flow during that time of crisis. [8 marks]
Additional information There is no additional information in this paper for Sections A and B.
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IB Business Management Higher Level Paper 1 Examination IB Business Management : www.BusinessManagementIB.com
SECTION C
Answer the compulsory question from this section.
QUESTION FIVE
5.
The board of directors at Utopia are exploring long-term strategic options in line with growth objectives. They have been considering the four strategic options for growth laid out in the Ansoff matrix. The board has asked you to prepare an independent report for their consideration. By applying the Ansoff matrix and using quantitative and qualitative data from the case study and the additional stimulus material in table 1 above and items 1-4 below, evaluate what you believe to be the two best options for Utopia to achieve its strategic [20 marks] objectives.
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IB Business Management Higher Level Paper 1 Examination IB Business Management : www.BusinessManagementIB.com
Additional information ITEM 1: GROWTH IN PACIFIC ISLAND TOURISM
Source: KPMG report into Tourism in the Asia Pacific (Jan 2017) * Strong demand for Pacific Island tourism leads to significant growth in the future. However, this growth is somewhat restrained by relatively low rates of infrastructure development in the Pacific Islands (e.g., ports, airports, hotels and resorts).
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ITEM 2: COFFEE PRICES CONTINUE TO RISE ON FALLING SUPPLY AND INCREASING DEMAND
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Global coffee prices are expected to increase as droughts in Brazil and Sub-Saharan Africa continue to limit the supply of coffee, and at the same time global demand for coffee continues to increase. This is expected to put pressure on both wholesalers and retailers who will not be able to increase their prices in a highly competitive market.
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IB Business Management Higher Level Paper 1 Examination IB Business Management : www.BusinessManagementIB.com
Established and profitable business operation. Finance. Strong balance sheet with low levels of debt. Established brand. Differentiated product. Customers are mostly wealthy and relatively insensitive to price. Relatively high gross profit margins. The location of Utopia. Privately held company. Low cost of local labour. Effective supply chains sourcing fresh local produce.
Opportunities:
Increase prices as wealthy customers may be relatively insensitive to higher prices. Expand the number of villas to cater for higher numbers of guests. Pursue additional revenue streams – souvenirs. Pursue additional revenue streams – selling Aora coffee beans in New Zealand. Pursue additional revenue streams – develop additional tours and activities for guests (e.g., weddings). Pursue additional revenue streams – develop a new resort in a new location on Ratu or other Pacific Island. Improving internet infrastructure will enable better and faster communication and allow Utopia to establish an effective social media presence. Develop a promotional campaign to target potential customers instead of relying on word-of-mouth promotion.
Weaknesses:
Finance. The business will only consider internal sources of finance to pursue growth opportunities. Relatively undiversified with just two revenue streams. Marketing. Utopia’s reliance on word-of-mouth advertising limits its promotional opportunities and reduces sales revenues. Management. The paternalistic style of John’s leadership has resulted in businesses that are familyrun and this means that they are unlikely to have the skills of qualified and professional managers.
Threats:
Natural disasters such as hurricanes and tsunamis can quickly destroy U topia’s own infrastructure as well as the supporting infrastructure on Ratu (e.g., roads) and neighbouring islands (e.g., airports and ports) that tourists are reliant on to reach Utopia. Other threats from nature such as mosquito borne diseases (dengue fever and Zika virus) or a n influx of jellyfish. Sea level rises and an increase in the number and size of storm surges. Increased competition from a new resort on Ratu or nearby islands. Poor word-of-mouth promotion from guests (e.g., a shark attack or bout of food poisoning amongst guests). Supply chains. The café (and potential wholesale operation) is reliant on a single supplier of coffee beans. Coffee is a commodity, and thus subject to high levels of price volatility.
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ITEM 4: BREAKING NEWS News item appearing in major newspapers and global media.
American antitrust regulators rule that the Ford and Hyundai merger can proceed NEW YORK
Zika virus disease is caused by a virus transmitted primarily by Aedes mosquitoes. REUTERS/MILENA BAENSCH
For the relatively few people who show signs of a Zika infection, the illness is often very mild. But in pregnant woman, the effects can be devastating, and can include pregnancy loss or a baby born with an abnormally small head and brain – a condition known as microcephaly. The Zica virus has now been confirmed in Southern Fiji and across all parts of Samoa. Experts predict that the Aedes mosquito which carries the Zika virus and transmits it to people will quickly spread across most, if not all, of the South Pacific. The first cases of babies born with microcephaly have been reported in Fiji and Samoa and health professionals are warning women travelling to Pacific Islands to take extra precautions.
