| Date | November 2016 | Marks available | 20 | Reference code | 16N.1.HL.TZ0.5 |
| Level | Higher level | Paper | Paper 1 | Time zone | Time zone 0 |
| Command term | Recommend | Question number | 5 | Adapted from | N/A |
Question
Six months has passed and Medimatters is now ready to launch IBAT. Medimatters will recruit new staff to set up a customer services department. Ahmed has spent some time thinking about the people he would need to recruit. The staff would need to possess IT skills and an understanding of medical issues.
The manufacturer Falit found in India has produced the first batch of 1000 IBAT lenses. Unfortunately, the IBAT lenses were delivered later than expected and some were faulty. As a result, the group is considering whether to make or buy the IBAT lenses. Ahmed has suggested setting up a manufacturing facility using lean production. His calculations are as follows:
- Price paid to manufacturer in India per IBAT lens: $50.
- Current number of IBAT lenses purchased per month: 1000.
- Variable cost of making IBAT lenses: $25 (per lens).
- Additional fixed cost of making IBAT lenses per month: $20 000.
Ahmed considered his role as leader.
- He has consulted widely on a draft business plan and has discussed and agreed the mission and vision statements because he wants to involve everyone.
- The group are all very enthusiastic about IBAT, although some are anxious about the risks involved and have asked for more guidance.
- He spends a lot of time keeping everyone informed of project developments in addition to coordinating all of their efforts.
- Emma has many ideas about expanding into new markets, however, Didi does not agree and has argued with Emma.
- He is prepared to make urgent decisions himself. For example, without consultation he decided that Medimatters should become a private limited company.
The group are considering two target markets.
Option 1: enter the Asian market
Emma strongly prefers this option. She recently presented IBAT at a medical conference in Asia. Great interest was shown and some attendees wanted to purchase samples at the conference. However, sales in Asia are not possible, because IBAT has not yet met regulatory quality standards there.
Falit also prefers this option because significant economies of scale could be gained. He also fears that other businesses will launch a similar product in Asia. The costs of entering the market would be relatively small for Medimatters. A suitable medical equipment wholesaler who could market and distribute the product operates in the region.
Ahmed and Didi are concerned. Quality issues with the lens manufacturer in India are worrying and should be resolved. They would like market research to be conducted to assess the suitability of Asian, as well as European and American, markets.
Option 2: continue to sell in Brazil
Didi favours this option. Always cautious, he thinks that current difficulties should be resolved before further expansion. He forecasts a reasonable first-year profit – far more than most new businesses. Ahmed likes the fact that he would not have to take on any additional workload or travel across the world: he is already struggling to manage his responsibilities. Carlo prefers this option because he wants to avoid the problems of growing too quickly, because many overambitious new businesses fail.
In preparation for the next group meeting, a decision tree showing both options has been produced.
Using the case study and the additional information in this question, recommend whether Medimatters should implement option 1 or option 2.
You will find it useful to calculate the predicted outcome for option 2 in the decision tree.
Refer to case study: Medimatters
Markscheme
Option 1:
- interest shown at Asian conference
- risk spread among several markets
- possible economies of scale as production increases to provide for much larger market
- relatively low costs
- suitable wholesaler could solve many of the problems of moving into a new market.
However:
- regulatory standards differ from country to country
- quality issues still need to be solved and could be greater for a diverse market
- no experience of this market, completely different to Brazil
- problems of international marketing etc.
Predicted outcome from decision tree is $40 000 compared to $19 000 for option 2, however, much higher risk of failure, much smaller chance of great success. How reliable is data in the tree?
Option 2:
- avoids diseconomies of scale
- grow modestly is better than too rapid growth – cause of failure in many new businesses
- favoured by Didi and Carlo
- more predictable in terms of likely returns, lower risk/cost of failure.
However:
- misses opportunities
- limited market
- what about other markets?
Other reasoned arguments relevant to the situation accepted.
Decision largely hinges on Medimatters’ attitude to risk. Either decision is rewardable if
effectively argued.
Marks should be allocated according to the assessment criteria in paper 1 markbands May 2016 forward, section C.
Note – a recommendation that a decision cannot be made due to lack of information (eg market research) can be regarded as a decision provided the arguments are supported.
If there are simple errors in calculating the predicted outcomes, they should be OFR in subsequent discussion but 4+3 for A and B, e.g. $29k.
Criterion A: possible theories, management tools and techniques include: decision trees and predicted outcomes, risk, diversification/market development/ penetration (Ansoff), joint ventures, strategic decision making, stakeholders, marketing issues, economies of scale. HRM issues can also apply.
No understanding of decision trees max [3].
For [4]: Decision tree plus at least one other tool, technique and theory understood and developed well with some relevance to the additional stimulus material.
For [2]: Some understanding of at least two tools, techniques or theories, but not developed.
Criterion B: the tools, techniques, theories and stimulus applied to the decision. Application will be judged by the use of the stimulus material in particular the extra material especially the decision tree.
For [4]: Relevant tools, techniques and theories are applied well to the case study context and additional stimulus material, the application is convincing and relevant.
If only one option considered max [3].
If no effective use of decision tree max [3].
For [2]: Some limited context/application but not developed. Use of tools limits candidate’s ability to make reasoned arguments.
If a candidate calculates predicted values for the decision tree but then does not use them reward only in Criterion A.
Criterion C: Options discussed in balanced way, conclusions drawn as to whether they
work.
For [4]: There needs to be a comparison between the two options using the Section C and other material and a recommendation made.
For [2]: Only one option considered or some limited arguments but not justified. No comparison limited analysis but candidate arrives/draws a reasoned conclusion.
Criterion D: Structure
This criterion assesses the extent to which the student organizes his or her ideas with
clarity, and presents a structured piece of writing comprised of:
- an introduction
- logical structure
- a conclusion
- fit-for-purpose paragraphs. This means: not too long, focused on distinct issues, sequenced well, guides the reader.
For [4]: All four elements present, clearly organized.
For [2]: No logical structure but other elements present or logical structure with other elements missing.
Criterion E: Stakeholders: Individuals: each team member, individual doctors. Groups: The team, other business (wholesalers, manufacturers), customers (doctors, the general public), the Asian conference, government.
For [4]: Two or more individuals and groups are considered in a balanced way.
For [2]: One group or individual considered appropriately, or several individuals or groups considered superficially.
Examiners report
Syllabus sections
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18N.1.HL.TZ0.5:
Refer to the As Fair As case study (SL/HL paper 1 Nov 2018).
Using the case study, resources and appropriate business tools, recommend whether AFA should take over ABC.
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18N.1.HL.TZ0.4c:
Refer to the As Fair As case study (SL/HL paper 1 Nov 2018).
Explain the usefulness of a Gantt chart to AFA in planning the implementation of a new process.
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18M.1.HL.TZ0.4d:
Refer to Afghan Sun case study SL/HL P1 May and Nov 2018.
Using information from the case study, the resource and appropriate business tools, discuss the value to Su of the force field analysis in deciding whether to grow through change.
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17M.1.HL.TZ0.5:
John felt that the decision about expanding JAC into the international markets of the Pacific Islands did not depend on the decision about the 3D printing project. However, he decided that they should not enter the markets at the same time, so they had to choose between starting with Fiji, Samoa or New Zealand. John stressed to Liza that, as with the construction of the Utopia villas, the choice of a new international market should strongly consider cultural influences and norms. For this reason, John favoured Fiji and Samoa over New Zealand, arguing that they are more culturally similar to Ratu. However, the final decision not being made, John asked Liza to do some more research into the idea and into the two markets. The results of her ideas are summarized in Tables 1, 2 and 3.
Table 1: Liza’s market research results
Liza drew up the following decision tree to help clarify the decision process and try to quantify the issues involved in the decision.
Using the case study and the additional information above, recommend which of the Pacific Island markets JAC should enter. Completing the decision tree and using the results could help you in your answer.
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19N.2.HL.TZ0.1b:
Construct a fully labelled decision tree and identify the best option for Sassy (show all your working).
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19N.1.HL.TZ0.5:
Using the case study and the resources, recommend whether Accord should start making and selling snack bars or whether Kayla and Aran should sell Accord to SF. A force field analysis of the options could help you in your answer.
