Describe one feature of a multinational company (MNC).

Calculate TS’ market share in 2018 (show all your working).

Explain two disadvantages and one advantage to TS of selling its products online.

With reference to TS, evaluate the two merger options.

• MNCs operate in more than one country. Their headquarters are located in one country (home country) while operations are carried out in a number of other countries (host countries).
• Because of their international operations, they usually have large physical and financial assets and turnover.
• MNCs are often large-sized and exercise a great degree of economic dominance.
• MNCs may control production activity with large foreign direct investment in more than one developed and developing countries.

Award [1] for each feature stated and award an additional [1] for a description up to a maximum of [2].

For a statement like “A multinational company operates in two or more countries” but with no further description, award [1].

Market share % = (firm’s sales /total market sales) × 100

$\frac{5 000 000}{50 000 000 }$× 100 = 10 %

Award [1] for the correct answer and [1] for correct working.

If no workings are shown, but the final answer is correct, award a maximum of [1].

PLEASE NOTE: E-commerce is not included in the syllabus for 2024 exams onward. Related parts of this multi-part question may be used.

Like other businesses in the industry, TS may find selling online increasingly problematic due to the associated costs. Customer complaints about TS’ website and ordering problems are already increasing. Costs of dealing with customer complaints, technical issues and delivery problems may increase and reduce profit.

TS’ brand image may be eroded due to its inefficient way of dealing with online sales. Its unfriendly website and increasing customer complaints are probably eroding its brand image and market share. If TS wants to increase international presence and expand its market, it should improve its current online sales system.

On the other hand, TS’ sales and profits can increase by taking advantage of e-commerce’s rapid growth. It can also take advantage of a potential market opportunity left by the competing businesses in the industry that are experiencing problems with online sales.

TS’ international presence is weak; selling online can help to create brand awareness in international markets and reach a worldwide audience with relatively low costs.

Accept any other relevant explanation.

Mark as 2 + 2 + 2.

Award [1] for each correct advantage/disadvantage identified and [1] for a relevant explanation with application to TS. Award up to a maximum of [2] per advantage/disadvantage explained.

[2] cannot be awarded per advantage/disadvantage if the response lacks either explanation and/or application.

For example: For an identification/description of an advantage/disadvantage with or without application [1]. For explanation of an advantage/disadvantage with no application [1].

For explanation of an advantage/disadvantage and application [2].

Refer to Paper 2 markbands for 2016 forward, available under the "Your tests" tab > supplemental materials.

Merging with All Champion:

Top Star is a manufacturer. Prior to either Option 1 or Option 2, TS had no brick-and-mortar retail outlets. The merger with the footwear manufacturer All Champion (AC) will produce gains in economies of scale, and will give TS the possibility of growing.

As a multinational company, AC has access to more and cheaper resources such as finance. Additional finance will allow for research and development of new products. TS will be able to develop the new line of running shoes and expand its product portfolio.

Merging with AC will also allow for rationalization of resources, such as concentrating output on one site and concentrating managerial and technical capacities. For instance, TS will have access to larger IT and marketing departments to improve its website and deal with online sales more efficiently.

A merger with AC eliminates a strong competitor in the market. The two companies might have different strengths and experiences and they, therefore, could fit well together. The new merged company will probably be stronger and could therefore increase its competitive power in the market. AC´s market share (only 10 %) will increase.

On the other hand, a merger with AC may have a number of drawbacks. In a merger process, the smaller company, such as TS, could be cannibalized by the larger one. TS’ culture may be dissolved within AC’s way of doing things. There are also high chances that some of AC’s factories will be closed, causing discontent within the local community. The finance manager is right to be suspicious about this merger. TS’ reputation may be hurt due to the possibilities of closing factories and sales may fall.

Merging with a footwear retailer:
If TS merges with a footwear retailer with a strong presence in domestic and international markets, it will secure an outlet for its products. TS will be able to increase its domestic market share of 10 % and additionally access the
international markets, using the experience, knowledge and expertise of the footwear retailer. TS will keep the manufacturing process and then factories will not close. In addition, the risks of cannibalization of this option are low.

However, this merger may not exclude a strong competitor such as AC. Production economies of scale will not be gained, as the footwear retailer has no experience in the footwear manufacturing process.

Overall, merging with AC will give Top Star the competitive edge needed to grow and develop its product portfolio. On the other hand, merging with a footwear retailer also has some evident advantages, but it seems that merging with AC looks like a stronger choice.

It is expected that candidates provide a conclusion with a substantiated judgment.

Marks should be allocated according to the paper 2 markbands for May 2016 forward.

For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].

If a candidate evaluates / addresses only one merger option, award a maximum of [5].

A balanced response is one that provides at least one argument for and one argument against each merger option.

Candidates may contrast one option with another for a balance as long as at least two arguments are given for each option.

Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.

Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in the answer.