301 : BUSINESS POLICY AND STRATEGIC MANAGEMENT (2005 Pattern) (Sem. - III)

1) Attempt any three questions from Section -I and each question carry equal 2) Section - II case is compulsory and carry 25 marks.

SECTION - I Ql) a) Define strategy and strategic management

b) Explain the following terms: i) Vision, ii) Mission, iii) Objectives, iv) Purpose & v) Goals.

Q2) a) Describe BCG matrix.

b) Explain GE Nine Cell model. What is the advantage of GE Nine Cell over BCG matrix?

Q3) Leadership style, corporate culture, values and ethics playa crucial role in Effective implementation strategy. Comment. . Q4) What do you understand by Mergers & Acquisitions? What are various types of mergers? What are the issues in implementing 'merger strategy' successfully? Cite latest Indian & Global examples relevant to the merger strategy.

Q5) Write short notes on any three: a) Porter's five forces framework. b) SWOT Analysis. c) Value chain. d) Mckinsey's 7s frame work. e) Core competencies.

SECTION - II

CASE: TATA MOTORS NANO TO ROLL OUTThe world's cheapest car, the widely awaited Nano, will be launched on 23 - 03 - 09. Tata motors will display the Nano at dealership from the first week of April, 09 and will accept bookings from the second week of April, 09. The launch ofNano whose potential to revolutionise the automobile industry has been widely acknowledged in India and abroad, will be one of the bright spots in a bleak landscape for the global automobile industry. Sales have plunged by double-digit percentages, or worse, in market across the world from US to China. In India, Nano's entry might lead to growth in the domestic market. . The car may also find a niche abroad, a cash-strapped consumers are likely to look for bargains. In 2008, Tata Motors displayed the Nano at the Geneva Motor show and plans to present the European version at the show in March, 2009. It plans to sell Nano in Europe at 5000 Euros. Tata Motors will roll out 60,000 - 80,000 units of the Nano from another plant in pantnagar in Uttarkhand till the sanand unit is geared upto produce 2.5lakh units a year. Tata Motors has began aggressively gearing up its distribution network to sell a car, which will primarily focus on semi-urban and rural areas. The base version of the Nano, which will be without anA.C. will be priced at around Rs. one lakh while the A.C. model will carry a higher price tag. It is learnt that Tata Motors Finance is working on various packages through SBI and HDFC Bank, to offer competitive interest rates. Dealer of Tat a Motors said that company might take full payment for booking. Sona Koyo steering systems executive chairman said. "Nano is the most . awaited car, and, therefore, its launch is welcomed by the world".

Questions: 1) Carry out an Environment Analysis for Tata Motors.

2) With the launch of Nano Car, wIll Tata Motors have Sustainable Competitive Advantage (SCA)? Justify your answer.

December-2008P1140 [3475]-301

M.B.A.301 : BUSINESS POLICY & STRATEGIC MANAGEMENT (2005 Pattern)

Time: 3 Hours] Marks:70

Instructions to the candidates: 1) Attempt any THREE questions from section I and each question carry IS marks. 2) Attempt ONE case from section II and each case carry 25 marks.

SECTION – I

Q. 1) a) Define the following terms: i) Vision ii) Mission iii) Objectives

What role do they play in strategic management?

b) Explain the process of strategic management.

Q. 2) a) Describe GE Nine Cell Model. b) Explain BCG matrix. What is the advantage of GE Nine Cell over BCG matrix?

Q. 3) Define a business model. List key aspects of the E-commerce business environment. How do they influence strategy formulation and implementation for E-commerce based business? Explain with appropriate examples.

Q. 4) what is Environment Threat & Opportunity profile (ETOP)? What is its role in strategic analysis? Explain with relevant examples.

Q. 5) Write short note on any three: a) Value chain. b) Diversification

c) Core competencies d) McKinsey's 7s frameworks e) Porter's Five Forces Framework

SECTION – II

Q. 6) CASE -DoCoMo's Acquisition of Tata Tele Services (TTSL).

Recently, Japan's largest mobile operator NTT DoCoMo has announced the acquisition of a 26% stake in Tata Tele Services (TTSL), the Tata group's telecom arm which offers CDMA - based service, for 2.7 billion dollars (nearly 12,770 crore ). This marks the entry of the Japanese giant in to the world's fastest-growing telecom mar.!<et, which has over three times more subscribers than Japan.

The transaction is a part of strategic alliance between DoCoMo and the Tata group, DoCoMo will also make a joint open offer with Tata Sons to acquire upto 20% of outstanding equity shares of Tata Tele Services Maharashtra (TTML), the listed subsidiary of TTSL. At the ruling market rate - the TTML stock rose 7.6% to close at Rs. 17.99 on Wednesday(l2-11-2008) - a 20% stake is valued ,at 683 crore. Tata Sons, the main holding fir~ of the Tata group, holds 45% stake in the unlisted TTSL, which, in turn has 38% equity in TTML,' a mobile service provider in Mumbai and rest of Maharashtra and Goa.

Here are some of facts of the deal: -

1. DoCoMo to get 3 board seats in TTSL. 2. DoCoMo, Tata Sons plan joint open offer for 20% in TTML. 3. TTSL holds 38% equity stake in TTML. 4. TTML NTT DoCoMo has 53 million users over half of Japan's market. 5. Subscriber base : Over 30 million. 6. Per - subscriber valuation - 346.6 dollars. 7. JP Morgan advised DoCoMo, Lazard advised Tatas. 8. 6% buy from existing shareholders.

The transaction will require approval from the Foreign Investment Promotion Board (FIPB).

In addition to Tata Son's A5% holding in TTSL, Tata-Communications hold 15% in the company. Singapore - based Temasek and Chennai - based investor C. Sivasankaran hold around 9.9% and around 8% respectively in TTSL. The rest is held by various Tata group companies.

As on 12-11-2008, Bharati Air Tel, largest Indian telecom player, had a market cap of 24.3 billion dollars. Air Tel had 80.1 million subscribers at October - end 2008.

The Japanese giant had over 53 million customers in September 2008, over half of that country's market. Of these, 46.4 million subscribe to FOMA, which is the world's first 3G (third generation) mobile service. DoCoMo's expertise is expected to help TTSL execute a fast rollout of 3G services and gain expertise in the development and delivery of value - added services.

"This deal makes a lot of sense for TTSL, as its going into GSM services and needs cash for expansion. Tatas will also benefit as DoCoMo is a major player in international connectivity and enterprise service sector", Garter principal research analyst Naresh Chandra Singh said.

TTSL is expected to use the money for expansion in the CDMA and the soon~to-be-Iaunched GSM services. TTSL has also received start-up GSM spectrum in Tamil Nadu (including Chennai), Orissa and Mumbai.

Questions –

1. Carry out a ETOP for TTSL. 2. Will the's deal between DoCoMo and TTSL have sustainable competitive Advantage (SCA)? Justify your answer. Q. 7) CASE - Indian Aviation Sector.

After liberalisation, the Indian Air Space witnessed sea change due to. a fall out of open skies policy_. It is now no longer a monopoly of Indian Air Lines / Air India and presently there is intense competition among players, namely, Indian, Jet / Air Deccan / King Fisher, Spice Let, Go Air, IndiGo, Go Air etc. For few years air traffic increased multifold in India due to increased disposable incomes, growth of IT and ITES, rising international trade and increased acceptability of India as the investment destination. Of late, however, air traffic in India, reduced drastically due to increase in crude oil prices few months back and global economic slown down. Recently, however, as a sigh of relief, the crude oil prices have also been reduced. Air travellers finally have some reason to cheer. The country's three lowcost Airlines - Spice Jet, IndiGo and Go Air - are likely to slash fares between 10% to 15% from November 15-2008. This follows the oil companies' decision to cut aviation turbine fuel (A TF) prices, coupled with the Government's move to withdraw 5% customs duty on jet fuel. The air lines . have taken an in - principle decision to slash fares to passon the benefit of fall .in A TF prices to customers.

Meanwhile, in a related development, state-owned oil firms once again cut jet fuel prices by upto Rs. 2,1 00 per kilolitre. Another cut in A TF prices is likely to come on 15th November, 2008. Thus, there has been a 20% reduction in jet fuel prices in three days. Interestingly, these three Air Lines (Spice Jet, IndiGo & Go Air) control one-fourth of the domestic market. Sources said these three airlines plan to announce the decision on the same day to get maximum mileage against full-fledged carriers-the Jet-Kingfisher alliance and Air India - which no plans to cut fares. Post the proposed cut, a Mumbai - Delhi ticket by Spice Jet, IndiGo and Go Air would cost around Rs. 3,800 including taxes, during non-peak hours as compared to Rs. 4,475 at present. In comparision, Jet, King Fisher and Air India's fares in the sector are around Rs. 7,237, Rs. 5,838 and Rs. 6,594 respectively. Currently, fuel constitutes 50% of the overall cost of airlines. Analyst say that A TF price cuts would help loss making air lines to reduce their operating costs. Besides, air line executives expect that a reduction in airfares would help increase the load factor, which has fallen from 75% a year ago to 45% now.

Questions –

1. Jet - King Fisher alliance and Air India have no plans to cut fares where as Spice Jet,"

IndiGo & Go Air are likely to slash fares between 10% to 15% from 15-11-2008. Is it a right strategy for Jet - King Fisher alliance and Air India? Comment.

2. Carry out SWOT analysis for Jet-King Fisher alliance.

May08new

[3375]-

301 M.B.A: BUSINESS POLICY AND STRATEGIC MANAGEMENT

(2005 Pattern) (301) (New Course) (Sem. - III)Time: 3 Hours Max. Marks: 70

Instructions to the candidates:

1) Attempt any three' questions from section 1. 2) Question no.6 is compulsory.3) Figures to the right indicate full marks.

SECTION - I

QI) How does Business Policy and strategic management make study and practice of

management more effective? [16]

Q2) A small scale industrialist recently attended a seminar on strategic management.

She is quite enthusiastic but does not understand exactly how to use the SWOT

analysis for her company. Act as a consultant and advise her to use the SWOT

Analysis. [16]

[Note: Select small scale organization of your choice]

Q3) State and explain the various issues involved in strategy implementation w.r.t.

[16]

a) Structural issues

b) Functional issues

c) Behavioural issues

Q4) Write a detail note on the nature, importance of strategic evaluation. [16] ORDefine and explain the meaning of the term 'E-Comm~rce' and discuss thekey success factors in E-Commerce.

Q5) Write a short note on (Any Two) : [16]

a)Strategic Control Vs. Operational Control

b)GE g cell model

c)Types of strategies

d)Strategic Budget

e)Role of organisational system in strategy evaluation

SECTION - II Case Study

Q6) Have Nerves of Steel to Fight* [22]

In a market dominated by behemoths like SAIL and TISCO, finding a niche is of crucial

importance for a small player. What could a Lloyds do with a meagre annual capacity

of making six lakh tonnes of HR coils while SAIL sold over 1,600 lakh tonnes in the

same time? Should Lloyds follow the market leader or adopt its own unique approach

to its business strategy? It is in the context of such questions that Lloyds' attention

came to rest on the manufacturing process.

Almost all steel producers adopt the blast furnace technology. In this, the process

starts with a clear differentia~ion among the ultimate products to be manufactured.

So, manufacturing batch size has to be large enough to take up customised orders.

The raw material, iron ore, has to pass through several complex stages of

manufacturing.

Lloyds looked for an alternative technology that could suit its requirements. The

solution lay in the Electric Arc Furnace technology where the unique feature was that

initial manufacturing stages need not differentiate among different products. Such a

differentiation came at a much later stage. Translated into a business proposition;

what it meatn was that Lloyds could operate with a much smaller batch size of, say,

100 tonnes and deliver quickly. For instance, a 1,000-tonnes small order of specialised

product custom-made to buyer's specification could be delivered in as little as 15

days. Such a quick delivery schedule would not be possible for a large, integrated steel

manufacturer. .In this manner, analogous to small gunboats that could effectively

torpedo a large, slow-moving ship, Lloyds carved out a niche in the highly competitive

steel market.

Question

Comment on the nature of the business strategy. of Lloyds. What are the

conditions in which such a strategy would succeed? Could fail?

Old may 08

(301) BUSINESS POLICY & STRATEGIC

MANAGEMENT

(Old Course) (2002 Pattern)

Time: 3 Hours Max. Marks :60

Instructions to the candidates:

1) Attempt any three questions from section – L

2) Question No.6 is compulsory.

3) Figures to the right indicate full marks.SECTION - I

Ql) What is meant by corporate -level strategy? What do corporate level strategies

deal with? State and explain in brief four alternative corporate level strategies.

[13]

Q2) Discuss Michael Porter's Model to explain five competitive forces in an industry

and to define competitive business strategies.

[13]

Q3) Is the social responsibility in business is an important issue - Discuss. What is

meant by aligning social responsiveness to strategic Management.

[13]

Q4) Apply the strategic Management model to your own case w.r.t. Career planning.

Follow the process and identity the various element involved and elaborate.

[13]

Q5) Write short notes on (any Two):

[13]

a) Strategic control Vs Operational control.

b) Key success factors in E - Commerce.

c) Resource Allocation.

SECTION - II

Q6) Case study (enclosed herewith*)

A Healthy Dose of Success* (21

Marks]Muhammad Majeed represents a typical Indian who has created success out of sheer hard work and commitment through his education and expertise. At the age of 23 years, Majeed, after graduating in pharmacy from Kerala University, went to pursue higher studies in the US. He completed his masters and Ph D in industrial chemistry. Armed with high qualifications, he became a research pharmacist and eventually, as most expatriate Indians do, set up his own company, Sabinsa Corporation. Experiencing difficulties with the long drawn drug approval process of the US Food and Drug Administration and his own dwindling savings, Majeed focussed on ayurvedic products based on natural extracts. He returned to India in .1991 (incidentally, the year when liberalisation started in India) and set up Sami Chemicals and Extracts Ltd, later renamed as Sami Labs Ltd (SLL), at Bangalore.

SLL has over three dozen products, and seven US patents. There are 25 European and other country patents pending approval. SLL has four manufacturing units all based in Karnataka. The sales is Rs 44.5 crore and the profit-after-tax is Rs. 5.89 crore. It has pioneered specialised products based on Indian herbal extracts relying on the principles of ayurveda. The major thrust is on remedies for cholesterol control, fat reduction, and weight management. As against several Indian companies exporting raw herbs, SLL specialises in value-addition through extractions. The result is encouraging: SLL' s products typically fetch an export price that is more than double the price of-raw herbs. .

SLL thinks of its business as "manufacturing and selling traditional standardised extracts and nutritional and pharmaceutical fine chemicals". Sabinsa, its US-based company, secures contracts from the lIS companies to manufacture certain chemicals in Indi~. Its business plans are quite ambitious. Setting up a product management team, assisting farmers in cultivation of pharmaceutically useful herbs, and international collaborations for developing research-based intellectual property and its commercialisation are some of the strategic actions on the anvil. SLL looks forward to being a Rs 500-crore company by 2005 when the

. World Trade Organisation's patenting regime comes into force. .

Question

How will you define the business of SLL? Comment on the business plan of SLL and

state your opinion on the likelihood of its success.

Oct 2007

[3275]-301

M.B.A. (Semester - III) :

(301) BUSINESS POLICY AND STRATEGIC

MANAGEMENT(2005 Pattern)

Time: 3 Hours] [Max-

Marks-:70

Instructions to the candidates:

1) Attempt any 3 questions from section I.

2) Q. No.6 is compulsory.

3)Figures to the right indicate full marks

.SECTION - I

Ql) Define strategy and strategic management. Trace the historical evolution of

strategic management and discuss the key characteristics of strategic

management.

[16]

Q2) Explain the following inlhe context of strategic management: a) Vision

b) Mission

c) Purpose

d) Goals

Give relevant examples in the Indian context.

[16]

Q3) What do you understand by mergers and acquisitions? What are the various

types of mergers? What are the issues in implementing 'merger strategy'

successfully? What are the motivations for adopting this strategy? Cite latest

Indian & global examples relevant to the merger strategy.

[16]

Q4) What do you understand by a business model? What are its essential

components? List various types of E-com. business models for traditional

Businesses with suitable examples. [16]

Q5) Write short notes on any two: [16]

a) Mc Kinsey's 7S Frame work

b) Strategic control

c) SWOT analysis

SECTION - II~

d6) In 1962, Sam Walton & his brother opened the first Wal-Mart store in Rogers' (Arkansas), USA; & generateq $ 1 million in sales in the first year itself. In a span of 5 years it notched up sales of $ 12.6 million. .

In 1969, Wal-Mart was incorporated as a company under the name Wal-Mart

Stores Inc. Since then, the company has grown multifold to be ranked as # I in

the Fortune's 500 list in 2002. It is the world's largest retailer and has spread in

foreign markets too.

Wal-Mart has been facing stiff competition from K-mart, Tesco, Target etc. and

realising its inability to compete alone has globally entered into tie-ups with

various local firms in the foreign markets. By 2003, Waf-Mart was the largest

retailer in Mexico, Argentina, Canada, Puerto Rico & amongst the top 3 in U.K. It

followed the loint Venture, Acquisition or Greenfield ,operations route to achieve

this 'status.

"However, all was not rosy for Wal-Mart. With its excessive focus on cost, it earned

a reputation for being not a good employer. It also earned bad name for

pressurising suppliers beyond limits. Wal-Mart's German strategy was floundering.

It could not make any significant impact on the retail industry & was running into

losses.

In 2006, Wal-Mart ventured into the Indian market as a JV partner of Bharati, .!hJ

the Indian Telecom giant. Riding on the euphoria' of over 9% GDP growth 4 rate,

booming stock markets, rising disposable incomes, changing lifestyles, <1:.."" the

IT, ITES led industries, and a general feel-good feeling India has caughtthe

attention of many local & global firms. With organised retail amounting to a meagre

2% of retail industry, analysts believe that sky is the limit for retail.

However, there remain certain grey areas. Real estate prices are sky-rocketing

every day. The national government has slapped taxes on lending of commercial

space. Being critically supported by the left parties, the Central Government cannot

afford to overlook their opposition to organised retail in general & foreign firms in

particular. The Indian consumer is notoriouslY,hard to satisfy and is both very

traditional and global in outlook at the same time.

Other organised players like Tatas, Reliance, lTC, Godrej, etc. are also sprucing up

their efforts to attract the Indian custom,er. Some are even occupying the 'every

day-low prices' positioning right away.

Social concerns about the impact of organised retail on traditional stores, small

shops, farmers, suppliers, commodity prices & the society at large are increasing.

The voices are getting shriller by the day.

Bharati, is believed to have entered into th~ tie-up with Wal-Mart on an equal

footing & Wal-Mart has to extend its expertise in the supply-chain management

domain and Bharati is to take care of the front end. It is not very clear whether the

Wal-Mart brand name will be used.

Questions:

lJ Carry out an ETOP for the Bharati:- Wal-Martjoint venture.

2) Do you think Wal-Mart will succeed in India? Why or Why not?

MAY. 2007

[3175]-301M.B.A.

BUSINESS POLICY & STRATEGIC MANAGEMENT (301) (2005 Pattern)

Time: 3 Hours] [Max. Marks: 70

Instructions to the candidates: I) Attempt any four questions. 2) Question No.6 is compulsory & carries 22 marks. 3) Remaining questions I - 5 carry 16 marks each. 4) Support your answers with relevant examples.

Ql) How corporate strategies are developed using analysis of environmental appraisal. Please explain.

Q2) Explain the significance of Business Level strategies and Product portfolio strategies.

Q3) Explain different types of Growth Strategies. Why many Indian companies are acquiring global companies? What are the issues involved in postacquisition scenario?

Q4) How IT enabled services & E Commerce can create competitive advantages?

Q5) Comment on any three: a) Gap analysis and Benchmarking. b) Michel porter's five forces of competition in an industry. c) Social responsibilities vs profitability. d) Difference between strategic control and operations control. e) Business Definition. f) GE nine cell model.

Q6) Case Study - answer the questions given at the end of the case.

"The Rise of NOKIA”

. The cellular telephone industry is one of the great growth stories of the

1990s. The number of cellular subscribers has been increasing rapidly. Three

companies currently dominate the global market for cellular equipment (cell

phones, base station equipments and digital switches) Motorola, Nokia and

Ericsson. Of the three the dramatic rise of Nokia is perhaps most surprising.

Nokia's roots are in Finland, not normally a country that jumps to mind

when we talk about leading edge technology. Back in 1980s, Nokia was a

rambling Finish Conglomerate with activities that embraced tire manufacturing,

paper production, consumer electronics and telecommunication equipment.

Today it is a focused $10 billion telecommunication equipment manufacturer

with a global reach second only to that of Motorola and with sales and earnings

that are growing in excess of 30% per annum. How has this former

conglomerate emerged to take a global leadership in the cellular equipment

industry? Much of the answer

lies in the history, geography and political economy of Finland.

The story starts in 1981, when the Nordic nations got together to create

the world's first international cellular network. Sparingly populated and

inhospitably cold, they had good reasons to become pioneers. It would have cost

far too much to lay down a traditional wire line telephone service. Yet the same

features, that made it difficult, make telecommunications all the more valuable

there. People driving through Arctic winter and owners of remote northern

houses need a telephone to summon help if things go

wrong. As a result Sweden, Norway and Finland became the first nations in the

world to take cellular communications. Seriously. They found, for example, that

while it cost up to $800 per subscriber to bring a traditional wire line service to

remote locations in the far north, the same locations could be linked by cellular

service for only $500 per person. As a result, in

1994, 12% of the people in Scandinavia owned cell phones as compared to 6% in

USA.

Nokia as a long time telecom equipment manufacturer was well positioned

to take advantage of this development. Other factors also helped Nokia. In

Finland there has never been a national monopoly. Instead there

. had been 50 odd telephone service providers, whose elected boards set prices

'by referendum (which results in lower prices.) This army of 50 telephone

providers has never allowed Nokia to take anything for granted. The finish

customer always buys from the lowest cost supplier, whether it was Nokia,

Motorola, Ericsson or anyone else. Nokia has responded to this competitive

pressure very well while driving down costs relentlessly and being always at the

cutting edge of technology.

Nokia is snapping at the heels of the number one firm in cellular equipment -

Motorola. In digital cellular technology-supposed to be the wave of the future - it is

Nokia and Motorola, which is the tech leader. The Scandinavian countries have

started switching to digital cellular technology five years before the rest of the

world. Nokia has now the lowest cost structure for any cellular equipment in the

world. The result is that it is more profitable than Motorola.

Answer the following questions:

a) What are the reasons for Nokia's success?

b) What is the strategy adopted by Nokia?

c) Suggest a suitable strategy for Motorola.

May 2006M.B.A. (Sem-III)

BUSINESS POLICY & STRATEGIC MANAGEMENT

Unite Course – 301Time : 3 Hours] [Max. Marks : 60

Note :

1) Answer any three questions from section I and any one case from section II.

2) Figures to the right indicate full marks.

3) Support your answers with relevant examples.

SECTION – I

Q1) What is a mission statement? What are the characteristics of good mission

statement? Consider a mission statement of your choice and analyze it as per the

criteria of a good mission statement. State clearly whether the mission statement

meets the desirable criteria.

[13]

Q2) What are stakeholders of an organization?What roles do different stakeholders play in

strategic issue identification and resolution?

Q3) What are core competencies? Are they the same as strengths?How easily can they

be identified? Suggest formal ways to identify core competencies. [13]

Q4) While the past has been about positioning the firm in its external environment,

today it is more about harnessing internal resourses aimed at providing superior

benefits to customers. Is it that simple? Comment. [13]

Q5) When it comes down do strategic management, the issues in traditional brick-

And-mortar business and the new economy e-businesses are one and the same

Same problems, same strategic tools to solve them. Do you agree. Justify your

Answer. [13]

Q6) Write short notes on any tow :

a) Synergy and dysergy

b) Project implementation

c) Symptoms of malfunctioning of strategy

d) GE 9 Cell Model

SECTION – II

Q7) CASE STUDY [21]

NICHOLAS PIRAMAL

In 02 when India’s homegrown pharma majors were making steady gains at fighting the multinational companies on their own turf, one major domestic company stayed away-Nicholas Piramal. But today as many Indian companies

report a dip in generic revenues, the core team at the Rs. 1,321 core company is convinced that their strategy is beginning to pay off. The company’s stock has

appreciated 61% to Rs. 255 since January 04. The company says that by’s10 it will earn as much 50% of its estimated $1 Billion revenues from international business. So what is the strategy that the company has followed for this, Says Ajay Piramal Chairman” we decided to follow a differentiated strategy”. Over the past few years this phrase become a leitmotif for Mr. Pirmal. The differentiated strategy according to him that company went into ‘custom manufacturing’. This essentially means that the company will work with the global pharma companies and manufacture products spanning the entire range-from raw materials to finished products.

This strategy says that company does not want to compete with the global companies. Instead they would like to co-operate with these companies. In the past 15 months the company has announced three custom manufacturing deals. These deals are expected to be worth $13 million in FY06.

Earlier this year the company acquired Rhoda Organique for a consideration of

$14 Millions. The company’s strategy in acquisition is to buy generic firms overseas. “The idea is to use this acquisition to gain entry in to the global hospital and critical care business.” This business is likely to contribute $14 this year.

The company is quite convinced about its international strategy and has therefore decided it will be on the look out for a larger acquisition target in custom manufacturing business especially in Europe.

The company is also making investments in R&D facilities. Last year it invested Rs. 100 crores in setting up a research facility in Mumbai. The company’s strategy is to minimize risks by working on cilnically validated targets, in-licence and work with institutions in India and abroad. One lead Oncology molecule is set to go in clinical trials shortly and two more in oncology and 1 in inflammation are in pr-clinical stage. It is therefore clear that the company has a long way to go in drug discovery and development.

The company is also positioning itself as a partner MNCs that intend to launch their products in the domestic market in 05. Swati Piramal says that the company is uniquely positioned for this as it has the largest dedicated field force in the country.

However some things may not exactly in the way that the company wishes. It is already behind its schedule on its first custom manufacturing shipment. Also in the last five months the company has not added any more clients in this space. One industry analyst says that the company’s ambitions are a bit too aggressive. According to him to scale up to a target of $ 500 million in revenues from its international business in five years is not going to be easy task.

1. What is a differentiated strategy?2. Will Nicholas Piramal succeed in its strategy?3. what are the risks in this strategy of the company? Suggest what kind of mitigation

strategy needs to be formed by the company?

Q8) The Aditya Birla Group-Social responsibility [21]

With the vision to be premium global conglomerate with a clear focus on each business & a mission to deliver superior value to customers, shareholders, employees and society at large. The Aditya Birla Group is India’s truly multinational corporation.

The group Values of Integrity, commitment, passion, seamlessness, & speedhave support the Global vision, rooted in Indian values. The Group is driven by a performance ethic pegged on value creation for its multiple stakeholders. A US$ 6.5 billion conglomerate, with a market captilisation of US$ 6.33 billion, it is anchored by an extraordinary force of 72,000 employees belonging to over 20 different nationalities. Over 30 percent of its revenues flow from its operations across the world. The Group’s products and services offer distinctive customer solutions. Its 66 state-of-art manufacturing units and sectoral services span India, Thailand, Indonasia, Malaysia, Philippines, Egypt, Canada, Australia and China.

A premium conglomerate, the Aditya Birla Group is a dominant player in all of the sectors in which it operates. Such as viscose staple fiber, non-ferrous meals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers, sponge iron, insulators and financial services. It is:

:: The world’s no. 1 in viscose staple fibre. :: The world’s largest single location palm oil producer.

:: Asia’s largest single integrated aluminium producer.

:: A globally competitive, fast- growing copper producer.

:: The world’s third largest producer of insulators.

:: Globally, the fifth largest producer of carbon black.

:: The world’s eight largest producer of cement, and the largest in a single geography.

:: India’s premier branded garments player.

:: Among India’s most energy efficient privet sector fertilizer plants.

:: India’s second largest producer of viscous filament yarn.

:: The no. 2 privet sector insurance company, and the fourth largest asset management company in India.

The group has also made successful forys into the IT and BPO sectors.

Beyond business

A value based, caring corporate citizen, the Aditya Birla Group inherently believes in the trusteeship concept of management. Part of the Group’s value systems. As early as he 1940s, the founding father Shri G.D. Birla espoused the trusteeship concept of management. Simply stated, this entails that the wealth that one generates and holds is to be held as in a trust for our multiple stakeholders. With regard to CSR, this means investing part of the profits beyond businss, for the larger good of society.

While carrying forward this philosophy, his grandson, Aditya Birla weaved in the concept of ‘sustainable livelihood’, which transcended cheque book philanthropy. In his view, it was unwise to keep on giving endlessly. Instead, felt that channelising resources to ensure that people have the wherewithal to make both ends meet would be more productive. He would say, “Give a hungry man fish for a day, he will eat it and the next day, he will be hungry again. Instead if you tought him how to fish, he would be able to feed himself and his family for a life time.”

Taking these practices forward, the chairman Mr. Kumar Mangalam Birla instutionalised the concept of bottom line accountability represented by economic success, environmental responsibility and social commitment. In holistic way thus, the interest of all the stakeholders have been textured into our Group’s fabric.

The footprint of their social work today straddles over 3,700 villages, reaching out more than 2 million people annually. Their community work is a way of telling the people among whom we operate that ‘We Care’.

The strategy

The projects are carried out under the aegis of the “Aditya Birla Centre for Community Initiative and Rural Development”, led by Mrs. Rajashre Birla. The Centre provides the strategic direction, and the thrust areas for the work ensuring performance management as well.

The focus is on the all-round development of the communities around our plants located mostly in distant rural areas and tribal belts. All the Group companies-Grasim, Indian Rayon, Indo gulf and Ultra tech have Rural Development Cells which are the implementation bodies.

Projects are planned after a participatory need assessment of the communities around the plants. Each project has a one-year and a three-year rolling plan, with milestones and measurable targets. The objective is to phase out their presence over a period of time and hand over the reins of further development to the people. This also enables to widen the reach. Along with internal performance assessment mechanism, the projects are audited by reputed external agencies, who measures it on quantitative parameters, helping the company gauge the effectiveness and providing excellent inputs.

The company says that “Our partners in development are government bodies, district authorities, village panchayats and the end beneficiaries—the villagers. The Government has, in their 5-year plans, special funds earmarked for human development and we recourse to many of these. At the same time, we network and collaborated with like-minded bilateral and unilateral agencies to share ideas, draw from each other’s experiences, and ensure that efforts are not duplicated. At another level, this provides a platform for advocacy. Some of the agencies we have collaborated with are UNFPA, SIFSA, CARE India, Habitat for Humanity International, Unicef and the world Bank.”

Questions:

Discuss various aspects of RESOURCE Allocation, Leadership style, Corporate culture, Values, Social Responsibilities & Ethics highlighted in the case.

May 2005

301: BUSINESS POLICY AND STRATEGIC MANAGEMENT

(Unit Course 301)

Time : 3 Hours] [Max. Marks: 60

N.B.:

I. Answer any three questions from section I and any one case from

section II.

II. Figures to the right indicate full marks.

III. Support you answers with relevant examples.

SECTION – I

Q1) What is a mission statement? What are the characteristics of good mission statement?

Consider a mission statement of your choice and analyze it as per the criteria of a good

mission statement. State clearly whether the mission statement meets the desirable

criteria. [13]

Q2) It is often said that the devil is in the detail. In strategy it does not matter so much

about the grand idea but about the problem associated about implementing the grand

idea. Comment. [13]

Q3) Discuss Porter’s five forces model in detail. Select a product or service of your choice

and apply Porter’s five forces model to it. [13]

Q4) How can e-commerce and traditional businesses be integrated? What are the

advantages of such integration? Discuss with suitable examples. [13]

Q5) What is the importance of operations control and strategic control? How do they

influence the performance of a strategy? [13]

Q6) Write short notes on any two: [13]

1. Organizational Capability Profile

2. Organization anarchies

3. Mc Kinsey’s 7s Framework

4. Stakeholders in business

SECTION – II

Q7) BHARTI TELECOM – ON AN AGGRESSIVE GROWTH PATH

Telecom has been thrown open and there is healthy competition among the service

providers. Competition ultimately benefits the consumer and that is the case in

telecom too. A price war is on and rates are falling, almost everyday.

Bharati has started offering basic and cellular services. Cellular services under the

brand Airtel and basic services provider, right now. In just a couple of months

Reliance Infocom and Tata Tele too will be launching their basic telecom services.

Mr. K. Krishnan the CEO, operations, of Bharati, explains that “Our USP is quality and

since we focus on this aspect of our service, most, we won’t have any problems. We

are in a position to provide quality service to the customer, since we have created a

new network. Connections terminate within 2 km. from the service exchanges and

hence voice quality is very good. In the case of BSNL, each exchange services up to a

distance of 3 km and due to this clarity can suffer.

Since we have a Optic Fibre Cable (OFC) network, the problem of ‘Network Busy’ is

eliminated. We have plans for 26 types of value added services. Customer complaints

will be serviced immediately since we have a pool of well qualified personnel to attend

to the complaints. 24 x 7 Service support, through call centers is another of our

strengths.

Tatas and Reliance have announced aggressive roll out plans. Much befoòd the two of

them formally launches their services, Bharati will have its network in place. Tatas

and Reliance are planning to offeò!theiò!services in selected streets only. Since they

will be going the wireless route, customers have to invest in new appliances and this

could pose prïclems for them. By the time they come in, Bharati would have signed up

a numbeò!of customers. The first mover advantage is with us. We have clear plans

for retaining the customers we acquire.

Bharati plans to target customers who do not have a telephone connection. Mr. K.

Krishnan the CEO, says, “Our first customers will be from this section. It will take

some time for us to wean BSNL customers. We are confident, customers currently

with BSNL, will migrate to Bharati, if we provide quality service. We are looking at a

60% market share and we are pretty confident of achieving this.”

BSNL the incumbent national player may force a price war in the market. The Tatas

are doing an aggressive pre-launch publicity, through different media. In contrast

Bharati is maintaining a low profile despite launching its services as it is nor confident

of being ready for a huge influx of customers, resulting from an aggressive campaign.

They are going slow on advertising since they do not want to disappoint customers. In

terms of absolute numbers, India is way behind China, but in terms of trajectory, it is

on the same lines as China. Analysts believe that “We are exactly where China was in

1997 and if you plot the trajectory we are moving up the same way, perhaps faster for

India now. Chain went up to 4-5 million new phones a month. We are touching 2

million now. The fact is that china is now coming down to about 3 million now. The

fact is that china is now coming down to about 3 million phones a month, while India is

slowly rising to that number. India would be about 200 million phones in five years

maybe and China will be 400 million, but the difference will be half and not one tenth

like it is now”

Bharati has also applied for licenses for new circles that will establish it as a pan –

India player and has its finger in almost every part of the telecom pie today: from

cellular to basic telephony to international telephony and bandwidth services.

The competitive intensity in the industry has been very high. Sunil Bharati Mittal,

Bharati’s Chairman and Managing Director feels that “Some smaller companies are

bound to get consolidated or just hurt if they don’t get consolidated. The regulatory

movements in this sector have been legendary this year to the extent that it looks

horrifying – if you look at it from outside India. At times the regulatory changes have

been quite baffling. On the one hand there’s been a lot of competitive pressure.

Unified licensing has also ushered in.”

Mr. Mittal adds, “We try to work ahead of the policy that the government lays out.

Sometime we are dealt a good hand and most of the times we are dealt a bad one.

And the idea is to be very nimble and flexible to adapt to the changing environment.

Consider, for example, the way the government brought in unified licenses. But we

have adapted to it.

We have applied for new licenses and we have converted one of our existing licenses

into a unified license. We anticipated this move earlier and we are ready to fight this

battle right in the marketplace. Price has never been our fighting point. We have

always been keen on delivering value to the customer. In Western India, we felt we

needed to kick up our operations by giving some special sops to the customer.

Questions:

1. Carry out a five forces model for Bharati Telecom.

2. Does Bharati enjoy a competitive advantage in the market? Can it sustain it? Why

or Why not? [21]

Q8) CASE : Nestle India Limited

Nestle India limited is the Indian arm of Nestle SA, which holds a 51% stake in the

company. It is one of the leading branded processed food companies in the country with a

large market share in products like instant coffee, weaning foods, instant foods, milk

products, etc. It also has a significant share in the chocolates and other semi-processed

foods market.

Nestle’s leading brands include Cerelac, Nestum, Nescafe, Maggie, Kitkat, Munch and

Milkmaid. To strengthen its presence, it has been the company’s endeavor to launch new

products at a brisk pace and has been quite successful in its launches.

Nestle India is the third largest FMCG company in India after Hindustan Lever and ITC.

Nestle dominates the culinary (Maggie) and the hot beverages (coffee – Nescafe) segments

in India. It has also a significant presence in baby foods and has merged as a strong No. 2 in

dairy segment (after Amul) and chocolates (after Cadbury’s). In each of the segments, the

company has been growing through new product launches and new price point presence. In

the last couple of years it has emerged as the fastest growing food FMCG company. In the

past 5 year, Nestle’s topline and net profits have recorded a CAGR of 15% and 24%

respectively.

Processed food major, Nestle India, has reported and encouraging 8 % topline growth

during the December quarter ended 2004. Easing of some of the commodity prices in the

last quarter of 2004 and improved control over costs led to improved operating margins.

Consequently, the company finished the quarter with a significant 68 % bottomline growth

YoY. The company reported over 4% revenue growth during the full year 2004.

Throughout 2002 and 2003 the company remained largely untouched by the

slowdown that had hit the overall branded FMCG sector. But 2004 has left much to be

desired. The company has reported just over 4% growth in CY04 revenues. Its domestic

sales (nearly 90% of revenues) grew by just over 5% for the full year, though the growth rate

was much better at 8% during the December quarter. This, from a company that had grown

its domestic business by early 12% in a slow year like 2003. The management had stated in

June 2004 that domestic sales have been impacted by selective rationalization of pipeline

stocks.

The December quarter performance was aided by an improvement in the company’s

exports business, which grew by nearly 10%. In the june quarter, exports declined by a

significant 21% mainly due to the shift towards low realization bulk coffee packs exported to

Russia. This has led to the company finishing with a 5% decline during the full year 2004.

The company was able to somewhat stabilize margins for the full year, which had

shrunk in the June quarter owing to the export blues. However, low export realizations,

pipeline woes did put some pressure on margins for CY04. Material cost as a percentage of

sales were higher during the year, indicating strengthening commodity prices. Gradulal

phasing out of export tax benefits also put pressure. Consequent to the staid topline

performance, lower other income and the pressure on operating margins, profits declined by

4% in CY04. However, if we take out the extraordinary items, then profit before tax declined

by a marginal 2%.

Though Nestle grew in double digits during 2003 (11% topline and over 30%

bottomline growth), the first 3 quarters of 2004 have seen domestic sales grow in lower

single digits. Only in the December quarter has the domestic performance picked up. Also,

export performance continues to be inconsistent owing to the shift to bulk exports of coffee.

The company’s exports stood at Rs. 2,571 m at the end of 2003 (11% of revenues)

and continue to grow at a decent pace. But a major portion of this comprises of coffee

( around 67% of the exports were that of Nescafe instant to Russia). This constitutes a big

chunk of the total exports to a single location. Historically, Russia has been a very volatile

market for Nestle, and its overall performance takes a hit often due to this factor.

The company has a complex supply chain management and the main issue for Nstle

India is traceability. The food industry requires high standards of hygiene, quality of edible

inputs and personnel. The fragmented nature of the Indian market place complicates things

more.

The company has the potential to expand to smaller towns and other geographies.

Existing markets are not fully tapped and the company can changing in favour of the

consuming class, the per capita consumption of most FMCG products is likely to grow. Nestle

will have the inherent advantage of this trend.

The company has the option to expand its product folio by introducing more brands

which its parents are famed for like breakfast cereals, Smarties Chocolates Carnation, etc.

Since manufacturing of some products is cheaper in India than in other South East

Asian countries, Nestle India could become an export hub for the parent in certain product

categories.

The company faces immense competition from the organized as well as the

unorganized sectors. Off late, to liberalize its trade and investment policies to enable the

country to better function in the globalised economy, the Indian Government has reduced

the import duty of food segments thus intensifying the battle.

Trend of increased consumer spends on consumer durables resulting in lower

spending on FMCG products. In the past 2-3 years, the performance of the FMCG sector has

been lackluster, despite the economy growing at a decent pace. Although, off late the

situation has been improving, the dependence on monsoon is very high.

Rising prices of raw materials and fuels, and inturn, increasing packaging and

manufacturing costs. But the companies may not be able to pass on the full burden of these

onto the customers.

Nestle India has strong support from its parent company, which is the world’s largest

processed food and beverage company, with a presence in almost every country. The

company has access to the parent’s hugely successful global folio of products and brands. In

India, Nestle has some very strong brands like Nescafe, Maggie and Cerelac. These brands

are almost generic to their product categories. The company has been continuously

introducing new products for its Indian patrons on a frequent basis, thus expanding its

product offerings.

The food processing business in India is at a nascent stage. Currently, only about 10%

of the output is processed and consumed in packaged form thus highlighting huge potential

for expansion and growth. Traditionally, Indians believe in consuming fresh stuff rather then

packaged or frozen, but the trend is changing and the new fast food generation is slowly

changing.

Questions:

i) Carry out an ETOP and SAP for NESTLE

ii) Identify core competence of NESTLE.

Oct 05Oct 2005

M. B. A. (Sem III)

Business Policy & Strategic Management

(Unit Course 301)

Time : 3 Hours) (Max.

Marks: 60

Instructions:

1) Answer any three questions from Section I and any one case from Section II

2) Figures to the right indicate full marks.

3) Support you answers with relevant examples.

SECTION – I

Q1) While strategic planning is a must for large firms, there are an awful lot of small and

medium sized organizations that feel that they do not really need all this jargon about

competitive advantage and core competencies. How will you go about explaining the

significance of strategic management to a 100 year-old super-Shoppe facing the onslaught of

organized retailing? (13)

Q2) What do you understand by environment in relation to business policy? How does the

regulatory environment impact a firm’s strategic evaluation and planning. Comment in the

context of a telecom industry. (13)

Q3) What are core competencies? Are they the same as strengths? How easily can they be

identified? Suggest formal ways to identify core competencies. (13)

Q4) Compare and contrast ‘startups’ with ‘mergers & acquisitions’ as alternative routes to

strategy implementation. (13)

Q5) ‘Organizational culture provides the key to strategy implementation because it is such a

powerful force for providing focus, motivation and norms. Comment.

Q6) Write short notes on any two:

(13)

1) Porter’s Five Forces Model of competition

2) Internet Strategies for Traditional Business.

3) Operations plans and policies.

4) Tailoring strategy to fit specific industry.

SECTION – II

Q7) Case Study ICICI Bank

ICICI Bank’s next big growth platform is – Globalization. Sometime back they opened their

first overseas branch in Singapore. They have established representative offices at Dubai,

Shanghai and New York. They are in the process of establishing subsidiary companies at

London and Toronto. This phase I of global roll out will cost the bank $ 100 million, all of

which will be funded from the domestic balance sheet. The two subsidiaries have been

capitalized with$ 70 million. When some for the representative offices and off shore

branches are converted in subsidiaries, they too will require capital.

ICICI has chosen the mix of subsidiaries, off shore branches and representative offices. This

is because of the local regulations prevailing in different countries. Many countries require

banks to first run either representative offices or offshore branches for a few years subsidiary

is allowed.

Two years ago the bank top management zeroed in on globalization as the next big thing.

Mr. Kamat of ICICI bank expect the bank’s global business to account for a third of ICICI

bank’s business within next five years.

For going global ICICI looked at four different models. The first one was to build a regional

base in neighboring countries. But our neighbours are not able to offer much scope.

The second option was to enter growth markets aggressively, perhaps through acquisitions.

This is what was done by the Standard Chartered Bank in Asia and Latin America. But this

strategy is quite risky and would have needed a far larger balance sheet than what the Bank

currently has.

The third option was to take one strong product and take it globally. The idea is to identify a

core competitive advantage and then build on it. This was the model used by City Bank

through its credit card business. However ICICI does not have such a product.

So the bank chose the option of follow the customer. A lot of Spanish banks have used this

strategy to enter the Latin American markets. In this strategy the opportunities came from

the NRI’s in Dubai and Bahrain. The increasing trade with China can be financed through the

Shanghai. The growing links with ASEAN could be serviced through Singapore. The

traditional India linked business from U. K. and U. S. A. is to be handled from London and

New York. The bank has decided to focus on India related business, rather than try to

compete against global banks for global clients.

In short ICICI bank is betting on the global Indian. There are two parts of this market. There

are NRI’s and there are Indian companies growing globally. Kamat says, “We have to serve

our customers anywhere in the world”. This will be done through these offices and through

the correspondence arrangement where physical presence is not possible.

Questions:

1. Is this move too audacious?

2. Is the global move too early?

3. Is the global Indian really a sustainable business

proposition?

4. Does it make sense to expand into a recessionary global

economy?

5. Can ICICI bank build a global organization?

(21)

Q8) Indian spirits maker McDowell & Co. Ltd. Announced a $ 300 million deal to acquire Shaw

Wallace & Co. Ltd. (501379.BY) in a deal that will catapult the firm into the world’s second

largest spirits maker after U.K.’s Diageo PLC (DGE.LN).

The acquisition cost includes the purchase of a 54.5% stake in Shaw Wallace from its founder

Jumbo World Holdings Ltd., the cost of an open offer to buy another 25% public shareholding

in the company and the acquisition of some affiliates of Jumbo engaged in the distribution

spirits.

The acquisition gives the UB group, which owns the controlling stake in McDowell and is

already the country’s largest spirits and beer marker, a near monopoly in the Indian spirits

market with annual sales of 60 million cases.

Vijay Mallya, chairman of the UB group, said in a statement the transaction will result in

economies of scale leading to a “significant cost advantage” and benefits to the consumers

in the form of “a greater variety of choices”

Senior group officials weren’t immediately available for comment. McDowell is holding a late

evening news conference at 1600 GMT in Mumbai.

“The conclusion of this deal gives the UB group a strong position in the rapidly growing local

spirits market and a significant pricing power”, said Sandeep Shenoy, strategist at local

brokerage Pioneer Intermediaries.

“After its recently concluded deal with Scottish & Newcastle ( SCTN.LN) in the beer segment,

this acquisition could raise the market’s hopes of a similar stake sale at an attractive price in

the spirits segment”, added Shenoy.

In December, Scottish & Newcastle signed an agreement with the UB group to buy a 37.5%

stake in group company and India’s largest beer maker United Breweries Ltd. (532478. BY)

for $ 177 million.

As per the terms of the agreement signed Monday, McDowell will buy Jumbo’s holding Shaw

Wallace at INR 325 a share, which includes a fee to ensure that Jumbo will not compete with

McDowell.

The price is a 46.3% premium to the INR 222.10 closing price of Shaw Wallace shares on the

Bombay Stock Exchange Monday.

The price is also at 30% premium to the INR 250 a share price at which the UB group, in a

hostile bid announced in February, offered to buy a 25% public shareholding in Shaw

Wallace.

Following the agreement with Jumbo, McDowell and its associate firms have proposed to

increase the open offer price for Shaw Wallace to INR 260 a share. The new offer price has

been calculated after adjusting for the noncompete fee and is in line with current market

regulations, said the statement.

As part of some other related transactions, McDowell also agreed to buy some other affiliated

of the Jumbo group, which have presence in the distribution of spirit in and outside India,

without giving specific details. The statement didn’t give a breakdown of the total

acquisition cost of $300 million.

Earlier McDowell & Co Ltd, had entered into a strategic tie-up with New Zealand-based

liquor company Independent Liquor to make a foray into the ready-to-drink ( RTD) segment

of the domestic alcoholic beverages market.

While Independent Liquor will help McDowell with significant knowledge transfer in the

high – growth segment of RTD, McDowell in return will launch some of the leading brands of

the New Zealand – based company into the Indian market.

McDowell wants to become a leader in the emerging RTD segment, say company officials.

McDowell India entered the RTD segment last year with the launch of Shotz, a vodka-based

beverage.

The officials say McDowell intends to increase RTD manufacturing capacity in its existing

distilleries across India, with a unit already functioning in Goa and another one close to

commissioning in Chandigarh. The company aims to set up 2 lakh-case monthly capacity for

RTDs by this year end.

The $ 200 – million Independent Liquor is privately held and is considered as one of the

leaders RTD business in Australia and New Zealand, where it controls 35 percent of the RTD

market. The company’s brand include Vodka Cruiser, Voodoo Majic, Havana Gold, KGB

Vodka, Stinger and Woodstock Bourbon.

McDowell & Co intends to bottle and market Cruiser, which is a fruit – flavoured vodka-based

drink available in 21 exotic flavours, in India. This will be followed by product such as

Havana Gold, which is a mix of white rum and coconut liqueur; Stinger an alcoholic soda; and

Woodstock, a bourbon cola dirnk.

Question:

Analyse the various strategic choices used by McDowell. (21)

Partly because of this disagreement, a study of the relationship between selling price and

demand has recently been made for each division by the company’s sales director. The

resulting report contains the following table:

Customer demand at various selling prices:

Division A

Selling price L 20 L 30 L40

Demand 15000 10000 5000

Division B

Selling price L 80 L90 L100

Demand 7200 5000 2800

The manager of division B claim that this study supports his case. He suggests that transfer

price of L 12 would give Division A a reasonable contribution to its fixed overheads while

allowing division B to earn a reasonable profit. He also believed that it would lead to an

increase of output and an improvement in the overall level of company profits.

You are required:

a) to calculate the effect that the transfer pricing system has had on the

company’s profits, and

b) to establish the likely effect on profits of adopting the suggestion by the

manager of Division B of a transfer price of L 12.

Case No. 2

S V Ltd., manufactures a product which is obtained basically from a series of manufacturing

operations. The finished product is packaged in the company made glass bottles and finally

packed in attractive cartons.

The company is organized in to two independent divisions viz., one for the manufacture of

glass bottles and the other for the manufacture of end product. The end product

manufacturing (EPM) division can buy all the bottle requirements from the bottle

manufacturing (BM) division.

The General Manager of the BM division has obtained the following quotes from the outside

manufacturers for the supply of empty bottles as follows:

For a volume of 8,00,000 bottles total purchase cost Rs. 14,00,000 and for a volume of

12,00,000 bottles total purchase cost Rs.20,00,000

Cost details of BM division for the in-plant manufacturing of these glass bottles are as

follows:

For a volume of 8,00,000 bottles-total manufacturing cost Rs. 10,40,000 &

For a volume of 12,00,000 bottles-total manufacturing cost Rs. 14,40,000.

For the EPM division relevant details are as follows:

End product Volume Sale value Total cost of end product

(packed in bottles) (Excluding empty bottle cost)

Nos. Rs. Rs. 8,00,000

91,20,000 64,80,000

12,00,000 1,27,80,000 94,80,000

Since Divisional Managers salaries are linked with their divisional profits considerable amount

of time was spent in the corporate level discussions as to the use of proper price for transfer

of empty bottles from BM Div. to EPM Div.

As a management consultant you are required to show separately for these two levels of 8

lakhs and 12 lakhs nos. of end product, profitability of the two divisions as well as that of the

total company by using (i) Transfer price based on present Market Price and (ii) Transfer

Price based on cost puls shared profit. Such profit component is to be calculated in

proportion to the costs involved. Show detailed calculations in tabular form.

Discuss also the effect of these Transfer Pricing methods on the profitability