IB Business Management – Pre-Released Case Study May 2017

Utopia – SWOT Analysis Activity

IB Business Management: www. BusinessManagementIB.com

IB BUSINESS MANAGEMENT – PRE-RELEASED CASE STUDY MAY 2017: SWOT ANALYSIS

Important! Bear in mind that the IB examiner is not looking for a nicely set out quadrant with brief bullet-

pointed outlines of the identified Strengths, Weaknesses, Opportunities and Threats. It is also unlikely

that an examination question will focus the SWOT on anything but Utopia/JAC and it will do so in a way

to addresses three strategic options very likely based on two of the four strategies in the Ansoff matrix.

Thus, the SWOT should be used to address questions associated with strategic analysis leading to

strategic choice and the implementation of a strategy.

There are many similarities between Utopia and any small luxurious island resort and students should

research such resorts themselves and combine this research with the limited information that the Case

Study provides us with about Utopia

Explain why each point identified is relevant to the company. Use these explanations to draw overall,

justified conclusions. Make it impossible for the examiner to award you anything less than full marks for

the critical thinking component of the mark scheme!

We have included some additional information for students to use here in their own SWOT analysis.

IB Business Management – Pre-Released Case Study May 2017

Utopia – SWOT Analysis Activity

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).

IB Business Management – Pre-Released Case Study May 2017

Utopia – SWOT Analysis Activity

ITEM 2: COFFEE PRICES CONTINUE TO RISE ON FALLING SUPPLY AND INCREASING DEMAND

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

’13 ’14 ’15 ’16 ’17 ‘18 ’12 ’13 ’14 ’15 ’16 ‘17 ’13 ’14 ’15 ’16 ’17 ’18 ‘19

IB Business Management – Pre-Released Case Study May 2017

Utopia – SWOT Analysis Activity

ITEM 3: 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

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.

Zika virus disease is caused by a virus transmitted primarily by Aedes mosquitoes. REUTERS/MILENA BAENSCH

IB Business Management – Pre-Released Case Study May 2017

Utopia – SWOT Analysis Activity

ITEM 4: SELECTED FINANCIAL INFORMATION

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 31st 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

Sales revenue $2 900 050 $4 330 405

Cost of goods sold $852 112 $600 054

Expenses $3 504 900 $2 904 510

IB Business Management – Pre-Released Case Study May 2017

Utopia – SWOT Analysis Activity

SWOT ANALYSIS FOR UTOPIA AS AT JANUARY 2017

1. Briefly identify and outline the important Strengths, Weaknesses, Opportunities and Threats

associated with Utopia at the beginning of 2017 (when the strategic options will be under

consideration) in the table below.

Strengths:

Weaknesses:

Opportunities:

Threats:

IB Business Management – Pre-Released Case Study May 2017

Utopia – SWOT Analysis Activity

2. Explain how each factor identified in the table above is likely to impact Utopia’s current and future

business operations. Examples have been provided to assist you in developing your own SWOT

explanations.

STRENGTHS

Utopia is an established and profitable business operation. Most new businesses fail in the first few

years of operation and the fact that Utopia has been profitable since its incorporation indicates

that it has relatively high levels of equity. Equity is calculated by subtracting Utopia’s liabilities from

its assets. A profitable business has options. If Utopia’s sole shareholder is not paying himself high

levels of dividends then Utopia’s profitability would allow it to build up a high levels of retained

earnings which could then be used to finance the growth and expansion objectives Utopia has.

Finance. Strong balance sheet with low levels of debt. Assets can be used as collateral to finance

long-term loans to support the growth and expansion objectives that Utopia has. Further, the more

cash Utopia has then the less it may be required to borrow if it chooses to finance either of its

expansion options using a long-term loan (most likely a bank loan). The less money it borrows, the

less onerous its repayment obligations will be and the better its cash flow position will be meaning

the company has less risk of facing a future liquidity crisis.

WEAKNESSES

Finance. The business will only consider internal sources of finance to pursue growth opportunities.

Internal sources of finance are funds found inside the business. For example, profits can be kept

back to finance expansion. Alternatively the business can sell assets (items it owns) that are no

longer really needed to free up cash. Of the two strategic options tabled by the

management/owners of Utopia, financing the 3D printer requires a relatively small capital

expenditure of $10 000. This growth option could well be financed from retained profits or through

selling an asset or two (e.g., the sale and leaseback of company vehicles). The other option tabled

for growth – the coffee bean venture would likely require a much higher level of finance and thus,

is less likely to be satisfied with only internal sources of finance. However, it is possible that a sale and

leaseback agreement could be achieved whereby some of the land Utopia owns could be used

for this purpose. I consider this to be an unlikely option because it opens the company up to a

degree of risk and uncertainty that is unwarranted (i.e., the future sale of that land by the new

owners). If only internal sources of finance are to be used by Utopia, it is unlikely that the coffee

venture could be financed.

Relatively undiversified with just two revenue streams. At present Utopia and JAC are separate

organisations, but both are owned 100 percent by John A. It is difficult to reconcile the sole

proprietorship legal structure of JAC with the coffee bean venture. John would be placing his

personal assets at risk (unlimited liability) by pursuing this strategic option and it is believed that JAC

would be acquired or merged with Utopia Ltd. With just two revenue streams, and with JAC

presumably being quite dependent on the customers Utopia brings in, the risk to each revenue

stream failing is relatively high. We have already seen an example of this with the natural disaster

that struck the island in 2016. Utopia’s resort revenues were wiped out for a significant period of

time, and without resort customers coming to the island JAC faced a significant downturn in its

revenues. These two revenue streams are relatively undiversified. The concern being that the

IB Business Management – Pre-Released Case Study May 2017

Utopia – SWOT Analysis Activity

souvenir option is similarly undiversified. A downturn in sales for the Utopia resort would necessarily

result in a downturn in the sale of souvenirs.

OPPORTUNITIES

Increase prices as wealthy customers may be relatively insensitive to higher prices. The Utopia resort

is undoubtedly a “luxury good”. This means that as the incomes of its customers and potential

customers increase then Utopia will experience an increase in demand for its product. Further, item

1 demonstrates that Pacific Island tourism has experienced significant growth and this growth is

forecasted to increase into the future. This should lead to an increase in the number of customers

wishing to book holidays at the Utopia resort – an increase in demand. Both factors taken together,

and given that the Utopia product is much differentiated with a strong USP, Utopia is in the position

to raise its prices. Any loss in customer numbers will be offset by a more than proportional increase

in total revenues. Total revenues will grow leading to higher profits, and if customer numbers fall

slightly, then costs will also fall, again increasing the profitability of Utopia.

Expand the number of villas to cater for higher numbers of guests. This is another method that Utopia

can use to grow its revenues and thus its profitability. Thoughtful market research would need to be

conducted to see what impact the increased number of guests would have on the marketing mix

– would, for example, a doubling of capacity lead to guests seeing the resort as crowded and less

relaxing? Environmental research would be necessary to assess the impact of such an increase in

visitor numbers would have on the resort land and sea specifically, and perhaps on the whole island

more generally.

THREATS

CONCLUSION

3. Summarise the key findings of your SWOT analysis here in relation to Utopia’s current business

position.

4. Apply the Ansoff matrix and use these key SWOT analysis findings to justify the strategic option that

you believe Utopia should implement.

Source: www.BusinessManagementIB.com