MAF661 – TUTORIAL QUESTIONS

QUESTION 1

Crunchy Food, a local biscuit and wafer brand is the country’s first-class confectionery producer. It is in
the process of upgrading its information technology (IT) to improve operational and production efficiency.
The Chief Executive Officer (CEO), Mr. Lam said IT was one of the reasons that enabled the company's
business to grow fast and achieve double-digit growth for the past 10 years. Even though the company
was small, it would spend an average of RM1 million to RM3 million annually on IT. Crunchy Food is one
of the fastest growing biscuit companies in the country and had established a well-known brand. It is also
confident of achieving revenue of RM250 million for the financial year ended 31 December 2009. Apart
from its domestic market, Crunchy Food’s quality products are exported to many other countries.

Mr. Lam does not believe in external analysis since he believes that Crunchy Food does not have to
worry about competition since it is able to capture 70% of the local market and the customers trust their
products. Coupled with marketing strategies as well as selling at lower prices than competitors, Crunchy
Food’s product range is always a hit with customers especially young children. Its export market is also
doing just as good as the local market. He believes that improving on internal matters is of utmost
importance. As such, the management focuses on issues of advertising, operational and production
efficiency and teamwork. He believes that the only way to success is to concentrate on the Resource-
Based model. This theory advocates that the uniqueness of a firm’s resources and capabilities is the
basis for its strategy and its ability to earn above average returns. This has led to Crunchy Food losing
touch of the outside world.

The melamine scare was a big slap for Crunchy Food and it caught the company by surprise. Its revenue
dropped drastically, the customers lost trust in its products and it had to eliminate about 25% of the
existing product line. Crunchy Food had to recall most of their products since it used ammonium
bicarbonate from China. Ammonium bicarbonate from China, which is used to make biscuits, was found
to be contaminated with melamine. The Government also banned all products using ammonium
bicarbonate from China. Mr Lam and his management team are contemplating of downscoping Crunchy
Food’s international markets and they have reached a point where they are thinking of closing down all
Crunchy Food’s factories.

Required:

a) Do you think that by only concentrating on internal capabilities and using the Resource-Based
model, a company like Crunchy Food can earn above average returns? Explain with three (3)
reasons
(10 marks)

b) Identify and explain the impact of one (1) General Environment Segment that may have caused
the downfall of Crunchy Food.
(5 marks)

c) Discuss the impact of the melamine scare on two (2) forces of competition below:

(i) Rivalry among competing confectionary producers

(ii) Threat of substitute products
(10 marks)
(Total: 25 marks)
QUESTION 2

Malaysian homegrown, BIG Mammoth has been selling furniture to the mass market the traditional way since
1990: where buyers go to the store to see the furniture and test the furniture for comfort and then make their
purchases. The furniture would then be delivered to the buyers’ homes. BIG Mammoth provides personal
customer service, advice on interior design, delivery service at a minimal fee and home installation services
at affordable rates and even allow for payments by instalments. All this while, BIG Mammoth has carried on
business in its 30 stores all over Malaysia without proper planning. The management team does not carry
out the SWOT analysis. Its owner does not believe in doing strategic planning as he feels that strategic
planning is not necessary for a business like his that has done well over the years. To him working on a
vision and mission statement is a waste of time and energy. He once said to one of his managers who
suggested BIG Mammoth should set a vision, "Just move on with business and stop dreaming about what
we might want to be".
Business was good as people were used to this traditional way of purchasing furniture. It is only
recently that BIG Mammoth stores are threatened when Ricky, a young businessman with an
entrepreneurial mindset decided to take advantage of the Generation Y consumers by introducing the
innovative state-of-the-art Y-KEA stores to the young Malaysian consumers. The Y-KEA stores pioneer
the “modern chic” concept in furniture and it has positioned itself well among the younger IT-savvy
buyers. The Y-KEA stores are very much smaller in size since it does not display the furniture as in other
conventional furniture retailing stores. The following are some of the ways Y-KEA keeps its price low;
minimal number of store assistance, no delivery services, no additional storage costs and no costs of
assembly. There is even no cashier as the buyer would pay via an automated machine which is installed
in the touch screen ‘dispensing machine’. Payment can be made using cash and the credit or debit card.
To further reduce costs, the maintenance costs of the machines are kept to the very minimum. In order to
enjoy economies of scale, Y-KEA stores maximize its production of the quality light-weight contemporary
furniture demanded and sell them at relatively low prices. Y-KEA even has a website that its customers
can surf and browse for ideas for their homes and offices.
Out of the 50 Y-KEA stores, which are also situated all over Malaysia, 90% of its stores are
strategically positioned next to BIG Mammoth stores. Even the loyal BIG Mammoth’s customers
are now doing their furniture shopping at Y-KEA chain of stores. Sales of BIG Mammoth
stores tumbled down by 80% last month, stocks are grossly overstocked but its owner refused to close down
the BIG Mammoth stores even though he knows his business is
unprofitable. The owner is aware that the exit barriers are high for BIG Mammoth stores.

Required:
a) Explain three (3) advantages of strategic planning that would have helped BIG Mammoth face the
threat of a new competitor.
(10 marks)

b) Explain with three (3) reasons whether you agree with BIG Mammoth’s owner when he said to
one of his managers who suggested BIG Mammoth should set a vision, "Just move on with
business and stop dreaming about what we might want to be".
(10 marks)

c) Discuss the impact of two (2) relevant general environment segments that have had a positive
impact on Y-KEA business.
(10 marks)

d) Discuss the impact on the intensity of rivalry and the bargaining power of buyers when Y-KEA made
its entrance as BIG Mammoth’s competitor.
(10 marks)

e) Discuss three (3) exit barriers that are stopping BIG Mammoth from closing down its stores.
(10 marks)
(Total: 50 marks)
QUESTION 3

TIMEOUT is a printed entertainment magazine on both local and international entertainment news. It has
been doing very well ever since it started early 2000 even when it did not seriously undertake strategic
management. Its vision statement since incorporation is “To be the first with the news”. Recently, Maya,
it’s Chief Marketing Officer, voiced out her concerns to TIMEOUT’s Board of Directors about the future of
the printed magazine business due to the decline in sales over the years. She reported that 80% of the
loyal subscribers have stopped their yearly subscriptions. The decline continues to accelerate and is
causing great financial strain on the company.

TIMEOUT is threatened by the existence of magazine websites and digital magazines which are really
growing in popularity. Some magazine websites are also expanding their offerings to include blogs and
streaming video and audio which appeal to the present IT-savvy society. These interactive features,
combined with people’s thirst for up-to-date ‘hot gossip’ news, make the magazine websites an
increasingly appealing choice for readers. The Internet too offers new exciting possibilities for magazines
such as sound and video, thus making on-line magazines a fun medium for leisure reading. Maya also
noted the switch to iPad, smartphones and other mobile reading devices have had a direct effect on the
sales of printed magazines. While she was not able to disclose sales numbers, she said that iPad and
smartphones are definitely ‘eating-up’ most printed magazine sales and that the publishing companies
are severely affected.

After deliberating on the problems faced, Maya recommends to the Board of Directors to revisit
TIMEOUT’s vision statement and to venture into on-line magazine since this is the medium of today. She
highlighted that even if the magazines are printed on better quality papers with added colorful pages plus
pictures and sold at a lower price, TIMEOUT would still not attract buyers. Maya does not think that these
improvements can help to increase sales of the printed magazines. The Board of Directors understands
the position that TIMEOUT is in and it is willing to take up Maya’s recommendation to go on-line.
However, the members of the Board are worried about the reaction that Maya would face from the
existing on-line magazines and also as to how their customers would react. Another thing that they are
not convinced about is whether TIMEOUT as a new entrant on-line would be able to threaten the existing
on-line magazines.

Required:
a) Discuss briefly the importance of any three (3) key attributes of Strategic Management to
TIMEOUT.
(10 marks)

b) TIMEOUT’s vision statement is “To be the first with the news”.

Explain any three (3) reasons that may lead to the failure of TIMEOUT’s vision.
(10 marks)
c) Do you think TIMEOUT should consider implementing SWOT analysis in order to improve its
business? Explain with three (3) reasons to Maya and her team.
(10 marks)

d) Discuss the impact of the following general environmental segments that have had a negative
impact on the sale of printed magazines.

i. Technological segment
ii. Sociocultural segment
(10 marks)
e) Discuss three (3) entry barriers that would result in TIMEOUT becoming a strong threat to the
existing on-line magazines.
(10 marks)

(Total: 50 marks)
QUESTION 4

The RICH is an elegant luxurious homegrown mega retail store. It is the only retail outlet located in
Putrajaya’s commercial area and has been in business for the last five years. It sells unique designer-
label consumer products at premium prices. The RICH had invested millions of ringgit in customer
service. Customers are lavishly pampered with The RICH’s personal Concierge Service, where they are
given personal attention by immaculately groomed and knowledgeable shop assistants, who will assist
customers to do their shopping. The RICH defines its target market as broad, but over the years only the
wealthy ones are seen to frequent it. The RICH boasts of its customers’ loyalty and its dedicated team of
employees.

The economic slowdown has harmfully affected The RICH’s revenue as even the wealthy shoppers are
now more cost conscious and are slowly yet surely searching for less expensive items. To make things
worse, a renowned international retail chain, Niksim has just moved into the area. It has 36 huge retail
outlets all over the world. It’s tagline “Be Unique, Pay Less” is a proven success. Niksim’s retail chain too
reflects a posh up-market image except Niksim does not have the personal Concierge Service, which
Niksim thinks does not add value to the business during times of economic slowdown. Instead Niksim
promotes their products on the Internet. Niksim has a wide network of dependable suppliers who offer
unique designer-label consumer products at discounted prices. This new entrant managed to attract both
the masses and the elites. Both are ardent shoppers of Niksim.

The RICH is feeling the heat of this head-on competition. Even their loyal customers are patronizing
Niksim, which resulted in a drop in sales by a hefty 60% in the last quarter. The RICH realizes that it
must revisit its business-level strategy before it goes to the dogs. The management is considering two
alternatives. Plan A is to convert its existing mega retail store to a warehouse store selling second-hand
items at discounted prices. Plan B is to redefine its target market to a narrow market rather than the
broad market that it is currently serving. Under Plan B it must change to Focused Differentiation strategy
and purely cater to the needs of the extremely high-end wealthy customers who demand one of a-kind
designer products.

Required:

a) Discuss the impact of the intensity of rivalry and bargaining power of buyers on The RICH, when
Niksim entered the retail industry in Putrajaya’s commercial area.

(10 marks)
b) The RICH’s management is contemplating to just sell off the mega retail store but it may be difficult
to do so because of its high exit barriers. Identify two (2) exit barriers and discuss why The RICH
may have problems trying to break down the barriers.

(5 marks)
c) Would you recommend Plan A or Plan B to The RICH if it wishes to sustain its elegant luxurious
mega image? Support your answer with three (3) reasons.
(10 marks)
(Total: 25 marks)
QUESTION 5

Sunlight Taxi Group (STG) is a leading taxi operator based in Kuala Lumpur. The business has been
doing very well ever since it started in early 1996. However, of late it has faced some setbacks.
Nevertheless, the number of taxi operators were small then, thus STG did not face much of a challenge
from rivals. STG’s Chief Executive Officer, Sarah recently discovered from a market survey conducted by
the Land Public Transport Commission (SPAD) that over 80 per cent of the public prefer to use ride-
sharing services instead of regular taxis. The finding also revealed that young people between the age of
18 and 25 years as well as, young professionals in the age bracket of 25 and 35 years prefer the ride-
sharing services due to its accessibility via mobile applications. They can access the mobile application
using their smartphones to submit a trip request, which is then, distributed to car drivers who use their
own cars and who are registered with a specified company to take the rider to their destination. This
generation of young people is termed as the Millennial Generation who is generally marked by an
increase use and familiarity with communications, media and digital technologies. Upon learning about
this demographic trend coupled with the decline in taxi bookings over the past years, Sarah voiced out
her concerns to STG’s Board of Directors (BOD) about the bleak future of their business. Sarah reported
that 70% of its loyal passengers have stopped their bookings with STG and has switched to ride-sharing
services. The rapid decline in the bookings has caused financial strain on STG.

STG is now experiencing threat from the existence of ride-sharing services such as OberCar, which is
growing in popularity among the public. Prior to the launch of OberCar, the taxi industry operated without
major threats for decades. OberCar is leveraging on mobile technology to disrupt the long-established
taxi industry by offering an alternative that excels in providing convenience for passengers. Since its
launch, OberCar has enhanced the functionality of its mobile application, by incorporating the latest in
mobile technology to further improves the experience for its users. OberCar has also expanded its core
competencies to include quick and reliable ride booking, plus transaction convenience and simplicity,
which appeal to the present Information Technology-savvy society. These features combined with
cheaper fare make OberCar an increasingly appealing choice for passengers. However, Sarah noticed
that OberCar’s successes have not come without challenges. The company has battled against
regulatory powers in Malaysia following a mass protest by local taxi drivers. They accused OberCar of
unfair competition because its drivers are not subject to the often-strict rules and restrictions that govern
conventional taxi companies. Nevertheless, Sarah also noted that despite the current regulatory issues,
OberCar continues to attract most local taxis customers, which consequently has severely affected the
taxi operator companies.

After much deliberation, Sarah recommends to the BODs to revisit STG’s ways of doing business and to
venture into digital technology since this is the medium suitable for current business landscape. She
highlighted that even if the government has legalized the ride-sharing services companies, STG would
still face difficulty to attract passengers with the current conventional operation. Despite some concern in
relation to possible retaliation from rival company and STG’s new entry in the ride-sharing service market,
the BODs understands the position that STG is in and is willing to take up Sarah’s recommendation to
adopt similar mobile application like OberCar. Nonetheless, Sara firmly stated that, “The taxi industry
needs a jolt. It needs to be revamped, and we are going to make that happen”.

Required:

f) Explain the importance of any three (3) key attributes of Strategic Management to Sunlight Taxi
Group (STG).
(10 marks)
b) The general environment is composed of factors that can have dramatic effects on firm’s strategy
and it varies across industries.
 i. Discuss how together the demographic and technological segments have influenced
OberCar’s business.
(5 marks)

ii. Discuss the impact on STG if government legalise ride-sharing services.

(5 marks)

c) Evaluate using the four criteria of sustainable competitive advantage whether OberCar’s mobile
technology will be able to sustain forever in the taxi industry.
(10 marks)

d) The competitive environment consists of many factors that are particularly relevant to a firm’s
strategy.
i. Discuss the impact of the existence of OberCar in the country by analyzing the intensity of
rivalry in the taxi industry.
(5 marks)

ii. Discuss the impact on the bargaining power of passengers if STG made its entrance with
mobile application similar to OberCar.
(5 marks)
(Total: 40 marks)