BMBS Marks:35

Test Chapter 2 Time:63 mins

Q1. Consider the following activities performed by international business Starbucks and identify the
activity being performed according to Porter Value Chain. You need to name the activity while clearly
differentiating between primary and secondary activities.

 This is all of the general activities that are required to keep the stores
operational, like management, finance, legal support and government
relations. One of their main objectives is to provide superior levels of
customer service.
 This refers to the agents of the company purchasing coffee beans in
Africa, communicating the importance of quality standards in the
coffee beans and building strategic partnerships with suppliers
 Starbucks is currently in over 50 countries, with both direct stores
operated by the company and licensing deals.
 There are a wide range of training programs available for staff, who are
considered to be one of Starbucks most important resources.
 The normal process is Starbucks selling their products in store without
any intermediaries. Recently, there are now retail products available in
select supermarket chains.
 All the purchasing that is required to produce the end products, like
the coffee beans, raw food items as well as the buildings, and
machinery
 There is no heavy investment in marketing, but specials and tastings
are common, especially when new stores open.

(9)

Q2.Consider the following boxes and assign headings according to PESTEL analysis while explaining the
possible impact of each factor on a particular business. (10)

BOX No 1
1. Changing regulation surrounding
food standards and marketing
actions.
2. Government stability in new
emerging economies – question of
risk as part of the
internationalisation process.
3. Changing global regulations –
standardised practice yet
Box no 2
1. Awareness and knowledge of
changing inflation, economic
growth rates and income levels.
2. Changing consumer budgets, rise
of the cost conscious consumer.
3. Rising price of raw material goods
in relation to the need to source
from sustainable suppliers.
 adaptation to different political
forces .
Box No 3 Box no 4
1. Changing consumer attitudes – 1. Rise of social media, consumers
move towards healthier products interacting with firms and being
in line with government initiatives able to do so across a range of
supporting balanced diets and the platforms.
dangers of sugar.
2. Innovation fuelled by technological
2. Changing lifestyle – return back to developments.
home cooking and the promotion
of family time in a world of 3. E-commerce as a platform for
development.
convenience.
3. The need to adapt to different
cultural settings i.e. language,
religious beliefs and family
settings.
4. Understanding of consumer
behaviour is crucial to ensuring a
personal approach to marketing.
5. Consumers viewing the firm as an
agency for power in the wider
external environment.
Box no 5
1.Changing nature of regulation.
2. Need to adhere to global regulations
and changes across different
international markets.

Q3. Muntaha Group (MG) is considering to introduce airline services in a developing country. The
management of MG is in the process of analysing the airline industry to determine the intensity of
competition. Required: Explain the competitive forces that may have shaped the airline industry,
considering Porter’s Five Forces Model. Your answer should clearly mention the strength of each force
with related arguments. You may assume necessary details. (12)

Q4.Mr. Han is the Managing Director of a multinational company. He is in the process of implementing a
new plant . He has asked one of his employees to conduct an SWOT analysis .The employee is confused
about the implication of such an analysis and doesnot know the difference between all four factors.
Briefly explain the difference between these four factors . (4)
Answer 1.

1. Infrastructure (Secondary)
2. Inbound logistics(Primary)
3. Operations(Primary)
4. Human Resource(Secondary)
5. Outbound logistics (Primary)
6. Procurement(Secondary)
7. Marketing & sales(Primary)

Answer 2.

Box 1. Political Factors :-Political factors can have a direct impact on business as government policy
change can effect a business in both positive and negative ways. Government has influence over
taxation, infrastructure, education policy etc.

Box 2. Economic :- Macro & Micro economic factors influence business decisions. Inflation rates
,consumer income levels ,economic condition of the country ,fiscal & monetary policy are some of the
areas that can affect a business.

Box no 3. Social :- Social & demographic factors like cultural trends ,population growth, literacy rates,
consumer preferences are all factors which need to be considered while formulating business strategy.

Box no. 4. Technological :- Changes in technology has effected business in three ways 1) newer products
and services 2) flatter organization structures 3) newer and innovate work methods.

Box no .5 Legal :- Laws and regulations need to be complied with otherwise business faces the
reputational and compliance risks.

Answer 3:- The competitive forces that may have shaped the airline industry as per Porter’s Five Forces
Model are explained below:

(i) Threat of new entrants The threat of new entrants in an airline industry is low because of the
following probable reasons:  The new entrants in an airline industry would have to make large capital
investment (acquisition of airplanes, extensive marketing campaigns, acquisition of license, etc.).  The
airline service would require particular set of skills, knowledge and experience that could be time
consuming and cost bound.  The new entrant might find difficult to develop customer base as
customers usually have high concerns of safety and trust in an airline industry.  Airline industry is
highly regulated (stringent aviation and other regulations) in terms of entry, operations and exit

(ii) Threat of substitutes The threat of substitute services in an airline industry is low to moderate
because of the following probable reasons:  The threat may be considered as moderate for domestic
travelling because of the presence of number of substitutes such as trains, cars, boats, etc.  The threat
may be considered as low for international travelling as air travel usually remains the first choice of
customers.

(iii) Bargaining power of suppliers The bargaining power of suppliers in an airline industry is high
because of the following probable reasons:  The airline industry mainly relies on aircraft and related
parts manufacturers and fuel suppliers. Given the small number of suppliers, they can exert high
bargaining powers.  There are no or may be very few substitutes to aircrafts and fuel, therefore, airline
industry has to heavily rely on suppliers.

(iv) Bargaining power of customers The bargaining power of customers in an airline industry is high
because of the following probable reasons:  The costs of switching from one airline to another are low
thereby empowering buyers to exert high bargaining power.  In a developing country, the customer
groups are likely to comprise of people who may be price sensitive than brand sensitive.  Customers
have easy access to pricing information offered by other airlines to make comparison.

(v) Competitive rivalry The competitive rivalry in an airline industry is high because of the following
probable reasons:  The airline industry involves high fixed costs that might be identical for each airline
company; thereby the companies compete by means of differentiation or costs leadership by
attempting to attain economies of scale.  The demand for airline services often remains constant or
has low growth rate, thereby, airline companies compete for a fairly fixed amount of sales and
customers.  The costs of entry and exit are high in an airline industry thereby companies may be
reluctant to leave the industry and attempt to survive by means of competing with each other

Answer 4. A SWOT analysis is an organized list of your business’s greatest strengths, weaknesses,
opportunities, and threats.

Strengths(Internal) describe what an organization excels at and separates it from the competition: a
strong brand, loyal customer base, a strong balance sheet, unique technology and so on.

Weaknesses(Internal) stop an organization from performing at its optimum level. They are areas where
the business needs to improve to remain competitive: higher-than-industry-average turnover, high
levels of debt, an inadequate supply chain or lack of capital.

Opportunities(External) refer to favorable external factors that an organization can use to give it a
competitive advantage. For example, a car manufacturer can export its cars into a new market,
increasing sales and market share, if a country cuts tariffs.

Threats(External) refer to factors that have the potential to harm an organization. For example, a
drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other
common threats include things like rising costs for inputs, increasing competition, tight labor supply and
so on.