NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

(DEEMED UNIVERSITY)

 

DISTANCE LEARNING PROGRAMMES IN MANAGEMENT

 

MAY 2005 EXAMINATION

 

INTERNATIONAL BUSINESS ENVIRONMENT

 

DITM

 

DATE : 05 / 05 / 05 TOTAL MARKS : 100

 

TIME : 2:00 PM TO 5:00 PM

 

NOTE - Total no. of questions are Two.

-          This is a closed book examination.

-          Support your answers with appropriate and relevant examples, block diagrams and flow charts wherever necessary.

-          Please make assumptions, wherever required.

 

Question 1] CASE STUDY : [75 marks]

 

Auto Components Incorporated in the era of GLOBALIZATION

 

You are the Chief Executive of Auto Components Incorporated (ACI). Auto Components Inc (ACI) is a steel based component manufacturer. The Company has been a pioneer, and was formed to cater to the needs of the Automobile Industry. Over the years it has built on its component manufacturing capability and now caters to diverse segments including Automobile, Construction, Railways, Power and General Engineering Industry. The Company is the largest manufacturer of steel components and has majority market shares in about all the segments that it caters to. The Company undertook major investments to diversify into Steel Rolling to cater to Auto Giants in the last decade. The reduction in customs tariffs and increased prices of steel ensured that the Company went into losses. To get over these losses the Company finally decided to sell off its rolling business and focus on its profitable component business.

 

To give a renewed direction to the Company, the board of Directors has recently (last 2 years) appointed you as the Chief Executive. The mandate given to you is to focus on the component business, grow it quickly and profitably. After taking charge you have focused on driving efficiencies from your existing machineries, exited all non-core segments and off-loaded all low contributing products to sub contractors. In the bargain the Company has grown by 30% each in the last 2 years in revenues, and you have achieved record profits. The Board is extremely happy with your performance and their expectations are that you will continue in the same vein at least for the next 3 years. The Managing Director of the Board (who is your mentor) believes that if you continue this good performance, he will find it easy to promote you as the Vice President of the Holding Company. Auto Components Inc is one of the largest profit centers of the Holding Company and as the Vice President ACI will be very much a part of your revenue/profit portfolio. ACI contributes to 25% of the revenues in the Vice Presidents portfolio. You are ambitious and you realize that becoming the Vice President is just being one step away from your goal of being the Managing Director.

 

To continue in the same growth & profitable vein you sit down to review ACI strategy. The analysis reveals the following:

 

         ACI is amongst the 8^th largest manufacturer of steel based components in the world. Global competitors could be broadly divided into 2 categories e.g. Dominant players within regions and other global players who dominate across trade barriers. ACI is a strong regional player.

         Regional players usually focus on low value added products, or products that cannot bear large freight charges. Regional players thus work on improving efficiencies (manufacturing, transport, etc). While global players focus on high value added products that can move across continents. Global players focus on R&D and have a large number of patents registered in their names.

         With a dominant position in many of the products in Auto Components basket, you see very little scope for volume increases after the next financial year, unless demand increases or you are able to invest or acquire capacities within other trade barriers.

         Auto Components was a loss making unit hence it has not invested any monies on upgrading equipments, on R&D or on HR. ACI has drawn up a plan of making investments equal to 75% of its current revenues spread over the next 4 years.

         Auto Components has made a record 15% PAT in the current financial year and the next year too promises to be a bumper year with 25% increase in Top line with similar PAT figures.

         With a further reduction in customs tariffs, ACI will face competition in its domestic markets from global players. The global players are currently actively seeding this market. With superior technology and R&D efforts the products made by Global players are definitely superior to those of ACI. Auto Components thus stands to lose its high-end premium customers to these players once tariffs are reduced, unless it upgrades its technology.

         For the last 2 years, Auto Components has been actively working with the Railway authorities to develop a new component (branded as Freeon). The Railway authorities have taken a global patent on this product.

         To make this product ACI has developed a special machine. The machine can be used only for making Freeon

         Field trails of Freeon at the Railways have shown a lot of promise. With minor changes in the design the Railway authorities are confident that Freeon would deliver to its promise.

         However there are problems in commercially rolling out Freeon, which have been explained to you as follows:

o   Freeon will have to be tested by the Railway R&D wing. Tests at R&D wing may last up to 2 years.

o   After tests, Freeon will have to undergo controlled field trails at select locations across various terrains before it can be commercially accepted. These trials will last for 2 years.

o   Railway authorities are generally conservative in approach and will not be willing to be the first to try new things

         To commercially roll out Freeon you also realize that ACI does not have the domain knowledge of Railways

         You have met the Chief Engineer Railways who has suggested 3 alternatives

1.      Maintain status quo. Wait for approvals from R&D Wing and field trails at various railways. The threat in this case will be that the railways may get Freeon manufactured from your competitors also

2.      Form a joint team between ACI & Railways. This team will get Freeon tested at the International Railway Laboratories in the USA.

  Leverage ACI marketing strengths and use the test results of this laboratory and readings from the field trails observed during development to sell the concept to other railways (private & public) authorities across the world. Enter into a profit sharing agreement with the Freeon patent holding Railway authorities

3.      Buy out the patent from the Railways. Hire engineers from Railways with the domain knowledge; combine with ACI marketing skills to commercially roll out Freeon (as in step 2 without the profit sharing agreement).

  A study done by PWC a leading management consultant has pegged the Freeon patent at a price equal to a third of your current revenues (top line). After it is commercially proven the patent would add your current top line to your bottom line

  In addition to the revenues from the Freeon, ACI also stands to gain handsomely from manufacturing this component

 

You are the CEO and have to decide on following:

1] Action that ACI needs to take on Freeon

2] Future International Business Strategy for ACI

3] Globalization as a strategy in International Business.

 

QUESTION 2] Answer the following: [25 Marks]

 

a] Differentiate DEPB and DFRC

 

b] Wite the full form of the following:

1] ICD 2] TBT 3] GATT 4] TRIPS 5] EU

c] Explain in brief what do you understand by Forward Market.

 

d] State the factors influencing the volatility of currency.

 

e] The future of Euro.

 

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