CIMA 2014 CASE REPORT.docx

7/22/2019 CIMA 2014 CASE REPORT.docx

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CIMA 2014 CASE REPORT

Team name: Fantastic Dream

Sichuan International Studies University

Team Members:Gu YangNie Kaiyu

Liu Lu

Adviser:Li JiangPan Yao

Qian Qingyi


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TABLE OF CONTENTS

1 Executive Summary

2 Introduction

3 Strategic Analysis

3.1 Company Analysis

3.2 Industry Analysis

3.3 SWOT Analysis

4 Issues Analysis and Recommendations

4.1 Prioritization of Issues

4.2 Core Competencies Issues

4.2.1 Late Delivery of a Hull from Topcrest

4.2.2 JKL

4.3 Diversification and Marketing Plans

4.3.1 New Design Supplier for Surania

4.3.2 Sales Staff and Agents

4.3.3 Racing Boat

4.4 Accident at Work

5 Appendices


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1. EXECUTIVE SUMMARYThis report aims to prioritize, analyze and evaluate the current issues facing Merbatty. The

report begins with a strategic and financial analysis of Merbatty and the industry. The 4 main

issues Merbatty facing have been categorized into 2 broad categories, namely issues that threaten

business and profitability and plans relating to expansion and marketing.

The first issue is the late delivery of a hull from its supplier Topcrest. The team

recommends that in the short term, Merbatty should cancel the contract with Topcrest and

complete the order on time and find more suppliers in the long term.

The second issue- JKL, is the second largest shareholder of Merbatty, but Alberto Blanc,

the Chairman, still views Merbatty as his personal property. Also, Alberto is fond of doing

charity, but JKLs Investment Director, Simone Lellet thinks it is absolutely a cost. The

recommendation is that Merbatty should strengthen the communication of the shareholders.

Alberto needs to remove his idea that he can control Merbatty completely.

The final issue is the ethical implication from accident at work. The accident arose from

one of Merbattys employee, called Paulo, arrival for work high on drugs. He fell off and broke

his leg .His addiction to drug reminds us to show concern for the ethical issue of the company.

With regard to expansion and marketing plans, Jesper (Marketing Director) wants to build

and race a speedboatin the competition. But his father, Alberto (chairman) disagrees with him.

Merbatty should accept the proposal in relation to the racing boat. This is due to the increasing

demand for the large boat and this increasing demand will enhance brand awareness.

The interior design supplierfor the new boat building facility in the Middle East is still not

found. There are two design companies available: Cooper Designs and Arabian Interiors.

Merbatty should choose Cooper Design as it has a long history and a good reputation.

Stefan Gil (sales director) wants to employ sales staff to replace the agents, but Marie Lopp

(HR director) has a recognition of agents work. It can be dealt with by combining both sale staff

and agent.


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Finally, the five year plan is evaluated. From the evaluation, Merbatty should increase its

total profits and continue expanding market share.

2. INTRODUCTIONMerbatty, founded in 1979, is a luxury boat building company specializing in wealthy,

successful individual and corporate clients. In order to achieve the expected sales, Merbatty

adopts custormising interior design and production management software system to increase

productivity and improve resource utilisation.

Merbatty has devised a five year plan that aims to achieve the following milestones by

2017:

- Number of boats commenced in the year -Increase by 78.57% to 500 in 2017 - Sales

revenue -Increase by 99.20% to 1,000 in 2017

- Operating profit -Increase by 80.26% to 137 in 2017


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3. STRATEGIC ANALYSIS3.1 Company Analysis

Merbatty has adopted the custormisation model to differentiates itself from other companies

and has built a strong customer base. This model was possible as Merbatty possess core

competencies among the similar products. The model represents a further 11% on top of basic

selling prices and also relies on remaining in close contact with suppliers.

3.2 Industry Analysis

Merbatty competes in the luxury boat building industry, espeially in the US and Europe.

In 2012, the luxury boat building industry generated approximately $5.5bn revenue. Over 5

years to 2012, the industrys revenue decline at a rate of 8.6%, and expects an average annual

revenue of 6.9% in the 5 years to 2017. Although Merbatty has held a global market share of 8%

in 2012, it still has so much risks.

Five Forces

Substitute ---strong

There are a large number of domestic and international builders of luxury boats, which

together produce a range of over 180 different models. The better the price offered by substitutes,

the more likely customers will switch.

New entrants---strong

The threat from new entrants is high because the strength of the barriers is low.

Rivalry--strong

As the boat industry is not dominated by a few large companies, rivalry is intense. It is

difficult to differentiate your product.


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Suppliers power---moderate

Although Merbatty has a number of key suppliers, many other suppliers are available and

switching are available and switching costs are low. The price is not controlled by one or two

dominant suppliers.

Buyers power ---moderate

As switching costs are low and customers can easily have full information, it is essential for

Merbatty to put emphasis on advertising and promotion to create brand awareness.

Threat to the Luxury Boat Building Industry Market

(Chart)

3.3 SWOT ANALYSIS


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Therefore, Merbattys priorities would focus on retaining market share because of the fierce

competition and at the same time, expanding global and domestic market.


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4. ISSUES ANALYSIS AND RECOMMODATION4.1 Prioritisation of Issues

The 5 main issues may be broadly categorized as follows:

Given the direct impact of the issues which threaten business profitability, they are chosen

to prioritize over expansion or marking plans.

Among the issues that threaten the core business or profitability, the late delivery of hull

poses a greater risk because it also means a two-month state delivery to its customer which will

not only result in financial loss. ? The second issue is misunderstanding between JKL and

Merbutty. This will influence the share price.

Among the expansion and marketing plans, choice between two suppliers for Surania

takes precedence as it involves Merbutty?s future plans for expansion in the Middle East.

But also its reputation will suffer the choice between

agent and staff. On the other hand, it also requires the company

to act quickly.

Though the racing boat proposal may increase the sales

of P-3000, its effect on total sales is limited. The suppliers for

Surania proposal will be the main driving force in sales growth

and should therefore take precedence.


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4.2 Core Competencies Issues

4.2.1 Late Delivery of a Hull from Topcrest

Financial Impact

Due to the late delivery, 0.5% of customers may require a refund (according to the financial

data given), which will reduce the profit in 2014. On the other hand, it also will reduce

employees efficiency. Hence, Merbatty will lose a plenty of money and waste a lot of time.

Strategic Impact

As Merbatty plans to expand its market, suppliers late delivery makes the relationship

between supplier and Merbatty go worse and it will affect Merbattys later order. In that case, the

target of boat building of 340 in 2014 will not be achieved.

Reputational Impact

Reputation is an important part of a company, which is strategic for the future. Due to the

late delivery, customer will doubt Merbattys ability of taking orders. It affects customerschoice

and makes Merbattys situation become worse because Merbatty is a new comer in the stock

market.

Potential Solutions to the Late Delivery

Continue the contract with Topcrest

Merbatty accepts the fact that Tocrest has delivered the hull late, it will get approximately

118.5k from Topcrest and the boat customers will get 25k discount, so it will reduce

Merbattys cost even though customers cancel their order.

Because Merbatty is a key customer of Topcrest, when making further orders, Topcrest will

take Merbattys order more seriously, it will benefit Merbattys future strategy.


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Cancel the contract with Topcrest and find another hull supplier

To find another hull supplier to supply the hull at short notice, it will reduce the possibility

of customer canceling the order, also, the market for its ability to resist risk assessment will be

better. Although Merbatty and Topcrest have recognized the importance of working close for

future designs, Topcrest did not see Merbatty as its important customer. Hence, merbatty should

not take Topcrest as a main supplier anymore.

Amend the contract and find another hull supplier

Late delivery is a fact that can?t be changed. What Merbatty has to do is to reduce the risks.

Considering the close relationship with Topcrest and its compensation, Merbatty shouldn?t break

the contract directly. Merbatty can reduce the order with Topcrest and find another hull supplier

to complete the rest of the orders. Hence, Merbatty may not receive unsubscribe from customers.

Recommendation

Short-term

In the short-term , Merbatty wants to receive the hull as soon as possible. It will cancel the

contract with Topcrest and complete the order on time ,which needs workers to work overtime.

Although it will increase the cost, customers won?t lose their faith in Merbatty and Market

reward will be more.

Long-term

Merbatty wants to expand its market share in the long term. It need to reduce the risks at

aspects, the most important one is the supplier. Hence, Merbatty should reduce the affect from

suppliers. In this case, it needs more suppliers for one order. So Merbatty needs to find more

suppliers to reduce the risks.

4.2.2 JKL

Financial Impact


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JKL, as Merbattys biggest investor, which holds 28% shares of the company, but Alberto

Blanc, the Chairman, still views Merbatty as his personal property after the company became

listed in 2012. If the news of the contradiction is known to the public, the share price will be

affected. For example, shareholders dispute of 58 city affect the company greatly before

companys IPO.

Strategic Impact

The companys executives and shareholders are in lack of communication, so Simone

doesnt know the benefit of doing charitable work for the company. Alberto still considers

Merbatty as his private property, but he can not think that now. JKL will not be happy to see that

and will doubt his investment. In that case, Merbatty will drop into high risk.

Potential Solutions to the Problem

Strength the communication between its shareholders

The weak link must be changed. Mebatty should take this communication into a serious

part, the good relationship between the shareholders is very important for company development.

Strengthen Albertos credibility between shareholders

If Alberto wants to implement his plan successfully, he needs the support from shareholders.

Therefore, it is important for company to increase its credibility.

Recommendation

Merbatty should strengthen the communication between its shareholders, hence, JLK will

know much more about its main ideas. Furthermore, the company does charity because all itsprofits are from society. Also, Alberto needs consider if he controls Merbatty completely,

whether the company will develop rapidly or not.

4.3 Diversification and Marketing Plans


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4.3.1 New Design Supplier for Surania

Background

The new boat building facility in the Middle East is nearly completed. But, the interior

design supplier is still not found. Lukas Dian (Technical Director-Design) has selected two

design companies: Cooper Designs and Arabian Interiors.

Market Factors

Recent years, the demand for luxury boat especially the large boat is increasing. Because of

the Arab Spring, the Middle East is a potential market. As the market has become more

competitive, the need to live up to what the customer wants, the customer gets has become

more important.

Financial Factors

Merbatty want to open Middle East market, and it has a revenue of 40m which generated

in this region 8% market share. In Merbattys 5 years plan, they are respectively 180m and

18%.

Customer Factors

The buyer of luxury boat is wealthy who would not care much about the selling price but

more about the boat itself and are tend to buy larger boat. To attract more customers, the most

important thing for company is service.

Factors of Interior Design

A preference for the advanced technology system id aroused. There is a CAD system which

allows customers to remotely view the current design for their boat at any time. Due to the use of

this technology, the system used in the luxury boat is slowly changing.

Recommendations


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Based on all of the factors above, Lukas Dian should choose Cooper Designs. Cooper

Designs has a long history and a good reputation. It provides service that allows interaction

between designer and customers which leads to more reliable results.

4.3.2 Sales Staff and Agents

Background

Stefan Gil (sales director) wants to employ sales staff to replace the agents, but Marie Lopp

(HR director) has a recognition of agents work. Also the solution will affect compans strategy.

Factors Proposal Intends to Achieve

In order to meet the sales forecast for next five years, intensive marketing and advertising

will be required. By 2017, Merbatty expects sales growth to increase by 99.20% to

1,000m.Such targets can partly be achieved by the use of more visible marketing.

Endorsement of Stefan Gils Opinion

Because agents are worldwide with abroad range of customer sales network, they know

what the customer sales network, they know what the customer needs and know to sale the boat

to which particular individuals. And because agents have kept cooperative relationship with

Merbatty for a long time, they are familiar with Merbattys products, and can sale them better.

Endorsement of Maice Lopps Opinion

Merbatty uses sales staffs, they can communicate with customers directly, grasping the

market demand quickly. Because using sales staff, Merbatty can reduce the delivery cost. Thus,

the price of boat decrease, Merbatty may have competitive prices. Sales staff also can makecustomer get close to Merbatty. Thus, Merbetty can get more information to improve its

competitive.

Factors Affecting the Proposal


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Agent

Due to agents are all around the world, more and more people will be convinced that

Merbatty is a brand indeed which is accepted widely. The most important one is that agents can

know more about the culture of target market so that they can sell boats more efficiently.

However, there are still some problems. The agents of Merbatty cant bear the risk directly.

Thus, they may sale product negatively or may not. In reality, its hard for Merbatty to control

the activities of its agents. In a way, Merbatty was dominated by its own agents.

Sales staff

Sales staff can sell to customer directly and they can gather a mass of first-hand data.

Furthermore, compared with the agents, they are more loyal to the company.

Nonetheless, the disadvantage is that its bad for Merbatty to develop itself and utilize most

optimum distribution of resources. If Merbatty uses sales staff, it may pay extra money and

spend much more time to train people. On the other hand, sales staff will spend much time to

know about Merbattys products.

Recommendations

Agents and sales staff both have their own advantages and disadvantages. Merbatty should

combine these two types of ways to sell products. On the one hand, agents can help Merbatty

expand their markets, as they know what customers need and how to satisfy them. On the other

hand, Merbatty can train sales staff to communicate with customers. It is good for Merbatty to

analysis the market and to make good decisions. Although, Merbatty may spend extra money and

time, it will help Merbatty expand maket and get more profit.

4.3.3 Racing Boat

Background


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Jesper (Marketing Director) wants to build and race a speedboat in the competition and this

step will lead to more sales of Merbattys performance motorboats, the P-3000 specifically. But

his father Alberto (chairman) thinks this act will cost too much and racing is of high risk.

Suitability Assessment

Supporting factors

Merbatty is planning to produce a wider range of mew models, which will enable

Merbatty to offer customers a wider selection of boat sizes and engine capabilities.

Lukas Dian, technical director design, believes that there is a strong opportunity to

build larger boats which would be in the range of 35 to 40 metres in length, which

will have a bright market prospect in the Middle East.

The press launch of Merbatty?s first 38 metre boat in May 2013 had a good

response.

There is an increasing demand for large boats.

The Five-year plan includes opening of Merbatty?s third boat building facility in

September 2013. Because there is an increasing trend for the boats ordered by

customers in the Middle East to be the larger models, so this new facility will

specialise in building larger boats.

From Appendix 2, sales revenue are analysed by home base of customers.

Sales revenue will increase from

40m to 180m between 2012 and 2017 in

Middle East. Its the second largest

booming region next to Europe.

Acceptability Assessment

Risk assessment

If the sales of p-3000 boats cannot be

up to 25, this may not reach the breakeven


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point. Besides,20m of fixed cost is a large number. So if the market prospect is not as good as

the expectation, it will make a big loss.

Benefit

If the sales of the third building facility in Middle East are in a good condition, as this is in a

great possibility, there will be a good beginning for large boat market and Merbatty will be in a

virtuous circle.

Feasibility Consideration

Merbattys research shows that skilled labour is available in Surania and also there

are sufficient skilled employees at Mebattys exiting boat building facilities who are

willing to be seconded to the new facility.

Merbatty already has sales agent located in Surania who has been selling Merbatty

boats for over 15 years, and they will continue generating sales through his

established reputation and contacts. In addition, Merbatty has recently appointed

four additional sales agents in other countries in the Middle East region.

Recommendation

Based on the above assessment, this proposal should be accepted. This is due to the

increasing demand for the large boat and this racing will enhance the brand awareness. This will

give the Merbattys large boat market a good beginning.

4.4 Accident at Work

Background

One of Merbattys employees called Paulo arrived for work high on drugs. He fell off and

broke his leg .Paulo is a good friend of Jesper (marketing director). Jesper was aware of Paulos

drug taking habit but decided to ignore it.

Dilemma


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Merbatty has encountered 2 ethical issues.

The first dilemma is whether Jesper should ignore Paulos drug taking habit. On the

one hand, it is Jespers responsibility to take reasonable care for the health of his

employees and erase potential risks in the work place. On the other hand, Paulo is

his good friends and Jesper is concerned about if he informs Paulo, their friendship

may come to an end.

The second ethical issue is that Paulo goes to work after taking drugs. It evidently

breaks the code of conduct for employees and this careless behavior will pose a

threat to other co-workers.

Recommendation

For the first issue, Jesper should tell the company that Paulo has been taking drugs.

As a marketing director, he should act in the interest of the company. After that, he

should comfort Paulo and offer help if he needs because they are good friends.

For the second issue, Paulo should obey the code of conduct for employees. As a

result, every employee has the duty to obey the rules set out by the company.


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5. ACHIEVABILITY OF THE FIVE-YEAR PLANBased on the Appendix 1, the year on year growth rates forecasted increase from 10.56% to

18.34% for revenues and 10.53% to 14.17% for operating profits with operating margin

remaining relative constant.

From Appendix2 we can see the market share in Middle East increases significantly from

7.97% to 18%. Europe still the main market makes up about 40% of the total revenue. The

remaining 5countries havent changed much during 5 years.


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Sales revenue 2012

Planned sales revenue 2017

Documents

CIMA 2014 CASE REPORT.docx