Page 16 - CIMA MCS Workbook November 2018 - Day 1 Suggested Solutions

CIMA NOVEMBER 2018 – MANAGEMENT CASE STUDY

before purchase. Advancements in technology to be more competitive in the market is
a key issue, with market players needing to invest and constantly improve their R&D
departments.

 ecological/environmental influences – laws related to environment friendliness and
disposal of products are constantly growing more stringent world‐wide with all players
in the industry having to refocus. The products which are low on environmental effect
may receive tax subsidies and are favoured by governments. From a legal perspective,
pollution tests have grown stricter and the products passing these tests only are
allowed in certain markets for example the EU and UK.

Environment friendliness has become an important test for industry in the 21st century
as governments have started focusing heavily on pollution control, necessitating a more
frequent asset replacement policy than in previous years. In addition the control of
waste on the external environment in terms of pollution and sustainability are of
increasing relevance to GRAPPLE due to disposal of waste products during the
manufacturing process. From an ethical perspective there is also considerable concern
as to the treatment and payment of workers, particularly given any potential move to
low wage economies. In addition, fair treatment of suppliers in low cost negotiations
and the use of “greener” materials in manufacturing are additional factors to consider.

 legal influences – are another important factor that affects the profitability and
performance of the product. Products used in the market are subject to laws related to
product quality and health effects of the product. The pollution laws have grown
stricter and products have to pass strict controls plus laws related to health and safety.
Fines can be set by governments if companies do not meet standards regarding
manufacturing, production, and distribution, which can have an important impact on
the acceptability of products. Apart from this, there are environmental laws that
companies have to deal with while operating in the market e.g. control over waste
disposal. Changes in laws and regulations, the damaging effects of compensatory
claims for poor quality products as well as intellectual property (applicable on patented
flavours and brands), advertising legislation and employment law must be considered.
Similarly newly proposed data protection law affecting the treatment of customers and
staff needs to be considered. Ignoring such aspects can only serve to damage the
GRAPPLE brand.

Porters Five Forces:

 New entrants – (low threat) it will be made difficult because of barriers to entry. Existing
firms have cost and performance advantage in this industry. This is because existing firms
have already purchased large capital expenditures and have economies of scale. They also
have direct supply and distribution channels setup. Soft drinks are not proprietary
products because anyone can make soft drinks. The only proprietorship is on patented
flavours and brands. The majority of soft drinks have well‐known brand identities, with
the exception of generic brands. Brand identities define soft drink flavours (i.e. Sprite
means lemon‐lime, or Coke means cola). There are no significant costs in switching
suppliers. The soft drink industry is very competitive, so prices only fluctuate slightly
depending on geographical location (transportation) or short‐run sale discounts. A lot of
capital is needed to enter this industry because, there are large capital costs needed for
manufacturing. Bottling, distribution, and storage could be contracted out, but it would

66 KAPLAN PUBLISHING