Professional Documents
Culture Documents
Strategic Level
Question Paper 2
Examiners Answers 19
The answers published here have been written by the Examiner and should provide a helpful
guide for both tutors and students.
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P6 Business Strategy
P6 Management Accounting Business
Strategy
19 May 2009 - Tuesday Morning Session
Instructions to candidates
You are allowed 20 minutes reading time before the examination begins
during which you should read the question paper and, if you wish, highlight
and/or make notes on the question paper. However, you will not be allowed,
under any circumstances, to open the answer book and start writing or use
your calculator during this reading time.
You are strongly advised to carefully read ALL the question requirements
before attempting the question concerned (that is, all parts and/or sub-
questions). The question requirements are contained in a dotted box.
ALL answers must be written in the answer book. Answers or notes written
on the question paper will not be marked.
Maths Tables and Formulae are provided on pages 13 and 14. These pages
are detachable for ease of reference.
The list of verbs as published in the syllabus is given for reference on the
inside back cover of this question paper.
Write your candidate number, the paper number and examination subject title
in the spaces provided on the front of the answer book. Also write your
contact ID and name in the space provided in the right hand margin and seal
to close.
Tick the appropriate boxes on the front of the answer book to indicate which
questions you have answered.
TURN OVER
2
SECTION A 50 MARKS
[the indicative time for answering this section is 90 minutes]
ANSWER THIS QUESTION
Question One
Introduction
AAA is a large banking group, based in a European country. AAA is stable and financially
sound. It has several hundred local branches, and has a large number of personal and business
customers. A personal customer is a private individual, and a business customer is a
commercial organisation (such as a sole trader, partnership, limited company or not-for-profit
organisation).
The Personal Banking Division of AAA is based at Head Office, and is responsible for
establishing policy and procedures for the way AAA deals with personal banking customers. In
addition to normal bank accounts, the Personal Banking Division also offers customers credit
cards, loans and insurance products. The Business Banking Division offers the same services
to business customers. All branches of AAA deal with both personal and business customers.
The branches are responsible for implementing policies set by the two divisions.
Each branch manager within AAA is responsible for the control of the costs, staff, business and
premises of their branch. The branch manager must comply with the policies and procedures
established by the senior managers of the two divisions. Part of the cost of each Head Office
division is allocated to the branches, in line with activity levels. The branch managers participate
in a bonus scheme, based on the profitability of their branch. Senior managers in each of the
divisions participate in a separate bonus scheme, based on the overall profitability of the Bank.
The Student Account Campaign
For the last three years, the Personal Banking Division of AAA has run a campaign to recruit
university students as account holders. As an incentive, AAA offers student account-holders
free banking while they remain in full-time study. Typically this is for three years. At the end of
the free banking period, student accounts become subject to the normal terms for personal
account holders.
The student account campaign is very unpopular with branch managers, as student accounts
are effectively loss-making for the period during which free banking is offered. This has an
adverse impact on the profitability of the branch, and therefore on the level of performance
bonus earned by the branch manager. This issue has recently become more significant to AAA,
following the resignation of the manager of Branch 32.
A typical student lifecycle
A new student account customer costs 30 to recruit. This cost is an apportionment of central
marketing costs, which is passed on to the branch that opens the account. An additional
administration cost of 20 is incurred in the branch for opening the account. Thus, the total initial
cost is 50.
The student account holders typically pay no bank charges for the first three years. After this
they pay bank charges of an average of 200 each year. The cost in the branch of maintaining
any account is 60 each year. In each year, the bank assumes that the probability of any
customer defecting (that is, closing the account and moving to a competitor) is 20%. Such
defections can be assumed to happen at the beginning of each year, including the first year.
AAA operates at a cost of capital of 10%.
The competitive environment
AAA is one of five major banks in the country. There are also a number of smaller banks, some
of which specialise in either personal or business banking. Each bank offers a wide range of
incentives to attract and keep personal customers. Personal customer defection is quite
common, as they shop around for the best deals. Business customers, however, tend to be
loyal to the bank and branch at which they open their first account.
May 2009 3 P6
Banks recognise that personal customers often require a wide range of add on services, such
as loans, insurance and credit cards. These products can be very lucrative for the bank, so they
are often marketed aggressively to personal customers.
At present, three of the other major banks offer free banking to new student customers for
between one and three years. One of the smaller banks offers three years of free banking to
students and, additionally, gives each new student customer vouchers worth 30 for music
downloads from a major Internet-based music distributor.
Branch 32
Branch 32 of AAA is located on the edge of a small city, only one kilometre from a large
university campus. From 2002 until March 2009, the manager of Branch 32, was Ms A. In each
of the years 2002 to 2005, Ms A received a performance bonus equivalent to about 20% of her
basic salary. In 2006, Ms As bonus was only 8%, and in the last two years she received no
bonus at all as Branch 32 did not achieve the base level of profitability necessary to trigger a
bonus payment.
In February 2009, Ms A attended a regional management meeting, where all the branch
managers in the region met with senior managers from the two divisions to discuss the financial
performance of their branches and business policy. The Marketing Manager of the Personal
Banking Division explained, to the regional meeting, that the student account campaign is based
on the concept of customer relationship marketing.
Ms A was shocked to find that she was the only manager in the region not to receive a
performance bonus. As a result, Ms A resigned from the Bank and has since joined a
competitor. A replacement manager for Branch 32 is now being sought, but no applications from
within AAA have been received. The deputy manager of Branch 32 has also been offered
promotion to manager but has declined. He has said that he would prefer to wait for another
branch management job.
The next senior management meeting of the Personal Banking Division
The Marketing Manager of the Personal Banking Division has approached you, as Management
Accountant of the Division, and asked you to attend the next senior management meeting of the
Personal Banking Division. He wishes you to help him to explain why the student account
campaign should be continued. He is keen to persuade his colleagues that, rather than abandon
the campaign, other policies and procedures should be changed to ensure its success.
TURN OVER
P6 4 May 2009
[This page is blank]
May 2009 5 P6
Required:
Produce a report to the senior managers of the Personal Banking Division, covering the
following:
(a) Explain what is meant by the term customer relationship marketing, and how it
differs from transactions marketing.
(4 marks)
(b) Discuss the advantages and disadvantages, to AAA, of adopting a customer
relationship marketing approach to dealing with student account holders.
(12 marks)
(c) Briefly explain the concept of customer lifecycle value and how it might be used to
justify the student account campaign.
(4 marks)
(d) Calculate and analyse the customer lifecycle value of a student account, based on
the information provided, over the first ten years of the customer life. Assume that
all cashflows, with the exception of the recruitment cost, occur at the end of the
period to which they relate.
(14 marks)
Note: There are 10 marks available for calculations in this requirement.
(e) Discuss five changes that might be made to the branch managers bonus scheme,
if AAA chooses to continue with its customer relationship marketing approach to
student accounts.
(10 marks)
(f) Advise the senior managers of the Personal Banking Division whether to continue
with the student account campaign and, if so, which of the changes to the bonus
scheme (discussed in (e) above) should be adopted.
(4 marks)
End of Section A
Section B starts on page 8
TURN OVER
P6 6 May 2009
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May 2009 7 P6
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TURN OVER
P6 8 May 2009
SECTION B 50 MARKS
[the indicative time for answering this section is 90 minutes]
ANSWER TWO QUESTIONS FROM FOUR
Question Two
Genetically modified (GM) plants are produced by adding a gene from another species. This is
so that the plants are more resistant to weed killer or pests, and are able to grow with less water
or in other difficult conditions. GM crops are substantially more profitable for farmers than
normal crops because they produce far larger yields per acre. GM crops are seen by many as
the great hope for ending starvation around the world.
There are concerns, however, especially in Europe, about the possible long-term negative
impact of genetically modifying crops. There is further opposition based on fears that
conventional crops growing in fields some distance away from a GM crop can be damaged by
the GM crops DNA.
B is a privately owned biotechnology company based in Europe. B has developed a process
which makes seeds pest resistant without genetically modifying those seeds. Up to now, the
company has only operated at the laboratory scale and has no production facilities capable of
producing commercial quantities of the seeds.
Due to the nature of the biotechnology industry, B has been very secretive about the research
work it is conducting. However, the news of the recent invention has caused a lot of excitement
in the scientific community. Within this community this non-GM technology, developed by B, is
seen to have the potential to contribute significantly to both the economy and the well being of
populations in poorer countries.
Recently, however, B has faced increasing protests from environmental lobby groups and
elements of the local community near its laboratories. These groups want B to stop developing
and testing these non-GM seeds. These stakeholder groups claim, incorrectly, that the seeds
are genetically modified.
The government of the country in which B is based is currently conducting an enquiry into the
safety of GM crops. The enquiry is not likely to reach a conclusion for another 18 months. The
expected conclusion is a ban on the research and development of GM crops. Some other
countries have already banned research and development into GM crops, whilst other countries
have approved such research.
Although B does not genetically modify seeds, the Board believes that the company will suffer
from the adverse publicity that will result from a ban on research and development into GM
crops.
The Board of B is considering the following options:
1. The company could work to convince the stakeholders that it is not genetically modifying
seeds and that it is in the best interests of everyone that it is allowed to carry on with its
research.
2. The company could move to a country where there is a more tolerant attitude to research
and development in the area of biotechnology.
May 2009 9 P6
Required:
(a) Discuss the corporate responsibility that B has towards the government, the
environmental lobby groups and the local community as stakeholders.
(8 marks)
(b) Recommend how B can improve relationships with the government, the lobby groups
and the local community.
(9 marks)
(c) Discuss the corporate social responsibility (CSR) issues relating to Bs option to
relocate, using the four dimensions of CSR; legal, ethical, economic and
philanthropic.
(8 marks)
TURN OVER
P6 10 May 2009
Question Three
The telecommunications market in C, a developing country, has recently been deregulated and
opened to foreign competition. The national telecommunication company was split into four
separate companies, each of which has approximately 25% of the local market. The national
telecommunication company was using old equipment and was in need of considerable capital
investment. Each new company is individually quoted on the local stock market and the shares
are held by both institutional shareholders and members of the general public.
The government of C made the decision to open the telecommunications market up to private
investment to ensure that the country benefitted from the recent improvements in
communications technology. There was some strong resistance to the privatisation from other
stakeholders in C and the government is under political pressure to ensure that the country
benefits from any foreign involvement.
Y is a successful and well established international telecommunications company. It has grown
by acquiring companies in established markets. The company wishes to expand into C and is
considering how to achieve this. If successful, this will be the first time that Y has entered a
market at such an early stage of market deregulation.
The managing director of Y has stated that she would prefer to acquire one of the existing
companies in C because this is the approach Y has always used.
However, other members of the Board of Directors have suggested that the best way forward
may be to form a joint venture with one of the existing companies in the market. If Y were to
adopt this strategy, this would be the first strategic alliance into which the company had entered.
The managing director of Y is concerned about the risks involved in joint ventures and has said
that she is concerned about the reported lack of success of joint ventures.
Required:
(a) Explain the characteristics of a joint venture.
(5 marks)
(b) Discuss the benefits to country C of a joint venture between Y and one of the
telecommunication companies in C.
(10 marks)
(c) Evaluate the risks that Y should consider before entering into a joint venture with one
of the telecommunications companies in C
(10 marks)
(Total for Question Three = 25 marks)
May 2009 11 P6
Question Four
D is a printing company that was founded by three people 20 years ago. At that time, the
company used a new technology which had been developed by one of the founders. Another
founder member was a finance professional. The third person is Mr Z, who has a strong,
dynamic, personality. Mr Z has been the driving force behind the development and growth of the
business to its present size of 350 employees. With a charismatic leadership style, Mr Z was
very proud of the fact that he knew all employees by their first names and considered everyone
to be part of one big team. Everyone understood exactly what the company stood for and how
things should be done.
As the company has grown, Mr Z feels he is not in touch with newer members of staff and that
they do not understand his, and the companys, values.
In addition, the technology used by D is no longer considered innovative and there are a
number of other competitors operating in exactly the same way. D is still market leader within
the industry, but only by a few percentage points. Mr Z feels that the industry has reached the
maturity stage of its lifecycle.
An acquaintance of Mr Z, a management consultant, has suggested that the company should
have a published mission statement and a clear set of strategic objectives.
Required:
(a) Identify the characteristics of the maturity stage of the industry lifecycle.
(5 marks)
(b) Discuss the issues that the management of D would need to consider when creating
an appropriate mission statement.
(15 marks)
(c) Discuss the characteristics of strategic objectives that would be appropriate for D at
this stage of the industry lifecycle.
(5 marks)
(Total for Question Four = 25 marks)
TURN OVER
P6 12 May 2009
Question Five
E is a global environmental charity. E is internationally recognised for its work in the area of
sustainable development and the protection of endangered species and habitats.
Some supporters of E have criticised the organisation for its lack of clear direction in an
increasingly competitive environment. Donations to charities have been declining, year on year,
for the past five years.
The structure of E is unusual in that there is an autonomous division in each country in which
the charity operates. There are 45 autonomous divisions, each headed by a CEO. It is the
responsibility of each divisional CEO to report to the Supervisory Board of 10 trustees, which is
based in a European country. Four times a year, the 45 CEOs meet for two days to discuss
performance and their plans for the future. The meetings usually finish with no clear decisions
about a unified direction for the charity to take. The divisions act independently for the next three
months. This has led to a number of crises, both financial and non-financial, in the past five
years.
As a result, the Supervisory Board has recognised that the charity cannot continue with the
existing lack of direction, control and accountability. The Supervisory Board has decided to
introduce a performance measurement and control system which will help it to implement a
clear strategic direction for the charity. The Supervisory Board recognises that this will be a
significant change for the CEOs and managers, and the Board expects considerable resistance.
A consultant has suggested E should introduce a balanced scorecard system of performance
measurement and control.
Required
(8 marks)
(c) Recommend the steps that could be taken to overcome the resistance to change.
(5 marks)
(Total for Question Five = 25 marks)
May 2009 13 P6
MATHS TABLES AND FORMULAE
P6 14 May 2009
Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n years
1 (1+ r ) n
r
FORMULAE
Annuity
Present value of an annuity of $1 per annum, receivable or payable for n years, commencing in one year, discounted at
r% per annum:
1 1
PV = 1 n
r [1 + r ]
Perpetuity
Present value of $1 per annum, payable or receivable in perpetuity, commencing in one year, discounted at r% per
1
annum: PV =
r
May 2009 15 P6
LIST OF VERBS USED IN THE QUESTION REQUIREMENTS
A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for
each question in this paper.
It is important that you answer the question according to the definition of the verb.
LEARNING OBJECTIVE VERBS USED DEFINITION
1 KNOWLEDGE
What you are expected to know. List Make a list of
State Express, fully or clearly, the details of/facts of
Define Give the exact meaning of
2 COMPREHENSION
What you are expected to understand. Describe Communicate the key features
Distinguish Highlight the differences between
Explain Make clear or intelligible/State the meaning of
Identify Recognise, establish or select after
consideration
Illustrate Use an example to describe or explain
something
3 APPLICATION
How you are expected to apply your knowledge. Apply To put to practical use
Calculate/compute To ascertain or reckon mathematically
Demonstrate To prove with certainty or to exhibit by
practical means
Prepare To make or get ready for use
Reconcile To make or prove consistent/compatible
Solve Find an answer to
Tabulate Arrange in a table
4 ANALYSIS
How you are expected to analyse the detail of Analyse Examine in detail the structure of
what you have learned. Categorise Place into a defined class or division
Compare and contrast Show the similarities and/or differences
between
Construct To build up or compile
Discuss To examine in detail by argument
Interpret To translate into intelligible or familiar terms
Produce To create or bring into existence
5 EVALUATION
How you are expected to use your learning to Advise To counsel, inform or notify
evaluate, make decisions or recommendations. Evaluate To appraise or assess the value of
Recommend To advise on a course of action
P6 16 May 2009
Business Management Pillar
P6 Management Accounting
Business Strategy
May 2009
May 2009 17 P6
The Examiner for Management Accounting Business Strategy offers to
future candidates and to lecturers using this booklet for study purposes, the
following background and guidance on the questions included in this
examination paper
Section A compulsory
Question one requirement (a) tests learning outcome B(iv) discuss how suppliers and
customers influence the strategy process and recommend how to interact with them and the
syllabus content negotiating with customers and suppliers and managing these relationships.
Requirement (b) tests learning outcome A(iii) evaluate the nature of competitive
environments, distinguishing between simple and complicated competitive environments and
the syllabus content Porters Five Forces model and its use for assessing the external
environment and competitor analysis and competitive strategies. Requirement (c) tests
learning outcome C(vi) discuss and apply both qualitative and quantitative techniques in the
support of the strategic decision making function and the syllabus content assessing
strategic performance. Requirement (d) tests learning outcome and syllabus content as in
requirement (c). Requirement (e) tests learning outcome D(iii) identify problems in
performance measurement and recommend solutions and the syllabus content business unit
performance and appraisal, including transfer pricing, reward systems and incentives, and
agency theory. Requirement (f) tests learning outcome B(iv) and the syllabus content as in
requirement (a).
SECTION A
Terms of reference
This report examines various aspects relating to the adoption of customer relationship marketing
and, in particular, the implications of this technique for the student account campaign and the
branch management bonus scheme.
(a)
Customer Relationship Marketing
Customer relationship marketing is the devotion of marketing resource to maintaining and
exploiting the organisations existing customer base, rather than using resources solely to attract
new customers. It differs from conventional, or transactions, marketing in that it focuses on
developing a long term relationship with a customer, and securing their loyalty. A criticism of
transactions marketing is that it encourages a series of one-off sales, each of which is relatively
expensive to secure. It is widely felt that it is far cheaper to retain an existing customer than to
secure a new one.
(b)
The student account campaign
The implications of using a customer relationship marketing approach in the current student
account campaign are as follows:
Advantages to AAA
Attracting new customers, and keeping them for at least three years (while they have
free banking) should lead to better customer loyalty and a reduced risk of defection
both during and after the three-year free period. Bank customers have very high
bargaining power, as they are able to switch at little or no cost.
May 2009 19 Examiner's Answers P6
Differentiating the service offering, by giving one of the best new student deals in the
industry and providing excellent service levels, should allow AAA to gain a competitive
advantage over rivals. Currently, the deal offered by AAA is on a par with the best
available from the major banks. While a smaller bank offers a better deal, it is unlikely to
be able to compete in terms of branch coverage.
A loyal ex-student account pays back (on an undiscounted basis) within two years of
losing the entitlement to free banking. (2x 140 contribution, less 50 recruitment cost
and 3x 60 operating cost). Thereafter, each loyal ex-student account contributes 140
annually.
Loyal student customers should turn into loyal personal and business customers, thus
generating significant additional profit for little or no marketing outlay. Such customers
may also buy additional products from the bank, such as credit cards, insurance and
loans. These should also generate profit, again at little or no marketing cost.
Disadvantages to AAA
Offering any free or cheap service for an initial period means that the bank is taking a
risk that a student may defect during or after the free banking period. This could result in
the bank losing money on student accounts, while failing to recoup those losses from
the loyalty of ex-students.
There will be a short-term adverse impact on the profitability of the bank, as all new
student accounts run at a loss. However, the campaign has been running for three
years now, and the bank should be able to tell what proportion of its students remain
loyal after free banking has been withdrawn.
AAA might find that the overall performance of the bank deteriorates, as a result of the
worsened motivation level of branch managers (see below). There is also likely to be an
adverse impact on staff turnover, as has already been the case with Branch 32. Staff
obviously have fairly high bargaining power, as they are able to find employment with
rival banks. It may prove impossible for the bank to recruit or transfer managers to
branches with a large number of student accounts.
(c)
Customer lifecycle value
The essence of customer lifecycle value is to estimate the present value of the net cashflows
likely to arise during the life-time of a customer. This is done by estimating:
The cost of acquiring a customer
The revenues generated by a customer
The cost of providing products or services to the customer
The probability of the customer leaving or failing to return
The probability of the customer purchasing additional products or services
The value of any further customers recruited by the customer as a result of referrals
The concept of customer lifecycle value can be applied to student account customers, to
determine whether each such customer is likely to generate a profit over a lifetime.
Requirement (b)
If the directors of B decide to stay in the country and convince the various stakeholders that its
process is safe, there will need to be a more transparent approach to openness, communication,
education and consultation. The company is in the present situation because two relatively
powerful stakeholder groups do not understand the nature of the business that B is conducting.
The government
The government should also be considered a powerful group, since it is soon to make a
judgement about a large sector of the biotechnology industry. The government, whilst
May 2009 23 Examiner's Answers P6
conducting its enquiry, is certain to gather information from the lobby groups, and quite possibly
from the local community, before reaching a decision about the future of the research.
B should make the government aware of the advantages that the research will bring to
the country. This should be done at the highest possible level. The fact that it has
developed a process which does not involve genetic modification should be stressed
particularly as the government is likely to be antiGM crops. Additionally, the point
should be made that the development has the prospect of enhancing the international
reputation of the country as the product is likely to have far reaching impacts. The
prospect of significant export earnings should also be made.
The government will employ scientists of its own and it is not unreasonable to expect B
to be able to convince those scientists that the companys new technology is both safe
and beneficial. B should make every effort to build relationships with those scientists
and keep them informed of the development process.
In its dealings with the government, B should build closer relationships with the civil
servants in the sections of government associated with trade, overseas aid, and
scientific matters. It might also build closer relationships with universities which are run
by the government. This relationship building will help, and may even lead to employees
of B being consulted by the government about future developments within the industry.
B should be, publicly, seen by all concerned to be cooperating with the government in
the current enquiry and ensuring that it convinces it hat the process it uses does not
involve genetic modification. There should be regular press briefings and articles within
the popular scientific and agricultural press describing the nature, safety, and benefits of
the new process.
Naturally, this will always present difficulties for any research-based organisation since
much of its work is, by definition, confidential.
The environmental lobby groups
Both the lobby groups and the local community believe, incorrectly, that B is experimenting with
genetically modified crops. Since it is not, and since the product it has developed should be
beneficial to disadvantaged groups of farmers, it should be possible to convince them to be
supportive of B rather than against the companys operations. The problem with the lobby
groups has arisen because of poor communication and misunderstanding.
B must explain to, and convince, the lobbyists that B is acting both ethically and as a
good corporate citizen. It is important that the lobby groups are convinced that Bs
process does not involve genetic modification. Again, it is safe to assume that the lobby
groups will either employ scientists on their staff or will have scientific experts to whom
they regularly refer. B must explain to those scientists enough of the new technology for
them to accept that this process is beneficial.
B should stress that, if the improved seeds lead to better crops for farmers, then they
will have a better standard of living and, possibly, become more ecologically aware
themselves.
B should offer to conduct a joint education programme with the lobby groups for farmers
who are using the new seeds. This would help to build bridges between the
organisations and, to some extent, would give a seal of approval as the commercial
organisation is seen to be working with the campaigning organisation for the betterment
of disadvantaged groups. B could fund this education programme and use its own
scientists, together with those from the lobby groups, to visit foreign agriculture
ministries and explain the value of the process.
The local community
Although this is most probably the least powerful of the groups that are presenting B with
problems, it is still important, since it can influence government in its decisions. Whilst this is
only possible at national government level, it is certain at local government level where these
people are voters and can bring pressure to bear on local politicians to stop B conducting its
business.
B should determine the scientific qualifications of any spokespersons for the local
community to see if there are any who would understand the current process. If there
are any suitable qualified people, B should concentrate on them to act as messengers
to all concerned parties, such as local farmers and associations.
Requirement (c)
Considering the four elements of corporate social responsibility, legal, ethical, economic and
philanthropic, the following points should be considered:
Legal
There is nothing illegal in what B is proposing to do. B is just exchanging one legal environment
for another, which it believes to be less onerous. As long as the legal system in the country to
which it chooses to relocate is a just, fair and transparent one, then there should be no
argument against relocation. However, B will need to be aware of the body of international law
that is developing in the area of genetic engineering, and to ensure that it complies with that
(and with best practice) in terms of its research & development and production operations.
Similarly, should B choose to develop the business with a joint venture partner, B must ensure
that its chosen partner conducts its business to the same legal standards.
Ethical
The issue of the ethical considerations of Bs action is more complex. Decisions about whether
something is ethical or not are more dependent upon peoples perceptions and, certainly in this
situation, the environmental lobby groups are convinced that genetic engineering and
manipulation are wrong. This will be the case regardless of where B intends to conduct its
business. Quite possibly the local community, which has protested against Bs business, will be
happy to see B leave and will be satisfied that the business is not in my back yard. The
directors and employees of B are already happy that their work is ethically sound, so it is only
external stakeholders that might present a problem. Whether there will be stakeholders in the
chosen country, or internationally, that will consider Bs business to be unethical is an issue
which B must address. It may well be that the government and population of the chosen country
will feel that the ability to produce seeds which are better able to feed people outweighs any
concerns about genetic modification.
Economic
There is no doubt that the market for genetically modified food is growing rapidly and in
economic terms this is a good business to be in, both for B and the country in which B is based.
For B, the fact that it can continue in business will be good for its shareholders and, with a
suitable market, presents the opportunity for growth. For the country to which it relocates, there
is the prospect of tax revenue from Bs business and from the costs that B will incur in the
country when it makes use of local goods and services. If B is successful in the country, there is
also the prospect that other, similar companies, will choose to relocate there and a cluster
effect may develop. It will be in Bs interests to, wherever practicable, arrange for technology to
be transferred to the host country via cooperative arrangements with the local universities and
public research facilities as long as it is sure that the companys intellectual property rights are
protected. Joining in cooperative research projects with local industrial and/or industrial
associations would also be a good idea.
Philanthropic
In addition to its commitment to the business and economy of the chosen country, B needs to
consider the softer side of its involvement. B should aim to improve the quality of life of the
workforce, their families, and the community at large. There should be an objective of building
sustainable livelihoods and being seen as a good corporate citizen. CSR is sometimes defined
as business giving back to society. For B this could include scholarships for locals to attend
May 2009 25 Examiner's Answers P6
university, education programmes for farmers, and partnership in education and social projects.
The staff who re-locate with B will have both scientific skills and, quite possibly, a broader
knowledge base which they can pass on to the local community via a programme of
volunteering. Similarly, where their families have relocated with them, those family members can
work with, teach and learn from the local community.
If B handles the relocation sensibly, there are no CSR implications for the company that cannot
be effectively dealt with.
Note: For the purpose of teaching, these answers are more detailed than necessary.