PRAMODHYA SOORIYABANDARA
12 COM A
Section A
1.) Analyse the benefits to GCC of being a widely diversified conglomerate [10]
A conglomerate is when a two or companies who are in completely different companies join together.
Diversified would basically mean that the compnay is producing a lot of unrelated goods and services. GCC
is a widely diversified conglomerate and their product base is vastly varied from steel, cars, transport,
publishing, construction, education to food processing.
Being a widely diversified coglomerate would help to earn even during recession. Even though cars and
constructions are expensive and might be postponed during recession, education is an industry which is
considered to be a necessity and a compulsory need a child should consume. Therefore these industries
tend to earn well even if there is an economic downturn, Therefore GCC can be widely benefited from being
a diversified conglomerate.
Being widely diversified conglomerate would help GCC to earn very high reputation and this would bring in
more customers and high profits.This can be done through attractive advertising and promotion which
would help GCC to build a brand loyal cutomer base. This would increase GCCs competitive power.
Being widely diversified would also help GCC to increase shareholder confidence. Since they have more than
one area to earn from it would be easy for GCC to attract new shareholders since they would have faith that
they'll be able to earn dividends even if one industry fails as they have more industires to earn profits from.
Being widely diversified conglomerate would also help GCC to obtain economies of scale. As it is a way of
external growth, GCC would be able to obtain economies of scale through number of ways like,
technological economies of scale as they have the ability to use expensive technology unlike small firms and
purchasing economies of scale as they do bulk buying for industries like steel and cars which might have alot
of in common raw materials. Therefore they would be able to reduce their average costs.
2.) a.) refer to appendix 1. calculate the following ratios at 31st may 2012 :
i.) Dividend yield [3]
Dividend per share/market price per share*100
0.14/2.00*100 = 7%
ii.) Price earnings ratio [3]
market price per share/ earnings per share
2.00/0.64 = 3.125
b.) Assess whether the directors of GCC should substantially increase dividends to shareholders.
[14]
Shareholders are a group of people who buy shares of a limited company in return for a dividend. Dividends
doesnt affect the final profit of a business as it is paid after calculating the final profit.
The dividend paid for the shareholder should be substantially increase as if not it would discourage the
shareholders and would lead to less share capital. This would worsen the situation of GCC as the country is
already in an economic downturn.
The dividend paid to the shareholders should also be substantially increased as it would attract new
investors to GCC which would help them earn more share capital. As the country is already in recession it
would help them to continue without taking other ways to finance like bank loans which would negatively
affect the liquidity of GCC.
On the other hand increasing the dividends paid to the shareholders will make GCC to consider other forms
of finance like bank overdrafts and loans. This can be because of GCC planning to increase dividend by
reducing their retained earnings by 2013. This could be why they might have to consider bank loans and
other forms of external finance which might negatively effect their liquidity and might also lead to costs like
interest payments.
In conclusion whether to substantially increase the dividend payment to shareholders would depend on the
dividend paid by other companies. This would affect the mindset of shareholders if rival companies pay
higher dividends and they might decide to move to those companies and buy shares from them which might
increase their share capital and competitive power.
whether to substantially increase dividend should also depend on the ability of GCC to take other measures
to make shareholders happy like giving bonus shares. This would encourage the shareholders to not be
unhappy and to be patient for the dividend for the time being.
3.) Discuss whether the 'computer based communication system and the greater use of video
conferences' will solve the communication problems within GCC. [14]
computer based communication system and the greater use of video conferences fall sunder the IT and web
based media (electronic media).
4.) a.) Refer to appendix 3. Calculate the annual contribution for 2012 earned by Assured High
School. [6]
Total fee revenue - (total direct labour costs + other direct labour cost)
$1.035 - ($0.85m + $0.11m) = $0.075m
b.) Recommend whether Assured school should be closed or not. Justify your recommendation
using your results to 4(a) and other relevant information. [14]
contribution refers to the amount remaining after reducing all direct costs from the revenue. It is what is
left from the revenue to pay off the fixed costs of a business.
Assured school seems to have an annual fixed building maintenance cost of $0.20m in 2012 how ever only
have a contribution of $0.075m. Since they won't have enough money to pay off their fixed costs they might
eventually lead to business failure, which is why it would be best to close down the school.
However as stated by the Sue, closing down Assured school would lead to alot of redundancies and this
might lead to alot of trade union actions and pressure group activites which might damage the reputation of
GCC. Therefore they should rather consider a way to reduce their fixed costs or direct costs in order to
increase their contribution so that they could continue providing education.
Assured school should also not close down the school as their students has seem to rise in 2012 compared
to 2011. This could mean that if the number of students continue to grow then they would be able to
increase their contribution, where they would be able to pay their fixed costs.
In conclusion, whether to close or not to close Assured school should depend on the student fee. If they
are capable of increasing this fee for more than $2900 then they would be able to earn more revenue and
contribution. If it is possible then Assured school might not need to close down.
whether or not to close down Assured school should also depend on the reaction of the society. If Assured
school is closed down then the stakeholders like workers, parents of other schools might feel insecure too
and this might lead to issues like increasing number of students changing their school. Therefore the
decision should depend on such factors too.
5.) Recommend a marketing strategy for the GCC education subsidary. Justify your
recommendation. [16]
Marketing strategies are forms of methods used to promote and advertise a companys' product to the
society. Example: TV advertisments, billboards etc.
To start off GCC need to set the same name, charge the same fee and provide cambridge qualifications to all
the 46 schools they own and manage. This would help people to identify it by its unique brand and this
brand image will be helpful when come to promoting and advertising the school as well.
GCC can use social media as a form of marketing strategy. It is capable of reaching a wide international
market and would help pass information faster than any other strategy as well. As many people spend most
of their time on social media and since many parents spend alot of time to improve the education standard
of their children they might use internet and soical media to recieve these information. However the initial
cost and setting up websites can be quite expensive and handling these would even require well trained IT
staff, who would once again require high salaries.
Tv advertisements is also a good marketing strategy that could be used by GCC. Tv advertisments can be
done through the local media and this would help to attract the attention of the local viewer base. However
this can be quite expensive too as advertising through the local media of 46 schools in 4 countries can be
quite expensive, and this could lower the profts.
In conclusion, the financial availablity should be considered. Since it is already stated that eventhough some
school sadvertise in local papers, it is also said that some doesn't even have a advertising budget. Therefore
correct procedures should be taken to prepare proper budgets and allocate money in a effective way as it
will be at their disadvantage if they waste money during a time of economic downturn like that.
The marketing strategies used by rival leading schools should also be considered. If they ae using more
attractive promtion methods thn effectiveness of GCCs advertising can be low therefore they should be
considered in order to promote the schools well.
The maketing strategy might not be enough other promotion techniques must also be used like reduction of
fee for two or more students from the same family or free admission fee for the first 50 students or etc. This
would also be an effective marketing strategy that GCC could use.
Section B
6.) Sue Sharma must make the strategic choice between country A and country B for the location
of the new school. Evaluate the extent to which the economic data in Appendix 2 is the most
important information she should use when making this decision. [20]
Strategic choice is the way of deciding on the best option available for a business to earn their overall
business objective. Examples of strateguc choice can include, Ansoff's matrix, decision trees, Force field
analysis etc..
Appendix 2 includes information about the economic data for country A and B and these are factors that
cannot be directly affected by the power of GCC as they are economical factors. Therefore it is a direct fact
to GCC as it is a take it or leave it situation. This could mean that...
however this also mean thats methods like force field analysis cannot be taken into account. This is because
economical factors are restraining and driving forces that cannot be affected by GCC so the situation cannot
be improved for their wish.
Also these information only give us information about the options available and cannot take the decision for
the business and this can be a drawback of the information available. Also, economic data ae fast changing
since the economy changes rapidly therefore just having economic data might not be enough to make a
proper decision.
The economic data given by appendix 2 can also help GCC to do PEST analysis which is type of a strategic
analysis. Since proper analyzing must be done for a choice to be made this would greatly benefit GCC to
take the all the possible measures available to make a proper decision.
In conclusion this would also depend on the type of strategic analysis taken into account by GCC. Strategic
analaysis like SWOT are also methods that should be considered into account when it comes to making
important location decisions like this.
The importance of the economic data given would also base on the accuracy of them. If the data given
inaccurate then it woud drastically affect the final decision of the business which can lead to hug losses and
even business failure.
The importance of economic data given would also depend on the availabiity of all information. If only a
limited number of data is provided then the actual performance of the country cannot be figured out as
there can be conflicting policies that is used in those countries.Since many information is being provided it
would help GCC to make accurate decisions.
It should also depend on the type of methods used to collect the data. For example, there are number of
ways of finding out the unemployment rate of a country, some countries count the number of people who
collect the unemployment benefits while some countires use other methods and doesnt provide
unemployment beenfits at all. There can also be presence of shadow markets and illegal dealers and black
markets whose not being included in the employed group.