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Answer The Following Question.: Section C

Option 1 involves B-Pharma entering the European market through hostile takeovers of several European companies at a cost of $100 million. However, the European plants would need modernizing, workers may resist restructuring, and workers are concerned about B-Pharma's animal testing scandal. Option 3 involves diversifying into animal drugs through a $120 million joint venture with a Japanese company. This new market is very competitive and risky for B-Pharma as they have no experience in it. The decision tree shows Option 1 has a higher predicted revenue of $101 million compared to Option 3 whose predicted outcome is unknown.

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210 views2 pages

Answer The Following Question.: Section C

Option 1 involves B-Pharma entering the European market through hostile takeovers of several European companies at a cost of $100 million. However, the European plants would need modernizing, workers may resist restructuring, and workers are concerned about B-Pharma's animal testing scandal. Option 3 involves diversifying into animal drugs through a $120 million joint venture with a Japanese company. This new market is very competitive and risky for B-Pharma as they have no experience in it. The decision tree shows Option 1 has a higher predicted revenue of $101 million compared to Option 3 whose predicted outcome is unknown.

Uploaded by

Loraine
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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–6– SPEC/3/BUSMT/HP1/ENG/TZ0/XX

SECTION C

Answer the following question.

5. The Board of Directors at B-Pharma are now exploring the other two strategic options:

Option 1: Market development in Europe

Likely overall cost: $100 million.

To gain productive capacity and a network of distribution channels in Europe, B-Pharma could enter
this market through hostile takeover of several European companies. The businesses could be bought
cheaply.

However, to achieve synergies, some obstacles must be overcome:


• the plants available for acquisition need modernizing. As a result they could benefit from factories
latest total quality management (TQM) methods
• European workers expect empowerment and are likely to resist any attempts at restructuring
• European workers are concerned about B-Pharma’s reputation after hearing about the animal
testing scandal.

Option 3: Diversification of the product portfolio

Likely overall cost: $120 million.

Some directors think that the company could be seen as more ethical if they made products to improve
animal welfare. B-Pharma could produce a range of drugs for animals to be sold to vets. This huge
and growing market around the world is very competitive and for B-Pharma has several risks. This
market is completely new to B-Pharma so a joint venture with an experienced Japanese company has
been suggested. B-Pharma is considering a new brand name.

The two options are summarized on the decision tree below:

Probability Forecast revenue

Option 1 Successful 0.9 $220m


$100m Not successful 0.1 $30m

Predicted
Option
outcome
Successful 0.3 $800m 1 $101m
Option 3
3 ??
$120m Not successful 0.7 $40m

(This question continues on the following page)


–7– SPEC/3/BUSMT/HP1/ENG/TZ0/XX

(Question 5 continued)

Using quantitative and qualitative data from the case study and the additional stimulus
above, recommend which option 1 or 3 is best for achieving B-Pharma’s objective of
growth.

You will find it useful to calculate the predicted outcome for Option 3 in the above
decision tree. [20 marks]

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