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IB Business Management: Todos os Mercados

Key Themes
Jim Riley
18th May 2016

What are the key themes in the IB Business Management May 2016 case study Todos os
Mercados? We've outlined below what we think is the key context from the case study
which you may be able to use effectively where relevant to an exam question.

Our IB Business Management Toolkit on Todos os Mercados contains answers to a

comprehensive suite of exam-style questions on the case study and is the ideal revision
aid as students prepare for this tough paper.

Unit 1: Business Organization and the Environment

TM is a public company and its strategy is to a large extent influenced by its profit-
driven objectives

The most important point to remember about TM is that competes by trying to offer
the lowest prices in the market. All aspects of its business management is organised to
support this aim. TM is organised to achieve maximum efficiency and lowest cost.
Some aspects of this are positive (customers enjoy the benefit of very low prices and
wide product choice). Other aspects may be viewed negatively (key stakeholders such
as employees and suppliers seem to be poorly treated)

TM operates in an intensively competitive market – supermarket retailing. The

competitive environment is likely to get even tougher as the effect of wider use of e-
commerce is felt. The suggestion from the case study is that TM has not been as quick
as other global competitors to embrace e-commerce. Is it too late?

TM is big – and it seems to use its power and size to get what it wants! Just ask TM’s
suppliers who seem to be under pressure to give TM the best possible terms. Just ask
 TM’s employees who are paid the minimum allowed and no more. Perhaps it is no
surprise that TM is increasingly under scrutiny from pressure groups who are pointing
to its poor record on business ethics and social responsibility. Can a MNC continue to
succeed globally if it does not act ethically or meet is broader social responsibilities?

Like any MNC, TM is not immune from changes in the economic environment. The
recent downturn in economic conditions in France is featured in the case study,
although this seems to have had a broadly positive effect on TM’s business there. In a
recession, consumers increasingly look for value for money, since disposable
household incomes are under pressure. Will TM’s lowest-price positioning continue to
be successful as economic conditions improve?

Unit 2: Human Resource Management

Who would want to be an employee or manager working for TM? Financial rewards are
very low, the workplace rules and procedures are strict, and the discipline is tough.

So why would you work at TM? Because it is a major employer and it is a successful
business that provides secure employment, provided you follow the rules. In many
locations, the TM hypermarket will be one of the largest employers.

The most important feature of human resource management is the organisational

culture at TM. It is the culture that influences all aspects of how people are managed in
the business and how decisions are taken.

The culture at TM is all about command and control – from the centre. Centralisation is
key – all aspects of the business are determined by the senior management team at TM
in South America. Whilst there are some advantages to centralization for an MNC the
overall effect at the TM hypermarket in St. Laurent appears to be negative.

Employee morale at St. Laurent looks very poor. If Daniel Pink were to visit the TM
hypermarket there he would find little evidence of his three intrinsic motivators -
autonomy, purpose and mastery. However, if he were still alive, motivational theorist
Taylor would certainly approve of the autocratic, scientific approach to motivation
being taken by TM.

The one thing you can say about working at TM is that employees and managers know
what is expected of them and where they stand in the organisational hierarchy.
However, there is clear evidence that this “hard” approach to human resource
management is building significant resentment. A key question to consider, therefore,
is whether TM’s HRM strategy is increasingly becoming a significant weakness in the
business.

Unit 3: Finance and accounts

 We are provided with very little financial information about TM. Prepare for that to be
provided as additional information in the Paper 1 exam.

It is likely that you could be asked to look at some summary financial information for
TM. Remember that lines [86-87] state that “the [MBA] case study contains financial
information for TM, which Henri uses to calculate financial ratios. He is shocked.”

Why might Henri be shocked? There are some possible clues in the case.

Suppliers are said to have been persuaded to have given TM even more favourable
purchasing terms. Might that be reflected in a very high creditor days figure, which, it
can be argued, is evidence of TM not acting ethically with suppliers.

Might Henri’s shock be related to TM’s liquidity ratios. Remember that large
supermarkets often have a very low current ratio, since they have very few trade
debtors (customers pay in cash); relatively low stocks, and very large amounts owed to
suppliers (trade creditors). TM’s current ratio might be extremely low, but is Henri
right to be shocked?

Another possible cause of Henri’s shock may lie in the profitability ratios for TM.
Perhaps the gross profit margin is much higher than he expected? Perhaps TM is
earning extremely high overall profits, which might seem somewhat unfair to staff and
management at St. Laurent who are paid so little.

Unit 4: Marketing

It is often said that marketing success in retailing is all about three factors: location,
location and location. However, for TM there is a different recipe for success – price

Price is the dominant part of the marketing mix for TM and is the foundation for its
growth so far. It has one, simple aim: to have the lowest prices in the market – and
every aspect of the business (particularly operations and HRM) is organised to support
that aim

TM is a classic “low-cost” operator or “discount” retailer. Customers associate TM with

value. So, in order to keep its competitive advantage, it is essential that TM operates as
efficiently and cost-effectively as possible.

In recent years however, another element of the marketing mix has started to become
more important: product. Extending the product range first to a wide variety of non-
grocery goods (e.g. automotive parts, office supplies) and then to a range of in-store
services (e.g. pharmacy, banking) has enabled TM to make full use of its large
hypermarkets. TM has aligned low prices with wide product range. No wonder that
when a TM hypermarket opens in a new location, other local retail businesses suffer.
They struggle to survive, let alone compete.
 This powerful combination of low price and one-stop shopping might seem to be
unbeatable. However, TM faces a threat from e-commerce which it seems TM has been
slow to embrace.

Where will future growth come from given that TM has already expanded its
geographical reach outside South America (market development) and significantly
expanded the product range (product development). The next phase of growth looks
like it will come from a possible expansion into Asia. Depending on how TM decides to
expand into Asia, this could be a high-risk strategy. Many MNC retailers have come
badly unstuck in Asia believing that their marketing mix would work in markets that
turn out to be much more competitive and harder to enter than they first thought. In
the exam, make sure you are prepared, if asked, to analyse the different options open
to TM.

Unit 5: Operations Management

To understand TM’s approach to operations management you need to link it to its aim
(lowest prices) and organisational culture (low cost).

TM’s operations are managed in order to support operating at the lowest possible
cost. Non-core activities have been outsourced (and no doubt those suppliers have
been squeezed too). Lean production is the strategy, looking to cut out waste and
minimise the amount of stock in the business.

However, it is the scale of TM that is perhaps the most important factor in the business
operating efficiently. There are clear economies of scale benefits to TM from being a
market leader, not the least being the ability of the business to negotiate the best
purchasing terms from suppliers.

Henri’s MBC class study of TM suggests that customized production is a significant

threat to TM. Really? To a hypermarket retailing business? No. Much more significant is
the growing influence of e-commerce and the implications of that for TM’s operations.
That is where the real threat (or opportunity) lies.

IB Business & Management: 2016 Paper 1 Case Study Brie;ng

 IB Business & Management: 2016 Paper 1 Case Study Briefing

JOB BOARD

Teacher of Business and Economics

King Edward VII School, Sheffield

Business Teaching resources & approaches

Jim Riley
Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known
Business writer and presenter as well as being one of the UK's leading
educational technology entrepreneurs.

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