Question
Refer to the Radeki de Dovnic Manufacturing case study.
If RDM builds a new production facility in Europe, an immediate consequence will be an increase in capacity. At current levels of output this would lead to a reduction in capacity utilization. The current output of RDM’s factory is 20 000 units a year, with a productive capacity of 21 000 units a year before the new facility is built. If the new production facility is built, the greater capacity for the whole business will, at current levels of output, result in the capacity utilization falling to 50 % until production at the new facility starts.
Xi, the marketing manager, suggests that this increased capacity provides the opportunity for market development to be achieved by entering the United States (US) market.
The US market has similarities with Europe, with an aging population and low birth rate. Demand for customized healthcare devices is high. However, the healthcare system in the US is very different, with a much greater role for private sector healthcare compared to Europe, where much of the healthcare is state funded. In the US, 18 % of gross domestic product (GDP) is spent on healthcare compared with an average of 11 % in Europe. Advertising spend in the US is very high for the typical healthcare equipment business, which uses TV and the internet to reach individuals, whereas in Europe healthcare equipment businesses typically negotiate with government organizations. Average incomes in the US are higher than in Europe. Competition in the US is very high, although some major healthcare equipment businesses dominate the market. Industrial/ employee relations in the US are generally more decentralized than in Europe, with a lower level of unionization.
To assess the best way to enter the US market, some senior managers may have to move to the US and Xi may need to recruit some new staff in the US with specialized knowledge of US laws and regulations, as well as some additional marketing employees. Xi is aware that industrial/ employee relations are different in the US. Existing staff will have to get used to new ways of working and are concerned about having to work with new staff in the US.
a. Describe one industrial/employee relations method used by employers.[2]
b.i. Using the resource, calculate the current capacity utilization rate at $R D M$ ‘s factory.
b.ii.Calculate the increase in capacity at RDM if the company builds a new production facility (show all your working).[3]
c. Explain two possible reasons for $R D M$ employees’ resistance to change if $R D M$ enters the US market.
d. Using information from the case study and the resource, discuss the opportunities and threats for RDM of entering the US market.[10]
▶️Answer/Explanation
Ans:
a.Types of industrial/employee method used by employers in industrial/employee relations include:
Collective bargaining/ negotiations: management negotiate with worker representatives /trades unions.
Threats of redundancies: Such threats can break the will of workers and their representatives, as they consider the effects of permanent loss of position.
Changes of contract: flexible working, productivity agreements.
Closure and lockouts: The owners shut down the place of employment so that the workers cannot enter to perform their job. This method is rather extreme.
Recognising /encouraging unions can help both employees and employers
Arbitration
Do not allow methods used by employees e.g. creating a union as this is done by employees not employers, strike action. Nor methods used by employers that do not involve direct engagement of workers such as delegation, leadership style, team building etc.
Award [1] for identification of a method and [1] for a description. Candidates do not have to word exactly as above. No application is required but might be helpful. Maximum award: [2].
b.i. Capacity utilization rate is $\frac{20000}{21000} \times 100=95 \%$ ( $95.2 \%$ but allow rounding)
Award [1] for correct answer.
b.ii.Capacity utilization is now $50 \%$ so $50 \%=\frac{20000}{\text { new capacity }} \times 100$ so new capacity $=20000 \times \frac{100}{50}=40000$ units Increase in capacity is 19000 units
Award [3] for correct answer with working. ‘Units’ not necessary. Working wrong only award [2].
Award [2] for correct answer without workings or wrong working or good attempt (e.g 40,000, or 40,000 units)
Award [1] for an attempt with workings. 95.2\% – 50\% $=45.2 \%$ (allowing for rounding) can be awarded [1]
Do not reward formula only.
c.Reasons for resistance to change could include:
new ways of working
Having to work with new staff in the US
(these first two points are simply lifted from the additional material so would have to be developed for the second mark(s))
Some employees may have to move to US (disruption, culture clashes etc).
There could be disruption. (no supporting context)
There would be newly recruited employees in US, maybe on higher salaries which might cause resentment.
Newly recruited employees may not fit into the culture which may be difficult for existing employees
Low level of unionization in US which European employees may not like
Financial reasons – costs of moving etc
Accept any other relevant reason.
Mark as a 2 + 2.
Award [1] for an appropriate reason [1] for application/context. Award a maximum of [2] for each reason. Maximum award overall: [4].
d.
Refer to Paper 1 markbands for May 2016 forward, available under the “Your tests” tab > supplemental materials.
Opportunities:
Massive market.
US spending on healthcare much higher.
Strong demand.
High incomes in US.
Threats:
Advertising spend in the US is very high
Availablity of suitable people to recruit
Competition very high in US
Domination of market by big US companies
US industrial/employee relations and cultures may cause disruption.
OPPORTUNITIES AND THREATS SHOULD BE EXTERNAL TO RDM
If candidate considers all four elements of SWOT only reward for that part of the answer relevant to opportunities and threats.
Accept any other relevant opportunity or threat.
Marks should be allocated according to the paper 1 markbands for May 2016 forward section B.
For an answer with no effective use of context (Theoretical answer) award maximum [3].
For an answer that only looks at strengths and weaknesses (internal factors) award a maximum [3]
Award [4] if opportunities and threats are presented as an undeveloped list.
For an answer that only looks at opportunities or only looks at threats, award up to a maximum of [5]. At top end context has to be good.
Both opportunities and threats considered but descriptively max {6}
Both opportunities and threats considered, good use of evidence, particularly from section B, but no effective conclusion/evaluation award a maximum of [8].
For [10] marks a fully supported conclusion/evaluation with good use of evidence, particularly from Section B.