Practise IB Business Management SL/HL 1.5.2 by applying internal and external growth concepts to exam-style questions.
Creative Bleu (CB)
Creative Bleu ( C B ) is an Australian media private limited company which has produced many innovative television (TV) commercials. Jennifer Joyce, the Chief Executive Officer (CEO), set up the company with three college friends. C B now employs 24 people.
The organizational culture is technological, collaborative, innovative and task-orientated. Flexible project teams of four are created and rotated to generate new and creative ideas. On occasions, decisions are made intuitively. All employees have equal input into the decision-making process. C B has an employee share-ownership scheme, and profits are shared among all of the shareholders. Jennifer has a democratic leadership style. Staff turnover at C B has been very low.
C B has received a substantial contract to produce a TV commercial. The commercial will be for a new product. The commercial will also help C B gain entry into a new international market: South Korea. The long-term financial benefits for C B could be significant, but Jennifer is worried that C B will use all its working capital on this operation. Moreover, C B does not have a Korean speaker amongst its staff.
Jennifer and the staff see the production of the TV commercial as an opportunity for C B to enter a new market and grow. Jennifer has two strategic options for C B :
- grow internally by producing the TV commercial in Australia. CB would finance the whole operation and employ additional staff: translators, local Korean actors, and technical support staff.
- form a joint venture with a Korean media company. C B would share the costs of the operation with them. The TV commercial would be produced in Seoul, South Korea. Given the size of the operation, C B would relocate one of their teams to Seoul.
Recommend which of the two strategic options C B should pursue.
(e) Recommend which of the two strategic options CB should pursue.
The internal growth by producing the TV commercial presents a very important strategic move for C B. Growing internally may seem like the easier option given the current success resulting from a strategic fit between the culture and the democratic leadership style of Jennifer.
By choosing the first option, C B capitalizes on their strengths and possibly their unique selling point to take advantage of some opportunities. The effective / important culture, structure and the leadership will be maintained.
The above can be judged as very significant arguments for this option as due to their creativity, employees' motivation, and flexibility, C B was given the contract.
However, it represents a significant short-term financial risk given the need to solely finance the TV commercial and the current short-term working capital issues. Many organizations go into liquidation due to short-term liquidity problems and Jennifer has to be very careful that she finds ways of raising short-term finance.
Perhaps internal growth limits the long-term potential for growth for C B.
Moreover, South Korea is an unknown market with C B having to employ additional staff of whom they may not know. In addition, they will need inducting into CB's organizational culture. There will be a period of transition required - true in fact if either option is chosen. This argument may be judged as less significant compared to the issues above, as the above issue is really just applicable for both options, but less for option 1 .
N.B. accept any relevant, applicable argument for option 1 .
The joint venture allows C B to share the risk and cost. C B will be able to gain local knowledge to produce an innovative commercial. Sharing costs and risk can reduce, or even eliminate the current worries about the working capital of C B. A significant short-term argument in favour of the joint venture option.
However, the scale of operation for C B will increase dramatically and Jennifer may have to modify her democratic leadership style as inevitably spans of control will widen. The current very effective structure of flexible project teams might be stopped, or Korean employees will have to participate as well. Large size and possible cross-cultural issues may negatively affect CB's USP / creativity. The relocation of one of her teams may impact on some of the long standing relationships Jennifer has created. The current low staff turnover at C B and relocating trusted and valued colleagues may create some short-term tensions.
However, a success in South Korea can open many a new opportunity for CB. If the option is successful, Jennifer can look for other joint venture opportunities in different countries. Opportunities that Jennifer may desire.
Conclusion/judgment
The decision will depend on the degree to which Jennifer wishes to change her business to take up this new opportunity. Assuming that revenues from the TV commercial will be the same if either C B grows internally or externally, the deciding factor may be initial costs, Jennifer's concern about using up all her working capital and the degree to which C B 's culture will change if she works alongside a new partner. If these restrainers can be minimized, C B should look to the joint venture as the financial opportunities from creating this TV commercial in a new market are considerable.
It is expected that one option is recommended and that candidates produce a substantiated recommendation / judgment.
Accept any other relevant issues with a substantiated recommendation / judgment.
For one relevant issue that is one-sided, award up to [3 marks]. If the response is a one-sided relevant approach with no discussion award a maximum of [4 marks].
For a fully balanced answer, candidates are expected to provide 2+2 arguments.
Award a maximum of [5 marks] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [5-7] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.
Marks should be allocated according to the markbands on page 4.