IB Business Management HL 5.3.7 Quality standards Question Bank

Las Rosas (LR)


Las Rosas (LR) is a large commercial dairy farm owned and managed by the D'Aremberg family since 1986. It has 3800 cows. LR sells milk, cheese and yoghurts. In 1996, LR started to export some of its dairy products. Profits and cash flow have been improving year on year. LR has no outstanding loans and therefore its current gearing ratio is zero.
LR's unique selling proposition (USP) comes from the organic quality of its products as they are made without chemical additives. The cows' diet does not include hormones and other supplements. The farm's products also meet national and international quality standards.
LR's corporate culture encourages innovation and the use of cell production. To stay ahead of the competition LR has increased its spending on research and development (R\&D) and workers are given the opportunity to create new products, or to add value to existing ones. LR's financial manager, however, believes that the R\&D budget is too high and needs to be cut. He also argues that there are too many legal constraints limiting the development of new products.
LR's management is considering buying El Remanzo, a large sheep farm located nearby. This acquisition will cost $\$24$ million and LR will need to cut its R\&D budget to zero and organize a new loan to finance the takeover. A significant restructuring would need to occur at both LR and El Remanzo to allow both companies to combine resources and knowledge. However, the potential economies of scale experienced by LR could be substantial.
Total capital employed at LR is $\$45$ million.

Explain two benefits for LR of meeting quality standards.