IB Business Management SL 1.5 Growth and evolution Question Bank

1. LuxEclairage (LE)
LuxEclairage (LE) was founded by Maurice Dahman, an Electrical Engineer from Algeria. He has a degree in electrical engineering and is fluent in French. In 2007, after 12 years working for a large lighting business in Luxembourg, Maurice established LE. His business produces energy-efficient parts for various indoor and outdoor lighting.
L E has a unique selling point (USP): the lowest price in the market. Although most sales are in Europe, all production is in Algeria, where costs are much lower. As a result, growth in sales revenue has been rapid and significant, and L E has gained market share each year.
Selected financial information for L E (all figures in €m):

With the rapid growth in sales revenue since it was first established, L E has experienced some diseconomies of scale, especially in the administration of the business. Production occurs in 12 small factories located around the city of Algiers, rather than in one large factory. Coordination between factories and the administrative offices is, therefore, complicated, and the internet is sometimes unavailable. Whereas French is the language used by managers and customers of L E, the workers generally speak only basic French and prefer to speak Arabic. In addition, patterns of non-verbal communication differ widely between Europe and Algeria.

1. Office Cleaners (OC)
Sayaka Toguchi operates an office cleaning service, which is in the tertiary sector. When office workers are going home, she arrives at their offices to clean them. At present, she has four clients, with commercial offices all located in the same building. She operates as a sole trader and has no employees. Her business name is Office Cleaners (OC).
Sayaka has always liked the small size of her business. However, when a large bank on the ground floor of the same building where her current clients are located offered her a contract to clean its offices, she decided to reconsider the size of her business. The bank would loan her $ 2500 to purchase new cleaning equipment. The bank would also offer her a two-year contract paying her $ 6000 every second month. Sayaka would need to employ one new worker to clean the bank.
For the bank contract, Sayaka forecasted the following monthly cash outflows:
- salary for one new employee: $ 2000
- cleaning products (soap, detergent): $200
- payment on equipment loan: $ 150 payable from the second month
- business taxes and overheads: $ 300.
Before the bank loan she currently has personal savings of $ 1600 in the bank.
Employee absence also worries Sayaka. How will she get all the offices clean if her new employee is absent from work due to illness? Agencies can provide temporary employees but they cost $ 300 a day per worker.

1. AXL
A X L has two factories, in which it manufactures aluminium cans for the soft drinks industry. A X L has a maximum production capacity of 80 million cans per year.

AXL plans to close its two factories and move production to a new, larger factory to obtain economies of scale.

In the first six months of 2022, increased competition led to a fall in AXL's sales. For the final two months of 2022, AXL plans to increase the trade credit period it offers to customers from 30 to 60 days.