When is a company’s competitive advantage most likely to endure over time?

MGT3150 Strategic Management

Final Examination – Trimester 1, 2021

Assessment Type: Take-Home Examination

Weighting: 50%

Learning Outcomes Assessed: ULO 1, 2, 3 and 4

Due Date: 16 June 2021 (Wednesday) 11:59 pm (ASET)

Please type your answers after each question and save the file as Word document. All submissions must be submitted via Moodle. Late submission will not be accepted.

Question 1 (4 + 4 + 4 + 4 = 16 marks)

Just two companies, Boeing and Airbus, have long dominated the market for large commercial jet aircraft. In early 2012, Boeing planes accounted for 50% of the world’s fleet of commercial jet aircraft, and Airbus planes accounted for 31%. The reminder of the global market was split between several smaller players, including Embraer of Brazil and Bombardier of Canada, both of which had a 7% share. The overall market is large and growing.

Demand for new aircraft is driven primarily by demand for air travel, which has grown at 5% per annum compounded since 1980. Looking forward, Boeing predicts that between 2011 and 2031 the world economy will grow at 3.2% per annum, and airline traffic will continue to grow at 5% per annum as more and more people from the world’s emerging economies take to the air for business and pleasure trips. Clearly, the scale of future demand creates an enormous profit opportunity for the two main incumbents, Boeing and Airbus. With five producers rather than two in the market, it seems likely that competition will become more intense in the narrow-bodied segment of the industry, which could well drive prices and profits down for the big two incumbent producers.

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Required:

  1. Explain why the wide-bodied segment of the large commercial jet aircraft industry can only profitably support two players at present. What are the implications of your answer for barriers to entry into this segment? (4 marks)
  2. Are entry barriers into the narrow-bodied segment the same as those into the wide-bodied segment? Explain your answer. (4 marks)
  3. If you were a new entrant into the bottom part of the narrow-bodied industry, as are Comac and Bombardier, what would be your long-term development strategy? (4 marks)
  4. What can Boeing and Airbus do to deter further entry into this industry, and/or keep new entrants boxed into the bottom end of the market (that is, smaller, narrow-bodied jets)? (4 marks)

Question 2 (3 + 3 + 3 = 9 marks)

  1. When is a company’s competitive advantage most likely to endure over time? (3 marks)
  2. Is it possible for a company to be the lowest cost producer in its industry and simultaneously have an output that is most valued by customers? Discuss. (3 marks)
  3. Why is it important to understand the drivers of profitability, as measured by the return on invested capital? (3 marks)

Question 3 (3 + 4 + 3 = 10 marks)

  1. Under what conditions might horizontal integration be inconsistent with the goal of maximising profitability? (3 marks)
  2. What is the difference between a company’s internal value chain and the industry value chain? What is the relationship between vertical integration and the industry value chain? (4 marks)
  3. What value creation activities should a company outsource to independent suppliers? What are the risks involved in outsourcing these activities? (3 marks)

Question 4 (4 + 8 + 3 = 15 marks)

In 2012, more than 75% of the world population was using mobile phones, and 80% of those accessed the mobile Web. Mobile payment systems offered the potential of enabling all of these users to perform financial transactions on their phones, similar to how they would perform those transactions using personal computers. The mobile web is similar to using the web on a laptop, but there was no dominant mobile payment system in place then. Top firms began developing Near Field Communication (NFC) chips for smartphones that can facilitate wireless transactions and enable purchase without contact. Other companies that did not require NFC chips used a downloadable application and the web to transmit customer information. Companies like PayPal had a clear advantage because customers could simply complete purchases by entering their phone numbers and a PIN number or use their PayPal-issued card.

In other parts of the world where mobile phones are used more than banks, intriguing alternatives for mobile banking were gaining traction even faster. The opportunity, then, of giving such people access to fast and inexpensive funds transfer is enormous. The leading system in India is Inter-bank Mobile Payment Service was developed by National Payments Corporation of India (NPCI). This system uses a unique identifier for each individual that links directly to his or her bank account.

With such far reaching impact, by 2013, it was realised that mobile payments was an opportunity like no other. It could accelerate e-commerce, smartphone adoption, and promote global financial services. However, obstacles still exist due to the lack of compatibility between many mobile payment systems.

Required:

  1. What are the advantages and disadvantages of using mobile banking systems for individuals and businesses? (4 marks)
  2. What are the major dimensions that make different mobile payment systems attractive or unattractive to a) consumers, b) merchants, c) banks, and d) credit card companies? (8 marks)
  3. What is likely to determine which mobile banking systems succeed? (3 marks)

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