IB BUSINESS MANAGEMENT HL, Paper 2, May, 2006, TZ0, Solved Past Paper

Many multinational companies (MNCs) are evolving in their approach to global operations. Initially, these companies sold products internationally while maintaining manufacturing and organizational control within their home countries. This approach provided significant advantages through economies of scale, as centralizing production allowed for cost efficiencies. However, as globalization progressed, MNCs began decentralizing sales and manufacturing to cut costs, although control often remained centralized in the head offices located in countries like the USA, Japan, or Western Europe. By 2001, a significant portion of large companies in regions like Latin America were owned by foreign MNCs.

Currently, MNCs are moving towards a truly global model by shifting control to overseas locations. This shift is evidenced by the establishment of regional headquarters in developing countries, increased outsourcing of key business functions such as ICT networks, integration of senior managers from diverse nationalities, flatter company hierarchies, and more joint ventures and mergers, particularly in research and development. For instance, General Motors has started using engines developed in Brazil. This transformation reflects a strategic move to leverage global opportunities and resources more effectively.

Fernando and Marco are partners who own a coffee bar called Coffee-Cool, located in a central city area. Marco manages the procurement of coffee beans from an external wholesaler, while Fernando is responsible for preparing and serving the coffee. Although Coffee-Cool currently generates a modest profit, the market is expanding, prompting the partners to consider enlarging their premises by utilizing the stock room. Marco proposes implementing a Just-in-time (JIT) inventory system, which would ensure stock arrives just an hour before opening. Fernando, however, prefers to maintain the existing stock management system. The current stock control system is depicted in the accompanying graph.

After a meeting with a bank manager regarding a potential loan for renovating the stock room, Marco prepared projected sales revenue and costs for the period from July to December 2006, assuming the JIT system would be adopted starting November 2006. The financial details include monthly revenue, costs associated with buying and holding stock, ordering stock, personal drawings, and other expenses such as promotion, electricity, rates, finance charges, and loan repayments. If the stock room is not used for expansion, an alternative nearby building is available for rent at a cost of $1000 per month.