N-Pharma Case Study

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|IB Business and Management SL Ms. Sawsan’s Case Study notes |May 4 | | |2010 | |[Here are the notes that we made for the IB Business and Management Paper 1 May 4th 2010 exam |[Paper 1] | |Good Luck.] | |

Business and Management May 2010 Paper 1 Case Study

Business Organizations (Unit 1)

1. Define MNC:

i. a large firm that has subsidiaries or unit plans in more than one country, the mother firm is usually in developed nations, and other subsidiaries are in LEDC's

2. Analyze 2 Advantages and disadvantages for a country hosting MNCs

Advantages

i. Offer employment opportunities so unemployment decreases in that country

ii. Brings in foreign currency which is usually in shortage in LEDCS (as it comes from exports)

iii. Transfer of technology and skills of labor

Disadvantages

i. Poor working conditions for labor (sweatshops and child labor)

ii. Gain political power of the ruling government by threatening to leave the country if some regulations are changed

iii. Externalities are not considered (Examples include air and noise pollution)

iv. Try to evade taxes by any chance

v. Profit flies back to the home country

3. Define Subsidiary

A unit plant or factory plant of the MNC that is usually located in LEDCs where costs are low (such as wages, land).

4. Why did N-Pharma open subsidiaries in Australia, Canada, Mexico, Chile, Vietnam, South Korea and New Zealand?

i. Expansion for markets and proximity to the market

ii. Vietnam, South Korea and Chile might be because they have low labour costs

5. Why would a firm decide to open up abroad as a multinational company

iv. Cheaper labor (wages in LEDCS are less than those in MEDCS)

v. Cheaper land and raw materials, therefore low costs of production and economies of scale

vi. Government incentives for such firms such as tax allowances (rent, land)

vii. Transportation costs are cheap (Instead of the US transporting products to Asia, producing there reduces the transportation costs)

viii. Expansion of N-Pharma(open up new markets) (When it opened in Canada and Mexico, it didn’t only expanded into those countries themself, but the Northern American continent as a whole)

ix. Avoid trade barriers which are imposed by some countries

6. Define the term private limited company (LTD)

i. A type of corporate business owned by shareholders (usually family members) who enjoy limited liability

7. Analyze 2 advantages and disadvantages of running an LTD

i. Limited Liability: In the case of bankruptcy, the shareholders will only lose the amount they have invested in the business, nobody can take anything else they own.

ii. Separation between management and ownership

iii. Continuity is more than in the case of sole owners and partnerships

iv. No chances of being taken over like in PLCs

v. Involves more privacy than in a PLC as accounts are not published in local newspapers

- Disadvantages

i. Selling shares: If any shareholder wants to sell them he should sell them to a member or to someone that each shareholder agrees on

ii. They cannot expand by selling stocks into the stock market

iii. Its not as easy to take loans as in a PLC

iv. Not easy to set up when compared with sole owners and partnerships since there are...
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