Question – MMI , Dec 2008 – Question 2(a)

The question asks to,”explain the rationale for MMI acquiring First Leisure and Boatland”.

The answer has assumed that growth by diversification (new market new product) is correct. It does not talk about other growth strategies which “CO. COULD HAVE ADOPTED” instead of diversification strategy.

Please let me know if following comments would fetch me marks, if yes then approx how many :-

MMI is a co. in the industry of Mineral Querrying and Mining. With the increased cost and falling reserves , it was difficult to find new sites in the country which were economically viable.
Which means that the Minning and Querrying industry was facing low growth. MMI seems to have a high market share (27.9% of market share) , Making MMI a “Cash Cow”.

With the acquired knowledge and expertise in the Querrying business , it would be more profitable and synergitic for MMI to explore other geographical markets apart from its existing country. Expertise in querrying industry is evident with the fact that MMI spectularly raised the profits of its smaller competitiors after the acquisition. Growth using existing product/ service and New market would have been a viable option for MMI. Further details like resource availability , other country’s govt restrictions in foreign investment to use its natural resources would be required to comment.

It is true that growth by diversification in industries in which co. does not have experience would not result into greater synergies. But looking at the existing low groth of the minning and querrying industry, diversifying the risk would be considered as a feasible step.
Information about stock exchange listing of MMI is not available in the question. If the shares of MMI are listed on stock exchange, diversifying the risk of shareholders by investing in a different industry would be questionable as investors could easily ,with low cost, diversify their risk by simply investing in share of co. in a different industry.

Your Reply :- The question requirement is: “(a) In the context of MMI’s corporate-level strategy, explain the rationale for MMI acquiring First Leisure and Boatland and assess the subsequent performance of the two companies.”

So you are asked to explain their rationale not to look at other possible courses of action. So, yer, it does m=want you to assume the strategy is correct. If you had been asked to evaluate their rational then that opens the door to criticism (evaluation = pros and cons) and the possibility of suggestion that another strategy would be better.

Therefore, I fear your answer wouldn’t have scored well.

My Follow up question :- Sir Please help me to understand the impact of verbs on the approach of my answer using this particular question.

What should have been my approach if following verbs were used in this question :-

1) Analyse the rationale
2) Assess the rationale
3) Critise the rationale
4) interpret the rationale
5) state the rationale
6) summarise the rationale