SCM830: Gideon Chang

Week 1 - GDP Formula

 Personal Expenditures: These are personal consumption expenditures. They are typically broken
down into the following categories: durable goods, non-durable goods, and services.
 Business Expenditures: This is gross private investment; it is generally broken down into fixed
investment and changes in business inventories.
 Government Expenditures: This category includes government spending on items that are
"consumed" in the current period, such as office supplies and gasoline; and also capital goods, such
as highways, missiles, and dams. Note that transfer payments are not included in GDP, as they are
not part of current production.
 Net Exports (Exports – Imports):This is calculated by subtracting a nations imports from exports.
Imports are goods and services produced outside the country and consumed within, and exports are
goods and services produced domestically and sold to foreigners. Note that this number may be
negative

Personal Expenditures + Business Expenditures + Government Expenditures + (Exports – Imports)

 Personal expenditures varies with age
 Governments – Sweden (socialist government) pays university expenditures for anyone of
Swedish descent in international markets
 When looking at supply chain around the world, you need to consider future trends and
international habits
o In Japan, they have an aging population that needs a lot of stuff
 Theoretically good to sell to, but there are tons of local businesses that can
provide these goods
o In Indonesia, they need a lot of stuff, but they have no money to buy things with

Week 2 - Demographics:Population Affects GDP Formula!

Age Group Characteristics

0 -15 Doesn’t spend a lot, no income to spend

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25 – 55  This age group - you’re making money and spending it
 They’re coupled
 They have student debt
 They have car loans
 They have mortgages
 Supporting Economy through taxes
 When you have a country with a lot of people in the 25-55 age
range, the economy is booming. However, if a lot of your citizens
are 0-15 or 55+, you’re probably not in a booming economy
56-65  Retired, no longer supporting Children.
 When you have a country with a lot of people in the 25-55 age
range, the economy is booming. However, if a lot of your citizens
are 0-15 or 55+, you’re probably not in a booming economy

Domestic Demographics

Baby Boomer
4.5

3.5

2.5

1.5

0.5

0
1945 1946 1961 1968

Series 1

 1945 – End of WW2. During the war in, not many Canadian babies born since most men were
overseas at war
 1946, people were coming back, getting married, and having babies = boom in marriages
 1946 to 1961 Baby boom
 In 1961, birth control was introduced, so less babies

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  The period between 1946 – 1968 is the baby boomer generation
o Baby boomers currently make up 32% of Canada’s population

Canada is highly educated. In the Organization for Economic Cooperation & Development (OECD):

 In Canada:
o 56% of people aged 25-34 have BA’s, only Russia and S. Korea is higher
o 56% of people aged 35- 44 have BA’s, only Russia his higher
o 45% of people aged 45-54 have BA’s, only Russia and Israel is higher
o 41% of people aged 55-64 have BA’s, only Russia, Israel, USA is higher (government paid
Americans’ education after returning from Vietnam War)

Most countries had baby booms. Canadian politicians made favorable policies for baby boomers and it
resulted in 6 disadvantages for our generation:

1) Government debt: Tax payers have to pay it back

a. Ontario debt per person = $21, 109 as of May, 2014 and going up
b. Federal debtper person = $17, 521 as of Feb., 2014 flatling and going down
Total $38,630

2) Old Age Security (OAS):

Initiated in 1952 for seniors aged 70+ and population was still growing. Here’s the kicker: In
1952, life expectancy was up to:
 66 for males
 71 for female
o Back then, this was not an expensive program. Canada helped pay for people who
were retired, but a lot of people died before they could claim it
 In 1966, the age for OAS eligibility changed to 65
 Today men will live until 77 and women until 81
o Therefore: It is too expensive for the government to payout and by 2023 and the
government will increase the age for eligibility to 67.

3) Canada Pension Plan (CPP):

 Designed to pay around 25% of the average Canadian wage

 You have to have worked in Canada in order to claim this (unlike OAS)
 Companies and workers have to pay into it
 In 1966, when this started, 1.8% of employee went to CPP, and 1.8% came from employer
 In 1996, government asked what they want out of CPP
o They asked during the day, where people were working, and only retired people could
comment on it
o Between 1997-2003, the contribution for both employer and employee went from 1.8% to
4.95%

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  The plan was set up for one wage-earner families, so the maximum someone could get is about
$13,000
o Back then, if a woman wasn’t working and the man was, but the man dies, the woman can
still collectCPP from the husband
o Now, both women and men work, but there’s still a maximum amount. The woman wage
earner can collect her share, but she cannot collect her husband’s share if he dies and she
meets the maximum already

4) Company Pension Plans: There are two types

 Defined Contribution plan: There is no guarantee of payout or amount
o 4.1% of Employee pay cheque will be put into the plan
o Company matches 4.1%
o Total 8.2%
 Defined Benefit: Guarantees a certain amount, so there is guaranteed amount
o Allows you to contribute more, so if you put in 10% more = 14.1%
o Company matches 14.1%
o Total 28.2%

 Companies do not have to make matching contributions to Defined Contribution and Defined
Benefit plans if they are not profitable. However they can make promises and pledges and are
obligated to catch up with payments in such a situation.
o So they can owe 4.1% if they aren’t profitable in the first year, 8.2% in the second year,
12.3% in the third year (if it continues), etc
 In a bankruptcy situation, pensions are likely not fully funded and closed, no more money can go in
o If you were a pensioner in a company that went bankrupt, and you put in $1000, if the
company is 25% underfunded, you would only get $750 back (25% less) when they declare
bankruptcy. You have no legal recourse
 Companies don’t have to tell you if pension plans are private.
 There is always a risk with pension plans if you can’t see it. If you change companies, always take
pension plan with you in case that company goes bankrupt, and because of the fact that they have
to pay you it to you including any shortfalls.
 Private pension plans are not guaranteed in Canada whereas a Public pension plan like those
provided by Seneca College is.

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5) Health Care Costs: As of 1994

Age Average Cost of Healthcare

15-44 $298.00
45-64 $218.00
Difference between this group and the 15-44 age group is because of
maternity costs for younger women
65+ $3,626 – Why so much higher? As people get older, they take more
medication and there are higher rates of cancer. Cost also includes time
spent in hospital

 Health care costs are skyrocketing, and government funnels more money into healthcare from
other avenues
 This is partially why tuition costs more every year, above inflation rate. The government
reallocates money to healthcare

6) Interest Rates:
 If interest rates are low, housing prices go up making it unaffordable
 As of 2015, 5 year Government of Canada Bond for $100,000 pays 0.57% yet inflation rate as of
2014 is 1.95%
o Assuming 35% tax, you get $370.50/year (or 0.3705% interest rate per year)
o Essentially, putting money in this bond will result in negative interest (-1.5%)

How does this all affect the Supply Chain?

- You have to think of these things
- You don’t want to be doing business in countries with these conditions.

International Demographics

 1961 – baby boom generation

o 65 years old – age of retirement for most people
o 2026 – age where a lot of people will retire

 In the future, most people will want houses

o At around this time, people will also have children, car loans, have parents live with
them, pay taxes, pay for university for kids
 So we’d be poor
 However, most people will receive an inheritance from their parents when they pass
o They accumulate this wealth
 When they die, they will pass on their wealth to their children
 Their children accumulate more wealth
o People who have been in Canada for a long time are generally
better off because of money passing from generation to
generation

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  And tax laws that support this – you aren’t taxed if you
obtain an inheritance

Number of Children per Family

Country 1971 1991 2011 Status

Australia 2.7 1.9 2.0 Wealthy
Canada 2.2 1.7 1.7 Wealthy
China 5.5 2.3 1.6 Wealth is increasing
Japan 2.1 1.6 1.4 Wealthy
Italy 2.4 1.3 1.4 Wealthy

 A country with a smaller and decreasing population will lose influence

 A smaller and decreasing population results in a shrinking labor force
 India and Indonesia’s population is increasing, but compared to the countries above they are
considered poor
o If you were to open a factory, you would want to open one in a country with a booming
population and low wages, so you know there will be cheap workers in the future
 Wealth is an effective form of birth control
o Wealth creates smaller populations: women work, so it’s harder to raise more children
 Rich people tend to have fewer kids than poor people
o Rich people have wealth to support them
o Poor people do not – so they have kids to support them in the future
 Wealth goes from generation to generation in wealthy countries
 With decreasing population, there are more opportunities
o Since population sizes are decreasing, there are probably more homes available to buy

Global Labor Force:

 Age 15 -64
 From 2010 to 2050

Country Workforce Contraction in Contraction in %

Numbers
China - 151 million people - 15%
Russia - 28 million people - 27%
Japan - 26 million people - 32%
Germany - 50 million people - 27%

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  Above countries will be weaker in the future and it will be bad for their production and for
opening factories in, but they will be good countries to sell to.
 Japan produces a lot of robots – a lot of them are to help with production, cater to an aging
generation, etc

Canada: Ratio of Males to Females

Age Boys Girls
0-14 1.06 1.00
15-24 1.05 1.00
25-54 1.03 1.00
55-64 .98 1.00
65+ .80 1.00

Canada: Ratio of Males to Females

Age Boys Girls
0-14 1.06 1.00
15-24 1.05 1.00
25-54 .96 1.00
55-64 .75 1.00
65+ .45 1.00

 Why is there such a huge drop off in the ratio for males in Russia from 25-54?
 With the collapse of communism, the state no longer provides job security.
 Therefore, the competition for jobs is fierce, and its easier for young men to find jobs
 As the older males get, they can’t compete and eventually lose their skills
 Thus, many men experience low morale and self-esteem because they can’t support their
families. So, many depend on vodka, pass out in the cold and lose limbs to frost bite.
 In Russia, women support the economy

How do companies respond to declining populations?

 They reduce pensions because they are expensive
 They reduce retirement benefits
 They cut wages
 Trend is precarious employment (contract to contract)
* Employees are becoming less loyal globally

Case Study: STELCO (Losing profitability as cars are made of less steel and increasing more plastic)

 In Hamilton, 27% of the products they make is high quality steel. 73% is
common steel. This would increase cost per unit and utilize less capacity
 US Steel in America wants to move the high quality steel production to
the US.
o If Canada only makes common steel, Chinese steel will be
cheaper to buy.
o They will also stop making full use of the plant

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 o U.S. Steel wants the following concessions to keep the plant in Hamilton open:
 Stop paying municipal taxes
 Stop paying for pension plan
 Stop paying retirement benefits
o U.S. Steel laid off all the marketing people
 So HQ is left with selling the steel
o Ontario offered to help the U.S. Steel pension plan pay $800 million
 Demanded the above to stay in Canada? Is this good for Canada? No, because then Canada can’t
stay competitive. US didn’t want to invest in Canadian operations, but then Canada will be
become obsolete.
 Protect yourself by knowing what’s going on with your pension plan.
 Larger companies will always extract all value from a smaller company and bankrupt it

Japan population growth:

 Women have freedom, don’t want to take care of husband’s parents and raise children
 They don’t want to give up personal, economic freedom
 This has resulted in less marriages and therefore less children

The Sovereign Manager

Companies hire sovereign managers who are:

Creative

 Brave and those who make recommendations. Decision makers

 Care about what right and what’s best for the company.
 Not those who focus on what other people are doing.
 Have independence of thought
 Sovereign managers research, make rational decisions

 “It is difficult to get a man to understand something when his salary depends upon him not
understanding” – Upton Sinclair
o Some people will never tell you the truth if they have personal gain from lying. A
salesperson will always say they have the best product, even if they know there’s
something better out there for you so that they can close the sale.
o People will want to give you the answer you want to hear if it’s at all possible.
 “When you blame others, you give up your power to change” – Robert Anthony
o You have to improve if you want to get promoted
 When you start a new job, you spend the first year learning about the cycle. The
second and third year should be about making big improvements in your
company, then after three years, leave to find another job (it’ll be difficult to
keep up momentum in improving if you’ve already made big improvements)
 “The opposite of bravery is not cowardice but conformity” – Robert Anthony
o Companies look for managers who are willing to try something new to bring more
success to the business, not conformists who are fine with how things are going

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As a manager you can:
 Improve
or
 Remain in stasis
o It’s much more important to always improve.
o All business have cycles:
 First cycle (year one): survive first and spend it learning about the cycle
 Second cycle: You need to improve yourself and make improvements in the
company.
 Third/Fourth cycle: After third/fourth year, you should change jobs because you
can’t improve anymore. (It’ll be difficult to keep up momentum in improving if
you’ve already made big improvements). Change jobs and take what you’ve
learned to a new job.You have to improve if you want to get promoted
 Canada has 4 main newspapers:
o Toronto Star – Liberal/NDP
o Globe and Mail - Conservative
o National Post
o Toronto Sun
 America has 5 TV stations with news:
o ABC – democratic
o NBV – democratic
o CBS – democratic
o PBS – balanced
o FOX – republican
 When you look for a source of information, you need to consider the source – if they have bias,
if they’re reputable, etc
o Google searches for things regarding global warming might pull up scientific evidence,
but it might also include an opinionated piece with no fact
 Google searches in China might yield different results than Google searches in
US
 Filtered photos of Tianamin Square from China sources
 Canada has 16% population under 14 years old
o Canada has 16.1% over 65
 All G7 nations have a higher percentage of people over 65 years old than
Canada, except the US (15%)
 Unemployment
o Students are not considered unemployed or employed
o People who are not on unemployment insurance (after 9 months of unemployment, for
example) are not considered unemployed. They are considered not part of the
workforce
 In the US, during the 2007/8 crash, government increased number of weeks to
qualify for unemployment (50-99 weeks)
 When people were past the 99 weeks, they were unlikely to find new
work since they were out of work for 2 years

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  Government doesn’t consider them unemployed anymore
 When analyzing stats, look beyond the numbers!

Supply Chain Map

Tier 2 supplier Tier 1 supplier

Tier 3 supplier Tier 1 Tier 2

Tier 2 supplier Tier 1 supplier Manufacturer Distributor Distributor

Tier 1 supplier

Customer

Inbound Logistics Outbound Logistics

 Tier one: Supplier to manufacturer

 For every S1, there is a supply channel, the shorter the more efficient
 For every D1, there is a distribution channel
 As global SCM managers, you need to mainly worry about S1
 Disasters: If an S3 goes down, you need to be the first to secure another S3 supplier because it will
be cheaper.
 Therefore, know your supply chain
 Have a global knowledge of events and keep up with what’s going on in terms of world events in the
areas of military, economics and politics
o That’s what global supply chain managers do.
o It’s important because thing change all the time and SCM managers must be aware
o Case study: The recent crash in the price of gas. What’s causing it? How does it affect the
supply chain? Makes transportation costs cheaper
o Important sources of readings: Globe and Mail, Economist, BNN, Bloomberg

 It’s best to run a supply chain at full speed or stop. Don’t run a supply chain at partial speed.
o Case study: GM vs. Chrysler during 9/11.
o Chrysler stopped production, GM continued
o Thousands of parts are needed to make a car.
o Inventory levels at any given time are set by production planning
o Since Chrysler stopped, they could easily resume because they had the right balance of parts
in inventory to continue where they left off and anticipated when new parts would come
despite border security
o GM had an imbalance because they continued making cars, so inventory balance was out of
whack. Had huge problems getting the right balance of inventory in parts across the border

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 o A flow of materials and inventory management issue. Global supply chain managers know
how to control inventory

The Business Report Format:

A sovereign manager knows how to write a business report!

 When writing a business report, do not use ‘I’. Don’t make it personal
 Use ‘It is recommended that’

First Page: Title Page

 Title
 Date
 Word Count (only in academia)

Second Page: Executive Summary

 Make a recommendation
 Provide support as to why it is best option
 Provide a description of problem if boss doesn’t know about the problem

Third page: Table of Contents

 Headers and Page numbers
 A sovereign manager has credibility. Thus, bosses won’t read whole report if they agree with
you or trust you.
 If a boss has questions or disagrees, they can use the TOC to further analysis your report. That is
why the TOC should come after your Executive Summary

Fourth page: Introduction

 Describes the problem
 Background
o Not history
o Why is this a problem?
o Longer than the introduction

Fifth to Sixth page, 1 or 2 pages long - Discussion

 Strongest point at the beginning
 Weakest points near the end
 You want the most persuasive arguments at the front for the reader to get the important
information as quickly as possible

Two approaches:

Approach A Approach B: is better but harder to write

 Pro Side: Argument 1,2,3  Strongest Pro argument vs. Strong Con argument
 Con Side: Argument 1,2,3  Pro Side 2 vs. Con Side 2
 Pro Side 3 vs. Con Side 3
 Discuss conclusions from data

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 o Second option is harder to do, but gives you a better answer
o You can match the strongest advantages with the strongest disadvantages

Seventh Page: Works Cited

Data attachments

TPP: Trans Pacific Partnership–Implications for Canada

Canada is not known for being a manufacturing powerhouse.

 Canada is well known for oil, lumber, wheat and maple syrup exports. All of these industries will be
affected by the TPP as tariffs are phased out
 We’re not the only producers of oil or lumber, so we don’t have a huge advantage on this
 Canada does two things well: Finance/banking, education system
o Canada, US, Australia, and UK are good for education
 Australia took a dip in quality
 UK is expensive
 American is hard to get into
o Canada is known for the finance industry – profitable even during the 2008 downturn
 HSBC says Scotiabank is one of their biggest competitors in the world
 TD bank has more branches in the US than in Canada
 The most common position people graduate with from the Seneca supply chain program:
o 1) Purchasing agent/buyer: suitable for good communicators
o 2) Material manager: manage inventories around the world and suitable for good
communicators
o 3) Logistics/Supply chain Analyst:
 Likes to solve problems through numbers
 Doesn’t talk to a lot of people, not good communicators
 Suitable for engineers
 Tend to love EXCEL and SAP
 Lack charisma
3a. Logistics Coordinator/Administrator: good communicators, they keep the system
working and are good problem solvers.

Dairy industry in Canada:

 Utilizes a supply management system (Dairy Board) that guarantees for Canadian farmers. There are
high tariffs applied to dairy imports into Canada.
 This will change if TPP is ratified. Under the TPP, high tariffs on dairy imports will be phased out.
 In response, the government will put away 5 billion for Canadian farmers over 20 years, which a
form of a subsidy.

Automotive Industry in Canada:

 Under NAFTA, vehicle must be made of parts 65% made in N. America to get Area Treatment.
 This will go down to 45% under TPP
 This means manufacturers in Canada/US/Mexico have to compete with other parts of the world
more aggressively
 This will cause prices of vehicles to fall and employment and salaries will go down

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 In response, the government will put away 1 billion for the industry
 A few years ago, Canada signed a free trade agreement with South Korea. If you go to Hyundai site
for the car, you’ll see an initial price, then a revised price.
Corporate Strategies and Structures

 Hierarchy in a holding company:

o CEO (CEO of holding company, owns other companies. No products)
 COO
 CFO
 President (president of operating company. Make products)
 At the president level, there’s a different operating structure
o President
 Vice president, HR
 Vice president, finance/accounting
 Vice president, marketing
 Vice president, operations/supply chain
o When you incorporate, you can have someone who is both president and CEO
 If you have a holding company and an operating company, you can move all the
money from the operating company to the holding company tax-free
 This removes liability issues – if someone sues the operating company,
all the money is gone to a separate legal entity (the holding company)
 When you sell the operating company, the money will go to the holding
company
o Line positions – make decisions
o Staff positions – make recommendations and executes decisions
 CEO is a line position
 President is staff to CEO, but is line to VP
 VP is staff to president, but line to all employees under the VP
 At the VP level, you have:
o Executive VP
o Senior VP
o VP
o Assistant VP
o Associate VP
 Under the VP (of operations), you have directors
o Director of purchasing
o Director of production
o Director of quality
o Director of transportation
o Director of government relations
 Under directors, you have plant managers – same
payscale, but is a staff position

Three Strategies to develop a brand

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1. Differentiation
One company shows its products to be different from its competitors: MAC vs PC
 Problem: It provides free advertising for competitors you’re comparing yourself to
 Problem: It can backfire and your company can become the target
 If you are going to use this strategy, identify your competitor’s main weakness and show how
you’re better

2. Focus
 Targets people who are not price sensitive
 Company creates and maintains their ‘brand’ i.e. BMW, Mercedes
 Used for luxury products
 This strategy should be applied to your resume, focusing on your strengths.

3. Stuck in the Middle

 Nothing special, same as everyone else. i.e. McDonalds, Burger King, Wendy’s
 Within these three companies however, there is differentiation: McDonalds is better for
families, Wendy’s is for refined burger eaters
 Compared to other strategies, this is not a good one
 Don’t want to invest in this type
4. Lowest cost provider
 Providing the lowest price

Lowest Cost Provider (LCP)

Supplier Manufacturer Distributor

LEGEND

Traditional Option

Wants low cost. Accepts Below market price (poor quality)

below average quality. But people will buy it – money over quality

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Lowest cost provider (LCP):

 Traditional option (K-Mart is an example of this)

 Manufacturer wants to buy materials at a low cost from Supplier
 To do that, they would have to accept below market average quality items
 When Manufacturers sell to the Distribution Channel, they sell at below market price (due
to poor quality)
 Consumers will buy it, but this is a price-conscious consumer
 Modern option (Walmart is an example of this)
 Manufacturer would buy low cost items at market quality
 Supplier will agree to this in exchange for a future promise to larger volumes
 Manufacturers will sell the product at below market price
 Since the Manufacturer gets volume discounts, they can pass the savings down to
the Distributor
 Modern (Walmart) has advantage vs Traditional (K-Mart) since quality is better, price
the same
 Lowest cost provider, modern option – this is best for commodity items

TPP: Globally

 TPP will create a global market of 800 million people

 Exporting countries will enjoy lower tariffs for their products when selling to importers
 Cheap countries most likely to import and benefit
 Developed countries most likely to buy, will end up buying a lot of cheaper things

Cheap Countries - TPP Exporters Developed Countries - TPP Importers

Brunei Singapore
Chile New Zealand
Vietnam USA
Malaysia Australia
Mexico Canada
Columbia Japan
Philippines South Korea
Thailand
Taiwan

 China not involved in TPP, US didn’t want them, wants to hurt China
 TPP is a war against China. It will cut off 2.2% of China’s GDP – 226 Billion USD
 What will China do?
o China will move production to TPP exporting countries
o Devalue its currency to stay competitive
 This will cause a lot of people to leave because they will lose purchasing power

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  For example, $1.00 USD =$.062 CAD. Many Canadian professionals work in the US
and convert earnings back to CAD
 The main point: International trade agreements affect supply chains

Modern Option - Walmart

Low cost at market quality Sell at below market

Products Price and quality
Promise of future volumes Decreases Price Sales Increase
Volume discounts to decrease price

Time element: promise of future volumes

Introduction Phase

2 Main strategies: These are the two dominant strategies

 Focus
o The company is the price setter
o High margins

 Lowest Cost Provider

o Customer is the price setter

Functional/Vice Presidential Strategies

1. Integrated Strategies

A) Forward integration
 You have a supplier, manufacturer, distributor
 Either a supplier buys a manufacturer, or a manufacturer buys a distributor
 Manufacturer buying distributor is more common, since manufacturers have
more money
 Benefits to forward integration:
 Increased control
 Increased market share
 Increased profits

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B) Backward integration

 You have a supplier, manufacturer, distributor

 Either a manufacturer buys a supplier, or a distributor buys a manufacturer
 Manufacturer buying a supplier is more common
 Benefits
 Increased control
 Increased market share
 Increased profits
 Same benefits of forward integration

C) Horizontal integration
 When a supplier buys another supplier, a manufacturer buys another
manufacturer, or a distributor buys another distributor
 Benefits:
 Increased control
 Increased market share
 Increased profits
 Same benefits

D) Vertical integration

 All three of the above, all at once

 Air Transat
 Airline bought brick and mortar travel agencies
 If you buy a ticket from a travel agency, you pay the travel agency
 Air Transat will also get money from the airline business
 Air Transat also owns some resorts
 For all inclusive packages, Air Transat will get your money from
the agency, the airline, and the resort (distributor,
manufacturer, supplier)

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2. Intensive Strategies

2) Intensive strategy

A) Market penetration

 Increase market share

 First need to Advertise
 Not high risk if market is not saturated

B) Market development

 They will attempt to sell their current product to a new location or country
 Some products can be sold as-is, but other kinds of products need to be
customized based on the values and environment
 Kit Kat tastes like wax in Africa because the ingredients are
changed to maintain the integrity of the chocolate bar (it won’t
melt)
 In Japan, they create lots of flavours in order to cater to the
snack market that’s always looking for new flavours
 Use of International marketing

C) Product development

 “new and improved strategy”

 Cheaper to manufacture
 Companies sometimes screw up this approach – Coca-Cola came out
with a “new coke” product, then they sold only new coke but not the
original flavor. Packaging was different.
 The new product flopped, so Coca-Cola started selling its “classic” flavor

3) Diversification Strategies

A) Concentric diversification

 This involves a new product

 This new product will be related to your current product
 Can be related through the same distribution channel

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 Can be related through manufacturing technology
 Iphone is related to ipad
 This will be sold in your current market
 If it’s a related product, there’s brand transfer. Ipad’s reputation was
based on iphone, ipod, etc. Your current market will be more open to
buying your product if they value your brand.
 Least risky because of benefits of brand carryover

B) Horizontal diversification

 New product
 Unrelated to current product
 If BIC pens started making coats, it would fall under this category
 Sold to current customers
 More risk, but in middle

C) Conglomerate diversification

 New product
 Unrelated product
 Sold to future customers
 Most risky

4) Defensive Strategies: Opposite of growing strategies

A) Retrenchment: Not good, doesn’t bode well for the company

 Lay offs
 Reinvest money saved from layoffs and reinvest in company.

B) Divestiture: Even worse

 Sell a plant or division
 Reinvest in company

C) Bankruptcy: The worst

 Liquidation, all assets sold
 Court ordered restructuring. Company can continue to operate but…
 All contracts void, including labor laws
 Senior managers get bonus to stay because they know how business run

Bankruptcy scenario:
 Company XYZ goes through court ordered bankruptcy
 XYZ reduces wages and benefits
 Eliminates debts
 Terminates bad employees
 There are job lay offs

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 Comes out as low cost provider (LCP)
 LCPs will take market share from existing companies
o They will raise costs for everyone else
o Other companies will face pressures
o Job losses
o Cause other bankruptcies

 Bankruptcies cause closed pensions.

 Always protect yourself.
 Never leave money with a company

D) Joint Venture

 Two or more companies form a third/new company – it’s a temporary structure

 New company would pursue an opportunity for growth
 Once the new company isn’t needed, you shut it down
 It’s not a purely defensive strategy – normally companies with money
want to do something themselves, but if they’re doing a joint venture,
it’s probably because they don’t have enough to do it themselves
 Joint ventures can be done between two different countries
 Developing country provides:
 Cheap labour
 Cheap factory
 Government connections
 Developed country provides:
 Money
 Technology
 Market access
 Management expertise
 If a developed country wanted a joint venture in China, the Chinese
company needs to have at least 51% share of the new venture, while
the company from the developed country can have max of 49%
 If there were cheaper options than China, the developed
country can stop business with China immediately
 They would open up somewhere else

Product lifecycle diagram

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 o USA is best at researching
o Japan is best at developing
o Growth stage – VP operations is in charge
 Integration strategy
o Decline stage – VP finance is in charge
 Defensive strategy
o Maturity stage – VP marketing is in charge
 Intensive/diversification strategy used
o Operations controls R&D

 Ice breaker review

o Do not use I/we
o Do not use informal language
o Do not use random capitalization in the report (cover sheet is ok)
o Do not use “he/she” – choose a gender and stick to it
 Business report 1
o Due after reading week
o Business report format
o For this assignment, we are comparing Toronto wages to Los Angeles
 Toronto pay
 11.25/hr
 CPP (company has to match)
 EI (company has to match)
 L.A.
 X.XX/hr
 Look up on government websites
 This is fine as a source
 Social security
 Unemployment insurance
 Concentrate on FUTX (federal unemployment tax)
 Ignore state level unemployment insurance) – it’s difficult to
follow and understand
 One more – prof wants us to figure it out
 Figure out USD to CAD rates, but use a minimum wage exchange rate where it
would break even
 So if minimum wage is $10 USD in LA and $11.75 in Toronto, exchange
rate is: 1 USD = 1.175 CAD
 Word count is title page to citations

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  If you need to add extra, put it in the attachments
o Predict how minimum wage will change in the next three years for Toronto and LA
 Government can mandate the minimum wage
 Can go up by the rate of inflation
 If government says that, provide an estimate of the inflation rate in the
assignment
o For this example only, don’t include vacation pay entitlements (4%)
 Assignment is worth 5%

Defensive Strategic Concepts

 Outsourcing
o Company gives up direct control of 1 or more processes
o Example: payroll
o Processes are sent out. You lose direct control, but you don’t
lose control
o Offshoring – process is leaving Canada
 Downsizing
o Reduce the number of full time employees
 Permanent full time employees are the most expensive
 Temporary full time (cheaper than permanent full time)
 Permanent part time (cheaper than temporary full time)
 Temporary/casual/seasonal part time (cheapest)
 By definition, all these types are contractors, so it may
be a bit confusing to refer to a certain work group as
contractors
o Laid off/retired early
 Rightsizing
o Keep good employees by skill set and terminate displaced employees by skill set
o For this to work, you need strong HR performance management policies
 If you get rid of a good employee you don’t like, and
keep a bad employee you like, you can be sued
 Downsizing can be short-sighted
o Canadian MCE (mapping and charted establishment) are constantly changing because
the arctic is melting
o Government retired anyone 55+ years old
o They got rid of the cheapest employees (younger employees; anyone under 35 was laid
off)
 Everyone who survived was 36-54 years old
 While they fixed the issue with too many employees, they now have
issues with training new employees, promotions, etc
o People 36 years old have to wait for everyone older than them
to get promoted before they do
 Issues with everyone turning over at once (since they’re the same age
bracket)

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 1999/2000
o Y2K
 DD/MM/YY was the format
 They had to hire people to change the formats to DD/MM/YYYY
 Big demand for programmers
 Government around this time told Ontario Hydro to reduce costs
 Ontario Hydro decided to have people opt out to leave, no restrictions
o The corporate IT department all took advantage of it, so
everyone quit at the same time (35 people). They all receive
packages to leave.
o Ontario Hydro needs people to run IT. IT has offers to get paid
more with the Y2K issues. In order for them to accept, they
requested a 25% pay increase
 So at the end of the day, those workers returned to
work the next day, kept their packages to leave, and got
a 25% pay increase
 ---
 Clarification for exchange rate for the paper:
o Calculate an all-in minimum wage for LA (ex. $10 USD/hr)
o Calculate an all-in minimum wage for Toronto (ex. $12 CAD/hr)
 1 USD = 1.20 CAD
 This is a benchmark that doesn’t change frequently
 We compare this benchmark to actual daily exchange rate to figure out
where it would be better to produce
 ---
 Seller – first party
 Buyer – second party
 3PL – third party logistics provider
o AKA “asset based”
 Trucks – own
 Warehouse – own
 Customs – own
 4PL – fourth party logistics provider
o Non-asset based
 Trucks – load based
 Warehouses – contracts
 Customs – contracts
o 3PL has higher reliability
o 4PL has lower cost
o 4PL, you’re taking a risk on insurance. You don’t have a contract
with the 4PL company, but rather the truck driver who took
your load
o 4PLs are risky too because they can claim bankruptcy easily and
have zero assets for you to claim if you sue them

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 o Example:
o Corp A
 Owns trucks
 Corp A leases (out?) trucks
o Corp B
 Operating trucking company
 Lease trucks from Corp A
o Corp B might have a lot of claims
against it if you have claims against
them (maybe for damaged goods or
something)
 Corp B leased trucks form Corp
A, so Corp B has no assets
 When people sue Corp B, Corp
B will claim bankruptcy
 Corp B will return assets to
Corp A, and Corp B has no
assets to pay back with
 Corp B shuts down, then
reopens Corp B1 with a blank
slate
 Safer to go with a 3PL company to avoid sketchy issues
like claiming bankruptcy out of the blue
 SCM830 – test in class
o Same day as assignment is due
o 15%
o 13-14 short answer questions (25-30 words, point form preferred)
o If something is worth 3 points, and there’s one question (that asks for support),
 1 point goes to the answer
 2 points go towards the support
 Sample question:
o 1961 was an important period in Canada. What is going to happen in 2026, and why?
 Most people will retire because they will be 65 or over at this time
o Which corporate strategy is best for a luxury brand, and why?
 Focused. Luxury products are not price sensitive.
o Of the 4 corporate strategies, which strategy is most applicable to commodity items?
Support your answer
 Lowest cost provider, because it provides the customer with the cheapest price
for the unit
o Vice presidential strategies
 If you have a product, and your demand > supply, what functional strategy will
be implemented and why?
o If your product demand is falling rapidly, what strategy do you expect to be in place, and
what vice president would be dominant?

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  There might not be enough information for a single answer, but you can choose
a list of answers you know and answer appropriately
 You’re not expected to memorize lists
 Test covers everything covered in class – no SAP questions

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