May 2020 IB Business Management Case Study

5 pages

For use in May 2020

Business management

Case study: P&S Trawlers

Instructions to candidates

y Case study booklet required for higher level paper 1 and standard level paper 1 business

management examinations.

M20/3/BUSMT/BP1/ENG/TZ0/XX/CS

2220 – 5001

P&S Trawlers

For many generations, Pekka Heikki’s family have

been involved in the fishing industry in Finland, a

country with a long tradition of commercial fishing.

At times, the family business, P&S Trawlers (PST ),

flourished, with good catches of fish and strong market

prices. At other times, it struggled. A low point for the

business occurred five years ago, when one of its

trawlers sank in a terrible storm.

The business had always been a family partnership, but in 2010 Pekka’s father, Shae, and

mother, Patsy, decided that they should convert the business to a private limited company.

One important reason for this change was the increased risks to the family brought about

by more expensive boats and uncertainties in the market. Another reason was the greater

governmental regulation of the industry, which increased the family’s potential personal liability

if anything went wrong. Following the conversion, Pekka and his sister, Tapio, each owned 40 %

of the company shares and their parents owned the remaining 20 %.

Finland is a country with a long and very beautiful coastline. Fishing is its largest industry,

followed closely by tourism. Tourists visit Finland for a range of reasons, including sightseeing,

outdoor activities like skiing, and city breaks. Technology is its third largest industry and is

growing rapidly. Finland exports large quantities of fish each year. However, the government is

very concerned about environmental sustainability, so it has imposed fishing quotas. Pekka is

responsible for all activities relating to PST ’s trawlers and crews. Tapio is responsible for other

areas of the business, including marketing, finance and administration. PST has always fished

responsibly, with the aim of preserving fish stocks for future generations.

Now, PST has a very uncertain future. In response to the global trend in overfishing,

governments are increasingly imposing restrictions on the size and types of fish that can be

caught and stricter quotas on the weight of the catches. Future restrictions and quotas may

restrict PST ’s activities and reduce future profits. Recent Finland government trade agreements

with other countries have also allowed foreign trawlers to catch more fish than previously

allowed. Some of these foreign trawlers illegally overfish. The large catches of these foreign

boats are reducing market prices and further reducing PST ’s ability to earn a reasonable

income. A further problem is that many technology businesses are relocating to Finland and

paying higher and more stable wages. In this environment, many smaller fishing businesses are

struggling to survive.

However, there are some positive factors for PST:

y The family has a strong determination to overcome the challenges faced by the business.

y In the past, careful management of money enabled the business to survive threats.

y The PST workforce is loyal and hard working.

y PST uses the latest technology.

y For many reasons, people are switching from eating meat to eating fish.

y Labour turnover at PST has been low.

y The government has a policy of supporting responsible and ethically managed fishing

businesses.

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Turn over

Today, PST owns three trawlers and employs 40 people. Each trawler has a crew of seven.

Trawlers are often at sea for several days, as Finland’s best fishing waters are far away.

Under Pekka’s supervision, fishing crews unload the fish when they return to port. The fish is

kept chilled in PST ’s warehouse. PST freeze some of the fish. Tapio manages the employees

who work in the warehouse. She also has a team of employees who carry out administration,

such as record keeping, issuing and paying invoices, and managing the subcontractors who

service the trawlers, transport the fish to markets and provide fuel. Some human resource and

accounting functions are outsourced.

As a family business, PST has always tried to create a friendly working environment. Teamwork

is essential, particularly for the crews of the trawlers when they are at sea. The work on the

trawlers can be dangerous, so good training and discipline are important at all times. All crews

undertake extensive induction training. There are also additional training sessions on board

the trawlers to update the crews’ skills. In addition, all crews are required to attend annual

training for health and safety and safeguarding at a local college. Pekka takes responsibility for

mentoring the trawler captains.

Pekka is strict with all aspects of the management of the trawlers and crews, including rigorous

application of health and safety laws, compliance with government regulations and quotas,

and accurate record-keeping of the fish caught. He has excellent working relationships with

the crews, and he insists that there is no room for taking risks. He is strict with procedures

and responsibilities. All the trawlers and the overall fishing operations have a clear command

structure. Pekka supports the trawlers’ captains if disciplinary matters arise. PST pays good

salaries to crew members, and crews receive generous bonuses for good catches.

Every six months, one trawler is taken out of operation for a major service, which lasts a month.

As a result, the trawlers remain reliable, outage costs are reduced and operating costs are

improved. The trawlers also last longer before PST decides they need to be replaced. This

means that scheduling the trawlers has to take planned outages into account. In addition,

scheduling trawlers and crews can be difficult because of the weather and other unpredictable

events. A fishing trip may take longer than planned and the crew will expect time off between

trips. Equipment, such as nets, can be damaged and can take several days to repair, losing

valuable fishing time. Sometimes, replacement of a broken or worn mechanical part can take

up to two weeks to be delivered. Pekka would like to find a way of replacing parts quicker and

more easily.

Historically, the crews at PST have been all male. However, several women have recently

asked to work on the trawlers. Pekka and Tapio recognize the need for diversity. Pekka thinks

that diverse crews would be good even though only about 3 % of trawler crew members in the

European Union, and about the same in Finland, are female. Tapio is concerned that additional

costs would be involved in employing women and that there may be practical problems on

board ships, such as sleeping arrangements. Pekka is worried about how the all-male crews

might react. In Finland, all employment is covered by equal opportunities legislation. However,

low labour turnover in the trawling industry means that there has been very few opportunities for

women to work on trawlers.

Tapio is open-minded and flexible about the ways that her teams work. She encourages new

ideas and alternative ways of working in the office and warehouse, as Tapio oversees the staff

in the warehouse. She delegates tasks whenever opportunities arise. Because some tasks are

more interesting than others, she operates job rotation.

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Some of the fish caught are sold in the local fish market to hotels, restaurants, fish shops

and local residents. PST also sells fish directly to Presto, the country’s biggest supermarket

business, and some of its fish is sold through agents to overseas markets. PST ’s fish is very

high quality and generally sells at a premium (high) price. The market price is subject to

fluctuations due to factors such as the weather, the season and the activities of competitors.

However, sales to Presto are on a fixed contract at a price that is usually lower than market

prices. Competition is high, so PTS is in frequent contact with the hotels, restaurants and fish

shops to ensure it retains its customers.

Recently, business news reporters have started speculating that new trade arrangements

between countries will make selling overseas more difficult. Tapio may have to find some new

markets and develop a revised marketing strategy.

PST ’s financial performance is changing. Appendix 1 shows extracts from PST ’s accounts for

the past two years, with a projection for 2020/21. Major items of expenditure for PST include

fuel for the trawlers, salaries and rents for the office building and warehouse. Fuel and salaries

are paid for at the end of each month. Rent is paid a month in advance. While local customers

are expected to pay for their orders immediately, restaurants, hotels and fish shops have one

month credit and supermarkets have 90 days credit.

PST has recently installed the latest satellite technology on its trawlers. This electronic

equipment enables better monitoring of fish shoals, thereby improving navigation and the

chances of good fish catches. Improved technologies enable PST to maintain more detailed

and accurate records about catches and allows it to send this information automatically to the

government, which monitors all quotas. Improved materials for nets and modern on-board

equipment have reduced the need for repairs and reduced lost fishing time.

Both Pekka and Tapio think that the business should grow. Tapio wants the business to diversify.

Some of her ideas include opening their own fish shops, offering services and facilities to other

fishing businesses, and finding alternative uses for the trawlers. Pekka thinks the best way

to grow is through buying updated and larger trawlers similar to those operated by overseas

competitors.

100

105

110

115

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Appendix 1: Extracts from PST ’s accounts

2018 2019 Projected 2020

Sales ($m) 12.7 14.5 11.9

Net prot margin (%) 11 13 8

Salaries ($m) 6 6 6

Fixed assets ($m) 2.5 2.5 2.8

of which intangible assets 0.2 0.2 0.3

Current assets ($m) 0.5 0.4 0.3

of which:

stocks 0.2 0.3 0.15

cash 0.2 0.0 0.0

Current liabilities ($m) 0.2 0.3 0.4

of which:

creditors 0.2 0.1 0.2

overdraft 0.0 0.2 0.2

Companies, products, or individuals named in this case study are ctitious and any similarities with

actual entities are purely coincidental.

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References:

Picture Caldicott, M. (2010). [Fishing trawler] [online]. Available at: https://pixabay.com/photos/sea-trawler-boat-shing-ship-

sky-1761912/ [Accessed 29 August 2019].