OCR Business studies F297 - SHL Pre- Release 2014/2015

I don't know if my opinions are correct, can someone check it for me please

There is an appreciation of £ against € in recent years, as SHL export to countries like Germany, it is likely that the exports sales will decrease and therefore reduce profits. On the other hand, SHL is exposed to inflationary pressure in China, which is likely to result in an increase in import prices and lower profitability. Therefore, SHL should try to bring their production back into the EU in lower their cost of production. They will also benefit from no import tariff. They should also try to export more to China as their products seem to be cheaper to buy due to depreciation of £, as a result increasing their export sales.

Does nobody think demographics or social change could come up?

No import tariff is only for trade with EU members right? So there will be tariffs if they import from the far east


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If they move their production back into the EU and import the garment back into the UK, the still don't have to pay the tariff right?

If production is takin place within the EU and the UK import from that country which is part of the EU, there is no tariffs, no barriers to trade


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There is an appreciation of £ against € in recent years, as SHL export to countries like Germany, it is likely that the exports sales will decrease and therefore reduce profits. On the other hand, SHL is exposed to inflationary pressure in China, which is likely to result in an increase in import prices and lower profitability. Therefore, SHL should try to bring their production back into the EU in lower their cost of production. They will also benefit from no import tariff. They should also try to export more to China as their products seem to be cheaper to buy due to depreciation of £, as a result increasing their export sales.

"increase in import prices and lower profitability."
-Increase in import costs*

"SHL should try to bring their production back into the EU in lower their cost of production"
-You can argue this. How much are the costs lower in relativity to China? The EU have a proper legal structure which imposes high minimum wages to employees whereas China doesn't. Is this cost more expensive that the increased import costs they China has? What other effects? Lead time? Responsiveness to a change in demand? Quality?

Thanks a lot! Do you think my evaluation points are correct?

It's definitely possible, although there isn't that much to say about considering the projected changes are minimal.

Within the fashion market, probably the most important factor that will influence demand is social trends, which are changing consistently and will therefore make it hard for a firm like SHL, with a 110 days product development time, to meet these changes in demand. Getting it wrong can lead to overstocking the wrong product,using valuable space in their warehouse and (given the relatively inelastic nature of their product lines) might mean that even with substantial discounting they might not be able to sell their products, which could therefore impact on gross profit margins as stock holding costs increase and reduce the space available for more profitable lines. Demographics and the size of the population will also influence strategy, as SHL can see how the market size of various segments are either growing or reducing (for instance, by 2016 the 0-14 market is expected to grow by 5.2%, and although only a small growth this might prompt SHL to offer a slightly larger product range of their Harvey brand aimed at children – however, given the small changes in the UK population, demographics alone would be insufficient to pursue strategies bearing an aura of risk and substantial capital investment such as developing a sub-brand or purchasing an equity stake in the ‘mardidi’ brand). Overall, although both social trends and demographics are important to the fashion market, they’re not that significant for SHL considering their target market’s conservative tastes, and therefore it’s unlikely that, however discerning they are, they will be too swayed by changing fashion trends, with the projected changes highlighted in Appendix 2 being too small to concern a firm with such a niche market.

Can anyone tell me some negatives of SHL's financial position? My teacher thinks evaluating their position could be a question but it all looks pretty positive to me.

Does anyone know what the absolutely key ratios to know are? There are way too many for me to remember!!

So, I've prepared vague answers for the following:

Strategy to improve SHL's efficiency
Impact of a change in exchange rate/interest rate/taxation on SHL
Whether SHL should invest in Mardidi/new teenage brand
Likelihood of SHL meeting £70m revenue objective
Whether SHL's stakeholders view it as a successful business
Evaluate the financial position of SHL
Benefits to SHL of outshoring

Could someone please tell me if I am missing any potential obvious questions?