Recommend which one of the two strategic options AEV should choose. Justify your recommendation. Your answer must include an evaluation of strategic choice techniques.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [Knowledge] Knowledge of strategic choice techniques
2. [Knowledge] Decision trees
3. [Knowledge] Ansoff's matrix
4. [Knowledge] Force-field analysis
5. [Knowledge] Investment appraisal
6. [Knowledge] Understanding of relevant factors: ARR measures return on investment. Higher % the better
7. [Knowledge] Lower capital cost will be preferable
8. [Knowledge] Lower risk of failure is preferable
9. [Knowledge] Lower payback period is preferable
10. [Knowledge] Use of AEV's core competencies
11. [Knowledge] Understanding of strengths and weaknesses of AEV
12. [Knowledge] Understanding of opportunities and threats facing AEV
13. [Application] According to Ansoff's matrix, the joint venture is market development and the truck is product development or diversification
14. [Application] Capital cost of Option 2 is $700 m more than Option 1
15. [Application] Risk of failure is 5% points more for Option 2 than Option 1
16. [Application] ARR of Option 1 is 10% compared to 8% for Option 2
17. [Application] Gearing ratio in 2019 is 55%
18. [Application] Use of driving force/constraining force information, e.g. culture clash
19. [Analysis] Establishing a greater presence in Country C through the joint venture would enable an increase in market share in the most important market in the world. This may offer significant potential for future growth
20. [Analysis] Delaying building a factory in country C would enable existing manufacturers to consolidate their position in the market
21. [Analysis] Development of a truck will take longer and significantly more capital than Option 1 increasing pressure on cash flow of AEV
22. [Analysis] Decision tree analysis encourages a logical approach to decision making which can reduce the risk of taking strategic decisions thus reducing the chance of failure
23. [Analysis] Success of AEV in developing battery technology suggests that AEV has the ability to develop the technology further for use in trucks
24. [Evaluation] Supported judgement for either option
25. [Evaluation] Identification of most important factor in choosing which option should be chosen, with supporting argument, e.g. capital cost with reference to gearing and cash flow over last year
26. [Evaluation] Will shareholders be prepared to wait for returns from Option 2?
27. [Evaluation] Ansoff's analysis only considers two main factors – it is important to consider SWOT and PEST to provide a more complete picture
28. [Evaluation] Force-field analysis: allocation of numerical figure to driving and constraining forces is subjective and managers may fail to identify all relevant factors
29. [Evaluation] Decision tree limitations include the accuracy of the data used and estimates of probability. Does not consider the qualitative factors on a decision
30. [Evaluation] Expected returns in a decision tree are average returns are not necessarily the final result
31. [Evaluation] Decision trees do not eliminate risk