Friday, 27 December 2013

XAT DECISION MAKING :2011 :PART 1

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29. Indian government may hold top executives responsible if state-run power companies fail to meet
performance targets and punish them with fines and transfers. The strict performance parameters
are aimed at ensuring that at least the reduced target for 62,000 MW of generation capacity addition
is achieved before the end of the II th Plan, said a power ministry official. Performance of chairmen
and managing directors of the power Public Sector Units (PSUs) in project implementation will be
assessed as per the terms and conditions stipulated in the company’s memorandum of understanding
(MoU) with the power ministry, he said, requesting anonymity. Performance parameters of executives
had come under strict scrutiny due to a lack of progress in capacity addition program. While the
target for the II th five year plan has already been scaled down by the government from 78,500 MW,
in the first three years of the plan yielded only 22,302 MW of fresh capacity. If you were the chairman of one of these power PSU’s, which of the following statements (all of which are assumed to be true) could best be used in order to strengthen your case against the government holding top executives responsible?
i. The labour unions, owing allegiance to ruling party at the Centre, are not allowing work to progress with their demands for wage hikes that are untenable
ii. The actions of the mid-level management are not In line with the objectives laid down by the top management
iii. The delays have been due to difficulties in obtaining funds at reasonable interest rates on
account of the recessionary conditions
iv. We are not to blame. The government is not doing enough to ensure availability of sufficient
fuel to power the existing plants, let alone the new plants.
v. The government had ignored the infrastructure availability like roads etc., and environmental
clearances required for such projects and therefore set an unrealistic target to begin with,
and the revised target is also unrealistic as well.

A. i and ii
B. i and iii
C. i, iii and iv
D. ii, iv and v
E. i, ii, iii, iv and v (3 Marks)
 see:Answer key     

Answer Questions 30 and 31 on the basis of the
paragraph below
The CEO of ABC Telecom Ltd. (ABC) is in a quandary since he received the telephone call in the
morning from his counterpart at LMN Telecom Ltd. (LMN). Both companies were engaged in a bitter experience a couple of years ago when they had attempted to merge with the intention of creating a behemoth telecom company, possibly the largest in the world. The merger had fallen through due to opportunistic behaviour on the part of Mr. Das, then CEO of LMN. During the time the merger talks
were taking place, Mr. Das had also approached a few other suitors for LMN in an attempt to force ABC to pay a higher price. Further, there were reports of attempts by management of LM to scuttle the deal. Back then, ABC had also faced stiff opposition to the deal from one of its large shareholders. Since then, a lot has changed for both companies. The bleak economic conditions due to recession had led to a drastic fall in the market value of both companies, with ABC comparatively losing much more in terms of market value. Raising money has become more difficult for both companies, especially for LMN. On the brighter side for ABC, the opposing shareholder had recently sold
off his stake to another investor who earlier had supported the original merger deal with LMN a couple of years ago.

30. Which of the following would be the most appropriate line(s) of thought for the CEO of ABC
to adopt in response to the offer by LMN?

i. Once bitten twice shy. There is simply no way I can think of resuming talks with LMN after
their unethical behaviour the previous time around. I would rather spend my time on merger
discussions with other companies.
ii. The deal may make less business sense this time around. However, if it goes through, I will
become the CEO of the world’s largest telecom company. So let us try our luck once more.
iii. I will resume talks only if they provide guarantees as to the reimbursement of our expenses incurred, in the event of the deal not materializing.
iv. Let me not be biased against dealing with LMN. If we can secure the deal at a reasonably low
price, benefiting our shareholders, let us go ahead with it.
v. I am not sure if we can raise the money now. In
any event, they are the ones facing greater
financial problems. So let’s not hurry now. We
might have an opportunity to buy them out at a
cheaper price later.
A. i and iii B. ii and iv
C. ii and iii D. i and iv
E. iv and v (3 Marks)
(2011)
31. The merger of ABC and LMN has been confirmed after detailed negotiation with LMN holding the
majority share of the resultant entity. LMN has financed the merger by taking debt at higher-thanmarket interest rates from its bankers, in the hope that it would be able to streamline operations and reduce costs in the resultant entity which will allow it to repay the loan. If you were an investor looking to invest in telecom companies, which of the following could be the strongest reasons for staying away from investing in resultant entity?



A. The new entrants in the telecom market were coming with better offers for the customers.
B. The market would be as competitive as ever for the resultant entity, thus providing no guarantee
for success.
C. The combined management did present have any grand strategies to the investors.
D. ABC’s management was giving in to Mr. Das who was a known opportunist.
E. LMN was using high cost debt to purchase another company in the same industry facing
similar problems, with no visible advantage for
the combined entity over competitors .. ,
(3 Marks)
 see:Answer key     
Read the following case and choose the best
alternative (Questions 32 to 35):
Chetan Textile Mills (CTM) had initiated various employee welfare schemes for its employees since the day the mill began its operations. Due to its various welfare initiatives and socially responsible business practices, the organization had developed an impeccable reputation. Majority of the regular workers in Chetan Mills had membership of Chetan Mills Mazdoor Sangh (CMMS), a non political trade union. CMMS had the welfare of its members as its guiding principle. Both CTM and CMMS
addressed various worker related issues on a proactive basis. As a result no industrial dispute had been reported from the organization in the recent past.These days majority of the employers deploy large number of contract labourers in their production processes.In an open economy survival of an organization depends on its competitiveness. In order to become competitive,an organization must be able to reduce cost and have flexibility in employment of resources. Engaging workers through contractors (contract labourer) reduces the overall labour cost by almost 50%. Indian labour legislations make reduction of regular workers almost impossible, but organizations can overcome this limitation by employing contract labourers. Contract labourers neither get the same benefits as regular employees nor do they have any job security. According to various recent surveys, government owned public sector units and other departments are the biggest employers of contract labourers in the country. Contractors, as middle-men, often exploit the contract labourers, and these government organizations have failed to stop the exploitation.Over time CTM started engaging a large number of contract labourers. At present, more than 35% of CTM’s workers (total 5,000 in number) are contract labourers. CMMS leadership was wary about the slow erosion of its support base as regular workers slowly got replaced by contract workers and feared the day when regular workers
would become a minority in the mill. So far, CMMS has refused to take contract labourers as members.Recently, based on rumours, CTM management started to investigate the alleged exploitation of contract labourers by certain contractors. Some contractors felt that such investigations may expose them and reduce their profit margin. They instigated contract labourers to demand for better wages. Some of the contract labourers sought the support of various political parties in order to increase their negotiation power. Contract labourers engaged in material handling and cleaning work started provoking CTM management by adopting violent tactics.Today’s news-paper reports that police and CTM security guards fired two or three rounds in air to quell the mob. The trouble started while a security guard allegedly slapped one of the contract labourers following a heated argument. Angry labourers set fire to several vehicles parked inside the premises, and to two police jeeps.


32. In the wake of recent happenings, what decision is expected from CTM management? From the combinations given below, choose the best sequence of action.
I. Stop the current investigations against the contractors to ensure industrial peace; after all allegations were based on rumours.
II. Continue investigations to expose exploitation and take strong actions against trouble makers.
III. Get in direct touch with all contract labourers through all possible means, communicate the need for current investigation to stop their exploitation, and convince them regarding CTM’s situation due to competition. Also expose those contractors who are creating problems.
IV. Promise strong action against the security guards who are guilty.
V. Increase the wages of contract labourers.
A. I, V B. I, II
C. II, V D. III, IV
E. IlI, V (4 Marks)
 see:Answer key     
(2011)
33. In the current context, which among the following represent the most suitable reaction from CMMS leadership?
A. Distance CMMS from the episode and explain that CMMS is not involved in the fiasco through
a press conference.
B. Offer membership to contract labourers, which would put the contract workers at par with the
regular workers in CMMS.
C. Do not offer membership to contract labourers, but represent their interests during negotiation in order to prevent the formation of another union in CTM.
D. Start another union exclusively for contract labourers of CTM.
E. Adopt a neutral stand in public, and pass on information related to problem creators to the CTM management. (5 Marks)

34. Out of the options given below, which one would be the best policy decision by government at the
national level? (2 Marks)
A. Asking CTM management to pay same wages to both regular and contract workers.
B. Income tax raids in offices of contractors under investigation.
C. Setting up a new labour welfare office within CTM premises.
D. Setting up a new committee to make recommendations for changes in labour legislations with an objective to reduce exploitation of contract labourers.
E. Use entire government machinery to support CTM, which has an impeccable track record.

35. The criminals in the surrounding area often took their cue from the situation in the mill, creating law and order problems outside the mill which would make it difficult for workers to come to the mill
safely. Given the circumstances, identify the stakeholder that should be the immediate priority of CTM management. (1 Mark)
A. Contract labourers who were allegedly beaten by the security guards of the company.
B. District administration that is concerned about the spread of violence.
C. CMMS that prefers an immediate settlement of the issue.
D. Customers who are concerned about prices and regular supplies.

E. Contract labourers who are demanding job security and same wages as regular employees.
 see:Answer key     

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