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Practice Case (Final Exam Review – ADMS 1000 Winter 2017)
Read the following article and answer the questions below:
Trudeau government OK's tax credit for TV talk shows
http://www.cbc.ca/news/politics/talk-shows-tax-credit-trudeau-joly-1.3797324

Question 1
Explain why the Canadian government should support Canadian talk shows and act as
the guardian of business.
Question 2
Explain why the Canadian government should not support Canadian talk shows and act
as the guardian of business.
Question 3
What stage is the Canadian talk show industry in the industry lifecycle model? Explain.
Question 4
Explain what challenges entrepreneurs likely face in the talk show industry.

Suggested Answer Key
Question 1
Explain why the Canadian government should support Canadian talk shows and
act as the guardian of business.
Government as “guardian of business”:
Theory
Nurture Young Industries





Examples
This involves the government providing aid to
young, “domestic” industries to help them mature,
gain market leadership, etc in order to compete
against larger, more mature foreign competitors
The talk show industry is somewhat new in

Canada.
Encouraging Direct Foreign
Investment




This can create jobs and promote the exchange of
technology, experience and skills which can help
the domestic Canadian aerospace industry
It can lead to long-term growth.

Maintaining a Favourable
Balance of Trade



The government can maintain a favourable
balance of trade – the right amount of imports and
exports.

Protecting Domestic
Business from Unfair
Competition



It is important to protect domestic industries from
unfair competition in the global marketplace.

Maintaining Adequate
Levels of Domestic
Employment
Offering Subsidies to
Compete Globally




The government wants to maintain Canadian jobs
The tax credit is expected to create jobs



Generally, subsidies or aid to domestic industries is
controversial because it goes against the idea of
free trade (eg. obligations under the North
American Free Trade Agreement). However, other
countries provide some of their industries with
government assistance, so Canada has to do the
same in order to compete.
A subsidy can be a cash payment, tax breaks, lowinterest loans or other forms of financial assistance
intended to help a domestic industry.



Question 2
Explain why the Canadian government should not support Canadian talk shows
and act as the guardian of business.
Theory
Benefits only a few





Examples
the handouts to corporations only go to a few
companies and they may not be the most
deserving ones.
government assistance is not benefiting the
general public (tax dollars should be spent on
roads, health and education for example).
And this tax credit only benefits certain talk shows.

Creates dependency



“corporate welfare” can encourage companies to
become less efficient and expect future free
money.

Contrary to free and open
markets



investors should make market decisions, not
government
market should be driven by investment reward
versus risk, not political goals
private capital markets should influence
investment to best companies/products (eg. most
profitable)




Undermines public
confidence in politicians




are politicians helping out corporations donating
money to their political campaign?
how do taxpayers hold the government
accountable when the government who loans
funds to a company is no longer in power when
the loan becomes due?

Creates an uneven playing
field




government assistance is unfair.
some businesses and industries get help and
others do not.

Promotes a political agenda



political favouritism may threaten political
democratic process.

Question 3
What stage is the Canadian talk show industry in the industry lifecycle model?
Explain.
Maturity
Maturity
• Markets start to become saturated
• Few new adopters
• Market stability for remaining firms
• Sales grow more slowly
• Firms must become more efficient
producers to lower costs and to
compensate for lower revenues
• Mergers and acquisitions occur
(higher)
• Higher degree of industry

Examples
• Lots of talk shows in Canada and
U.S.
• Few new shows
• Need to be more efficient and lower
costs; so tax credit will help with
this.
• Lots of competition since limited
market for Canadian talk shows –
only seen in Canada

concentration; less firms exist
• Competition is fierce (some firms enter
into damaging price wars)
• Firms spend large amounts of money
on advertising
• Patents may have expired
Firms focus on incremental improvements
to products eg. “new and improve versions
Question 4
Explain what challenges entrepreneurs likely face in the talk show industry.
1. Inexperience. Critics argue that most failures are due to faulty estimates in the ability
to generate profits. Particularly at the early stages, entrepreneurs many find they require
a huge financial commitment and the returns take longer than expected. Consequently
some businesses simply run out of time and money.

2. No value proposition. Entrepreneurs have passion for their innovation but this can
leave them incapable of critically evaluating its worth. Consequently, entrepreneurs may
generate an inflated sense of their product’s worth in the marketplace.

3. Relying on investors, not customers. Often new business owners seek investors
but they have not yet established a customer base. Before investors make a
commitment they want assurance that there is a need for what the entrepreneur is
selling.

4. Copycat firms. If the product is launched and is profitable, it undoubtedly will attract
copycats. Once it is on the radar, competitors can replicate that success. For example,
Groupon initiated the “daily deals” phenomenon and quickly became well-known.
Consequently, numerous other websites began offering the same services. Groupon’s
business model was easily copied and consequently Groupon suffered.

5. Premature scaling. Some entrepreneurs are eager to grow bigger and expand
operations in order to stave off competition. However, that is a risky approach.
According to some studies, this premature scaling can be primary causes of business
failure. Premature scaling occurs when one (or more) central elements of the company
(such as the business model, customers, finances, product and team) grow out in ways
that are incongruent with other the key elements.

6. Entrepreneurial Euphoria as a source of failure. Entrepreneurs tend to believe
they control their own destiny and they display a noteworthy degree of optimism. To
demonstrate this, you might ask an entrepreneur the following two questions:

1.

What are the odds of your business succeeding?

2.

What are the odds of any business like yours succeeding?

First, there is a significant difference in the odds that entrepreneurs place on their
business succeeding relative to similar firms founded by others. However, the level of
optimism appears independent from the state of their preparedness and is unjustified by
the historic experience of new firms. Selective perception may inhibit such individuals
from responding rationally to critical information.32a Second, and more worrying, is that
their perceptions do not appear to be systematically related to factors that are usually
associated with success, such as entrepreneurial or management skills.

It may be natural to feel entrepreneurial euphoria. But, by bolstering or exaggerating the
attractiveness of their business concepts, entrepreneurs run the risk of inadequate
preparation and the overlooking of potential problems. Further, their “rose-coloured
glasses” may impact their ability to redirect the venture or close it down. Hence, the
role of independent advisors who can make real contributions by providing objective
and detached advice.

Suggested Solutions
PART I: CASE QUESTIONS (TOTAL 30 MARKS)

Question 1 (10 marks):
With reference to 3 characteristics of the mature stage, explain why the plane manufacturing
industry might be best described as being in the mature stage using the case evidence. (10 marks)

Mature stage characteristics













Growth tends to slow
Few new adopters enter the market
Competition intensifies (rivalry fierce)
Markets are saturated
Firms spend lots on advertising
Price wars
Patents expired
New and improved versions
Little to no entry to this stage
Consumers price conscious
Cost reduction focus (outsourcing,
shedding activities)




(No new adopters) Few plane
manufacturers left; most global
(Competition intense) Brazil company
threatening to do a trade challenge

Question 2 (20 marks)

a. Explain why the Canadian Federal Government should provide loans to Bombardier and act as
the guardian of business (10 marks).

b. Explain why the Canadian Federal Government should not provide loans to Bombardier and
act as the guardian of business (10 marks).
a. Arguments “for”: PROS

Nurture Young Industries



This involves the government providing aid to young,
“domestic” industries to help them mature, gain market
leadership, etc in order to compete against larger, more
mature foreign/global competitors

Encouraging Direct Foreign
Investment



This can create jobs and promote the exchange of
technology, experience and skills which can help the
domestic Canadian plane-maufacturing industry
It can lead to long-term growth.



Maintaining a Favourable
Balance of Trade



The government can maintain a favourable balance of trade
– the right amount of imports and exports.

Protecting Domestic Business
from Unfair Competition



It is important to protect domestic industries from unfair
competition in the global marketplace.

Maintaining Adequate Levels of
Domestic Employment



The government wants to maintain Canadian jobs.

Offering Subsidies to Compete
Globally



Generally, subsidies or aid to domestic industries is
controversial because it goes against the idea of free trade
(eg. obligations under the North American Free Trade
Agreement). However, other countries provide some of their
industries with government assistance, so Canada has to do
the same in order to compete.
A subsidy can be a cash payment, tax breaks, low-interest
loans or other forms of financial assistance intended to help
a domestic industry.



b. Arguments “against: CONS

Benefits only a few




the handouts to corporations only go to a few companies
and they may not be the most deserving ones.
government assistance is not benefiting the general public
(tax dollars should be spent on roads, health and education
for example).

Creates dependency



“corporate welfare” can encourage companies to become
less efficient and expect future free money.

Contrary to free and open
markets




investors should make market decisions, not government.
market should be driven by investment reward versus risk,
not political goals.
private capital markets should influence investment to best
companies/products (eg. most profitable).
are politicians helping out corporations that donate money
to their political campaign?
how do taxpayers hold the government accountable when
the government who loans funds to a company is no longer
in power when the loan becomes due?


Undermines public confidence in
politicians



Creates an uneven playing field




government assistance is unfair.
some businesses and industries get help and others do not.

Promotes a political agenda



political favouritism may threaten political democratic
process.




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