1. Cesim Global Challenge introduction

2. Cesim Global Challenge Students are the management team of a global mobile phone company and compete with other teams to gain market share and create value for the shareholders. The objective of the game is to achieve the highest financial performance through a sound business strategy, timely decisions, and accurate implementation. Strategic approach to decision- making, careful analysis, continuous R&D, good timing, and successful product positioning are the main keys to success. Cesim Global Challenge is used by Universities and Business Schools all around the world.

3. Decision-making Overview Research and Development –Manage the company through four different technological phases. –Invest in your own R&D and/or buy technology know-how from outside. –Develop a solid strategy and time your decisions accurately. Marketing –Manage product life-cycles and product launches. –Increase customer loyalty and company image. –Choose different product features, determine prices, and decide on the promotion for all markets internationally: Europe, USA and Asia.

4. Decision-making Overview Production and logistics –Plan the global production and react to the emerging opportunities. –Utilize the learning curve concept and economies of scale in your strategy. Investments and finance –Invest in production facilities. –Issue debt or equity and/or make share buybacks. –Determine your dividend policy. –Manage your capital structure. –Deal with international finance issues like exchange rate fluctuations, interest rates, taxation.

5. Flow of operations Analysis and planning Decision making with the tool Results and feedback System calculates the results automatically at given deadline System provides new background info and results for each round

6. Learning Process Applying new ideas Analysis & planning Observations & reflections Results & coaching Generalising from the experience Lectures & discussion Concrete experience Decision making

7. Simulation features  3 markets, up to 2 products in each market  Product = Mobile communications device  Marketing mix Product Price Promotion (advertising) Place (delivery priorities)  Product dimensions: Technology (four evolutionary stages) Product features (max ten features, each feature brings additional cost)

8. Simulation features continues..  Production takes place in two areas: USA, Asia Products to Europe will be shipped from these areas relative to the decided production capacities  Demand driven production = no finished goods inventory  Costs due to demand estimation errors: If you overestimate the demand; Production will be scaled down automatically and an adjustment expense will occur. Logistics will not be optimized, which may cause additional costs. If you underestimate the demand; You will have lost sales, i.e., production will not adjust upwards.

9. Simulation features continues..  Outsourcing is available in both production areas up to given maximum.  Learning curve effect has significant impact in production costs = > keep in mind when considering outsourcing options.  Investments in production facilities have two period delay, i.e., investment now will be available for production in two years. Payment will be made in the middle, after one year.  Own R&D investment has one period delay, licensed technology becomes available immediately

11. Your team...  Takes over from the previous management team  Is responsible for the overall operations of the company Strategy Marketing R&D Operations (production, logistics) Finance  Will aim to convince the investors about the long-term growth prospects and profitability of the company

12. Key metrics Cumulative Total Shareholder Return –Total Shareholder Return (TSR) is a concept used to compare the performance of different companies' stocks and shares over time. TSR combines share price appreciation and dividends paid to show the total return to the shareholder. It is expressed as a percentage of the initial investment. –Cumulative Total Shareholder Return shows the annualised percentage return that a team delivers during the whole simulation.

13. FAQ: How should I interpret the network coverage chart? Each market area has its own network coverage forecasts. Those forecasts are indicated in charts on ”Markets” page, each representing the current best knowledge about the expected development of networks for each respective technology in each area. Key issues to consider: Network coverage forecast is not the same as demand forecast. Networks are not backwards compatible, i.e., you can not use Tech 1 handset in Tech 2 network. New technology is considered more attractive than the old technology, i.e., part of the demand comes from the ”novelty” - factor. Finally. It is very costly to develop all technologies and in some situations you may be better off by making choices between them. The picture above forecasts that in 2004, Europe has 100% coverage for Tech 1, about 50% coverage for Tech 2, and 20% coverage for Tech 3. Tech 4 networks start developing in 2006 and by 2007 the coverage is expected to be about 40%.

14. 1.First check your current production capacities. Remember it takes two periods to complete new production facilities. 2.Decide how you want to deliver to the European markets. From US, from Asia, or from both? It is helpful to look at the parameters under ”Market conditions” to see what the transportation costs are. If you decide to deliver from Asia only, assuming you have enough capacity, you need to allocate your production so that you produce exactly the amount equal to estimated demand in the US and the rest (Asia + Europe) in Asia. 3.Adjust the production capacities in both areas to achieve the desired outcome. You have two production lines in each area. So in total you can produce all four different technologies if need be. Remember that it is more expensive to start producing new technologies in Asia. The best outcome is achieved when you start producing new tech in US and move it to Asia once it is more mature. FAQ: How to make the production decisions?

15. 4. About capacities Besides the learning curve, also production cost curve has impact on the production costs. This means that within given period you can minimise the production costs if you find the optimal production capacity (75 - 85% capacity utilisation ratio). This does not mean that you should not use 100% of capacity if you have demand for your products! 5.Outsourcing is also available You must allocate one production line from your own capacity in order to outsource certain technology. Costs and maximum amounts are given on the production-page. Remember that there is no learning curve effect from outsourced products. 6. When you have done all these decisions go to ”Logistics” page to check the outcomes. Under ”Products available” you see how the transports are planned to take place. Observe the arrows.

16. FAQ: Why do I get logistics costs even if I planned not to? 1.Often this happens in a situation where the actualised global demand is less than anticipated. When you have overestimated the demand the system automatically scales down the production, but the logistics is no more optimised. The most typical outcome is that you deliver to Europe both from the US and from Asia. The only way to avoid this is to estimate the demand completely accurately and produce according to the estimated demand. 2.It can also happen if the delivery order on the ”Logistics” page has been wrongly set. For example, if you set US as the number one delivery priority from Asia it means that you will deliver to US first. In normal circumstances this is not a good decision; you should always seek to deliver the local markets first from each area (US from US and Asia from Asia)

17. FAQ: How do I benefit from transfer pricing? 1.Transfer price is the price at which the producing subsidiary sells its products to the selling subsidiary. By transfer pricing you can optimize global profit by allocating highest profit to the region in which taxes are lowest. Also, it is feasible to utilize transfer pricing in a situation where one subsidiary would be making loss and the other one(s) would be making profit. The production subsidiary can set the transfer price in the range of 1 to 2 times its direct variable unit cost.

18. FAQ: How to make the financing decisions? 1.First make the treusury management decisions. On ”Finance” page the chart with the title ”International Treasury Management” shows the situation in group companies (USA, Asia, Europe). USA being the parent company. Blue bar shows local cash and green bar shows local debt. Usually it is better to finance the group companies through the parent company (USA). If you have either surplus (cash) or deficit (local debt) in Asia or Europe, you can move funds by inputting the desired amount to the Internal loans cells. Positive number indicates that you move funds from the US to the country (to cover deficit) and negative number indicates that you repatriate excess funds. Remember that if you invest in the production facilities in Asia you need to finance them one year after the investment decision has been made.

19. 2.Next make the financing decisions. The first step here is to check the cash balance and short-term debts. a)Look at the parent company cash flow statement and see whether your budgeted cash in the end of the period is 2000 tUSD (this is the minimum cash position always) or more. You should target to have a little bit more than 2000 tUSD on the row ”Cash (end of period)”. This means that you do not have excess funds in low-return cash-account and you do not expect to take any expensive short-term loans. b)If it is substantially above 2000 tUSD, it means that you have cash surplus. You can refer to the next page about re-paying funds to external sources. If it is exactly 2000 tUSD, it means that you do not have enough funds to finance the working capital and investments. Continue to step c) c)Check the line ”New short term loans taken” on the left-hand side column. If that number is positive, it means that you are increasing your short-term debt. Assuming that you did not have any short-term debt the year before, you need to raise enough funding (see next page about raising the funds) to avoid the need for short-term debt (in this case short-term debt is more expensive than long-term). d)In case you have accumulated some short-term loans in the past you should aim to pay that off as soon as possible in order to avoid extra financing costs. Line ”Paypack of short-term loans” shows how much you are paying off. FAQ: How to make the financing decisions?

20. 3.Raising/re-paying funds from/to external sources. You have two alternatives, debt and equity. Your goal should be to have approximately about 50/50 of both debt and equity on your balance sheet throughout the simulation (you can see the capital structure in the equity and liabilities chart on the left). The means how you can adjust your capital structure are: issue new equity (= brings cash in the form of equity), share buy-back (= give excess cash back to the owners), issue debt (= brings cash in the form of debt), re-pay debt (= reduce the amount of loans). FAQ: How to make the financing decisions?

21. On-line helper “Minimise”“Open manual”“Maximise” “Close” “More information on the topic” (Opens the manual at a relevant page, example below) On-line Help for Students Your students can also access on-line help by clicking the small - signs in their decision-making area. That button will open the following information box (content is an example). Note that by clicking the small green i -signs in the system you can find explanations and information that is related to the specific section in the decision-making area.

22. For more information On-line Global Challenge Presentation http://globalchallenge.cesim.com/presen tation/index.htmlhttp://globalchallenge.cesim.com/presen tation/index.html Technical Support cnsupport@cesim.com

23. Introduction Practice Round Practice Round Strategy and Objectives Strategy and Objectives Decision making Decision making Conclusion and Analysis Conclusion and Analysis Introduction: Participants familiarized themselves with the game Practice: There is an optional practice round before the actual game. Strategy: The teams define their strategy and objectives. Decisions: The teams must take decisions for each of the areas of their company, aiming to perform better then their competitors and adding more value to their shareholders. Conclusions: The financial indicators are analysed at the end of each of the rounds to determine the value of the company and its performance. Flow of the Game