Business Simulation User Guide 1) Introduction

ESB Business Cup, 15.04.2011

17.00 : Log in to the Competition 17.30 : Simulation starts running LOGIN URL: http://esb.industrymasters.com All participating teams should log on to this URL at 17:00 German time using their team email address and password. The 100 teams will participate at the same time, divided into four groups for each of 25 teams. First: Click on "Enter Now" to access the simulation

Second: Then click on "Participate" to confirm your team's participation

Each team needs to enter the simulations and then confirm its participation, otherwise it cannot play the ESB Business Cup. At 17:15 all teams should start making their first investments (instructions view below). At 17:30 the simulation will start running The total duration of the simulation is 72 to 80 minutes. During the first three quarters the simulation jumps to the next quarter every 8 minutes, thereafter every 4 minutes. The simulation will be scored after either 15, 16 or 17 quarters the exact duration will not be announced in advance (the total number of 20 quarters shown in the game interface is only indicative). The four groups will be scored simultaneously and the results will be available right away. Good Luck to all participating Teams!

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Business Simulation User Guide 1) Introduction

IndustryMastersTM Business Simulation: Car Manufacturing 2018 to 2022 Scenario: Reduction of CO2 emissions with increasing crude oil shortage
The EU is forcing automakers to meet lower emission standards for cars. Which manufacturer wins the race for the lowest emission levels? This IndustryMasters business simulation is a simulation of competition in the automotive market from 2018 through 2022. The European Commission is forcing the automakers through a regulation to lower the average CO2 emissions of passenger cars to 95 g / km (grams of CO2 per kilometer). For each additional gram the manufacturers must pay an emissions premium of 95 per car. In the starting situation in January 2018 the CO2 limit is still 105 g / km. (Regulation / Details: http://ec.europa.eu/environment/air/transport/co2/co2_home.htm) In 2019 the Crude Oil price will climb to a new high. Every year the cost of developing new oil reserves have increased, while the global demand for crude oil could still not be curbed significantly. In the 2nd quarter of 2020 the EU will decide to increase the emissions premium from 95 to 150 per car. Manufacturers whose fleet emissions are still too high will face increasing pressure.

Start Situation All Teams:

1st January 2018: A leading, fast-growing Corean car manufacturer founded a subsidiary in Europe. Your team is assigned to manage this newly founded subsidiary. Your Investment Budget is 500 million Euro. Before the simulation starts you need to build an initial product portfolio. A click on Briefing in the left hand menu opens a survey of the initial market situation. Initial Market Volumes per Vehicle Type (Million ):

In 2018 the market volumes of electric cars (E) and hybrid vehicles (H) are still much smaller than those of cars with conventional engines. Producing electric and hybrid cars is much more expensive than building conventional cars. Due to the large difference in sales prices most car buyers still prefer a conventional car.

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Business Simulation User Guide 2) First Steps

First Steps: Building an initial Product Portfolio

In the start situation, your investment budget equals the sum of your share capital and the credit lines. The credit rating is AAA, because you have not taken any debt yet. In order to start building your product portfolio click on Invest Now This will open an overview of all available products. The "Supply Levels" graph will show you to what extent the demand for the different products is served already. Less saturated markets offer higher growth potential than heavily saturated markets.

The available models differ in terms of initial investment, product life cycle and CO2 emissions (measured in grams per kilometer).

The "supply level forecast" shows the expected market saturation after another competitor enters the market, e.g. your company. For every product you can view market-specific data by clicking on view details. Click on Launch Product once you have selected a model and then select at least one other model. Average CO2 Emission Levels: A balanced Product Portfolio It is recommended to all teams to produce a mix of conventional cars and electric or hybrid vehicles. In the following example, a manufacturer builds conventional compact cars and hybrid compact cars:

CO2 Emissions: The average CO2 emissions of all cars produced, throughout the product portfolio. In this example, the CO2 emissions are just a little bit lower than the allowance

CO2 Premium/Unit Sold: The current CO2 emissions premium paid on average per sold car. In this example the premium is zero since the manufacturer has managed to stay underneath the CO2 allowance

The demand for conventional cars is expected to remain relatively high, since they are still less expensive to buy than electric or hybryd cars. Manufacturers of conventional cars will be able to invest in CO2 Reduction technologies that help to curb average fleet emissions. The demand for electric and hybrid cars is expected to grow, since the oil price is climbing more rapidly than before. Building electric or hybrid cars helps to significantly reduce average fleet emissions. Copyright 2011 Tycoon Systems Inc. - Page 3

Business Simulation User Guide 3) Decisions Corporate Level

Decisions at the Corporate Level:

Strategic Positioning The strategic positioning of your company is defined by the following parameters:

Initially, your strategic positioning is set to medium. By moving the slider to low or high you can position your company along the four strategy parameters. You can see the actual impact of your positioning when you move one of the sliders. The two generic strategies are either low cost leadership or differentiation through training, quality and innovation. Financial Planning Your financial planning module allows you to manage the cost of financing your investments.

Each time you make an investment Short Term Debt is taken up automatically, if not enough cash is available for the investment. The interest on Short Term Debt is far higher than the interest for Long Term Debt. By clicking on the green PLUS behind 'Change LT Debt' you can always convert Short Term into Long Term loans. During the simulation, you may be able to increase your share capital by issuing new shares, e.g. before a major investment. When you issue new shares, your company's share price may go down temporarily. If you buy shares back, this has usually a positive impact on your company's share price.

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Business Simulation User Guide 4) Decisions Product Level

Decisions at the Product Level:

For each of your products you can manage the sales price, marketing budget, product life cycle and production

Managing a product's sales price: As your product advances its life cycle you can usually increases a product's sales price and hereby increase the profit margin. Price Increase: To which extend you may be able to increase a product's sales price in the course of the simulation depends on several factors: Strategic Positioning: Manufacturers of innovative and quality cars can charge higher prices than producers who seek a low cost leadership Product Life Cycle: Once that a product is established in the market it sells off more easily. If the inventory levels drop significantly, you can gradually raise the price Competitive Position: If you manage to grow a product's market share to an extend that you become the market leader you may be able to achieve higher sales prices than your competitors Market Saturation: In general you can achieve higher sales price in less saturated markets than in over-supplied markets Price Reduction: A price reduction is required when inventory levels rise too high, which can have different causes: Product Life Cycle: When a product has passed its stage of maturity and gets increasingly out of date, the demand for that product will decrease and more and more inventory is being built Market Saturation: In saturated, over-supplied markets, in which competitors have in total built up too much production capacity, all suppliers have to reduce their sales prices

Marketing Budget At the start of the simulation (Quarter 0) the inventory levels are all zero since the production is not yet running. In the first quarter, you will start building inventory. The production will be running at 100% but your sales staff is not yet able to sell the entire production output because your product is still new and relatively unknown. By increasing the marketing budget you can stimulate the demand for a product, which is important especially during a product's introduction phase. Product Relaunch: Once a product has passed its phase of maturity, you can rejuvenate it again by clicking on "Relaunch".

Use the Competitors Tab to frequently check your competitive position and market share

When a product advances in the life cycle and becomes more mature, you can expand its production capacity and hereby increase the product's market share. Expanding production capacity is only possible in markets that are not over-saturated and when your investment budget is large enough. By clicking on "Upsize" you will increase production capacity by one production facility (1x). When upsizing production capacity by 1x the product will also rejuvenate in terms of product maturity.

From the 8th quarter, you will be able to manage the production volume of each of your products. When the demand for your products gets higher you will be able to increase production and run overtime shifts. And you can slow down production in the case that you build inventory.

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Business Simulation User Guide 5) Additional Investments

Additional Investments: CO2-Reduction Technologies

By investing in technologies that help to reduce the CO2 emissions of passenger cars you can curb the average CO2 emissions of your company's product range:

Lightweight Chassis, Direct Injection and Start-Stop Systems: By investing in Lightweight Chassis, Direct Injection and Start-Stop Systems you can reduce CO2 emissions from both conventional cars and hybrid cars. Accu Systems: An investment in the development of your own Accu (Battery) Systems technology helps to decrease material costs in the production of electric and hybrid vehicles. All Four CO2-Reduction Technologies: With time your investments in CO2 Reduction technologies lose their effect. The investments can be repeated at regular intervals

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