Business Studies 0450/23 May/June 2023: question paper and mark scheme

Mark scheme

1(a) Explain four reasons why a business might become a multinational 8 company. Award one mark for each relevant reason (max 4). Award a maximum of one additional mark for each explanation of the reason. Produce nearer to the market – reduce transport costs of finished products Avoid barriers to trade – quotas and tariffs will not apply if the business is not moving goods between countries Increase market share – by expanding into different markets a business can access larger target market Government incentives in the country where they are setting up – receive grants/subsidies which would potentially reduce the costs of production for a business Produce in a country with lower labour/production costs Remain competitive if competitor companies are expanding abroad For example: The cost of production could be reduced if the business needs to import materials (1). By operating in a different country where the raw materials are available, variable costs can be reduced (1). 1(b) Consider the advantages and disadvantages of the following three 12 methods of promotion RR could use in the new markets. Which would be the most suitable method for RR to use? Justify your answer. Television Billboards Sponsorship of a sports team Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of two or more methods. Well-justified recommendation. Candidates discussing the three methods in detail, in context and with a well-justified recommendation, including why the alternative methods were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one method. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more methods in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding 1–4 of relevant business concepts. Limited ability to discuss the methods with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining the three methods in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Advantages Disadvantages The advert will be Can be more seen by a large expensive than other audience – 80% of forms of promotion – population in the so this could make the new market watch profit margins fall television Many consumers now A wider range of (rug) download films/music Television patterns can be seen and may not watch RR can choose the many television most appropriate time programmes – for the advert to be reducing the access to broadcast so that it is target markets seen by the target audience They are lower cost Can be easily missed than the other two as people pass by – options and are there especially if on a main for quite a time – RR road as cars will be could show many rugs passing quickly on one image No detailed Billboards If they are in a busy information can be place, then many added, customers may people might pass not see the website them and be attracted address as they drive to buy RR’s machine past manufactured rugs It can raise awareness Actions of the by linking the brand to sponsored person a famous sporting could damage RR's person reputation for Sponsorship of a Helps to target the excellent customer sports team intended market - by service – reducing targeting events in the sales new markets Takes time to find a suitable team to sponsor the rugs 1(b) Justification may include: Television is best because it can have a large reach. RR can also use colour and show many images of their rugs. It is expensive, but RR made $8m profit in 2022 so it can afford the expense. A billboard might not be seen by many people as only 45% drive cars and so not many people would see them on the roads or pass by them. It might be very difficult to find a suitable team to sponsor rugs. Recommendation Billboards would be best because they are large and can be placed alongside busy roads in the new markets to allow many people to see them. Billboards can show a picture of the rugs and the website address so there does not need to be lots of writing in different languages. One billboard design could be used in all the new markets. Sponsorship of a sports team would be best as it can reinforce the brand image of high-quality rugs by having a suitable team to promote the product.

Mark scheme

2(a) Explain two problems RR might experience as it expands 8 Award one mark for each relevant problem (max 2). Award a maximum of three additional marks for each explanation – one of which must be applied to this context. Difficult to control – which may result in more mistakes being made during production – increasing waste Poor motivation / lack of commitment – as employees feel alienated this could reduce productivity Weak coordination – it may be more difficult for decisions to be made between departments to ensure each runs smoothly Poor communication – instructions do not get to the right person / get distorted – so orders may not be completed on time Liquidity may reduce – cost of expansion might lead to short-term cash flow difficulties – RR will need to buy more raw materials to increase production Shortage of finance for investment – RR may have to invest in new machines to increase production capacity For example: One problem may be reduced liquidity (1). RR will need to buy more raw materials such as wool to meet increased demand (app). This will increase cash outflows (1) so net cash flow will reduce until the products are sold, and revenue is received. (1) Application could include: private limited company; rugs ; wool; new markets in other countries; new technology; machine made rugs; 30 employees; standard patterns; ecommerce; developing new website; operating for 5 years; excellent customer service. 2(b) Consider three methods RR could use to communicate the expansion 12 plans to its employees. Which method should RR choose? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of two or more methods. Well-justified recommendation. Candidates discussing the three methods in detail, in context and with a well-justified recommendation, including why the alternative methods were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one method. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more methods in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding 1–4 of relevant business concepts. Limited ability to discuss the methods with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining the three methods in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Advantages Disadvantages One-to-one Can be expensive to communication phone each Allows feedback to employee ensure each of the Mobile may be 30 employees switched off / not understand the heard over the Telephone / message noise of the Mobile Message can be machines passed on quickly May take time to Sender knows the reach the employees message has been / takes more than received one attempt to call them Provides a Can be slow to reach permanent record production Letter which can be employees – delay referred back to could have further negative impacts Seen by many RR won’t know if all employees in the the employees have factory read the notice Notices / Comparatively cheap No personal contact noticeboard to produce the – no opportunity for notices employees to ask questions / one way communication Cheap/fast way to Do not know if the communicate with all message has been employees read – unless attach Can be sent to all a read receipt Email employees at the There may be poor same time internet connection / fail to send message to production employees Fast to send Message will fail to Send to many send if no network people at one time coverage Text (SMS) Employee may not message have a mobile phone – will not receive the message 2(b) Two-way If an employee is communication – absent, then they allows for instant may not get the feedback message Face-to-face Employees can ask Can be difficult to meeting questions about the arrange for all the expansion plans to employees to meet sell rugs in other at same time/place countries Cheap/fast to send Do not know if all message production Can send to employees have Social media e.g. everyone in the group read the message Facebook group, at the same time Not all employees WhatsApp group will be on the app and so may not receive the message Justification may include: Face-to-face meeting is best because this allows the 45 employees to ask questions unlike sending a message on email which is a one-way method of communication. It allows them to have personal contact with the Managing Director, which helps to improve the relationship between them and the management of RR. Other methods such as a notice board are very impersonal and may make them feel like the Recommendation management of RR don’t really care. Email may be a good method of communicating the expansion plans as RR’s HR manager can include a diagram of the new structure. The employees would have more detail about expansion into new markets in other countries. A text message sent to the employees would ensure they are told of the future direction of the rug manufacturing business quickly in a short message which would be easy to read.

Mark scheme

3(a) Explain one responsibility of each of the following in RR: 8 Award one mark for each relevant responsibility (max 4). Award one additional mark for each explanation applied in this context. Directors : Deciding the direction/strategy of the business – expanding into new markets in other countries Managers: Planning the resources needed for production – ensuring there is sufficient wool to manufacture the products Supervisors: Ensuring that the employees do their job correctly – this would ensure that they maintain their reputation for excellent customer service Production employees: To carry out their tasks effectively – to help ensure they produce rugs with the correct standard patterns For example: Managers will be responsible for planning the resources needed in production (1) to ensure there is sufficient wool to manufacture the rugs (app). Application could include: private limited business; rugs; wool; new markets in other countries / expansion into new markets; new technology required; 30 employees; standard patterns; ecommerce; developing new website; operating for 5 years; excellent customer service. 3(b) Consider the advantages and disadvantages of the following two 12 methods RR could use to increase the productivity of its employees. Which method should RR choose? Justify your answer. Introducing new technology Increasing training Level Description Marks 3 Sound application of knowledge and understanding 9–12 of relevant business concepts using appropriate terminology. Detailed discussion of both methods. Well-justified recommendation. Candidates discussing both methods in detail, in context and with a well-justified recommendation, including why the alternative method was rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding 5–8 of relevant business concepts using appropriate terminology. Detailed discussion of at least one method. Judgement with some justification / some evaluation of choices made. Candidates discussing at least one method in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding 1–4 of relevant business concepts. Limited ability to discuss the methods with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining both methods in context should be rewarded with the top marks in the band. 0 No creditable response. 0 3(b) Relevant points might include: Advantages Disadvantages Introducing new Fewer employees May lead to technology may be needed – redundancies – lowering the wage increased short-term cost costs due to Rugs can be redundancy produced more payments quickly/accurately – Technology needs to this will enable RR to be increase output maintained/updated Changes in rug or may need to be patterns can be replaced if RR want implemented more to keep producing quickly – the new patterns - this business can could increase costs respond to changes High initial cost for in consumer the investment preferences more Employees who have quickly – remaining been trained to use competitive the new technology may ask for a pay rise – increasing labour costs Increase training Improved motivation Employees may – employees feel leave once trained more valued as the and work for a business is investing competitor company in them – will adapt – the business does to change more not gain a benefit / quickly return on their Increase skills of the investment in training 30 production There may be a employees so short-term reduction mistakes are in output whilst the reduced – reducing employees are being the cost of raw trained - RR may find materials as there is it difficult to meet less wastage any increase in Employees will demand become more flexible – as RR expands into the new markets in other countries and produces a wider range of patterns 3(b) Justification may include: Introducing new technology is the best way to increase the productivity of employees as it increases the level of output in the same amount of time. This means that RR can meet an increase in sales more quickly and can produce the most popular standard designs in larger quantities. Training existing employees would not increase productivity as much as they are likely to be less accurate than the new Recommendation technology so RR may lose their reputation for excellent customer service. Increased training is the best way to increase the productivity of employees because they would learn more skills and become more flexible. This would enable RR to produce a wider range of patterns of rugs to meet the varied demand in the new markets in other countries which may be different to the demand in the existing markets.

Mark scheme

4(a) Explain one opportunity and one threat to RR of using ecommerce. 8 Award one mark for a relevant opportunity/threat (max 2). Award a maximum of three additional marks for each explanation – one of which must be applied to this context. Opportunities Threats Increase in demand for Sales volume may fall – as the product – due to an customers can more easily increase in convenience compare competitor for the customers products/prices so may switch to If the website is attractive an alternative producer and easy to use It can be expensive to hire a customers may purchase website designer – good website more products than they design is needed to ensure it originally intended attracts consumers and is easy to Prices can be changed navigate easily – reflecting the Transport costs may be high – level of demand – individual orders will be shipped to leading to higher separate addresses and not to a revenue central shop/location for Website can be used to distribution promote products No face-to-face contact with worldwide – may be customers – this is potentially a cheaper than other forms lost opportunity for market of marketing research Inventory costs could be higher as more stocks may need to be kept in a warehouse to ensure customer orders can be met in the new markets For example: Customers can more easily compare competitor prices (1) so may switch to an alternative manufacturer of rugs (app) leading to sales volumes falling (1) which may result in a lower market share (1). Application could include: private limited business; rugs; wool; new markets in other countries / expansion into new markets; new technology required; 30 employees; standard patterns; ecommerce; developing new website; operating for 5 years; excellent customer service. 4(b) Using Appendix 3 and other information, consider whether RR’s Managing Director should be concerned about the financial performance of the business. Justify your answer using suitable calculations. Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of why the MD should/should not be concerned about the financial performance. 3 9–12 Well-justified recommendation. Candidates discussing why the MD should/should not be concerned about the financial performance, supported by appropriate calculations, in context and with a well-justified recommendation should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of one reason / one appropriate calculation to support why the MD should/should not be concerned about the financial performance. 2 5–8 Judgement with some justification / some evaluation of choices made. Candidates discussing two or more reasons / two appropriate calculations, in detail and applying them to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss financial performance with little/no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining three financial performance indicators in context should be rewarded with the top marks in the band. 0 No creditable response. 0 4(b) Level 1 responses Revenue has increased by $7m from $25m to $32m Cost of sales has increased by $6m Expenses decreased by $2m More wool and other raw materials were needed to increase output to meet increased demand Level 2 responses/calculations 2021 2022 Gross Profit $15m $16m GPM 60% 50% Profit $5m $8m Profit margin 20% 25% GPM has decreased – suggests that the cost of goods have increased by a larger proportion than the increase in revenue from selling rugs – the business is making a lower gross profit per $1 of revenue Profit margin has increased – the business is making more profit per $1 of revenue The GPM has decreased whilst the profit margin has increased - this would mean that the cost of sales has increased but that expenses are more controlled Conclusion Justification may include: The Managing Director should not be concerned as both the profit and the profit margin from manufacturing rugs have increased. This could mean that the expenses have been better controlled. The extra profit could provide more funds for reinvestment or higher dividends paid to shareholders. Although the GPM has fallen the gross profit has increased by $1m, and revenue has increased by $7m. The Managing Director should be concerned as the GPM has fallen, which might indicate that the cost of wool is not being controlled.