Business 9609/33 May/June 2024: question paper and mark scheme

Mark scheme

1 Analyse two impacts on SCC of the changing external influences in country Z. 8 AO1 Knowledge and AO2 Application AO3 Analysis Level understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis Developed analysis that identifies connections between causes, impacts and/or consequences of two points. Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks Knowledge of two Application of two Limited analysis relevant points is relevant points to a Limited analysis that identifies connections used to answer the business context. between causes, impacts and/or consequences of question. Application of one two points. Knowledge of one relevant point to a Limited analysis that identifies connections relevant point is business context. between causes, impacts and/or consequences of used to answer the one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: If more than two impacts are referred to, reward the best two. Allow reference to external influences in other countries where SCC exports to, such as inflation and concerns about unethical practices. All annotation ( ) should be in the left margin. 1 Indicative content Responses may include: AO1 Knowledge and understanding Definition of external influences – factors outside the control of the business, inflation, unemployment and currency depreciation. (max K1 mark) Generic impacts of rising inflation, rising unemployment and currency depreciation, such as falling real incomes, cheaper exports and more expensive imports. AO2 Application Max one for application for the first element and max one for application for the second element. SCC is based in an island country in Asia, but exports mass produced clothing to developed countries. The work in SCC’s factories is sewing garments and employees are paid above the local minimum wage. Consumers are concerned about unethical business practices so may be looking out for reports of ‘sweat shop’ conditions. Skilled clothing workers are likely to be in high demand in Country Z. SCC is highly reliant on business customers (B2B) in other countries, budget clothing brands. AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Development of application points, in terms of the likely impacts on SCC of the rising inflation and unemployment and depreciating currency. Rising inflation will lead to an increase in input prices, employees may ask for higher wages as their cost of living increases, leading to higher costs and lower profitability. Local customers of bespoke items may not be able to pay high prices for exclusive designs, due to lower real incomes. All this could lead to lower demand , lower revenue and profits 1 Rising unemployment may mean more consumers without wages and unable to pay high prices for exclusive designs. However, SCC may be able to employ sewing machinists on lower wages. This could lead to lower costs, but also less sales. (2-sided analytical point) Currency depreciation of 10% is quite a big change and will mean that SCC’s exported clothing will seem ‘cheap’ in terms of currencies in developed countries, leading to greater competitiveness and higher export sales. However, imported resources will be more expensive in terms of local currency, leading to higher cost (2-sided analysis) Pressure groups could cause problems with government and negative media coverage, which could impact sales to ‘ethical’ consumers, leading to lower demand. Accept all valid responses.

Mark scheme

2 Analyse two benefits to SCC of developing new clothing products made from recycled materials. 8 AO1 Knowledge and AO2 Application AO3 Analysis Level understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis Developed analysis that identifies connections between causes, impacts and/or consequences of two points. Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks Knowledge of two Application of two Limited analysis relevant points is relevant points to a Limited analysis that identifies connections used to answer the business context. between causes, impacts and/or consequences of question. Application of one two points. Knowledge of one relevant point to a Limited analysis that identifies connections relevant point is business context. between causes, impacts and/or consequences of used to answer the one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: Only reward benefits. If more than two benefits are referred to, reward the best two. All annotation ( ) should be in the left margin. 2 Indicative content Responses may include: AO1 Knowledge and understanding Meaning of new product research and development – changing materials and designs in response to customer trends in demand. (max K1) Generic advantages of developing new products – keeping up with consumer trends in order to remain competitive. AO2 Application Max one for application for the first element and max one for application for the second element. Recycled textile materials are made from previously ‘thrown away’ garments, which is a more sustainable use of resources and less waste. Environmental benefits of use of recycled textile materials, will be favourable for SCC’s reputation. Marketing benefits of use of recycled materials, appealing to ‘environmentally aware’ consumers, who may be willing to pay higher prices, not only in developed countries but also in Country Z. Sunil is worried about some of the possibly unethical employment practices used by his current suppliers of non- recycled cloth. Recycled textile materials are more expensive by at least 50%, but prices can be set higher. Use of recycled materials as a USP for SCC. AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Development of application points, in terms of the likely benefits to SCC of the use of recycled materials. It is possible that demand for clothing made from recycled materials may be more price inelastic, so it will be possible to sell this range at higher prices leading to higher revenue and profit. 2 Environmentally aware consumers may become loyal and help in building the brand, assuming designs are right. SCC’s product portfolio and target market will widen, spreading risk by moving away from reliance on mass produced clothing. This may mean less vulnerability to changes in demand for fast fashion, maintaining sales. Recycled textile materials are a relatively new development, so may make SCC more competitive, due to ‘first mover advantage’. Use of more sustainable resources may lead to more motivated workforce, could lead to increased productivity. Accept all valid responses.

Mark scheme

3(a) Refer to Table 1.1. Calculate the payback period for SCC’s new factory. 1 All in $000 (150) + 20 + 40 + 80 = (10) 10/100 × 12 = 1.2 so 3 years and 1.2 months/3 years 2 months/3.1 years/3 years and 36.5 or 37 days (1) 3(b) Refer to Table 1.1. Calculate the accounting rate of return (ARR) for SCC’s new factory. 3 ARR = average profit/average investment x 100 OR initial capital cost + residual capital value where the average investment = (Maximum 1 mark, if no valid calculation) 2 Average investment = (150m + 0) / 2 = 75m (1) OR Total net cash flow (all $m) = 240 – set-up costs 150 = 90. (1) 90/4 = 22.5. (2) OR 22.5 / 75 × 100 (2) 22.5 / 75 × 100= 30% (3) Common error – forget to deduct original cost = 240 / 4 = 60 60 / 75 × 100 = 80% (2) % not needed for full marks Alternative formula: average profit / initial investment x 100 22.5 / 150 = 15% (2) % not needed for full marks Incorrect units, e.g. $30 (2) 3(c) Evaluate whether SCC should invest in the new factory. 12 AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation Level and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context A developed judgement/conclusion is made in the business context. Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed analysis Developed evaluation knowledge of application of that identifies A developed judgement/conclusion is relevant key term(s) relevant point(s) connections between made. and/or factor(s) is to the business causes, impacts Developed evaluative comments used to answer the context. and/or consequences. which balance some key arguments. question. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited Limited analysis Limited evaluation of relevant key application that identifies A judgement/conclusion is made with term(s) and/or of relevant connections between limited supporting comment/evidence. factor(s) is used to point(s) to the causes, impacts An attempt is made to balance the answer the business context. and/or consequences. arguments. question. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 3(c) OFR for 3(a) and 3(b) All annotation ( ) should be in the left margin. Indicative content Responses may include: AO1 Knowledge and understanding Knowledge of IA methods, such as payback, ARR, but also net present value (NPV). The new production unit will increase capacity so generic knowledge of capacity utilisation. Knowledge of other relevant quantitative or qualitative factors. AO2 Application Limited application, applies knowledge to SCC once. Developed application, + applies knowledge to SCC twice The new production unit will increase capacity for bespoke items. Factories currently operating at 85%. The new production unit will also be used to develop the new products made from recycled textile materials. There will be a need for more trained employees to make the clothing and these are in short supply. It may be possible to promote some trained employees from the original two factories. Payback (year 4) and ARR is quite high (30%) (OFR here). Relies on demand for bespoke items increasing as well as successful market entry into market for clothing made from recycled textiles. SCC are intending to take a bank loan to finance the new unit, which will attract interest payments/increase gearing. 3(c) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Development of application points, in terms of the likely advantages and disadvantage to SCC of the new production unit, including impact on costs, reliance on future sales and revenue. An increase in capacity is needed if demand increases, as they are working at 85% currently. This will enable SCC to produce more clothing. This should lead to higher sales and revenue, as suggested by the forecast figures. However, it may be difficult to staff the new unit with specialist workers, as they may be hard to find in Country Z. This may mean that Sunil needs to set up his own training sessions, which could be costly. Wage rates may also need to be higher, given the scarcity of skilled workers, adding to costs and potentially decreasing profits if prices cannot be increased. Given SCC’s current product portfolio, the main products being mass-produced clothing, the marketing mix will need to be changed to target ‘environmentally aware’ customers, this could add to marketing costs possibly decreasing profits if it takes time to reach these customers and increase sales. AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment. Developed evaluation – supported judgement and/or reasonable evaluative comment. Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. Either conclusion rewardable as long as it is justified. In the short term, this will be costly ($150 000) and will the bank be willing to lend? How secure may the sales forecasts be, given the economic situation in Country Z and the other export countries. There is considerable risk involved, especially in the untried market for recycled clothing. Is Sunil (and family) willing to take the risk? Accept all valid responses.

Mark scheme

4(a) Refer to Table 1.2. Calculate the price elasticity of demand (PED) for bespoke clothing. 4 Table 1.2 Data for price elasticity of demand Sales before Sales after Original New Price elasticity Tour price increase price increase price price of demand (2020) (2021) Bespoke clothing items $200 $220 300 285 PED = % change in quantity demanded / % change in price (1 mark if no relevant calculations) % change in quantity demanded = -15/300 × 100 = -5% (1) (minus sign needed) % change in price 20 / 200 × 100 = 10% (1) PED = – 5% / 10% = – 0.5 (4) 0.5 (3) Incorrect units e.g. $–0.5 (3) $0.5 (2) 4(b) Evaluate the usefulness of PED and income elasticity of demand (YED) to SCC’s sales forecasting for mass- 12 produced clothing. AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation Level and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context A developed judgement/conclusion is made in the business context. Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed analysis Developed evaluation knowledge of application of that identifies A developed judgement/conclusion is relevant key term(s) relevant point(s) connections between made. and/or factor(s) is to the business causes, impacts Developed evaluative comments used to answer the context. and/or consequences. which balance some key arguments. question. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited Limited analysis Limited evaluation of relevant key application that identifies A judgement/conclusion is made with term(s) and/or of relevant connections between limited supporting comment/evidence. factor(s) is used to point(s) to the causes, impacts An attempt is made to balance the answer the business context. and/or consequences. arguments. question. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 4(b) OFR for 4(a) All annotation ( ) should be in the left margin. Indicative content Responses may include: AO1 Knowledge and understanding Knowledge and meaning of PED and YED – responsiveness of demand to a change in income or price. Generic knowledge of PED and values, including price elastic/inelastic. Generic knowledge of positive and negative income elasticity and meaning of income elastic/income inelastic demand. Generic knowledge of reasons for sales forecasting and sales forecasting methods, such as extrapolation, correlation, time series analysis. (maximum 1K mark) AO2 Application Limited application, applies knowledge to SCC once. Developed application, + applies knowledge to SCC twice The customers of SCC’s mass-produced clothing are B2B budget brand companies, whereas the bespoke items are sold to consumers so B2C. Pricing should take into account the target market, but also in this case fast fashion is being sold ‘in bulk’, whereas bespoke items are ‘one off’. Elasticity calculation suggest that mass-produced clothing has price elastic demand, but is also an inferior product, with demand increasing as real incomes fall. Mass-produced (fast fashion) clothing sales will be highly sensitive to changes in fashion and consumer tastes. Fast fashion clothing has a YED of –1.33 (inferior product). Calculations of revenue from table 1.2 before and after price increases: Bespoke clothing $60 000 increased to $62 700. Fast fashion $1 000 000 decreased to $900 000 AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. 4(b) Development of application points, in terms of the likely usefulness of price and income elasticities in sales forecasting. Price elastic demand for mass-produced clothing suggests that B2B customers are price sensitive, and that decreasing prices is likely to result in higher revenues. This could mean that the currency depreciation will stimulate sales as it leads to cheaper export prices. Negative income elasticity (–1.33) for mass-produced clothing suggests that falling real incomes may lead to higher demand as business customers opt away from higher priced suppliers, as they know that their customers will be looking for cheaper prices, this could also stimulate demand from the budget brand companies. Sunil has past sales data, so forecasting based on this may be a good starting point, such as time series analysis or simple extrapolation, will enable him to predict sales. However, markets are dynamic and the mass-produced clothing market is becoming more competitive. This may mean the likelihood of a price war. This would probably mean that elasticity data is not up to date and predicted demand may be lower, resulting in lower revenues. Consumers are becoming more concerned about unethical business practises used by suppliers in developing countries. This could have a negative impact on SCC, especially if there is bad publicity or pressure group activity, leading to lower sales. AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment. Developed evaluation – supported judgement and/or reasonable evaluative comment. Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. It will be useful for SCC to keep a close watch on response from customers to both price and income changes, as these will have big influences on their ability to buy. However, other parts of the marketing mix and strategy will also be important, especially keeping up with fashion trends. Currency fluctuations, such as the depreciation may be short or long term and will vary across different currencies. YED is especially unreliable, as mass-produced clothing will be a ‘normal’ good for low-income earners, but an inferior good for high-income earners. Many other external factors could influence the demand for SCCs clothing, other than price and income changes. Elasticity data goes out of date very quickly, given other changing influences. Accept all valid responses.

Mark scheme

5 Evaluate the impact of SCC’s HRM decisions on the future success of the business. 12 AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation Level and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context A developed judgement/conclusion is made in the business context. Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed analysis Developed evaluation knowledge of application of that identifies A developed judgement/conclusion is relevant key term(s) relevant point(s) connections between made. and/or factor(s) is to the business causes, impacts Developed evaluative comments used to answer the context. and/or consequences. which balance some key arguments. question. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited Limited analysis Limited evaluation of relevant key application that identifies A judgement/conclusion is made with term(s) and/or of relevant connections between limited supporting comment/evidence. factor(s) is used to point(s) to the causes, impacts An attempt is made to balance the answer the business context. and/or consequences. arguments. question. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 5 All annotation ( ) should be in the left margin. Indicative content Responses may include: AO1 Knowledge and understanding Role of HRM, in terms of managing employees to meet the business needs. The differences between soft and hard HRM. Relevant knowledge of the meaning of success, e.g. profit, growth, productivity, sustainability. Generic knowledge approaches such as target setting, training, promotion and links to motivation. Generic knowledge around approaches that may be suitable for different types of workers. AO2 Application Limited application, applies knowledge to SCC once. Developed application, + applies knowledge to SCC twice Employees at SCC vary, with some lower and some higher skilled, depending on whether they are sewing fast fashion, or designing and making bespoke items. The HRM approach seems to have elements of both hard (targets) and soft (training and refreshments) HRM. Many clothing manufacturers means high demand for all types of clothing workers, but especially those with higher level skills. Working conditions and pay seem to be above average, but still hard work in hot temperatures. Decisions such as providing meals and drinks, training and promotion opportunities do suggest a soft approach. Sunil wants to expand SCC, forecasting 10% sales increase. AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Development of application points, in terms of the likely impact of HRM approaches. Chains of reasoning explaining why the approaches may work for SCC. For instance, target setting enables Sunil to judge employees’ performance, potentially even give out productivity bonuses, improving efficiency , lowering average cost and increasing profit. 5 Chains of reasoning explaining why the strategy may not work. For instance, target setting when employees are all working on different items may be difficult, could even lead to poor quality work and demotivation, decreasing productivity. Links with staff retention, especially in a competitive labour market. If it costs a little more, perhaps in the provision of refreshments, then staff turnover will be lower, leading to less recruitment costs. Links with Sunil’s objective to expand SCC, will need to retain and recruit employees with the right skills. Soft HRM approach may make this easier. Especially with reference to bespoke items, the SCC designers will be an important part of SCC’s USP, and Sunil cannot afford for these people and their design skills to be poached by other clothing companies, he will therefore need to pay above the market wages, potentially increasing costs and decreasing profit margins if prices cannot be increased. AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment. Developed evaluation – supported judgement and/or reasonable evaluative comment. Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. Impacts of the HRM approaches will depend on the nature of employees. A judgement as to whether Sunil’s approaches are ‘mainly hard’ or ‘mainly soft’ and the long-term impact of this on the recruitment and retention of employees. The importance of using the appropriate approaches of HRM with different employees, but how possible may this be? How affordable may some of the soft approaches be if there is a price war in the market for mass-produced clothing? Supported conclusion as to whether the mix of approaches is likely to help SCC succeed in the long term, for instance in terms of profit, growth, sustainability. Other factors that may be as or more important to SCC’s success, such as finance for the proposed new factory. Accept all valid responses.