Unit 1 Section 2 Business Structure Cie Questions. (Paper 1)

State two ways in which a business may achieve added value.

(a) Business can add value to its product by offering excellent after sales services to its consumers or by adding new or additional features in product.

(a) Define span of control.

(a) It shows the no. of subordinates which are work- ing under the direct control of a management position. E.g. a sales manager is leading a group of 20 sales representatives so his span of control will be 20 subordinates. It can be of two types: 1. Wide span of control. 2. Narrow span of control.

(a) State two advantages of being a sole trader. [2]

(a) Sole trader will take total profit of his business and apart from this he will be able to make quick decisions since he will not have to consult any- one.

(a) Outline one difference between the public sector and private sector of an economy. (2)

(a) Those organisations which is either owned or con-trolled by the *government* are known as +public sector* organisations. These organisations work on *non-profit* motive and their *basic objective* is to *provide certain basic utilities* to people. For example, health and safety, education, recreation etc. Govt. resources to is responsible to provide all required these organisations. (Including financial resources). *Private sector* organisations are those which are *owned by the private people.* Majority of these organisations will work on *profit maximization* prin- ciple. E.g. Nokia, Sony, private sector hospitals. Etc.

21 Why is added value important for businesses?

(b) Added value is important to a business as by adding value e.g. adding more features in product it can charge high price for its product which will lead to increased profitability. Apart from this by adding more value in product it can get a competi- tive advantage over competitors as consumers will prefer its product over competing products.

Discuss the factors that could influence the sucess of small business[12]

(b) The discussion might initially define small businesses and their characteristics...(small no. of employees...small turnover...small net profit etc.). Factors affecting success are many (may be owner, venture or economy specific) may include: degree of business acumen/expertise/experience objectives..expand - degree of capitalisation/undercapitalisation...quality of business too fast..quality of basic business functions and systems, e.g. planning, costing, marketing, product development, poorigood location, poor/good internal controls (costs and cash flow), level and type of competition, viability of business model chosen..reward particular and country specific examples.

Explain how the objectives of a social enterprise might differ from those of other private sector businesses. (8)

- A social enterprise is a business with mainly social objectives and re-invests profits into benefitting society rather than maximising returns to owners. - Profit is still an objective and social enterprises compete with other businesses in the market / industry. - Business principles are used to achieve social objectives and they seek to make profits in a socially responsible way. - Objectives are Economic (make profits in sociably responsible ways), Social (provide local jobs and/or support local disadvantaged groups) and Environmental (protect the environment, do business in an environmentally sustainable way) - triple bottom line... distinctively different from sole traders, partnerships, plcs not set up as social enterprises.

The purchase of an internationally recognised fast food franchise guarantees business success (12)

- An understanding of the advantages of engaging in business activity via a franchise. Advantages of using the name and logo of a successful business offers such opportunities as: - More chance of business success when using an established brand and product. - National / international promotion is available, often at nil or limited cost. - Training and advice offered by franchiser. - Location of business protected. - Supplies of food guaranteed in terms of quality and consistency. However, is a franchisee guaranteed success? There are significant costs to pay before 'profit' is achieved. The business still needs to be effectively and efficiently managed - e.g. quality of serving and food production employees - is there managerial capability - what happens if the franchise business suffers as a result of recession in particular companies - or reputation suffers - or customer tastes change? It also depends on what is meant by 'business success' - short-term - long-term - profits - expansion? Discussion of points referred to in bullet points 6 and 7 offer opportunities for candidates to make evaluative comments on the provocative statement at the head of this question. Effective evaluation is likely to be evidenced by a consideration / discussion of the extent to which business success is likely to be guaranteed by a fast food franchise and of other factors which are associated with business success.

Explain the possible advantages to a business of autocratic leadership. (8)

- Quicker as doesn't have to contact everyone, so can complete tasks in shorter time - Autocratic style - suitable for theory x workers - strict supervision - can achieve desired results - suitable when quick response are needed for instance, in military rescue & police members are instantly required to follow orders of their commanders. Any consultation at this point might result in collateral damage so only autocratic style with serve the purpose in such org.

Discuss the qualities of an effective leader. (12)

1) Must be visionary - knowing what he is working towards - have clear goals - ability to give a clear vision to his team of what should be achieve 2) inspirational & role model for his team members - reach office before time & work very hard so that team members can imitate him - such culture in an org. Maximise chances of success 3) Be social - be part of team - ensure that work is being done according to different theorist - Elton Mayo, Maslow & Herzberg emphasize need of team working - with this, can stimulate interest of team members, can generate more ideas leading to greater level of success 4) Emotionally intelligent - ability to control his emotions along with understanding understanding the emotions of his team members

(a) Explain the advantages of a 'co-operative' as a form of business.

A co-operative is a firm which is owned, controlled and operated by a group of users for their benefits and for their members. Every member will contribute equity capital and shares. Members will have one vote each unlike limited companies where number of votes is determined by the number of shares one owns. For example, producer, consumers, worker's co-operatives. The advantage of a co-operative business is that it can be formed quite easily compared to the formation of other business organisations. For example, a limited company. Any two adults can decide and form a co-operative society. The level of motivation of staff is expected to be high as in co-operatives democratic style of management is used. The management of co-operatives is conducted by the elected members. Every mem- ber has equal say in making policies for society. This encourages members to take initiative and work together as no one can manipulate because every member will have one voting right. The co-operative societies are formed not for profits but for providing service. This means that their main focus will be on maximising benefits to their members instead of profit maximisation. This will enable them to satisfy interests of their member more effectively as compared to other organisations. Culture of co-operatives is expected to be much better as a feeling of co-operation is created among members.

Analyse the benefits to your country's economy from a multinational manufacturer of computers locating a new factory there. (6)

A multinational is a company which has its pro- duction units and operations in other countries as well apart from the country of its origin. If a mul- ensure tinational manufacturer of computers is going to in be that more job which is is a high rate of un-employment in my country but Elton will not only decrease crime rate in society as there opportunities will be created. This nisatoin to locate in my country then the benefit is going to motiva- it will also help to raise standard of living of people as they will be earning a handsome amount of money. Apart from this multinational computer of manufacturer will also train local labor which will be objectives. attract more multinationals to locate in my country and the demand for our labor will increase in for- faire eign country due to human resource development. Since computers will be produced locally it means custom duties will be avoided and due to local production there will be low cost so become economical to increase awareness of people for local people. computers wil This will help which will lead to development.

(a) Analyse the benefits which a private limited company might gain by becoming a public limited company.

A private limited company is a family owned busi- ness which is just going to sell its shares to its friends and family members while public limited company is also a private sector business but it will sell shares to outsiders through stock ex- change. If a private limited decides to convert into company a public limited company then it will be able to sell lares in stock exchange as a result of this it will be able to raise a huge amount of funds. This will help to strengthen its financial resources. Due to improved financial resources it will allocate more budget for research and development which could also lead to improvement in quality standards as product will be produced according to the requirements of its consumers. This will not only increase market share but will also help to improve its image in market. A public limited company is expected to operate at a much large scale as compared to a private limited company so due to large scale operations it might be able to achieve economies of scale. This reduction in average cost of production will not only increase profit margin of company but company will be able to pass on this benefit to consumers in terms of low price. This could make its products more competitive in market resulting into increased market share and profitability. A public limited company would like to operate using capital intensive techniques of production due to improved financial resources. The use of capital intensive production will not only help to speed up the production process resulting into mass production which will enable business to expand target market for its products. Apart from this due to the use of capital intensive production techniques business will be able to achieve standardised quality of its products.

Define the term 'private sector'.

All those organisations which are owned and controlled by people other than the govt. are known as private sector. Most of these organisations work on profit maximisation principle except few NGO's or trusts, for example Shaukat Khanum trust hos- pital who work on non-profit motive.

Explain the main qualities of a successful entrepreneur.

An individual or a group of individuals who will come up with a business idea and will take finan- cial risk for profit earning. A successful entrepre- neur must be a good manager having both intel- lectual and emotional intelligence. It will enable him In to manage staff more effectively and achieve desired results. Apart from this he/she must be innovative and he must come up with creative ideas for his business to make it more successful. He must also be a risk taker and be willing to take calculated risks as without risk taking his business may not be able to achieve desired profit.

(b) Explain one difference between private and public limited companies. (3)

Both companies are owned and controlled by the *private sector* and they are from the incorporated sector. The difference between private and public limited companies is that *private limited companies* are +family owned business* they will *only sell their shares* to their *friends* and *family members* and as a result of this they will *not be listed in the stock exchange* while on the other hand *public limited companies* will register themselves in the *stock exchange* and *general public* can buy and sell their shares from the *stock market.*

Explain why the objectives of a business may change over time.

Changes may take place in response to:- • Initial objectives achieved (survival). • Competitive environment. • New leadership and management. • Technology developments may suggest new production possibilities. • New opportunities arise with internal and external growth such as multi- • Economic/external situation changes such as recession.

Explain the benefits of a co-operative to its members. (5)

Co-operatives are joint ownership organisations (producer, workers, consumers). • A distinctive type of business organisation - often a significant amount of democratic control and profits shared/distributed in proportion to members' investment. • Producer co-operatives common in agriculture in developing countries. • Advantages claimed for co-operatives include: - Members/users are involved and have opportunity to direct and control the business. - Business is designed and run specifically for the members/users. - Resources are pooled for mutual gain. - Increased purchasing/supplier power - joint advertising. - More consumer power - less social/environmental damage. - Allows members with common interests to work together and assume responsibility (e.g. village post office/shop). • In consumer co-operatives consumers may receive dividends for their patronage. • Producers protected from being exploited by large buyers.

Advantages of cooperative

Cooperatives are joint ownership organisations...different consumer, worker. Exist to provide a service to their members, owners, and the types-producer, to www.PapaCambridge.com a public, and are a distinctive type of business organisation. There is often significant amount of democratic control and profits often shared/distributed members in proportion to investment. Consumer cooperatives generally in Europe and Japan. Producer cooperatives common in agriculture particularly in developing countries. Advantages include opportunities for joint ownership-more employee motivation, shared objectives, opportunity to influence/participate in decisions, produce a distinctive supportive culture, idealistic values, strength in unity, strength in raising investment capital, stronger in negotiations with buyers, more responsible to customers and community, can be innovative.

Define the term 'corporate culture'.

Corporate culture refers to the shared values, attitudes, standards, and beliefs that characterise members of an organization and define its nature. Corporate culture is rooted in an organization's goals, strategies, structure, and approaches to labor, customers, investors, and the greater community.

Importance to a large business of setting corporate objectives

Corporate objectives targets and goals are quantifiable and specific that are set for both the short and long run. strategic level (top Corporate objectives are set at the hierarchy) of the business and they are the basics on which the divisional, departmental and individual levels are set. All ob- jectives should be SMART which means they should be specific Measurable, Achievable, Real- istic and Time- specific. Only when objectives are SMART they are effective and can help a business achieve success. Examples of corporate objectives can be profit maximization, survival and growth. Large business have a lot of divisions, depart- ments and employees and without having defined clear objectives the different divisions and depart- ments will not know how and what to achieve and this can result in immense chaos and wastage of resources. Without clear objectives it will not be possible to set proper budgets and allocate resources as the workers will not know what to work towards and this can lead to business failure and shutdown. Secondly when a large organisation sets clear objectives it provides clear guidelines which helps to make effective strategies and business plans. For example if the corporate objective is to increase market share by 5% then the marketing and production departments will make effective strategies and decisions about how to increase output and strategies and how to increase market share such as advertising and promotional tech- niques. Thirdly clear corporate objectives can help the directors to measure the success or failure of dif- ferent divisions and can assess the performances. If the objectives are not clear then it would be difficult to judge whether a particular department or division has performed successfully or not. It is actual results only when the business compares with the corporate objectives can success or fail- ure be judged. It will also be important to set objectives they will play a motivational role for the workforce. clear objectives they know When the workers get motivational exactly what to do and it has a very effect otherwise if the workers are not clearly told and what to do, it will lead to carelessness to be very costly in demotivation which can prove of and wastage terms of low quality output that all aspects and departments of the business resources. Corporate objectives also make sure have been taken into consideration and thus there

Explain why many businesses have corporate responsibility as an objective.

Corporate social responsibility is the duties or obligations that a business has towards the people who are affected by its activities. Businesses may have corporate responsibility as their business objective as they may consider that they must compensate society for those social costs that it is bearing as a result of its operations. Apart from this it might enable them to create a good public image as they may use it as a public relationing technique. This good image could lead to brand loyalty in the long run and businesses will benefit in terms of increase market share.

Evaluation Discuss why national water supply businesses operate in the public sector.in many countries 12

Evaluation • The context is national water supply businesses. • Evaluation might recognise that the availability of a water supply varies in different countries and at times clean water is difficult to obtain and may be expensive to provide. • Answers may compare what are said to be the relative business strengths and weaknesses of public and private sector organisations and under what circumstances one method of supply may be better than another. • Reference could be made to the private sector being unwilling to get involved or alternatively could provide the service more cheaply. • Strong answers may refer to a trend to provide these national utilities using the private sector where it is argued that there may will be more emphasis on performance, efficiency and accountability

Role of HRM (3)

Human resource management means that employees of the organisation should be managed, trained, and motivated in an effective manner in order to ensure that organisation is able to achieve its corporate objectives. Human resource department will also ascertain the requirement of the workforce in the coming time period and it will also design a recruitment policy in order to ensure organisation will get the desired labor at the right time and at the right place.

Briefly explain two advantages a public limited company has compared to a private limited company.

It can sell its shares in stock exchange which enables it to collect huge amount of capital to invest in business activities and become stronger finan- cially. Apart from this business operations can be expanded and it can enjoy larger economies of scale as compared to a private limited company.

Define the term 'public limited company.

It is a private sector company shares to general public through stock exchange. which can sell its There are going to be minimum 7 shareholders to start and maximum number depends on authorized share capital. It will have to publish accounts.

Define the term redundancy

It is a situation where an organisation asks its employee to leave the organisation as it will not be enough work for him. In this case that job position will be eliminated from the organisation and no new employee will be recruited to replace existing one The most common reason for the redundancy could be the introduction of technology in the organisation.

Define 'joint venture'.

Joint venture is when two or more business agree to work together on a particular project that could be a new brand or a separate new business or division while their own businesses and products also keep operating.

Define 'joint venture'.

Joint venture is when two or more business agree to work together on a particular project that could he a new brand or a separate new business or division while their own businesses and products also keep operating.

Manpower planning

Manpower planning is an ongoing process of systematic planning in order to achieve optimum use of an organisation's most valuable asset. Its objective is to ensure the best fit between employees and jobs, while avoiding manpower shortages or surpluses.

a) Explain how the objectives of a business may change as it grows. [8]

Objectives are aims or targets which a business organisation would wish to achieve by implementing its business plan. Objectives are determined by certain internal and external environmental factors. Objectives of a business are likely to change as it grows as its internal and external environment will change with business growth. When a business is new then its objective will be survival. It will design its strategy to achieve these stated objectives but when it will spend some time in market and its product aware. ness will increase then it might shift from the objective of survival to profit maximisation. Initially business might target a small target market and avoid competition with large scale firms. When its products will become successful and its financial resources will improve then it might decide to expand target market and get into direct competition with large scale firms. Initially business might decide to produce at small scale considering low demand for its products. When it will grow then it means that its production scale will increase. Now business will aim to achieve economies of scale which are the benefits busi- ness might wish to gain in terms of low average cost. on srt Initially business will launch few products in market but when they will become successful then busi- ness might decide to extend its product mix and it might introduce new products as its financial re- sources will allow it to afford expenditure of new product development.

Explain how the objectives of a business may change as it grows. [8]

Objectives are aims or targets which an organisation would wish to achieve by implementing its business plan. by certain internal and external tors. Objectives are determined by internal and external environmental factors. grows Objectives of a business are likely to change as it grows environment as it will

Why growth may not be the most important objective?

Objectives are the goals an organisation might wish that to achieve by implementing its business plan. Objectives for any organisation are determined bv the internal and external environment factors. Growth is going to be an important objective but it might not be the most important objective during recession as there will be a less demand for the products and during this phase firm will attempt to survive rather than growing. In the same way when firm enters into a new market at that time its objective will be to get a foothold in the market as that competitors might be well established

Question Explain why the objectives of a business could change over time. [5]

Objectives of a business organisatoin are determined by certain environmental factors which may change overtime. E.g. in case of economic boom business will aim for profit maximisation but in case of economic recession business might have to shie to the objective of survival. In the same way at initial stage business will target small target market but after getting successful it may aim to achieve economies of scale.

Briefly explain one factor that determines the culture of a business. [3]

One factor that determines culture of business is the individual working with the organisation. Every employee can contribute to the workplace in his/her own way. The attitudes, mentalities, interest and even thought process of the employees affect the organisation's culture.

Explain the advantages and disadvantages of being a small business in food retailing. (8)

Pros - Ability to offer personalised services - develop personal contact - customer loyalty- lower overhead expenses - low price- competitive advantage Cons - No economies of scale - shortage/lack of capital - small variety of goods

. (b) Briefly outline the main features of a 'public limited company' [3]

Public limited companies are owned by the private sector. They are known as public limited compa- nies as they will sell their shares to the general public through stock exchange listing. There are going to be minimum 7 shareholders to start such a co. and the maximum number will depend on the amount of the authorized share capital of the com- pany. There is going to be a divorce between the ownership and control so the management of a plc lwill be conducted by a board of directors compris- ing 7 directors. Such companies are also required to publish their annual accounts according to the company's act of 1985. They are also likely to face more legal formalities as compared to the private limited companies.

Explain the importance of profit maximisation for a public limited company. [5]

Public limited companies are private sector organisations which will sell their shares to the general public through stock exchange. Profit maximization is important for all private sector organisations but for a plc it has more importance due to the reason that public limited companies are large scale organisations which would need mas- sive amount of funds in order to meet its financial requirements. They will only be able to attract new shareholders only if it will pay higher amount of dividends. In the same way shares of plc are just considered as bearer cheque and they can be bought and sold any time in the stock market. It will be important for the ple to retain its existing shareholders even. It will have to maximize its profit

Explain the importance of profit maximisation for a public limited company. (5)

Public limited companies are private sector organisations which will sell their shares to the general public through stock exchange. Profit maximization is important for all private sector organisations but for a plc it has more importance due to the reason that public limited companies are large scale organisations which would need massive amount of funds in order to meet its financial requirements. They will only be able to attract new shareholders only if it will pay higher amount of dividends. In the same way shares of plc are just considered as bearer cheque and they can be bought and sold any time in the stock market. It will be important for the ple to retain its existing shareholders even. It will have to maximize its profit because it will have to pay a reasonable percentage of dividend to its existing shareholders otherwise they will start selling their shares in the stock market and share price of the company will fall and company will get into financial crisis.

Analyse the impact of social enterprises on the development of a country. 8

Recognition of the purpose and objectives of social enterprises - businesses with mainly social objectives that reinvest profit into social benefit activities. Commercial businesses that aim to make a surplus in socially responsible ways and distribute any profit to society - business principles with social objectives - economic - social - environmental objectives - triple bottom line businesses. Social enterprises enrich the types of business units in a country - provide services that PLCs and other businesses cannot or do not want to provide - so important in developing a variety of business responses and objectives. Examples of impact of social enterprises: - Provide finance for emerging entrepreneurial projects; allow small businesses to be set up; provide finance for environmental improvement; fill a gap when NGOs and charities run out of funds; supplement key infrastructure systems. This can be very important in stimulating the economy and giving a different emphasis to business objectives and opportunities.

Discuss how different stakeholder groups might view the decision to change from private limited company to a public limited company.

Shareholders probably want to realise wealth by having quoted shares, but could be concerned about possible loss of control. Managers might appreciate publicity and reputation firm could gain, helpful in recruiting, with shares able to be used as incentive for themselves and other employees. However, they will be aware that they will be under the spotlight and life might become more stressful. Employees want security and higher wages; going public may well make the firm more ruthless and less of a family business. But expansion will bring more opportunities to the ambitious. Suppliers want security, continuity and higher prices; Plcs should be safer to trade with but could be more ruthless. Customers want top quality and lowest prices. A Plc should be more able to provide that. The Community will be looking for continuity and growth, which hopefully this will provide, but the risk of takeover and closure (or asset stripping) could worry them

two ways of measuring the size of a business [2]

Size of a business might be measure on the basis of its size of the labor force e.g. co. having bigger work force might be declared as a large scale company or it could also be measure on the basis of the amount of capital employed e.g. organisation with a greater value of capital employed might be considered as a large scale firm or vice versa.

Question (a) State two advantages of being sole trader. [2]

Sole trader will take total profit of his business and from this he will be able to make quick apart decisions since he will not have to consult any- one.

Question 7 success of objectives business. and departmental Analyse the importance objectives to the of corporate

Suggested Answer for the entire business and targets and quantifi- (a) Corporate objectives are the Achievable, Realistic accurate. SMART have to be SMART over a specific period effective and and Time specific. means Specific, Measurable, in order to be of time. Corporate organization to be achieved able goals that are set objectives direction to the will be extremely useful in the proper running of budgets and proper allocation of resources which business make effective strategies concerning Thirdly clear corporate objectives will help the work in a more focused manner and approach. they will know what they have to achieve and tives will also help motivate the of the business. Secondly clear corporate objec- the different divisions mon goal and there will be no conflicts ments of the business will work entire business and all the tives is that it will give a complete The importance of having clear corporate objec- divisions and depart- towards a com- between leading to smooth running employees and the business. Corporate objectives such as growth, profit maximization and market share help make sure that all the different departments right down till the individual workers do not have any ambiguity about their roles in the business and what they have to do, which increases the overall efficiency of the business. Departmental objectives are the objectives of the different departments of each business and they are very important because if the departmental objectives are not well planned then the corporate objectives will never be achieved. When the corporate objectives are set then in order to achieve them it is very important to have effective and well thought out departmental objectives. In order for the corporate objectives of growth and expan- sion to be fulfilled the different departmental ob- jectives will be extremely important. The operation department will develop strategy of launching new products in order to increases the product portfolio of the business. The marketing department will set the departmental objective of achieving higher market share through strategies

Discuss why an entrepreneur might choose to become a franchisee rather than start an independent restaurant business (12)

The decision to adopt a franchisee model for restaurant ownership is likely to be influenced by the suggested advantages of a franchisee arrangement: - You adopt an existing successful/established business. - You operate an established brand and reduce risks. - The initial investment is probably smaller. - An entrepreneur can focus on operating and driving the established brand. - Ability to benefit from a franchised business relationship. - Less likely to fail. - In the short term probably more profitable.

Conflicts between stakeholder groups

The essence of the scenario is a successful business. Stakeholders might be in conflict in any business - successful or not - e.g. shareholders' interests the expense of other stakeholders. In this example there may be specific conflicts of interest e.g. - shareholders want high dividends and not long term investment - managers and workers want immediate salary increases (versus long term security) - consumers want lower prices (vs innovation and high quality) - environment groups want more investment in the reduction of waste and pollution, etc. A range of potential conflicts exist with regard to the distribution of profits. The relative power and influence of stakeholders is important - and more stakeholders might be in agreement than in conflict.

Briefly explain two advantages of joint ventures to the businesses involved. [3]

The first advantage of the joint venture is that the new product or brand is bought by the loyal cus- tomers of both the businesses resulting in a very wide customer base that gives very high sales and market share. Secondly the risk of launching the new business will be shared. The initial investment, cost and expenses are split up among the two businesses which reduces the loss on one company if the joint venture fails. It is a strong advantage if the two Companies are both small businesses.

Briefly explain two advantages of joint ventures to the businesses involved. [3]

The first advantage of the joint venture is that the new product or brand is bought by the loyal cus- tomers of both the businesses resulting in a very wide customer base that gives very high sales and market share. Secondly the risk of launching the new business will be shared. The initial investment, cost and xpenses are split up among the two businesses which reduces the loss on one company if the joint venture fails. It is a strong advantage if the two Companies are both small businesses.

Question (a) Define the term 'value added'.

The value which is added by a business in its product or service before offering product to cus tomers. In other words it is the increase in the benefits of a good or service which is created at each stage of production.

Briefly explain two distinctive characteristics of public sector enterprises (for example public corporations or nationalised industries).

Unlike private sector they work on non-profit motive and their main aim is to provide certain merit goods and social benefits to society. Apart from this they are mainly funded by government to meet their financial needs work according to its rules and regulations.

Define the term 'ethics'.

Use of concepts/practices/principles/rules/code/guidelines (1). Having morals/being morally correct (1). Behaviour/decisions which are correct/right/fair/responsible/do not damage/adversely affect/disrespect others (1).

people might prefer to Briefly explain why some work for a business with wide spans of control [3]

Wide span of control is when a management position will be having a bigger group of subordinates under its direct control. Some people might prefer to work for such businesses as there might be lesser interference of manager in the work of individual subordinates as he will have to supervise so many subordinates. This might also provide them a sense of job security.

Discuss whether the government should support small businesses in your country. [12]

Yes - Decrease in unemployment rate - decrease in unemployment allowances - generate more tax - increase in GDP - provide competition - fill market niches No - Add financial burden - decrease funds for public servicesn- difficult for govt to control many small businesses - separate department need to be established

Analyse why making a profit is not the main objective of all private sector businesses. 8

achieve including - Profit - Profit maximisation - Growth - Market share - Survival - Global reach - Social good, etc. • It may well depend on the context, size and maturity of a private sector business as to which objective is a primary objective at any particular time. • A private sector business may focus on survival or increasing market share in the short-term, with profit as a long-term objective. • Cash is often more important than profit in the short-term. Some private sector businesses are not primarily commercial or bottom-line profit seeking organisations such as: - Social enterprises - Triple bottom-line businesses - Co-operatives - Charities

Question 5 (a) Analyse problems a business its first year of trading. could experience

have A business in its first year of trading does not such a good credit rating and worthiness and will not be able to secure a large and initial capital. Due to the low amount of initial capital the business will not be able to afford the source of finance latest technology perienced staff which or hire trained, efficient and ex- will result in the production of low quality and uncompetitive products which will not attract customers leading to low initial sales which will not cover the costs causing a serious problem of losses. New businesses do not have trustworthy brand names and in certain markets such as medicines and cosmetics customers are not willing to try out new brands which will create a very low demand for the new brand. This extremely low demand will be insufficient for the business in its first years to survive and may lead to the most dire problem and that is complete business failure and shut down. New businesses in their first year of trading face cash flow problems as the new business does not have the experience to manage cash flow properly. A lot of cash of a new business is tied up in fixed assets such as premises and furniture. Suppliers are not willing to give new businesses any trade credit. Thus there are numerous cash out flows for the new business in its first year of trading. The cash in-flows are much lower due to less sales as the business is still relatively unknown and not popular. Thus the larger cash out-flows and low cash in-flows leads to serious liquidity issues and cash flow problems for the business. New business also cannot attract talented and good staff as experienced staff does not apply in new start ups as they are not sure about the future of the business. Thus the new start ups have less talented and experienced people working for them and this leads to lower levels of efficiency and lack of new ideas which can lead to problems of poor quality products that result in lower sales values.

(a) Explain one objective *of a public sector organisation* in your country. [2]

t) Public sector organisations are owned or controlled by the govt. their objective in my country would be to provide certain basic utilities, for example, health and medical facilities to poor people considering my country as a developing economy poor people may not afford private sector's medical facilities.

Analyse the possible benefits to a business of increasing its market share. 8

• An increase in the number of customers - increased sales. • The business becomes more well-known with a possible increase in brand/image recognition leading to stronger image. • Increased scale of operation leading to economies of scale. • Lower unit costs leading to increased profit or the opportunity to reduce price to consumers and therefore become more price competitive. • If the business gains a large market share the business is likely to be more powerful in the market and might be able to dictate prices. Brand leaders can set prices. • Retailers might be very eager to stock that brand of goods - able to gain a more prominent sales position in retail outlets.

Explain how the interests of two stakeholder groups could affect the 5 decisions of a business

• Define stakeholders - people or groups who have an interest in / relationship with a business. • Different stakeholders in a typical business - employees - management - shareholders - customers - suppliers - local economy - local / national government - pressure groups. • Business decisions of interest to stakeholders include: profit distribution - expansion - diversification - supplier policy - degree of social responsibility - operating methods - remuneration and motivating policies. • Different stakeholders will have views on such business decisions that may lead to conflict among the stakeholders or between some stakeholders, e.g. shareholders vs. employees with regard to profit distribution - so decisions could be changed or overruled or supported with or without conflict.

Analysis Discuss why national water supply businesses operate in the public sector.in many countries 12

• It is considered in many countries that the objectives of any public sector business will need to be quite different from the private sector. • Social objectives are paramount in the public sector. • In the private sector, profit may be more important and supply to those who can pay most will be prioritised. • Public sector businesses may find it easier and cheaper to secure the necessary capital finance. • The private sector may supply more capital investment and there will be less political interference in business decision making.

Briefly explain two possible disadvantages to a sole trader of changing to a private limited company. (3)

• Loss of 100% ownership of the business. • Loss of control of the business (might not be a majority shareholder). • Cost of changing to a private limited company. • May lose influence over key decisions such as distribution of profit, future growth policies. • Needs to produce end of year accounts - more transparency of financial affairs. • Information disclos

Discuss factors that could lead to the failure of a small business which repairs cars. 12

• May run into cash flow problems as customer payments not made/or slow. • Quality of work may reduce if the business becomes too busy or a skilled member of staff leaves or has an accident - so customers leave. • The business may grow too quickly resulting in pressure on cash flow. • Poor management of the business. • Fewer opportunities for economies of scale in a small business. • Reference to the particular issues that face small car repairers. • Issues such as the capital requirement for machines and tools/equipment to repair cars. • Issues such as the requirement for skilled mechanics and appropriate premises. • Suppliers may increase costs of car parts/oil/tyres. • Larger and more efficient car repair businesses may take trade away from a small business - with special offers/more up-to-date machinery. • May lose an important contract to repair cars for other businesses (such as a contract to repair the cars of a taxi business). Evaluation • The context is a small business which repairs cars. • Evaluation might discuss the factors that could lead to failure and make a judgement as to which are the most significant. • A distinction might be made to internal and external factors that could lead to failure.

Briefly explain two ways ethics might influence the activities of a business.3

• Not exploiting consumers - high prices and/or low-quality goods/service. • Not exploiting low cost foreign labour. • Not taking advantage of child/slave labour. • Not expecting excessive hours/paying low wages. • Not using production methods that are potentially damaging to the health of employees. • Not using production methods that lead to environmental damage or suffering to animals/local residents. • Not exploiting suppliers with poor/delayed payments. • Using sustainable/Fairtrade products/production. • Not purchasing cheap, unethical raw materials. • Explanation of the advantages to the business of the above e.g. good reputation/loyalty/USP/attract subsidies. • Explanation of the disadvantages to the business of the above e.g. increasing costs/decreased sales/competitiveness. • Comment on short term versus long term effects.

Explain two reasons why many new businesses fail in their first year of 3 operation.

• The product or service being offered is not wanted by consumers. • A lack of business/management experience causes poor decisions to be made. • A lack of finance. A new business might have to finance its operations for some time before income is sufficient to cover costs. • Lack of market research or poor market research resulting in flawed information meaning that the expected demand does not happen. • A sudden change in the economy that causes consumers to change their spending patterns. • A reaction from established competitors - perhaps competitors increase their advertising or reduce the prices of their products, making it more difficult for the new business to survive.