A Level Topical Business Paper 1 by readandwrite.marketing

A Topical Business Paper 1 (All variants with mark schemes) (2002-2017) Article No. 137

Features: o o o o

Topical All Variants (11, 12, 13) Question Order New to Old Mark Schemes Included

Editorial Board: o Shameel Khalid (LGS 1A1, Paragon, JT, Beaconhouse ALGT, The City School, Learning Alliance DHA) o M. Kashif Aziz (BDC, SISA, The City School) o Tayyab Elahi (KIMS, Garrison) o Waqas Hassan (LGS, Beaconhouse ALJT, The Lahore Alma)

o Khalid Malik (LGS JT, Beaconhouse ALGT, LGS 1A1, Roots Millenium) o Asif Iqbal (BTS) o Ahsan Naqvi (BSS, NGS, SISA) o Shahzad Khalid (UCL, Musab, Pak Turk)

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Topical Business P-1 (AS Level)

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Contents UNIT 1 BUSINESS AND ITS ENVIRONMENT ........................................................................... 6 1.1

ENTERPRISE ...................................................................................................................................... 6

1.2

BUSINESS STRUCTURE ...................................................................................................................... 13

1.3

SIZE OF BUSINESS ............................................................................................................................ 26

1.4

BUSINESS OBJECTIVES ...................................................................................................................... 32

1.5

STAKEHOLDERS IN A BUSINESS ........................................................................................................... 47

UNIT 2 PEOPLE IN ORGANISATIONS ................................................................................... 54 2.1

MANAGEMENT AND LEADERSHIP ....................................................................................................... 54

2.2

MOTIVATION .................................................................................................................................. 67

2.3

HUMAN RESOURCE MANAGEMENT (HRM) ......................................................................................... 85

UNIT 3 MARKETING ......................................................................................................... 104 3.1

WHAT IS MARKETING ..................................................................................................................... 104

3.2

MARKET RESEARCH........................................................................................................................ 118

3.3

THE MARKETING MIX..................................................................................................................... 131

UNIT 4 OPERATIONS AND PROJECT MANAGEMENT ......................................................... 162 4.1

THE NATURE OF OPERATIONS ......................................................................................................... 162

4.2

OPERATIONS PLANING.................................................................................................................... 168

4.3

INVENTORY MANAGEMENT ............................................................................................................. 186

UNIT 5 FINANCE & ACCOUNTING ..................................................................................... 194 5.1

THE NEED FOR BUSINESS FINANCE ................................................................................................... 194

5.2

SOURCE OF FINANCE...................................................................................................................... 200

5.3

COSTS.......................................................................................................................................... 208

5.4

ACCOUNTING FUNDAMENTALS ........................................................................................................ 216

5.5

FORECASTING & MANAGING CASH FLOWS ........................................................................................ 229

BLANK PAGE

Unit-1

UNIT 1

Business & Its Environment

Syllabus 2019 â&#x20AC;&#x201C;21

Topics

Business & Its Environment AS Level Business Topical Paper 1

9-F, Main Market Gulberg II, Lahore. 042-35714038 0336-5314141 readandwrite.publications@gmail.com readandwritepublications/Shop www.readnwrite.org

1.1: Enterprise 1.2: Business Structure 1.3: Size of business 1.4: Business Objectives 1.5: Stakeholders in a business

Unit-1

UNIT 1

Business & Its Environment

Business and its Environment 1.1 Enterprise

O/N 16/P13/Q5/a Analyse the qualities of a successful entrepreneur.

[8]

Mark Scheme: Level 4 Good analysis of the qualities needed by an entrepreneur to be successful 7-8 Level 3 Some analysis of the qualities needed by an entrepreneur to be successful 5-6 Level 2 Some application of entrepreneurial qualities to a business context Level 1 Understanding of entrepreneurs 1-2 Level 0 No creditable content 0 Answers could include: Have innovative and viable business ideas/proposals. Willing to take risks. Self— confident and assertive. Multi-skilled. Committed and self-motivated. Good leaders/motivators. Ability to raise finance/convince investors. Perceptive answers may consider how to measure success and/or question the time element of success — for how long will a business survive. O/N 16/P13/Q3 Explain why many new businesses fail within their first year.

[5]

Mark Scheme: Answers could include: Insufficient capital — run out of cash for day to day operational needs (working capital). Flawed business plan/model — inadequate information and too ambitious forward projections. Poor management — entrepreneurs without experience in finance, sales, hiring — poor leadership and decisionmaking. Failure to understand customers — too 'product led' No real differentiated product/service and no real understanding of the competition. Lack of business visibility — website. Over expansion — too soon. Too much red tape — bureaucratic restrictions. Unable to respond to external environmental changes — recession Effective explanation of the factors leading to early new business failure (4—5 marks) Limited explanation of the factors leading to early new business failure (2—3 marks) Understanding of new business and/or business failure (1 mark) M/J 16/P12/Q1/b Briefly explain two reasons why new businesses often fail. Mark Scheme: Despite the enthusiasm and skills of an entrepreneur, many new businesses fail within one year. Lack of finance/capital – banks unwilling to lend.

[3]

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Business & Its Environment

Poor cash flow management. Poor management skills – entrepreneur’s not always good operational managers. Severe competition – large companies/competitors squeeze. Limited portfolio of products/services. Very vulnerable to change and environments/threats – e.g. recession, legal requirements – technological change. Lack of market understanding. Lack of reputation/brand. Lack of record keeping. Please accept and reward other relevant points. Sound explanation of two reasons for failure. [3] Sound explanation of one reason or partial explanation of two. [2] Partial explanation of one reason or a list of two. [1] Please accept and reward other relevant points. M/J 16/P12/Q1/a Define the term ‘entrepreneur’.

[2]

Mark Scheme: Defined as someone who takes risks. Starting/managing/making decisions in a business. Organises the factors of production. Creative/has new ideas/spots gaps in the market. Sound definition given (any 2 of the above). [2] Partial definition given (limited understanding). [1] M/J 15/P12/Q1/b Briefly explain two ways in which the objectives of a social enterprise might be similar to those of other types of business. [3] Mark Scheme: Although a social enterprise is a business that has specific social objectives and is not solely in pursuit of profit, it still shares some common features with other types of businesses such as: It is a business that seeks to make a surplus/profit – It is concerned with being efficient and effective. It will likely face competition from other businesses in the same market or industry. It uses business principles and processes to achieve its objectives. It will have concerns for its workforce. It will aim to deliver quality goods and services. It is of course committed to social/environmental responsibility as can be other businesses. Sound explanation of TWO similarities. [3] Sound explanation of ONE similarity or partial explanation of TWO. [2] Partial explanation of ONE similarity or simple statement of TWO. [1] M/J 15/P12/Q1/a Define the term ‘social enterprise’.

[2]

Mark Scheme: A social enterprise has been defined as a business with primarily social objectives whose surpluses are reinvested in the business or the community, rather than providing profits for shareholders or owners. • Full definition – sound understanding. [2]

Unit-1

• Partial definition – limited understanding.

Business & Its Environment

[1]

O/N 14/P12/Q7/b Discuss the importance of ‘business enterprise’ in your country.

[12]

Mark Scheme: Business enterprise defined as initiatives concerned with taking risks and setting up businesses making things happen – business opportunities are identified and calculated risks are taken. Those who take risks and show enterprise called entrepreneurs – they make a major contribution to the development of business enterprise in a country – seize initiatives – add value, create jobs – make profits – contribute to social investment via taxation. Business enterprise(s) considered to be important in that: Jobs are created. Economic growth – increased living standards – tax revenues for governments to spend on infrastructure. Businesses grow, expand, diversify and support a more developed economy. Adds dynamism to an economy – increased use of I.T. and new technology. Helps improve international competitiveness – exports. Helps achieve social cohesion in a country and supply important social goods. Economic development comes from economic growth which is significantly supported by business enterprise – countries become industrialised and modernised through sustained business enterprise activity. Evaluative comment on the importance of business enterprise(s) to the development of a country (in context). [9–12] Analysis of the importance of business(s) enterprise to the development of a country (in context). [7–8] Discussion of the importance of business enterprise(s) to the development of a country. [3–6] Limited understanding of business enterprise(s). [1–2] O/N 14/P12/Q7/a Explain the aims of a ‘social enterprise’ organisation.

[8]

Mark Scheme: A business with mainly social objectives that reinvests profits into benefiting society, rather than maximising returns to owners. Have distinctive aims and objectives – while sharing some characteristics of other types of organisation – they rely on the market and sales for income – but they have a sense of social mission and have social ownership structures. They seek to use business solutions to achieve public good – and operate in a wide range of areas, e.g. health and social care, transport, childcare in U.K. So they have social and business aims (often referred to as “double bottom line”, or some add environmental aims and are referred to as “triple bottom line”. They have economic objectives – profit to reinvest. They have social objectives – provide jobs and support communities, often disadvantaged sections of communities. They often have environmental objectives – to manage the business in an environmentally sustainable way. Analysis of the distinctiveness of social enterprise organisation aims. [7–8] Good explanation of the distinctive aims of social enterprises. [5–6] Limited explanation of the distinctive aims of social enterprises. [3–4] Little understanding of social enterprise organisations. [1–2]

Unit-1

Business & Its Environment

O/N 13/P11/Q6 Discuss the enterprise’.

differences

and

similarities

between

‘business

enterprise’

and

‘social [20]

Mark Scheme: Business enterprise defined as activity where the primary motive is profit – production of goods/ services to consumers at a profit – create wealth. Social enterprise more narrowly defined – social mission-driven organisations applying marketbased strategies to achieve a social purpose/environmental purpose – re-investment of profits into community or back into business. In many ways they are very different – but in some ways very similar. – Business enterprise may be identified as: (entrepreneurs) – create employment – generate business activity. increase economic growth – GDP of a country increased. business grows and develops – multi-nationals. innovation and technological development takes place. international competitiveness improved – export markets. economic development improves social cohesion. all the benefits of a successful market enterprise system. but can be socially responsible (and socially irresponsible) and advance social issues and cohesion. Social enterprise may include: (triple bottom line) specific social benefit to economies (national and local). create employment for often disadvantaged employees and communities. protect and advance environmental issues alongside production processes. re-distribute production benefits, not just to shareholders or a limited number of shareholders. complement wholly public sector owned organisations. highlight ways in which business enterprise can be improved. in so doing create employment – generate taxation and economic benefit. Social enterprise units can be entrepreneurial and very efficient, and business enterprise units can be very socially responsible. Evaluative comment on the differences and similarities between ‘business enterprise’ and ‘social enterprise’ for economies. [17–20] Analysis of the differences and similarities between ‘business enterprise’ and ‘social enterprise’ for economies. [13–16] Discussion of the differences and similarities between ‘business enterprise’ and ‘social enterprise’ for economies. [11–12] Some understanding of the differences and similarities between ‘business enterprise’ and ‘social enterprise’ for economies. [5–10] Very little understanding of ‘business enterprise’ and/or ‘social enterprise’. [1–4] M/J 13/P13/Q7/b Discuss the role business entrepreneurs could play in the future development of your country. [12] Mark Scheme: The discussion is likely to refer to the contribution business entrepreneurs might make to a country in terms of the business enterprise culture and activities they bring or develop. An initial explanation of entrepreneurial characteristics may follow with an emphasis on risk taking, innovation, creating and strengthening business ventures, and generally improving the national business enterprise culture and performance.

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Business & Its Environment

The contribution they make or may make to the future development of a country is likely to depend on factors such as: The stage of development (economic) that a country is presently in – The quality of the skills of the entrepreneurs. The support and encouragement given to the entrepreneurs by the government of a country. The external issues that may affect a country in the future, given a dynamic and political external environment. The role of business entrepreneurs could include activities such as: Stimulating business enterprise in whatever form as the engine of economic progress and development. Support infrastructure development and progress. Create jobs – multiplies effect on economy. Fostering entrepreneurial spirit – innovation – change. Creating opportunities for funding – taking advantage perhaps of international funding and support. Entering into partnerships with government-funded structures and organisations. – Educating people of the potential benefits of market activity and private sector commerce. Some evaluative comment on the role of business entrepreneurs in the future development of a country. [9– 12] Analysis of the role of business entrepreneurs in the future development of a country. [7–8] Good discussion of the role of business entrepreneurs in the (future) development of a country. [3–6] Limited discussion of business entrepreneurs/enterprise issues. [1–2] M/J 13/P13/Q7/a Explain the likely conflict between the ‘triple bottom line’ objectives of a social enterprise operating in your country. [8] Mark Scheme: The triple bottom line’ is the definition of the objectives of a social enterprise organisation – economic, social and environmental. It is said to be a challenge in that: The focus of a triple bottom line business is broader than a simple profit-making organisation and a Social Enterprise is a business that seeks to make money in socially responsible ways through the pursuit of three primary objectives: economic, social, environmental. As well as making money in a socially responsible way Social Enterprises often seek to invest any surplus (profit) into society. A Social Enterprise organisation, like other organisations, often has to make decisions based on multiple and sometimes conflicting/competing objectives but the focus will be on the ‘triple bottom line’. The 3 ‘triple bottom line’ objectives are: 1. Economic – make a profit and survive. 2. Social – ensure the wellbeing of people/employees, disadvantaged in the community, customers etc. 3. Environmental – protecting the environment and managing the business in an environmentally sustainable way. There may well be tensions/conflicts between the 3 primary objectives of a Social Enterprise. Perhaps the most notable tension is often caused by the need for a Social Enterprise to remain economically viable and sustainable – being efficient, productive, and profitable as it seeks to achieve its social and environmental objectives. There may well be tensions and conflicts within each of the 3 objectives for example establishing priorities for social and environmental objectives. Analysis of likely conflict between the ‘triple bottom line’ objectives of a Social Enterprise. [7–8] Good explanation of likely conflict between the ‘triple bottom line’ objectives of a Social Enterprise. [5–6] Limited explanation of likely conflict between the ‘triple bottom line’ objectives of a Social Enterprise. 3–4] Little understanding of the ‘triple bottom line’ and/or a Social Enterprise. [1–2] M/J 12/P11/Q1/a State two aims of a social enterprise organisation.

[2]

Unit-1

Business & Its Environment

Mark Scheme: Aims could include: to advance social objectives using business entrepreneurial activities and methods…investment of surpluses in community initiatives rather than maximising returns to owners…the pursuit of triple bottom line objectives (social, economic, environmental)…concern for people, planet, profit…concern for human capital, fair employment practices throughout the production chain…sustainable environmental practices…wider definition of profit to encompass economic value created and the distribution of real economic benefit to society. Accurate statement of ONE aim. [1] Accurate statement of TWO aims. [2] M/J 11/P13/Q3 Explain why many businesses fail within the first year of trading.

[5]

Mark Scheme: Answers might interpret the question as a small business (probably so but not necessarily always). Estimated that 60% – 70% of small businesses fail in early years. Reasons given may include: lack of focus – unclear objectives – priorities not determined failure to deliver a product/service demanded by customers business model may be flawed poor cash management – inadequate budgeting and planning growing too fast lack of business and management skills under-capitalised staffing problems environmental/economic conditions. Credit examples and frameworks used e.g. internal v external factors. Limited response – a few factors identified/stated (possibly a list). [1–2] Identification and explanation of at least two relevant factors. [3–4] Identification and explanation of a good range of relevant factors which clearly relate to early business failure. [5] M/J 09/P1/Q7/b Explain how market research might be used to reduce some of the problems faced by a new startup business. [12] Mark Scheme: Explanation could initially define and discuss market research – primary and secondary. Candidates may assume the context of 7 (a) – first year trading or adopt an alternative timeframe. Examples of the use of market research in reducing problems of a new start-up business might include reference to issues such as securing information on the product/service provided – competitor products – possible pricing strategies – strength of competitors – source of competition – alternative promotion opportunities – size of market – how segmented – customer behaviour etc – reduce uncertainty risk – provide quality data/information. Evaluative comment e.g. comment on the significance of market research in reducing problems of a new start-up business. [11–12] Analysis of market research activities/information that might reduce problems facing a new start-up business. [8–10] Shows understanding of market research activities relevant to problems facing a new startup business. [3–7] Shows some understanding of market research. [1–2]

Unit-1

Business & Its Environment

M/J 09/P1/Q7/a Discuss the problems a new business might experience in its first year of trading.

[8]

Mark Scheme: Discussion could initially define a new business and give an example – problems identified and discussed could include the following: financial – start-up costs – cash flow – capital funding; marketing – establishing a position, decisions on advertising – promotion; production – relations with suppliers – stock control; pricing – strategy – competitors breakeven – profit etc. There are endless possibilities dependent on the context and type of new start-up business chosen. Focus must be on some sort of new business in a first year of trading. Sound analysis of specific identified problems facing a new business in the first year of trading.[7–8] Analysis of early (first year) new business issues/problems. [5–6] Some understanding of early (first year) new business issues/problems. [3–4] Limited awareness of new business problems. [1–2] M/J 03/P1/Q1/b Outline the benefits to a country of successful businesses.

[3]

Mark Scheme: Some understanding but benefits not explained. Substantially full but incomplete explanation of benefits. Full explanation of benefits.

1 2 3

Unit-1

Business & Its Environment

1.2 Business Structure M/J 17/P13/Q4/a, M/J 13/P13/Q1/a Define the term ‘share capital’.

[2]

Mark Scheme: Share capital is the total value of capital/finance raised from shareholders through the issue of shares or capital used by shareholders to buy shares in a plc. Sound definition (2 marks) Partial definition (limited understanding) (1 mark) No creditable content (0 marks) O/N 16/P12/Q1/b Briefly explain two advantages of joint ventures to the businesses involved.

[3]

Mark Scheme: Advantages may include: Share strengths, minimise risk and increases opportunity for competitive advantage in business ventures. Given access to new resources, markets, or distribution channels. Particularly useful for small businesses wanting to spread risks — e.g. joint advertising, marketing, R&D. Popular way of entering new, emerging markets. May be used by large businesses to shut out the competition. Loyal customers of both companies are likely to purchase the new product or service and the customer base is therefore widened. NB: do not accept economies of scale as an advantage unless it is linked to a new project/service coming out of the new venture Two advantages for joint ventures soundly explained (3 marks) One advantage soundly explained or two partially explained (2 marks) One advantage partially explained or a list of two (1 mark) O/N 16/P12/Q1/a Define ‘joint venture’.

[2]

Mark Scheme: Two or more businesses/people agree to work together (1 mark) on a particular project/product or business enterprise (1 mark) (A distinct business unit/division may be set up or just informal collaborative arrangements). Sound definition given (2 marks) Partial definition (limited understanding) (1 mark) M/J 16/P13/Q5/b Discuss the factors that could influence the success of a small business manufacturing fashion clothing for children. [12] Mark Scheme: Level 4 Effective evaluation of factors influencing small business success in context Level 3 Limited evaluation of factors influencing small business success in context Level 2 Understanding of small business and/or success factors Level 1 No creditable content Level 0 No creditable content Answers may include:

9-12 7-8 3-6 1-2 0

Unit-1

Business & Its Environment

Definition of small businesses and their characteristics Success factors could be owner/venture/economy specific Reference to the specific advantages and limitations of the context of a small niche market manufacturer Degree of owner business expertise, experience Degree of capitalisation/under-capitalisation Relevance of business objectives (measured growth) Quality of business systems/functions (marketing, product, development, costing, planning) Level and type of competition • Viability of business model chosen Luck! Reward particular application to the niche market of children’s fashion clothing. Please accept and reward other relevant points. M/J 16/P13/Q5/a Analyse the advantages of a co-operative as a legal form of business.

[8]

Mark Scheme: 4 Good analysis of the advantages of a co-operative 7–8 3 Some analysis of the advantages of a co-operative 5–6 2 Some explanation/application of the advantages of a co-operative3–4 1 Limited understanding of co-operative businesses1–2 0 No creditable content0 Co-operatives are joint ownership organisations (producer, workers, consumer). 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 The business is designed and operated specifically for the members/users Resources are pooled for mutual gain Increased purchasing power with suppliers Increased marketing 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). (While a brief reference to the limitations of co-operatives may be relevant, this answer needs to focus on the advantages of co-operative businesses). Please accept and reward other relevant points. O/N 15/P12/Q7/b Discuss why an entrepreneur might choose to become a franchisee rather than start an independent restaurant business. [12] Mark Scheme: 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.

Unit-1

Business & Its Environment

Less likely to fail. In the short term probably more profitable. These are advantages of a franchisee. There are limitations of course (and these could be mentioned in an evaluative comment) but this question requires a focus on the entrepreneurial advantages of choosing a franchisee arrangement. Evaluative comment on a decision to choose a franchisee business model, in context. [9–12] Analysis of a decision to choose a franchisee business model, in context. [7–8] Discussion of the advantages of a franchisee business model. [3–6] Limited understanding of the franchisee business model. [1–2] O/N 15/P11/Q4/b Briefly explain two external sources of finance that could be used to fund the capital expenditure of a partnership. [3] Mark Scheme: The capital expenditure requirements of a partnership might be considered to be relatively small as compared to those say of a plc. Nevertheless for a partnership, capital expenditure for say installing a new IT system might well require significant external financing. ‘External’ sources to fund such capital expenditure could include: new partner/s investing hire purchase sale/lease back of assets medium/long term loan Government grants/allowances borrow from friends Sound explanation of two relevant external sources of finance. [3] Sound explanation of one relevant external source or partial explanation of two. [2] Partial explanation of one relevant external source or simple statement of two. [1] O/N 15/P11/Q3 Explain why many tertiary sector businesses differentiate their services.

[5]

Mark Scheme: Answers could well initially define the terms in the question: tertiary sector businesses are those that provide services to consumers and other businesses such as banking, hotels, tourism, retailing and transport differentiation is the process of making a product or service so distinctive that it stands out from competitor products/services in the perception of a consumer Given these definitions the reasons why tertiary sector businesses try to differentiate their services could include: to establish and gain market share to establish and maintain a reputation to persuade customers to pay a particular price for the service to create an exclusive purchasing environment to create a unique selling proposition (USP) to survive and thrive in a very competitive environment to establish a perceived difference amongst consumers for services that are essentially much the same Sound explanation of why tertiary businesses might differentiate their services. [4–5] Explanation of why differentiation is important to businesses with some limited reference to tertiary businesses. [2–3] Limited reference to tertiary businesses and/or differentiation. [1]

Unit-1

Business & Its Environment

M/J 15/P11/Q4/b Briefly explain two benefits for an entrepreneur of becoming a franchisee.

[3]

Mark Scheme: Benefits of operating a franchised business could include: reduced risk of business failure. dealing with an established brand/product. advice/training available from franchisor. marketing and advertising initiated and funded by franchisor. quality assured supplies guaranteed. market segment/area protected by the franchisor. easier to obtain loan finance. Sound explanation of TWO benefits. [3] Sound explanation of ONE benefit or partial explanation of TWO benefits. [2] Partial explanation of ONE benefit or simple statement of TWO benefits. [1] M/J 15/P11/Q4/a Define the term ‘franchise’.

[2]

Mark Scheme: A franchise can be defined as a business that has the right to use the name, logo and trading systems of an existing, successful business – (the use of a successful business model under licence.) A full definition – a sound understanding. [2] A partial definition – limited understanding. [1] O/N 14/P13/Q7/a Explain the strengths and weaknesses of a ‘co-operative’ legal structure for business.

[8]

Mark Scheme: These are joint ownership organisations – consumer, producer, agricultural worker co-operatives – member owned – meet common economic, social and cultural needs of members. Strengths: Easy to set up. Open membership. Democratic management. Shared objectives. More responsible to communities and customers. Share surplus. Limited liability. Weaknesses: Likely limited resources. Management can be inefficient. Disputes and differences can occur. Longer decision-making process. Lack of capital. Mass of members may lose interest. Analysis of the strengths and weaknesses of co-operative organisations. [7–8] Good explanation of the strengths and weaknesses of co-operative organisations. [5–6] Limited explanation of the strengths and/or weaknesses of co-operative organisations. [3–4] Little understanding of co-operative organisations. [1–2]

Unit-1

Business & Its Environment

M/J 14/P13/Q7/a Explain how the main differences between the legal structures of sole traders and public limited companies affect the way such businesses are financed. [8] Mark Scheme: Sole traders have sole responsibility for raising business finance such as own capital, bank overdrafts and loans and have unlimited liability. Likely to mean severe restrictions on the amount of finance that can be raised. The formation of a limited company could lead to greater access to funds and would limit personal liability. Public limited companies have the legal right to sell shares to the public and thus have the potential to raise significant initial and new investment capital. Likely to be large businesses and more able to access alternative funding sources. Each has its own distinctive features and each will have particular access routes for short, medium and long term sources of finance. Each will have different internal and external financial requirements and sources. Analysis of the two legal business structures and their sources of finance. [7 – 8] Good explanation of the two legal business structures and their sources of finance. [5 – 6] Limited explanation of the two business structures and/or their sources of finance. [3 – 4] Little understanding of the two business structures and/or sources of finance. [1 – 2] O/N 13/P12/Q2/b Briefly explain two distinctive characteristics of public sector enterprises (for example public corporations or nationalised industries). [3] Mark Scheme: Characteristics of public sector enterprises may include: Owned/controlled by the government. Profit is not likely to be a major objective. Social objectives are a priority. May be loss-making or subsidised. Finance comes mainly from government/state. May be monopoly/critical services. May be subject to direct political interference. Produce merit goods. Partial explanation of one characteristic or a list of two. Sound explanation of one characteristic or partial explanation of two. Sound explanation of two characteristics.

[1] [2] [3]

O/N 13/P12/Q2/a Define the term ‘private sector’.

[2]

Mark Scheme: The ‘private sector’ is defined as businesses owned and controlled by individuals or groups of individuals not by the state/government (and managed for profit). Accept responses that are not restricted to a definition of a private sector business or organisation and discuss concepts such as the price mechanism and the role of the market. Partial definition. [1] Sound definition. [2]

Unit-1

Business & Its Environment

M/J 13/P13/Q4/b Briefly explain two advantages to a sole trader of changing to a partnership.

[3]

Mark Scheme: Advantages may include: Shared decision making. Additional capital injection. Business risk shared. Opportunity for specialisation in management areas. Partial explanation of one advantage or simple statement of two. Sound explanation of one advantage or partial explanation of two. Sound explanation of two advantages.

[1] [2] [3]

M/J 13/P13/Q4/a State two features of a ‘public limited company’.

[2]

Mark Scheme: The features of a public limited company include: Limited liability. Legal personality. Public reports and accounts required. Shares, traded on Stock Exchange. Often large companies. Continuity assured. Capital can be raised and dividends paid out. Management separate from ownership. One relevant feature of a PLC stated. [1] Two relevant features of a PLC stated. [2] O/N 12/P13/Q1/b Briefly explain two disadvantages to a sole trader of changing to a private limited company. [3] Mark Scheme: Disadvantages could include: legal procedures and costs involved in the change, the loss of complete control over the business – now becomes answerable to other shareholders, no longer keeps all the profits, must now send end of year accounts to appropriate authorities, less secrecy over financial affairs, more interference likely in decisions relating to work practices, growth plans etc. partial explanation of ONE disadvantage or statement of TWO [1] full explanation of ONE disadvantage or partial explanation of TWO [2] full description of TWO disadvantages. [3] O/N 12/P13/Q1/a Define the term ‘private limited company’.

[2]

Mark Scheme: A private limited company, usually a small or medium sized business owned by shareholders often from the same family – shares can only be sold privately (not to the general public), they have limited liability. a partial definition [1] a full definition. [2]

Unit-1

Business & Its Environment

O/N 12/P12/Q4/b Briefly explain two advantages a public limited company has compared to a private limited company. [3] Mark Scheme: Advantages of a public limited company over a private limited company include: The right to advertise shares for sale and have them quoted on the stock exchange, means that potentially large sums of money can be raised from public issue of shares, also means existing shareholders can quickly sell shares if they wish, this flexibility of share buying and selling encourages the public to buy shares and invest in the business, the ability to raise substantial funds may facilitate significant growth opportunities, recruit more experienced staff and make more substantial capital investment decisions. partial explanation of ONE advantage that a public limited company has over a private limited company or a statement of TWO advantages [1] sound explanation of ONE advantage or partial explanation of TWO advantages of a public limited company over a private limited company [2] sound explanation of TWO advantages of a public limited company over a private limited company. [3] O/N 12/P12/Q4/a Define the term ‘public limited company’.

[2]

Mark Scheme: Public limited companies are companies with limited liability with the right to sell shares to the general public and have shares quoted on the national stock exchange – the most common form of legal organisation for large businesses. partial definition [1] full definition. [2] M/J 12/P12/Q5/a Explain the advantages of a ‘co-operative’ as a form of business.

[8]

Mark Scheme: Cooperatives are joint ownership organisations…..different types–producer, consumer, worker. Exist to provide a service to their members, owners, and the public, and are a distinctive type of business organisation. There is often a significant amount of democratic control and profits often shared/distributed to 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. Analysis of the advantages of the cooperative model of business. [7–8] Good explanation of the advantages of the cooperative model of business. [5–6] Limited explanation of the cooperative model of business. [3–4] Little understanding of the cooperative model of business. [1–2] M/J 12/P11/Q5/a Explain the advantages for a franchisee of a ‘franchise’ as a form of business.

[8]

Unit-1

Business & Its Environment

Mark Scheme: Franchises are a way of buying into an established business name, brand and success. The franchisee might be organised as a sole trader, partnership, cooperative, or limited company – pays a fee for the franchise, pays royalties to the franchiser…benefits from the market position and advertising/marketing of the established business…may get help, advice, training from the franchiser…examples include Body Shop, McDonalds, Pizza Hut. Advantages include: a route into business – relatively small amount of capital required – motivation in running own business without unlimited risks – selling a recognized product/service – backed by successful marketing and business methods – more likely to succeed than a single independent entrepreneur. Analysis of the advantages of the franchise model of business [7–8] Good explanation of the advantages of the franchise model of business [5–6] Limited explanation of the franchise model of business [3–4] Little understanding of the franchise model of business [1–2] O/N 11/P13/Q3 Explain why service differentiation is important for businesses in the tertiary sector.

[5]

Mark Scheme: An important part of the marketing of products or services is differentiation – the attempt to create a significant perception of difference between a product/service of one business and that of its competitors. This is just as true for tertiary sector services as it is for manufactured products. Services from banks, financial service companies and retailers are branded and differentiated through distinctive offerings (e.g. superb customer service standards) – a feature or benefit that separates or differentiates a service from its competitors. Service differentiation can: give high levels of market recognition secure larger market share produce higher profits create more of a monopoly position ring-fence particular services. Accurate explanation of product/service differentiation. [1] Clear explanation of product/service differentiation, with some reference to why businesses seek to differentiate. [2–3] A developed explanation of why businesses seek to differentiate. [4] As above, with explicit reference to the tertiary sector. [5] O/N 11/P13/Q1/b Outline two advantages that a partnership might have over a sole trader. Mark Scheme: Advantages could include: possibly greater input of financial investment more skills and expertise available and more opportunity for specialisation partners can share decision-making, give moral and practical support to each other share the risks possibly easier to raise external funds generally share the workload. Partial explanation of ONE advantage. [1] Full explanation of ONE advantage or partial explanation of TWO. [2] Full explanation of TWO advantages. [3]

[3]

Unit-1

Business & Its Environment

O/N 11/P13/Q1/a Define the term ‘partnership’.

[2]

Mark Scheme: A partnership is two or more people forming an unincorporated business with unlimited liability status – normally with the objective of making a profit. There is joint responsibility for running the business and for sharing the profits/losses. A partnership may be regulated by a partnership agreement. A definition that indicates partial understanding. [1] A definition that indicates full understanding. [2] O/N 11/P11/Q1/b State three problems of operating as a sole trader.

[3]

Mark Scheme: Possible responses may include: limited financial resources, unlimited liability personal responsibility for all decisions limitations of the one individual no continuity of existence, lack of economies of scale lack of specialisation in management • long hours of working takes all risk. ONE problem accurately stated. [1] TWO problems accurately stated. [2] THREE problems accurately stated. [3] O/N 11/P11/Q1/a Define the term ‘sole trader’.

[2]

Mark Scheme: A sole trader business is: a business owned and run by one person an unincorporated business single owner takes all decisions takes all profits/losses (may have employees). A definition that indicates understanding. A definition that indicates full understanding.

[1] [2]

M/J 11/P11/Q1/a State two objectives of a private sector business. Mark Scheme: Two objectives of a private sector business could include: make a profit satisfy shareholder demands grow the business increase market share • provide employment survive. ARA ONE relevant objective stated. [1] TWO relevant objectives stated. [2]

[2]

Unit-1

Business & Its Environment

O/N 10/P11/Q4/b Explain two possible disadvantages to a sole trader of changing to a private limited company. [3] Mark Scheme: Disadvantages could include: loss of ownership – no longer owning 100% of the business – possible loss of control as may not be the majority shareholder – cost of conversion to a Ltd company – may lose influence on key decisions, e.g. dividend policy, retained profits – accounts need to be produced and made public – profits now need to be shown. One accurate disadvantage of a private limited company explained. (1) Two accurate disadvantages of a private company explained. (2) Two accurate disadvantages of a private limited company explained with an explicit connection to the change from a Sole Trader. (3) O/N 10/P11/Q3 Explain how a public limited company might finance a large capital investment project.

[5]

Mark Scheme: Explanation will recognise the context of a public limited company and hence the more likely sources of investment finance, such as: retained profits (instead of dividends) – possible sale of surplus assets – longterm loans, debentures – sale of shares, venture capital, government grants – depends of course on the particular position and context of the company. Limited explanation of potential source(s) of finance for capital expenditure. (1–2) Explanation of potential source(s) of finance for capital expenditure. (3–4) Full explanation of potential source(s) of finance in context. (5) O/N 09/P12/Q1/a State two advantages of being a sole trader. Mark Scheme:

[2]

Full control, personal satisfaction, close to customers, personal profit, flexibility of working hours, easy to set up etc. One relevant advantage given [1] Two relevant advantages given [2] O/N 07/P1/Q5/b Discuss how different stakeholder groups might view the decision to change from private limited company to a public limited company. [12] Mark Scheme: Answers should clearly discuss the stakeholder concept and differentiate between different stakeholders as they might view this decision to change to a plc, e.g. 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.

Unit-1

Business & Its Environment

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. Evaluative comment which makes reference to the possible balance between benefits and drawbacks of the decision to change. [11–12] Sound analysis of the views of different stakeholders (at least 2) of the decision to change. [8–10] Shows good understanding of different aims and objectives of stakeholder groups. [3–7] Shows some understanding of the stakeholder concept. [1–2] O/N 07/P1/Q5/a Analyse the benefits which a private limited company might gain by becoming a public limited company. [8] Mark Scheme: Answers should describe the movement from a private limited company to a public limited company and analyse such benefits as wider/easier access to financial resources (shares to the public), greater opportunities to grow (economies of scale), greater share of the market etc. Sound analysis of the potential benefits of the movement from a private limited company to a public limited company. [7–8] Some analysis of the benefits of being a public limited company. [5–6] Sound understanding of the elements of a public limited company. [3–4] Shows limited awareness of a public limited company. [1–2] Answers should clearly discuss the stakeholder concept and differentiate between different stakeholders as they might view this decision to change to a plc, e.g. M/J 07/P1/Q1/a Explain one objective of a public sector organisation in your country. Mark Scheme:

[2]

Answers could refer to the objective of providing a merit good free at the point of delivery – or emphasis on social aspects of activity – free from or influenced by profit/commercial considerations. Some understanding of a public sector organisation objective. [1] Clear understanding of a public sector organisation objective. [2] M/J 06/P1/Q3 Explain the importance of profit maximisation for a public limited company.

[5]

Mark Scheme: Profit maximisation is prime objective of a plc, but other objectives might dominate in short run, e.g. growth, market share, sales maximisation. Profit enables growth, investment, competing and satisfying employees. Ultimately plcs have to satisfy shareholders by producing good profits, or they will become unhappy and sell shares, causing price to drop. So stock market pressure to keep improving profit drives directors of plcs. Demonstrating some limited knowledge of what profit maximisation is. 1 Understanding of the term but not fully explaining in terms of plc status. 2-3 Good explanation of importance for a plc. 4-5 M/J 06/P1/Q1/b Explain one difference between private and public limited companies.

[3]

Unit-1

Business & Its Environment

Mark Scheme: PLC quoted on stock market, has multiple shareholders and wide access to finance, but must publish much more detail of accounts. Some understanding of one relevant point of difference. 1 Partial explanation of one relevant point of difference. 2 Full explanation of one relevant point of difference. 3 M/J 06/P1/Q1/a Outline one difference between the public sector and private sector of an economy. Mark Scheme:

[2]

Public sector central/local govt. controlled, private sector is enterprises/companies. Partial understanding of each type or full understanding of one only. 1 Full explanation of difference between private and public sector. 2 O/N 04/P1/Q1/a Define the term ‘free market economy’. Mark Scheme: Partial understanding of the term. Full understanding of free market economy. M/J 04/P1/Q1/b Explain one disadvantage of being a sole trader.

[2] [1] [2] [3]

Mark Scheme: Some awareness of a disadvantage. 1 Partial explanation of an appropriate disadvantage. Full explanation of an appropriate disadvantage. 3

M/J 04/P1/Q1/a Define the term ‘sole trader’.

[2]

Mark Scheme: Partial definition. 1 Full definition of the term.

O/N 03/P1/Q6/b Discuss why the owners of a private limited company might wish to convert it into a public limited company. [12] Mark Scheme: Answers should include factors such as the need for finance and future sources of finance. Increasing prestige, making loan finance more feasible and share options a possible incentive. Realising wealth of owners and satisfying ambitions to grow and make company a top operator. Knowledge and Application Level Two: Basic awareness of advantages of being public. 4-6 marks Level One: Simple knowledge of the difference between private and public companies. 1-3 marks Analysis and Evaluation Level Two: Good analysis of the finer motives, such as realizing wealth, and some evaluation of the dangers. 4-6 marks Level One: Analysis of why owners might want to float, such as financial restrictions of being private. 1-3 marks

Unit-1

Business & Its Environment

O/N 03/P1/Q1/b Explain why some goods and services are provided by the public sector in your country.

[3]

Mark Scheme: Where general community benefits but profit motive does not apply, e.g. public goods such as roads, merit goods such as health or education. Or if government believes in nationalisation, etc. Some understanding but reason not explained 1 Substantially full but incomplete explanation of importance 2 Full explanation of reasons for government involvement as provider 3 O/N 03/P1/Q1/a Distinguish between the public sector and private sector of an economy. Mark Scheme: Public sector is central or local government controlled, private sector is enterprises or companies. Partial understanding of each type or full understanding of one only 1 Full explanation of difference between private and public sector 2

[2]

M/J 03/P1/Q1/a Distinguish between secondary and tertiary levels of activity.

[2]

Mark Scheme: Partial understanding of each type or full understanding of one only. Full explanation of difference between the two.

1 2

Unit-1

Business & Its Environment

1.3 Size of Business O/N 15/P13/Q1/b Briefly explain two reasons why many businesses set growth as an objective.

[3]

Mark Scheme: Business growth may be sought for reasons such as: increase profits and sales increase market share – a higher market profile secure economies of scale increase power and influence of owners in society reduce risk of takeover exploit entrepreneurial ambition and potential Sound explanation of two reasons. [3] Sound explanation of one reason or a partial explanation of two. [2] Partial explanation of one reason or statement of two. [1] O/N 15/P13/Q1/a Define the term ‘internal growth’.

[2]

Mark Scheme: Internal growth refers to the expansion of a business by expanding existing operations through opening new branches, shops or factories – also known as organic growth. Full definition – sound understanding. [2] Partial definition – limited understanding. [1] O/N 15/P12/Q3 Explain why small businesses are important for many economies.

[5]

Mark Scheme: Small businesses employ in total a significant proportion of the working population in many countries. They often provide entrepreneurial impetus and give greater consumer choice. They provide competition for the larger companies. They often provide specialist goods and services to large/important industries in a country. They can be flexible and adaptable to the needs of larger businesses. They may well grow into larger and more efficient businesses. They can provide more personal services to consumers and enjoy lower average costs. They contribute to GDP. Sound explanation of how small businesses have a potential and positive value for an economy and hence why they can be important for an economy. [4–5] Limited explanation of the role/value of small businesses. [2–3] Limited/general reference to role/features of small businesses. [1] O/N 14/P11/Q7/a, M/J 12/P13/Q5/a Explain the weaknesses of ‘family owned’ businesses.

[8]

Mark Scheme: The inherent strengths of family owned businesses – businesses where the voting majority is in the hands of the controlling family – are many for example: family dedicated to business – work hard to build and grow the company and re-invest profits and there is pride and focus in reputation and quality of product and maintain good relations with external stakeholders.

Unit-1

Business & Its Environment

But, the weaknesses often outweigh the strengths, weaknesses such as: complexity of different roles played by family members and governance problems – different motives and strategies from different family members too much informality, not enough clear business practices and procedures – with growth may come significant conflict neglect of strategic management, succession planning, lack of external management expertise plus, family owned businesses may have poor cost control, poor cash flow, poor management means that the majority of family owned businesses are not sustainable • discipline difficulties i.e. reluctance to discipline or sack family members family arguments might be brought into the work situation. Analysis of the weaknesses of family owned businesses. [7–8] Good explanation of the weaknesses of family owned businesses. [5–6] Limited explanation of family owned businesses. [3–4] Little understanding of family owned businesses. [1–2] O/N 12/P11/Q1/b Briefly explain two advantages (other than limited liability) a private limited company has over a sole trader. [3] Mark Scheme: Advantages could include: separate legal personality of a private limited company, likely continuation of a company in the event of the death of a shareholder, better able to raise capital through sale of shares to family, friends, and employees, greater status than an unincorporated business, original owner may still be able to retain control over the business. partial explanation of ONE advantage/statement of TWO advantages [1] sound explanation of ONE or partial explanation of TWO advantages [2] sound explanation of TWO advantages. [3] O/N 12/P11/Q1/a Define the term ‘limited liability’.

[2]

Mark Scheme: Limited liability is the situation where the only liability or potential loss that a shareholder has if a company fails is the amount invested in the company not the total wealth of the shareholder. a definition that indicates limited understanding [1] a definition that indicates full understanding. [2] M/J 12/P13/Q5/b Discuss internal growth as a way of expanding a business.

[12]

Mark Scheme: Discussion of expansion through internal growth (rather than external growth actions such as mergers, vertical and horizontal integration) might include: deliberate decision not to pursue external growth – avoid risks of external growth such as the merging of additional companies, culture and work force resistance – retain full management control through organic growth – retain core values – decide to use own resources and grow incrementally, may be at a stage of development where external growth is not possible. Internal growth might include: open more outlets/divisions/branches/ in other towns and cities – devolve and develop the existing business – grow the customer base – create new products – increase operational efficiency.

Unit-1

Business & Its Environment

Evaluative discussion of expansion through internal growth. [11–12] Analysis of why expansion through internal growth is a business option. [8–10] Shows understanding of expansion through internal growth. [3–7] Limited discussion of growth and/or internal growth. [1–2] M/J 12/P12/Q5/b Discuss the factors that could influence the success of a small business.

[12]

Mark Scheme: 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 – degree of capitalisation/undercapitalisation…quality of business objectives…expand too fast…quality of basic business functions and systems, e.g. planning, costing, marketing, product development, poor/good 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. Evaluative comment on appropriate success factors. [11–12] Analysis of a range of success factors. [8–10] Good understanding of small business success factors. [3–7] Limited understanding of small business success factors. [1–2] M/J 12/P11/Q5/b Discuss the importance of small businesses to the economy of your country.

[12]

Mark Scheme: The discussion initially may seek to define small businesses, (SMEs) businesses employing less than 20/50 staff (varies between countries) Importance might refer to: the value of small businesses in providing employment opportunities…in many countries, including developed economies, small businesses account for a significant % of employees (e.g. in New Zealand 97% of businesses employ 19 or fewer employees)…give opportunities for new entrepreneurs to start up. Governments provide start up funds and incentives to encourage small businesses to develop and so contribute to the economy…particularly in the tertiary sector…small businesses considered to be more creative, innovative, and flexible–staff more motivated. Provide a rich range and variety of products and services – can become national and international organisations (e.g. software companies starting in a garage)…stimulate other entrepreneurial activity. May make a particularly important contribution to the GDP and economy of a country…emphasis by governments of such countries to invest in these small businesses as well as inviting multi-national companies to come in. Evaluative comment on the importance of small businesses in an own country context. [11–12] Analysis of role/importance of small businesses to economies (high mark if context of own country is contained within sound analysis). [8–10] Good understanding of the role/importance of small businesses to economies. [3–7] Shows limited understanding of small businesses. [1–2] O/N 11/P12/Q4/b Explain two objectives a small business might have in the first year of trading.

[3]

Mark Scheme: Essentially looking for early business-wide objectives, e.g. survival, break-even, (then make profit), become environmentally aware, gain market share, establish market reputation, manage cash flow efficiently, retain staff etc.

Unit-1

Partial explanation of ONE objective. Sound explanation of ONE objective or partial explanation of TWO. Sound explanation of TWO objectives.

Business & Its Environment

[1] [2] [3]

M/J 11/P13/Q5/a Explain the strengths and weaknesses of small businesses.

[8]

Mark Scheme: Strengths might include: • offers opportunity to entrepreneurs • little start-up money may be required • large percentage of revenue can be converted to profit • flexible business organisation • quick response to customer demands • more personalised approach • managing the assets may not be too demanding • internal factors such as good internal communication, likelihood of workers feeling ‘included’ and recognised in a small organisation. Weaknesses might include: • lack of capital to expand • difficult to build a customer base • diseconomies of small scale • owners may lack core management skills • customers may prefer to trade with larger established companies • difficulty with cash flow • external competition with large businesses. Analysis of strengths and weaknesses of small businesses. [7–8] Good explanation of strengths and weaknesses of small businesses. [5–6] Explanation of strengths and/or weaknesses of small businesses. [3–4] Some understanding of features of small businesses. [1–2] M/J 11/P11/Q1/b Describe two methods for measuring the size of a business.

[3]

Mark Scheme: Two methods of measuring the size of a business could include: market share level of sales turnover number of employees value of capital employed (cost of replacement) the value of a business/market capitalisation. Do NOT accept profit. Partial description of ONE method OR two or more methods listed/stated. [1] Sound description of ONE or partial description of TWO methods. [2] Sound description of TWO methods. [3] O/N 09/P12/Q1/b Briefly explain two objectives a small business might have, other than profit maximisation.

[3]

Unit-1

Business & Its Environment

Mark Scheme: Objectives might include: survival, market share, establish the business, cover costs, work/life balance, competitive market etc. Appropriate definition of objectives/or one relevant objective given with weak explanation/or two objectives simply listed [1] Sound explanation of one objective/or partial explanation of two relevant objectives [2] Sound explanation of two relevant objectives [3] O/N 08/P1/Q4/a State two ways of measuring the size of a business.

[2]

Mark Scheme: Ways of measurement could include: size of labour force, total output, market share, turnover, profit figure, amount of capital employed, market capitalisation. One accurate measure stated. [1] Two accurate measures stated. [2] O/N 05/P1/Q7/b Discuss whether the government should support small businesses in your country.

[12]

Mark Scheme: Much will depend on competitive environment. Many governments are anxious to attract large businesses as they create lots of jobs and GDP. Small businesses are often lifeblood of economy and create jobs and wealth country-wide. They are often more labour-intensive and create more jobs. Often they need support to develop and grow. This may take form of grants, loan guarantees, specialist advice, location support, help with training, exporting etc. But government cannot always afford to give support and many small firms survive successfully without, so financial aid could be unnecessary and a waste. Knowledge and Application Level Two: Understands special support needs of small firms. 3-4 marks Level One: Some awareness of ways of government support shown. 1-2 marks Analysis and Evaluation Level Two: Evaluates need to strike balance between support for firms and cost of doing so. 5-8 marks Level One: Analysis of why governments often supports small businesses for good of economy. 1-4 marks O/N 05/P1/Q7/a Explain the advantages and disadvantages of being a small business in food retailing.

[8]

Mark Scheme: Advantages should include factors such as personal service, high quality and higher prices, the ability to change course as market changes, closeness to customers. Disadvantages include lack of finance, inability to gain economies of scale, uncompetitive prices, difficulty in competing with supermarkets. Much will depend on purchasing habits of customers, wealth of customer base and closeness of competition. Supermarkets are increasingly going for local outlets. Knowledge and Application Level Two: Gives pros and cons successfully of being small. 3-4 marks Level One: Only one side of question answered or both sides in no depth. 1-2 marks Analysis and Evaluation Level One: Analyses pros/cons in light of food industry demands, referring to competition, customer base etc., but emphasising threats. 1-4 marks

Unit-1

Business & Its Environment

O/N 04/P1/Q3/a State two different ways in which the size of a business might be measured. Mark Scheme: One method given. Two relevant methods given.

[1] [2]

[2]

Unit-1

Business & Its Environment

1.4 Business Objectives O/N 16/P13/Q5/b Discuss why senior managers leading large public limited companies might decide not to have corporate social responsibility (CSR) as a business objective. [12] Mark Scheme: Level 4 Effective evaluation of why some PLC senior managers would be against CSR as a business objective 9-12 Level 3 Limited evaluation of why some PLC senior managers would be against CSR as a business objective 7-8 Level 2 Analysis and some application of arguments for not having CSR 3-6 Level 1 Understanding of senior managers/CSR/public limited companies 1-2 Level 0 No creditable content 0 Answers may include: Some senior managers see CSR (that business should consider the interests of society in its decisions and activities over and above legal responsibilities) as fundamentally flawed and a dangerous distraction from profit seeking and shareholder satisfaction. Companies that simply do all they can to boost profits will end up increasing social welfare. It is argued that, for example, producing fuel efficient cars is not about increasing the quality of the environment, but about responding to customer demand for fuel efficient cars. The profit motive will, therefore, lead to successful environmental situations. Senior managers should relentlessly pursue profit maximisation — the market response to consumer demand will maximise consumer satisfaction. More important to make money than to give it away. It is irresponsible to focus on wider community if the business is managed/ led successfully. If the aim/objective is 'to do good' companies may well fail. The movement towards CSR is seen to be in direct opposition to the best interests of a business organisation. Companies who sacrifice profit for the common good are imposing a tax on shareholders and other company stakeholders. An awareness of social consequences of business activity is sufficient — CSR is going too far. So some senior managers may see CSR simply as a financial calculation for the business and are not interested in CSR for PR purposes. This question is NOT a general question on CSR — rather, it is a question about why some PLC senior managers might have significant concerns about the impact of CSR on the bottom line and might take the view that the business of business is business not social welfare'. O/N 16/P11/Q1/b Briefly explain two limitations of mission statements.

[3]

Mark Scheme: Limitations could include: Often written in very general / vague terms in order to appeal to internal and external stakeholders as to have little impact. Often long and aspirational — a wish list with little operational value. Often seen as a PR exercise — so little motivational impact (other than negative cynicism!). If not supported by management has little positive impact Seen as being distant from operational reality. Two limitations soundly explained (3 marks) One limitation soundly explained or two partially explained (2 marks) One limitation partially explained or a list of two (1 mark)

Unit-1

Business & Its Environment

O/N 16/P11/Q1/a Define the term ‘mission statement’.

[2]

Mark Scheme: A written statement of the core aims/values/purpose/objectives of a business. Sound definition (2 marks) Partial definition (limited understanding) (1 mark) M/J 16/P12/Q7/b Discuss how a large food retailer, with many shops, could effectively communicate corporate objectives to its workforce. [12] Mark Scheme: Level 4 Effective evaluation of how corporate objectives could be communicated in context 9-12 Level 3 Limited evaluation of how corporate objectives could be communicated in context 7-8 Level 2 Analysis and some application of how corporate objectives could be communicated in context 3-6 Level 1 Understanding of internal business communication 1-2 Answers could include: Strong answers will recognise the particular communication challenge to reach all the retail outlets in different location areas – senior management visits and presentations – regional/local managers invited into HQ? Specific communication methods could be used: ‘State of nation’ address by CEO and/or senior managers Senior managers to middle managers to junior managers Team meeting/briefing Away days Training and development days Company newsletters/digital platforms/company website Internet/social media. Methods may not be as important or effective as developing participation and engagement opportunities for employees – to educate, inform and inspire employees. Develop an open, sharing, two-way communication culture in the business – train and retrain managers to share information and practise a management style that is supportive of staff engagement approaches. Effectiveness depends on the extent to which open communication is part of the bloodstream/DNA of the organisation and its managers and that there is full recognition of the need for consistency of approach over all this disparate business. Please accept and reward other relevant points. M/J 16/P12/Q7/a Analyse the importance to a large business of setting corporate objectives.

[8]

Mark Scheme: Level 4 Good analysis of the importance of large business corporate objectives Level 3 Some analysis of the importance of large business corporate objectives Level 2 Some explanation/application of corporate objectives to a business Level 1 Understanding of corporate objectives Level 0 No creditable content Answers could include: These specific organisation objectives become part of senior level management strategies.

7-8 5-6 3-4 1-2 0

Unit-1

Business & Its Environment

Set the context for divisional/departmental objectives and effective plans of action can be developed. Ensures that the business is focused and does not drift – clear corporate objectives given such as growth, profit/sales maximisation. Present a clear set of guidelines and parameters for middle, junior management actions and strategies. Without these clear corporate objectives a business can drift and cease to compete and flourish. Give meaning and purpose for all engaged in the business. Please accept and reward other relevant points. M/J 16/P11/Q6 Because there is conflict between profit and corporate social responsibility (CSR), private sector businesses should not have CSR as an objective.’ Do you agree? Justify your view. [20] Mark Scheme: Level 5 Effective evaluation of the statement on CSR as a business objective – reference should be made to agree/not agree with justification. [17–20] Level 4 Good analysis and limited evaluation of the statement on CSR as a business objective – (some reference to agree/not agree with some justification to reach 15–16 mark level) Level 3 Analysis of the statement on CSR as a business objective [11–12] Level 2 Limited analysis with application of CSR and its role in business activity [5–10] Level 1 Understanding of CSR [1–4] Level 0 No creditable content [0] Answers may include: CSR is the concept that business should consider the interests of society in decisions and activities over and above legal requirements. May include paying higher wages, improving working conditions, improving safety standards, cutting waste and pollution, support worker security. May well mean a sacrifice of profit levels, increased costs. May well lead to modification of objectives, such as aggressive expansion, tax avoidance, excessive staff bonuses. Can lead to shareholder conflict. Some customers want low prices – not worried ‘how’ a product is made. So should not the ‘business of business be business’, not wishy-washy social objectives? Positive aspects of CSR – more socially aware customers purchase, more employee loyalty, more good reputational publicity – can lead to higher long-term profit levels. Perceptive answers will recognise the potential conflict between CSR and profit – but will also recognise the simplicity of the assertion in the question. Please accept and reward other relevant points. O/N 15/P12/Q7/a Explain how the objectives of a social enterprise might differ from those of other private sector businesses. [8] Mark Scheme: Relevant points may include: 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.

Unit-1

Business & Its Environment

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. Analysis of how social enterprise objectives are different from other private sector businesses. [7–8] Good explanation of how social enterprise objectives are different from other private sector businesses. [5–6] Limited explanation of how social enterprise objectives are different from other private sector businesses. [3–4] Little understanding of a social enterprise. [1–2] O/N 15/P11/Q7/b Discuss, with examples, how unethical business behaviour could damage the reputation of a company. [12] Mark Scheme: Candidates can either give theoretical examples of unethical business practices and/or provide actual examples of companies suffering reputational damage due to unethical or alleged unethical conduct (e.g. Enron, News of the World, or own country examples). Candidates may well discuss different types of unethical business behaviour such as: – poor working conditions for employees or suppliers – dishonest sales techniques – environmentally unfriendly production methods – bribery and corrupt operating policies – misleading financial reports Such unethical business practices could lead to: – loss of trust in the company by customers and employees – legal action may result, leading to compensation and damage to reputation – poor publicity affects market standing – the brand is tarnished – investors and potential investors respond negatively – the value of the company can seriously deteriorate leading to liquidation, merger or takeover • Some evaluative comment on how unethical business behaviour could damage the reputation of a company. [9–12] • Analysis of how unethical business behaviour could damage the reputation of a company. [7–8] • Discussion of how unethical business behaviour could damage the reputation of a company. [3–6] • Limited understanding of unethical business behaviour. [1–2] O/N 15/P11/Q7/a Explain why a business might not behave ethically.

[8]

Mark Scheme: Ethics is concerned with moral guidelines. A business may decide to act in compliance with the law but go no further. it may decide that its business is the business of making profits, producing goods and services, and employing people – not ethical/social responsibility activities a business may decide it cannot afford to be ethical the aim is survival, growth and profitability – if that requires compromises on employee terms and conditions, or treatment of suppliers for example, then so be it!

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Business & Its Environment

a low priority may be given to any objective or activity that is not directly contributing to the bottom line the pressure to establish more positive ethical standards may be relatively weak in the business (by Government or pressure groups) a business may be a business in an ethically under-developed industry or country with few ethical objectives or aspirations Analysis of why a business might not behave ethically. [7–8] Good explanation of why a business might not behave ethically. [5–6] Limited explanation of why a business might not behave ethically. [3–4] Little understanding of business objectives/activities and/or ethics. [1–2] M/J 15/P12/Q1/b Briefly explain two ways in which the objectives of a social enterprise might be similar to those of other types of business. [3] Mark Scheme: Although a social enterprise is a business that has specific social objectives and is not solely in pursuit of profit, it still shares some common features with other types of businesses such as: – It is a business that seeks to make a surplus/profit – It is concerned with being efficient and effective. – It will likely face competition from other businesses in the same market or industry. – It uses business principles and processes to achieve its objectives. – It will have concerns for its workforce – It will aim to deliver quality goods and services. – It is of course committed to social/environmental responsibility as can be other businesses. • Sound explanation of TWO similarities. [3] • Sound explanation of ONE similarity or partial explanation of TWO. [2] • Partial explanation of ONE similarity or simple statement of TWO. [1] O/N 14/P13/Q7/b Discuss how ethics may influence the activities of a business.

[12]

Mark Scheme: Business ethics are concerned with how businesses treat the environment, work with staff and suppliers to build a responsible company, relate to local communities and produce a viable, sustainable company and adds value socially as well as economically. – Business ethics now part of the language of business, customers demand more and management is trained to deliver more. – May mean that a business makes explicit provision for ethical behaviour and ethical performance. – Might mean additional costs. – More monitoring (e.g. of suppliers). – May mean new and different practices, e.g. waste disposal – treatment of additional/ different shareholders. – May be seen as part of brand building and reputational protection (USP). – May be a source of additional investment for ethical investors. – So positive and negative implications – becoming a necessity rather than a discretionary approach to business decisions. • Evaluative comment on the influence of ethics on business activity. [9–12] • Analysis of the influence of ethics on business activity. [7–8]

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• Discussion of the influence of ethics on business activity. [3–6] • Limited understanding of ethics. [1–2] O/N 14/P12/Q3 Explain why many businesses have corporate responsibility as an objective.

[5]

Mark Scheme: Corporate responsibility is a concept involving a business concern, not just for the bottom line but for the interests of society. Businesses consider the impact of business decisions and activities on customers, employees, communities and the environment. • Concern for more than the bottom line. • More awareness of the negative effects of damaging business activities. • More legislation has developed to constrain business. • Pressure groups can draw attention to poor business decisions and activities and damagereputations. • Consumers tend to react positively to businesses that act in a socially responsible way. • Corporate responsibility can produce competitive advantage – a U.S.P. • Not all businesses are convinced and argue that the business of business is business and let others pursue social issues. A very limited attempt to define and discuss corporate responsibility. [1] Some reasoned but limited explanation of why corporate responsibility is viewed as an important business objective. [2–3] Sound explanation of why businesses pursue corporate responsibility objectives alongside ‘bottom line’ objectives. [4–5] O/N 14/P11/Q7/b Discuss why some businesses do not set a growth objective.

[12]

Mark Scheme: It is often assumed that one of the main objectives of a business is to grow – this may not be the case. There may be reasons why a business cannot grow and reasons why a business does not want to grow: • Businesses may not have the option to set growth as an objective – they may operate in a niche market. • Limited capital may prevent growth. • Businesses may be family businesses with neither the ambition nor the capacity to grow. • Businesses do not have to grow to become (more) successful. • They can exploit their advantages – a small business has manoeuvrability – it can act and react fast. • They can grow through outsourcing or joint ventures. • Businesses can give customers the satisfaction of personal interacting and thus retain their competitive advantage. • Non-pecuniary benefits – being one’s own boss, flexibility are first order issues for small business owners. • Businesses often content to exploit entrepreneurial skills and competences in a selected restricted area of business. • The nature and composition of many businesses (e.g., small shops, solicitors, accountants, restaurants, small-scale manufacturing, means that they do not seek growth. • Businesses survive and succeed by remaining small and supply to large businesses. • Might be new/small business; growth is not yet an appropriate aim. • Shareholders might not want a company to grow. Evaluative comment(s) on the reasons for businesses not setting growth as an objective. [9–12] Analysis of reasons for businesses not setting growth as an objective. [7–8] Discussion of reasons for businesses not setting growth as an objective. [3–6] Limited discussion of growth as a business objective. [1–2]

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Business & Its Environment

O/N 14/P11/Q3 Explain the importance of a mission statement to the employees of a public limited company. [5] Mark Scheme: A mission statement is a statement of the core business, purpose and focus of an organisation – designed to resonate with internal and external stakeholders. Mission statements are considered to be important for employees of a business in that it provides the context for worker activity. The goals and philosophies in a mission statement may serve to direct and motivate a workforce. Mission statements may well reflect the beliefs and vision of senior management and is designed to inspire employees and support distinctive organisational cultures. P.L.Cs tend to be large and therefore need to make their overall aims and values clear to employees (could be a very large number of employees) and the mission statement provides an important reference point for them. Can provide a sense of purpose in large businesses (P.L.Cs) – e.g. sense of shared values. Limited reference to mission statements and/or stakeholders. [1] Limited explanation of the importance of a mission statement to employees. [2–3] Sound explanation of the importance of a mission statement to employees. Reference to a P.L.C required for 5 marks. [4–5] N.B. This question is about employees in a P.L.C. Answers that are specific about the advantages of a mission statement to a P.L.C. should be rewarded accordingly. M/J 14/P13/Q6 Discuss the advantages and drawbacks for a business of setting corporate responsibility objectives. [20] Mark Scheme: Corporate responsibility is said to operate when a company decides to go beyond normal business / market principles and creates wealth in ways that avoid harm to, or protect, or enhance social assets. There is recognition that there is a multiplicity of stakeholders not just shareholders. Social and environmental concerns and objectives are integrated with business concerns and objectives. Advantages are said to be: – Companies exercise their moral duty to promote social justice. – It is good business practice. – Such approaches can become powerful competitive advantages. – It encourages greater loyalty from customers. – It enhances the reputation of the business. – It affects the bottom line-increases profitability. – Contributes to company and environmental sustainability. – Companies have a duty to correct any adverse social impacts caused. Drawbacks are said to be: – Costs are imposed that make businesses less efficient and this will subtract from overall social welfare. – It is unfair to shareholders as profits that belong to them are diverted to social projects. – The market is likely to allocate resources more efficiently than political pressures – ‘the business of business’ should be business and the making of profits. – Accountability should be only to shareholders. – Customers will have to pay higher prices. – Leads to lack of business focus and is often done for negative reasons as a defensive measure rather than for positive reasons.

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Business & Its Environment

• Evaluative discussion on advantages and drawbacks of setting corporate responsibility objectives. [17–20] • Analysis of advantages and drawbacks of setting corporate responsibility objectives [13 – 16] • Good discussion of advantages and drawbacks of setting corporate responsibility objectives. [11 – 12] • Discussion of advantages and/or drawbacks of setting corporate responsibility objectives. [5 – 10] • Limited understanding of corporate responsibility / objectives. [1 – 4] M/J 14/P12/Q3 Explain why the objectives of a business could change over time.

[5]

Mark Scheme: A business may change its objectives over time for a number of reasons: – Business objectives are the stated, measurable targets of how to achieve aims and a sense of purpose. – Business objectives may include: survival, growth, profit, maximisation, sales growth, ethical and socially responsible objectives. – Business objectives may change for several reasons, including: ○ initial objectives achieved (e.g. survival). ○ competitive environment changes. ○ technology might change product design. ○ new management and leadership. ○ new opportunities arise. ○ internal/external growth may lead to a revision of mission/purpose and objectives. ○ economic recession – external constraints. ○ becomes more ethical. • Limited reference to business objective(s) or reason(s) for change. [1] • Limited explanation of why business objective(s) might change over time (limited examples). [2–3] • Sound explanation of why business objectives might change over time (well explained reason(s)/example(s) clearly related to the issue of time). [4–5] M/J 13/P12/Q3 Explain how ethics could influence the objectives and activities of a private sector business. [5] Mark Scheme: The explanation will likely include a definition of ethics in business: ‘the moral guidelines that determines business decision-making’ and may refer to the objectives a private sector business might seek to achieve, e.g. profit maximisation, market share, growth, maximising short-term sales revenue, maximising shareholder value. The explanation of the influence of ethics on business objectives and activities might include: – stop questionable business activities such as taking/giving bribes in order to secure sales/location. – engage in less polluting production processes. – pursue social responsibility rather than just profit. – stop exploiting workers/suppliers. – extra focus/emphasis on safety issues. – amending advertising/marketing in pursuit of higher ethical standards. – stop price fixing, collusion with competitors. – costs money/reduces profits in the short term. These are just a few positive and negative implications for a business in the pursuit of a more ethical approach. Limited reference to either ethics or business objectives. [1]

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Business & Its Environment

General explanation of link between ethics and business objectives/activities. [2–3] Sound explanation with good examples of the influence of ethics on business objectives and/or activities. [4– 5] M/J 13/P11/Q7/b Discuss the view that the only purpose of private sector businesses is to make profit, not to pursue corporate responsibility objectives. [12] Mark Scheme: The view that business should focus solely on making profit and not be diverted into corporate (social) responsibility objectives might comment on the following: – More profit will allow a ‘trickle down’ effect and supply the resources to deal with social issues. – Entrepreneurs and managers should maintain a clear focus on ‘bottom line’ issues – play to their strengths. – Markets and prices are distorted – let businesses and markets do what they do best. – Alternatively it is argued that the social cost of profit focus alone is too high. – It is possible and necessary to combine profit pursuit with socially responsible business practices. – It is vital to continually assess the impact of business activity on the environment and to require more responsible action. – Corporate social responsibility is often now seen as an essential part of reputation management and can act as a competitive advantage. Some evaluative comment on the relative significance of profit maximization and corporate responsibility [9– 12] Analysis of the assertion regarding profit and corporate responsibility. [7–8] Some discussion of the assertion regarding profit and corporate responsibility. [3–6] Limited understanding of the issues involved with corporate responsibility and profit making. [1–2] M/J 13/P11/Q5/a Explain why the marketing objectives of a business need to be closely linked to its corporate objectives. [8] Mark Scheme: A close alignment is vital as: – Corporate objectives such as profit maximisation, growth, market share, CSR, survival, provide a clear guide for business action and strategy. – The marketing objectives and strategy are designed to support and achieve the corporate objectives. – A business in pursuit of short term profit targets will require sales to be maximised at highest prices possible. – A business in pursuit of longer-term profit objectives may adopt a ‘societal marketing’ approach to incorporate CSR. – So marketing objectives need to fit with overall aims and mission of a business. Analysis of the link between marketing objectives and corporate objectives. [7–8] Good explanation of the link between marketing objectives and corporate objectives. [5–6] Limited explanation of marketing objectives and corporate objectives. [3–4] Little understanding of marketing objectives and/or corporate objectives. [1–2] M/J 13/P11/Q2/b Briefly explain how a ‘mission statement’ might be effectively communicated to the stakeholders of a business. [3] Mark Scheme: Communication options might include: – Publish in published company accounts and in communications to shareholders.

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Business & Its Environment

– Place in business and strategic business plans. – Publish in company websites. – Use internal newsletters and magazines. – Use advertising and marketing literature. – Staff training/appraisal. • Limited reference to communication and mission statements. [1] • Sound but limited explanation of communication options. [2] • Sound and detailed explanation of communication options. [3] M/J 13/P11/Q2/a State two aims of a ‘mission statement’.

[2]

Mark Scheme: A ‘mission statement’ is defined as a statement of what a business stands for – its core purpose and focus. The aims of a mission statement include: – Give/state the central purpose of a business in a single statement. – To motivate employees. – Stimulate interest by external interested parties. – A context for a corporate culture. – Provides guiding principles for business activity. • One relevant aim stated. [1] • Two relevant aims stated. [2] O/N 12/P13/Q7/a Explain the link between marketing objectives and corporate objectives.

[8]

Mark Scheme: Corporate objectives provide the context and provide the strategic vision and purpose for marketing planning and the setting of marketing objectives. Corporate objectives are determined by senior managers and reflect the mission statement of the organisation and are communicated to all departments. The marketing department set objectives that help the business achieve its overall corporate objectives. If the corporate objective is to maximize profit then marketing objectives may well focus on maximum sales at highest price possible. If corporate is focused on social responsibility as well as profit there may well be a social marketing approach. If a business wishes to expand internationally then marketing objectives will be different to those supporting a consolidation in the domestic market. If the corporate objective is to grow the business then supportive marketing objectives could include: increase market share, gain market leadership, rebrand a product, develop new markets. Marketing objectives must above all be based on company financial objectives. • analysis of the link between corporate and marketing objectives [7–8] • good explanation of the link between corporate and marketing objectives [5–6] • limited explanation of the link between corporate and marketing objectives [3–4] • little understanding of corporate/marketing objectives. [1–2] M/J 12/P13/Q4/b Briefly explain two benefits of setting corporate objectives.

[3]

Mark Scheme: Corporate objectives are aligned to the mission statement but expressed in terms that provide a much clearer guide for management and worker action. They focus on specific outcomes and targets – e.g. profit

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Business & Its Environment

maximisation, growth, market share, survival. Thus benefits may include: give a specific context for operational decisions, turn mission statements into achievable and measurable objectives, give detailed expression to the mission statement of a business, give a clear guide for management activity and strategy, give direction for the setting of departmental/business unit targets. Partial explanation of ONE benefit or states TWO. [1] Sound explanation of ONE benefit or partial explanation of TWO. [2] Sound explanation of TWO benefits. [3] M/J 12/P13/Q4/a Define the term ‘mission statement’.

[2]

Mark Scheme: A definition might include – a brief outline of the general purpose of a business – a statement of business objectives and values – a statement to provide direction for a business and its stakeholders and to brand a business in the eyes of the external environment. Partial definition given. [1] Full definition given. [2] O/N 11/P12/Q6 Discuss how the ethical decisions of a large clothing retailer might help or hinder its business performance. [20] Mark Scheme: Answers might initially define ethical business decisions – ‘right and proper’ decisions in a business context. There may well be moral judgements to be made and moral dilemmas to face in the retail clothing context. Key issues are the sourcing of raw materials and the production process in distant lands. The advantages of an ethical stance include: • reputation • marketing and publicity benefits of establishing and communicating the high moral stance taken • competitive advantage perhaps gained • impact on the internal culture of the retailer encouraging pride in the company. The disadvantages of an ethical stance may include: • costs may increase, a potential disadvantage compared with competitors • reduced opportunity of overseas outsourcing • more close control of suppliers required but is such control possible anyway? Question gives opportunity to balance out both sides of the debate: ‘ethical or not?’ or ‘what degree of ethical behaviour?’ Evaluative comment on the ethical choices and consequences for a large clothing retailer facing ethical dilemmas and problems. [17–20] Analysis of the pros and cons of deciding to be an ethical business in the context of clothing retail. [14–16] Good understanding of the pros and cons of ethical decision-making. [11–13] Some understanding of the pros and/or cons of taking ethical business decisions. [5–10] Very limited understanding of the impact of ethical decisions. [1–4] O/N 11/P12/Q4/b Explain two objectives a small business might have in the first year of trading.

[3]

Unit-1

Business & Its Environment

Partial explanation of ONE objective. [1] Sound explanation of ONE objective or partial explanation of TWO. [2] Sound explanation of TWO objectives. [3] O/N 11/P12/Q4/a Define the term ‘objective’ as used by a business.

[2]

Mark Scheme: Business objectives defined as goals/targets that a business sets, such as profitability, sales growth, return on investment, which form the foundation on which strategic and operational policies are based – the means to achieving business purpose and organisational goals. Definition indicates partial understanding. [1] Definition indicates full understanding. [2] O/N 10/P12/Q3 Explain the importance of the profit maximisation objective to a business.

[5]

Mark Scheme: Explanation could refer to profit maximisation being a prime objective of a business – it supports growth, investment, stakeholder satisfaction – shareholders are a key stakeholder driving the share price and confidence in the business. Answers might well also recognise that profit maximisation is not always the only or most important objective of a business. E.g. for a small business market share is more important – survival in a highly competitive market. Some answers might focus on the specifics of profit maximisation (e.g. pricing policy, profit calculations). • Some attempt made to discuss the issue of profit maximisation. (1) • General discussion of profit maximisation in a business – role and result. (2–3) • Sound explanation of the importance of profit maximisation for a business (possibly with some reference to alternative objectives). (4–5) O/N 10/P11/Q6 Discuss the benefits to a business of setting ethical objectives.

[20]

Mark Scheme: Discussion could include a definition of ethical objectives – ‘right and proper’ approach to business decisions and actions – with examples in relation to pollution, treatment of staff, suppliers, environmental issues and the potential impact of distinctive values and beliefs of a company on its actions. Potential impact of ethical objectives and behaviour on securing greater market share/ profitability/image/reputation might include: marketing and publicity benefits of the perception of being ethical – high reputation say for treating an international supplier fairly and ensuring ethical standards by that supplier – customer perception nationally and internationally – unique selling point (USP) all help to enhance market share. (Some may point at the potential extra costs and the need to balance costs and benefits of ethical objective-setting.) • Evaluative comment on the potential impact of ethical objectives on perceived performance and activity of a business. (17–20) • Analysis of the potential value of setting ethical objectives. (14–16) • Good understanding of the potential value of setting ethical objectives. (11–13) • Some understanding of the potential value of ethical objectives. (5–10) • Shows limited understanding of ethical objectives. (1–4)

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Business & Its Environment

M/J 10/P12/Q6 Discuss how the objectives of stakeholder groups in a profitable business might be in conflict. [20] Mark Scheme: Discussion might initially define stakeholders – those influenced by or influencing an organization and its decisions. The essence of the scenario is a successful business. Stakeholders might be in conflict in any business – successful or not – e.g. shareholders’ interests at 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. - Evaluative comment that recognises the significance of a profitable business in creating conflict and/or comments on the power/influence of respective stakeholders. [17–20] - Analysis of different stakeholder group objectives and expectations in a business. [14–16] - Good understanding of stakeholder conflict possibilities. [11–13] - Shows good understanding of stakeholder groups and their objectives in a business. [5–10] - Shows some understanding of stakeholder groups and their objectives. [0–4] M/J 10/P11/Q6 Discuss how the activities of a business might be constrained by ethical issues.

[20]

Mark Scheme: Answers could refer to the increasing requirement for businesses to take into account ethical issues. Reference could be made to general business ethics such as the philosophy of a business (shareholder v stakeholder) or corporate social responsibility or to specific business ethics such as: accounting information – creative accounting, insider trading; HRM – treatment of employees; sales and marketing – price fixing – disinformation; production – pollution and carbon emission; intellectual property – patent infringement; international use of child labour etc. Some evaluative comment, e.g. a recognition that ethical business activity might not be a constraint but rather a source of competitive advantage. (17–20) Analysis of ethical issues and business activities (with examples of contraints). (14–16) Good understanding of ethical issues in business activity. (11–13) Descriptive comment on ethical issues and business activities. (5–10) Limited understanding of ethics and implication for business activities. (1–4) M/J 10/P11/Q3 Explain why it is important for a business to have clear objectives.

[5]

Mark Scheme: Well-defined objectives help a business to be clear about what it wants to achieve – gives a sense of direction – provides a measure of how the business performance matches its achievement aims – reference may be made to specific objectives, e.g. survival, growth, market penetration, profitability etc. Some understanding of business objectives. (1) Sound understanding of business objectives with specific examples and possibly implicit reference to ‘importance’. (2–4) As above, with explicit reference to the ‘importance’ of business objectives. (5)

Unit-1

Business & Its Environment

O/N 09/P12/Q1/b Briefly explain two objectives a small business might have, other than profit maximisation.[3] Mark Scheme: Objectives might include: survival, market share, establish the business, cover costs, work/life balance, competitive market etc. Appropriate definition of objectives/or one relevant objective given with weak explanation/or two objectives simply listed [1] Sound explanation of one objective/or partial explanation of two relevant objectives [2] Sound explanation of two relevant objectives [3] O/N 08/P1/Q4/b Briefly explain why growth may not be the most important objective for a business.

[3]

Mark Scheme: Explanation could indicate that companies have a number of different objectives to pursue and not all objectives are appropriate for all firms – include market share, maximise profits, market leadership, diversification, retrenchment, survival, growth – it may well depend on the size of a business and the relative strength of different stakeholders. Growth may be an important objective – and many benefits – but internal and external difficulties may prohibit growth – long term vs short term objectives – age of business etc. Limited discussion of business objectives/or growth. [1] Explanation of growth as one among other objectives. [2] Explanation that explicitly indicates why growth may not be the most important objective. [3] M/J 08/P1/Q5/b Discuss how the objectives of a manufacturing business might be affected by ethical issues. [12] Mark Scheme: [Increasingly businesses are taking into account social/ethical issues and recognizing responsibilities to internal and external stakeholders – this may be on a voluntary basis or required by governments. Examples of production activity (pollution), ethical trading locally and globally etc., raise issues of potential conflicts with business objectives of profitability and return on investment.] Evaluative comment, e.g. recognition of the potential conflict between say social responsibility and economic performance: (11–12) Sound analysis of ethical issues and business objectives (reference to context of manufacturing awarded at the top of level) (8–10) Shows awareness of ethical issues with implicit reference to business objectives: (3–7) Limited attempt to define ethical issues (must be accurate) or understanding of objectives of business: (1–2) M/J 08/P1/Q1/b Briefly explain the importance to a business of setting objectives.

[3]

Mark Scheme: Partial explanation of setting objectives (1) Sound explanation of setting objectives (2) Full explanation, with reference to the importance of setting objectives (3) [e.g. give direction/focus, motivate staff, assess performance, identify problems] M/J 08/P1/Q1/a State two objectives a business might set in the short run.

[2]

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Business & Its Environment

Mark Scheme: One objective stated (1) Two objectives stated [e.g. survival, profitability, market share] (2) M/J 06/P1/Q3 Explain the importance of profit maximisation for a public limited company.

[5]

Mark Scheme: Profit maximisation is prime objective of a plc, but other objectives might dominate in short run, e.g. growth, market share, sales maximisation. Profit enables growth, investment, competing and satisfying employees. Ultimately plcs have to satisfy shareholders by producing good profits, or they will become unhappy and sell shares, causing price to drop. So stock market pressure to keep improving profit drives directors of plcs. Demonstrating some limited knowledge of what profit maximisation is. 1 Understanding of the term but not fully explaining in terms of plc status. 2-3 Good explanation of importance for a plc. 4-5 O/N 05/P1/Q2 Explain how a manufacturing business might be affected by ethical issues.

[5]

Mark Scheme: Ethical issues are ones involving moral issues which are not illegal but can impinge on firms' activity. Include factors such as environmental factors â&#x20AC;&#x201C; manufacturer might be polluting â&#x20AC;&#x201C; good practice in the treatment of employees (eg redundancy or outsourcing of jobs), healthy living issues (eg soft drinks, fast food, tobacco or alcohol). Can be opportunity for firms to produce ethical products, eg fair trade goods. Basic explanation of ethical issues 1 Understanding of some of the implications for a manufacturer 2-3 Substantially full appreciation of factors, including ways to overcome consumer resistance or exploit opportunity. 4-5 M/J 05/P1/Q5/a Explain how the objectives of a business may change as it grows.

[8]

Mark Scheme: Start-ups have survival as first objective, which might recur in tough times or under takeover threat. Expansion might be goal, with turnover, market share, size the key, by diversification, or at other times focusing on key capabilities. Profit maximization comes later, especially if a company has gone public, but growth may still be short term objective at times. Knowledge and Application Level Two: Outlines objectives in context of growth. 3-4 marks Level One: Just gives different objectives without relating to growth. 1-2 marks Analysis and Evaluation Level One: Explains how growth changes objectives. 1-4 marks

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1.5 Stakeholders in a Business O/N 15/P11/Q7/b Discuss, with examples, how unethical business behaviour could damage the reputation of a company. [12] Mark Scheme: Candidates can either give theoretical examples of unethical business practices and/or provide actual examples of companies suffering reputational damage due to unethical or alleged unethical conduct (e.g. Enron, News of the World, or own country examples). Candidates may well discuss different types of unethical business behaviour such as: – poor working conditions for employees or suppliers – dishonest sales techniques – environmentally unfriendly production methods – bribery and corrupt operating policies – misleading financial reports Such unethical business practices could lead to: – loss of trust in the company by customers and employees – legal action may result, leading to compensation and damage to reputation – poor publicity affects market standing – the brand is tarnished – investors and potential investors respond negatively – the value of the company can seriously deteriorate leading to liquidation, merger or takeover • Some evaluative comment on how unethical business behaviour could damage the reputation of a company. [9–12] • Analysis of how unethical business behaviour could damage the reputation of a company. [7–8] • Discussion of how unethical business behaviour could damage the reputation of a company. [3–6] • Limited understanding of unethical business behaviour. [1–2] M/J 15/P13/Q1/b Briefly explain two ways a public limited company is accountable to its shareholders.

[3]

Mark Scheme: A public limited company is accountable to its shareholders in the following ways: – accountability for the general direction and performance of the company. – accountability for the financial performance of the company (share price and dividends). – accountability for compliance with legal requirements, eg employment laws, health and safety, taxation, equality etc. (these may be cited as separate and specific examples of accountability). – accountability for the image, reputation of the company. – requirement to hold an AGM [These accountabilities will be managed through appropriate governance organization arrangements]. • Sound explanation of TWO ways. [3] • Sound explanation of ONE way, or partial explanation of TWO ways. [2] • Partial explanation of ONE way or simple statement of TWO ways. [1] M/J 15/P13/Q1/a Define the term ‘stakeholder’.

[2]

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Business & Its Environment

Mark Scheme: A stakeholder can be defined as people, groups of people, or organisations that can be affected by an organisation or have an interest in the actions and activities of that organisation. Examples can be credited: in addition to a partial definition can justify a second mark. Examples only are to be given 1 mark max. A definition of a shareholder is too narrow and is not acceptable as an answer to this question. • Full definition – sound understanding [2] • Partial definition – limited understanding [1] O/N 14/P13/Q3 With the aid of two examples, explain how the objectives of one group of business stakeholders could conflict with those of another group. [5] Mark Scheme: Different stakeholders have different expectations, aspirations, and perceptions of what businesses should do and how they should act, e.g. owners, managers, employees, shareholders, suppliers, governments, communities. – Conflict between stakeholders can occur in most kinds of business forms, e.g. partnership, plc, family owned, public corporation. – Conflict can occur over a range of issues such as: profit/dividend distribution, compensation, investment decisions, social responsibility, product/service prices, location and environmental concerns. • Limited explanation of stakeholders and/or possible conflict situations. [1] • Some understanding of how stakeholder groups could conflict with a sound explanation of one set of stakeholders in conflict, or a limited explanation of two sets of stakeholders in conflict. [2–3] • Sound explanation of two sets of stakeholder groups who may be in conflict. [4–5] O/N 13/P13/Q4/b Briefly explain one way in which conflict may arise between different stakeholder groups in a business. [3] Mark Scheme: Conflict may arise between different stakeholder groups due to: – Stakeholders who insist on social responsibility policies may conflict with short-term shareholder interests (profit) – Consumers/tax payers/communities may suffer at the expense of uncontrolled shareholder pursuit of profit. – Employees lose out with companies outsourcing or mechanising or cost cutting. – Management may receive performance-related pay – other employees basic wage and sickness, etc. • Only a general reference to stakeholder groups. [1] • Partial explanation of one conflict situation. [2] • Sound explanation of one conflict situation. [3] O/N 13/P13/Q4/a Define the term ‘stakeholder’.

[2]

Mark Scheme: Stakeholder’ can be defined as people or groups of people who can be affected by, and therefore have an interest in, a business/organisation. • Partial definition given. [1] • Sound definition given. [2]

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Business & Its Environment

O/N 13/P11/Q3 Explain the rights and responsibilities of employees as a business stakeholder group.

[5]

Mark Scheme: The rights of employees as a stakeholder group include: – To be treated within the minimum limits of protective legislation, e.g. minimum wage, health and safety. – To be treated by the employer according to employment contract. – To be allowed to join a trade union – make representations to employers. The responsibilities of employees as stakeholders include: – To meet the conditions of the employment contract. – To co-operate with management in all reasonable requests. – To observe any ethical code of conduct. • Limited reference to employees as stakeholders and/or to their rights and responsibilities or definition of stakeholders. [1] • Sound explanation of either employee rights or employee responsibilities. [2–3] • Partial explanation of employee rights and employee responsibilities. [2–3] • Sound explanation of employee rights and employee responsibilities. [4–5] O/N 11/P13/Q6 Discuss how the closure of a business owning many large retail stores might affect different stakeholders. [20] Mark Scheme: Answers might initially define stakeholders and then identify different ones in this business context – company closure: • Employee – job losses, possibility of getting new jobs, depends on local and national economic situation, probably low skill base, impact on personal family situation. • Customers – loss of traditional store, reduced choice (though may already have switched shopping loyalties thus causing the closure). • Shareholders – if a plc, share price probably hit the floor, giving significant losses. • Local community – job losses have a multiplier effect leading to local economic depression, impact of large empty shops in shopping areas. • Suppliers – possible short-term losses, in search of new buyers. • Competitors – opportunity to move into the gap created by the closure etc. Impact depends on the severity of the economic situation and some stakeholders damaged more than others. Evaluative comment on the impact of this closure on specific stakeholders (possible comment on the relative damage done, worst/least affected). [17–20] Analysis of the impact of this closure on specific stakeholders. [14–16] Good understanding of the impact on specific stakeholders. [11–13] Some understanding of the impact on specific stakeholders. [5–10] Limited comments on stakeholders and/or retail stores. [1–4] M/J 11/P13/Q5/b Discuss the extent to which businesses are accountable to their stakeholders.

[12]

Mark Scheme: Discussion might initially define stakeholders: anyone affected by a business and/or able to influence the decisions of a business. Accountability:

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Business & Its Environment

• the essence of business answerability – possibly the notion of corporate governance • multiple levels of answerability – legal, financial, ethical; the responsibility and requirement to account to various stakeholders, not just the wealth maximisation of shareholders • a range of business constituencies are concerned with business performance. The extent of this accountability depends on a number of factors: • the activity/influence of various stakeholders and the information made available to them • the size and nature of the business organisation – different for a plc, private limited company, partnership, and sole trader • extent to which mechanisms such as published accounts, annual general meetings, annual reports are used; role of media in revealing/exposing activity; inside a business the type and level of communication to staff, trade unions etc. • the power of an organisation to withhold information or dress up accounts • passivity of stakeholders etc. Evaluative comment on the reasons for the ‘why and how’ and the extent of stakeholder accountability. [11– 12] Analysis of examples of the ‘why and how’ of stakeholder accountability – answers towards the top of this band will refer to the extent of stakeholder accountability. [8–10] Shows understanding of the ‘why and how’ of stakeholder accountability. [3–7] Limited discussion of stakeholders and/or business accountability. [1–2] M/J 11/P12/Q7/b Discuss the importance of published accounts to three stakeholder groups in assessing the performance of a company which is planning to expand. [12] Mark Scheme: Candidates should identify the stakeholder groups, the importance of performance indicators (from published accounts) that are relevant to each of the stakeholders, and in the context of a business that is going to expand. • Published accounts give quantitative results and those from the balance sheet are only a snapshot in time. • The following are examples of relevant stakeholders and performance indicators that may be important in this context: – venture capitalists considering financing any expansion will examine existing longterm liabilities, sales growth in recent times and net profit margins – banks will review accounts carefully in assessing risk involved in any future lending – competitors will take an interest in the potential capability of a business to expand, as evidenced by the financial performance as reported – managers will be interested in issues such as profitability, cost control, ability to service future debt etc. – shareholders may use the accounts to calculate ratios to indicate performance levels and capability to support expansion (risk). • Candidates may legitimately apply the same performance indicators to more than one stakeholder. • Candidates might unpack the accounts and give examples linked to specific stakeholders. Reference may well be made to the limitations of the accounts: they are historical documents, do not reflect qualitative aspects of a business, may be subject to ‘window dressing’ and may not reflect the true performance of individual parts of a business. Some evaluative comment on the importance of published accounts to 3 specific stakeholders in context of a company planning to expand. [11–12] Analysis of the importance of published accounts to 3 specific stakeholder groups with some reference to a company planning to expand. [8–10] Shows understanding of the importance of published accounts for stakeholder groups. [3–7]

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Business & Its Environment

Limited understanding of published accounts and/or stakeholders. [1–2] M/J 10/P11/Q4/b Briefly explain why one of the stakeholder groups you have identified in part (a) may be interested in the performance of a business. [3] Mark Scheme: Explanation might include the following: business performance affects the ways in which the business can impact on stakeholders in terms of profit share (dividends), salaries and wages and business continuity/survival, investment repayment/or opportunities for further investment/growth, ability to pay taxes, ability to assist community environment and satisfy customer demands. Limited/vague reference to how stakeholder groups’ interests are influenced. (1) Sound understanding of link between business performance and ONE stakeholder interest. (2) Sound understanding of the link between business performance and stakeholder interests with ONE DEVELOPED example. (3) M/J 10/P11/Q4/a State two different stakeholder groups in a business.

[2]

Mark Scheme: Stakeholder groups might include shareholders, employees, suppliers, customers, owners, community, government. One relevant stakeholder group identified. (1) Two relevant stakeholder groups identified. (2) M/J 08/P1/Q3 Explain how two different stakeholder groups might use the published accounts of a business.[5] Mark Scheme: Partial/implied explanation of a stakeholder(s) use: (1) Full explanation of one stakeholder use: (2) Full explanation of two stakeholders use: (4) 5th mark for a clear context in the form of explanation of the stakeholder concept and/or in the form of an explanation of published accounts. (This 5th mark might be explicit in the form of a separate statement of implicit in a comprehensive discussion of stakeholder interests – shareholders, employees, customers, suppliers, society – internal, external – P&L, balance sheet.) (5) [3 marks for one fully explained stakeholder use together with a partial/implied explanation of another.] O/N 07/P1/Q5/b Discuss how different stakeholder groups might view the decision to change from private limited company to a public limited company. [12] Mark Scheme: Answers should clearly discuss the stakeholder concept and differentiate between different stakeholders as they might view this decision to change to a plc, e.g. 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.

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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. Evaluative comment which makes reference to the possible balance between benefits and drawbacks of the decision to change. [11–12] Sound analysis of the views of different stakeholders (at least 2) of the decision to change. [8–10] Shows good understanding of different aims and objectives of stakeholder groups. [3–7] Shows some understanding of the stakeholder concept. [1–2]