Business Studies · Oct / Nov 2020 · Paper 11 · Question 2

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YMG is a private limited company. It is the largest manufacturer of soft drinks in country V. YMG produces 1 billion litres a year using flow production. The Managing Director wants YMG to expand. 2 He said: ‘I plan to increase production to 3 billion litres over the next 5 years. This will allow us to start selling our products in new markets in other countries. I know import quotas and lack of local knowledge can cause problems but there are ways we can overcome them.’ The Managing Director also plans to invest $60m in new technology to improve efficiency.

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2(a)[2]
Define ‘flow production’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Where large quantities of a product are produced in a continuous process [2]
Mass production using a production line [2]
Partial definition e.g. ‘Makes lots of the same thing’ [1]
Large quantities of a standardized product [1]
Large-scale production/large volumes, continuous production [1]
Notes
2(b)[2]
Identify two methods (other than technology) a business can use to improve efficiency. Award 1 mark per method. Points might include:
Reorganise layout/reduce waste/Kaizen/JIT/lean production
Training/improve employee skills/employ more skilled workers
Improve motivation/communication
Specialisation Other appropriate responses should also be credited. 2 Only award the first two responses given. Accept practical examples such as examples of performance related pay as motivation methods. Do not accept employ more workers as this will not improve efficiency.
2(c)[4]
Outline two sources of finance YMG could use for the new technology. Award 1 mark for each relevant source of finance. Award 1 mark for each relevant reference to this business. Points might include:
Sell shares/owners capital [k] as a private limited company [app]
Bank loan [k] as need $60m [app]
(Retained) profits [k] as likely to have funds as it is the largest manufacturer [app]
Leasing [k] as move into new markets overseas may not be successful [app]
Hire purchase [k]
Owners savings [k]
Sell unwanted assets [k]
Crowdfunding [k] Other appropriate responses should also be credited. 4 Long term sources are required for this investment. Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Private limited company/sell shares to family and friends
Flow production
$60m.
New markets
The largest manufacturer
3 billion litres
Soft drinks Other appropriate examples in context can still be credited. Notes
2(d)[6]
Explain how each of the following problems might affect YMG when entering new markets in other countries. Award 1 mark for identification of each relevant problem (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points may include: Lack of local knowledge:
May not be aware of competitors actions [k] leading to fewer sales /lower revenue [an] of soft drinks [app]
May not understand customer buying habits [k] so must spend more money developing new products [an] rather than investing $60m in new technology [app]
Customers may not like [K] the soft drinks [App] Import quotas:
This limits the number of items that can be brought into the country [k] so fewer litres needed [app] which could lead to higher prices[an] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Private limited company
Flow production
$60m.
The largest manufacturer
3 billion litres
New technology
Soft drinks
Expanding production Other appropriate examples in context can still be credited. Do not accept answers which clearly refer to tariffs. Do not accept the same analysis point for both problems. Notes
2(e)[6]
Do you think a joint venture is the best way for a business to enter a new market in another country? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether a joint venture is the best way for a business to enter a new market in another country. Joint venture
Allows the business to gain important local information about customers [k] so better able to meet customer requirements [an] ensuring sales [an]
Wider range of contacts/better access to resources [k] so may be able to obtain cheaper resources [an] reducing production costs [an]
Less competition [k] as working with local business [an] helping to increase its market share [an]
Can provide access to other specialist staff and technology [k]
Clash of management styles [k] lead to conflict/problems with decision making [an]
Must share profits [k] Other options may include:
Franchising [k] which will reduce the problem of a lack of local knowledge [an] may negatively affect reputation [an]
Licensing [k] losing control over the production [an]
Expand themselves [k] allowing them to retain all the profits [an] Other appropriate responses should also be credited. 6 This is a general question so there are no marks for application. For evaluation to be awarded justification will usually follow on from relevant analysis of points. Answers which only discuss alternative options cannot be awarded evaluation marks. Notes Justification might include:
A joint venture allows the business to gain important local information about customers [k] so they are better able to meet customer requirements [an] ensuring sales [an]. Expanding on their own would require them to raise more capital [k]. If they are happy to share control a joint venture is the best way as it helps reduce the risks of setting up in a new country[eval]. Since expanding on their own maybe too expensive. [eval] Notes

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