Business Studies · Oct / Nov 2020 · Paper 11 · Question 4

0450

As printed in the paper

The question as text

KTF makes building materials, including cement and bricks. Last year KTF had sales of $25bn. KTF’s objectives have often changed since it was started 60 years ago. The Managing Director 4 wants KTF to expand. KTF is going to take over one of its main competitors. The newly expanded business will have combined sales of $40bn. The Managing Director said: ‘Many stakeholder groups will be affected by this decision.’ She knows there are many external factors that affect business activity including the business cycle, interest rates and legal controls to protect the environment.

Read automatically from the paper; the printed page above is exact.

Show the answer and mark scheme

4(a)[2]
Define ‘business cycle’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Fluctuations in economic activity that an economy experiences over time [2]
Changes in level of economic growth/GDP/economic activity over time [2]
A period during which a country or economy goes from growth to recession and back again [2]
Partial definition e.g. Shows changes in GDP [1]
Fluctuations in economic activity [1]
2 Do not award alternative names such as trade cycle.
4(b)[2]
Identify two reasons why a business might change its objectives. Award 1 mark per reason. Points might include:
Achieved current objective(s)
Changing economic conditions
Changes in legal controls/rules
Changes in the market e.g. competitors join/leave market/ changes in demand
New owners
Growth of business
Change in capital available to the business. Other appropriate responses should also be credited. 2 Only award the first two responses given. Notes
4(c)[4]
Outline one advantage and one disadvantage to KTF of taking over the other business. Award 1 mark for each advantage/disadvantage. Award 1 mark for each relevant reference to this business. Points might include: Advantages:
Reduces competition/increased market share [k] as this is one of its main competitors [app]
Possible economies of scale [k] reducing the unit costs of bricks [app]
Possible cost savings [k] which could be one of its objectives [app]
Buying an existing brand can be cheaper than internal growth [k]
Access to new skills or expertise [k]. Disadvantages:
Clash of culture and leadership styles/objectives [k] for a business started 60 years ago [app]
Possible legal action (as gain too much market power) [k] so could face the risk of new legal controls to protect environment [app]
Possible diseconomies of scale or examples e.g. control/ communication problems [k]
Over reliant on one market [k] especially when enter different stages of business cycle [app]
Pressure groups could oppose [k]
Cost of redundancies [k]
Expensive to buy the firm [k]. Other appropriate responses should also be credited. 4 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:
Building materials/cement and bricks
$25bn
Started 60years ago
Main competitors
Combined sales of $40bn/raise of $15bn
Business cycle
Interest rates
Legal controls
Protecting the environment
Stakeholder groups Other appropriate examples in context can still be credited. Notes
4(d)[6]
Explain how two external stakeholder groups might be affected by the takeover. Award 1 mark for each relevant stakeholder group. Award 1 mark for each relevant reference to this business. Award 1 mark for each relevant explanation. Points might include:
Banks [k] may have increased demand for loans [an] to pay for taking over its main competitor [app]
Government [k] as may receive more tax revenue [an] if KTF can increase its $40bn sales [app]
[Local] community [k] may be concerned about possible job losses [an]
Suppliers [k] could lead to fewer / increased orders [an] for building materials [app]
Pressure groups [k]
Consumers [k] as may lead to less choice [an]
Competitors [k] as they will be concerned about possible price drops due to the economies of scale gained [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:
Building materials/cement and bricks
manufacturing
$25bn
Started 60years ago
Main competitors
Combined sales of $40bn
Business cycle
Interest rates
Legal controls
Protecting the environment Other appropriate examples in context can still be credited. Do not award answers which refer to internal stakeholders such as: owners (shareholders), employees. Notes
4(e)[6]
Do you think businesses will be more affected by new legal controls to protect the environment than an increase in interest rates? Justify your answer. Award up to 2 marks for identification of relevant issues. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to which factor likely to have the biggest effect on businesses. Points might include: New legal controls to protect environment:
May have to buy pollution permits/pay fines [k] increasing costs [an] which could increase prices [an]
Introduce new techniques/change how they make things [k] so need to spend more to train employees [an]
Might have to buy new machinery[k]
May be forced to change location [k]
May have to change raw materials [k] Increase in Interest rates:
Bank loans more expensive for business/increased cost of borrowing [k] less likely to invest in capital [an]
Consumers less likely to borrow to buy expensive items [k] leading to lower sales [an]
Demand for higher wages [k] as workers might face lower disposable income [an] Other appropriate responses should also be credited. 6 For evaluation to be awarded justification will follow on from relevant analysis of points. Answers which only discuss one option cannot be awarded both evaluation marks. Notes Justification might include:
The business may have to buy pollution permits [k] increasing their costs [an]. Interest rates may mean consumers may not borrow [k] and demand could fall [an]. Legal controls will have more effect because a business cannot avoid them [eval] whereas interest rates may have no effect if the business does not have to borrow money. [eval]

Practise this paper →

Make a free account to save your answers and see your weak topics and ask the AI why a wrong answer is wrong.