Business Studies · May / June 2023 · Paper 21 · Question 3
0450
As printed in the paper
Show the answer and mark scheme
3(a)[8]
Explain two possible reasons why VP wants to expand. One mark for each reason (max 2). Award a maximum of three additional marks for each explanation of the reason why VP wants to expand, one of which must be in context. Answers might include:
To gain higher profits for the owners – as expansion will lead to increased sales in new markets abroad – leading to increased revenueTo lower average/unit costs – gain from economies of scale – such as bulk buying of food ingredients – a discount will be received from bulk purchasesTo gain a larger share of the market – may produce a stronger brand image – might result in greater customer loyaltyTo gain more status and prestige for the owners – from the company being more well known in country Z – may be listed on stock exchanges in other countriesTo gain access to new markets/diversification – this would reduce/spread risk For example: To gain higher profits for the owners (1)because expansion is likely to increase revenue, (1)
as VP will sell its products in more markets (1). The higher profits should allow the shareholders of VP to be paid higher dividends (app). Application could include: fast food;
restaurant;
vegetarians;
meals;
food outlets across the country;
diners;
shareholders/public limited company;
ingredients.
3(b)[12]
Consider the benefits and limitations of the following two ways VP can enter a new market in another country. Which way should VP choose? Justify your answer.
Joint ventureFranchising Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two ways. Well-justified conclusion. Candidates discussing both ways in detail, in context and with well-justified conclusion including why the alternative way is rejected should be rewarded with the top marks in the band. 9–12 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification / some evaluation of choices made. Candidates discussing one or more ways in detail and applying it to the case should be rewarded with the top marks in the band. 5–8 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining both ways in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Advantages Disadvantages Joint ventureVP will share the risks and costs of setting up the fast- food chain in another country with its partner in the joint venture – this may help VP to borrow less capital to expand into the other countryVP can gain important local knowledge about the market – easier to focus meals on local tastes – increasing demand/sales/reven ueLess likely to require expensive market research to understand the fast- food market – reducing the costs of entering the new market abroadLowering the risks of entering the new market abroad - more likely to understand local customs and tastes – adapt fast-food meals to meet local demandIt will take time and effort to find the right partner to join with in the venture – which may delay the expansion plansThere may be management conflicts between the two businesses – leading to arguments and inefficiency – higher costsProfits will have to be shared – may reduce return on investment from the expansion – may not be agreeable to the shareholders of VPThe level of expertise may not be the same in the partner business – may make the return on investment unfairThe work and resources may not be equally shared between the two partners in the joint venture – VP may have to put more work and resources as it is the main partner in the venture FranchisingSaves time on expanding into the foreign market – as business operating fast-food restaurants will make the investmentPayment from franchise fees for using the VP brand - fee goes back to VP which may increase profits – making a return from the expansion for low investment from VPLower capital requirement - no need to raise finance for the expansion – no need to sell additional shares with possible loss of control/no bank loan required so no need to pay interest rates increasing fixed costsPoor quality management may lead to a lowering of the reputation of the VP brand – if the franchisee in the foreign country does not maintain standard of delivering fast food in 5 minutesLow level of control by VP Directors – over how the franchise operates the vegetarian fast-food chainThe franchisee has information about the food ingredients and recipes of VP and may use these when the franchise agreement has expired – could develop a better version and become a competitor Conclusion Justification may include:Forming a joint venture is the best way to overcome the problems of entering a new fast- food market in another country which VP is unfamiliar with as this will enable VP to understand this new market by gaining knowledge from this other business. The local business will be able to advise and guide VP on the best locations to choose and the best meals to serve to meet local demand and successfully enter this market. Franchising should not be chosen as the franchisee may provide poor service and lead to a poor brand image of VP.Selling a franchise to businesses in the new fast-food market in another country will reduce the investment required for VP to expand. This will make it cheaper and quicker to expand into this new market while still receiving revenue from the fees charged for the franchise.
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