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Business Studies · Oct / Nov 2024 · Paper 22 · Question 3

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  • 3(a)[8]

    Explain one way each of the following stakeholder groups might be affected by a business becoming a multinational company. Award 1 mark for how each stakeholder group will be affected (max 2 marks for each stakeholder group). Award a maximum of 1 additional mark for each explanation of how the stakeholder group will be affected. There are no application marks available for this question. Effects on shareholders might include:

    Value of assets of company increases – as increased profit can be reinvested
    Increased dividends – profit increases from avoiding barriers to trade
    Lower dividends – if need to fund expansion into other countries
    Increased share price/value of shares increases – as becomes a more well-known business due to market share increasing
    Easier to sell shares – as the company is known globally with higher revenue/profit/better image Effects on employees might include:
    May lose jobs – as business moves to produce in a country with lower labour/production costs
    May gain promotion – from business expanding into different markets / business can access a larger target market and additional jobs may be required
    May have a more secure job – as business remains competitive if competitor companies are also expanding abroad
    Higher wages paid – as business is more successful and can afford to increase wage rates Effects on suppliers:
    May have increased sales – as output of multinational increases
    May lose sales – as multinational may purchase from cheaper suppliers in other countries Effects on government:
    Higher tax revenue if higher profit repatriated
    May lose tax revenue if multinational locates head office in another country For example: Employees may lose their jobs (1)

    as the business becomes a multinational company and moves its production to another country to lower labour/production costs (1).

  • 3(b)[12]

    Using Appendix 2 and other information, consider the two countries BB could choose to locate its first new factory. Which country should BB choose? Justify your answer. Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both countries. Well-justified recommendation. Candidates discussing both countries in detail, in context and with a well-justified recommendation, including why the alternative country 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 country. Judgement with some justification/some evaluation of choices made. Candidates discussing at least one country 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 countries with little/no explanation. Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining both countries in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Benefits Drawbacks Country A

    Gross profit per bike is $225 more than Country B
    Highest selling price per bike at $1000 – possibly highest revenue if demand remains high 70% of raw materials are available in country A which may make it easier and quicker to receive supplies – less need to import
    Only 30% of the raw materials need to be imported – so depreciation in exchange rate may have smaller effect on costs
    Gross profit margin is 35% which is higher than country B at 31.25%
    Has many competitors so demand may be lower – may have to reduce selling price to attract customers – possibly reducing revenue
    May have to spend more on marketing to enter the new market abroad – increasing costs – possibly reducing profit
    Higher wage costs to produce each bicycle at three times the cost of Country B – leading to higher wage costs overall
    Harder to recruit new workers as unemployment is low – may have to offer more fringe benefits to attract employees from their many competitors
    30% of raw materials need to be imported – if depreciation in the exchange rate of country A then may make the cost of these raw materials more expensive Benefits Drawbacks Country B
    Half the raw material cost per bicycle at $175 in country A – makes it easier to charge the lowest price of $400 per bicycle
    High unemployment makes it easier to recruit new employees – more likely to remain with BB as few alternative employment opportunities in country B – lowering recruitment costs/training costs in the future
    Lowest wage costs at $100 per bicycle – reducing total labour costs
    Low price at $400 per bicycle may attract many customers – possibly increasing revenue
    Only 40% of raw materials are available in country B so a large proportion of other raw materials may need to be imported/transporte d a long way – increasing delivery costs and delivery time
    Lower difference between price of $400 and costs of $275 = $125, whereas it is $350 in country A
    Few competitors may indicate that demand for bicycles in country B is low – BB needs to spend on market research to be sure there is a market in country B – investment could be wasted if there is not sufficient demand to make the expansion successful Recommendation Justification might include:
    BB should choose country A as it can charge the highest price of $1000 per bicycle which may lead to higher revenue and with a higher difference of $350 per bicycle between price and variable costs it gives the highest gross profit per bicycle sold. Whereas country B has to have 60% of raw materials imported and if there is a depreciation in the exchange rate then this could be very expensive in the future.
    BB should choose country B as it has the lowest wage cost per bicycle, and it will be easy to recruit new employees as there is high unemployment there.
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