Cambridge IGCSE Business Studies (9-1) 0986 — 2019 May/June Paper 2 · Variant 1

1 (a) Identify and explain one advantage and one disadvantage to SA of starting to sell new products in a niche market. Advantage: ....................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Disadvantage: ................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following three roles of packaging for SA’s new products. Which is the most important role for the successful launch of these new products? Justify your answer. Protection: ........................................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Brand image: .................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Information about the product: .......................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: Question Answer Marks 1(a) Identify and explain one advantage and one disadvantage to SA of 8 starting to sell new products in a niche market Knowledge [2 × 1] Award one mark for each relevant advantage/disadvantage Analysis [2 × 1] Award one mark for a relevant explanation for each advantage/disadvantage Application [2 × 2] Award two application marks for each advantage/disadvantage Answers are likely to include: Advantage • Higher price charged • Less competition • Meet specific needs of customers • Increase sales/market share • Spreads risk/diversification • Attracts new/different customers Disadvantage • More expensive to produce the product – uses batch rather than flow production • Increased costs e.g. product development, new marketing strategy needed • Limited size of market/limited potential sales • Smaller market segment • Higher price does not match existing brand image for low priced soap Indicative response: SA can sell specialist products that meets these specific customer needs (k) and SA wants to sell soap aimed at people with older skin. (ap) This means that there are likely to be few competitors in this market as it is smaller and less attractive for larger businesses making it easier to have a higher market share and higher profits. (an). As incomes are increasing in country Z, older people will be able to afford this soap. (ap) Possible application marks: Produces soap; existing soap sold in a mass market; bars or liquid soap; new factory/equipment will cost $15m; 50 workers in the new factory; country Z is a growing economy; older skin; luxury soap; baby soap; medicated soap; low priced soap. There may be other examples in context that have not been included here. 1(b) Consider the following three roles of packaging for SA’s new products. 12 Which is the most important role for the successful launch of these new products? Justify your answer. Relevant points might include: Protection • So the soap does not get damaged in transit – however this might increase the costs of packaging • Easier to pack and store the soap in warehouses before sale– however this may take up more storage space Brand image • Makes the soap stand out from other products on the shelves • Differentiates products from competitors’ products • Images on package reinforces brand Information • Legal requirement – government protection for about the consumer product • Customers need to know what is in the soap – may have a physical reaction e.g. allergies or ethical reaction e.g. animal testing Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion as which is the most important role of packaging to choose to successfully launch new products compared to the other roles. 7–8 marks for some limited judgement shown in conclusion as to which is the most important role of packaging to successfully launch new products. Level 2 4–6 marks Detailed discussion of the benefits and/or drawbacks of each role of packaging. Level 1 1–3 marks Outline of the benefits and/or drawbacks of each role of packaging. 1(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Information about the ingredients of the soap is necessary as some people might be allergic to the soap. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Information about the ingredients of the soap is necessary as some people might be allergic to the soap. This might result in a poor reputation for the soap if customers put bad comments on social media about the soap giving them problems. If full information is provided then this should be avoided and only good comments about the soap should be posted. (L2 plus application for making reference to soap in the explanation) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion which is the most important role of packaging to successfully launch new products. Award up to 2 additional marks for relevant application. Possible application marks: produces soap; sold in a mass market; soap sold as bars or liquid soap; bottles; niche market soaps; allergies/allergic reaction; medicated soap; baby soap; soap for older skin; luxury soap; retailers; wholesalers. There may be other examples in context that have not been included here.

More questions on Marketing mix

2 (a) Identify and explain how the following two stakeholder groups might be affected by SA’s plans to expand. Shareholders: ................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Local community: .............................................................................................................. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the following three benefits to SA of having well-motivated employees. Which benefit will be the most important to SA if it wants to increase profit? Justify your answer. Higher output: ................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Fewer employees leaving: ................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Higher quality: ................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 2(a) Identify and explain how the following two stakeholder groups might 8 be affected by SA’s plans to expand. Knowledge [2 × 1] Award one mark for each effect Analysis [2 × 1] Award one mark for a relevant explanation for each effect Application [2 × 2] Award two application marks for each effect Examples might include: Shareholders • Higher dividend if the expansion is successful – may be lower dividend is retailed profit used • They might be asked to provide share capital – $15m required • Change the market price of shares • Increased risk of their investment Local community • Unemployment in the local area might fall/incomes in the local area might rise • More production jobs will be available • May case environmental costs/damage/negative externalities Indicative response: Shareholders – The cost of expansion is $15m (ap) and they might be asked to provide share capital (k). This could reduce the market price of their shares in the soap company (ap) as it will take time for the new investment to lead to higher profits and possibly higher dividends (an). Possible application marks: Plc set up 20 years ago; produces soap; sold in a mass market; start selling niche market soaps; need a new factory/equipment; will cost $15m; 50 workers. There may be other examples in context that have not been included here. 2(b) Consider the following three benefits to SA of having well-motivated 12 employees. Which benefit will be the most important to SA if it wants to increase profit? Justify your answer. Relevant points might include: Higher More products available to sell – likely to increase revenue output – increased profit as costs may not increase proportionately May increase productivity – lower unit/average costs Fewer Happier more satisfied employees less likely to leave for employees another employer – reduces recruitment costs/less need leaving for training of new employees Higher Fewer mistakes made – lower unit costs – improved gross quality profit – higher profits Gives a better reputation with regards to the product – may increase price/more customers attracted Knowledge/Analysis/Evaluation – award up to 10 marks using the levels- based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion of the most important benefit that will lead to higher profit and why it is more important than the other two benefits. 7–8 marks for limited conclusion of the most important benefit. Level 2 4–6 marks Detailed discussion of each benefit. Level 1 1–3 marks Outline of each benefit. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Higher output likely to increase sales Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Higher output of soap is likely to lead to higher sales and may even lead to higher revenue. If costs do not increase in the same proportion as the increase in revenue then profit may also increase enabling SA to pay higher dividends. (L2 plus application for recognising that it is a company producing soap). Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion which justifies which is the most important benefit. 2(b) Award up to 2 additional marks for relevant application. Possible application marks: Produces soap; sold in a mass market; niche market soaps; new factory and equipment that will cost $15m; employs 100 production workers in the current factory; employ 50 workers in the new factory; luxury soap. There may be other examples in context that have not been included here.

3 (a) Identify and explain two ways SA could use lean production in its factory. Way 1: ............................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Way 2: ............................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider three leadership styles the Operations manager could use in the new factory. Recommend which leadership style should be used to improve decision-making. Justify your answer. Leadership style 1: ........................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Leadership style 2: ........................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Leadership style 3: ........................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 3(a) Identify and explain two ways SA could use lean production in its 8 factory. Knowledge [2 × 1] Award one mark for each relevant way Analysis [2 × 1] Award one mark for an explanation for each way Application [2 × 2] Award two application marks for each way • Just-in-time/JIT – inventory arrives at production line when wanted/ no warehousing of inventory • Kaizen – continuous improvement/eliminates waste/ better layout of factory improves flow of production • Cell production – small team working/responsible for complete unit of work • Kanban – inventory arrives at production line only when inventory has been used/reduces the holding of inventory Indicative response: Just-in-time (k) means that inventory is reduced to no or very low levels held in storage. (an) This reduces the need for having warehouse space to hold the ingredients to make soap. (ap) SA will need to have good relationships with its suppliers to ensure that the flow production line is not interrupted by inventory running out. (ap) Possible application marks: Produces soap; sold in a mass market; wants to start selling niche market soaps; employs 100 production workers; flow production; batch production. There may be other examples in context that have not been included here. 3(b) Consider three leadership styles the Operations manager could use in 12 the new factory. Recommend which leadership style should be used to improve decision-making. Justify your answer Relevant points might include: Advantages Disadvantages Autocratic • Clear instructions given • Does not allow worker by manager/quick involvement/one way decision making communication • Less likely to make • May be demotivating for mistakes if clear what to some employees as feel do less involved in the • Some employees like business having no responsibility to make any decisions Democratic • Motivating as workers • More time consuming to feel they can contribute make decisions as time to the decision making taken consulting the • Feel they are being employees before listened to and views decisions made respected/two way communication • May have some good ideas for how to improve the work flow as they are the ones working on the production line Laissez- • Motivating as workers • Some workers will not faire feel in control like this responsibility Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified recommendation as to which leadership style will be most effective in improving decision making and why the other leadership styles will be less effective. 7–8 marks for some limited judgement shown in the recommendation as to which leadership style will be most effective in improving decision making. Level 2 4–6 marks Detailed discussion of the benefits and/or drawbacks of each leadership style. Level 1 1–3 marks Identifies style of leadership and/or identifies features of leadership style Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Autocratic leadership style (L1) – will lead to clear instructions being given by the manager for workers to follow (L1). Level 2 – 1 x L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Autocratic leadership style will lead to clear instructions being given by the manager. This means production workers will always know what to do and know what is expected of them. However, they will not feel they can contribute or make any comments if they feel something could be improved. (L2) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation which leadership style should be used to ensure there is an improvement in decision making. Award up to 2 additional marks for relevant application. Possible application marks: Produces soap; selling niche market soaps; employs 100 production workers in the current factory; 50 workers in the new factory; 150 combined workforce; directors of SA disagree about leadership style; some managers not involved in important decisions; well-motivated employees are important. There may be other examples in context that have not been included here.

4 (a) Identify and explain two opportunities and two threats for businesses in country Z from globalisation. Opportunity 1: ................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... Opportunity 2: ................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... Threat 1: ........................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... Threat 2: ........................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... [8] (b) Using Appendix 3 and other information, consider SA’s financial position, using liquidity ratios. Recommend whether the bank manager should give a loan to SA for the new factory. Justify your answer. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 4(a) Identify and explain two opportunities and two threats for businesses 8 in country Z from globalisation. Award one mark for each opportunity/threat (max 4) plus one additional mark for an explanation of each opportunity/threat Opportunities • New markets – increased revenue • Increased brand awareness • Increased sales –higher profit • Saturated home markets – new markets to develop • Spread risks – over more markets/products • New products developed – for new markets with different tastes • Higher incomes in growing economies – increased disposable income leading to higher sales • Free trade agreements – may allow domestic companies easier access to overseas market/Easier to export • Access to cheaper supplies/cheaper labour – lowers costs Threats • Increased competition in the home market – lose market share – may need to reduce prices • Free trade agreements – may allow foreign companies easier access to domestic market • Jobs lost in industries that cannot compete with cheaper foreign competition • Workers may choose to work for MNC which pays better wages – losing workers • Pressure to increase wage rates due to match MNC pay • Easier for exploitation by MNCs e.g. labour/natural resources • May be more vulnerable to external shocks e.g. recession in main export markets Indicative response: Country Z has signed a trade agreement (1) which provides opportunities for businesses in country Z to sell in new markets abroad and increase revenue (1). 4(b) Using Appendix 3 and other information, consider SA’s financial 12 position, using liquidity ratios. Recommend whether the bank manager should give a loan to SA for the new factory. Justify your answer. Relevant points might include: L2 Liquidity ratios/L2 points • Current ratio = 3:1 (3) in 2018 • Acid test ratio = 1:1 (1) in 2018 • Acid test ratio has stayed the same • Explanation that shows understanding of the meaning/significance of the ratio figures in 2017 and/or 2018 L1 Basic statements • Inventory has increased by $5m between 2017–18 • Bank loan has increased by $10m between 2017–18 • Liquidity formulas • Non-current assets has remained the same • Simple calculations e.g. current assets in 2018 = $15m • Revenue in 2018 for low priced soap is $60m Award up to ten marks using the levels-based mark scheme below. Knowledge/Analysis/ Evaluation Level At least 2 × Level 2 + 3 9–10 marks for well justified recommendation whether or not the bank manager should give a loan to SA for the new factory 7–8 marks for some limited judgement shown in recommendation as to whether the bank manager should give a loan to SA for the new factory Level 4–6 marks 2 Liquidity ratios correctly calculated. Explanation of meaning and significance of liquidity ratios. Level 1–3 marks 1 Outline of financial position without liquidity ratios calculated. Identifies the change in the figures from Appendix 3 Formula for liquidity ratios Makes financial calculation from figures in Appendix 1 4(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. The inventory has increased by $5m (L1) as the inventory was $5m in 2017 and $10m in 2018 (1 × Ap). Level 2 – 1 x L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. The acid test ratio in 2018 is 1:1. (L2) Level 3 – For L3 to be awarded there needs to be at least two correct L2 liquidity calculations and then a recommendation as to whether or not the bank manager should give a loan to SA for the new factory. Award up to 2 additional marks for relevant application. Possible application marks: 2017 current ratio was 2:1; 2017 acid test ratio was 1:1; any other relevant use of financial data from Appendix 3 e.g. bank loan is now $20m; produces soap; new factory and equipment that will cost $15m; 50 workers in the new factory; country Z is a growing economy. There may be other examples in context that have not been included here.