6.1 Ethical and

environmental

considerations

Ethical considerations in

businesses

1 Any four of the following:

● Treatment of workers

● Treatment of suppliers

● Treatment of customers

● Marketing considerations

● Sourcing of materials.

2 By conducting unnecessary tests, the health firms

are treating customers badly. They charge a high price

for tests which are not needed or which may be

inappropriate for the customer. By conducting tests,

they may cause the customer to experience other

health problems, such as anxiety.

Impact of ethical considerations

on businesses

One of the possible benefits to Sports Direct of

improving the way it treats its workers is increased

sales, because customers may now feel more

comfortable buying from it. Employees are likely to be

more motivated, potentially increasing productivity

and therefore lowering costs.

On the other hand, if Sports Direct increases the pay

of its workers its costs might rise and this may mean

the company increases its prices, which could lower

profits. The success of Sports Direct is based on its low

prices, so raising prices might cause it to lose its

competitive advantage in a very crowded market.

Even if Sports Direct makes improvements, they will

not affect all of the workforce because many of the

people who work at Sports Direct are agency workers

not employed directly by the company. Their pay and

hours may be unaffected by improvements made by

Sports Direct, so the costs to Sports Direct may not

increase that much. If Sports Direct gains good

publicity from raising the wages of the non-agency

workers it employs, this will improve its reputation

and increase its sales.

Environmental considerations in

businesses

(a) An environmentally-friendly business will not

produce any waste products at all.

Impact of environmental

considerations on businesses

By allowing raw sewage to be pumped into a river,

Northumbrian Water has been negatively affected.

The company’s costs have risen, it has been fined and

it has had to invest in technology to prevent the

problem happening again.

The bad publicity may have led customers to have a

negative view of the business as they may think the

business should have reinvested profits to improve

the company rather than distribute profits to

shareholders.

There may be a negative effect on shareholders who

may decide they no longer want to be associated with

the business. They may decide to sell their shares and

this could reduce the share price and the value of the

company.

However, it is possible that in the long run this event

may help Northumbrian Water to gain some positive

publicity because it will be able to claim that it has

spent money to become environmentally friendly.

Overall the effect on the company may not be so

great because Northumbrian Water is not in a

competitive market. It is the sole supplier of water

and sewage disposal services in Northumberland, so it

will not have lost sales as customers cannot get their

water or sewage disposal from any other company.

6.2 The economic

climate

The economic climate and its

impact on business

1(b)Rising incomes often lead to an increase in the

sales of luxury goods.

2(a) The difference is explained by the types of

goods that the two businesses sells. Poundland sells

goods at low prices, including many necessities such

as food, toiletries and clothing. Consumers still need

to buy these even though their incomes are falling.

Because their income is reduced, they look for cheap

prices and possibly lower quality goods in order to

save money. Dixons Carphone sells items that might

be considered a luxury, and while for many people a

mobile phone is a necessity, owning the latest model

is not. Buying the latest model of a phone, or

upgrading their computer or TV for example, was

something that consumers could put off in order to

save money while their income was falling.

(b) Dixons Carphone could do the following to

change its marketing to minimise the expected fall in

sales:

● Reduce prices in the hope that this would

persuade more customers to buy and, if enough did

buy, its sales revenue would increase. This would

make new phones, for example, more affordable to

people.

● It could support the price reductions with

advertising to make consumers aware of the price

reductions and to persuade them to buy.

● It could focus on cheaper products by

selling lower quality/lower spec phones rather than

selling the more expensive high-end phones. This

would make a new phone more affordable for those

on a reduced income.

6.3 Globalisation

Concept of globalisation

1 Any two of the following:

● Global sales: Jaguar Land Rover sells its cars

in many different countries around the world

including the UK, other European countries, the USA

and countries in the Far East.

● Global manufacture: The production of cars

involves many different countries. Components come

from different countries and the cars are assembled in

the UK and China.

● Global purchasing: JLR buys services from

different countries around the world, for example,

India.

● Global movement of capital: JLR is owned

by a company in India which has provided capital for

investment.

● Global movement of workers: JLR employs

workers from many different countries around the

world, including the UK, Romania and Australia.

2 Any one of the following:

● Improved communications, such as ICT

communications, have helped JLR to become a global

business. Good communications means JLR can

produce in countries such as China and it can send

designs and discuss quality issues quickly and easily.

● Improvements in shipping has reduced the

cost to JLR of transporting its cars to sell in other

countries. JLR will be able to compete better on price

with cars made by competitors in the countries where

it sells. The development of very large ships helps JLR

to transport a lot of cars from the UK to other

countries.

● Free trade deals mean that JLR can sell cars

in other countries without the importers having to pay

tariffs which would make the cars very expensive. This

means JLR is more able to compete with car makers

who manufacture and sell in their own country who

will not have tariffs on their cars. For example, there

are no tariffs on the sales of Ford cars made in the

USA. A free trade deal with the USA would mean that

there would be no tariffs on JLR cars imported into

the USA.

Impact of globalisation on

businesses

1 Any one of the following:

● Zara can sell its goods in many different

countries – 88 in total. This has increased the size of

its market more than if it only sold in Spain. It means

that it has been able to increase the amount of

clothing that it sells.

● Zara can produce its clothing in different

countries. It can produce the clothes in countries

which have lower costs including lower labour costs.

This means it can sell its goods more cheaply and so

can compete in a very competitive market.

2 Any one of the following:

● Producing in nearby countries improves

communications. It is easy for managers from Zara in

Spain to visit the factories in these countries to show

and explain new designs.

● Being close to factories means that Zara’s

managers can visit to discuss production and sort out

any problems and can also check on quality.

● Ease of communication is one reason why

Zara is able to design and make goods in a short

period of time and change them quickly if the design

needs altering.

3 The needs of customers in different countries will

be different. Zara may find that some of the clothes it

produces are exactly what customers in a certain

country want. Other countries may require slightly

different versions of clothing, so Zara can amend the

designs so that they meet the needs of those

consumers.

4 A rise in the value of the euro would increase the

price of Zara clothing made in Spain and would be

more expensive to import into the UK. The UK Zara

shops might have to increase the price charged for the

clothes which could reduce sales if customers were

unwilling to pay a higher price. Alternatively, the UK

Zara shops might keep the price unchanged so that

sales do not fall. However, this would cause a fall in

the profit made by the shops on each item of clothing

imported from Spain.

Ethics is about right and wrong. An example of an unethical business activity is when a firm buys products made

using child labour. Another unethical practice would be a firm that does not provide its workers with a safe working

environment. A business that sells arms to the rulers of a country who do not give proper human rights to their

citizens may not be ethical. Sometimes it saves a business money by not being ethical. This may be important if the

business is in a very competitive market. Some of the competitors may not be ethical and so they can charge less for

their products. The result might be that the ethical business cannot survive. However, many customers are now

prepared to pay more for products that are sold by ethical producers. Fairtrade is one way of making sure that

suppliers are treated fairly, that they receive a good price.

What is ethical behaviour?

A Advertising worldwide

B Doing the right thing

C Making a profit

D Selling online

Ethical behaviour:

A is a primary market research method

B is a staff training method

C is against the law

D is often popular with customers

Which of the following is an example of ethical behaviour?

A Having a flat organisation structure

B Paying the minimum wage

C Selling goods that are safe

D Treating workers well

For the fashion industry, there are many difficulties in being environmentally friendly. Chemical fertilisers are often used to help to grow cotton. Chemicals are used to dye clothing. Clothing often needs to be transported long distances from where it is made to where it is sold.

Transport uses up fossil fuels and causes C02 emissions

contributing to global warming.

Sustainable production involves making goods and services using recycled resources.

Mark scheme

Question Answer Marks Rationale

1 (c) 1 (a)Incorrect, this is global activity. (b)Correct answer: Ethical behaviour is doing the right thing. (b)Incorrect, although there may be some conflict between high profits

and ethical behaviour. (d)Incorrect, selling online is called ‘e-commerce’.

2 (d) 1 (a)Incorrect, there are lots of primary market research methods, but ‘ethical behaviour’ is not one of them.

(b) Incorrect, a firm should behave ethically when training its staff however this is not the meaning of the concept of ethical behaviour.

(c)Being ethical is not against the law, rather it is doing above and beyond the minimum that the law requires.

(d)Correct answer: Ethical behaviour appeals strongly to modern consumers, and appear to be increasing in popularity.

3 (d) 1 (a) A flat structure removes much of the tiered hierarchy in an organisation, but it does not go hand in hand with ethics.

(b) Paying at least the minimum wage is a legal, rather than an ethical, issue. Paying the minimum wage rather than the living wage suggests that the firm is more likely to be behaving unethically.

(c) Selling safe goods is a legal requirement, rather than an ethical issue.

(d) Correct answer: Treating workers well is an example of ethical behaviour.

4 (d) 1 (a) Procurement is concerned with sourcing supplies. (b)Quality assurance involves procedures being put in place at all stages

of the production process to try and minimise errors.

(c)Quality control involves checking products and services after they have been produced or provided.

(d) Correct answer: Reducing wastage is an environmental concern. 5 (d) 1 (a) This is an example of ethical, rather than environmental, behaviour.

(b)A bank loan is a source of finance which may help a business survive, but this is not the meaning of the word ‘sustainable’ in the environmental sense.

(c)This is an example of external growth. (d) Correct answer: Recycling is a way of preserving the world’s

resources for future generations.

6 (b) 1 (a) Increased costs lead to increased cash outflows, rather than increase cash inflows.

(b) Correct answer: Buying filters will increase business costs. Environmentally friendly behaviour frequently, but not always, increases business costs.

(c)There is no direct link between the reduction of pollution in this example and the level of output, if there is to be any effect on output it is likely to be negative.

(d)Since costs will increase, all things being equal, profits will fall rather than rise.

7 (b) 1 (a) This is ‘employment’, rather than ‘unemployment’. (b) Correct answer: Unemployment measures the number of people

registered and looking for work.

(c) Incorrect, unemployment is a measure of those actively seeking work.

(d)Incorrect, unemployment measures those actively seeking work. 8 (b) 1 (a) A car is a luxury and unlikely to benefit during periods of low income.

(b) Correct answer: A discount supermarket appeals when budgets are low and spending needs to be on essentials.

(c) A jewellers sells expensive gold and silver jewellery, demand is likely to fall when money is tight.

(d)Going to high-class restaurant is an expensive luxury and will be negatively affected by low levels of consumer income.

9 (d) 1 (a)High levels of unemployment mean that consumer spending power will be low, customers will be less willing, rather than more willing, to pay higher prices.

(b)Customers with more leisure time through being unemployed may or may not spend more time looking around the electrical store; however, looking without purchasing is not an advantage to a business.

(c) The retailer is always free to choose how many sales promotions it offers. However, a sales promotion lowers the price charged, so this is not a benefit to the business unless it increases demand, which is unlikely in times of high unemployment.

(d)Correct answer: High levels of unemployment will mean that jobs are scarce and wage rates can be kept low.

10 (c) 1 (a)Diversification involves a significant change in a firm’s product range or market.

(b) Selling online is called e-commerce. (c)Correct answer: Globalisation is the increase of cross-country

trading. (d)Logistics is the organisation of the movement of goods and

resources. 11 (d) 1 (a)Globalisation is likely to lead to more multinational businesses and

more businesses operating internationally. Both of these are likely to increase, rather than reduce, the number of business expanding.

(b)Fair treatment of suppliers is an ethical consideration. (c)Caring for the environment is an environmental consideration. (d)Correct answer: Globalisation encourages businesses to sell across

country borders. 12 (c) 1 (a)Cultural differences should never be ignored, and the increase in

globalisation will increase the need to take cultural differences into account.

(b)This is an impact on a business of globalisation, however it is not a positive one.

(c)Correct answer: Globalisation increases the number of potential customers by including not just national markets but international and global ones.

(d)Globalisation does lead to increased competition, this is a benefit to the customer. However, it has a negative impact on a business.

6.1 Practice questions Multiple choice 1. Which of the following statements is false. a) An ethical business will only employ young children when it needs to save money to survive. b) An ethical business will always pay suppliers on time. c) An ethical business will not exaggerate the benefits to customers of what it sells. d) An ethical business will not buy from a supplier which cuts costs by cutting back on health and safety procedures in its factory. 2. A possible disadvantage of ethical production to a producer is: a) workers may need to be paid a higher wage than offered by competitors leading to higher production costs b) the sales and profits will be increased by charging customers more than a fair price for the product c) being ethical can motivate workers and improve productivity reducing the cost per unit produced d) supplies cannot be bought at lower costs from firms that employ children. 3. Sustainability is: a) production that does not use up scarce resources

b) production that only uses scarce resources c) production that does not produce any waste products d) production that covers the cost of the scarce resources used. 4. A possible disadvantage of sustainable production is: a) it can reduce production costs by using cheaper methods b) it can lead to a higher demand for the business’s products c) production costs may be higher than using non-sustainable methods d) it can mean that the business can claim subsidies from the government. Data response 35 1. Explain why buying ethically produced goods, such as Fairtrade goods, can help farmers in poor countries in the way the extract describes. (2) Possible points include:

The buyer promises to pay a fair price.

The buyer pays a price which guarantees a reasonable income for the farmer – reference to the extract, for example, being able to buy warm clothes for his family.

There may be a multiplier effect in the farmer’s community leading to further economic development – reference to the extract, for example, the provision of medical services. 2 a) Analyse one benefit to Pukka Teas of buying from Fairtrade suppliers. (3) Pukka Teas may be able to:

claim it supports Freetrade suppliers and this can be stressed in publicity materials

improve the image of the company.

increase sales from socially responsible customers.

increase profits as a result of the increase in sales. b) Analyse one disadvantage to Pukka Teas of buying from Fairtrade suppliers. (3) Pukka Teas may:

pay a higher price than from non-free trade producers

see production costs rise

need to raise prices

be dearer than competitors

lose sales

reduce profits. c) Recommend whether Pukka Teas should continue to buy from Fairtrade suppliers. (3) Possible points include:

Pukka Teas has used the fact that it buys from Fairtrade suppliers in its publicity materials which may have created a good image for the company.

The business has survived – the evidence is that it was formed in 2002 and is still trading.

The business has experienced growth – the evidence is that sales are now equal to £9m per year.

It is unclear how much of the success is due to the Fairtrade teas – only ten out of its 37 teas are bought from Fairtrade suppliers. Data response 36 1. Evaluate the benefits to Olleco of producing bio-diesel in the way that it does. (9) Possible advantages to Olleco are (up to 3 marks):

Olleco can claim to be an eco-friendly, socially responsible business.

Olleco is using waste produce as a raw material which may reduce costs.

It can help other businesses to claim that they are eco-friendly by supplying the materials for Olleco to use and buying products from Olleco. This may help to increase their sales and profits. Possible disadvantages (up to 3 marks):

Olleco has had to spend money on research and development.

Olleco has had to invest in new technology/plant which can be expensive.

Olleco may have to charge more for its products than competitors for their products. Evaluative comments include (up to 3 marks):

It has been successful – the evidence is that employment has risen to 550, there are more plants in towns other than Liverpool.

Growth has been rapid – the evidence is the firm was founded only nine years ago.

Olleco is clearly meeting a demand, otherwise it could not continue to trade.

More information is needed about the costs and prices to see how these compare to competitors.

Practice questions

Multiple choice

1. Consumer spending is likely to fall when: a) average incomes rise b) unemployment falls c) the country produces less than it did as measured by GDP

d) immigration rises. 2. In a period of rising income and employment, most businesses can expect:

a) sales to rise

b) prices to fall c) profits to fall d) immigration to fall.

3. When a business loses sales and profits due to a fall in the income of consumers it should:

a) increase the amount it produces b) reduce production costs

c) stop selling the product abroad d) recruit more workers.

Data response 37

1. Analyse one advantage of the way Fitspace operates. (3)

It keeps costs low as it is a no-frills service and so less is spent on facilities and staffing.

It may attract lots of customers as there are lower monthly membership fees and

members are not signing long term contracts.

2. Analyse one disadvantage of the way Fitspace operates. (3)

The no frills service may not be attractive to some customers, so Fitspace may lose sales.

The business may lose revenue from people who might have signed an annual contract

and who stop using the gym after a short period. Also, from charging less than other

gyms charge.

3. Recommend whether or not Fitspace should change the way it operates. (3)

The firm has grown successfully.

It is meeting a demand from customers with lower incomes (who want lower fees and do

not want to be tied in to annual contracts).

It should consider operating a better-quality service with higher fees and annual contracts

in areas where there is little competition.

Current strategy seems to be working. It would be useful to know sales and profit figures

and the growth in these. Making some gyms more expensive and a better-quality service

would be difficult to market.

Data response 38

1. Analyse how Heron Holidays could reduce the costs of providing its holidays. (3)

Make customers provide their own transport to its centres.

Lower the standard of accommodation.

Reduce what is included in the price and start charging for some provision, for example,

evening meals and afternoon teas.

Introduce an online booking system reducing staffing costs.

It could reduce the number of walking leaders and have larger groups.

2. Analyse how Heron Holidays might change its marketing in response to the fall in consumer incomes. (3)

It could reduce marketing to reduce costs.

It could increase its prices.

It could start to provide better accommodation and services to attract higher income

customers (or reduce the provision).

3. Recommend which of these strategies Heron Holidays should use to respond to the fall in consumer incomes. (3)

The strategy will depend on how much incomes are falling and are expected to fall.

Heron Holidays may find that it can cut some costs and its prices and still attract

sufficient customers. It also depends on what competitors are doing. If competitors are

going down-market, it may be that Heron Holidays should continue with its existing

provision in the hope of winning from their competitor’s customers whose incomes have

not fallen.

6.3 Practice Questions 1. Which statement about globalisation is not correct?

a) Globalisation involves the movement of people from abroad coming to live and work in the UK and people from the UK going to live and work abroad. b) Globalisation includes the activities of multi-national businesses that operate in different countries. c) Globalisation involves trade between two UK businesses based in the UK. d) Globalisation can involve a bank in one country lending money to a business in another country.

2. A UK manufacturer has decided to export a fruit juice that it produces to a country in Africa. Which of the following is not an important consideration when branding the fruit juice?

a) The amount of the fruit juice drunk in the UK. b) The name it chooses for the product. c) The income of the people in the country it decides to export to. d) The language the people speak in the country.

3. Which of the following is not an advantage to a business of being a multinational company.

a) It can sell in different markets and so spread risk. b) It can produce in different countries in the world to minimize costs of production. c) It may be able to minimize the taxes it pays on its profits depending on where it locates its headquarters. d) It is easier to manage businesses that operate in different countries.

Data response 39 1 a) Analyse two possible advantages Symington’s Ltd may have gained by moving production of its Golden Wonder pot noodles to China. (4)

Reduced costs of production – cheaper labour than in the UK.

Reduced costs of production – cheaper land than in the UK

It may find it easier to recruit the workers it needs, especially if there are shortages in the UK.

1 b) Analyse two possible benefits to Symington’s of moving production of its Golden Wonder pot noodles back to the UK. (4)

Can claim the goods are made in the UK – a marketing advantage which may increase sales.

The UK has a skilled labour supply and Symington’s may find it easier to recruit the skilled workers it needs in the UK than abroad.

It is easier to communicate as workers will be more likely to speak English in the UK and it will be easier for managers to visit its factories and customers.

It is easier to monitor production, for example, for quality, as the factory is in the UK so long distance travel and communication is not needed and inspections are easier.

1 c) Discuss the factors which will influence whether or not a business will produce in the UK or abroad. (4)

Costs in China and the UK. Are Chinese wages rising as its economy grows reducing the cost advantage of producing in China? A similar thing may happen with land costs and the cost of renting/leasing factory space. Wage and leasing costs may not be rising as much as in China, making cost savings less significant.

Are there appropriate workers – skilled and/or unskilled – available in China and in the UK?

The importance customers place on ‘made in UK’ and thus the marketing advantages to be gained by moving back to the UK.

How good quality control has been in China – are there issues, will it be easier to assure quality if production takes place in the UK?

Comparing the costs and benefits in the context of Symingtons will be key. One approach will be to introduce ‘it depends’ statements, for example, it depends on wage costs in China compared with those in the UK.

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